<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1999
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
REX STORES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE
(STATE OR OTHER JURISDICTION OF 31-1095548
INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
REX STORES CORPORATION
2875 NEEDMORE ROAD
DAYTON, OHIO 45414
(937) 276-3931
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STUART ROSE
CHAIRMAN
REX STORES CORPORATION
2875 NEEDMORE ROAD
DAYTON, OHIO 45414
(937) 276-3931
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
EDWARD M. KRESS, ESQ. JONATHAN A. SCHAFFZIN, ESQ.
STEVEN R. WATTS, ESQ. CAHILL GORDON & REINDEL
CHERNESKY, HEYMAN & KRESS P.L.L. 80 PINE STREET
1100 COURTHOUSE PLAZA S.W. NEW YORK, NEW YORK 10005
DAYTON, OHIO 45402
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.................. 2,760,000(2) $39.50 $109,020,000 $30,308
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) on the basis of the average of the high and low prices
reported on the New York Stock Exchange on August 25, 1999.
(2) Includes 360,000 shares subject to the underwriters' over-allotment option.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 27, 1999
PROSPECTUS
2,400,000 SHARES
[LOGO]
REX STORES CORPORATION
COMMON STOCK
$ PER SHARE
------------------
REX Stores Corporation is selling 1,500,000 shares of its common stock and
the selling stockholders named in this prospectus are selling 900,000 shares.
REX will not receive any proceeds from the sale of the shares by the selling
stockholders. The underwriters named in this prospectus have the option to
purchase up to 360,000 additional shares of common stock from REX and the
selling stockholders, on a pro rata basis, to cover over-allotments.
Our common stock is listed on the New York Stock Exchange under the symbol
'RSC'. The last reported sale price of the common stock on the New York Stock
Exchange on August 26, 1999 was $42.375 per share.
------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE 'RISK FACTORS' BEGINNING
ON PAGE 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------ ------------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to REX (before expenses)........................... $ $
Proceeds to the Selling Stockholders (before expenses)...... $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about ,
1999.
------------------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
GERARD KLAUER MATTISON & CO., INC.
ING BARINGS
MORGAN KEEGAN & COMPANY, INC.
, 1999
<PAGE>
INSIDE FRONT COVER
Photograph of store exterior showing entrance and parking lot.
GATEFOLD
Photograph of store interior showing salesperson demonstrating camcorder.
Photograph of store interior showing customers viewing appliances.
Photograph of store interior showing televisions.
Photograph of store interior showing customers viewing big screen
televisions.
Photograph of store interior showing digital satellite systems.
[REX LOGO]
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THIS PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Use of Proceeds............................................. 12
Capitalization.............................................. 13
Selected Consolidated Financial Data........................ 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 23
Management.................................................. 32
Principal and Selling Stockholders.......................... 34
Description of Capital Stock................................ 36
Underwriting................................................ 37
Legal Matters............................................... 38
Experts..................................................... 38
Where You Can Find More Information......................... 39
Index to Consolidated Financial Statements.................. F-1
</TABLE>
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. We use words such as 'may,' 'believe,' 'estimate,' 'plan,' 'expect,'
'intend,' 'anticipate' and similar expressions to identify forward-looking
statements. These forward-looking statements involve risks and uncertainties.
Factors that could cause our actual results to differ materially from those in
the forward-looking statements are described in the 'Risk Factors,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business' sections and elsewhere in this prospectus.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including the 'Risk Factors'
section and the consolidated financial statements and notes to those statements.
Please also note that, except as otherwise indicated:
in this prospectus, 'REX,' 'we,' 'our' and 'us' refer to REX Stores
Corporation and its subsidiaries;
all information in this prospectus assumes no exercise of the
underwriters' over-allotment option; and
all references in this prospectus to a particular fiscal year are to REX's
fiscal year ended January 31. For example, 'fiscal 1999' means the period
from February 1, 1998 to January 31, 1999.
OUR COMPANY
We are a leading specialty retailer in the consumer electronics/appliance
industry, serving over 200 small to medium-sized towns and communities. By
offering a broad selection of brand name products at guaranteed lowest prices,
we believe we have become a leading consumer electronics/appliance retailer in
our markets. Based on our 20 year operating history, we believe that these small
to medium-sized markets with populations ranging from 20,000 to 300,000 present
an opportunity to profitably operate and expand our store base. For our fiscal
year ended January 31, 1999, we reported sales, income from operations and net
income of $416.7 million, $20.2 million and $11.2 million, respectively. For the
first six months of fiscal 2000, we reported increases in sales, income from
operations, net income and comparable store sales of 14.6%, 43.3%, 138.1% and
13.1%, respectively, over the prior year's comparable period.
We operate 226 stores in 35 states under the trade name 'REX.' Currently,
148 of our stores are located in free-standing buildings, with the balance
situated in strip shopping centers and regional malls. Our stores have, on
average, approximately 7,600 square feet of selling space and approximately
3,300 square feet of storage. We design our stores to provide cost and space
efficiencies and an inviting and pleasant shopping environment for our
customers. All of our store employees, including our store managers, sell
products, unload trucks, stock merchandise and process sales, which helps
minimize employee count and overhead within each store. Most stores are staffed
with between three and six employees. Virtually all of our existing stores are
profitable on a store operating basis. In addition, a substantial majority of
our new stores are profitable on a store operating basis upon completion of
their first holiday selling season.
We carry a broad selection of brand name products within selected major
product categories, including big screen and standard-sized televisions, video
and audio equipment, camcorders and major household appliances. In particular,
we emphasize our television and video products, which together represented 53%
of our fiscal 1999 sales. We believe this emphasis positions us to benefit from
growing consumer demand for digital video products including DVD players,
digital camcorders and high definition television. We do not carry and do not
plan to carry computers, computer software or pre-recorded music. We sell
approximately 1,000 products produced by approximately 50 manufacturers, and
frequently purchase large quantities of products on an opportunistic basis at
favorable prices. We believe this buying strategy makes us a unique and
attractive customer for manufacturers seeking to sell canceled orders or excess
inventory and has enabled us to develop strong relationships with vendors. We
support our merchandising strategy with extensive newspaper advertising in each
of our local markets. In addition, we maintain a knowledgeable sales force
trained to sell all of our products with a strong emphasis on customer service.
3
<PAGE>
OUR INDUSTRY
Growth in the consumer electronics market has been driven by the
introduction of new products and technological advancements. Industry growth
accelerated during 1998, resulting from the introduction of products that
incorporate digital technology, including Digital Versatile Disc (DVD) players
and digital camcorders, both of which reached significant volume levels in 1998.
These are the most significant new product introductions since VCRs and CD
players. The most anticipated new products are digital and high definition
television sets and related converter boxes. In some cases, sales of new
products in smaller markets lag behind sales in larger metropolitan markets. For
example, DVD player sales in small markets were limited until DVD rentals became
readily available in those markets. Thus, we are only now beginning to benefit
from the introduction and demand for these products.
Digital products offer significant advantages over their analog
counterparts that include increased clarity and quality of video and audio,
durability of recordings and compatibility with computers. Due to these
advantages, we expect the digital revolution in the consumer electronics
industry to drive growth in the coming years as consumers replace their existing
analog based consumer electronics products with digital products.
OUR BUSINESS STRATEGY
Our objective is to be the leading consumer electronics/appliance retailer
in each of our markets. The key elements of our business strategy include:
FOCUSING ON SMALL MARKETS. We traditionally have concentrated our stores in
markets with populations of 20,000 to 300,000. We are currently focusing most of
our new store openings in markets with populations under 75,000. We have a
history of operating profitably in these markets, and we believe they are
underserved by our competitors.
MAINTAINING GUARANTEED LOWEST PRICES. We guarantee the lowest price on our
products through a policy of refunding 125% of the difference between our price
and a competitor's price on the same item.
OFFERING A BROAD SELECTION OF BRAND NAME PRODUCTS. We offer a broad
selection of brand name products within key product categories. We carry most
major brands of consumer electronics and appliances, having recently added Sony
and Maytag products.
CAPITALIZING ON OUR OPPORTUNISTIC BUYING. We frequently purchase large
quantities of products directly from manufacturers on an opportunistic basis at
favorable prices. We believe this buying strategy makes us a unique and
attractive customer for manufacturers seeking to sell canceled orders or excess
inventory and enables us to develop strong relationships and extended trade
credit support with vendors.
