UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 1996
Commission File Number: 0-6731
C.R. ANTHONY COMPANY
(Exact name of registrant as specified in its charter)
Oklahoma 73-0129405
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 N. Broadway, Oklahoma City, 73102
Oklahoma
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:(405) 278-7400
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 [ ]
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 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 [ ]
Number of shares of Common Stock outstanding as of December 10, 1996
9,035,645
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C. R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
November 2, October 29, February 3,
ASSETS 1996 1995 1996
CURRENT ASSETS:
Cash and cash equivalents $ 5,263 $ 3,257 $ 2,654
Accounts receivable, less
allowance for doubtful accounts
of $100 6,937 6,662 2,353
Merchandise inventories 103,284 102,470 84,438
Other assets 2,076 997 1,620
Deferred income taxes 1,327 2,396 1,849
Total current assets 118,887 115,782 92,914
PROPERTY AND EQUIPMENT, net 15,891 16,292 15,331
OTHER ASSETS 317 338 376
DEFERRED INCOME TAXES 8,193 9,473 8,439
TOTAL $ 143,288 $ 141,885 $ 117,060
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 30,798 $ 28,968 $ 14,562
Other liabilities 9,876 8,503 6,673
Accrued compensation 2,748 1,497 1,889
Income taxes payable 522
Current maturities of long-term
debt 12,307 17,828 7,069
Total current liabilities 55,729 56,796 30,715
LONG-TERM DEBT, less current
maturities 18,107 20,281 18,114
OTHER LIABILITIES 1,024 1,167 1,096
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
50,000,000 shares authorized;
9,035,645, 9,005,245, and
9,005,245 shares issued and
outstanding 90 90 90
Additional paid-in capital 57,307 57,216 57,216
Retained earnings 11,031 6,335 9,829
Total stockholders' equity 68,428 63,641 67,135
TOTAL $ 143,288 $ 141,885 $ 117,060
See notes to consolidated financial statements.
C. R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands, except per share amounts)
For the For the
Thirteen Thirty-nine
Weeks Ended Weeks Ended
November 2, October 29, November 2, October 29,
1996 1995 1996 1995
NET SALES $ 68,805 $ 71,893 $ 202,683 $211,437
COST OF GOODS SOLD 47,120 49,865 137,106 144,941
GROSS MARGIN 21,685 22,028 65,577 66,496
EXPENSES:
Selling, general and
administrative 17,461 18,012 50,976 53,732
Advertising 2,826 3,632 7,921 9,958
Depreciation and
amortization 1,058 993 3,311 3,182
Interest 474 680 1,399 1,932
Total expenses 21,819 23,317 63,607 68,804
INCOME (LOSS) BEFORE INCOME
TAXES (134) (1,289) 1,970 (2,308)
INCOME TAX (EXPENSE)
BENEFIT 53 502 (768) 900
NET INCOME (LOSS) $ (81) $ (787) $ 1,202 $ (1,408)
NET INCOME (LOSS) PER SHARE $ (0.01) $ (0.09) $ 0.13 $ (0.16)
AVERAGE COMMON STOCK AND
COMMON STOCK EQUIVALENTS
OUTSTANDING 9,172,077 9,005,245 9,066,980 9,005,245
See notes to consolidated financial statements.
C. R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
39 Weeks 39 Weeks
Ended Ended
November 2, October 29,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,202 $ (1,408)
Adjustments to reconcile net income
(loss) to net cash provide by (used
in) operating activities:
Depreciation and amortization 3,311 3,182
Deferred tax expense (benefit) 768 (900)
(Gain) loss on disposals of
equipment (18) (4)
Common stock issued as compensation
expense 91 -
Changes in other assets and
liabilities:
Accounts receivable (4,584) (4,013)
Merchandise inventories (18,846) (26,549)
Other assets (451) (464)
Accounts payable and other
liabilities 18,845 13,115
Accrued compensation 859 (1,464)
Net cash provided by (used in)
operating activities 1,177 (18,505)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,753) (4,119)
Proceeds from sale of property and
equipment 18 33
Net cash used in investing
activities (3,735) (4,086)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings - Revolving Credit
Agreement 5,225 37,605
Payments of long-term debt (58) (15,541)
Net cash provided by financing
activities 5,167 22,064
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,609 (527)
CASH AND CASH EQUIVALENTS, Beginning of
period 2,654 3,784
CASH AND CASH EQUIVALENTS, End of period $ 5,263 $ 3,257
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 1,322 $ 1,920
Income taxes $ 595 $ 1,152
See notes to consolidated financial statements.
C. R. ANTHONY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SUMMARY OF INTERIM REPORTING PRACTICES
Basis of presentation - The consolidated financial statements
include the results of operations, account balances and cash
flows of the Company and its wholly owned subsidiary (ANCO
Transportation, which principally transports merchandise to
Company stores). All material intercompany accounts and
transactions have been eliminated.
The consolidated balance sheets as of November 2, 1996 and
October 29, 1995 and the statements of operations and cash flows
for the thirteen and thirty-nine weeks ended November 2, 1996 and
October 29, 1995 have been prepared by the Company without audit.
In the opinion of management, all adjustments (consisting only of
normal, recurring accruals) necessary to state fairly the
Company's financial position and the results of operations and
cash flows for the thirteen and thirty-nine weeks ended November
2, 1996 and October 29, 1995 have been made. Due to the seasonal
nature of the business, results for the interim periods are not
necessarily indicative of a full year's operations, and balances
of inventory, receivables, revolving credit agreement borrowings,
and trade payables vary with the seasonal demands of the
business.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these financial statements be read in
connection with the annual consolidated financial statements and
notes thereto.
Earnings per share - Earnings per share is computed based upon
net income divided by the weighted average number of shares of
common stock and common stock equivalents (if dilutive)
outstanding during each period.
Reclassifications - Certain reclassifications have been made to
prior year balances to conform with the classifications of such
amounts in the current period.
Accounting pronouncements - In March 1995, the Financial
Accounting Standards Board issued SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," which establishes accounting standards for such
assets. In October 1995, the Financial Accounting Standards
Board issued SFAS 123, "Accounting for Stock-Based Compensation."
SFAS 123 establishes a fair value method and disclosure standards
for stock-based employee compensation arrangements, such as stock
purchase plans and stock options. As allowed by SFAS 123, the
Company will continue to follow the provisions of Accounting
Principles Board Opinion 25 for such stock based compensation
arrangement and disclose the proforma effects of applying SFAS
123, if any, in the financial statements. The Company adopted
these new standards effective February 4, 1996. The adoption of
these standards had no material impact on the Company's financial
position, results of operations or related disclosures to the
Notes to these Consolidated Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995.
