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 October 28, 1995 or
----------------
Transition report pursuant to Section 13 or 15(d) of the Securities
- -----
Exchange Act of 1934.
For the transition period from to
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Commission File Number 0-7264
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PAUL HARRIS STORES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-0907402
- ---------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6003 Guion Rd., Indianapolis, IN 46254
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(317) 293-3900
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, address and fiscal year, if changed since last report)
Indicate by check mark 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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-------- --------
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12,13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
-------- --------
As of December 4, 1995, 10,018,949 common shares were outstanding (including
2,850,912 shares of non-voting common stock).
<PAGE>
INDEX
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - October 28, 1995,
January 28, 1995 and October 29, 1994 1
Consolidated Statements of Operations - For the thirteen
weeks ended October 28,1995 and October 29, 1994 2
Consolidated Statements of Operations - For the thirty-nine
weeks ended October 28,1995 and October 29, 1994 3
Consolidated Statements of Cash Flows - For the
thirty-nine weeks ended October 28, 1995 and October 29, 1994 4
Consolidated Statements of Shareholders' Equity - For the
thirty-nine weeks ended October 28, 1995 and October 29, 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
<TABLE>
<CAPTION>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(in thousands)
October 28, January 28, October 29,
1995 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,773 $ 21,349 $ 4,285
Merchandise inventories 31,463 19,567 30,252
Other receivables 651 949 1,608
Prepaid expenses 1,223 1,016 1,011
Income tax recoverable 1,357 --- ---
------------- ------------- -------------
Total current assets 42,467 42,881 37,156
------------- ------------- -------------
Property, fixtures and equipment
Land, building and improvements 5,715 5,693 5,700
Store fixtures and equipment 10,822 10,617 10,160
Leasehold improvements and other 11,126 10,524 10,103
------------- ------------- -------------
27,663 26,834 25,963
Less accumulated depreciation and amortization (9,180) (7,507) (6,231)
------------- ------------- -------------
18,483 19,327 19,732
Other assets 1,051 1,246 1,042
------------- ------------- -------------
$ 62,001 $ 63,454 $ 57,930
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ --- $ --- $ 2,000
Accounts payable 12,975 7,607 8,440
Compensation and related taxes 731 1,382 735
Income taxes payable 113 416 49
Other accrued expenses 3,293 4,225 2,962
Current maturities of long-term debt 4,320 4,320 2,220
Accrued reorganization expenses and settlements 404 485 448
------------- ------------- -------------
Total current liabilities 21,836 18,435 16,854
------------- ------------- -------------
Long-term debt 19,780 21,970 24,100
Other non-current liabilities 3,070 3,159 3,286
Shareholders' equity
Preferred stock (no par value)
Authorized 1,000 shares; none issued
Common stock (no par value)
Authorized 20,000 shares; issued 10,019,
9,998 and 9,998 1,716 1,684 1,684
Additional paid in capital 3,637 3,637 1,510
Retained earnings 11,962 14,569 10,496
------------- ------------- -------------
Total shareholders' equity 17,315 19,890 13,690
------------- ------------- -------------
$ 62,001 $ 63,454 $ 57,930
============= ============= =============
See accompanying "Notes To Consolidated Financial Statements"
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(in thousands, except per share data)
For the For the
thirteen thirteen
weeks ended weeks ended
October 28, October 29,
1995 1994
------------- -------------
<S> <C> <C>
Net sales $ 36,880 $ 38,743
Cost of sales, including occupancy expenses
exclusive of depreciation 25,246 27,297
------------- -------------
Gross income 11,634 11,446
Selling, general and administrative expenses 11,267 11,607
Depreciation and amortization 809 982
Interest expense, net 554 692
------------- -------------
Loss before income taxes (996) (1,835)
Credit for income taxes (384) (700)
------------- -------------
Net loss $ (612) $ (1,135)
============= =============
Net loss per common share $ (0.06) $ (0.11)
============= =============
Weighted average number of shares and
share equivalents outstanding 10,009 9,995
============= =============
See accompanying "Notes To Consolidated Financial Statements"
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(in thousands, except per share data)
For the For the
thirty-nine thirty-nine
weeks ended weeks ended
October 28, October 29,
1995 1994
