SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended September 30, 1996.
Commission File Number 0-15708
HANDY HARDWARE WHOLESALE, INC.
(Exact name of Registrant as specified in its charter)
TEXAS 74-1381875
(State of incorporation) (I.R.S. Employer
Identification No.)
8300 Tewantin Drive, Houston, Texas 77061
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number: (713) 644-1495
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- -----------
The number of shares outstanding of each of the Registrant's classes of common
stock as of September 30, 1996, was 8240 shares of Class A Common Stock, $100
par value, and 46,846 shares of Class B Common Stock, $100 par value.
Page # 1 of 24 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
INDEX
PART I Financial Information Page No.
Item 1. Financial Statements
Condensed Balance Sheet-September 30, 1996
and December 31, 1995....................... 3 - 4
Condensed Statement of Income - Nine Months
Ended September 30, 1996 and 1995... 5
Condensed Statement of Cash Flows - Nine Months
Ended September 30, 1996 and 1995.......... 6 - 7
Notes to Condensed Financial Statements........ 8 - 12
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations...........13 - 22
PART II Other Information
Items 1. - 6. 23
Signatures 24
Page # 2 of 24 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,782,227 $ 1,266,915
Accounts Receivable, net of 9,241,313 6,564,773
subscriptions receivable in
the amount of $67,088 for 1996
and $34,316 for 1995
Inventory 13,941,220 10,455,070
Other Current Assets 375,459 320,271
----------- -----------
$25,340,219 $18,607,029
----------- -----------
PROPERTY, PLANT AND EQUIPMENT (Note 2)
At Cost Less Accumulated Depreciation
of $3,733,344(1996) and $3,124,646 (1995) $ 9,539,676 $ 9,787,350
----------- -----------
OTHER ASSETS
Notes Receivable (Note 3) $ 105,843 $ 109,483
Deferred Compensation Funded 214,384 214,384
Other Noncurrent Assets 0 62,781
----------- -----------
$ 320,227 $ 386,648
----------- -----------
TOTAL ASSETS $35,200,122 $28,781,027
- ------------ =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Mortgage Payable $ 0 $ 308,204
Notes Payable-Capital Lease 65,482 92,783
Accounts Payable - Trade 15,155,945 9,519,737
Other Current Liabilities 1,439,644 914,833
Current Deferred Income Taxes
Payable(Note 5) 38,681 0
------------ -----------
$16,699,752 $10,835,557
----------- -----------
NONCURRENT LIABILITIES
Notes Payable-Line of Credit $ 2,204,908 $ 0
Mortgage Payable 0 2,515,102
Notes Payable-Stock(Note 4) 214,450 176,810
Notes Payable-Capital Lease 141,609 169,126
Notes Payable-Vendor 105,844 108,013
Deferred Compensation Payable 214,384 214,384
Deferred Income Taxes Payable
(Note 5) 294,876 314,410
----------- -----------
$ 3,176,071 $ 3,497,845
----------- -----------
TOTAL LIABILITIES $19,875,823 $14,333,402
- ----------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
Page # 3 of 24 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
STOCKHOLDERS' EQUITY
Common Stock, Class A,
authorized 20,000 shares, $100
par value per share, issued
8,460 & 7,960 shares $ 846,000 $ 796,000
Common Stock, Class B,
authorized 100,000 shares, $100
par value per share, issued
47,546 & 43,149 shares 4,754,600 4,314,900
Common Stock, Class B
Subscribed 4,115.44 & 3,915.35
shares 411,544 391,535
Less Subscription Receivable (33,544) (17,158)
Preferred Stock 10% Cumulative,
authorized 100,000 shares, $100
par value per share, issued
50,137.50 & 45,634.50 shares 5,013,750 4,563,450
Preferred Stock, Subscribed
4,115.44 & 3,915.35 411,544 391,535
Less Subscription Receivable (33,544) (17,158)
Paid in Surplus 286,951 280,277
----------- -----------
$11,657,301 $10,703,381
Less: Cost of Treasury Stock
1,760.75 & -0- shares 176,075 -0-
----------- -----------
$11,481,226 $10,703,381
Retained Earnings 3,843,073 3,744,244
----------- -----------
Total Stockholders' Equity $15,324,300 $14,447,625
----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $35,200,122 $28,781,027
-------------------- =========== ===========
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
Page # 4 of 24 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
ENDED SEPT. 30, ENDED SEPT. 30,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME
Net Sales $29,042,616 $31,011,952 $90,588,740 $90,110,220
Sundry Income 136,761 139,510 416,249 417,369
----------- ----------- ----------- -----------
TOTAL INCOME $29,179,377 $31,151,462 $91,004,989 $90,527,589
- ------------ ----------- ----------- ----------- -----------
EXPENSE
Net Mat'l. Costs $25,908,048 $27,991,499 $80,624,996 $80,442,240
Payroll Costs 1,527,951 1,477,781 4,454,900 4,424,676
Other Operating
Costs 1,516,645 1,531,404 4,819,867 4,680,727
Interest Expense 40,700 57,772 150,487 175,528
----------- ----------- ----------- -----------
TOTAL EXPENSE $28,993,344 $31,058,456 $90,050,250 $89,723,171
- ------------- ----------- ----------- ----------- -----------
INCOME BEFORE
PROVISIONS FOR
ESTIMATED FEDERAL
INCOME TAX $ 186,033 $ 93,006 $ 954,739 $ 804,418
- ----------
PROVISIONS FOR
ESTIMATED FEDERAL
INCOME TAX (Note 5) (68,071) (35,843) (340,881) (288,636)
- ------------------ ----------- ----------- ----------- -----------
NET INCOME $ 117,962 $ 57,163 $ 613,858 $ 515,782
- ----------
LESS ACCRUAL FOR
DIVIDENDS ON
PREFERRED STOCK $ (128,757) $ (100,289) $ (386,271) $ (300,866)
- --------------- ----------- ----------- ----------- -----------
NET INCOME
APPLICABLE
TO COMMON
STOCKHOLDERS $ (10,795) $ (43,126) $ 227,587 $ 214,916
- ------------ =========== =========== =========== ===========
EARNINGS PER
SHARE OF
COMMON STOCK,
CLASS A &
CLASS B (Note 1) $ (0.18) $ (0.80) $ 4.03 $ 4.06
- --------------- =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
Page # 5 of 24 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITY
Net Income $ 613,858 $ 515,782
----------- -----------
Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities:
Depreciation $ 664,472 $ 670,123
Increase in Deferred
Income Tax 19,147 58,974
Changes in Assets and Liabilities
Increase in Accounts Receivable (2,676,540) (4,463,739)
(Increase) Decrease in Notes Receivable 3,640 (33,876)
Increase in Inventory (3,486,150) (294,695)
(Increase) Decrease in Other Assets 7,593 (137,447)
Increase (Decrease) in Notes Payable -Vendor (2,169) 34,293
Increase in Accounts Payable 5,636,208 7,489,038
Increase in Other Liabilities 524,811 534,252
----------- -----------
TOTAL ADJUSTMENTS $ 691,012 $ 3,856,923
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 1,304,870 $ 4,372,705
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures $ (416,798) $ (3,258,272)
Disposition of Fixed Assets -0- 2,325
----------- ------------
NET CASH USED FOR
INVESTING ACTIVITIES $ (416,798) $ (3,255,947)
----------- ------------
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
Page # 6 of 24 Pages
<PAGE>
STATEMENT OF CASH FLOWS (UNAUDITED) Cont.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30,
-------------------------------
1996 1995
----------- ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Note Payable-Line of Credit $ 2,204,908 $ -0-
Decrease in Mortgage Payable (2,823,306) (231,154)
Increase in Notes Payable-Stock 37,640 25,000
Increase (Decrease)in Notes Payable-Capital Lease (54,818) 42,241
Increase in Subscription Receivable (32,772) (17,816)
Proceeds From Issuance of Stock 986,692 1,018,209
Purchase of Treasury Stock (176,075) (417,150)
Dividends Paid (515,029) (401,155)
----------- ------------
NET CASH (USED FOR) PROVIDED BY
FINANCING ACTIVITIES $ (372,760) $ 18,175
----------- ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ 515,312 $ 1,134,933
CASH & CASH EQUIVALENTS AT 1,266,915 688,935
BEGINNING OF PERIOD ----------- ------------
CASH & CASH EQUIVALENTS AT END OF $ 1,782,227 $ 1,823,868
PERIOD =========== ============
Additional Related Disclosures to the Statement of Cash Flows
Interest Expense Paid $ 150,487 $ 175,528
Income Taxes Paid 397,980 370,010
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
Page # 7 of 24 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
(1) General Information-
The condensed consolidated financial statements included herein have
been prepared by Handy Hardware Wholesale, Inc. (the "Company"). The
financial statements reflect all adjustments, which were all of a
recurring nature, which are, in the opinion of management, necessary
for a fair presentation. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission
(SEC). The Company believes that the disclosures made are adequate to
make the information presented not misleading. The condensed
consolidated financial statements should be read in conjunction with
the audited financial statements and the notes thereto included in the
latest Form 10-K Annual Report.
(2) Earnings Per Share -
Earnings per common share (Class A and Class B Combined) are based on
the weighted average number of shares outstanding in each period after
giving effect to the stock issued, stock subscribed, accrued dividends
on preferred stock, and treasury stock as set forth by Accounting
Principles Board Opinion No. 15 as follows:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPT. 30, SEPT. 30,
------------------------------ ------------------------------
1996 1995 1996 1995
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Calculation of Earnings Per Share
of Common Stock
Net Income $ 117,962 $ 57,163 $ 613,858 $ 515,782
Less: Accrued Dividends
on Preferred Stock (128,757) (100,289) (386,271) (300,866)
----------- ---------- ------------ -----------
$ (10,795) $ (43,126) $ 227,587 $ 214,916
Weighted Average
Shares of Common Stock
(Class A & Class B)
outstanding 58,680 53,985 56,483 52,980
Income (Loss) Per Share
of Common Stock $ (0.18) $ (0.80) $ 4.03 $ 4.06
=========== ========== ============ ===========
</TABLE>
Page # 8 of 24 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(3) Revenue Recognition
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. Accordingly, revenues
and expenses are accounted for using the accrual basis of accounting.