With the exception of historical information, the matters
discussed or incorporated by reference herein are forward-looking
statements that involve risks and uncertainties including, but
not limited to: the risks indicated in filings with the
Securities and Exchange Commission; changes in law, regulation,
technology, and economic conditions; the loss of key personnel;
an increased presence of competition in the Company's markets;
the seasonality of demand for apparel which can be significantly
affected by weather patterns, competitors' marketing strategies
and changes in fashion trends; availability of product and
favorable financing from suppliers and lending institutions; and
failure to achieve the expected results of merchandising and
marketing plans, store opening or closing plans, and other
facility expansion plans. The occurrence of any of the above
could have a material adverse impact on the Company's operating
results.
Results of Operations
Thirteen Weeks Ended November 2, 1996 Compared to the
Thirteen Weeks Ended October 29, 1995. Operating results for the
current year improved $706,000 or $.08 per share as compared to
the prior year. Due to the seasonal nature of the Company's
business, the results of operations for interim periods are not
necessarily indicative of the results of operations for the full
fiscal year. The following table presents selected results of
operations expressed as a percent of net sales:
13 Weeks Ended
November 2, October 29,
1996 1995
Net sales 100.0% 100.0%
Gross margin 31.5% 30.6%
Selling, general and
administrative expense 25.4% 25.1%
Advertising 4.1% 5.0%
Depreciation & amortization 1.5% 1.4%
Interest expense 0.7% 0.9%
Income before income taxes (0.2%) (1.8%)
Net sales. Comparable store sales declined 3.2% during the
thirteen weeks ended November 2, 1996 ("fiscal 1997 third
quarter") compared to the thirteen weeks ended October 29, 1995
("fiscal 1996 third quarter"). Net sales during the fiscal 1997
third quarter were affected by the Company's planned reduction in
promotional activity. In addition, net sales during the quarter
also reflect the effect of a net decrease of $920,000 associated
with store openings and closings. Although the Company has opened
28 stores and closed 16 since October 29, 1995, the total selling
square footage decreased to 2,989,247 at November 2, 1996 from
3,071,728 at October 29, 1995 due to the Company's strategy of
opening smaller stores in rural markets while closing larger
stores in underperforming metropolitan or highly competitive
markets ("metro" stores). Of the 16 stores closed since October
1995, 12 were "metro" stores. The Company opened 15 new stores
while closing 3 during fiscal 1997 third quarter.
The Company was operating 223 stores as of November 2,
1996. An additional 3 stores were opened in November, 1996, and
the Company anticipates closing 3 stores after the holiday sales
period.
Gross margin. Although the Company had a decline in net
sales, the decrease in gross margin dollars due to the sales
volume decline was substantially offset by the improved gross
margin percent in comparing fiscal 1997 third quarter to fiscal
1996 third quarter. While the increase in these margins for the
quarter was primarily related to establishing higher initial mark-
ups, margins were also enhanced by a higher percent of total
sales coming from rural stores. The rural stores tend to operate
at a higher gross margin percent.
Selling, general and administrative expense. The decline of
$551,000 in selling, general and administrative expense in fiscal
1997 third quarter as compared to fiscal 1996 third quarter is
primarily due to reductions achieved in comparable stores. The
decrease was principally the result of lower personnel costs in
stores from improved business processes and management practices,
the first phases of which were initiated in the second half of
last fiscal year. Management intends to continue implementing
business process improvements to achieve further operating
efficiencies. However, the rate of improvement over the prior
year in personnel costs will diminish as the implemented process
improvements reach their first anniversary and as the effect of
higher hourly wages are absorbed as a result of increases to
minimum wages effective October 1, 1996 and September 1, 1997.
The payroll cost reductions in stores were offset by slightly
higher personnel costs at the Company's corporate offices.
Advertising expense. Advertising expense decreased
$806,000, or 22.2%, in fiscal 1997 third quarter compared to
fiscal 1996 third quarter. The decrease is primarily
attributable to costs incurred in the fiscal 1996 third quarter
related to a multi-media campaign that was not repeated in the
current year. Management expects advertising expenditures for
the fourth quarter of this fiscal year to approximate that
expended in the prior year.
Interest expense. Interest expense during the fiscal 1997
third quarter was lower than the fiscal 1996 third quarter due
principally to lower average borrowings. Average borrowings were
$22,855,000 during the fiscal 1997 third quarter as compared to
$32,421,000 in the fiscal 1996 third quarter.
Tax expense. The Company's effective tax rate was 39% in
the fiscal 1997 third quarter and the fiscal 1996 third quarter.
The principal differences from the federal statutory rate were
state income taxes.
Net loss. As a result of the above factors, results of
operations improved as the net loss for the fiscal 1997 third
quarter was $81,000, a decrease of $706,000 (or $.08 per share)
from the $787,000 net loss in the fiscal 1996 third quarter.
Thirty-nine Weeks Ended November 2, 1996 Compared to the
Thirty-nine Weeks Ended October 29, 1995. Results of operations
for the current year improved $2,610,000 or $.29 per share as
compared to the prior year. Due to the seasonal nature of the
Company's business, the results of operations for interim periods
are not necessarily indicative of the results of operations for
the full fiscal year. The following table presents selected
results of operations expressed as a percent of net sales:
39 Weeks Ended
November 2, October 29,
1996 1995
Net sales 100.0% 100.0%
Gross margin 32.4% 31.4%
Selling, general and
administrative expense 25.2% 25.4%
Advertising 3.9% 4.7%
Depreciation & amortization 1.6% 1.5%
Interest expense 0.7% 0.9%
Income (loss) before income taxes 1.0% (1.1%)
Net sales. Comparable store sales have declined 3.5% during
the thirty-nine weeks ended November 2, 1996 compared to the
thirty-nine weeks ended October 29, 1995. During the current
fiscal year, the Company has been focused on following a strategy
of less aggressive advertising as compared to the thirty-nine
weeks ended October 29, 1995. Net sales during the thirty-nine
weeks ended November 2, 1996 also reflect a net decrease of
$2,004,000 associated with store openings and closings. The
Company opened 27 rural stores while closing 12 (11 of which were
larger "metro" stores) during the thirty-nine weeks ended
November 2, 1996.
Gross margin. Gross margin dollars declined in comparing
the thirty-nine weeks ended November 2, 1996 to the thirty-nine
weeks ended October 29, 1995 while the gross margin percent
improved. Although the increase in the gross margin percent was
primarily related to establishing higher initial mark-ups,
margins were enhanced by a higher percent of total sales coming
from rural stores. The rural stores tend to generate a higher
gross margin percent.
Selling, general and administrative expense. The decline in
selling, general and administrative expense in the thirty-nine
weeks ended November 2, 1996 as compared to the thirty-nine weeks
ended October 29, 1995 is primarily due to the continuing trend
of lower handling costs associated with a reduction in
merchandise purchases and lower personnel costs from implementing
improved business processes and management practices. See
comments to the thirteen weeks ended November 2, 1996 for
additional discussion of trends.