------------- -------------
<S> <C> <C>
Net sales $ 108,191 $ 109,082
Cost of sales, including occupancy expenses
exclusive of depreciation 74,656 73,936
------------- -------------
Gross income 33,535 35,146
Selling, general and administrative expenses 33,574 32,026
Depreciation and amortization 2,639 2,766
Interest expense, net 1,583 1,963
------------- -------------
Loss before income taxes (4,261) (1,609)
Credit for income taxes (1,654) (613)
-------------- -------------
Net loss $ (2,607) $ (996)
============== =============
Net loss per common share $ (0.26) $ (0.10)
============== =============
Weighted average number of shares and
share equivalents outstanding 10,002 10,099
============== =============
See accompanying "Notes To Consolidated Financial Statements"
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(in thousands)
For the For the
thirty-nine thirty-nine
weeks ended weeks ended
October 28, October 29,
1995 1994
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (2,607) $ (996)
Adjustments to reconcile earnings to cash provided:
Depreciation and amortization 2,639 2,766
Net loss from disposal of assets 220 188
Utilization of net operating loss carryforward --- (497)
(Increase) decrease in current assets:
Merchandise inventories (11,896) (11,215)
Other receivables 298 (309)
Prepaid expenses (207) (36)
Income taxes recoverable (1,357) ---
Increase (decrease) in current liabilities:
Short-term borrowings --- 2,000
Accounts payable 5,368 2,486
Accrued compensation and expenses (841) (1,524)
Accrued interest (742) (682)
Accrued income taxes payable (303) (342)
(Increase) decrease in other assets 62 (250)
Decrease in other non-current liabilities (90) (81)
----------- -----------
Net cash flow from operating activities (9,456) (8,492)
----------- -----------
Net cash flow from investing activities:
Additions to fixed assets (1,881) (3,301)
----------- -----------
Cash flow from financing activities:
Repayment of long-term debt (2,190) (734)
Sale of common stock under stock option plan 32 87
----------- -----------
Net cash flow from financing activities (2,158) (647)
----------- -----------
Cash flow effect of reorganization activities:
Payment of accrued reorganization expense (81) (488)
----------- -----------
$ (13,576) $ (12,928)
=========== ===========
Cash and cash equivalents
At beginning of period $ 21,349 $ 17,213
At end of period 7,773 4,285
----------- -----------
$ (13,576) $ (12,928)
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 2,909 $ 2,924
=========== ===========
Cash paid during the period for income taxes $ 5 $ 87
=========== ===========
See accompanying "Notes To Consolidated Financial Statements"
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNAUDITED
(in thousands)
For the thirty-nine weeks ended
--------------------------------------------------
October 28, 1995 October 29, 1994
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
PREFERRED STOCK (1,000 AUTHORIZED):
COMMON STOCK (20,000 AUTHORIZED):
(16,500 voting shares; 3,500 non-voting shares)
Beginning balance 9,998 $ 1,684 9,662 $ 1,597
Issuance of common stock (Exercises of Options) 21 32 336 87
--------- ----------- --------- -----------
Ending balance 10,019 $ 1,716 9,998 $ 1,684
========= =========== ========= ===========
ADDITIONAL PAID IN CAPITAL:
Beginning balance $ 3,637 $ 2,007
Benefit of the net operating loss carryforward --- (497)
----------- -----------
Ending balance $ 3,637 $ 1,510
=========== ===========
RETAINED EARNINGS:
Beginning balance $ 14,569 $ 11,492
Net loss (2,607) (996)
----------- -----------
Ending balance $ 11,962 $ 10,496
=========== ===========
See accompanying "Notes To Consolidated Financial Statements"
5
</TABLE>
<PAGE>
PAUL HARRIS STORES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited financial statements of the Company have been
prepared in accordance with instructions to Form 10-Q and Article 10 of
Regulation S-X and accordingly certain information and footnote disclosures
have been condensed or omitted. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's January 28, 1995 Annual Report on Form 10-K.
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 October 28, 1995 and for all other
periods presented have been made.
The results of operations for the first three quarters of fiscal year 1995 are
not necessarily indicative of the results to be expected for the entire fiscal
year 1995. The Company has historically produced a majority of its income in
the fourth quarter of the fiscal year due to the stronger sales experienced
during the December holiday season.
Certain amounts in the prior periods have been reclassified to conform with the
current period presentation.
2. Income Tax Recoverable
The Company has provided for tax credits based upon statutory rates for the
first three quarters of fiscal year 1995 based on the expectation of a net
profit for the entire fiscal year 1995.