Under this method of accounting, revenues are recognized when a
receivable exists and expenses are recognized when the liability is
incurred.
(4) Accounting for Dividends on Preferred Stock
The Company pays dividends on Preferred Stock during the first quarter
of each fiscal year. Only holders of Preferred Stock on the record date
for the payment of the dividend are entitled to receive dividends.
Dividends are prorated for the portion of the twelve-month period
ending January 31, during which the Preferred Stock was held.
Because the Company is unable to anticipate the amount of the Preferred
Stock dividends, it does not accrue a liability for the payment of
those dividends on its balance sheet. To more properly reflect income,
however, on the Condensed Statement of Income included herein, the
Company has accrued an estimated portion of the dividends to be paid in
the first quarter of 1997 based on the dividends paid in the first
quarter of 1996.
When dividends on Preferred Stock are actually paid, there is a
reduction of retained earnings. Retained earnings on the Condensed
Balance Sheet for the nine months ended September 30, 1996, contained
herein, therefore, are net of dividends actually paid during the first
quarter of 1996 in the amount of $515,029.
NOTE 2 - PROPERTY, PLANT & EQUIPMENT
Property, Plant & Equipment Consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ -----------
<S> <C> <C>
Land $ 2,027,797 $ 2,027,797
Building & Improvements 7,479,697 7,450,391
Furniture, Computer, Warehouse 3,266,351 2,960,102
Transportation Equipment 499,175 473,706
------------ -----------
$ 13,273,020 $12,911,996
Less: Accumulated Depreciation (3,733,344) (3,124,646)
------------ -----------
$ 9,539,676 $ 9,787,350
============ ===========
</TABLE>
Page # 9 of 24 Pages
<PAGE>
NOTE 3 - NOTES RECEIVABLE
<TABLE>
<CAPTION>
CURRENT PORTION NONCURRENT PORTION
---------------------------- ---------------------------
SEPT. 30, DEC. 31, SEPT. 30, DEC. 31,
DEBTOR COLLATERAL 1996 1995 1996 1995
- ---------------------------- ---------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Alamo Heights Hdwe. - $ -0- $ -0- $ 5,893 $ 5,893
Breed & Co., Inc. - -0- -0- 3,090 3,089
Broadway Hdwe. - -0- -0- 21,333 21,333
Casey's Supply - -0- -0- 1,303 -0-
Commerce Hdwe. - -0- -0- 3,053 -0-
Decatur Hdwe. - -0- -0- 2,340 2,340
Doug Ashy Bldg. Mt'l - -0- -0- 1,912 1,912
Grandbury Farm
& Ranch - -0- -0- 1,219 1,219
Handyman Hdwe. - -0- -0- 13,l65 13,165
Hwy. 6 Ace Home Ctr. - -0- -0- 5,446 5,446
Island Hdwe. - -0- -0- -0- 2,807
J & B Auto Supply & Hdwe. - -0- -0- 2,171 2,171
Jackson Hdwe.
& Supply Co. - -0- -0- 2,297 2,297
Karl Obst Feed Sales - -0- -0- 825 -0-
Katy Mason Hdwe. - -0- -0- -0- 3,427
Kilgore Hdwe. - -0- -0- -0- 3,556
King Feed & Hdwe. - -0- -0- 4,255 4,255
Liberty Auto Parts & Hdwe. - -0- -0- 2,880 2,880
Marchand's Inc. - -0- -0- 2,830 2,830
Mardis Auto Parts & Hdwe. - -0- -0- 2,619 2,619
Max Squires - -0- -0- -0- 1,471
Mike's Hdwe. - -0- -0- 1,511 1,511
Overall Lumber - -0- -0- 3,362 3,362
A. Peterson Co. - -0- -0- 1,992 -0-
Pitts Hdwe. - -0- -0- 1,772 1,772
RBC Hdwe. - -0- -0- -0- 2,549
Rusty's Plumbing & Hdwe. - -0- -0- 1,291 -0-
Sawyer Brothers Hdwe. - -0- -0- 4,840 4,840
Sealy Ace Hdwe. - -0- -0- 4,920 4,920
Stifer Lbr. - -0- -0- 3,087 3,087
Trahan Hdwe. - -0- -0- 1,372 1,372
Wagner Hdwe. - -0- -0- 3,360 3,360
Wichita Hdwe. - -0- -0- 1,705 -0-
----- ------ -------- --------
$ -0- $ -0- $105,843 $109,483
===== ====== ======== ========
</TABLE>
The notes reflected in the above table (except the note due from Max Squires)
reflect amounts due to the Company from its Member-Dealers under a deferred
payment agreement with the Company. Under this agreement, the Company supplies
MemberDealers with an initial order of General Electric lamps. The payment for
this order is deferred so long as the Member-Dealer continues to purchase
General Electric lamps through the Company. If a Member-Dealer ceases to
purchase lamp inventory or sells or closes his business, then General Electric
bills the Company for the Member-Dealer's initial order and the note becomes
immediately due and payable in full to the Company.
Page #10 of 24 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - NOTES PAYABLE - STOCK
<TABLE>
<CAPTION>
CURRENT PORTION NONCURRENT PORTION
----------------------- -------------------------
INTEREST MATURITY SEPT. 30, DEC. 31, SEPT. 30, DEC. 31,
-------- -------- -------- ------- -------- --------
PAYEE RATE COLLATERAL DATE 1996 1995 1996 1995
- ------------------ ----- ---------- ---- ----- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Alamo Lbr. Co. 6.25% None 2000 $ -0- $ -0- $ 3,000 $ 3,000
Arlington Hdwe. 6.25% None 2000 -0- -0- 56,400 56,400
Beere Hdwe. 6.00% None 1997 -0- -0- 1,100 1,100
Cleveland Hdwe. 6.00% None 1997 -0- -0- 21,760 21,760
Community Hdwe. 6.25% None 2000 -0- -0- 6,400 6,400
Company Store 6.25% None 2000 -0- -0- 9,600 9,600
Cypress Creek
Hdwe. 6.25% None 2001 -0- -0- 14,400 -0-
D.A.D.S.
Whsle.,Inc. 6.25% None 2000 -0- -0- 5,000 5,000
Dan's Home Ctr. 6.00% None 1999 -0- -0- 8,600 8,600
Eagle Lake Farm &
Home Supply 6.25% None 2001 -0- -0- 9,000 -0-
Gulfway Lbr. Co. 6.25% None 2000 -0- -0- 12,800 12,800
Hawkins Hdwe. 6.00% None 1999 -0- -0- 2,150 2,150
Hometown Hdwe. 6.00% None 1997 -0- -0- 1,000 1,000
J & B Builders 6.00% None 1998 -0- -0- 7,000 7,000
Ken's Hdwe. 6.00% None 1999 -0- -0- 5,000 5,000
King Copeland 6.25% None 2001 -0- -0- 14,240 -0-
Patterson Hdwe. 6.00% None 1999 -0- -0- 12,000 12,000
Rockdale Bldg.
Ctr. 6.25% None 2000 -0- -0- 3,000 3,000
Space City Hdwe. 6.00% None 1999 -0- -0- 9,000 9,000
Swan Lake Hdwe. 6.25% None 2000 -0- -0- 5,000 5,000
Yeager Hdwe. 6.00% None 1999 -0- -0- 2,000 2,000
Yeager Hdwe. 7.00% None 2000 -0- -0- 6,000 6,000
---- ---- -------- --------
$-0- $-0- $214,450 $176,810
==== ==== ======== ========
</TABLE>
The five-year, interest-bearing notes listed in the above table reflect amounts
due from the Company to former Member-Dealers for the Company's repurchase of
shares of Company stock owned by these former Member-Dealers. According to the
terms of the note, only interest is paid on the outstanding balance of the note
during the first four years. In the fifth year, both interest and principal are
paid.
Principal payments due over the next five years are as follows:
1996 $ -0-
1997 $ 23,860
1998 $ 7,000
1999 $ 38,750
2000 $ 111,200
---------
$ 176,810
=========
Page #11 of 24 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INCOME TAXES
The Company adopted FASB Statement No. 109, "Accounting for Income Taxes,"
effective January 1, 1993, on a prospective basis. The major categories of
deferred income tax provisions are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Excess of tax over book depreciation $ 1,321,295 $ 1,313,050
Inventory - Ending inventory adjustment
for tax recognition of Sec. 263A
Uniform Capitalization Costs (150,491) (208,561)
Deferred Compensation (189,754) (179,754)
----------- -----------
Total $ 981,050 $ 924,735
Statutory Tax Rate 34% 34%
----------- -----------
Cumulative Deferred Income Tax Payable $ 333,557 $ 314,410
=========== ===========
Classified as:
Current Liability $ 38,681 $ -0-
Noncurrent Liability 294,876 314,410
----------- -----------
$ 333,557 $ 314,410
=========== ===========
</TABLE>
Reconciliation of income taxes on the difference between tax and financial
accounting is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
----------- -----------
<S> <C> <C>
Principal components of income tax expense
Federal:
Current
Income tax paid $ 290,902 $ 369,811
Carry-over of prepayment from
prior year 107,078 93,583
Refund received for overpayment
from prior year -0- (93,377)
----------- -----------
$ 397,980 $ 370,017
Federal Income Tax Payable (Receivable) (76,246) (140,355)
Carry-over to subsequent year -0- -0-
----------- -----------
Income tax for tax reporting
at statutory rate of 34% $ 321,734 $ 229,662
Deferred
Adjustments for financial reporting:
Depreciation 2,803 69,570
263A Uniform Capitalization Costs 19,744 (7,196)
Other (3,400) (3,400)
----------- -----------
Provision for federal income tax $ 340,881 $ 288,636
=========== ===========
</TABLE>
Page #12 of 24 Pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The most significant factor affecting the Company's results of operations for
the third quarter and first nine months of 1996 was the timing of the Company's
semiannual trade show. The Company's fall trade show, which is normally held in
August, was held in mid-September in 1996. Because the fall trade show was held
near the end of the third quarter in 1996, a large portion of the sales from the
fall trade show was not recognized in the third quarter. Inasmuch as fall trade
show sales have historically accounted for approximately 23 percent of third
quarter sales and 6 percent of year-to-date sales, the timing of this event in
mid-September had a significant impact on sales performance for both periods.