STRIVING TO BE THE LOW COST OPERATOR IN OUR MARKETS. Our current prototype
store is 12,000 square feet and provides us with cost and space efficiencies.
Our market selection criteria and operating philosophy allow us to minimize both
occupancy and labor costs.
LEVERAGING OUR STRONG OPERATIONAL CONTROLS. Our information systems and
point-of-sale computer systems, which are installed in every store, allow
management to monitor our merchandising programs, sales, employee productivity
and in-store inventory levels on a daily basis. We believe our current
information systems and distribution infrastructure can support 100 to 150 new
stores without significant additional capital expenditures.
OUR GROWTH STRATEGY
The key elements of our growth strategy include:
EXPANDING OUR STORE BASE. We have identified between 500 and 600 potential
markets that meet our site selection criteria. We plan to open 10 to 15 stores
in fiscal 2000. We plan to
4
<PAGE>
accelerate our store expansion program by opening approximately 30 to 35 new
stores in fiscal 2001 and approximately 35 to 40 new stores in fiscal 2002.
INCREASING OUR SAME STORE SALES. We plan to increase our same store sales
by:
implementing new merchandising initiatives, including the recent
introduction of Sony and Maytag products;
offering new products and product categories including DVD players,
digital camcorders, high definition television and cellular telephones and
subscriptions; and
increasing usage of local television and radio advertising to supplement
our newspaper advertising.
EXPANDING OUR E-COMMERCE INITIATIVE. We plan to profitably expand our
online retailing initiatives which include selling selected merchandise through
third-party auction sites, including Amazon.com Auctions, eBay and Yahoo! and on
our own Internet Web site at www.rexstores.com.
RISK FACTORS
We operate in a highly competitive industry. Our business strategy and
growth strategy are subject to risks which are described under 'Risk Factors.'
The following are among the risks which may adversely affect our future
financial performance:
significant competition from other retailers who have greater financial
resources;
inability to fully execute our new store expansion or profitably operate
new stores;
a decline in economic conditions; and
lack of new products or consumer acceptance of new products.
OUR COMPANY INFORMATION
Our principal offices are located at 2875 Needmore Road, Dayton, Ohio
45414. Our telephone number is (937) 276-3931.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by REX............................. 1,500,000 shares
Common stock offered by the selling stockholders........ 900,000 shares
Total.............................................. 2,400,000 shares
Common stock to be outstanding after the offering....... 9,156,382 shares
Use of proceeds......................................... We intend to use the net proceeds from
this offering to repay a portion of
our long-term mortgage debt, to fund
new store expansion and for other
general corporate purposes.
Dividend policy......................................... We have not paid cash dividends in
prior years and we do not anticipate
paying any cash dividends in the
foreseeable future.
NYSE symbol............................................. RSC
</TABLE>
The number of shares of common stock to be outstanding excludes 2,703,517
shares issuable upon exercise of options outstanding as of August 26, 1999 with
a weighted average exercise price of $12.58 per share, after deducting 3,855
shares to be sold in this offering which will be issued upon exercise of options
by a selling stockholder.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table contains our summary consolidated financial data which
you should read together with our consolidated financial statements and related
notes, 'Management's Discussion and Analysis of Financial Condition and Results
of Operations' and other information included in or incorporated by reference in
this prospectus. The 'As Adjusted' numbers in the table below reflect:
the sale of the 1,500,000 shares of common stock offered by us at an
assumed public offering price of $42.375 per share, the closing price on
August 26, 1999;
the receipt and use of the net proceeds as described under 'Use of
Proceeds;' and
the issuance of 3,855 shares of common stock upon exercise of stock
options by a selling stockholder.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
---------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................. $382,775 $442,217 $427,378 $411,005 $416,673 $180,410 $206,795
Cost of merchandise
sold.................... 286,073 327,636 317,767 297,757 302,894 130,384 149,483
-------- -------- -------- -------- -------- -------- --------
Gross profit.............. 96,702 114,581 109,611 113,248 113,779 50,026 57,312
Selling, general and
administrative
expenses................ 74,216 85,981 91,905 94,055 93,578 43,034 47,294
-------- -------- -------- -------- -------- -------- --------
Income from operations.... 22,486 28,600 17,706 19,193 20,201 6,992 10,018
Net income................ 12,596 14,573 7,362 7,412 11,195 2,598 6,185
Basic net income per
share................... $ 1.48 $ 1.62 $ 0.82 $ 0.94 $ 1.51 $ 0.34 $ 0.83
Diluted net income per
share................... $ 1.40 $ 1.56 $ 0.80 $ 0.91 $ 1.43 $ 0.32 $ 0.76
Weighted average number of
common shares
outstanding............. 8,528 8,970 8,948 7,919 7,427 7,670 7,480
Weighted average number of
common and common
equivalent shares
outstanding............. 9,014 9,365 9,219 8,178 7,833 8,034 8,122
SELECTED OPERATING DATA:
Number of stores open at
beginning of period..... 132 165 199 222 222 222 228
Stores opened............. 33 34 35 8 12 2 1
Stores closed............. 0 0 12 8 6 4 3
Number of stores open at
end of period........... 165 199 222 222 228 220 226
Comparable store sales.... 5.5% (5.4)% (17.5)% (10.5)% (0.1)% (0.2)% 13.1%
Capital expenditures...... $ 28,101 $ 23,080 $ 23,448 $ 8,015 $ 12,736 $ 4,175 $ 5,869
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 31, 1999
------------------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 82,854 $115,085
Total assets................................................ 284,608 315,066
Long-term debt.............................................. 58,708 32,374
Shareholders' equity........................................ 116,517 175,080
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risk factors described below as well as
the other information in this prospectus before making an investment in our
common stock.
WE FACE SIGNIFICANT COMPETITION FROM OTHER RETAILERS MANY OF WHOM HAVE GREATER
FINANCIAL RESOURCES THAN US.
We face significant competition from a diverse group of retailers. Our
competitors include national and regional large format merchandisers and
superstores such as Best Buy Co., Inc. and Circuit City Stores, Inc., other
specialty electronics retailers including RadioShack, the retail operating
format of Tandy Corporation, department and discount stores such as Sears,
Roebuck and Co., Wal-Mart Stores, Inc. and Montgomery Ward Holding Corp.,
furniture stores, warehouse clubs and home improvement retailers. In addition,
we compete with small chains and specialty single-store operators in some
markets, as well as Sears' dealer-operated units. We also face additional
competition from Internet and store-based retailers who sell consumer
electronics and home appliance products online. Some of our competitors have
greater financial resources than us, which may increase their ability to
purchase inventory at a lower cost, better withstand economic downturns or
engage in aggressive price competition.
We expect competition within the consumer electronics/appliance retailing
industry to increase. National merchandisers are expanding their geographic
markets and entering markets traditionally served by us. In the event that
competitors enter markets we serve, we may experience pricing pressures, reduced
gross margins and declines in same store sales.
WE MAY BE UNABLE TO FULLY EXECUTE OUR NEW STORE EXPANSION PLAN AND CANNOT ASSURE
YOU THAT OUR NEWLY OPENED STORES WILL BE PROFITABLE.
Our success depends, in part, on our ability to open and operate new stores
profitably. Several factors could affect achievement of our planned store
expansion or could adversely impact new store sales and profitability. These
factors include:
identifying new geographic markets in which we can successfully compete;
identifying and acquiring or leasing suitable new store sites at an
acceptable cost;
obtaining governmental and other third-party consents, permits and
licenses needed to operate new stores;
securing favorable economic terms for newspaper, television and radio
advertising;
hiring, promoting and training qualified personnel, including new store
managers;
integrating new stores into our existing operations;
adapting our existing information systems and distribution infrastructure
to our growing number of stores; and
having adequate financial resources available to us.
Although we believe that we have the management, operational and
information systems, distribution infrastructure and other resources required to
implement our store expansion goals, we may not be able to execute our new store
expansion within the expected time frame, if at all. To meet our store expansion
goals over the next three years, we may need to expend significant effort and
additional managerial and financial resources to ensure the continuing adequacy
of our financial controls, operating procedures, information systems, product
purchasing and distribution systems and employee training programs.
7
<PAGE>
A DECLINE IN ECONOMIC CONDITIONS COULD LEAD TO REDUCED CONSUMER DEMAND FOR THE
PRODUCTS WE SELL.