6
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of operations
Third quarter of fiscal year 1995
The Company's net sales decreased to $36,880,000 in the third quarter of fiscal
year 1995 (the thirteen weeks ended October 28, 1995) from $38,743,000 in the
third quarter of fiscal year 1994 (the thirteen weeks ended October 29, 1994).
The decrease in net sales was attributable to a 11% decrease in comparable
store sales, which was partially offset by an increase in the number of stores
open at the end of the third quarter of fiscal year 1995 compared to the end of
the third quarter of fiscal year 1994. The Company operated 245 stores as of
October 28, 1995 compared to 242 stores on October 29, 1994. The 11%
comparable store sales decline was due to a general weakness in consumer demand
for women's apparel which is reflected in a similar decline in the number of
customer transactions per store.
Cost of sales, including occupancy expenses exclusive of depreciation,
decreased from approximately 70% of net sales in the third quarter of fiscal
year 1994 to approximately 68% of net sales for the third quarter of fiscal
year 1995. This was primarily due to a decrease in the cost of goods sold
which was partially offset by greater occupancy expenses as a percent of net
sales.
During the third quarter of fiscal year 1995, the fashion division and The $5-
$10-$15-$20 Place division ($5-$20) accounted for approximately 90% and 10%,
respectively, of the Company's net sales, and approximately 96% and 4%,
respectively, of the Company's operating profit before home office overhead.
Selling, general and administrative expenses (SG&A) were $11,267,000, or
approximately 31% of net sales, for the third quarter of fiscal year 1995
compared to $11,607,000, or approximately 30% of net sales, for the third
quarter of fiscal year 1994. The dollar decrease reflects a number of factors,
including reduced payroll and related expenses associated with the home office,
health benefit claims and professional services and fees, offset by an increase
in utilities and maintenance costs as a result of the net increase in stores
open.
Depreciation and amortization decreased approximately 18%, from $982,000 for
the third quarter of fiscal year 1994 to $809,000 for the third quarter of
fiscal year 1995. This decrease is primarily due to the decrease in capital
spending for fiscal year 1995 as compared with previous years levels of capital
expenditures.
Interest expense, net decreased approximately 20% from $692,000 for the third
quarter of fiscal year 1994 to $554,000 for the third quarter of fiscal year
1995. This decrease reflects the maintenance of higher cash balances during the
third quarter of fiscal year 1995 as well as an increase in the interest rate
earned on short-term investments. Interest expense, net was also reduced as a
result of the first semi-annual principal payment on July 31, 1995 of
$2,100,000 on the $24,000,000 of 11.375% Notes.
7
<PAGE>
The Company has provided for tax credits based on statutory rates of $384,000
for the third quarter of fiscal year 1995 based on the expectations of a net
profit for the entire fiscal year 1995. In order to achieve a net profit for
the entire fiscal year, the Company must achieve pre-tax profits in excess of
$4,261,000 in the fourth quarter of fiscal year 1995.
As a result of the above factors, the Company had a net loss of $612,000 for
the third quarter of fiscal year 1995 which is 46% less than the net loss of
$1,135,000 for the third quarter of fiscal year 1994. The Company historically
has produced a majority of its income in the fourth quarter of its fiscal year
due to stronger sales experienced during the December holiday season.
First nine months of fiscal year 1995
The Company's net sales decreased less than 1%, to $108,191,000 in the first
nine months of fiscal year 1995 (the thirty-nine weeks ended October 28, 1995)
from $109,082,000 for the same period of fiscal year 1994 (the thirty-nine
weeks ended October 29, 1994). The decrease in sales was attributable to a 10%
decrease in comparable store sales partially offset by a net increase in the
number of stores open during the first nine months of fiscal year 1995 compared
to the first nine months of fiscal year 1994. The 10% comparable store sales
decline was due to a general weakness in consumer demand for women's apparel
which is reflected in a similar decline in the number of customer transactions
per store.
Cost of sales, including occupancy expenses exclusive of depreciation,
increased slightly from approximately 68% of net sales in the first nine months
of fiscal year 1994 to approximately 69% of net sales for the first nine months
of fiscal year 1995. This increase was primarily due to greater occupancy costs
as a percent of net sales which was partially offset by a decrease in the cost
of goods sold as a percent of net sales.