Historically, over 60 percent of the sales generated from the trade show have
been direct shipment sales, which have no markup. As a result, gross margin and
net income were actually positively affected by the timing of the fall trade
show.
During the third quarter of 1996, total sales were 6.4 percent lower than during
the same quarter of 1995. For the first nine months of 1996, sales increased by
0.5 percent over the same period of 1995. Since the beginning of the fourth
quarter of 1995, retail sales have been suppressed by high consumer debt.
Additional factors that have suppressed sales include an unusually late spring,
significantly lower than normal rainfall and continued competitive pressure from
retail warehouses, particularly in the Houston and Dallas territories. These
factors, in addition to the timing difference in recognition of fall market
sales, have resulted in lower or no sales growth in most territories other than
the Central Texas and Oklahoma regions. In addition, sales in the Rio Grande
Valley area continue to be negatively effected by the monetary and political
unrest in Mexico. Sales in the Austin, Brenham and Central Texas territory and
the Oklahoma territory, however, showed significant increases of 14 percent and
20 percent, respectively, during the first nine months of 1996 over the first
nine months of 1995. These increases have resulted primarily from increased
marketing efforts by Company employees in those territories. The Company
believes that an increase in promotional sales activities and inventory
available for orders, plus low-cost dealer buying programs were also important
elements of the Company's sales growth in these territories.
Page #13 of 24 Pages
<PAGE>
Sales. The following table compares the Company's sales during the
first nine months of 1996 to sales during the same period of 1995, by sales
territory:
<TABLE>
<CAPTION>
Nine Months Nine Months
1996 1995
------------------------------------------- -------------------------------
% Increase
in Sales
From Nine % of % of
Month Total Total
Sales Territory Sales 1995 Sales Sales Sales
- --------------- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
Houston Area $23,383,353 0% 26.0% $23,435,837 26.4%
Victoria, San Antonio,
Corpus Christi & Rio Grande
Valley Area* 16,228,936 -5% 18.0% 17,084,539 19.3%
North Texas, Dallas
& Fort Worth Area 13,415,412 -7% 14.9% 14,451,939 16.3%
Austin, Brenham & Central
Texas Area 10,121,715 14% 11.2% 8,854,646 10.0%
Southern Louisiana Area 10,413,987 7% 11.6% 9,727,655 11.0%
Baton Rouge, New Orleans,
Mississippi, Alabama &
Florida Area 8,401,090 5% 9.3% 7,986,018 9.0%
Arkansas Area 2,531,105 6% 2.8% 2,398,485 2.7%
Oklahoma Area 5,589,250 20% 6.2% 4,655,646 5.3%
----------- ------ ----------- ------
Totals: $90,084,848 (1) 100.0% $88,594,765 (1) 100.0%
=========== ====== =========== ======
</TABLE>
* Includes sales to Mexico dealers and one Central American dealer
(1) Total does not include sales to dealers who were no longer Member-
Dealers at the end of period.
Page #14 of 24 Pages
<PAGE>
Net Material Costs and Rebates. Net material costs (net of purchase
discounts and rebates) for the third quarter and the first nine months of 1996
were $25,908,048 and $80,624,996, respectively, compared to $27,991,499 and
$80,442,240, respectively, for the same periods of 1995. Net material costs as a
percentage of sales remained relatively stable in the first nine months of 1996
as compared to the same period of 1995 at approximately 89 percent. This
relative stability for the first nine months of 1996 and 1995 is supported, in
part, by the relative stability of purchase discounts and factory rebates as a
percentage of net material costs. Both were taken by the Company as credits
against material costs. Purchase discounts during the first nine months of 1996
were $1,981,651 (2.5% of material costs) as compared to $1,737,018 (2.2% of
material costs) during the same period of 1995. Factory rebates during the same
two periods were $2,986,080 (3.7% of material costs) and $2,818,394 (3.5% of
material costs), respectively.
Net material costs as a percentage of sales were 89.2 percent in the third
quarter of 1996 as compared to 90.3 percent for the same period of 1995. Net
material costs for the third quarter of 1996 decreased 7.4 percent which is
greater than the 6.4 percent decrease in sales. The slightly lower net material
cost as a percentage of sales for the third quarter of 1996 over the same period
of 1995 is the result of an increase in purchase discounts and rebates as a
percentage of net material costs. These increases were due to timing of payments
made to and rebates received from manufacturers. In the third quarter of 1996,
$681,182 of purchase discounts was recognized (2.6% of net material costs) as
compared to $436,549 (1.6% of net material costs) for the same period of 1995.
Third quarter 1996 rebates were $1,002,209 (3.9% of net material costs) as
compared to third quarter 1995 rebates of $850,422 (3.0% of net material costs.)
Payroll Costs. Payroll costs during the third quarter and nine months ended
September 30, 1996, were $1,527,951 and $4,454,900 respectively, as compared to
$1,477,781 and $4,424,676 for the same periods of 1995. Payroll costs accounted
for 4.9 percent of both sales and total expenses for the first nine months of
both 1996 and 1995. Payroll expense for the first nine months of 1996 declined
over the same period of 1995 by $30,224, a decrease of 0.7 percent. This decline
was a result of a 27.0 percent decrease in overtime payroll ($283,948 in the
first nine months of 1996 as compared to $388,869 in the first nine months of
1995) offset by (i) a 2.4 percent increase in the number of employees (251 in
the first nine months of 1996 as compared to 245 in the first nine months of
1995),(ii) regular salary increases and (iii) an 8.11 percent increase ($64,686)
in delivery payroll.
Page #15 of 24 Pages
<PAGE>
The decline in overtime payroll during the first nine months of 1996 over the
same period of 1995 reflects a return to normal operations in 1996 after the
completion of the warehouse expansion project. During 1995, due to the lack of
adequate storage space for inventory, the Company was forced to lease additional
warehouse space in an offsite facility. The lack of proximity of the additional
space to the offices of the Company resulted in an increase in payroll costs.
This has been remedied with the addition of 97,000 square feet of storage space
in the Company's warehouse. Delivery payroll increased as a result of an
increase in the number of Member-Dealers, an increase in the number of delivery
routes, and an increase in the miles traveled as the Company's selling territory
continued to expand.
During the third quarter of 1996, payroll costs increased by 3.4 percent due to
regular salary increases. Payroll costs for the third quarter of 1996
constituted 5.3 percent of both net sales and total expenses, compared to 4.8
percent for the same quarter of 1995.
Other Operating Costs. During the third quarter and for the first nine
months of 1996, other operating costs declined 1.0 percent and increased 3.0
percent, respectively, compared to the same periods of 1995. Other operating
expenses for the third quarter of 1996 were $1,516,645 (5.2% of sales) as
compared to $1,531,404 (4.9% of sales) for the same period of 1995. For the
nine-month period ending September 30, 1996, other operating expenses were
$4,819,867 (5.3% of sales) as compared to $4,680,727 of these expenses for the
same period of 1995 (5.2% of sales).
The increase in other operating costs for the first nine months of 1996 over the
same period of 1995 was the result of increased accruals for employee benefits
and property taxes and an increase in franchise tax. In the fourth quarter of
1995, the Harris County Appraisal District ("HCAD") notified the Company that,
as a result of a clerical error regarding the size of the Company's warehouse,
the Company's real property was undervalued. Following a hearing with the HCAD,
the value of the Company's real property was increased from approximately $1.1
million to approximately $3.5 million for the years 1991 through 1995. In April
1996, the Company filed a lawsuit against HCAD and the Harris County Appraisal
Review Board contesting their authority to increase the appraised value of the
property. The lawsuit is based, in part, on the fact that the Company's property
was correctly described on the appraisal roll for each of years 1991 through
1995. Pending the outcome of this lawsuit, however, the Company paid the
additional property taxes due for the years 1992 through 1995 in April of 1996
based on the $3.5 million appraisal.
Page #16 of 24 Pages
<PAGE>
In September 1996, the Company received a summary judgment reducing its 1991
property value by $2,532,000, generating a tax savings of approximately $60,000.
A summary judgment, however, was denied for property values in years 1992
through 1995. The Company will continue seeking tax relief for those periods. In
addition, the Company's property valuation for 1996 increased from $16 per
square foot (1995) to $19.95 per square foot. The Company is also protesting the
1996 property valuation for 1996 based, in part, on the fact that property
values in the surrounding area ranged from $11 per square foot to $18.36 per
square foot. Subsequent to the filing of the lawsuit, HCAD agreed to lower the
Company's 1996 property value to $17 per square foot. Based on this agreement,
1996 property taxes are projected to be $497,000, which results in a reduction
of $24,000 from prior estimates.