Demand for consumer electronics and home appliance products is dependent
upon various economic factors outside of our control. These factors include:
general economic conditions;
consumer confidence;
consumer spending patterns and preferences; and
new housing starts.
A slowdown in the national or regional economies or an uncertain economic
outlook could adversely affect discretionary consumer spending habits and
negatively impact our sales and operating results.
IF NEW PRODUCTS ARE NOT INTRODUCED OR CONSUMERS DO NOT ACCEPT NEW PRODUCTS OUR
SALES MAY DECLINE.
We rely upon the periodic introduction of new products to help stimulate
consumer demand. The lack of new products could reduce consumer interest and
lower our sales.
In addition, many products which incorporate the newest technologies, such
as DVD players and high definition television, are subject to technological and
pricing limitations and may not achieve widespread or rapid consumer acceptance
in the markets we serve. If these new products do not meet with widespread or
rapid market acceptance, our results of operations may be impaired.
Furthermore, the introduction or expected introduction of new products may
depress sales of existing products and technologies.
IF WE DO NOT ADEQUATELY ANTICIPATE AND RESPOND TO CHANGING CONSUMER DEMAND AND
PREFERENCES OUR RESULTS OF OPERATIONS MAY BE IMPAIRED.
Our success depends, in part, on our ability to anticipate and respond in a
timely manner to changing consumer demand and preferences regarding consumer
electronics and home appliances. Our failure to adequately anticipate and
respond to these changes could have a material adverse effect on our business,
results of operations and financial condition either from lost sales or lower
margins due to the need to mark down excess inventory.
OUR OPPORTUNISTIC PRODUCT BUYING STRATEGY COULD NEGATIVELY IMPACT OUR SALES AND
GROSS MARGINS.
We frequently purchase large quantities of merchandise on an opportunistic
or when-available basis at favorable prices. Our inability to find suitable
opportunistic product buying opportunities could negatively impact our sales and
gross margins.
Products purchased on an opportunistic basis generally are held in
inventory longer than our other products. This can result in increased inventory
levels and lower inventory turnover, which increase our working capital
requirements and inventory carrying costs. Increased inventory levels and lower
turnover rates also increase the risk of inventory mark-downs.
THE LOSS OF TAX CREDITS RESULTING FROM OUR INVESTMENT IN SYNTHETIC FUEL LIMITED
PARTNERSHIPS COULD SIGNIFICANTLY INCREASE OUR EFFECTIVE TAX RATE AND REDUCE OUR
NET INCOME.
Our net income for fiscal 1999 and the first six months of fiscal 2000 was
positively impacted by our equity investment in two limited partnerships which
produce solid synthetic fuels from four facilities. As a result of our share of
the federal income tax credits earned by the partnerships under Section 29 of
the Internal Revenue Code, our effective tax rate for fiscal 1999 and the first
six months of fiscal 2000 was reduced to 26.3% and 25.0%, respectively, versus
39.5% for the
8
<PAGE>
comparable periods in the prior year. Loss of these tax credits could
significantly increase our effective tax rate and reduce our net income.
The limited partnerships earn tax credits based upon the tonnage and
content of solid synthetic fuel sold to unrelated parties. As production and
sales levels change, so will the amount of tax credits available to us. This
could result in fluctuations in our effective tax rate and net income.
THE LOSS OF THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER, OUR PRESIDENT OR OUR
OTHER KEY EMPLOYEES COULD JEOPARDIZE OUR ABILITY TO MAINTAIN OUR COMPETITIVE
POSITION.
We believe that our success depends on the continued service of our key
executive management personnel. Loss of the services of Stuart Rose, our
Chairman and Chief Executive Officer, Lawrence Tomchin, our President and Chief
Operating Officer, or other key employees could jeopardize our ability to
maintain our competitive position in the industry. We have entered into
employment agreements with Mr. Rose and Mr. Tomchin which run through
December 31, 2002, but we do not have employment agreements with any other
members of our executive management team.
FLUCTUATIONS IN OUR COMPARABLE STORE SALES MAY CAUSE THE PRICE OF OUR COMMON
STOCK TO FLUCTUATE SUBSTANTIALLY.
A number of factors have historically affected and will continue to affect
our comparable store sales, including the following:
competition;
national and regional economic conditions;
consumer trends;
new product introductions;
weather conditions which can impact store traffic as well as sales of
seasonal products such as air conditioners;
changes in our product mix;
duration of the holiday selling season; and
timing of promotional events.
Comparable store sales are often followed closely by the investment
community and significant fluctuations in these results could cause the price of
our common stock to fluctuate substantially.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SEASONALITY.
Our business is seasonal. Our net sales and net income historically have
been highest in our fourth fiscal quarter, which includes the Christmas selling
season. The fourth quarter accounted for approximately 35% of our net sales, 50%
of our income from operations and over 65% of our net income in fiscal 1998 and
1999. Our annual financial results would be adversely impacted if our sales were
to fall substantially below what we normally expect during this period.
WE DEPEND ON OUR SUPPLIERS FOR PRODUCTS AND OUR BUSINESS COULD BE ADVERSELY
AFFECTED IF WE DO NOT MAINTAIN RELATIONSHIPS WITH OUR KEY VENDORS.
Our success depends to a significant degree upon our suppliers of consumer
electronics and home appliance products. We do not have any long-term supply
agreements or exclusive arrangements with vendors. We typically order
merchandise by issuing individual purchase orders to vendors. We rely
significantly on a few suppliers. Our six largest suppliers accounted for
approximately 55% of our purchases during fiscal 1999. The loss of any of these
key vendors, our failure to establish and maintain relationships with our
vendors, or any prolonged disruptions in product supply, could have a material
adverse impact on our business.
9
<PAGE>
WE MAY INCUR HIGHER COSTS OR DECREASED SALES AND GROSS MARGINS BECAUSE WE
PURCHASE IMPORTED PRODUCTS.
A significant portion of our inventory is manufactured outside the United
States. Changes in trade regulations, currency fluctuations or other factors may
increase the cost of items manufactured outside the United States or create
shortages of those items. We purchase all of our products in U.S. dollars.
Significant reductions in the cost of such items in U.S. dollars may cause a
significant reduction in retail price levels of those products, which could
adversely effect our sales and gross margins.
OUR MANAGEMENT, INCLUDING OUR PRINCIPAL SHAREHOLDER, OWNS A SIGNIFICANT PORTION
OF OUR COMMON STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER OUR
AFFAIRS.
After this offering, Stuart Rose, our Chairman and Chief Executive Officer,
will own approximately 10.7% of our outstanding common stock and will hold
options to acquire an additional 1,317,513 shares. In addition, our directors
and executive officers as a group will own approximately 13.4% of our common
stock after this offering and will hold options to acquire an additional
2,023,505 shares. As a result of this share ownership, our management, and in
particular Mr. Rose, will be able to exert significant influence on corporate
action requiring shareholder approval, including the election of directors. This
share ownership could delay or prevent a change in control. It could also
prevent our shareholders from realizing a premium over the market price for
their common stock or effecting a change in management.
WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS ON OUR COMMON STOCK IN THE
FORESEEABLE FUTURE.
We have not paid cash dividends on our common stock in prior years. We
currently intend to retain all of our earnings for use in our business and do
not anticipate paying any cash dividends in the foreseeable future. Our
revolving credit agreement limits and potentially prohibits the payment of
dividends. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources' for a description of
the revolving credit agreement.
SIGNIFICANT PROBLEMS RELATING TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR
BUSINESS.
Certain software and hardware systems are time sensitive. Older
time-sensitive systems often use a two digit dating convention ('00' rather than
'2000') that could result in system failure and disruption of operations as the
year 2000 approaches. This is referred to as the Year 2000 issue. The Year 2000
issue will impact us, our suppliers, customers and other third parties that
transact business with us.
In the event that our Year 2000 remediation efforts and those of third
parties fail, we could experience the following:
we could experience significant volumes of product returns due to
widespread product failures;
we could lose communications links with some stores;
some stores could close due to loss of electric power;
store security systems may not operate; and
individual stores may be unable to process transactions or engage in
normal business activity.
Any large-scale national or regional failure, if not quickly remedied,
could have a material adverse effect on our business, results of operations and
financial condition.
We have contacted our significant suppliers to determine the Year 2000
functionality of their products and minimize any disruptions to our business.