Advertising expense. Advertising expense decreased
$2,037,000, or 20.5%, in the thirty-nine weeks ended November 2,
1996 compared to the thirty-nine weeks ended October 29, 1995.
The decrease is primarily attributable to reductions in the
quantity of pre-printed inserts and costs incurred in the fiscal
1996 third quarter related to a multi-media campaign that was not
repeated in the current year. In the prior year, the Company was
introducing a campaign of "Every Jean On Sale Everyday." While
this promotional strategy continues to be utilized, the marketing
costs of maintaining the program are lower than were incurred in
the prior year. In addition, since the first of the fiscal year
management has been pursuing a strategy of reducing reliance on
more expensive pre-printed inserts and broadcast media and has
increased usage of newspaper and direct marketing programs.
Although management will continue to strive for the optimal mix
of advertising, the year-over-year trend of improvement is not
expected to continue into the fourth quarter.
Interest expense. Interest expense was lower in the thirty-
nine weeks ended November 2, 1996 compared to the thirty-nine
weeks ended October 29, 1995 due to lower average borrowings and
interest rates. Average borrowings were $22,156,000 during the
thirty-nine weeks ended November 2, 1996 as compared to
$26,276,000 in the thirty-nine weeks ended October 29, 1995. The
interest rate was lower due to the revolving credit agreement
entered into in July 1995 (see "Liquidity and Capital
Resources").
Tax expense. The Company's effective tax rate was 39%
during the thirty-nine weeks ended November 2, 1996 and October
29, 1995. The principal differences from the federal statutory
rate were state income taxes.
Net income (loss). As a result of the above factors,
results of operations improved by $2,610,000 (or $.29 per share)
as the Company is reporting net income of $1,202,000 for the
thirty-nine weeks ended November 2, 1996 as compared to a net
loss of $1,408,000 in the thirty-nine weeks ended October 29,
1995.
Liquidity and Capital Resources
The Company's primary cash requirements are for seasonal
working capital and capital expenditures in connection with its
new store expansion and remodeling programs, equipment and
software for information systems and distribution center
facilities. The Company's inventory levels build in early spring
for the Easter and spring selling season, in early summer for the
back-to-school selling season, and throughout the fall, peaking
during the Christmas selling season. Accounts receivable,
consisting principally of layaway receivables, peak during July
due to the back-to-school layaway promotion and decrease during
the third quarter as payments are received. Capital expenditures
typically occur throughout the year.
The Company's primary sources of funds are cash flow from
operations, borrowings under its working capital and letter of
credit facility and trade accounts payable. Terms for trade
accounts payable are generally 30 days with the total of trade
accounts payable fluctuating with the timing of merchandise
receipts.
The Company also has a private label charge card program.
The charge card receivables are sold to a third party processor
on a non-recourse basis at 100% of face value, less a stated
discount rate. The Company is also obligated to pay an
additional fee to the third party processor for bad debt losses
equal to 50% of such losses in excess of 2.25% of annual private
label charge card sales. The Company records the discount and
accrues for its estimated obligation for bad debt expense at the
time the receivables are sold.
The Company had net operating loss carryforwards of
approximately $16,800,000 at the end of fiscal 1996. The benefit
of the net operating loss carryforwards has been fully recorded
as a deferred tax asset. The Company can deduct approximately
$2,700,000 of the loss carryforward each year through fiscal 2007
which, at current effective income tax rates, produces a tax
savings annually of approximately $1,050,000.
The increase in cash flow from operating activities in the
thirty-nine weeks ended November 2, 1996 as compared to the
thirty-nine weeks ended October 29, 1995 was due in part to
improved operating results. However, the principal cause for
improvement was a reduction during the thirty-nine weeks ended
November 2, 1996 in required working capital, contrasted to an
increase in the thirty-nine weeks ended October 29, 1995. The
change in working capital was due to lower inventory investment
during the current year. Purchases of inventory during the
thirty-nine weeks ended November 2, 1996 were approximately
$16,486,000 less than during the thirty-nine weeks ended October
29, 1995. Outstanding borrowings of long-term debt, which were
$9,324,000 higher at the end of fiscal 1996 compared to the end
of fiscal 1995, were $7,695,000 lower at November 2, 1996 as
compared to October 29, 1995.
Net cash used for capital expenditures was $3,753,000 and
$4,119,000 in the thirty-nine weeks ended November 2, 1996 and
October 29, 1995, respectively. These amounts included the
following expenditures in the periods presented (dollars in
thousands):
39 Weeks Ended
November 2, October 29,
1996 1995
Store expenditures:
New stores $1,421 $1,871
Remodels, expansions, and
relocations 254 1,090
Other 264 468
Information systems 978 456
Distribution center 545 -
Other 291 234
Total $3,753 $4,119
The Company's capital expenditures for the current fiscal
year are expected to total approximately $6 million.
In July 1995, the Company entered into an Amended and
Restated Loan Agreement (the "Agreement") maturing July 26, 2000.
The Agreement provides for revolving credit borrowings, letters
of credit and $20 million of long-term debt. The long-term
portion requires a $2 million annual payment. Maximum borrowings
under the Agreement are $60 million reduced annually by the $2
million long-term principal payment. The rate of interest on
borrowings is at an index rate (thirty-day dealer commercial
paper rate or LIBOR rates for selected terms) plus 2% per annum
plus a fee of 0.25% on the unused portion of the facility. The
Agreement is secured by a lien on substantially all assets of the
Company. Proceeds from the new agreement were used to pay off
the $15,368,000 secured note payable to the former Bank Group
which had provided for $3 million annual principal reductions and
matured June 1, 1999. By paying off the Bank Group secured
note, the Company achieved a slight improvement in interest cost
and reduced annual principal payment obligations of $3.0 million
to $2.0 million.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently subject to certain litigation in
the normal course of business which, in the opinion of
management, will not result in a material adverse effect on the
Company's business, financial position, or results of operations.