Net Income and Earnings Per Share. While net sales for the third quarter of
1996 declined $1,969,336 (6.4 percent) and net material costs declined
$2,083,451 (7.4 percent) over the third quarter in 1995, gross margin increased
3.8 percent. As a result, pretax net income doubled from $93,006 for the third
quarter of 1995 to $186,033 for the same period of 1996, while after-tax net
income more than doubled. Pretax net income increased 18.9 percent from $804,418
for the first nine months of 1995 to $954,739, during the same period of 1996.
After-tax net income for the first nine months of 1996 increased 19.0 percent
over the same period of 1995.
Net income in the third quarter and first nine months of 1996 increased
primarily due to two factors. First, the Company's fall trade show, which was
held later than usual in the third quarter of 1996, resulted in a decline in
direct sales as a percentage of total sales. Secondly, the Company was able to
generate a larger percentage of purchase discounts and rebates during the third
quarter and for the first nine months of 1996 than in the corresponding periods
in 1995. Furthermore, gross margin as a percentage of sales was 10.8 percent in
the third quarter of 1996 as compared to 9.7 percent during the same period of
1995. For the first nine months of 1996 and 1995, gross margin as a percentage
of sales was 11.0 percent and 10.7 percent, respectively. The Company
anticipates that as a result of the fall trade show being held later in the
third quarter of 1996, sales and trade payables for the fourth quarter of 1996
will be more than sales and trade payables for the same period of 1995 and gross
margins and, therefore, net income will be less than gross margins and net
income for the same period of 1995.
The increase in the Company's earning per share in the third quarter of 1996 as
compared to the same period of 1995 was due to an increase in 1996 net income.
Earnings per share for the first nine months of 1996 and 1995 were relatively
flat due to an increase in 1996 earnings offset by an increase in shares
outstanding.
Page #17 of 24 Pages
<PAGE>
Quarter-to-quarter variations in the Company's earnings per share reflect (in
addition to the factors discussed above) the Company's pricing of its
merchandise in order to deliver the lowest cost buying program for
Member-Dealers (who own all of the stock of the Company), even though this often
results in lower net income for the Company. Because these trends benefit the
individual stockholders of the Company who purchase its merchandise, there is no
demand from shareholders that the Company focus greater attention upon earnings
per share.
Seasonality. The Company's quarterly net income traditionally has been
subject to two primary factors. First and third quarter earnings have been
negatively affected by the increased level of direct sales (with no markup)
resulting from the Company's semiannual trade show always held in the first and
third quarters. Secondly, sales during the fourth quarter have traditionally
been lower, as hardware sales are slowest during the winter months preceding
ordering for significant sales for the spring. However, net income has varied
substantially from year to year in the fourth quarter as a result of corrections
to inventory made at year-end. Net income for the third quarter, which in the
past has been one of the Company's weaker quarters, was positively affected in
1996 because of the Company's trade show being held later than usual in the
third quarter of 1996. As a result, direct sales as a percentage of total sales
declined in the third quarter having a positive effect on net earnings. The
Company anticipates that the higher than usual percentage of direct sales in the
fourth quarter will, however, produce a downward trend in fourth quarter
earnings.
LIQUIDITY AND CAPITAL RESOURCES
During the period ending September 30, 1996, Handy Hardware maintained its
ability to generate adequate amounts of cash while continuing to make
significant investments in inventory, warehouse and data processing equipment,
delivery equipment, and software to better meet the needs of its Member-Dealers.
The completion of the Company's warehouse expansion project in the third quarter
of 1995 has resulted in the Company's ability to increase the depth of inventory
to better meet Member-Dealer needs since approximately 97,000 square feet of
additional warehouse space is now available.
Cash Flow. During the first nine months of 1996 there was a net increase of
$515,312 in the Company's cash and cash equivalents as compared to an increase
of $1,134,933 for the same period of 1995. The Company's semiannual trade show
being held later in the third quarter was the primary factor affecting the
Company's cash position at the end of the first nine months of 1996. The
increase in cash flow from operating activities from the beginning to the end of
the period, although significantly less than the increase
Page #18 of 24 Pages
<PAGE>
that occurred in the first nine months of 1995, still supported a positive net
cash flow of $1,304,870. The variance between the increase in cash flow for the
first nine months of 1996 as compared to the same period of 1995 consisted
principally of (i) a $5,636,208 increase in accounts payable in 1996 as compared
to a $7,489,038 increase in accounts payable for the same period of 1995
resulting from a timing difference from delayed payments offered by
manufacturers on inventory purchases at the fall trade show and (ii) an increase
in net income to $613,858 in the first nine months of 1996 from $515,782 for the
same period of 1995. These cash inflows during the first nine months of 1996
were offset by (i) a $3,486,150 increase in inventory in the period ending
September 30, 1996, as compared to an increase of $294,695 in inventory during
the same period of 1995 and (ii) a $2,676,540 increase in accounts receivable in
the first nine months of 1996 as compared to a $4,463,739 increase during the
same period of 1995.
The significant increase in inventory during the first nine months of 1996
consisted of (i) a strengthening of inventory to support fall trade show
warehouse orders anticipated for release in October 1996 and (ii) the addition
of approximately 2400 stockkeeping units (i.e. products), which were added in
response to Member-Dealer demand for more breadth of inventory. The increase
in inventory was made possible by the increase in the availability of warehouse
space following the completion of the Company's warehouse expansion project.
Conversely, during the same period of 1995, inventory increased slightly because
(i) most fall trade show warehouse orders were released before the end of the
third quarter due to the earlier timing of the fall trade show and (ii) there
was a lack of inventory stocking areas during the construction phase of the
Company's warehouse expansion.
Accounts receivable and payable increased during the first three quarters of
1996 but not as significantly as during the same period of 1995. This factor was
mostly the result of a timing difference in the recognition of receivables and
payables generated from the Company's fall trade show which was held three weeks
later in 1996 than in previous years.
The Company expended a net amount of $416,798 in the first nine months of 1996
to purchase fixed assets, which is significantly less than the $3,255,947
($2,533,971 of which was expended on the warehouse expansion project) expended
in the same period of 1995.
Page #19 of 24 Pages
<PAGE>
In the first nine months of 1996, $372,760 of cash was used for financing
activities, which was substantially higher than the $18,175 used in the first
nine months of 1995. This increase consisted principally of (i) a larger
decrease in mortgage payable ($2,823,306 as compared to $231,154), (ii) a larger
preferred stock dividend payment in the first quarter of 1996 ($515,029) than in
the same period in 1995 ($401,155) because of an increase in the dividend rate
from 10 percent to 12 percent, and (iii) a decline in proceeds from the issuance
of stock ($986,692 compared to $1,018,209), which increases were offset by (i) a
decrease in the repurchase of Company stock ($176,075 compared to $417,150) and
(ii) an increase of cash from the proceeds of a line of credit of $2,204,908
extended to the Company.
In August 1996, Texas Commerce Bank ("the Bank") extended to the Company an
unsecured $7.5 million revolving line of credit with an April 30, 1998, maturity
date at an interest rate of prime minus one and one-half percent (1.5%) or the
London Interbank Offering rate ("LIBOR") plus one and one-quarter percent
(1.25%). Prior to that date the Bank extended the Company a $2 million revolving
line of credit at the prime interest rate published by the Bank. The new line of
credit was used to retire the Company's mortgage ($2,449,898) with the Bank and
may also be used for working capital and other financing needs of the Company.
On September 30, 1996, the outstanding balance on the line of credit was
$2,204,908, resulting from the initial draw on the line of credit of $2,449,898
net of total payments of $244,990 on the line of credit.
Page #20 of 24 Pages
<PAGE>
Working Capital. The Company's continuing ability to generate cash to meet
its needs for funding its activities is highlighted by three key liquidity
measures shown in the following table:
<TABLE>
<CAPTION>
SEPT. 30, DEC. 31, SEPT. 30,
1996 1995 1995
---------- ---------- ----------
<S> <C> <C> <C>
Working Capital $8,640,467 $7,771,472 $7,172,299
Current Ratio 1.5 to 1 1.7 to 1 1.4 to 1
(Current Assets to
Current Liabilities)
Long-term Debt as percentage
of Capitalization 20.7 24.2 25.3
</TABLE>
Working capital has been principally generated from the sale of stock and
capital provided from operations. The major component of the Company's long-term
debt is bank indebtedness resulting from the Company's recent use of its line of
credit.
During the remainder of 1996 Handy Hardware expects to further expand its
existing customer base in Oklahoma and Arkansas as a result of having added an
additional retail sales manager who will concentrate his efforts solely in the
Arkansas territory, which, in turn, will allow the retail sales manager
previously assigned to both territories to concentrate his efforts solely in the
Oklahoma territory. The Company will finance this expansion with receipts from
the sale of stock to new and current Member-Dealers and with anticipated
increased revenues from sales to MemberDealers in Oklahoma and Arkansas. The
Company is optimistic that this expansion will have a beneficial effect on the
Company's cash position.
In the first nine months of 1996, the Company maintained a 94.5 percent service
level (the measure of the Company's ability to meet Member-Dealers' orders out
of current stock) as compared to a service level of 92.5 percent for the same
period in 1995. This increase in service level is the result of an adequate
amount of storage for inventory available since the warehouse expansion project
was completed. Inventory turnover was 6.2 times during the first nine months of
1996 and 5.9 times for the first nine months of 1995. This high rate of
inventory turnover, which is higher than the national industry average of 3.8,
is primarily the result of tight control of the product mix, increase in depth
of inventory, a continued high service level, and increased warehouse sales.