However, we cannot assure you that our vendors will be Year 2000 compliant. Any
significant disruption in our supply of goods could have a material adverse
effect on our business, results of operations and financial condition.
10
<PAGE>
We believe our vendors are responsible for the Year 2000 functionality of
the products they supply to us for resale. However, if we are required to handle
product returns or repairs with respect to those failures on a large-scale
basis, it could have a material adverse effect on our business, results of
operations and financial condition.
THE SUBSTANTIAL NUMBER OF SHARES THAT ARE ELIGIBLE FOR PUBLIC SALE AFTER THIS
OFFERING MAY ADVERSELY AFFECT OUR STOCK PRICE.
After this offering, there will be 9,156,382 shares of our common stock
outstanding. Of these outstanding shares, all 2,400,000 shares sold in this
offering and 5,651,371 shares currently outstanding will be freely tradable
without restriction or registration under the Securities Act. The remaining
1,105,011 shares are currently eligible for public sale under Rule 144 of the
Securities Act.
As of August 26, 1999, 2,707,372 shares of common stock were issuable
pursuant to options granted under our stock option plans. Of these option
shares, 1,386,510 shares are currently exercisable. All shares issuable under
our stock option plans have been registered under the Securities Act.
Sales of substantial amounts of common stock in the public market,
including shares issued upon the exercise of stock options, or the perception
that such sales could occur, could adversely impact the market price for our
common stock.
The selling stockholders have agreed not to sell any shares for 270 days
after the date of this prospectus, without the prior written consent of Salomon
Smith Barney Inc. on behalf of the underwriters. We have agreed to a 90 day
lock-up period.
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY AFTER THIS OFFERING AND YOU COULD
LOSE A SIGNIFICANT PART OF YOUR INVESTMENT AS A RESULT.
The trading price of our common stock has been volatile and is likely to
continue to be volatile. Our stock price could be subject to wide fluctuations
in response to a variety of factors. The stock market has experienced
significant price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of particular companies. The
trading prices of many companies' stock, including our stock, are at or near
historical highs. These trading prices may not be sustained. Broad market
factors may have a material adverse effect on our stock price, regardless of our
actual operating performance. Investors may not be able to resell their REX
common stock at or above the public offering price due to the possible
volatility of our common stock after this offering.
11
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 1,500,000 shares of common stock
offered by us are estimated to be approximately $59.4 million, based on an
assumed public offering price of $42.375 per share, the closing price on
August 26, 1999, and after deducting the underwriting discount and estimated
offering expenses payable by us. If the underwriters exercise their
over-allotment option in full, the net proceeds to us are estimated to be
approximately $68.3 million. We will not receive any of the net proceeds from
the sale of common stock by the selling stockholders, but we will receive
$40,000 from the exercise of options by a selling stockholder.
We currently intend to use approximately $28.5 million of the net proceeds
to repay a portion of our long-term mortgage debt, which includes approximately
$0.7 million of associated prepayment penalties. This mortgage debt bears
interest rates ranging from 8.6% to 10.0%, with maturities from May 1, 2001 to
February 1, 2012, and was incurred to purchase existing store locations. We may
change the amount of mortgage debt that we repay based on prevailing interest
rates at the time of the offering. The balance of the net proceeds will be used
to fund new store expansion and for other general corporate purposes, including
seasonal working capital and reducing outstanding borrowings under our revolving
credit agreement. The revolving credit agreement bears interest at prime or
LIBOR plus 1.875% and expires on July 31, 2000.
Pending such uses, other than the repayment of mortgage debt, we intend to
invest the net proceeds in short-term, investment grade, interest-bearing
securities.
12
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of REX at
July 31, 1999 on an actual basis, and as adjusted to give effect to the sale of
1,500,000 shares of common stock offered by us at an assumed public offering
price of $42.375 per share, the closing price on August 26, 1999, and after:
deducting the underwriting discount and estimated offering expenses
payable by us;
applying the net proceeds as described under 'Use of Proceeds;' and
recognizing an $880,000 net of tax extraordinary loss, consisting
primarily of the write-off of deferred loan acquisition costs and
prepayment penalties, associated with the repayment of long-term mortgage
debt.
<TABLE>
<CAPTION>
AS OF JULY 31, 1999
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current portion of long-term $ 3,203 $ 1,723
debt......................................................
-------- --------
-------- --------
Long-term debt, less current maturities..................... $ 58,708 $ 32,374
Shareholders' equity:
Common stock, $.01 par value; 45,000,000 shares
authorized; 7,650,477 shares issued and outstanding;
9,154,332 shares as adjusted.......................... 99 114
Paid-in capital........................................ 57,226 116,654
Retained earnings...................................... 81,555 80,675
Treasury stock, 2,284,269 shares....................... (22,363) (22,363)
-------- --------
Total shareholders' equity........................ 116,517 175,080
-------- --------
Total capitalization......................... $178,428 $209,177
-------- --------
-------- --------
</TABLE>
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical financial and operating
data for the periods indicated. The Income Statement Data and Balance Sheet Data
for and as of each of the fiscal years ended January 31, 1995, 1996, 1997, 1998
and 1999 have been derived from our consolidated financial statements audited by
Arthur Andersen LLP, independent public accountants. The Selected Operating Data
for and as of the periods indicated were derived or computed from our business
and accounting records. The Income Statement Data and Balance Sheet Data for and
as of the six months ended July 31, 1998 and 1999 have been derived from our
unaudited consolidated financial statements. The unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements and include, in the opinion of management, all
adjustments necessary for a fair presentation of the information presented. The
information below should be read together with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and our consolidated
financial statements and related notes contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
---------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......................................... $382,775 $442,217 $427,378 $411,005 $416,673 $180,410 $206,795
Cost of merchandise sold.......................... 286,073 327,636 317,767 297,757 302,894 130,384 149,483
-------- -------- -------- -------- -------- -------- --------
Gross profit...................................... 96,702 114,581 109,611 113,248 113,779 50,026 57,312
Selling, general and administrative expenses...... 74,216 85,981 91,905 94,055 93,578 43,034 47,294
-------- -------- -------- -------- -------- -------- --------
Income from operations............................ 22,486 28,600 17,706 19,193 20,201 6,992 10,018
Investment income................................. 229 182 85 202 347 223 190
Interest expense.................................. (1,899) (4,707) (5,624) (7,143) (6,448) (2,918) (2,756)
Gain on sale of real estate....................... -- -- -- -- 2,410 -- --
Income (equity in losses) from limited
partnerships.................................... -- -- -- -- (1,312) -- 796
-------- -------- -------- -------- -------- -------- --------
Income before provision for income taxes.......... 20,816 24,075 12,167 12,252 15,198 4,297 8,248
Provision for income taxes........................ 8,220 9,502 4,805 4,840 4,003 1,699 2,063
-------- -------- -------- -------- -------- -------- --------
Net income........................................ $ 12,596 $ 14,573 $ 7,362 $ 7,412 $ 11,195 $ 2,598 $ 6,185
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Basic net income per share........................ $ 1.48 $ 1.62 $ 0.82 $ 0.94 $ 1.51 $ 0.34 $ 0.83
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Diluted net income per share...................... $ 1.40 $ 1.56 $ 0.80 $ 0.91 $ 1.43 $ 0.32 $ 0.76
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Weighted average number of common shares
outstanding..................................... 8,528 8,970 8,948 7,919 7,427 7,670 7,480
Weighted average number of common and common
equivalent shares outstanding................... 9,014 9,365 9,219 8,178 7,833 8,034 8,122
SELECTED OPERATING DATA:
Number of stores open at beginning of period...... 132 165 199 222 222 222 228
Stores opened..................................... 33 34 35 8 12 2 1
Stores closed..................................... 0 0 12 8 6 4 3
Number of stores open at end of period............ 165 199 222 222 228 220 226
Comparable store sales............................ 5.5% (5.4)% (17.5)% (10.5)% (0.1)% (0.2)% 13.1%
Capital expenditures.............................. $ 28,101 $ 23,080 $ 23,448 $ 8,015 $ 12,736 $ 4,175 $ 5,869
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, AS OF JULY 31,
---------------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................ $ 78,697 $ 80,016 $ 80,151 $ 77,250 $ 77,360 $ 78,887 $ 82,854
Total assets................................... 192,616 234,599 248,034 260,530 268,282 260,530 284,608
Long-term debt................................. 25,595 32,590 51,102 52,661 55,478 52,661 58,708
Shareholders' equity........................... 89,394 102,346 102,720 105,782 110,210 105,782 116,517
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading specialty retailer in the consumer electronics/appliance
industry. Since acquiring our first four stores in 1980, we have expanded into a
national chain operating 226 stores in 35 states under the 'REX' trade name. By
offering a broad selection of brand name products at guaranteed lowest prices,
we believe we have become a leading consumer electronics/appliance retailer in
our markets. Based on our 20 year operating history, we believe that these small
to medium-sized markets with populations ranging from 20,000 to 300,000 present
an opportunity to profitably operate and expand our store base.
