FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended August 3, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _______________ to ______________.
Commission file number 000-19288
FRED'S, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0634010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4300 New Getwell Rd., Memphis, Tennessee 38118
(Address of principal executive offices) (zip code)
(901) 365-8880
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
----------- -----------
The registrant had 9,326,732 shares of common stock outstanding as
of August 3, 1996.
FRED'S, INC.
------------
INDEX
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Page No.
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Part I - Financial Information
- ------------------------------
Item 1 - Financial Statements (unaudited):
Consolidated Balance Sheets as of
August 3, 1996 and February 3, 1996 3
Consolidated Statements of Operations
for the Thirteen Weeks Ended and the
Twenty-Six Weeks Ended August 3, 1996
and July 29, 1995 4
Consolidated Statements of Cash Flows
for the Twenty-Six Weeks Ended August 3, 1996
and July 29, 1995 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 10 - 11
Signatures
- ---------- 12
FRED'S, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except for number of shares)
<TABLE>
<CAPTION>
August 3, February 3,
1996 1996
--------- -----------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 2,666 $ 5,496
Receivables, less allowance for doubtful
accounts 3,917 5,115
Inventories 93,273 85,211
Deferred income taxes 1,300 2,125
Other current assets 967 956
------- -------
Total current assets 102,123 98,903
Property and equipment, at depreciated cost 50,715 51,681
Equipment under capital leases, less
accumulated amortization 440 560
Deferred income taxes 5,377 4,986
Other noncurrent assets 2,383 1,893
------- -------
$161,038 $158,023
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 22,194 $ 29,793
Current portion of indebtedness 10,570 1,660
Current portion of capital lease obligations 330 301
Accrued liabilities 7,435 6,987
Income taxes payable 1,302 813
------- -------
Total current liabilities 41,831 39,554
Indebtedness 479 1,278
Capital lease obligations 328 501
Other noncurrent liabilities 1,229 1,120
------- -------
Total liabilities 43,867 42,453
------- -------
Commitments and contingencies
Shareholders' equity:
Common stock, Class A voting, no par value,
9,326,732 shares issued and outstanding
(9,335,239 shares at February 3, 1996) 63,348 63,458
Retained earnings 53,956 52,424
Deferred compensation on restricted
stock incentive plan (133) (169)
Loan to ESOP - (143)
------- -------
Total shareholders' equity 117,171 115,570
------- -------
$161,038 $158,023
======= =======
See accompanying notes to consolidated financial statements
</TABLE>
FRED'S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-Six Weeks
-------------- ----------------
Ended Ended
August 3, July 29, August 3, July 29,
-------- ------- -------- -------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $99,028 $93,295 $200,786 $190,345
Cost of goods sold 72,583 70,353 146,559 141,865
------ ------ ------- -------
Gross profit 26,445 22,942 54,227 48,480
Selling, general and administrative
expenses 25,636 23,520 50,103 45,372
------ ------ ------- -------
Operating income (loss) 809 (578) 4,124 3,108
Interest expense, net 117 98 211 216
------ ------ ------- -------
Income (loss) before taxes 692 (676) 3,913 2,892
Provision (benefit) for income taxes 278 (249) 1,447 1,064
------ ------ ------- -------
Net income (loss) $ 414 $ (427) $ 2,466 $ 1,828
====== ====== ======= =======
Net income (loss) per share $ .04 $ (.05) $ .26 $ .20
====== ====== ======= =======
Weighted average number of common shares
and common equivalent shares
outstanding 9,330 9,335 9,330 9,330
====== ====== ======= =======
See accompanying notes to consolidated financial statements
</TABLE>
FRED'S, INC.
-----------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
----------------------
August 3, July 29,
1996 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,466 $ 1,828
Adjustments to reconcile net income
to net cash flows from operating
activities:
Depreciation and amortization 2,995 2,611
Contribution to ESOP to reduce
ESOP loan balance 143 141
Amortization of deferred compensation on
restricted stock incentive plan (74) -
Deferred income taxes 434 220
(Increase) decrease in assets:
Receivables 1,198 (1,146)
Inventories (8,062) (4,568)
Other current assets (11) (126)
Other noncurrent assets - 29
Increase (decrease) in liabilities:
Accounts payable (7,599) 3,515
Accrued liabilities 448 (129)
Income taxes payable 489 (703)
Other noncurrent liabilities 109 84
------- -------
Net cash (used in) provided by operating
activities (7,464) 1,756
------- -------
Cash flows from investing activities:
Additions to property, equipment and
equipment under capital leases (1,662) (3,978)
Additions to intangible assets (737) -
------- -------
Net cash (used in) provided by
investing activities (2,399) (3,978)
------- -------
Cash flows from financing activities:
Net borrowings under revolving credit agreements 9,000 -
Reduction of indebtedness and
capital lease obligations (1,033) (1,192)
Cash dividends paid (934) (932)
------- -------
Net cash (used in) provided by
financing activities 7,033 (2,124)
------- -------
Increase (decrease) in cash and
cash equivalents (2,830) (4,346)
Cash and cash equivalents:
Beginning of period 5,496 5,944
------- -------
End of period $ 2,666 $ 1,598
======= =======
Supplemental disclosures of cash flow information:
Interest paid $ 142 $ 213
Income taxes paid $ 524 $ 1,547
See accompanying notes to consolidated financial statements
</TABLE>
FRED'S, INC.
-----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
- -----------------------------------------------------------------
NOTE 1: BASIS OF PRESENTATION
- ----------------------------------------------------------------
The accompanying unaudited consolidated financial statements of
Fred's, Inc. ("Fred's" or the "Company") have been prepared in
accordance with the instructions to Form 10-Q and therefore do not
include all information and notes necessary for a complete
presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
The statements do reflect all adjustments (consisting of only
normal recurring accruals) which are, in the opinion of management,
necessary for a fair presentation of financial position in
conformity with generally accepted accounting principles. The
statements should be read in conjunction with the Notes to the
Consolidated Financial Statements for the fiscal year ended
February 3, 1996 included in the Company's Annual Report on Form
10-K.
The results of operations for the thirteen week and twenty-six week
periods ended August 3, 1996 are not necessarily indicative of the
results to be expected for the full fiscal year.
- -----------------------------------------------------------------
NOTE 2: NET INCOME PER SHARE
- -----------------------------------------------------------------
Net income per share is based on the weighted average number of
common shares and common equivalent shares outstanding. See
Exhibit 11.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
- -----------------------------------------------------------------
FINANCIAL CONDITION
- ----------------------------------------------------------------
Fred's operates 207 discount general merchandise stores in ten
states in the southeastern United States. Eighty-six of the stores
have full service pharmacies, and ten of Fred's stores are stand-
alone Fred's Xpress pharmacies.
Due to the seasonality of Fred's business and the continued
increase in the number of stores and pharmacies, inventories are
generally lower at year-end than at each quarter-end of the
following year. As shown on the consolidated statement of cash
flows, inventories increased $8,062,000 during the twenty-six week
period ended August 3, 1996. In addition, cash was used to reduce
balances with trade vendors ($7,599,000), fund capital expenditures
($1,662,000),reduce indebtedness ($1,033,000) and pay cash
dividends ($934,000). The increased inventory levels and other
cash outlays were financed primarily from net income ($2,466,000),
revolving bank borrowings ($9,000,000), lower receivables
($1,198,000) and existing cash. The Company believes that
sufficient capital resources are available in both the short-term
and long-term through currently available cash and cash generated
from future operations and, if necessary, the ability to obtain
additional financing.