During the first nine months of fiscal year 1995, the fashion division and $5-
$20 division accounted for approximately 87% and 13%, respectively, of the
Company's net sales, and approximately 93% and 7%, respectively, of the
Company's operating profit before home office overhead.
Selling, general and administrative expenses (SG&A) were $33,574,000, or
approximately 31% of net sales, for the first nine months of fiscal year 1995
compared to $32,026,000, or approximately 29% of net sales, for the first nine
months of fiscal year 1994. The increase resulted primarily from increases in
utilities and maintenance costs associated with the net increase in stores open
as well as the introduction of a private label credit card program in the third
quarter of fiscal year 1994.
Depreciation and amortization decreased approximately 5%, from $2,766,000 for
the first nine months of fiscal year 1994 to $2,639,000 for the first nine
months of fiscal year 1995. This decrease is primarily due to the decrease in
amortized rent expenses for the first nine months of fiscal year 1995 as
compared with the amortization of rent expenses for the same period in fiscal
year 1994.
8
<PAGE>
Interest expense, net decreased approximately 19% from $1,963,000 for the first
nine months of fiscal year 1994 to $1,583,000 for the first nine months of
fiscal year 1995. This decrease reflects the maintenance of higher cash
balances during the first nine months of fiscal year 1995 as well as an
increase in the interest rate earned on short-term investments.
The Company has provided for tax credits based on statutory rates of $1,654,000
for the first nine months of fiscal year 1995 based on the expectations of a
net profit for the entire fiscal year 1995. In order to achieve a net profit
for the entire fiscal year, the Company must achieve pre-tax profits in excess
of $4,261,000 in the fourth quarter of fiscal year 1995.
As a result of the above factors, the Company had a net loss of $2,607,000 for
the first nine months of fiscal year 1995 compared to a net loss of $996,000
for the first nine months of fiscal year 1994. The Company has historically
produced a majority of its income in the fourth quarter of its fiscal year due
to stronger sales experienced during the December holiday season.
Liquidity and Capital Resources
Cash and cash equivalents totaled $7,773,000 at the end of the first nine
months of fiscal year 1995, an 81% increase from the total of $4,285,000 at the
end of the first nine months of fiscal year 1994. During the first nine months
of fiscal year 1995, the Company used $13,576,000 of cash compared to
$12,928,000 of cash used during the first nine months of fiscal year 1994. On
July 31, 1995 the Company made a principal and interest payment totaling
$3,465,000 relating to its $24,000,000 of 11.375% Notes. Accounts payable at
October 28, 1995 were $4,535,000 higher than at October 29, 1994, primarily due
to later receipt of inventory during the third quarter of fiscal year 1995 as
compared to the third quarter of fiscal year 1994.
Merchandise inventories increased slightly from $30,252,000 at the end of the
first nine months of fiscal year 1994 to $31,463,000 at the end of the first
nine months of fiscal year 1995, which represents an increase of 3% on a store
for store calculation based on the number of stores at the end of each period.
The Company's inventory turn increased slightly for the first nine months of
fiscal year 1995 compared to the first nine months of fiscal year 1994.
The Company, on September 28, 1995, increased and extended with the same
lending institution, its original $13.5 million revolving bank line of credit
facility to $15 million through June 30, 1996. This credit facility is
principally intended for the funding of letters of credit for merchandise
purchased from overseas and for working capital borrowings of up to $3.5
million.
Capital spending by the Company for the first nine months of fiscal year 1995
was $1,881,000, primarily for new stores and the remodeling of existing stores.
During the first nine months of fiscal year 1995, the Company opened 16 fashion
and 2 Paul Harris Direct (PHD); converted 5 $5-$20 stores (2 to fashion and 3
to PHD); and closed 12 stores (7 of $5-$20 and 5 fashion). Capital spending
requirements for the remainder of fiscal year 1995 are expected to total less
than $1 million.
The Company believes that its cash and cash equivalents, supplemented by its
increased and extended revolving bank line of credit facility, will satisfy its
ongoing working capital and capital spending requirements through the December
holiday season. The Company's ability to meet its working capital requirements
for fiscal year 1996 will require the Company to have a satisfactorily
profitable December holiday season.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: (4)(g) Third Modification of Secured Credit Agreement,
Notes, Mortgage and Other Loan Documents dated as of
September 28, 1995 by and between Paul Harris Stores,
Inc. and LaSalle National Bank.
(27) Financial Data Schedule
(b) Exhibits and Reports on Form 8-K: None
10
<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.