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
In October, 1996, the Company employed Houlihan Lokey Howard
& Zukin Capital ("Houlihan Lokey Capital") as a financial advisor
to perform general corporate finance advisory services in
connection with the analysis by the Company of strategic
alternatives, including possible transactions in which the
Company might engage, counseling the Company on the structure of
such possible transactions, advising the Company with respect to
due diligence on such possible transactions, assisting the
Company with financing on such possible transactions and
assisting in the negotiation of such possible transactions. The
Company has agreed to pay specified fees upon the consummation,
if any, of certain defined transactions. The defined
transactions include a strategic acquisition by the Company, a
sale of the Company and a recapitalization of the Company. The
specified fees range from 1.375% of the aggregate purchase price
received on a sale of the Company, 1.375% of the first
$30,000,000 paid and 1% of any additional amount paid in any
acquisition or recapitalization by the Company (with a minimum
payment of $500,000), and 1% to 4% of any debt or equity funding
arranged by Houlihan Lokey Capital. The Company has also agreed
to reimburse Houlihan Lokey Capital for reasonable out-of-pocket
expenses and has agreed to indemnify it with respect to certain
actions taken or omitted to be taken. The agreement may be
terminated by either party on five days written notice. Jeffrey
I. Werbalowsky, a director of the Company, serves as a Managing
Director of Houlihan Lokey Howard & Zukin which is an affiliate
of Houlihan Lokey Capital.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits are filed as part of
this Form 10-Q:
No. Description
10.1 Second Amendment to Amended and Restated Loan
Agreement dated as of October 25, 1996 between the
Company and General Electric Capital Corporation.
10.2 Letter Agreement dated September 27, 1996 between the
Company and Houlihan Lokey Howard & Zukin Capital.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K: There were no reports on Form 8-K
filed by the Company during the fiscal quarter ended November 2,
1996.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
C.R. ANTHONY COMPANY
(Registrant)
Dated: December 10, 1996 /s/ Michael E. McCreery
Michael E. McCreery
Vice Chairman, Chief
Administrative Officer and
Treasurer (principal
financial officer)
Dated: December 10, 1996 /s/ Richard E. Stasyszen
Richard E. Stasyszen
Vice President and
Controller (chief accounting
officer)
EXHIBIT INDEX
No. Description
10.1 Second Amendment to Amended and Restated Loan
Agreement dated as of October 25, 1996 between the
Company and General Electric Capital Corporation.
10.2 Letter Agreement dated September 27, 1996
between the Company and Houlihan Lokey Howard &
Zukin Capital.
27.1 Financial Data Schedule.
Exhibit 10.1
SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
This SECOND AMENDMENT TO AMENDED AND RESTATED LOAN
AGREEMENT ("Second Amendment") is entered into as of
October 25, 1996, between C.R. ANTHONY COMPANY, an Oklahoma
corporation ("Borrower"), and GENERAL ELECTRIC CAPITAL
CORPORATION, a corporation organized under the banking laws of
the State of New York ("Lender"), with reference to the following
facts:
RECITALS
A. Borrower and Lender have entered into the Amended and
Restated Loan Agreement dated as of July 27, 1995, as amended by
the First Amendment to Amended and Restated Loan Agreement dated
as of February 2, 1996 (collectively, the "Loan Agreement"),
pursuant to which Lender agreed to extend certain financial
accommodations to or for the benefit of Borrower upon the terms
and conditions contained therein. Unless otherwise defined in
this Second Amendment, (i) capitalized terms shall have the
meanings attributed to them in the Loan Agreement, and
(ii) references to sections and subsections shall refer to
sections or subsections of the Loan Agreement.
B. Borrower has requested that Lender modify and amend
certain of the financial covenants set forth in Schedule 6.3 to
the Loan Agreement, and Lender is willing to do so subject to the
terms and conditions set forth in this Second Amendment.
NOW, THEREFORE, in consideration of the continued
performance by Borrower of its promises and obligations under the
Loan Agreement and the other Loan Documents, and for other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Borrower and Lender hereby agree as
follows:
AGREEMENT
1. Incorporation of Loan Agreement and Other Loan
Documents. Except as expressly modified under this Second
Amendment, all of the terms and conditions set forth in the Loan
Agreement and the other Loan Documents are incorporated herein by
this reference, and the obligations of Borrower under the Loan
Agreement and the other Loan Documents are hereby acknowledged,
confirmed and ratified by Borrower.
2. Amendments to Loan Agreement.
2.1 The definition of Capital Expenditure Carryforward
Amount contained in Section 1.1 is deleted in its entirety and
the following is substituted therefor:
"Capital Expenditure Carryforward Amount" shall
mean, with respect to any Fiscal Year, the positive amount, if
any, equal to the difference obtained by subtracting (i) the
actual amount of Capital Expenditures made during such Fiscal
Year from (ii) the maximum amount of permitted Capital
Expenditures for such Fiscal Year (after taking into account any
increase thereof pursuant to the proviso to paragraph (a) of
Schedule 6.3).
2.2 The definition of Capital Expenditures contained
in Section 1.1 is deleted in its entirety and the following is
substituted therefor:
"Capital Expenditures" shall mean all payments for
any fixed assets or improvements or for replacements,
substitutions or additions thereto, and which are required to be
capitalized under GAAP. "Capital Expenditures" shall not include
Capital Lease Obligations or expenditures that are financed by
financing arrangements other than those provided under this
Agreement.
2.3 The definition of Fixed Charge Coverage Ratio
contained in Section 1.1 is deleted in its entirety and the
following is substituted therefor:
"Fixed Charge Coverage Ratio" shall mean, as of
the end of each Fiscal Quarter, a ratio of (i) (A) EBITDA minus
(B) the actual amount of non-financed Capital Expenditures, to
(ii) Fixed Charges, in each case for the then ending rolling
period of 12 Fiscal Periods; provided, that in no event may the
aggregate amount so deducted on account of non-financed Capital
Expenditures made during any Fiscal Year exceed the amount
specified in the table in paragraph (a) of Schedule 6.3 for such
Fiscal Year (without taking into account any increase thereof
pursuant to the proviso to such paragraph). For the purposes of
calculating Fixed Charge Coverage Ratio, Capital Expenditures
shall not include (x) any Capital Expenditure Carryforward Amount
or Capital Expenditure Carryover Amount from the prior Fiscal
Year if the net amount of such numbers is a positive number or
(y) Capital Expenditures of up to $2,500,000 related to
Borrower's distribution center located at 5500 West Reno,
Oklahoma City, Oklahoma 71327 and referred to in Borrower's five
year financial projections dated May 30, 1996.
2.4 Schedule 6.3 to the Loan Agreement is deleted in
its entirety and replaced with Schedule 6.3 attached hereto.
3. Conditions of Effectiveness. This Second Amendment
shall become effective as of October 25, 1996, but only upon the
receipt by Lender of (a) this Second Amendment executed by
Borrower and Lender, and (b) a Guarantor Consent substantially in
the form attached hereto executed by Anco Transportation Service,
Inc., an Oklahoma corporation.
4. Entire Agreement. This Second Amendment, together with
the Loan Agreement and the other Loan Documents, is the entire
agreement between the parties hereto with respect to the subject
matter hereof. This Second Amendment supersedes all prior and
contemporaneous oral and written agreements and discussions with
respect to the subject matter hereof. Except as otherwise
expressly modified herein, the Loan Documents shall remain in
full force and effect.