The Company has a $12,000,000 revolving credit commitment available
from a bank. In addition, a seasonal revolving credit commitment
ranging from $5,000,000 to $9,000,000 is available from July 1996
through December 1996. At August 3, 1996, $9,000,000 was
outstanding under the revolving credit agreement, and no borrowings
have been made under the seasonal facility.
- -------------------------------------------------------------------
RESULTS OF OPERATIONS
- -------------------------------------------------------------------
Thirteen Weeks Ended August 3, 1996 and July 29, 1995
- -----------------------------------------------------
Net sales increased from $93.3 million in 1995 to $99.0 million in
1996, an increase of $5.7 million or 6.1%. The increase was
attributable to comparable store sales increases of 3.4% ($2.7
million) and sales by stores not yet included as comparable stores
($4.1 million). Wholesale sales to franchisees and independents
decreased $1.1 million or 11.2% in 1996.
Gross profit increased from 24.6% of sales in 1995 to 26.7% in 1996
primarily due to a reduction in the Company's reliance on sale
events to drive sales growth. With fewer promotional incentives,
Fred's sales growth has moderated somewhat, but sales are now more
profitable.
Selling, general and administrative expenses increased from $23.5
million in 1995 to $25.6 million in 1996. As a percentage of
sales, expenses increased from 25.2% to 25.9%. Approximately .4%
of the .7% increase in the expense percentage was attributable to
a greater proportion of retail sales, which carry higher expense
ratios than wholesale sales. Competitive increases in the
Company's compensation program for its distribution center,
implemented last summer, caused most of the remaining increase in
the expense percentage.
Twenty-Six Weeks Ended August 3, 1996 and July 29, 1995
- -------------------------------------------------------
Net sales increased from $190.3 million in 1995 to $200.8 million
in 1996, an increase of $10.5 million or 5.5%. The increase was
attributable to comparable store sales increases of 2.3% ($3.7
million) and sales by stores not yet included as comparable stores
($8.7 million). Wholesale sales to franchisees and independents
decreased $1.9 million or 9.5% in 1996.
Gross profit increased from 25.5% of sales in 1995 to 27.0% in 1996
for the aforementioned reason.
Selling, general and administrative expenses increased from $45.4
million in 1995 to $50.1 million in 1996. As a percentage of
sales, expenses increased from 23.8% to 25.0%. The 1.2% increase
in the expense percentage was due to a greater proportion of retail
sales, which carry higher expense ratios than wholesale sales
(.4%), competitive increases in the Company's compensation program
for its distribution center (.3%), the costs of phasing in a new
pharmacy management system (.2%), and other normal inflationary
factors throughout the Company that exceeded the 2.3% comparable
store sales increase.
- -------------------------------------------------------------------
EFFECT OF INFLATION
- -------------------------------------------------------------------
The impact of inflation on labor and occupancy costs can
significantly affect Fred's operations. Many of Fred's employees
are paid hourly rates related to the federal minimum wage and,
accordingly, any increase affects Fred's. In addition, payroll
taxes, employee benefits and other employee-related costs continue
to increase. Occupancy costs, including rent, maintenance, taxes
and insurance, also continue to rise. Fred's believes that
maintaining adequate operating margins through a combination of
price adjustments and cost controls, careful evaluation of
occupancy needs, and efficient purchasing practices is the most
effective tool for coping with increasing costs and expenses.
- -----------------------------------------------------------------
SEASONALITY
- ------------------------------------------------------------------
Fred's business is subject to seasonal influences, but the Company
has tended to experience less seasonal fluctuation than many other
retailers due to the Company's mix of everyday basic merchandise.
The fourth quarter is typically the most profitable quarter because
it includes the Christmas selling season. The overall strength of
the fourth quarter is partially mitigated, however, by the
inclusion of the month of January, which is generally the least
profitable month of the year.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
The Annual Meeting of the Shareholders of Fred's, Inc.
was held on August 20, 1996. Michael J. Hayes, David A.
Gardner, John R. Eisenman and Roger T. Knox were elected
to continue as directors of the Company. The
shareholders also ratified the appointment of Price
Waterhouse, LLP as independent public accountants for the
fiscal year ending February 1, 1997.
The results of the voting were as follows:
<TABLE>
<CAPTION>
Abstain/
For Against Withheld Broker Non-Vote
------ ------- -------- ---------------
<S> <C> <C> <C> <C>
Election of Directors:
Michael J. Hayes 7,240,642 13,593 2,072,497
David A. Gardner 7,238,558 15,677 2,072,497
John R. Eisenman 7,240,679 13,556 2,072,497
Roger T. Knox 7,240,747 13,488 2,072,497
Appointment of Price
Waterhouse, LLP 7,240,707 4,829 8,699 2,072,497
Amendment to Fred's 1993
Long Term Incentive 5,029,988 1,553,627 15,478 2,727,639
Plan
</TABLE>
Item 5. Other Information
On August 20, 1996, Fred's, Inc. and Rose's Stores, Inc.
announced that the previously announced merger agreement,
providing for the acquisition of Rose's Stores, Inc. by
Fred's, Inc. had been terminated.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
Exhibit 10.23 - Seasonal Overline Revolving Credit
Agreement between Fred's, Inc. and
Union Planters National Bank dated
as of July 23, 1996
Exhibit 11 - Computation of Net Income (Loss) Per
Share
Reports on Form 8-K:
Not Applicable.
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.
FRED'S, INC.
/s/ Michael J. Hayes
------------------------------
Michael J. Hayes
Date: September 6, 1996 Chief Executive Officer
- ------------------------
/s/ Bruce D. Smith
------------------------------
Bruce D. Smith
Date: September 6, 1996 Chief Financial Officer
- ------------------------
Seasonal Overline Revolving Credit Note
$9,000,000.00 Memphis, Tennessee
July 23, 1996
FOR VALUE RECEIVED, FRED'S, INC. (hereinafter, the
"Borrower") promises to pay to the order of Union Planters
National Bank, a national banking association, with its principal
office at 6200 Poplar Avenue, Memphis, Tennessee (hereinafter,
with any subsequent holder, the "Bank") at the Bank's principal
office on demand or, if no demand, on January 1, 1997 the sum of
Nine Million Dollars ($9,000,000.00) or such lesser sum as shall
equal the aggregate unpaid principal amount of all advances made
from time to time by the Bank to the Borrower pursuant to the
Seasonal Overline Revolving Loan and Credit Agreement of even
date herewith between the Bank and the Borrower ( referred to
hereinafter as the "Agreement").
The Borrower agrees to pay interest at the Interest Rate (as
defined in the Agreement) on any and all amounts of principal
advanced and unpaid under this Note from time to time, and on all
other fees, expenses, charges and other amounts accrued and
outstanding hereunder from time to time in the full amount
thereof, monthly in arrears on the first day of each month,
commencing on the first day of the month next following the month
first above written.
Any payments received by the Bank on account of this Note
prior to acceleration shall be applied first to any costs,
expenses, or charges then owed the Bank by the Borrower, second
to accrued and unpaid interest, and third to the unpaid principal
balance hereof. The Borrower hereby authorizes the Bank to
charge any deposit account which the Borrower may maintain with
the Bank for any payment required hereunder.