Capital Expenditures. In the nine month period ending September 30, 1996,
and September 30, 1995, the Company's investment in capital assets (net of
dispositions) was $416,798 and $3,255,947, respectively. Approximately 37.1
percent ($154,440) of the amount expended in the first nine months of 1996 was
used to upgrade warehouse equipment, 21.5 percent was used to purchase printing
Page #21 of 24 Pages
<PAGE>
and other office equipment ($89,435) and 19.5 percent was used to purchase four
automobiles ($81,243). Of the amount expended in the first nine months of 1995,
$2,618,068 (80.4%) was used to finance the costs of the 96,715 square foot
addition to the Company's existing warehouse facility and $476,420 (14.6%) was
invested in upgrading the warehouse equipment.
Significant outlays of cash or cash equivalents anticipated by the Company for
the remainder of 1996 include the payment of accounts payable generated by the
fall trade show and increased inventory purchases. Additional cash outlays
anticipated for the remainder of the year include: the purchase of an upgraded
catalog system ($85,000), warehouse and material handling improvements
($85,000), delivery vehicles and warehouse equipment ($25,000), data processing
equipment ($15,000) and office equipment ($5,000).
The Company's cash position of $1,782,227 at September 30, 1996, is anticipated
to be sufficient to fund all planned capital expenditures.
Page #22 of 24 Pages
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - On September 30, 1996, the board of
directors amended the Employment
Agreement of James D. Tipton, President,
extending the term of his employment to
December 31, 1998.
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits
10.1 Seventh Amendment to Employment Agreement, as amended,
between Handy Hardware Wholesale, Inc. and James D.
Tipton dated September 30, 1996.
10.2 Amendment and Restatement of Credit Agreement between
Handy Hardware Wholesale, Inc. ("Borrower") and Texas
Commerce Bank National Association ("Bank") dated as
of April 30, 1996, (with Exhibits "A" and "B" and
Annex I intentionally omitted).
(b) Reports on Form 8-K
None.
Page #23 of 24 Pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANDY HARDWARE WHOLESALE, INC.
/s/ James D. Tipton
------------------------------
JAMES D. TIPTON
President
(Chief Executive Officer)
/s/ Tina S. Kirbie
-------------------------------
TINA S. KIRBIE
Senior Vice President, Finance
Secretary and Treasurer
(Chief Financial and Accounting
Officer)
Date: November 14, 1996
Page #24 of 24 Pages
<PAGE>
SEVENTH AMENDMENT TO
EMPLOYMENT AGREEMENT
Reference is made to an Employment Agreement (hereinafter called
"Agreement") dated July 9, 1980, between Handy Hardware Wholesale, Inc., a Texas
corporation (therein and hereinafter called "Employer"), and James D. Tipton
(therein and hereinafter called "Employee"), the First Amendment to the
Agreement, dated August 18, 1980 (the "First Amendment'), the Second Amendment
to the Agreement, dated July 18, 1985 (the "Second Amendment"), the Third
Amendment to the Agreement, dated December 6, 1988 (the "Third Amendment"), the
Fourth Amendment to the Agreement, dated September 20, 1991 (the "Fourth
Amendment"), the Fifth Amendment to the Agreement, dated September 7, 1993 (the
"Fifth Amendment"), and the Sixth Amendment to the Agreement, dated November 14,
1995 (the "Sixth Amendment").
At this time, Employer and Employee wish to amend the Agreement, the
First Amendment, the Second Amendment, the Third Amendment, the Fourth
Amendment, the Fifth Amendment and the Sixth Amendment as hereinafter set forth:
NOW THEREFORE, in consideration of the premises, the agreements herein
contained and other good and valuable considerations, Employer and Employee
hereby amend the Agreement, the First Amendment, the Second Amendment, the Third
Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth Amendment as
follows:
1. Subparagraph (9) of Paragraph 2.a. is hereby amended to read
read as follows:
"(9) For the period from January 1, 1996 to December 31, 1998,
Employer shall pay Employee $20,834.34 per month, payable semi-monthly
on the 15th and last day of each month during this period."
2. Paragraph 3.a. is hereby amended to read as follows:
"a. The term of employment by Employer shall mean the period
commencing August 18, 1980, and terminating December 31, 1998, unless
sooner terminated in accordance with the terms and conditions
hereinafter set forth, provided, however, in the event of the death of
Employee, the term of employment shall end the 60th day after the date
of the death of Employee."
Except as amended above, the Agreement, the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and
the Sixth Amendment remain unchanged and continue in full force and effect.
This Seventh Amendment is executed in multiple counterparts, each of
which shall have the force and effect of an original, this 30th day of
September, 1996.
HANDY HARDWARE WHOLESALE, INC.
/s/ James D. Tipton By: /s/ Weldon D. Bailey
- ----------------------------- ------------------------------------
James D. Tipton Chairman of the Board
EMPLOYEE EMPLOYER
AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT
THIS AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT (as amended, restated and
supplemented from time to time, this "Agreement") by and between HANDY HARDWARE
WHOLESALE, INC. ("Borrower") and TEXAS COMMERCE BANK NATIONAL ASSOCIATION
("Bank") is dated as of April 30, 1996 (the "Effective Date").
PRELIMINARY STATEMENT
The Bank and the Borrower have entered into a Revolving Credit Loan Agreement
dated as of April 30, 1993 (the "Credit Agreement"). The Bank and the Borrower
have agreed to amend and restate and replace the Credit Agreement to the extent
set forth herein, in order to among other things, renew, modify, extend and
increase a revolving line
of credit to Borrower.
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, the Bank and the Borrower hereby agree to amend, restate and
replace the Credit Agreement to read and be as follows:
1. THE LOANS.
REVOLVING CREDIT NOTE 1.1
Subject to the terms and conditions hereof, Bank agrees to make loans ("Loan" or
"Loans") to Borrower from time to time before the Termination Date, not to
exceed at any one time outstanding $7,500,000.00 (the "Commitment"). Borrower
has the right to borrow, repay and reborrow. Each Loan must be at least the
minimum amount required in the Note or the balance of the Commitment, whichever
is less and each repayment must be at least the amount required in the Note or
the principal balance of the Note, whichever is less. The Loans may only be used
for working capital for Borrower and other financing needs of Borrower. Chapter
15 of the Texas Credit Code will not apply to this Agreement, the Note or any
Loan. The Loans will be evidenced by, and will bear interest and be payable as
provided in, the promissory note of Borrower dated the Effective Date (together
with any and all renewals, extensions, modifications and replacements thereof
and substitutions therefor, the "Note") which is given in renewal, extension,
modification and increase of that certain promissory note dated April 30, 1995,
in the original principal amount of $2,000,000.00 (including all prior notes of
which said note represents a renewal, extension, modification, increase,
substitution, rearrangement or replacement thereof, the "Renewed Note"). The
parties hereto agree that there is as of the Effective Date an outstanding
principal balance of $0.00 under the Note leaving a balance of $7,500,000.00
under the Commitment available for Loans on the Effective Date, subject to the
terms and conditions of this Agreement. The parties hereto further agree that
the first Loan under the Note shall be in the amount of $2,449,898.07 and shall
be for the purpose of paying off the principal of that certain term loan
evidenced by a promissory note dated March 30, 1993 in the original principal
amount of $3,670,868.49. "Termination Date" means the earlier of: (a) April 30,
1998; or (b) the date specified by Bank pursuant to Section 6.1 hereof.
COMMITMENT FEE 1.2
The Commitment is not subject to a commitment fee.
<PAGE>
PAST DUE AMOUNTS 1.3
Each amount due to Bank in connection with the Loan Documents will bear interest
from its due date until paid at the rate set forth in the Note.
2. CONDITIONS PRECEDENT.
ALL LOANS 2.1
Bank is not obligated to make any Loan unless: (a) Bank has received the
following, duly executed and in Proper Form: (1) a Notice for Request for
Borrowing, substantially in the form of Exhibit A, not later than the times
required in the Note; provided however, Bank may accept and act upon verbal
advance requests received from Borrower's authorized representative reasonably
believed by Bank to be that person authorized to make such requests; and (2)
such other documents as Bank may reasonably require pursuant to the loan
documents; (b) no Event of Default exists; and (c) the making of the Loan is not
prohibited by, or subjects Bank to any penalty or onerous condition under any
Legal Requirement of the State of Texas or the United States of America. Bank
agrees to attempt to provide immediate notice to Borrower of any such legal
prohibition once it is known by Bank.
FIRST LOAN 2.2
In addition to the matters described in the preceding section, Bank will not be
obligated to make the first Loan unless Bank has received all of the Loan
Documents specified on Annex I in Proper Form.
3. REPRESENTATIONS AND WARRANTIES.
To induce Bank to enter into this Agreement and to make the Loans, Borrower
represents and warrants as of the Effective Date and the date of each request
for a Loan that each of the following statements is and shall remain true and
correct throughout the term of this Agreement:
ORGANIZATION AND STATUS 3.1
Borrower is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization; has all power and authority to conduct
its business as presently conducted, and is duly qualified to do business and in
good standing in each jurisdiction in which the nature of the business conducted
by it makes such qualification desirable. Borrower has no Subsidiary.
FINANCIAL STATEMENTS 3.2
All financial statements delivered to Bank are complete and correct and fairly
present, in accordance with generally accepted accounting principles,
consistently applied ("GAAP"), the financial condition and the results of
operations of Borrower as at the dates and for the periods indicated. No
material adverse change has occurred in the assets, liabilities, financial
condition, business or affairs of Borrower since the dates of such financial
statements. Borrower is not subject to any instrument or agreement materially
and adversely affecting its financial condition, business or affairs.
<PAGE>
ENFORCEABILITY 3.3
The Loan Documents are legal, valid and binding obligations of the Parties
enforceable in accordance with their respective terms, except as may be limited
by bankruptcy, insolvency and other similar laws affecting creditors' rights
generally. The execution, delivery and performance of the Loan Documents have
all been duly authorized by all necessary action; are within the power and
authority of the Parties; do not and will not violate any Legal Requirement, the
Organizational Documents of the Parties or any agreement or instrument binding
or affecting the Parties or any of their respective Property.