5. Representations and Warranties. Borrower hereby
represents and warrants that the representations and warranties
contained in the Loan Agreement were true and correct in all
material respects when made and, except to the extent that (a) a
particular representation or warranty by its terms expressly
applies only to an earlier date, or (b) Borrower has previously
advised Lender in writing as contemplated under the Loan
Agreement, are true and correct in all material respects as of
the date hereof after giving effect to this Second Amendment.
The Loan Agreement shall continue in full force and effect in
accordance with the provisions thereof on the date hereof.
6. Miscellaneous.
6.1 Counterparts. This Second Amendment may be
executed in identical counterpart copies, each of which shall be
an original, but all of which shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature
page to this Second Amendment by facsimile transmission shall be
effective as delivery of a manually executed counterpart of this
Second Amendment.
6.2 Headings. Section headings used herein are for
convenience of reference only, are not part of this Second
Amendment, and are not to be taken into consideration in
interpreting this Second Amendment.
6.3 Interpretation. No provision of this Second
Amendment shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other
governmental or judicial authority by reason of such party's
having or being deemed to have structured, drafted or dictated
such provision.
6.4 Recitals. The recitals set forth at the beginning
of this Second Amendment are true and correct, and such recitals
are incorporated into and are a part of this Second Amendment.
6.5 Governing Law. This Second Amendment shall be
governed by, and construed and enforced in accordance with, the
laws of the State of New York applicable to contracts made and
performed in such state, without regard to the principles thereof
regarding conflict of laws.
6.6 No Novation. The execution, delivery and
effectiveness of this Second Amendment shall not (a) waive any
breaches or defaults under the Loan Agreement or the other Loan
Documents, whether known or unknown, (b) limit, impair,
constitute a waiver of or otherwise affect any right, power or
remedy by Lender under the Loan Agreement or any other Loan
Document, (c) constitute a waiver of any provision in the Loan
Agreement or in any of the other Loan Documents, or under
applicable law, or (d) except as specifically set forth in
section 2 of this Second Amendment, alter, modify, amend or in
any way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Loan Agreement, all of
which are ratified and affirmed in all respects and shall
continue in full force and effect.
6.7 Conflict of Terms. In the event of any
inconsistency between the provisions of this Second Amendment and
any provision of the Loan Agreement, the terms and provisions of
this Second Amendment shall govern and control.
IN WITNESS WHEREOF, this Second Amendment has been duly
executed as of the date first written above.
LENDER:
GENERAL ELECTRIC CAPITAL CORPORATION
By:/s/ C. A. Williamson
Clarence A. Williamson
Duly Authorized Signatory
BORROWER:
C.R. ANTHONY COMPANY
By:/s/ Michael E. McCreery
Name: Michael E. McCreery
Title: Vice Chairman & CAO
GUARANTOR CONSENT
The undersigned hereby (i) ratifies and reaffirms, as of
the date hereof, all of the provisions of the Continuing Guaranty
dated as of August 3, 1992, made by the undersigned in favor of
General Electric Capital Corporation, as amended by the
Reaffirmation and Consent Regarding Guaranty dated July 27, 1995,
and as thereafter ratified and reaffirmed by the Guarantor
Consent dated November 2, 1996, (ii) acknowledges receipt of a
copy of the Second Amendment to Amended and Restated Loan
Agreement dated as of October 25, 1996 (the "Second Amendment")
between General Electric Capital Corporation and C.R. Anthony
Company, and (iii) consents to all of the provisions of the
Second Amendment.
Dated as of October 25, 1996 ANCO TRANSPORTATION SERVICE, INC.,
an Oklahoma corporation
By:/s/ Michael E. McCreery
Name: Michael E. McCreery
Title: Vice President
ACKNOWLEDGMENT OF INSTRUMENTS
STATE OF Oklahoma )
) SS.
COUNTY OF Oklahoma )
On October 28, 1996 before me, the undersigned notary public
in and for said state, personally appeared Michael E. McCreery
personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed
to the within instrument and acknowledged to me that he/she
executed the same in his/her authorized capacity, and that by
his/her signature on the instrument, the person, or the entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature /s/ Phyllis L. Willison (Seal)
SCHEDULE 6.3
FINANCIAL COVENANTS
Borrower shall not breach any of the following
financial covenants, each of which shall be calculated as of the
end of each Fiscal Quarter (except as otherwise provided herein)
in accordance with GAAP, consistently applied:
(a) Capital Expenditures. Borrower shall not make
aggregate Capital Expenditures in excess of the amounts shown
below for the Fiscal Years set forth below:
Fiscal Year Amount
1996 $ 7,800,000
1997 $ 11,100,000
1998 $ 11,200,000
1999 $ 12,100,000
2000 $ 10,100,000
2001 $ 12,760,000
provided, that, for each Fiscal Year subsequent to Fiscal Year
1996, the amount of such permitted Capital Expenditures
referenced above will be increased (and shall never be decreased)
by the amount, if any, equal to the sum of (i) the Capital
Expenditure Carryforward Amount and (ii) the Capital Expenditure
Carryover Amount, in each case for the immediately preceding
Fiscal Year (it being understood and agreed by the parties that
the effect of this provision shall be to calculate such amounts
on a cumulative basis).
(b) Net Worth. Borrower shall maintain Net Worth of
not less than $62,000,000 at all times; provided, that, at all
times after the completion of the proposed repurchases under the
Stock Repurchase Program, Borrower shall maintain Net Worth of
not less than $50,000,000.
(c) Fixed Charge Coverage Ratio. Borrower shall
maintain a Fixed Charge Coverage Ratio, measured at the end of
each Fiscal Quarter on a 12 Fiscal Period rolling basis, of not
less than the amounts shown below for such period:
Fiscal Quarters Ratio
3rd Fiscal Quarter of 1996 0.95 to 1.00
4th Fiscal Quarter of 1996- 1.00 to 1.00
3rd Fiscal Quarter of 1997
4th Fiscal Quarter of 1997- 1.10 to 1.00
3rd Fiscal Quarter of 1998
4th Fiscal Quarter of 1998 1.20 to 1.00
and at all times thereafter
(d) Inventory Turnover Ratio. Borrower shall maintain
an Inventory Turnover Ratio, measured at the end of each Fiscal
Quarter on a 12 Fiscal Period rolling basis, of not less than
2.20 to 1.00.