The Bank, at its option, may declare the entire unpaid prin-
cipal balance of this Note and accrued unpaid interest thereon to
be immediately due and payable without demand, notice or protest
(which are hereby waived) upon the occurrence of an Event of
Default (as defined in the Agreement).
No delay or omission by the Bank in exercising or enforcing
any of the Bank's powers, rights, privileges, remedies, or dis-
cretion hereunder shall operate as a waiver thereof on that
occasion nor on any other occasion. No waiver of any default
hereunder shall operate as a waiver of any other default here-
under, nor as a continuing waiver.
The Borrower will pay on demand all reasonable attorneys'
fees and out-of-pocket expenses incurred by the Bank in the
collection of this Note and the collection and administration of
all liabilities and obligations of the Borrower to the Bank upon
Default (as defined in the Agreement).
The Borrower, and each endorser and guarantor of this Note,
respectively, waive presentment, demand, notice, and protest, and
also waive any delay on the part of the holder hereof, and each
of the foregoing assents to any extension or other indulgence
(including, without limitation, the release or substitution of
collateral) permitted the Borrower or any such endorser or
guarantor by the Bank with respect to this Note and/or any
collateral given to secure this Note and/or any other liability
of the Borrower or such endorser or guarantor to the Bank.
This Note shall be binding upon the Borrower and any
endorser and guarantor hereof and upon their respective heirs,
successors and representatives, and shall inure to the benefit of
the Bank and its successors, endorsees, and assigns.
This Note is delivered to the Bank at its principal office
in Memphis, Tennessee, shall be governed by the laws of the State
of Tennessee, except with respect to the rate of interest which
shall be governed by applicable provisions of federal law. The
Borrower, and each endorser and guarantor of this Note, submit to
the jurisdiction of the courts of the State of Tennessee for all
purposes with respect to this Note, any collateral given to
secure their respective liabilities to the Bank, and their
respective relationships with the Bank.
The Borrower has read all of the terms and conditions of
this Note and acknowledges receipt of an exact copy of it.
Borrower:
FRED'S, INC.
By: /s/ Bruce D. Smith
--------------------------------
Bruce D. Smith
Its: Chief Financial Officer
------------------------------
SEASONAL OVERLINE REVOLVING CREDIT AGREEMENT
This Seasonal Overline Revolving Credit Agreement (referred
to hereinafter as the "Agreement") is made and entered into this
23rd day of July 1996 by and between
UNION PLANTERS NATIONAL BANK
a national banking association which has an address at 6200
Poplar Avenue, Memphis, Tennessee, 38119, (the "Lender"), and
FRED'S, INC., a Tennessee corporation
having its corporate offices at 4300 New Getwell Road, Memphis,
Tennessee, 38118, (the "Borrower").
1 RECITALS
1.1 Borrower's Operations. The Borrower is engaged in the
general retail merchandising of goods through company-owned and
franchised stores located in the south and southeast United
States. Included in the Borrower's operations are the import of
inventory from manufacturers outside of the United States against
import letters of credit issued for the Borrower's account.
1.2 Application for Credit. The Borrower has requested
that the Lender make available to it certain credit facilities
described below in order to finance its acquisition of inventory
for the acquisition of imported inventory and to generally
finance the business operations of the Borrower which request is
in addition to credit facilities made available to Borrower by
Lender pursuant to a $12,000,000.00 Commitment made pursuant to a
Revolving Loan and Credit Agreement dated May 15, 1992 as amended
and modified by a Modification Agreement dated May 31, 1995, and
as further amended and modified by a Modification Agreement dated
July 31, 1995 (said Revolving Loan and Credit Agreement and both
of said Modification Agreements being referred to herein
collectively for convenience as "Credit Facility No. 1"); and
1.3 Agreement of Lender. The Lender is willing to extend
the credit facilities described below for the account of the
Borrower from time to time on the terms and conditions
hereinafter set forth;
1.4 Agreement. Now, therefore, in consideration of the
premises and of other good and valuable consideration, the
adequacy and receipt of which are hereby acknowledged, the
parties hereto hereby agree as follows:
2 DEFINITIONS
2.1 Definitions. In addition to terms defined elsewhere in
this Agreement, the following terms shall have the meanings indi-
cated, which meanings shall be equally applicable to both the
singular and plural forms of such terms:
"Advance" shall mean the drawing down by the Borrower of
funds from the Lender on any given Advance Date.
"Advance Date" shall mean the date as of which the Bank
advances funds to or for the account of the Borrower.
"Affiliate" of any Person shall mean any other Person which,
directly or indirectly, controls, or is controlled by, or is
under common control with, such Person. For purposes of this
definition, "control" of any Person shall mean the power,
directly or indirectly, either to (i) vote 50% or more of the
securities having ordinary voting power for the election of
directors of such Person or (ii) direct the management and
policies of such Person, whether by contract or otherwise. The
term "Affiliate" shall include, without limitation, any partner-
ship of which the Borrower or any Affiliate of the Borrower are a
general partner or is a limited partner with more than a fifty
percent (50%) interest.
"Agreement" shall mean this Credit Agreement.
"Borrowing Base" shall mean 50% of the Borrower's total cost
of inventory.
"Borrowing Limit" shall mean the lesser of (a) the
applicable Commitment Limit as determined below or (b) the
Borrowing Base.
"Business Day" shall mean a day on which federally chartered
commercial banks are required to be open for business in Memphis,
Tennessee.
"Closing Date" shall mean the date upon which this Agreement
is executed.
"Commitment" means $9,000,000.00 which Commitment shall be
made available to Borrower in increments during periods in 1996,
both as indicated below, the total of all of such increments
during said periods being limited to the amounts ("Commitment
Limit") as indicated:
Commitment Increment 1996 Period Commitment Limit
-------------------- ----------- ----------------
$5,000,000.00 July $5,000,000.00
$2,000,000.00 August $7,000,000.00
$2,000,000.00 September $9,000,000.00
-0- October-December $9,000,000.00
"Costs" shall mean all expenses required by Section 6.9 to
be paid by Borrower.
"Default" shall mean any event which, with the lapse of
time, the giving of notice, or both, would become an Event of
Default hereunder.
"Event of Default" shall have the meaning defined in Section
9.1.
"Indebtedness" shall mean, for any Person, (a) all indebted-
ness or other obligations of such Person for borrowed money or
for the deferred purchase price of property or services, (b) all
indebtedness or other obligations of any other Person the payment
or collection of which such Person has guaranteed (except by rea-
son of endorsement for collection in the ordinary course of busi-
ness) or in respect of which such Person is liable, contingently
or otherwise, including without limitation liable by way of
agreement to purchase, to provide funds for payment, to supply
funds to or otherwise to invest in such other Person, or other-
wise to assure a creditor against loss, (c) all indebtedness or
other obligations of any other Person for borrowed money or for
the deferred purchase price of property or services secured by
(or for which the holder of such indebtedness has an existing
right, contingent or otherwise, to be secured by) any mortgage,
deed of trust, pledge, lien, security interest or other charge or
encumbrance upon or in property (including without limitation
accounts and contract rights) owned by such Person, whether or
not such Person has assumed or become liable for the payment of
such indebtedness or obligations, and (d) capitalized lease obli-
gations of such Person.