Paul Harris Stores, Inc.
------------------------
(Registrant)
Date: December 11, 1995 /s/ John H. Boyers
------------------- --------------------------
John H. Boyers
Senior Vice President - Finance and Treasurer
Signing on behalf of the registrant and as
principal financial officer.
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE NINE MONTHS ENDED OCTOBER 28, 1995
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> OCT-28-1995
<CASH> 7,773,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 31,463,000
<CURRENT-ASSETS> 42,467,000
<PP&E> 27,663,000
<DEPRECIATION> (9,180,000)
<TOTAL-ASSETS> 62,001,000
<CURRENT-LIABILITIES> 21,836,000
<BONDS> 19,780,000
<COMMON> 1,716,000
0
0
<OTHER-SE> 15,599,000
<TOTAL-LIABILITY-AND-EQUITY> 62,001,000
<SALES> 108,191,000
<TOTAL-REVENUES> 108,191,000
<CGS> 74,656,000
<TOTAL-COSTS> 74,656,000
<OTHER-EXPENSES> 36,213,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,583,000
<INCOME-PRETAX> (4,261,000)
<INCOME-TAX> (1,654,000)
<INCOME-CONTINUING> (2,607,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,607,000)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
THIRD MODIFICATION OF SECURED CREDIT AGREEMENT,
NOTES, MORTGAGE AND OTHER LOAN DOCUMENTS
THIS THIRD MODIFICATION OF SECURED CREDIT AGREEMENT, NOTES, MORTGAGE AND
OTHER LOAN DOCUMENTS (this "Agreement") is made, and shall be deemed effective,
as of the 28th day of September, 1995 by and between PAUL HARRIS STORES, INC.,
an Indiana corporation (herein, together with its successors and assigns,
called the "Borrower") and LASALLE NATIONAL BANK, a national banking
association (herein, together with its successors and assigns, called the
"Bank").
All capitalized terms and phrases, unless defined herein, shall have the
specific meanings as are set forth in that certain Secured Credit Agreement
dated as of October 28, 1993, by and between Borrower and Bank, as amended and
restated by that certain Amended and Restated Secured Credit Agreement dated as
of January 20, 1994, as modified by that certain First Modification of Secured
Credit Agreement, Notes, Mortgage and Other Loan Documents dated as of October
31, 1994, as modified by that certain Second Modification of Secured Credit
Agreement, Notes, Mortgage and Other Loan Documents dated as of January 31,
1995 (the "Credit Agreement").
WHEREAS, Borrower has previously requested loans and advances from Bank
for the purpose of funding Borrower's working capital needs, and in connection
therewith, Borrower and Bank entered into and executed the Credit Agreement,
pursuant to which the Bank agreed to make a term loan in an amount of up to
$2,400,000.00 and a revolving credit loan in an amount of up to $13,500,000.00
to the Borrower; and
WHEREAS, Borrower has previously executed and delivered to Bank (i) a
Secured Promissory Note (Revolver) dated October 28, 1993, as amended (the
"Revolving Note"), in the principal amount of $13,500,000.00, evidencing an
indebtedness owed by Borrower to Bank in like amount (the "Revolving Loan") and
(ii) a Secured Promissory Note (Term) dated January 20, 1994 (the "Term Note")
in the principal amount of $2,400,000.00, evidencing an indebtedness owed by
Borrower to Bank in like amount (the "Term Loan"); and
WHEREAS, repayment of the Notes is secured by, among other items of
collateral, a certain Mortgage, Assignment of Leases and Rents and Security
Agreement dated as of January 20, 1994, made by Borrower to Bank (the "Mort-
gage"), recorded on February 1, 1994 in the Office of the Recorder, Marion
County, Indiana as Instrument Number 94-17807, encumbering the property legally
described in Exhibit A attached hereto and made a part hereof (the "Premises");
and
<PAGE>
WHEREAS, repayment of the Notes is additionally secured by a certain
Security Agreement and Financing Statement dated as of October 28, 1993, as
amended (the "Security Agreement"), made by Borrower to Bank; and
WHEREAS, repayment of the Notes is additionally secured by a certain
Assignment of Leases dated as of October 28, 1994, as amended, made by Borrower
to Bank (the "Assignment"), affecting the Premises; and
WHEREAS, repayment of the Notes is additionally secured by a certain
Assignment of Distribution Center Leases and Rents dated as of January 20, 1994
(the "Distribution Assignment"), made by Borrower to Bank; and
WHEREAS, repayment of the Notes is additionally secured by UCC Financing
Statements made by Borrower, as debtor, to Bank, as secured party, (said
Financing Statements being hereinafter referred to as the "Financing
Statements"); and
WHEREAS, the Credit Agreement, the Notes, the Mortgage, the Security
Agreement, the Assignment, the Distribution Assignment and the Financing
Statements, together with all other documents and instruments now or hereafter
securing repayment of the Liabilities, or any portion thereof, evidenced by the
Notes are hereinafter collectively referred to as the "Loan Documents"; and
WHEREAS, Borrower has requested that Bank increase the present Revolving
Loan Commitment and extend the present Revolving Credit Maturity Date, and Bank
has so agreed, on the terms and conditions more specifically set forth herein.