Exhibit 10.2
September 27, 1996
Mr. John J. Wiesner
Chairman, CEO
C.R. Anthony Company
701 North Broadway
P.O. Box 25725
Oklahoma City, OK 73125-0725
Dear Jack:
1. This letter (the "Agreement") will confirm the engagement of
Houlihan Lokey Howard & Zukin Capital ("Houlihan Lokey") as
financial advisor to C.R. Anthony Company (together with its
successors and assigns, the "Company") to perform such general
corporate finance advisory services as Houlihan Lokey and the
Company may agree upon in connection with pursuing an
acquisition, sale, recapitalization, or merger (collectively, a
"Transaction"). The term of this agreement shall run from the
date of this letter until a Transaction is consummated or upon 5
days written notice by either party hereto (the "Term").
Houlihan Lokey is authorized and retained to act as financial
advisor to the Company, its subsidiaries, affiliates and any
entities it may form or invest in (collectively, the "Company")
in connection with the Company's analysis of potential strategic
alternatives and subsequently effecting a Transaction if
requested by the Company. As used in this letter, the term
"Transaction", as it relates to potential strategic alternatives,
shall include, but not be limited to:
a) acquisitions (an "Acquisition") pursuant to which (i)
the Company consummates a merger, consolidation or
other business combination with another entity, where
the Company is the surviving entity (or its
shareholders own a majority of the equity in the
surviving entity) in such business combination, or (ii)
the Company acquires a majority of the total equity
ownership of another entity, or all or substantially
all of the assets of another entity;
b) the sale of the Company (the "Sale") whether by merger,
stock sale or sale in one or more transactions, of all
or substantially all of the assets of the Company to
another entity or where the shareholders of the Company
own less than a majority of the surviving entity; and
c) a recapitalization (a "Recapitalization") involving the
issuance of any indebtedness or equity securities by
the Company to institutional investors and/or other
lenders and investors whereby an extraordinary dividend
is paid or equity securities are repurchased by the
Company, whether as a standalone Transaction or in
connection with a related Transaction.
Should the Company decide to pursue a Transaction, the Company
agrees to retain Houlihan Lokey as its financial advisor in
effecting such Transaction.
2. Houlihan Lokey will, to the extent requested by the Company,
assist the Company in analyzing possible Transactions on the
terms and conditions of this letter. In this regard, we shall
undertake certain activities on behalf of the Company including
the following:
a) performing an analysis of the Company, its business,
operations and prospects;
b) performing a similar analysis of other potential
parties to a possible Transaction;
c) analyzing Transaction options available to the Company,
including not pursuing any of the possible Transactions
outlined in paragraph 1;
d) counseling as to strategy and tactics for effecting a
potential Transaction;
e) advising as to the structure and the form of a possible
Transaction, including the form of any agreements
related thereto;
f) assisting the Company in obtaining appropriate
information and in performing financial due diligence
regarding possible Transactions;
g) arranging, if requested, financing on behalf of the
Company to help consummate a possible Transaction;
h) assisting in negotiations, as appropriate, on behalf of
the Company; and
i) rendering such other financial advisory and investment
banking services as may from time to time be agreed
upon by Houlihan Lokey and the Company.
3) The Company agrees to pay Houlihan Lokey the following fees
with respect to services rendered hereunder:
a) In the event that the Company consummates an
Acquisition, the Company will pay a transaction fee of
(i) 1.375% of the aggregate Purchase Price (as
hereinafter defined) paid by the Company if the
aggregate purchase price is equal to or less than $30
million and (ii) 1.375% of the first $30 million and 1%
of the excess over $30 million if the aggregate
purchase price exceeds $30 million; provided, however,
that any fee earned pursuant to this paragraph 3(c)
shall not be less than $500,000. This success fee
shall be payable upon closing of the Acquisition. The
term "Purchase Price" means the sum of the aggregate
fair market value of any securities issued, and any
cash consideration paid, to the seller in connection
with an Acquisition or Sale Transaction, plus the
amount of any non-working capital indebtedness that is
assumed, directly or indirectly, or refinanced by the
purchaser. The term "Purchase Price" shall also include
the present value of any consideration that is or may
be payable subsequent to the closing, including
consideration for non-compete or similar agreements or
other payments which are contingent upon the occurrence
or nonoccurrence of specified events or the passage of
time. The Company and Houlihan Lokey shall in good
faith agree at closing on the value of any such non-
cash consideration included in the price of an
Acquisition or Sale. In addition to the foregoing, if
the Company requests that Houlihan Lokey assist in
obtaining financing for an Acquisition, the Company
shall pay Houlihan Lokey financing fees of (i) 1.0% of
the total amount, including any unfunded portion, of
any senior debt facility arranged by Houlihan Lokey,
(ii) 3.0% of the total amount, including any unfunded
portion, of any subordinated debt facility arranged by
Houlihan Lokey and (iii) 4.0% of the total amount of
any equity arranged by Houlihan Lokey;
b) In the event that the Company proceeds with a Sale,
Houlihan Lokey will assist and advise the Company in
its analysis of the potential sale and possible
alternative ways in which the Sale might be structured.
The initial focus will be to work with the Company to
determine whether a Transaction can be effected on
terms acceptable to the Company. If requested,
Houlihan Lokey will also assist the Company in
preparing a Selling Memorandum (the "Memorandum") which
describes the Company. The Memorandum will be approved
by the Company, in its discretion, prior to the
commencement of its dissemination. Further, Houlihan
Lokey will assist the Company in identifying potential
purchasers and in all negotiations related to a Sale as
well as help in effecting a Sale. In consideration of
the foregoing, the Company agrees to pay to Houlihan
Lokey at the closing of a Sale a success fee of 1.375%
of the aggregate Purchase Price received by the
Company;
c) In the event that the Company proceeds with a
Recapitalization, either as a separate standalone
Transaction or in conjunction with another Transaction
whereby financing is necessary, Houlihan Lokey will (i)
assist the Company in preparing a Financing Memorandum
(the "Memorandum") which describes the Company, the
contemplated financing and the terms under which the
financing is offered, (ii) market the financing on a
best efforts basis with potential investors approved by
the Company, and will negotiate, on the Company's
behalf, the terms of the financing with these
investors, and (iii) coordinate the due diligence
effort of the investors and will assist the Company in
the negotiation of the final terms of the financing and
assist, where appropriate, to expedite the
documentation and closing. In consideration of the
foregoing, the Company agrees to pay at closing of the
Recapitalization fees to Houlihan Lokey in accordance
with the provisions of paragraph 3(a) of this
Agreement; provided, however, that if the Company
elects to pursue a self-tender offer for outstanding
common stock using financing sources not introduced or
arranged by Houlihan Lokey, no fee shall be payable to
Houlihan Lokey under this paragraph 3(c); and
d) If, during the period of Houlihan Lokey's engagement
hereunder, or within twelve months thereafter, a
Transaction is consummated or the Company enters into
an agreement relating to a possible Transaction that at
any time thereafter results in a Transaction which
Houlihan Lokey, during its engagement, analyzed and
discussed with the Company and which were identified in
writing at the time of termination of this Agreement,
the Company shall pay Houlihan Lokey a Transaction fee
in accordance with the provisions of this Agreement.