"Interest Rate" means with respect to any Advance the
interest rate so selected by the Borrower to be applicable
thereto or the rate otherwise applicable under the procedure set
forth in Section 4.3.
"Inventory" shall mean finished work, replacement parts, and
any other tangible personal property held for lease or sale.
"LIBOR" shall mean the London Inter-Bank Offering Rate as
published in the southwest edition of the Wall Street Journal on
the date of any determination of Interest Rates for a 30 day
period. Effective on any applicable LIBOR change date the LIBOR
based Interest Rates charged the Borrower with respect to such
portion of the Loan affected shall be adjusted upwards or
downwards by a number of percentage points (and fractional parts
thereof) equal to the adjustment upward or downward in the LIBOR,
and calculated on the basis of a 360 day year; provided,
however, that the rate, as adjusted shall not exceed the maximum
rate of interest from time to time during the term hereof which
Lender is permitted by law to contract for and charge.
"Loan" shall refer to the loan facility governed by this
Agreement.
"Loan Account" shall mean an account on the books of the
Lender in the name of the Borrower in which shall be recorded
loans and Advances made by the Lender to and for the account of
the Borrower pursuant to this Agreement; all other charges,
expenses and other items properly chargeable to the Borrower on
account of indebtedness evidenced by the Loan Account; all
Costs; all payments made by the Borrower on account of indebted-
ness evidenced by the Loan Account; all proceeds of Collateral
which are finally paid to the Lender; and other appropriate
debits and credits.
"Loan Documents" shall mean each of this Agreement, the
Note, and each other document or instrument executed by the
Borrower in favor of the Lender in connection with the
transaction contemplated hereby, and shall include any other
supporting documentation for the Note.
"Maturity" means January 1, 1997.
"Note" shall mean the promissory note of Borrower in
substantially the form of the note attached hereto as Exhibit 4.7
attached hereto.
"Net Income" of the Borrower for any period shall mean the
net income, determined in accordance with generally accepted
accounting principles, but in any event by deducting from the
amount of its gross income for such period all operating expenses
and other proper charges to income for such period, including
(without in any respect limiting the generality of the foregoing)
interest on all outstanding Indebtedness, amortization of debt
discount and expense, amortization of all other deferred charges
properly subject to amortization, provisions for all taxes
including taxes based on or measured by income, provisions for
all contingency reserves whether general or special, made in
accordance with generally accepted accounting principles (but, to
the extent that any such provision is subsequently determined to
have been unnecessary and is reversed on the books of such
Person, the amount thereof (less the amount of taxes, if any,
with respect thereto) may be included in computations of "Net
Income" subsequently made for the period in which such provision
was created), and provisions for depreciation, retirements and
obsolescence in accordance with generally accepted accounting
principles and in amounts not less than those actually deducted
on the books of such Person, provided, however, that profits
realized or losses sustained from the sale or other disposition
of capital assets shall be excluded and the deduction for income
taxes shall be determined as though such profits had not been
realized and such losses had not been sustained.
"Obligations" include, without limitation, any and all lia-
bilities, debts, and obligations of the Borrower to the Lender,
of each and every kind, nature and description, under this Agree-
ment, under any other Loan Document or under any other agreement
between the Borrower and the Lender. "Obligations" also in-
cludes, without limitation, any and all obligations of the Bor-
rower to act or to refrain from acting in accordance with the
terms, provisions, and covenants of this Agreement or of any
other agreement between the Borrower and the Lender or any other
instrument furnished by the Borrower to the Lender. The Lender's
books and records shall be prima facie evidence of the amount of
the Borrower's Indebtedness to the Lender hereunder.
"Person" shall mean any natural person, corporation,
unincorporated organization, trust, joint-stock company, joint
venture, association, company, partnership or government, or any
agency or political subdivision of any government.
"Prime Rate" shall mean the Union Planters National Bank's
published reference rate in effect from time to time for
commercial loans. Effective on the first day of each calendar
month the Prime Rate based Interest Rates charged the Borrower
shall be adjusted upward or downward by a number of percentage
points (and fractional parts thereof) equal to the adjustment
upward or downward in Union Planters National Bank's Prime Rate,
and calculated on the basis of a 360-day year; provided, however,
that the rate, as adjusted, shall not exceed the maximum rate of
interest from time to time during the term hereof, which Lender
is permitted by law to contract for and charge.
2.2 Accounting Terms. Accounting terms not specifically
defined in this Agreement shall have the meanings given to them
under accounting principles and practices generally accepted in
the United States, applied on a basis consistent with prior
periods.
2.3 Other Definitional Provisions. The words "hereof",
"herein" and "hereunder", and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and
not any particular provision of this Agreement. Any Section,
Exhibit or Schedule references are to this Agreement unless oth-
erwise specified.
3 REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the Lender to enter into this Agreement
and to make the loans provided for herein, the Borrower makes the
following representations and warranties to the Lender, all of
which shall survive the execution and delivery of this Agreement
and the Note.
3.1 Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation
and is duly qualified or licensed to transact business in all
places where the nature of the properties owned by it or the
business conducted by it makes such qualification necessary or
where the failure to be so qualified or licensed might have a
material adverse effect upon the financial condition, business or
properties of the Borrower.
3.2 Corporate Authority. Neither the authorization, execu-
tion, delivery, nor performance by the Borrower of this Agreement
or of the other Loan Documents, nor the performance of the
transactions contemplated hereby or thereby will violate any
provision of the corporate charter or by-laws of the Borrower,
and none of the foregoing do or will with the passage of time or
the giving of notice, result in a breach of, or result in a
default or require any consent under or result in the creation of
any lien, charge or encumbrance upon any property or assets of
the Borrower pursuant to, any instrument or agreement to which
the Borrower is a party or by which Borrower or its respective
properties may be bound or affected.
3.3 Financial Condition. The consolidated financial
statements of Borrower for the fiscal year ending February 3,
1996, as audited by Price Waterhouse including any related
information heretofore furnished to Lender (collectively
hereinafter the "Financial Statements"), are true, correct and
complete and fairly present the financial condition of the Bor-
rower as of the date of such statements. Other than as reflected
on such Financial Statements, Borrower has no direct or con-
tingent obligations or liabilities which are or would be material
to the financial condition of the Borrower, nor any material
unrealized or unanticipated losses from any commitment of the
Borrower. All such Financial Statements furnished to Lender have
been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved.
Since February 3, 1996, there has been no material adverse change
in the business or assets, or in the condition or prospects,
financial or otherwise, of the Borrower from that set forth in
said Financial Statements.
3.4 Pending Litigation. Except as heretofore disclosed in
the Financial Statements provided to Lender, there are no suits
or proceedings pending, or to the knowledge of the Borrower,
threatened, before any court or by or before any governmental or
regulatory authority, commission, bureau or agency or public
regulatory body against or affecting the Borrower which if
adversely determined might have a material adverse effect on the
financial condition or business of the Borrower.
3.5 Payment of Taxes. The Borrower has properly prepared
and filed or caused to be properly prepared and filed all
federal, state and local tax returns which are required to be
filed and has paid all taxes shown thereon to be due. No
extensions of any statute of limitations are in effect with
respect to any tax liability of the Borrower.
3.6 Certain Agreements. Borrower is not a party to any
agreement or instrument or subject to any court order or
governmental decree materially and adversely affecting its
business properties or assets, operations or condition (financial
or otherwise) in any material respect.