COMPLIANCE 3.4
Borrower has filed all applicable tax returns and paid all taxes shown thereon
to be due, except those for which extensions have been obtained and those which
are being contested in good faith and for which adequate reserves have been
established. Borrower is in substantial compliance with all applicable Legal
Requirements and manages and operates (and will continue to manage and operate)
its business in accordance with good industry practices (i.e. in a manner
similar to that followed by prudent business persons in the same or similar
industry). Borrower is not in material default in the payment of any other
indebtedness or under any agreement to which it is a party. The Parties have
obtained all consents of and registered with all Governmental Authorities or
other Persons required to execute, deliver and perform the Loan Documents.
LITIGATION 3.5
Except as previously disclosed to Bank in writing, there is no litigation or
administrative proceeding pending or, to the knowledge of Borrower, threatened
against, nor any outstanding judgment, order or decree materially affecting
Borrower before or by any Governmental Authority.
TITLE AND RIGHTS 3.6
Borrower has good and marketable title to its Property, free and clear of any
Lien except for Liens permitted by this Agreement and the other Loan Documents.
Borrower possesses all permits, licenses, patents, trademarks and copyrights
required to conduct its business. All easements, rights-of-way and other rights
necessary to maintain and operate Borrower's Property have been obtained and are
in full force and effect.
REGULATION U; BUSINESS PURPOSE 3.7
None of the proceeds of any Loan will be used to purchase or carry, directly or
indirectly, any margin stock or for any other purpose which would make this
credit a "purpose credit" within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System. All Loans will be used for business,
commercial, investment or other similar purpose and not primarily for personal,
family, or household use or primarily for agricultural purposes as such terms
are used in Chapter One of the Texas Credit Code.
<PAGE>
ENVIRONMENT 3.8
Borrower has not generated, handled, used, stored or disposed of any hazardous
or toxic waste or substance, on or off its premises (whether or not owned by
it), other than in accordance with applicable Legal Requirements. Except as
previously disclosed in writing to Bank, Borrower has no material contingent
liability for non-compliance with environmental or hazardous waste laws.
Borrower has not received any notice that it or any of its Property or
operations does not comply with, or that any Governmental Authority is
investigating its compliance with, any environmental or hazardous waste laws.
INVESTMENT COMPANY ACT/PUBLIC UTILITY HOLDING COMPANY ACT 3.9
Borrower is not an "investment company" within the meaning of the Investment
Company Act of 1940 or a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
STATEMENTS BY OTHERS 3.10
All statements made by or on behalf of Borrower in connection with any Loan
Document constitute the representations and warranties of Borrower hereunder.
4. AFFIRMATIVE COVENANTS.
Borrower agrees to do, and if necessary cause to be done each of the following:
CORPORATE FUNDAMENTALS 4.1
a) Pay when due all taxes and governmental charges of every kind upon it or
against its income, profits or Property, unless and only to the extent that the
same shall be contested in good faith and adequate reserves have been
established therefor; (b) Renew and keep in full force and effect all of its
licenses, permits and franchises; (c) Do all things necessary to preserve its
corporate existence and its qualifications and rights in all jurisdictions where
such qualification is necessary or desirable; (d) substantially comply with all
applicable Legal Requirements; and (e) Protect, maintain and keep in good repair
its Property and make all replacements and additions to its Property as may be
reasonably necessary to conduct its business properly and efficiently.
INSURANCE 4.2
Maintain insurance with such reputable financially sound insurers, on such of
its Property and personnel, in such amounts and against such risks as is
customary with similar Persons or as may be reasonably required by the Bank, and
furnish the Bank satisfactory evidence thereof promptly upon request. Borrower
must provide Bank with copies of the policies of insurance and a certificate of
the insurer that the insurance required by this section may not be canceled,
reduced or affected in any manner without 30 days' prior written notice to Bank.
FINANCIAL INFORMATION 4.3
Furnish to Bank in Proper Form (i) the financial statements prepared in
conformity with GAAP on consolidated and consolidating bases and the other
information described in, and within the times required by, Exhibit B, Reporting
<PAGE>
Requirements, Financial Covenants and Compliance Certificate attached hereto and
incorporated herein by reference; (ii) within the time required by Exhibit B,
Exhibit B signed and certified by the Borrower; (iii) promptly after such
request is submitted to the appropriate Governmental Authority, any request for
waiver of funding standards or extension of amortization periods with respect to
any employee benefit plan; (iv) copies of special audits, studies, reports and
analyses prepared for the management of Borrower by outside parties and (v) such
other information relating to the financial condition and affairs of Borrower
and as Bank may reasonably request from time to time.
MATTERS REQUIRING NOTICE 4.4
Notify Bank immediately, upon acquiring knowledge of (a) the institution or
threatened institution of any lawsuit or administrative proceeding which, if
adversely determined, might adversely affect Borrower; (b) any material adverse
change in the assets, liabilities, financial condition, business or affairs of
Borrower; (c) any Event of Default; or (d) any reportable event or any
prohibited transaction (as defined by ERISA) in connection with any employee
benefit plan.
INSPECTION 4.5
Permit the Bank and its affiliates to inspect and photograph Borrower's
Property, to examine and copy its files, books and records, and to discuss its
affairs with its officers and accountants, at such times and intervals and to
such extent as Bank reasonably desires; provided that Bank shall keep
confidential (except as Bank may be required to disclose pursuant to the
requirement of a governmental agency, operation of law or pursuant to subpoena
or other legal process or to Bank's examiners or its affiliates) all information
marked as confidential.
ASSURANCES 4.6
Promptly execute and deliver any and all further agreements, documents,
instruments, and other writings that Bank may reasonably request to cure any
defect in the execution and delivery of any Loan Document or more fully to
describe particular aspects of the agreements set forth or intended to be set
forth in the Loan Documents.
CERTAIN CHANGES 4.7
Notify the Bank at least 30 days prior to the date that any of the Parties
changes its name or the location of its chief executive office or principal
place of business or the place where it keeps its books and records.
5. NEGATIVE COVENANTS.
Borrower will not:
INDEBTEDNESS 5.1
Create, incur, or permit to exist, or assume or guarantee, directly or
indirectly, or become or remain liable with respect to, any Indebtedness,
contingent or otherwise unless there is a permitted amount set forth in Exhibit
B, except: (a) Indebtedness to the Bank, or secured by Liens permitted by this
Agreement, or otherwise approved in writing by Bank, and renewals and extensions
<PAGE>
(but not increases) thereof; and (b) current accounts payable, other accrued
expenses, unsecured current liabilities not the result of borrowing, to vendors,
suppliers and Persons providing services, for expenditures for goods and
services normally required by it in the ordinary course of business and on
ordinary trade terms and secured capital leases.
LIENS 5.2
Create or permit to exist any Lien upon any of its Property now owned or
hereafter acquired, or acquire any Property upon any conditional sale or other
title retention device or arrangement or any purchase money security agreement;
or in any manner directly or indirectly sell, assign, pledge or otherwise
transfer any of its accounts or other Property, except: (a) Liens, not for
borrowed money, arising in the ordinary course of business (e.g. equipment,
vehicle, and truck purchases); (b) Liens for taxes not delinquent or being
contested in good faith by appropriate proceedings; (c) Liens in effect on the
date hereof and disclosed to Bank in writing, so long as neither the
indebtedness secured thereby nor the Property covered thereby increases; and (d)
Liens in favor of Bank, or otherwise approved in writing by Bank.
FINANCIAL AND OTHER COVENANTS 5.3
Fail to comply with the required financial covenants and other covenants
described, and calculated as set forth, in Exhibit B. Unless otherwise provided
on Exhibit B, all such amounts and ratios will be calculated: (a) on the basis
of GAAP; and (b) on a consolidated basis. Compliance with the requirements of
Exhibit B will be determined as of the dates of the financial statements to be
provided to Bank.
CORPORATE CHANGES 5.4
In any single transaction or series of transactions, directly or indirectly: (a)
liquidate or dissolve; (b) be a party to any merger or consolidation; (c) sell,
convey or lease all or any material part of its assets, except for sale of
inventory, furniture, fixtures, vehicles (including trucks) in the ordinary
course of business; or (d) permit any change in ownership of Borrower affecting
more than 51% of the total outstanding ownership of class A common stock as of
the Effective Date.
NATURE OF BUSINESS; MANAGEMENT 5.5
Change the nature of its business or enter into any business which is
substantially different from the business in which it is presently engaged, or
permit any material change in its management without prior notification to the
Bank.
SUBSIDIARIES/ AFFILIATES 5.6
Form, create or acquire any Subsidiary or Affiliate, without prior approval of
Bank.
<PAGE>
LOANS AND INVESTMENTS 5.7
Unless otherwise provided on Exhibit B, make any advance, loan, extension of
credit, or capital contribution to or investment in, or purchase, any stock,
bonds, notes, debentures, or other securities of, any Person, except: (a)
readily marketable direct obligations of the United States of America or any
agency thereof with maturities of one year or less from the date of acquisition;
(b) fully insured certificates of deposit with maturities of one year or less
from the date of acquisition issued by any commercial bank operating in the
United States of America having capital and surplus in excess of $50,000,000.00;
(c) commercial paper of a domestic issuer if at the time of purchase such paper
is rated in one of the two highest rating categories of Standard and Poor's
Corporation or Moody's Investors Service; (d) investments in readily marketable
and liquid financial instruments; and (e) repurchase of Borrower's own
outstanding stocks.