In the event a Transaction is effectuated, it is contemplated
that Houlihan Lokey will assist the Company in selecting an
independent advisor to provide a fairness opinion to the extent
desired, with such advisor to be compensated directly by the
Company.
In addition to the foregoing, Houlihan Lokey shall be reimbursed
for all reasonable out-of-pocket expenses incurred in connection
with its services hereunder, including any reasonable legal fees
incurred by Houlihan Lokey. Houlihan Lokey will discuss its
general expense items with the Company, and will not bill for
"overhead" items such as secretarial or word processing time.
During the period of Houlihan Lokey's engagement hereunder, or
within twelve months thereafter, neither Houlihan Lokey nor any
director, officer, shareholder, or managing director that is (i)
assigned to this matter, or (ii) has access to material
information regarding the Company (other than such information
deemed as non-confidential pursuant to paragraph 10) will, or
assist any other party in its efforts to (a) purchase or offer to
purchase any shares of the capital stock of the Company, or other
securities exercisable for, or convertible into, such shares of
capital stock, (b) solicit any proxies, votes, authorizations or
other consents from shareholders of the Company, (c) offer to
effect any merger, consolidation, recapitalization or other
similar transaction with or involving the Company, or (d) offer
to effect any purchase of all or any substantial portion of the
assets of the Company, unless Houlihan Lokey or such other
persons have obtained the advance approval of the Board of
Directors of the Company to that particular activity or
transaction.
4. The Company will furnish Houlihan Lokey with such
information as Houlihan Lokey believes reasonably appropriate to
its assignment (all such information so furnished being the
"Information"). The Company recognizes and confirms that
Houlihan Lokey (i) will use and rely primarily on the Information
and on information available from generally recognized public
sources in performing the services contemplated by this Agreement
without having independently verified the same, (ii) does not
assume responsibility for the accuracy or completeness of the
Information and such other information and (iii) will not make an
appraisal of the Company. To the best of the Company's
knowledge, the Information to be furnished by the Company, when
delivered, will be true and correct in all material respects and
will not contain any material misstatement of fact or omit to
state any material fact necessary to make the statements
contained therein not misleading. The Company will promptly
notify Houlihan Lokey if it learns of any material inaccuracy or
misstatement in, or material omission from, any Information
therefore delivered to Houlihan Lokey.
5. It is understood that Houlihan Lokey is being engaged
hereunder solely to provide the services described above to the
Company, and that Houlihan Lokey is not acting as an agent or
fiduciary of, and shall have no duties or liability to, the
equity holders of the Company or any other third party in
connection with its engagement hereunder, all of which are hereby
expressly waived.
6. The Company agrees to the indemnification and other
agreements set forth in Schedule A attached hereto (the
"Indemnification Agreement"), the provisions of which are
incorporated herein by reference and shall survive the
termination, expiration or supersession of this Agreement. In no
event, regardless of legal theory advanced, shall Houlihan Lokey
be responsible to any person other than for its gross negligence
or bad faith with respect to its obligations or duties. In no
event, regardless of the legal theory advanced, shall Houlihan
Lokey's aggregate liability to all parties in connection with the
Transaction or its services in connection therewith exceed the
aggregate fees actually received by Houlihan Lokey hereunder.
7. If Houlihan Lokey is called upon to render services directly
or indirectly relating to the subject matter of this Agreement
beyond the services contemplated above (including, but not
limited to, producing of documents, answering interrogatories,
giving depositions, giving expert or other testimony, whether by
agreement, subpoena or otherwise), the Company shall pay Houlihan
Lokey, in addition to other fees hereunder, Houlihan Lokey's then
current hourly rates for the persons involved by the time
expended in rendering such services, including, but not limited
to, time for meetings, conferences, preparation and travel, and
all related costs and expenses, and the reasonable legal fees and
expenses of Houlihan Lokey's counsel.
8. The obligations of Houlihan Lokey are solely corporate
obligations, and no officer, director, employee, agent,
shareholder or controlling person shall be subjected to any
personal liability whatsoever to any person, nor will any such
claim be asserted by or on behalf of any other party to this
Agreement.
9. Nothing in this Agreement, expressed or implied, is intended
to confer or does confer on any person or entity other than the
parties hereto and their respective successors and assigns and,
to the extent expressly set forth herein, the Indemnified
Persons, any rights or remedies by reason of this Agreement or as
a result of the services to be rendered by Houlihan Lokey
hereunder.
10. Except as may be required by law, or by court or regulatory
process, all information provided by the Company will be treated
by Houlihan Lokey as confidential and will not, without the prior
consent of the Company, be disclosed to any third parties in the
absence of appropriate assurances of confidentiality, and
Houlihan Lokey will not make any use thereof, except in
connection with its services under this Agreement. Materials and
information furnished to Houlihan Lokey shall not be deemed
confidential if (a) such materials and information are or become
generally available to the public other than as a result of
disclosure by Houlihan Lokey or (b) Houlihan Lokey acquires such
materials or information on a non-confidential basis from a
source other than the Company who was not otherwise bound by a
confidentiality agreement.
11. Houlihan Lokey's engagement hereunder may be terminated by
either the Company or Houlihan Lokey at any time upon written
notice to that effect to the other party, it being understood
that the provisions relating to the payment of fees and expenses,
indemnification and contribution will survive any such
termination in accordance with the terms of this Agreement.
12. This Agreement (including the attached Indemnification
Agreement) embodies the entire agreement and understanding
between the parties hereto and supersedes all prior agreements
and understandings relating to the subject matter hereof. If any
provision of this Agreement is determined to be invalid or
unenforceable in any respect, such determination will not affect
such provision in any other respect or any other provision of
this Agreement, which will remain in full force and effect. This
Agreement may not be amended or otherwise modified or waived
except by an instrument in writing signed by both Houlihan Lokey
and the Company. Neither this Agreement nor the rights or
obligations of the parties hereunder may be assigned or delegated
by either party without the prior written consent of the other
party hereto. This Agreement shall be governed by and
interpreted in accordance with the law of the state of New York
applicable to agreements negotiated, executed and to be performed
in that State, without regard to the choice or conflicts of law
rules on principles of that State. Any right to trial by jury
with respect to any lawsuit, claim or other proceeding arising
out of or relating to this Agreement or the services to be
rendered by Houlihan Lokey hereunder is expressly and irrevocably
waived.
If the foregoing correctly sets forth our understanding, please
so indicate by signing and returning to Houlihan Lokey the
enclosed duplicate of this Agreement and the attached
Indemnification Agreement.
We look forward to working with you.