3.7 Authorization, Etc. All authorizations, consents,
approvals and licenses required under the corporate charter or
by-laws of the Borrower or under applicable law or regulation for
the ownership or operation of the property owned or operated by
the Borrower or the conduct of any business or activity conducted
by the Borrower have been duly issued and are in full force and
effect, and the Borrower is not in default, nor has any event
occurred which with the passage of time or the giving of notice,
or both, would constitute a default under any of the terms or
provisions thereof, or under any order, decree, ruling, regula-
tion or other decision or instrument of any governmental
commission, bureau or other administrative agency or public regu-
latory body having jurisdiction over the Borrower, which default
might have a material adverse effect on the financial condition
or business of the Borrower. No approval, consent or
authorization of or filing or registration with any governmental
commission, bureau or other regulatory authority or agency is
required with respect to the execution, delivery or performance
of any of the Loan Documents.
3.8 Use of Loans. The proceeds of the Advances shall be
used exclusively for the purpose of funding the day to day
operations of the Borrower in the normal course of Borrower's
business and for the import of Inventory.
3.9 No Violation. The execution, delivery and performance
by the Borrower of the Loan Documents do not and will not result
in the breach of or constitute a default, which default
materially affects the financial condition of the Borrower, under
any indenture or loan or credit agreement or any other agreement
in effect as of the date hereof or any lease or instrument to
which the Borrower is a party or by which it or its properties
may be bound or affected, and do not and will not violate any
provision of law or regulation applicable to the Borrower, or any
writ, order or decree of any court or governmental or regulatory
authority or agency applicable to the Borrower. The Borrower is
not in default, which default materially affects the financial
condition of the Borrower, in the performance, observance or
fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which the Borrower is
a party, or any law, regulation, decree or order.
3.10 Binding Effect. Each of the Loan Documents
constitutes the legal, valid and binding obligation of the
Borrower, enforceable against the Borrower, in accordance with
its respective terms.
3.11 Transactions With Affiliates, Officers, Directors and
Shareholders. Except as heretofore disclosed to Lender, the
Borrower has no indebtedness to or contractual arrangement or
understanding, with any of its Affiliates, officers, directors or
shareholders.
3.12 Ownership of Properties, Liens. The Borrower has good
and marketable title to all its properties and assets, real and
personal, which are now carried on its books and reflected on the
Financial Statements, and has valid leasehold interests in its
properties and assets, real and personal, which it purports to
lease, subject to no mortgage, security interest, pledge, lien,
charge, encumbrance or title retention or other security agree-
ment or arrangement of any nature whatsoever, excluding those
liens and encumbrances previously disclosed to the Lender in the
Financial Statements and otherwise.
3.13 Indebtedness. Except as previously disclosed to
Lender, the Borrower has no outstanding Indebtedness.
3.14 Capitalization. Except as disclosed in the Financial
Statements (i) all of the issued shares of the common stock of
the Borrower have been duly authorized and validly issued, are
fully paid and non-assessable and (ii) there are no outstanding
preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon the Borrower for
the purchase or acquisition of any shares of its capital stock
except any existing or contemplated Employee Stock Ownership
Plans ("ESOP").
3.15 Accuracy of Information. All information furnished to
the Lender by the Borrower for purposes of this Agreement or any
Loan document or any transaction contemplated hereby or thereby
is, and all such information hereinafter furnished will be, true
and accurate on the date furnished and will not omit any material
fact necessary to make such information not misleading at such
time. No financial statement or other written document furnished
to Lender by Borrower in connection with the Loan contains any
untrue statement of a material fact or omits a material fact
necessary to make the information contained therein not mislead-
ing. There is no fact that the Borrower has not disclosed to
Lender in writing that materially adversely affects or, so far as
Borrower knows or can now foresee, will materially adversely
affect the properties, business, prospects, profits or condition
(financial or otherwise) of Borrower or the ability of the
Borrower to perform the Agreement or pay the Note.
4 AMOUNTS AND TERMS OF LOANS
4.1 The Revolving Credit Loan. The Lender agrees, upon
terms and conditions of this Agreement, to make Advances from
time to time to the Borrower in an aggregate outstanding amount
not to exceed at any time the Borrowing Limit.
4.2 Requesting the Revolving Credit Loans. Each Advance
shall be made either: (i) on written notice given by the
Borrower to the Lender; or (ii) in a telephonic request from
Borrower, which request shall be followed by written notice from
Borrower to Lender within five days from the telephonic request;
or (iii) by delivery of a signed check or draft against
Borrower's account with Lender (all of which written documents
are referred to herein as a "Notice of Advance"); and in any
event not later than 11:00 A.M. on the day upon which the Advance
is to be made. A Notice of Advance received by Lender after
11:00A.M. shall be deemed received on the next succeeding
Business Day.
4.3 Selection of Interest Rate. A separate rate of
interest shall be assigned to each individual Advance based upon
the Borrower's selection of Interest Rate at the time of funding
each individual Advance, between the following:
4.3.1 One percent (1%) less than Lender's Prime Rate
(which rate of interest is referred to herein as the "Adjusted
Prime Rate"), or
4.3.2 150 basis points (1.50%) in excess of LIBOR.
Selection of the Interest Rate by the Borrower shall
result in the accrual in interest on the subject Advance at the
rate so selected for a period of thirty days, at the termination
of which, all interest rates thereon shall be calculated upon the
basis of the Adjusted Prime Rate. By notice to the Lender made
at least 3 days prior to the end of any calendar month, the
Borrower may elect to apply the LIBOR based rate to all or any
portion of the outstanding Advances then subject to the Prime
Rate for the following calendar month (not to extend beyond any
maturity date of the loan facility). Absent selection of an
interest rate by the Borrower, the interest rate shall be the
Adjusted Prime Rate.
4.4 Payment of LIBOR Based Advances. The Borrower shall
have no privilege to repay any Advance during any period in which
the interest rate charged therein is LIBOR based unless the
Borrower agrees to reimburse the Lender for any charges imposed
upon the Lender in liquidating its position in LIBOR funds to the
extent of such repayment. Borrower shall reimburse and indemnify
Lender for all charges imposed upon Lender to liquidate its
position in LIBOR funds with respect to any part of the Loan as
to which Borrower has selected a LIBOR based interest rate if
Lender accelerates payment of the Note for any cause.
4.5 Payment of Interest and Charges. The Borrower promises
to pay interest on the outstanding principal balance of all
Advances from the dates of their respective fundings until the
same are repaid at a per annum rate equal to the selected
Interest Rate, subject to adjustment with any fluctuation in the
Prime Rate or LIBOR. In addition, the Borrower promises to pay
interest on the entire outstanding principal balance of all
Advances from the date of maturity or extension hereof, whether
such maturity occurs as a result of a default or for any cause
other than or in addition to demand, at the maximum rate which
the Lender may contract for or charge on the date hereof, or on
such date, whichever is greater.
4.6 Repayment of Principal and Interest. The aggregate
principal amount of all Advances and interest accrued thereon
shall be due and payable in full on demand, or if no demand is
made, then as follows:
4.6.1 Interest, in the full amount thereof accruing
shall be due and payable in arrears monthly, on the first day of
each calendar month (with notice to Borrower by Lender of the
amount due and method of computation) commencing August 1, 1996.