NOW, THEREFORE, for and in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Bank do hereby agree as follows:
1. The preambles to this Agreement are fully incorporated herein by this
reference thereto with the same force and effect as though restated herein.
2. Effective as of September 28, 1995 (the "Modification Date"), the
Credit Agreement is modified as set forth below:
a. The definition of "Maturity Date" set forth in Section 1.1 of
the Credit Agreement is deleted in its entirety and the following
definition is substituted therefor:
"Maturity Date" means, with respect to the Revolving Credit
Commitment, June 30, 1996.
2
<PAGE>
b. Section 2.1 is deleted in its entirety and the following is
substituted in its place and stead:
2.1 Revolving Credit Commitment. On the terms and subject to
the conditions set forth in this Agreement, Bank agrees to make Revolving
Loans to Borrower and to issue Letters of Credit, pursuant to Section 2.3,
for the account of the Borrower, from time to time before the Revolving
Credit Termination Date in such aggregate amounts as Borrower may from
time to time request but not exceeding at any one time out standing the
lesser of (i) the Borrowing Baseor(ii) $15,000,000; provided, however,
that (a) Revolving Loans shall be limited to $3,500,000 in the aggregate,
and (b) the issuance of standby Letters of Credit shall be limited to
$1,000,000 in the aggregate. Borrower shall have the right to repay and
reborrow any of the Revolving Loans in increments of $100,000 (or $25,000
integral multiples); provided, however, that it shall be a condition
precedent to any reborrowing that as of the date of any reborrowing all of
the conditions to borrowing set forth in this Agreement shall be satisfied
and all representations and warranties made herein shall be true and
correct in all material respects as of such date.
c. Section 8.9 is hereby deleted in its entirety and the following
is substituted in its place and stead:
8.9 Minimum Tangible Net Worth. Not permit Borrower's Tangible
Net Worth to be less than (a) $6,600,000 for the period commencing on
November 1, 1994 and ending on October 31, 1995,(b) $7,600,000 for the
period commencing on November 1, 1995 and ending on October 31, 1996, (c)
$8,600,000 for the period commencing on November 1, 1996 and ending on
October 31, 1997,(d) $9,600,000 for the period commencing on November 1,
1997 and ending on October 31, 1998 and (e) $10,600,000 for the period
commencing on November 1, 1998 and ending on October 31, 1999, measured
quarterly.
d. Schedule A to the Credit Agreement is deleted in its entirety and
the revised Schedule A, attached hereto and made a part hereof, is
substituted in its place and stead.
3. All references in the Notes, the Mortgage, the Security Agreement,
the Assignment, the Distribution Assignment and the other Loan Documents to the
Credit Agreement are hereby understood to be to the Credit Agreement as
modified hereby.
4. Effective as of the Modification Date, paragraph one of page one of
the Revolving Note is hereby deleted in its entirety and the following is sub-
stituted in its place and stead:
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REVOLVING NOTE
$15,000,000.00 Chicago, Illinois
October 28, 1993
FOR VALUE RECEIVED, PAUL HARRIS STORES, INC., an Indiana corporation
(together with its successors and assigns, "Maker"),promises to pay to the
order of LASALLE NATIONAL BANK, a national banking association (together with
its successors and assigns, "Bank"), on or before June 30, 1996, at the Bank's
principal office in Chicago, Illinois, the principal sum of FIFTEEN MILLION AND
NO/100THS DOLLARS ($15,000,000.00), or, if less, the Revolving Loan Balance at
such time, plus accrued and unpaid interest thereon and all other charges
applicable thereto, all as set forth more fully in that Secured Credit
Agreement dated as of October 28, 1993, between Maker and Bank (as the same may
be amended, modified, supplemented or restated from time to time, the "Credit
Agreement"). All capitalized terms used but not elsewhere defined herein shall
have the same meanings as are ascribed to them in the Credit Agreement.