Our comparable store sales declined 17.5%, 10.5% and 0.1% in fiscal 1997,
1998 and 1999, respectively. Negative comparable store sales in fiscal 1997 and
1998 were primarily driven by increased competitor openings in our markets with
populations over 150,000, a lack of new product introductions within the
industry and our decision to discontinue selling personal computers in fiscal
1998. Comparable store sales increased 11.9% and 14.2% for the first two
quarters of fiscal 2000, respectively. The increases in comparable store sales
that have occurred in fiscal 2000 have been primarily driven by increased air
conditioner sales resulting from warm weather conditions, particularly in the
second quarter, and the increased usage of local television and radio
advertising in selected markets. We consider a store to be comparable after it
has been open six full fiscal quarters. Comparable store sales comparisons do
not include sales of extended service contracts.
During fiscal 1997, 1998 and 1999, we opened 35, 8 and 12 stores, and
closed 12, 8 and 6 stores, respectively. During fiscal 2000 we plan to open 10
to 15 stores. We are accelerating our planned store openings for fiscal 2001 and
2002, with 30 to 35 new store openings planned in fiscal 2001 and 35 to 40 in
fiscal 2002. In March 1998, we opened a third distribution center in Cheyenne,
Wyoming, that will allow us to further expand in the western part of the United
States. Future store openings are expected to occur in our existing geographical
markets and selected new states. We are currently focusing most of our new store
openings in markets with populations under 75,000, which generally are
underserved by our competitors.
EXTENDED SERVICE CONTRACTS
Our extended service contract revenues, net of sales commissions, are
deferred and amortized on a straight-line basis over the life of the contracts
after the expiration of applicable manufacturers' warranty periods. Terms of
coverage, including the manufacturers' warranty periods, are usually for periods
of 12 to 60 months. Extended service contract revenues represented 2.9%, 3.5%
and 3.7% of net sales for fiscal 1997, 1998 and 1999, respectively. Service
contract costs are charged to operations as incurred. Gross profit realized from
extended service contract revenues was $9.6 million, $11.0 million and $10.3
million in fiscal 1997, 1998 and 1999, respectively.
INVESTMENT IN LIMITED PARTNERSHIPS
In fiscal 1999, we invested $3.2 million in two limited partnerships which
own four facilities producing synthetic fuel from coal fines. The partnerships
earn federal income tax credits under Section 29 of the Internal Revenue Code
based on the tonnage and content of solid synthetic fuel sold to unrelated
parties. Our share of the credits generated may be used to reduce our federal
income tax liability down to the alternative minimum tax (AMT) rate. Unused
Section 29 credits convert to AMT credits and may be carried forward. Under
current law, credits under Section 29 are available for qualified fuels sold
before January 1, 2008.
We initially held a 30% interest in one partnership and an 18.75% interest
in the other. Effective February 1, 1999, we sold a portion of our interest in
one partnership, reducing our ownership percentage from 30% to 17%. We will
receive cash payments from the sale on a quarterly basis through 2007. These
payments are contingent upon and equal to 75% of the federal income tax credits
attributable to the 13% interest sold.
15
<PAGE>
We are a limited partner in each partnership. We have no managerial
responsibility or liability for future working capital contributions, although
our interest in each partnership could be diluted if we choose not to pay our
share of necessary capital improvements to the partnerships' facilities. We
account for our ownership interest in the partnerships under the equity method.
The limited partnerships have applied to the IRS for private letter rulings
that the synthetic fuel produced by their facilities and sold to unrelated
parties qualifies for the tax credits under Section 29 of the Internal Revenue
Code. The IRS recently ruled favorably on the request of the partnership which
owns one of the four facilities. The ruling request with respect to the
partnership owning the other three facilities was made more recently and is
still pending. The facts of the pending request are substantially identical to
the facts in the ruling favorably issued. Accordingly, we anticipate that a
favorable ruling will be issued with respect to the other three facilities,
although we cannot be certain the IRS will issue a favorable ruling.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items bear to net sales:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
JANUARY 31, JULY 31,
--------------------------- ----------------
1997 1998 1999 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold.................. 74.4 72.4 72.7 72.3 72.3
----- ----- ----- ----- -----
Gross profit......................... 25.6 27.6 27.3 27.7 27.7
Selling, general and administrative
expenses................................ 21.5 22.9 22.4 23.8 22.9
----- ----- ----- ----- -----
Income from operations............... 4.1 4.7 4.9 3.9 4.8
Interest, net............................. (1.3) (1.7) (1.5) (1.5) (1.2)
Gain on sale of real estate............... -- -- 0.6 -- --
Income (equity in losses) from limited
partnerships............................ -- -- (0.3) -- 0.4
----- ----- ----- ----- -----
Income before provision for income
taxes.............................. 2.8 3.0 3.7 2.4 4.0
Provision for income taxes................ 1.1 1.2 1.0 1.0 1.0
----- ----- ----- ----- -----
Net income........................... 1.7% 1.8% 2.7% 1.4% 3.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
COMPARISON OF SIX MONTHS ENDED JULY 31, 1999 AND 1998
NET SALES. Net sales for the first half of fiscal 2000 were $206.8 million
compared to $180.4 million for the first half of fiscal 1999, representing an
increase of $26.4 million or 14.6%. This increase is primarily the result of an
increase of 13.1% in comparable store sales for the first half of fiscal 2000.
As of July 31, 1999, we had 226 stores compared to 220 stores one year earlier.
There was one store opened and three closed in the first half of fiscal 2000. In
the prior year's first half there were two stores opened and four closed.
Comparable store sales increased by 13.1% in the first half of fiscal 2000.
All major product categories made positive contributions to comparable store
sales. The appliance category impacted comparable store sales by 7.2%, led by
strong air conditioner sales. This strong performance was due to warm weather
throughout our markets in the second quarter, particularly in the Midwest and
Northeast. Televisions impacted comparable store sales by 3.0%, primarily due to
the strength of the big screen TV product lines. In addition, the audio and
video categories impacted comparable store sales by 1.9% and 1.0%, respectively.
GROSS PROFIT. Gross profit in the first half of fiscal 2000 was $57.3
million, or 27.7% of net sales, a 14.6% increase from $50.0 million, or 27.7% of
net sales, for the first half of fiscal 1999.
16
<PAGE>
Gross profit as a percent of sales for the first half of fiscal 2000 was
positively impacted by higher margins generated by air conditioner sales and
improved margins in the television, video and other appliance categories
primarily due to better merchandise buying opportunities. For the first six
months of fiscal 2000, gross profit realized from sales of extended service
contracts was $5.4 million compared to $5.6 million for the first six months of
fiscal 1999. Sales of extended service contracts generally have a higher gross
profit margin in comparison to other product categories and the decline in the
amount recognized, as well as its percentage of total gross profit, served to
offset the improvements as a percent of sales in other product categories on a
year to date basis in fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first half of fiscal 2000 were $47.3 million, or
22.9% of net sales, a 9.9% increase from $43.0 million, or 23.8% of net sales,
for the first half of fiscal 1999. The increase in expenses for the first half
of fiscal 2000 is primarily the result of increased incentive commissions and
other selling costs associated with the increased sales levels. The reduction in
selling, general and administrative expenses as a percent of net sales is
primarily the result of the leveraging of store operating costs, such as
advertising and occupancy expenses, on an increase in comparable store sales of
13.1% for the first half of fiscal 2000.
INCOME FROM OPERATIONS. Income from operations was $10.0 million, or 4.8%
of net sales, for the first half of fiscal 2000, a 43.3% increase from the $7.0
million, or 3.9% of net sales, for the first half of fiscal 1999. The increase
was primarily due to increased comparable store sales and the leveraging of
store operating costs, such as advertising and occupancy expenses.