4.6.2 Principal shall be payable in full at the end of
the term of this Agreement, whether by maturity, demand, or
otherwise.
4.7 Funding of Revolving Credit Loans. Upon fulfillment of
the conditions set forth in Section 5 hereof, the Lender shall on
each Advance Date make available to the Borrower the amount of
the requested Advance (provided that the aggregate amount of all
Advances outstanding at any one time shall not exceed the
Borrowing Limit) by transfer of immediately available funds to an
account maintained by the Borrower with the Lender. The
revolving loan Advances made by the Lender from time to time to
the Borrower under this Agreement shall be made against,
evidenced by and repaid with interest thereon in accordance with
the Note of the Borrower, a copy of which is attached hereto as
Exhibit 4.7, in an aggregate principal amount equal to the
outstanding loan balance.
4.8 Loan Account. Advances and payments on a Note shall be
recorded by the Lender in the Loan Account of the Borrower. A
statement of interest due and the debit balance of the Loan
Account, disclosing the amount of Borrower's indebtedness to the
Lender from time to time by reason of Advances, loans and other
appropriate charges hereunder and showing the selected Interest
Rates, shall be delivered to the Borrower by the Lender monthly.
The Borrower agrees to review each such statement promptly after
receipt and to bring any errors or discrepancies to the Lender's
attention promptly.
4.9 Fees. In addition to the Interest Rate charged the
borrower, the borrower shall pay to the Lender the following
fees:
One quarter of one percent (.25%) on an annualized
basis, applied to the average daily difference between
the Commitment and the aggregate of all Advances
outstanding on each day, payable monthly.
4.10 Term. The term of this Agreement and Lender's
Commitment hereunder shall continue until demand, or if no
demand, until Maturity at which time this Agreement shall be
terminated, and the entire principal balance of the Revolving
Loan, together with interest, fees and charges thereon shall be
due and payable in full.
5 CONDITIONS TO ADVANCE
The Lender shall not be obligated to make any Loan or
Advance to the Borrower hereunder unless the following conditions
have been satisfied, in the reasonable opinion of Lender and its
counsel:
5.1 Each Advance. The obligation of the Lender to make
each Advance hereunder is subject to the following conditions
precedent, each of which shall have been met or performed on or
before the Advance Date:
5.1.1 Borrower's Use of Other Credit Facility. The
Borrower shall have received loans from Lender pursuant to
Credit Facility No. 1 and, in consequence thereof, no
further Advances pursuant thereto are available to Borrower;
and, no Event of Default shall have occurred and be
continuing under Credit Facility No. 1. ( In this section
5.1.1 all defined terms shall have the meanings set forth in
Credit Facility No. 1.)
5.1.2 No Default. No Default or Event of Default
shall have occurred and be continuing or will occur upon the
making of the Advance.
5.1.3 Correctness of Representations. The representa-
tions and warranties made by the Borrower in this Agreement
(with the exception of Section 3.12 and 3.13) shall be with
the same force and effect as though such representations and
warranties had been made on and as of the Advance Date.
5.1.4 Notice of Advance. The Borrower shall have de-
livered to the Lender the Notice of Advance provided for in
Section 4.2 hereof.
5.1.5 No Litigation; Certain Other Conditions. There
shall be no suit or proceeding pending or threatened before
any court or by or before any governmental or regulatory
authority, commission, bureau or agency or public regulatory
body which suit or proceeding which, if determined adversely
to the Borrower, could reasonably be expected to have a
material adverse effect on the financial condition or
business of the Borrower.
5.1.6 No Material Adverse Change. There shall have
been no material adverse change in the financial condition,
business or prospects of the Borrower since the date of the
Financial Statements, other than disclosed in the Financial
Statements and which change has not or cannot be remedied by
Borrower within ninety (90) days.
5.1.7 Borrowing Limit. No Advance shall be made which
would result in the total Advances exceeding the applicable
Commitment Limit.
6 AFFIRMATIVE COVENANTS OF THE BORROWER
Borrower covenants and agrees that from the date of execu-
tion of this Agreement and until the payment in full of the prin-
cipal of and interest upon the Note and all other Obligations of
Borrower to Lender hereunder:
6.1 Reporting Requirements. Unless the Lender shall
otherwise consent in writing, the Borrower shall prepare and
deliver to the Lender:
6.1.1 A company prepared quarterly income statement
and balance sheet together with year to date summaries and
a copy of Borrower's Form 10-Q filed with the Securities
Exchange Commission for the same quarter within 45 days of
the end of each quarter, or as soon as the information is
reasonably available.
6.1.2 Audited annual financial statements including
balance sheets and income statements prepared by a certified
public accounting firm of national recognition within ninety
(90) days of the end of each fiscal year.
6.1.3 Promptly after the commencement thereof, notice
of all actions, suits and proceedings of the type described
in Section 5.1.5 before any court or governmental
department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the
Borrower;
6.1.4 As soon as possible and in any event within ten
days after the occurrence of each Default or Event of
Default, the statement of the chief financial officer or
Treasurer of the Borrower setting forth details of such
Default or Event of Default and action which the Borrower
proposes to take with respect thereto; and
6.1.5 As soon as possible and in any event within ten
days after the occurrence thereof, notice as to any other
event which with the passage of time, the giving of notice
or otherwise, could reasonably be expected to result in a
material adverse change in the financial condition, business
or prospects of the Borrower;
6.1.6 Promptly after the sending or filing thereof,
copies of all financial statements and reports which the
Borrower sends to its stockholders, and copies of all
regular, periodic, and special reports and all registration
statements which the Borrower files with the Securities and
Exchange Commission or any governmental authority which may
be substituted therefor, or with any national securities
exchange.
6.2 Loan Proceeds. The Borrower will use the proceeds of
the Loans only for the purposes set forth in this Agreement, and
will furnish the Lender with all evidence that it may reasonably
require with respect to such use.
6.3 Maintenance of Business and Properties; Insurance. The
Borrower will continue to engage in businesses of the same
general nature as the business engaged in by the Borrower during
the present and preceding fiscal year; at all times maintain,
preserve and protect all material franchises and trade names and
preserve all the Borrower's tangible property used or useful in
the conduct of its business and keep the same in good repair,
working order and condition, ordinary wear and tear excepted, and
from time to time make all needful and proper repairs, renewals,
replacements, betterment, and improvements thereto so that the
business carried on in connection therewith may be conducted
properly and advantageously at all times. The Borrower shall
continue all of its current operations in its name, and the
Borrower shall not commence any operation or business in
competition with the current operations and businesses of the
Borrower.
6.4 Financial Covenants. The Borrower agrees to observe
and fully comply with the following financial covenants:
6.4.1 The Borrower shall maintain its Net Income
together with depreciation and amortization equal to at least 2%
of its revenue.
6.4.2 The Borrower shall at all time maintain a
minimum shareholder's equity of at least $100,000,000.00.
6.5 Payment of Taxes. The Borrower will pay and discharge
all taxes, assessments, and governmental charges or levies
imposed upon the Borrower or upon its income or profits, or upon
any other properties belonging to the Borrower, prior to the date
on which penalties attach thereto, and all lawful claims which,
if unpaid, might become a lien or charge upon any properties of
the Borrower.