6. EVENTS OF DEFAULT AND REMEDIES.
EVENTS OF DEFAULT 6.1
Each of the following is a "Default":
(a) Borrower fails to pay any principal of or interest on the Note or any other
Obligation under any Loan Document as and when due; or
(b) Borrower fails to pay at maturity, or within any applicable period of grace,
any principal of or interest on any other borrowed money obligation greater than
$5,000.00 or fails to observe or perform any material term, covenant or
agreement contained in any agreement or obligation by which it is bound; or
(c) Any representation or warranty made in connection with any Loan Document was
materially incorrect, false or misleading when made; or
(d) Borrower violates any covenant contained in any Loan Document; or
(e) A default occurs under any other Loan Document; or
(f) Final judgment for the payment of money is rendered against Borrower and
remains undischarged for a period of 30 days during which execution is not
effectively stayed; or
(g) The loss, theft, substantial damage, or destruction of any material portion
of Borrower's Property which is not covered by insurance; or
(h) Any order is entered in any proceeding against Borrower decreeing the
dissolution, liquidation or split-up thereof, and such order shall remain in
effect for 30 days; or
(i) Borrower makes a general assignment for the benefit of creditors or shall
petition or apply to any tribunal for the appointment of a trustee, custodian,
receiver or liquidator of all or any substantial part of its business, estate or
assets or shall commence any proceeding under any bankruptcy, insolvency,
dissolution or liquidation law of any jurisdiction, whether now or hereafter in
effect; or any such petition or application shall be filed or any such
<PAGE>
proceeding shall be commenced against Borrower and Borrower by any act or
omission shall indicate approval thereof, consent thereto or acquiescence
therein, or an order shall be entered appointing a trustee, custodian, receiver
or liquidator of all or any substantial part of the assets of Borrower or
granting relief to Borrower or approving the petition in any such proceeding,
and such order shall remain in effect for more than 30 days; or Borrower shall
fail generally to pay its debts as they become due or suffer any writ of
attachment or execution or any similar process to be issued or levied against it
or any substantial part of its property which is not released, stayed, bonded or
vacated within 30 days after its issue or levy; or
(j) Borrower conceals or removes any part of its Property, with intent to
hinder, delay or defraud any of its creditors, makes or permits a transfer of
any of its Property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or makes any transfer of its Property to or for the
benefit of a creditor at a time when other creditors similarly situated have not
been paid; or
(k) A material adverse change occurs in the assets, liabilities, financial
condition, business or affairs of Borrower; or
(l) Borrower dissolves.
AN "EVENT OF DEFAULT": IS (i) a failure to pay any Obligation which shall
continue uncured after ten (10) days from the date Bank shall have given written
notice to Borrower that Borrower has failed to pay any Obligation as and when
due or (ii) a non-monetary default occurs in connection with any Loan Document
which shall continue uncured after thirty (30) days from the date Bank shall
have given written notice to Borrower that such non-monetary default has
occurred, provided if the violation giving rise to the non-monetary default
shall reasonably require more than thirty (30) days to cure, and if Borrower
shall, within the thirty (30) day period, commence and thereafter diligently
pursue the curing of such non-monetary default, there shall not be an Event of
Default unless Borrower shall not successfully complete the curing within a
reasonable period of time, in which event, same shall be an Event of Default;
provided, however, that Bank shall have no obligation to make any Revolving Loan
hereunder to Borrower following any Default and during any cure period therefor.
After the occurrence of an Event of Default, Bank may do any or all of the
following: (1) declare the Obligations to be immediately due and payable without
notice of acceleration or of intention to accelerate, presentment and demand or
protest, all of which are hereby expressly waived; (2) without notice to
Borrower, terminate the Commitment and accelerate the Termination Date; (3) set
off, in any order, against the indebtedness of Borrower under the Loan Documents
any debt owing by Bank to Borrower (whether such debt is owed individually or
jointly), including, but not limited to, any deposit account, which right is
hereby granted by Borrower to Bank; and (4) exercise any and all other rights
pursuant to the Loan Documents, at law, in equity or otherwise.
REMEDIES CUMULATIVE 6.2
No remedy, right or power of Bank is exclusive of any other remedy, right or
power now or hereafter existing by contract, at law, in equity, or otherwise,
and all remedies, rights and powers are cumulative.
<PAGE>
7. MISCELLANEOUS.
NO WAIVER 7.1
No waiver of any default or Event of Default will be a waiver of any other
default or Event of Default. No failure to exercise or delay in exercising any
right or power under any Loan Document will be a waiver thereof, nor shall any
single or partial exercise of any such right or power preclude any further or
other exercise thereof or the exercise of any other right or power. The making
of any Loan during either the existence of any default or Event of Default, or
subsequent to the occurrence of an Event of Default will not be a waiver of any
such default or Event of Default. No amendment, modification or waiver of any
Loan Document will be effective unless the same is in writing and signed by the
Person against whom such amendment, modification or waiver is sought to be
enforced. No notice to or demand on any Person shall entitle any Person to any
other or further notice or demand in similar or other circumstances.
NOTICES 7.2
All notices required under the Loan Documents shall be in writing and either
delivered against receipt therefor, or mailed by registered or certified mail,
return receipt requested, in each case addressed to the address shown on the
signature page hereof or to such other address as a party may designate. Except
for the notices required by Section 2.1, which shall be given only upon actual
receipt by the Bank, notices shall be deemed to have been given when delivered
in person against written receipt therefor (or, if mailed, when received as
evidenced by written receipt therefor).
GOVERNING LAW/ARBITRATION 7.3
(a) UNLESS OTHERWISE SPECIFIED THEREIN, EACH LOAN DOCUMENT IS GOVERNED BY TEXAS
LAWS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. To the maximum
extent permitted by law, any controversy or claim arising out of or relating to
the Loans or any Loan Document, including but not limited to any claim based on
or arising from an alleged tort or an alleged breach of any agreement contained
in any of the Loan Documents, shall, at the request of any party to the Loan or
Loan Documents (either before or after the commencement of judicial
proceedings), be settled by mandatory and binding arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA Rules") and pursuant to Title 9 of the United States Code, or if Title 9
does not apply, the Texas General Arbitration Act. In any arbitration
proceeding: (i) all statutes of limitations which would otherwise be applicable
shall apply; and (ii) the proceeding shall be conducted in the city in which the
office of the Bank originating the Loans is located, by a single arbitrator if
the amount in controversy is $1 million or less, or by a panel of three
arbitrators if the amount in controversy (including but not limited to all
charges, principal, interest fees and expenses) is over $1 million. Arbitrators
are empowered to resolve any controversy by summary rulings substantially
similar to summary judgments and motions to dismiss. Arbitrators may order
discovery conducted in accordance with the Federal Rules of Civil Procedures.
All arbitrators will be selected by the process of appointment from a panel,
pursuant to the AAA Rules. Any award rendered in the arbitration proceeding will
be final and binding, and judgment upon any such award may be entered in any
court having jurisdiction.
<PAGE>
(b) If any party to the Loan or Loan Documents files a proceeding in any court
to resolve any controversy or claim, such action will not constitute a waiver of
the right of such party or a bar to the right of any other party to seek
arbitration under the provisions of this Section or that of any other claim or
controversy, and the court shall, upon motion of any party to the proceeding,
direct that the controversy or claim be arbitrated in accordance with this
Section.
(c) No provision of, or the exercise of any rights under, this Section shall
limit or impair the right of any party to the Loan Documents before, during or
after any arbitration proceeding to: (i) exercise self-help remedies including
but not limited to setoff or repossession; or (ii) obtain relief from a court of
competent jurisdiction to prevent the dissipation, damage, destruction,
transfer, hypothecation, pledging or concealment of assets including, but not
limited to attachments, garnishments, sequestrations, appointments of receivers,
injunctions or other relief to preserve the status quo.
(d) To the maximum extent permitted by applicable law and the AAA Rules, neither
Bank nor Borrower or any Affiliate, officer, director, employee, attorney, or
agent of either shall have any liability with respect to, and Bank and Borrower
waives, releases, and agrees not to sue any of them upon, any claim for any
special, indirect, incidental and consequential damages suffered or incurred by
such Person in connection with, arising out of, or in any way related to, this
Agreement or any of the other Loan Documents. Each of Bank and Borrower waives,
releases, and agrees not to sue each other or any of their Affiliates, officers,
directors, employees, attorneys, or agents for punitive damages in respect of
any claim in connection with, arising out of, or in any way related to, this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents. Nothing
contained herein, however, shall be construed as a waiver of Borrower's or the
Bank's right to compel arbitration of disputes pursuant to subparagraphs (a) and
(b), above.
(e) Nothing herein shall be considered a waiver of the right or protections
afforded Bank by 12 U.S.C. 91, Texas Banking Code Art. 342-609 or any similar
statute.
(f) Each party agrees that any other party may proceed against any other liable
Person, jointly or severally, or against one or more of them, less than all,
without impairing rights against any other liable Persons. A party shall not be
required to join the Borrower or any other liable Persons (e.g., sureties or
guarantors) in any proceeding against any Person. A party may release or settle
with one or more liable Persons as the party deems fit without releasing or
impairing right to proceed against any Persons not so released.
SURVIVAL; PARTIES BOUND; TERM OF AGREEMENT 7.4
All representations, warranties, covenants and agreements made by or on behalf
of Borrower in connection with the Loan Documents will survive the execution and
delivery of the Loan Documents; will not be affected by any investigation made
by any Person, and will bind Borrower and the successors, trustees, receivers
and assigns of Borrower and will benefit the successors and assigns of Bank;
provided that Bank's agreement to make Loans to the Borrower will not inure to
the benefit of any successor or assign of Borrower. Except as otherwise provided
herein, the term of this Agreement will be until the final maturity of the Note
and the full and final payment of all Obligations and all amounts due under the
Loan Documents.