INTEREST EXPENSE. Interest expense for the first half of fiscal 2000
decreased to $2.8 million, or 1.3% of net sales, from $2.9 million, or 1.5% of
net sales, for the first half of fiscal 1999. The decrease in interest expense
was a result of lower borrowings under the line of credit for the first half of
fiscal 2000.
INCOME FROM LIMITED PARTNERSHIPS. Results of the first half of fiscal 2000
also reflect the impact of our equity investment in two synthetic fuel limited
partnerships. We reported income from the limited partnerships of $796,000 for
the first half of fiscal 2000, which consisted of $1,853,000 of income generated
by the sale of a portion of the interest in one of the partnerships, partially
offset by a charge of $1,057,000 to reflect our equity share of the
partnerships' losses.
INCOME TAXES. Our effective tax rate was reduced to 25.0% for the first
half of fiscal 2000 from 39.5% for the first half of fiscal 1999 as a result of
our share of federal income tax credits earned by the limited partnerships.
NET INCOME. As a result of the foregoing, net income for the first half of
fiscal 2000 was $6.2 million, a 138.1% increase from $2.6 million for the first
half of fiscal 1999.
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1999 AND 1998
NET SALES. Net sales in fiscal 1999 were $416.7 million, a 1.4% increase
from the $411.0 million achieved in fiscal 1998. This increase was caused by the
addition of 12 stores opened in fiscal 1999 and the first full year of sales for
eight stores opened in the previous fiscal year. During fiscal 1999, we opened
12 stores and closed six, while during fiscal 1998 we opened eight stores and
closed eight. We had 228 and 222 stores open at January 31, 1999 and 1998,
respectively.
Comparable store sales declined by 0.1% in fiscal 1999. Comparable store
sales were positively impacted by approximately 1.4% and 1.3% by the audio and
appliance categories, respectively, as well as approximately 1.0% by ready to
assemble (RTA) furniture. The increase in sales of appliances and RTA furniture
was a result of expanded offerings in both categories.
Comparable store sales were negatively impacted by approximately 0.1% and
2.7% by the television and video products categories, respectively, and by
approximately 1.0% by our decision to discontinue selling personal computers
during fiscal 1998. Television and video products were negatively impacted by a
continued decline in average selling prices. There was also a general softness
in demand for video products due to the pending transition to digital products.
There will
17
<PAGE>
not be a continuing effect in fiscal 2000 on comparable store sales from
personal computers as we sold a limited number of personal computers in fiscal
1999.
GROSS PROFIT. Gross profit was $113.8 million in fiscal 1999, or 27.3% of
net sales, versus $113.2 million, or 27.6% of net sales, recorded the prior
year. The reduced gross profit margin was primarily the result of the changes in
merchandise sales mix discussed above and the continued decline in the average
selling prices of television and video products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1999 were $93.6 million, or 22.4% of net
sales, a 0.5% decline from $94.1 million, or 22.9% of net sales, in fiscal 1998.
The decrease in expenses was primarily due to lower advertising expenditures in
certain markets of approximately $2.3 million, partially offset by an increase
in compensation expense of approximately $1.2 million resulting from increased
total sales and profits.
INCOME FROM OPERATIONS. Income from operations was $20.2 million, or 4.9%
of net sales, in fiscal 1999, a 5.2% increase from $19.2 million, or 4.7% of net
sales, for fiscal 1998. The increase was primarily due to increased total sales
and controls over advertising expenditures.
INTEREST EXPENSE. Interest expense decreased to $6.4 million in fiscal 1999
from $7.1 million in fiscal 1998. The decrease in interest expense was primarily
attributable to lower borrowings under the line of credit. Average outstanding
borrowings under the line of credit were approximately $15.8 million in fiscal
1999 versus approximately $22.2 million in fiscal 1998.
GAIN ON SALE OF REAL ESTATE. During fiscal 1999, we sold two shopping
centers in which we had previously operated retail stores. We recorded a gain of
approximately $2.4 million from the sale of this real estate.
LOSSES FROM LIMITED PARTNERSHIPS. Results for the fiscal year ended January
31, 1999 also reflect the impact of our investment in the two synthetic fuel
limited partnerships. We recorded a pre-tax charge of approximately $1.3 million
to record our share of the partnerships' operating losses, lowering our total
investment in the partnerships to $1.8 million.
INCOME TAXES. Our effective tax rate was reduced to 26.3% in fiscal 1999
from 39.5% in fiscal 1998 as a result of our share of federal tax credits earned
by the limited partnerships.
NET INCOME. As a result of the foregoing, net income was $11.2 and $7.4
million for fiscal 1999 and 1998, respectively.
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1998 AND 1997
NET SALES. Net sales in fiscal 1998 were $411.0 million, a 3.8% decrease
from the $427.4 million achieved in fiscal 1997. This decrease was caused by a
decline of 10.5% in comparable store sales, partially offset by the first full
year of sales for 35 stores opened in the previous fiscal year. During fiscal
1998, we opened eight stores and closed eight, while during fiscal 1997 we
opened 35 stores and closed 12. We had 222 stores open at both January 31, 1998
and 1997.
Comparable store sales declined by 10.5% in fiscal 1998. Comparable store
sales were negatively impacted by a general weakness in the video, audio and
television categories, partly due to the approaching transition to digital
technology, a decline in average selling prices and increased competition.
Comparable store sales were also negatively impacted by our decision to
discontinue selling personal computers. The decision to discontinue selling
personal computers continued to negatively impact comparable store sales in
fiscal 1999.
GROSS PROFIT. Gross profit was $113.2 million in fiscal 1998, or 27.6% of
net sales, versus $109.6 million, or 25.6% of net sales, recorded in the prior
year. The improved gross profit margin was primarily the result of lower
merchandise cost on certain products due to opportunistic purchasing and the
recognition of a higher amount of extended service contract revenues, which
generally have a higher gross profit margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1998 were $94.1 million, or 22.9% of net
sales, a 2.4% increase over the $91.9 million, or 21.5% of net sales, in fiscal
1997. The increase in expenses was primarily due to an increase in
18
<PAGE>
incentive commissions for sales personnel of approximately $2.6 million.
Incentive commissions rates were increased in fiscal 1998. Selling, general and
administrative expenses as a percent of net sales also increased due to the
decline in comparable store sales.
INCOME FROM OPERATIONS. Income from operations was $19.2 million, or 4.7%
of net sales, in fiscal 1998, an 8.5% increase from the $17.7 million, or 4.1%
of net sales, for fiscal 1997. The increase was primarily due to the improved
gross profit margin.
INTEREST EXPENSE. Interest expense increased to $7.1 million in fiscal 1998
from $5.6 million in fiscal 1997. The increase in interest expense was primarily
attributable to additional mortgage debt outstanding for the full fiscal year on
stores opened in fiscal 1997. Average outstanding mortgage debt was
approximately $55.1 million in fiscal 1998 compared to $40.8 million in fiscal
1997.
INCOME TAXES. Our effective tax rate was 39.5% for fiscal 1998 and 1997.
NET INCOME. As a result of the foregoing, net income was $7.4 million in
fiscal 1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of financing have been cash flow provided by
operations, supplemented by mortgages on owned properties. We also use
borrowings under our revolving line of credit to fund our seasonal working
capital needs.
OPERATING ACTIVITIES. Net cash used in operating activities was
$0.6 million for the first six months of fiscal 2000, compared to $13.4 million
for the first six months of fiscal 1999. For the first six months of fiscal
2000, operating cash flow was provided by net income of $6.2 million adjusted
for the net impact of non-cash items of $2.1 million, which consist of deferred
income, depreciation and amortization and our equity interest in the losses of
the synthetic fuel limited partnerships. Cash was also provided by an increase
in accounts payable of $4.2 million, primarily due to an increase in inventory
and extended payment terms from certain vendors, and an increase in other
liabilities of $3.6 million, primarily due to the timing of payment for wages
and taxes. The primary use of cash was an increase in inventory of $17.4 million
primarily due to the seasonal timing of inventory purchases.
Net cash provided by operating activities was $10.2 million for fiscal
1999. For fiscal 1999, operating cash flow was provided by net income of $11.2
million adjusted for the net impact of non-cash items of $1.0 million, which
primarily consisted of depreciation, the gain on sale of real estate and our
equity interest in the losses of the synthetic fuel limited partnerships. Cash
was also provided by an increase in accounts payable of $2.8 million, primarily
due to extended payment terms and the timing of payments to vendors. Cash was
used by an increase in inventory of $5.5 million generally due to the timing of
purchases.