6.6 Compliance with Laws, etc. The Borrower will comply
with the requirements of all applicable laws, rules, regulations
and orders of any governmental authority, noncompliance with
which might have a material adverse effect on the business,
operation or credit of the Borrower, including, without
limitation, all labor laws, environmental laws, and equal access
and disability laws.
6.7 Books and Records. The Borrower shall keep true and
correct records and books of account, in which entries will be
made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions.
Lender or its representatives (including officers or employees of
Union Planters National Bank) shall be afforded reasonable access
to and the right to examine and copy at Lender's expense any such
books and records at any time during normal business hours upon 3
Business Days prior notice.
6.8 Repayment of Excess Borrowing. The Borrower agrees to
pay over to the Lender forthwith and without demand any amount by
which the Borrower's total outstanding Loans hereunder may at
any time exceed the applicable Commitment Limit.
6.9 Payment of Expenses. The Borrower shall pay any and
all legal fees and stamp and other taxes payable or determined to
be payable in connection with the execution and delivery of any
Loan Documents. All obligations provided for in this Section
shall survive any termination of this Agreement. In the event of
a Default hereunder, Borrower shall indemnify Lender against all
reasonable costs and expenses (including, without limitation,
reasonable legal fees, costs and expenses and including costs of
attending and preparing for depositions and other court
proceedings) of whatsoever kind and nature incurred by Lender in
the collection, enforcement or administration of the Loan and
this Agreement or the protection of Lender's rights.
6.10 Payment of Legal Fees. The Borrower shall pay any and
all legal fees and expenses determined to be payable in
connection with the Commitment and with the documentation of the
Loan. All obligations provided for in this Section shall survive
any termination of this Agreement.
6.11 Maintenance of Account. The Borrower shall maintain
its primary depository relationship with the Lender throughout
the term of this Agreement.
7 NEGATIVE COVENANTS OF THE BORROWER AND GUARANTORS
The Borrower covenants and agrees that from the date of exe-
cution of this Agreement and until the payment in full of the
principal of and interest upon the Note, the Borrower will not,
without the prior written consent of the Lender:
7.1 Other Contractual or Contingent Obligations or
Indebtedness. Incur any material indebtedness to any other party
except for : (i) borrowings which are made for fixed asset
purchases and (ii) borrowings which are unsecured and either
subordinated or otherwise made subject to or equal with the
facilities granted hereunder upon terms acceptable to the Lender.
7.2 Borrowings in Excess of the Facility Commitments.
Borrower shall not request Advances in an aggregate at any time
exceeding the Borrowing Base. To the extent that the aggregate
Advances at any time exceed the Borrowing Base, the Borrower
shall repay the Advance to the extent necessary to meet the
Borrowing Base requirements.
8 SECURITY INTERESTS
8.1 Grant of Security Interest. It is agreed by Lender and
Borrower that the loan and credit facility provided hereunder
shall be unsecured with the exception that all documents of title
to goods acquired under the terms of the Credit facility shall,
while in possession of the Bank, constitute security for the
obligation of the Borrower to fund any drafts or repay any
Advance. To effect such security interest, the Bank shall have
the right to hold such documents including bills of lading,
warehouse receipts, or other title documents until such time the
Borrower's obligations hereunder had been met.
8.2 No Additional Security Interests. Borrower shall not
borrow any additional funds or purchase any inventory on credit
terms under any program whereby a substantial portion of its
inventory should become subject to the security interest of any
third party, except for goods held on consignment. Borrower
agrees not to sign a security agreement granting or constituting
a security interest in any of its inventory or sign any financing
statement giving notice of any of the foregoing nor grant,
convey, or permit any lien, encumbrance on or pledge of its
inventory.
9 EVENTS OF DEFAULT
9.1 Events of Default. The occurrence of any one of the
following events ("Events of Default") shall be an event of
default hereunder:
9.1.1 Any representation or warranty made by the
Borrower herein, in any other Loan Document, or in any
certificate or report furnished by the Borrower hereunder or
thereunder, shall prove to have been incorrect in any material
respect when or as of when made; or
9.1.2 Default shall be made by the Borrower in the
payment within 10 days of the due date of any principal or
interest installment on the Note, or in the payment, when due, of
any other instrument relating to borrowed funds, or there shall
be any material default under any other material agreement from
time to time in effect between the Borrower and the Lender; or
9.1.3 Default shall be made by the Borrower in any of
its obligations under Section 6.1 (relating to reporting
requirements) or Section 6.4 (relating to financial covenants)
and shall not be cured within ten (10) days after written notice
thereof by the Lender to the Borrower; or
9.1.4 Default shall be made by the Borrower in the due
observance or performance of any other material covenant,
condition or agreement on the part of Borrower to be observed or
performed under the terms of this Agreement and shall not be
cured within thirty (30) days after written notice thereof by the
Lender to the Borrower; or
9.1.5 The Borrower shall (1) voluntarily terminate
operations or apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or
liquidator of the Borrower, or of all or of a substantial part of
the assets of the Borrower, (2) admit in writing its inability,
or be generally unable, to pay its debts as the debts become due,
(3) make a general assignment for the benefit of its creditors,
(4) commence a voluntary case under the Federal Bankruptcy Code
(as now or hereafter in effect), (5) file a petition seeking to
take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or
adjustment of debts, (6) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under the Federal
Bankruptcy Code or applicable state bankruptcy laws or (7) take
any corporate action for the purpose of effecting any of the
foregoing; or
9.1.6 Without its application, approval or consent, a
proceeding shall be commenced, in any court of competent
jurisdiction, seeking in respect of the Borrower: the
liquidation, reorganization, dissolution, winding-up, or
composition or readjustment of debt, the appointment of a
trustee, receiver, liquidator or the like of the Borrower or of
all or any substantial part of the assets of the Borrower, or any
Affiliate or other like relief in respect of the Borrower under
any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts; and, if the
proceeding is being contested in good faith by the Borrower, as
the case may be, the same shall continue undismissed, or unstayed
and in effect for any period of thirty (30) consecutive days, or
an order for relief against the Borrower shall be entered in any
involuntary case under the Federal Bankruptcy Code or applicable
state bankruptcy laws; or
9.1.7 Any foreclosure or other proceedings shall be
commenced to enforce, execute or realize upon any lien, encum-
brance, attachment, trustee process, mortgage or security
interest which is (or purports to be) prior to or on a parity
with the liens, mortgages, security interests or other rights in
the Borrower's property created under any Loan Document.
9.1.8 The occurrence of a Default or Event of Default
under Credit Facility No. 1.
THEREUPON, in the case of any such event, the Lender may, at
its option: (A) immediately reduce to zero the Commitment and the
applicable Commitment Limit hereunder, and/or (B) immediately
declare any Obligations not otherwise due and payable at such
time to be forthwith due and payable, whereupon the same shall
become forthwith due and payable; and, in the case of any event
described in Sections 9.1.5, 9.1.6 , 9.1.7 or 9.1.8, the
Commitment and the applicable Commitment Limit shall
automatically be reduced to zero, without any action on the part
of the Lender. Upon the declaration by the Lender that the
entire Indebtedness of the Borrower to the Lender is immediately
due and payable, any Obligation not otherwise due and payable at
such time shall become immediately due and payable without
presentment, demand, protest, or other notice of any kind, all of
which are hereby expressly waived, anything contained herein or
in the Note to the contrary notwithstanding; and, further, in
each and every such occurrence the Lender may proceed to protect
and enforce its rights by suit in equity, action or law and/or
other appropriate proceedings either for specific performance of
any covenant or condition contained in this Agreement or in any
instrument or assignment delivered to the Lender pursuant to this
Agreement, or in aid of the exercise of any power granted in this
Agreement or any instrument or assignment.