Very truly yours,
HOULIHAN, LOKEY, HOWARD & ZUKIN CAPITAL
By: /s/ E. Siegert
P. Eric Siegert
Senior Vice President
The foregoing has been read, understood and approved, and the
undersigned agrees to retain Houlihan Lokey upon the foregoing
terms.
C.R. ANTHONY COMPANY
By: /s/ John J. Wiesner
John J. Wiesner
Chairman and CEO
By:
Date: 10-17-96
SCHEDULE A
This Schedule A is pursuant to the Agreement dated September 27,
1996 and addressed to C.R. Anthony Company (the "Company") by
Houlihan Lokey. Unless otherwise noted, all capitalized terms
used herein shall have the meaning set forth in the Agreement.
Since Houlihan Lokey will be acting on behalf of the Company in
providing financial advisory services pursuant to the Agreement,
and as part of the consideration for the agreement of Houlihan
Lokey to furnish its services under the Agreement, the Company
agrees to indemnify and hold harmless Houlihan Lokey and its
affiliates, and the respective directors, officers, shareholders,
employees, agents, attorneys, shareholders and controlling
persons of Houlihan Lokey and its affiliates within the meaning
of either Section 15 of the Securities Act of 1933, as amended,
or Section 20 of the Securities Exchange Act of 1934, as amended
(collectively, the "Indemnified Parties"), to the fullest extent
lawful, against any and all losses, claims, damages or
liabilities (or actions in respect thereof), joint or several, to
which the Indemnified Parties may become subject arising out of
or related to actions taken or omitted to be taken by an
Indemnified Party pursuant to the terms of, or in connection with
services rendered pursuant to, the Agreement or any transaction
or proposed transaction contemplated thereby or any Indemnified
Party's role in connection therewith and to reimburse the
Indemnified Parties on demand for any legal or other expenses
reasonably incurred by them in respect thereof at the time such
expenses are incurred; provided, however, the Company shall not
be liable under the foregoing indemnity agreement in respect of
any loss, claim, damage or liability if a court having
jurisdiction shall have determined by a final judgment that such
loss, claim, damage or liability resulted from the bad faith or
gross negligence of the Indemnified Parties.
If any action, suit, proceeding or investigation is commenced, as
to which an Indemnified Party proposes to demand indemnification,
it shall notify the Company with reasonable promptness; provided,
however, that any failure by an Indemnified Party to notify the
Company shall not relieve the Company from its obligations
hereunder, so long as such failure does not materially prejudice
the rights of the Company. The Company shall assume the defense
thereof, including, the employment of the counsel reasonably
satisfactory to the Indemnified Party, and the payment by the
Company of all reasonable expenses. The Indemnified Party shall
have the right to employ separate counsel in any such action,
suit, proceeding or investigation and to participate in the
defense thereof, but the fees and expenses of such counsel shall
be at the expense of an Indemnified Party unless: (i) the
employment thereof has been specifically authorized in writing by
the Company; (ii) the Company has failed to assume the defense
and employ counsel; or (iii) the main parties to any such action,
suit, proceeding or investigation include both the Indemnified
Party and the Company and the Indemnified Party shall have been
advised in writing by independent counsel that the representation
of the Indemnified Party and the Company by the same counsel
would be inappropriate due to actual or potential differing
interests between them, in each of which cases the reasonable
fees of counsel for the Indemnified Party shall be paid by the
Company. In such event, the Company shall not have the right to
assume the defense of such action on behalf of the Indemnified
Party. The Company shall not be liable for any settlement of any
such action, suit, proceeding or investigation effective without
the Company's prior written consent. Neither the Company nor the
Indemnified Party shall, without the prior written consent of the
other, settle or compromise any suit, claim (or permit a default
or consent to the entry of any judgment in respect thereof)
litigation, threatened litigation or threatened claim arising out
of or based upon, or in any way related to the Transaction and to
which the Company and any Indemnified Party may reasonably be
expected to become a party, unless such settlement, compromise or
consent includes, as an unconditional term thereof (which is
satisfactory in form and substance to each such person), the
giving by the claimant to each such person of an unconditional
release from any and all liability in respect to such claim.
If for any reason the foregoing indemnification is unavailable to
any Indemnified Party or insufficient to hold it harmless, the
Company shall contribute to the amount paid or payable by the
Indemnified Party as a result of such loss, claim, expense,
damage, settlement or liability for which such indemnification is
held unavailable or is insufficient in such proportion as is
appropriate to reflect the relative benefits received or to be
received by the Company on the one hand and the Indemnified Party
on the other hand in connection with the services rendered by
Houlihan Lokey under the letter. If, however, the allocation
provided by the immediately preceding sentence is not permitted
by applicable law or otherwise, then the Company shall contribute
to such amount paid or payable by any Indemnified Party in such
proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one
hand and the Indemnified Parties on the other hand in connection
with any actions or omissions or any other matters which result
in any such loss, claim, expense, damage, settlement or liability
as well as any other relevant equitable considerations. No
person found liable for a fraudulent misrepresentation shall be
entitled to contribution from any person who is not also found
liable for such fraudulent misrepresentation. Notwithstanding
the foregoing, the aggregate contribution of all Indemnified
Parties to all losses, claims, damages, liabilities and expenses
shall not exceed the amount of fees actually received by Houlihan
Lokey pursuant to the Agreement. The Company agrees that it
would not be just and equitable if contribution were determined
by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to
in this paragraph.
The reimbursement, indemnity and contribution obligations of the
Company set forth herein shall be in addition to any liability
which the Company may otherwise have and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, and any such person. No
Indemnified Party shall have any liability to the Company or any
other person in connection with the services rendered pursuant to
the Agreement except for any liability for losses, claims,
damages or liabilities finally judicially determined by a court
having jurisdiction to have resulted from actions taken or
omitted to be taken by such Indemnified Party's bad faith or
gross negligence. The foregoing provisions shall survive any
termination of the relationship established by the Agreement.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> NOV-02-1996
<CASH> 5263
<SECURITIES> 0
<RECEIVABLES> 7037
<ALLOWANCES> 100
<INVENTORY> 103284
<CURRENT-ASSETS> 118887
<PP&E> 29657
<DEPRECIATION> 13766
<TOTAL-ASSETS> 143288
<CURRENT-LIABILITIES> 55729
<BONDS> 18107
0
0
<COMMON> 90
<OTHER-SE> 68338
<TOTAL-LIABILITY-AND-EQUITY> 143288
<SALES> 202683
<TOTAL-REVENUES> 202683
<CGS> 137106
<TOTAL-COSTS> 137106
<OTHER-EXPENSES> 3311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1399
<INCOME-PRETAX> 1970
<INCOME-TAX> 768
<INCOME-CONTINUING> 1202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1202
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