5. All references in the Credit Agreement, the Mortgage, the Security
Agreement, the Assignment, the Distribution Assignment and the other Loan
Documents to the Revolving Note are hereby understood to be the Revolving Note
as modified hereby.
6. In the event of any conflict among the terms of the Mortgage, the
Notes, the Credit Agreement and the other Loan Documents as modified by this
Agreement, the terms of the Credit Agreement as modified by this Agreement
shall control. All terms and provisions of the Notes, the Mortgage, the
Security Agreement, the Assignment, the Distribution Assignment and the other
Loan Documents corresponding to terms and provisions of the Credit Agreement
prior to the date of this Agreement shall be deemed modified in accordance with
the terms of this Agreement.
7. Borrower hereby warrants and represents that (i) Borrower has no
defense, offset or counterclaim with respect to the payment of any sum owed to
Bank, or with respect to any covenant in the Loan Documents; (ii) Bank, on and
as of the date hereof, has fully performed all obligations to Borrower which it
may have had or has on and as of the date hereof; and (iii) other than as
expressly set forth herein, by entering into this Agreement, Bank does not
waive any condition or obligation in the Loan Documents.
8. Unless waived by the Bank, in the Bank's sole and absolute
discretion, this Agreement shall be of no force or effect until recorded in the
Office of the Recorder, Marion County, Indiana.
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<PAGE>
9. Unless waived by the Bank, in the Bank's sole and absolute
discretion, this Agreement shall be of no force or effect until a Date Down
Endorsement, reflecting recordation of this Agreement, in form and content
acceptable to Bank, is issued by Ticor Title Insurance Company to its Loan
Policy No. 222-721TE, dated January 1, 1994, indicating that there are no new
or unpermitted exceptions to title except as set forth in said policy as of
January 1, 1994, except as approved by Bank, in Bank's sole and absolute
discretion.
10. Borrower hereby agrees to execute and deliver promptly to Bank, at
Bank's request, such other documents as Bank, in its reasonable discretion,
shall deem necessary or appropriate to evidence the transaction contemplated
herein.
11. Borrower agrees to pay all fees and expenses associated with the
consummation of the transactions contemplated in this Agreement, including,
without limitation, fees and expenses of Bank's counsel, recording charges,
escrow charges, title charges and related expenses.
12. Time is of the essence of this Agreement. Unless this Agreement is
executed by Borrower and Guarantor on or before September 28, 1995, it shall
become null and void and shall have no force or effect.
13. This Agreement may be executed in any number of counterparts, each
of which shall constitute an original, but all of which, taken together, shall
constitute one and the same Agreement.
14. Except as otherwise set forth herein to the contrary, the Loan
Documents remain unmodified and continue in full force and effect. Borrower
hereby reaffirms, confirms and ratifies each and every covenant, condition,
obligation and provision set forth in the Notes, the Mortgage, the Security
Agreement, the Assignment, the Distribution Assignment, the Credit Agreement
and the other Loan Documents, each as modified hereby.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby,
have executed and delivered this Agreement as of the day and year first above
written.
BORROWER:
PAUL HARRIS STORES, INC., an Indiana
corporation
By: /s/John H. Boyers
Title: SVP - Finance & Treasurer
Its:
BANK:
LASALLE NATIONAL BANK, a national banking
association
By: /s/Ann Ellingsen
Title: VP
Its:
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<PAGE>
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Barbara A. Arnold , a Notary Public, in and for said County in the
State aforesaid, do hereby certify that Ann Ellingsen, personally known to me
to be the VP of LASALLE NATIONAL BANK, a national banking association, and
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he/she signed and delivered the said instrument on behalf of the aforesaid
banking association.
GIVEN under my hand and Notarial Seal this 28th day of September, 1995.