10 MISCELLANEOUS
10.1 No Waiver, Remedies Cumulative. No failure on the part
of the Lender to exercise and no delay in exercising any right
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and are not exclusive of
any remedies provided by law.
10.2 Survival of Representations. All representations and
warranties made herein shall survive the making of the Loans
hereunder and the delivery of the Note.
10.3 Notices. Unless telephonic notice is specifically per-
mitted pursuant to the terms of this Agreement, any notice or
other communication hereunder to any party hereto shall be by
telegram, telephone facsimile, telex or registered or certified
mail (return receipt requested) and shall be effective upon
actual receipt. Notice shall be in the mails, postage prepaid,
addressed to the party at its address specified in the preamble
hereto (or at any other address that such party may here after
specify to the other parties in writing).
10.4 Tennessee Law. This Agreement and each of the Loan
Documents shall be deemed a contract made under the law of the
State of Tennessee and shall be governed by and construed in
accordance with the internal laws of said state (without regard
to its conflict of laws rules).
10.5 Successors and Assigns. This Agreement shall be bind-
ing upon and shall inure to the benefit of the Borrower and the
Lender, and their respective successors and assigns; provided
that the Borrower may not assign any of its rights hereunder.
10.6 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in sepa-
rate counterparts, each of which when so executed and delivered
shall be deemed an original and all of which when taken together
shall constitute one and the same instrument.
10.7 Jurisdiction, Service of Process.
10.7.1 Any suit, action or proceeding against the
Borrower with respect to any of the Loan Documents or any
judgment entered by any court in respect of any thereof may be
brought in a court of competent jurisdiction as the Lender (in
its sole discretion) may elect, and Borrower hereby accepts the
nonexclusive jurisdiction of such courts for the purpose of any
suit, action or proceeding.
10.7.2 In addition, Borrower hereby irrevocably
waives, to the fullest extent permitted by law, any objection
which it or they may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to
any of the Loan Documents or any judgment entered by any court in
respect thereof brought in any court of competent jurisdiction,
and hereby further irrevocably waives any claim that any suit,
action or proceeding brought in any such court of competent
jurisdiction has been brought in an inconvenient forum.
10.8 Limit on Interest. Anything herein or in the Note to
the contrary notwithstanding, the obligations of the Borrower
under this Agreement and the Note to the Lender shall be subject
to the limitation that payments of interest to the Lender shall
not be required to the extent that receipt of any such payment by
the Lender would be contrary to provisions of law applicable to
the Lender (if any) or the Borrower which limit the maximum rate
of interest which may be charged or collected by the Lender; pro-
vided, however, that nothing herein shall be construed to limit
the Lender to presently existing maximum legal rates of interest,
if an increased interest rate is hereafter permitted by reason of
applicable federal or state legislation.
10.9 Amendments, Modifications, Waivers. This Agreement and
the other Loan Documents may be amended, modified or waived only
by a writing executed by the Lender and the Borrower.
10.10 Headings. The headings of this Agreement are for
convenience only and are not to affect the construction of or to
be taken into account in interpreting the substance of this
Agreement.
10.11 Waiver of Notice, Etc. Except to the extent that
written notice is required under the express provisions of this
Agreement, Borrower waives demand, notice, protest, notice of
loans made, credit extended, collateral received or delivered or
other action taken in reliance hereon and all other demands and
notice of any description. With respect to the Obligations, the
Borrower assents to any extension or postponement of the time of
payment or any other indulgence, to the addition or release of
any party or persons primarily or secondarily liable, to the
acceptance of partial payment thereon and the settlement,
compromising or adjusting of any thereof, all in such manner and
at such time or times as the Lender may deem advisable.
12.12 Severability. In the event that any one or more of
the provisions contained in this Agreement shall for any reason
be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
10.13 Loan Administration. Borrower acknowledges that as
of the date of this Agreement the Lender has properly and
satisfactorily administered Credit Facility No. 1 and the Loan
Documents as defined in this Agreement between the parties dated
July 31, 1995 (the "1995 Credit Agreement). The execution of
this Agreement does not discharge Borrower of the Indebtedness to
Lender arising pursuant to the 1995 Credit Agreement (or
otherwise), and all rights of Lender against Borrower with
respect to the Indebtedness arising pursuant to the 1995 Credit
Agreement are expressly reserved by Bank.
10.14 Entire Agreement. This Agreement and the other Loan
Documents constitute the full and entire understanding and agree-
ment between the parties with regard to the subjects hereof and
thereof.
10.15 Limitation on Obligation to Make Advances. Other
provisions in this Agreement to the contrary notwithstanding,
Lender shall have no obligation to make an Advance hereunder at a
rate of interest determined under section 4.3 that is less than
one percent (1.00%) over LIBOR.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
Lender: Borrower:
UNION PLANTERS NATIONAL BANK FRED'S, INC.
By: /s/ Victoria E. Docauer By: /s/ Bruce D. Smith
-------------------------- ---------------------------
Victoria E. Docauer Bruce D. Smith
Its: Vice President Its: Chief Financial Officer
EXHIBIT 11
FRED'S, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary net income (loss) per share
Net income (loss) $ 414 $ (427) $2,466 $1,828
===== ===== ===== =====
Weighted average number of common
shares outstanding during the period 9,330 9,335 9,330 9,330
Additional shares attributable to
common stock equivalents - - - -
----- ----- ----- -----
9,330 9,335 9,330 9,330
===== ===== ===== =====
Net income (loss) per share $ .04 $ (.05) $ .26 $ .20
===== ===== ===== =====
Fully diluted net income (loss) per share
Net income (loss) $ 414 $ (427) $2,466 $1,828
===== ===== ===== =====
Weighted average number of common
shares outstanding during the period 9,330 9,335 9,330 9,330
Additional shares attributable to
common stock equivalents - - - -
----- ----- ----- -----
9,330 9,335 9,330 9,330
===== ===== ===== =====
Net income (loss) per share $ .04 $ (.05) $ .26 $ .20
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000724571
<NAME> FRED'S, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> AUG-03-1996
<CASH> 2,666
<SECURITIES> 0
<RECEIVABLES> 3,917
<ALLOWANCES> (962)
<INVENTORY> 93,273
<CURRENT-ASSETS> 102,123
<PP&E> 51,155
<DEPRECIATION> (58,155)
<TOTAL-ASSETS> 161,038
<CURRENT-LIABILITIES> 41,831
<BONDS> 807
0
0
<COMMON> 63,348
<OTHER-SE> 53,956
<TOTAL-LIABILITY-AND-EQUITY> 161,038
<SALES> 200,786
<TOTAL-REVENUES> 200,786
<CGS> 146,559
<TOTAL-COSTS> 146,559
<OTHER-EXPENSES> 49,998
<LOSS-PROVISION> 105
<INTEREST-EXPENSE> 211
<INCOME-PRETAX> 3,913
<INCOME-TAX> 1,447
<INCOME-CONTINUING> 2,466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,466
<EPS-PRIMARY> $0.26
<EPS-DILUTED> $0.26
</TABLE>