<PAGE>
DOCUMENTARY MATTERS 7.5
This Agreement may be executed in several identical counterparts, on separate
counterparts; each counterpart will constitute an original instrument, and all
separate counterparts will constitute but one and the same instrument. The
headings and captions in the Loan Documents have been included solely for
convenience and should not be considered in construing the Loan Documents. If
any provision of any Loan Document is invalid, illegal or unenforceable in any
respect under any applicable law, the remaining provisions will remain
effective. The Loans and all other obligations and indebtedness of Borrower to
Bank are entitled to the benefit of the Loan Documents.
EXPENSES AND FEES 7.6
Any provision to the contrary notwithstanding, and whether or not the
transactions contemplated by this Agreement are consummated, Borrower agrees to
pay on demand all principal and accrued interest on this Note and, following an
Event of Default, Borrower agrees to pay: (a) all reasonable costs and expenses
incurred by Bank and all owners and holders of this Note in collecting this Note
through probate, reorganization, bankruptcy or any other proceeding; and (b)
reasonable attorney's fees if and when this Note is placed in the hands of an
attorney for collection. The obligations of Borrower under this and the
following section will survive the termination of this Agreement.
USURY NOT INTENDED 7.7
Borrower and Bank intend to conform strictly to applicable usury laws.
Therefore, the total amount of interest (as defined under applicable law)
contracted for, charged or collected under this Agreement or any other Loan
Document will never exceed the Highest Lawful Rate. If Bank contracts for,
charges or receives any excess interest, it will be deemed a mistake. Bank will
automatically reform the Loan Document or charge to conform to applicable law,
and if excess interest has been received, Bank will either refund the excess to
Borrower or credit the excess on any unpaid principal amount of the Note or any
other Loan Document. All amounts constituting interest will be spread throughout
the full term of the Loan Document or applicable Note in determining whether
interest exceeds lawful amounts.
NO COURSE OF DEALING 7.8
NO COURSE OF DEALING BY BORROWER WITH BANK, NO COURSE OF PERFORMANCE AND NO
TRADE PRACTICES OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE MAY BE USED TO
CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS AGREEMENT.
8. DEFINITIONS. Unless the context otherwise requires, capitalized terms used in
Loan Documents and not defined elsewhere shall have the meanings provided by
GAAP, except as follows:
Affiliate means, as to any Person, any other Person (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, such Person; (b) that directly or indirectly
beneficially owns or holds five percent (5%) or more of any class of voting
stock of such Person; or (c) five percent (5%) or more of the voting stock of
which is directly or indirectly beneficially owned or held by the Person in
question. The term "control" means to possess, directly or indirectly, the power
to direct the management and policies of a Person, whether through the ownership
of voting securities, by contract, or otherwise. Bank is not under any
circumstances to be deemed an Affiliate of Borrower or any of its Subsidiaries.
<PAGE>
Authority Documents means certificates of authority to transact business,
certificates of good standing, borrowing resolutions (with secretary's
certificate), secretary's certificates of incumbency, and other documents which
empower and enable Borrower or its representatives to enter into agreements
evidenced by Loan Documents or evidence such authority.
Business Day means a day: (i) on which the Bank and commercial banks in Houston
are generally open for business; and (ii) with respect to LIBOR Loans (as
defined in the Note), on which dealings in United States Dollar deposits are
carried out in the interbank markets.
Corporation means corporations, partnerships, limited liability companies, joint
ventures, joint stock associations, associations, banks, business trusts and
other business entities.
Governmental Authority means any foreign governmental authority, the United
States of America, any state of the United States and any political subdivision
of any of the foregoing, and any agency, department, commission, board, bureau,
court or other tribunal having jurisdiction over Bank or Borrower or their
respective Property.
Highest Lawful Rate means the maximum nonusurious rate of interest from time to
time permitted by applicable law. If Texas law determines the Highest Lawful
Rate, Bank has elected the "indicated" (weekly) rate ceiling as defined in the
Texas Credit Code or any successor statute. Bank may from time to time, as to
current and future balances, elect and implement any other ceiling under such
Texas Credit Code and/or revise the index, formula or provisions of law used to
compute the rate on the open-end credit evidenced by the Note in the manner
provided in such Texas Credit Code.
Indebtedness means and include (a) all items which in accordance with GAAP would
be included on the liability side of a balance sheet on the date as of which
Indebtedness is to be determined (excluding capital stock, surplus, surplus
reserves and deferred credits); (b) all guaranties, endorsements and other
contingent obligations in respect of, or any obligations to purchase or
otherwise acquire, Indebtedness of others, and (c) all Indebtedness secured by
any Lien existing on any interest of the Person with respect to which
indebtedness is being determined, in Property owned subject to such Lien,
whether or not the Indebtedness secured thereby has been assumed.
Intangible Assets means those assets of any Person which are (i) deferred
assets. other than prepaid insurance, prepaid taxes and deferred compensation,
(ii) patents, copyrights, trademarks, trade names, franchises, goodwill,
experimental expenses and other similar assets which would be classified as
intangible assets on a balance sheet of such Person, prepared in accordance with
GAAP, (iii) unamortized debt discount and expense, and (iv) assets located and
notes and receivables due from obligors domiciled outside of the United States
of America.
Legal Requirement means any law, ordinance, decree, requirement, order,
judgment, rule, regulation (or interpretation of any of the foregoing) of, and
the terms of any license or permit issued by, any Governmental Authority.
Lien shall mean any mortgage, pledge, charge, encumbrance, security interest,
collateral assignment or other lien or material restriction of any kind, whether
based on common law, constitutional provision, statute or contract.
<PAGE>
Loan Documents means this Agreement and the other writings identified by this
Agreement or listed on Annex I now or hereafter executed or delivered to the
Bank pursuant to any of the foregoing, and all amendments, modifications,
renewals, extensions, increases and rearrangements of, and substitutions for,
any of the foregoing.
Obligations means all principal, interest and other amounts which are or become
owing under this Agreement, the Notes or any other Loan Document.
Organizational Documents means, with respect to a corporation, the certificate
of incorporation, articles of incorporation and bylaws of such corporation; with
respect to a limited liability company, the articles of organization,
regulations and other documents establishing such entity, with respect to a
partnership, joint venture, or trust, the agreement, certificate or instrument
establishing such entity; in each case including all modifications and
supplements thereof as of the date of the Loan Document referring to such
Organizational Document and any and all future modifications thereof which are
consented to by Bank.
Parties means all Persons other than Bank executing any Loan Document.
Person means any individual, Corporation, trust, unincorporated organization,
Governmental Authority or any other form of entity.
Proper Form means in form and substance reasonably satisfactory to the Bank.
Property means any interest in any kind of property or asset, whether real,
personal or mixed, tangible or intangible.
Subsidiary means, as to a particular parent Corporation, any Corporation of
which 50% or more of the indicia of equity rights is at the time directly or
indirectly owned by such parent Corporation or by one or more Persons controlled
by, controlling or under common control with such parent Corporation.
Tangible Net Worth means as of any date, the total shareholder's equity
(including capital stock, additional paid in capital and retained earnings,
after deducting treasury stock) which would appear on a balance sheet of
Borrower prepared as of such date in accordance with GAAP, less the aggregate
book value of Intangible Assets shown on such balance sheet.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN BANK AND THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF BANK AND THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN BANK AND THE PARTIES.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
BORROWER: HANDY HARDWARE WHOLESALE, INC.
/s/ James D. Tipton
By:----------------------------------
Name: James D. Tipton
Title: President - C.E.O.
Address: 8300 Tewantn Drive, Houston, Texas 77061
BANK: TEXAS COMMERCE BANK NATIONAL ASSOCIATION
/s/ Darl Petty
By:-----------------------------------
Name: Darl Petty
Title: Vice President
Address: 2900 Woodridge, Houston, Texas 77087
EXHIBITS: ANNEXES:
A Notice for Request for Borrowing I Loan Documents
B Reporting Requirements, Financial
Covenants and Compliance Certificate
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
filer's operations as of September 30, 1996, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000354053
<NAME> Handy Hardware Wholesale, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,782,227
<SECURITIES> 0
<RECEIVABLES> 9,241,313<F1>
<ALLOWANCES> 0
<INVENTORY> 13,941,220
<CURRENT-ASSETS> 25,340,219
<PP&E> 9,539,676<F2>
<DEPRECIATION> 3,733,344
<TOTAL-ASSETS> 35,200,122
<CURRENT-LIABILITIES> 16,699,752
<BONDS> 3,176,071<F3>
0
5,307,675<F4>
<COMMON> 5,886,600<F5>
<OTHER-SE> 4,130,024<F6>
<TOTAL-LIABILITY-AND-EQUITY> 35,200,122
<SALES> 90,588,740
<TOTAL-REVENUES> 91,004,989
<CGS> 80,624,996
<TOTAL-COSTS> 80,624,996
<OTHER-EXPENSES> 4,819,867<F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 150,487
<INCOME-PRETAX> 954,739
<INCOME-TAX> 340,881
<INCOME-CONTINUING> 613,858
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 613,858
<EPS-PRIMARY> 4.03
<EPS-DILUTED> 4.03
<FN>
<F1>Accounts Receivable and Current Notes Receivable.
<F2>Net of depreciation.
<F3>Total noncurrent liabilities.
<F4>Preferred Stock and Subscription for Preferred Stock less Subscription
receivables for Preferred Stock.
<F5>Class A Common Stock and Class B Common Stock less Treasury Stock plus
Subscription for Class B Common Stock less Subscription Receivables for Common
Stock.
<F6>Paid in Surplus and Retained Earnings.
<F7>Other Operating Expenses (does not include cost of goods sold, payroll costs
or interest).
</FN>
</TABLE>