/s/Barabra A. Arnold
Notary Public
[SEAL]
My Commission Expires:
10-6-96
7
<PAGE>
STATE OF Indiana )
) SS
COUNTY OF Marion )
I, Debra L. Anderson, a Notary Public, in and for said County in the
State aforesaid, do hereby certify that John H. Boyers, personally known to me
to be the Sr. V.P. & Treasurer of PAUL HARRIS STORES, INC., an Indiana
corporation, and personally known to me to be the same person whose name is
subscribed to the foregoing instrument, appeared before me this day in person
and acknowledged that he/she signed and delivered the said instrument on behalf
of the aforesaid corporation.
GIVEN under my hand and Notarial Seal this 27th day of September, 1995.
/s/Debra L. Anderson
Notary Public
My Commission Expires:
04-30-99
_______________________________
THIS DOCUMENT WAS PREPARED Address:
BY AND AFTER RECORDING 6003 Guion Road
SHOULD BE RETURNED TO: Indianapolis, IN 46254
Ann Marie Sink, Esq. Parcel Ident. Nos.:
Katten Muchin & Zavis
525 West Monroe Street 600-6003252
Suite 1600 600-6003368
Chicago, Illinois 60661-3693 600-6003107
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<PAGE>
SCHEDULE A
Additional Financial Covenants
(amounts in thousands except Fixed Charge Ratios)
Quarter 2 3 4 1 2
Fiscal Year 95 95 95 96 96
Period Ending Jul.95 Oct.95 Jan.96 Apr.96 Jul.96
- --------------------------------------------------------------------------
Capital Expenditures(1) 7,000 7,000 8,000 8,000 8,000
Cash Balance(2) 4,000 3,000 12,000 4,000 4,000
Operating Cash Flow
Before Working Capital
Changes(3) 7,000 7,000 8,000 8,000 8,000
Fixed Charge Ratio 1.50 1.50 1.75 2.00 2.00
(1) MAXIMUM cumulative Capital Expenditures for prior eight quarters.
(2) MINIMUM financial accounting ("GAAP") "Cash and cash equivalents" at
each quarter end.
(3) MINIMUM cumulative cash flow on a rolling four quarter basis.
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<PAGE>
EXHIBIT A
Legal Description of Premises
Reference made to same text as "EXHIBIT A" attached to item (4)(e) - First
Modification of Secured Credit Agreement, Notes, Mortgage and Other Loan
Documents dated as of October 31, 1994 by and between Paul Harris Stores, Inc.
and LaSalle National Bank, from Form 10-K dated January 28, 1995.
Also described as:
Part of the Northwest Quarter of Section 5, Township 16 North, Range 3 East, in
Marion County, Indiana, described as follows:
Commencing at the southwest corner of the northwest quarter of said Section 5;
thence on an assumed bearing of North 89 degrees 58 minutes 45 seconds East
along the south line of said northwest quarter section a distance of 1180.87
feet to the centerline of Guion road; thence North 03 degrees 09 minutes 45
seconds East along said centerline a distance of 150.00 feet to the Beginning
Point; thence continuing North 03 degrees 09 minutes 45 seconds East along said
centerline a distance of 150.00 feet to the southwest corner of the tract of
land described in Instrument No. 93-157281; thence North 89 degrees 58 minutes
45 seconds East along the south line of said tract and parallel with the south
line of said quarter section a distance of 260.58 feet to the southeast corner
of said tract; thence North 03 degrees 09 minutes 45 seconds East along the
east line of said tract and parallel with the centerline of said Guion Road a
distance of 120.00 feet to the northeast corner of said tract; thence South 89
degrees 58 minutes 45 seconds West along the north line of said tract and
parallel with the south line of said quarter section a distance of 260.58 feet
to the northwest corner of said tract and a point on the centerline of said
Guion Road; thence North 03 degrees 09 minutes 45 seconds East along said
centerline a distance of 455.00 feet; thence North 89 degrees 58 minutes 45
seconds East parallel with the south line of said quarter section a distance of
1093.32 feet to the west right of way line of the C.C.C. & St. L. (Penn
Central) Railroad and a point on a curve having a radius of 5679.58 feet to the
radius point of which bears South 73 degrees 15 minutes 40 seconds West; thence
southerly along said west right of way line and along said curve an arc
distance of 743.36 feet to a point distant 150.00 feet north of the south line
of the aforesaid northwest quarter (as measured parallel with the centerline of
Guion Road), said point bears North 80 degrees 45 minutes 37 seconds East from
said radius point; thence South 89 degrees 58 minutes 45 seconds West parallel
with said south line a distance of 1300.28 feet to the Beginning Point.