INVESTING ACTIVITIES. Capital expenditures in the first six months of
fiscal 2000 totaled $5.9 million and primarily relate to the acquisition of
store sites and other construction expenditures associated with planned fiscal
2000 new store openings and the purchase of a previously leased store.
Capital expenditures in fiscal 1999 totaled $12.7 million. Expenditures
included approximately $7.9 million to open 12 stores, approximately $2.1
million to relocate two stores and approximately $2.1 million to purchase three
previously leased stores. In fiscal 1999, we also invested $3.2 million in the
synthetic fuel limited partnerships.
We plan to open 10 to 15 stores in fiscal 2000. Total capital expenditures
for fiscal 2000 are expected to be approximately $14.0 million. We plan to open
30 to 35 new stores in fiscal 2001, with anticipated capital expenditures of
$25.0 to $30.0 million.
FINANCING ACTIVITIES. Cash provided by financing activities totaled $3.4
million for the first six months of fiscal 2000. We received proceeds of $3.3
million from the exercise of stock options by employees. During the first six
months of fiscal 2000, we also purchased 209,000 shares of our common stock for
$3.2 million. During fiscal 1999, we purchased 632,000 shares of our common
stock for $7.5 million. We are currently authorized by our board of directors to
purchase an additional 255,700 shares of common stock. All shares purchased will
be held in treasury for possible future use.
19
<PAGE>
We have a revolving credit agreement with seven banks through July 31,
2000, with interest at prime or LIBOR plus 1.875%. Amounts available for
borrowing are equal to the lesser of (1) $100 million for the months of January
through June and $150 million for the months of July through December or (2) the
sum of specified percentages of eligible accounts receivable and eligible
inventories, as defined. Amounts available for borrowing are reduced by any
letter of credit commitments outstanding. Borrowings on the revolving credit
agreement are secured by a lien on substantially all of our assets, including
the capital stock of our subsidiaries.
At July 31, 1999, no borrowings were outstanding on the revolving credit
agreement. A total of approximately $94.9 million was available at July 31,
1999. Borrowing levels vary during the course of a year based on our seasonal
working capital needs. The maximum direct borrowings outstanding during fiscal
1999 were approximately $41.9 million, immediately prior to the Christmas
selling season due to the build-up of seasonal inventory requirements. The
weighted average interest rate was 9.6%, including commitment fees, for fiscal
1999. The revolving credit agreement contains restrictive covenants which
require us to maintain specified levels of consolidated tangible net worth and
limit capital expenditures and the incurrence of additional indebtedness. The
revolving credit agreement also places restrictions on common stock repurchases
and the payment of dividends.
At July 31, 1999, we had approximately $61.9 million of mortgage debt
outstanding, including $5.3 million obtained in the first half of fiscal 2000
and $7.0 million obtained in fiscal 1999 from mortgaging 16 properties at a
weighted average interest rate of 8.6%, with maturities from 2000 to 2014.
We currently intend to use approximately $28.5 million of the net proceeds
from this offering to repay a portion of our long-term mortgage debt, which
includes approximately $0.7 million of associated prepayment penalties. This
mortgage debt bears interest rates ranging from 8.6% to 10.0%, with maturities
from May 1, 2001 to February 1, 2012. In connection with the repayment of this
debt, we expect to incur an extraordinary loss of approximately $880,000 in our
third quarter ending October 31, 1999. The extraordinary loss will consist
primarily of the write-off of the associated deferred loan acquisition costs and
prepayment penalties, net of income tax benefits of approximately $290,000. We
may change the amount of mortgage debt that we repay based on prevailing
interest rates at the time of the offering.
WORKING CAPITAL. At July 31, 1999, working capital was $82.9 million
compared to $77.4 million at January 31, 1999. The ratio of current assets to
current liabilities was 1.9 to 1 at July 31, 1999 and at January 31, 1999.
We believe the net proceeds from this offering, existing working capital,
cash generated from operations and funds available under our revolving line of
credit will be sufficient to fund our operations and planned expansion through
fiscal 2001.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Our business is seasonal. As is the case with many other retailers, our net
sales and net income are greatest in our fourth fiscal quarter, which includes
the Christmas selling season. The fourth fiscal quarter accounted for 35.2% and
34.5% of net sales, 50.4% and 49.8% of income from operations, and 65.7% and
70.3% of net income in fiscal 1998 and 1999, respectively. Year-to-year
comparisons of quarterly results of operations and comparable store sales can be
affected by a variety of factors, including the duration of the holiday selling
season, weather conditions and the timing of new store openings.
The following table provides certain unaudited financial information for
REX for each of the quarters shown.
20
<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
------------------------------------------------------------------------------------
APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
---------------- ----------------- ---------------- -----------------
% OF % OF % OF % OF
$000S ANNUAL $000S ANNUAL $000S ANNUAL $000S ANNUAL
----- ------ ----- ------ ----- ------ ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FISCAL 1998
Net sales........ $88,265 21.5% $ 89,899 21.9% $87,967 21.4% $144,874 35.2%
Income from
operations..... 2,822 14.7 4,188 21.8 2,519 13.1 9,664 50.4
Net income....... 797 10.8 1,359 18.3 383 5.2 4,873 65.7
FISCAL 1999
Net sales........ $87,964 21.1% $ 92,446 22.2% $92,634 22.2% $143,629 34.5%
Income from
operations..... 2,766 13.7 4,226 20.9 3,156 15.6 10,053 49.8
Net income....... 1,019 9.1 1,579 14.1 732 6.5 7,865 70.3
FISCAL 2000
Net sales........ $99,056 -- $107,739 -- -- -- -- --
Income from
operations..... 3,658 -- 6,360 -- -- -- -- --
Net income....... 2,087 -- 4,098 -- -- -- -- --
</TABLE>
IMPACT OF INFLATION
The impact of inflation has not been material to our results of operations
for the past three fiscal years.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, 'Accounting for
Derivative Instruments and Hedging Activities,' which requires companies to
recognize all derivative contracts at their fair values, as either assets or
liabilities on the balance sheet. Changes in the fair value of derivatives are
recorded in current earnings or other comprehensive income. In June 1999, the
FASB issued Statement No. 137, which amended SFAS No. 133 to defer the effective
date of adoption to fiscal quarters beginning after June 15, 2000. We do not
expect the adoption of SFAS No. 133 to have a material impact on the
consolidated financial statements because we do not currently hold any
derivative instruments. We do not intend to adopt SFAS No. 133 prior to its
effective date.
YEAR 2000
The statements in this section include 'Year 2000 readiness disclosure'
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
Certain software and hardware systems are time sensitive. Older
time-sensitive systems often use a two digit dating convention ('00' rather than
'2000') that could result in system failure and disruption of operations as the
year 2000 approaches. This is referred to as the Year 2000 issue. The Year 2000
issue will impact us, our suppliers, customers and other third parties that
transact business with us.
We have a staff of internal resources to address Year 2000 issues. This
team believes that it has identified substantially all hardware and software
systems within REX which may be susceptible to Year 2000 issues. Projects have
been established to address all significant Year 2000 issues. The Year 2000 team
reports regularly to senior management on the progress of significant Year 2000
projects.
Most Year 2000 activities are to test hardware and software systems,
including infrastructure systems such as telephones and store security systems.
We determined that we needed to modify some of our software. We believe all
hardware systems are Year 2000 compliant. We believe we have completed
reprogramming and testing all of our critical systems impacted by Year 2000
21
<PAGE>
issues. We are currently working with outside vendors on the compliance status
of telephones and store security systems.
We have initiated communications with our significant suppliers and other
third parties that transact business with us to identify and minimize
disruptions to our operations and to assist in resolving Year 2000 issues.
Information provided by our 15 largest suppliers states that they believe their
products are Year 2000 compliant. Most of the companies operating our store
security systems believe their systems are either Year 2000 compliant or are not
date dependent. However, there can be no certainty that the impacted systems and
products of other parties on which we rely will be Year 2000 compliant.
We generally believe that our suppliers are responsible for the Year 2000
functionality of the products they supply to us for resale. However, should
product failures occur, we may be required to address the administrative aspects
of those failures, such as handling product returns or repairs.
The estimated costs for resolving Year 2000 issues are approximately
$175,000. Most of these costs are internal labor related to reprogramming
existing software. Estimates of Year 2000 costs are based on numerous
assumptions and actual costs could be greater than estimates. Specific factors
that might cause such differences include, but are not limited to, the
continuing availability of personnel trained in this area and the ability to
timely identify and correct all relevant software and hardware systems.
While we believe we are diligently addressing the Year 2000 issues to
ensure Year 2000 readiness, there can be no absolute assurance that the
objective will be achieved either internally or as it relates to third parties.
At this time, we believe the most reasonably likely worst case scenario is that:
we could experience significant volumes of product returns due to
widespread product failures;
we could lose communications links with some stores;
some stores could close due to loss of electric power;
store security systems may not operate; and
individual stores may be unable to process transactions or engage in
normal business activity.
Our contingency plans include conducting store operations on a manual
basis, working to assess and correct system errors and possibly changing
suppliers.
22
<PAGE>
BUSINESS
We are a leading specialty retailer in the consumer electronics/appliance
industry, serving over 200 small to medium-sized towns and communities. Since
1980, when our first four stores were acquired, we have expanded into a national
chain operating 226 stores in 35 states under the 'REX' trade name. Our stores
average approximately 10,900 square feet and offer a broad selection of brand
name products within selected major product categories, including big screen and
standard-sized televisions, video and audio equipment, camcorders and major
household appliances.
INDUSTRY OVERVIEW
The consumer electronics/appliance industry, defined to include
televisions, video and audio equipment, camcorders and home appliances, is large
and highly fragmented. The industry consists of large, national chains selling a
broad range of goods, small specialty single-store operators, consumer
electronics departments of selected department and discount stores and home
improvement centers.
Growth in the consumer electronics market has been driven by the
introduction of new products and technological advancements. Industry growth
accelerated during 1998, resulting from the introduction of products that
incorporate digital technology, including Digital Versatile Disc (DVD) players
and digital camcorders, both of which reached significant volume levels in 1998.
These are the most significant new product introductions since VCRs and CD
players. The most anticipated new products are digital and high definition
television sets and related converter boxes. In some cases, sales of new
products in smaller markets lag behind sales in larger metropolitan markets. For
example, DVD player sales in small markets were limited until DVD rentals became
readily available in those markets. Thus, we are only now beginning to benefit
from the introduction and demand for these products.
Digital products offer significant advantages over their analog
counterparts that include increased clarity and quality of video and audio,
durability of recordings and compatibility with computers. Due to these
advantages, we expect the digital revolution in the consumer electronics
industry to drive growth in the coming years as consumers replace their existing
analog based consumer electronics products with digital products.
CONTINUED PENETRATION OF DVD
The Consumer Electronics Manufacturing Association reports that the number
of DVD players in U.S. homes as of the end of 1998 was approximately 1.4 million
units, and now estimates that approximately four million units will be installed
by year-end 1999. This far exceeds the sales penetration achieved by VCRs when
they were first introduced.
INCREASED ACCEPTANCE AND AFFORDABILITY OF DIGITAL CAMCORDERS
Camcorders represent another category in which there has been strong,
accelerating demand for the digital alternative. The advantages of digital
camcorders compared to analog versions include dramatically higher resolution,
clearer sound and increased recording time per tape. In addition, digital
camcorders can be hooked up to a computer allowing for editing of home videos or
still images and, unlike analog recordings, copies made from digital copies
experience no deterioration in sound or picture quality. While digital
camcorders represent less than 10% of the U.S. market, we believe this will grow
as the units become more affordable.
EMERGENCE OF DIGITAL AND HIGH DEFINITION TELEVISION (HDTV)
The Federal Communications Commission has set a target of 2006 for all
commercial television stations to transition from broadcasting analog signals to
digital signals. Digital television allows broadcasters to send much more
information over the same bandwith used for traditional analog television. As a
result, digital signals allow stations to broadcast sharper pictures and higher
23
<PAGE>
quality sound, referred to as high definition television (HDTV), or to use the
digital transmission for sending up to four programs in standard definition
simultaneously, referred to as multicasting. Most stations plan to use digital
signals for some combination of multicasting and HDTV broadcasting. According to
the FCC's schedule, all commercial stations will be required to broadcast
digital signals by 2002. Most stations plan to broadcast digital and analog
simultaneously until 2006. In order to receive digital transmissions, consumers
will need either a digital-ready television or a set-top box converter capable
of converting the digital broadcast for viewing on an analog set.
PROLIFERATION OF HOME SATELLITE SYSTEMS
Home satellite systems offered by Hughes DirecTV and Echostar are now in
approximately 9.4 million homes, according to industry publication TWICE. We
expect increased penetration of these home satellite systems in the U.S. We also
expect the demand for these home satellite systems to be particularly strong in
our markets, which tend to be underserved by cable.
NEW APPLIANCE INNOVATIONS
The home appliance market is large and concentrated among a few major
suppliers including Whirlpool, General Electric and Maytag. Demand is driven by
a variety of factors including consumer confidence, household formations and new
product introductions. Product design and innovation is rapidly becoming a key
driver of growth in this sector. Products either recently introduced or
scheduled to be offered include high speed ovens, custom refrigerators,
appliances with stainless steel exteriors, a personal garment dry cleaning
appliance and energy-efficient appliances. Since we carry products of the three
largest manufacturers, we expect to benefit from the introduction of these new
products.
BUSINESS STRATEGY
Our objective is to be the leading consumer electronics/appliance retailer
in each of our markets. The key elements of our business strategy include:
FOCUSING ON SMALL MARKETS
We traditionally have concentrated our stores in markets with populations
of 20,000 to 300,000. We are currently focusing most of our new store openings
in markets with populations under 75,000, which generally are underserved by our
competitors. We believe that our low-overhead store format and our ability to
operate in free-standing as well as strip shopping centers and regional mall
locations makes us well suited to these small markets.
MAINTAINING GUARANTEED LOWEST PRICES
We actively monitor prices at competing stores and adjust our prices as
necessary to meet or beat the competition. We guarantee the lowest price on our
products through a policy of refunding 125% of the difference between our price
and a competitor's price on the same item.
OFFERING A BROAD SELECTION OF BRAND NAME PRODUCTS
We offer a broad selection of brand name products within key product
categories. We carry most major brands of consumer electronics and appliances,
having recently added Sony and Maytag products. We offer merchandise in each of
our product categories at a range of price points and generally maintain
sufficient product stock for immediate delivery to customers.
CAPITALIZING ON OUR OPPORTUNISTIC BUYING
We frequently purchase large quantities of products directly from
manufacturers on an opportunistic basis at favorable prices. We believe this
buying strategy makes us a unique and
24
<PAGE>
attractive customer for manufacturers seeking to sell canceled orders and excess
inventory and enables us to develop strong relationships and extended trade
credit support with vendors.
STRIVING TO BE THE LOW COST OPERATOR IN OUR MARKETS
Our current prototype store is approximately 12,000 square feet and
provides us with cost and space efficiencies. Our market selection criteria and
operating philosophy allow us to minimize both occupancy and labor costs. All of
our store employees, including our store managers, sell products, unload trucks,
stock merchandise and process sales, which helps minimize employee count and
overhead within each store. Most stores are staffed with between three and six
employees.
LEVERAGING OUR STRONG OPERATIONAL CONTROLS
Our information systems and point-of-sale computer systems, which are
installed in every store, allow management to monitor our merchandising
programs, sales, employee productivity and in-store inventory levels on a daily
basis. Our operational controls provide us with cost efficiencies which reduce
overhead while allowing us to maintain high levels of in-stock merchandise. Our
three distribution centers, strategically located in Dayton, Ohio, Pensacola,
Florida and Cheyenne, Wyoming, reduce inventory requirements at individual
stores and facilitate centralized inventory and accounting controls. We believe
our current information systems and distribution infrastructure can support 100
to 150 new stores without significant additional capital expenditures.
GROWTH STRATEGY
The key elements of our growth strategy include:
EXPANDING OUR STORE BASE
We have identified between 500 and 600 potential markets that meet our site
selection criteria. We plan to open 10 to 15 stores in fiscal 2000. We plan to
accelerate our store expansion program by opening approximately 30 to 35 new
stores in fiscal 2001 and approximately 35 to 40 new stores in fiscal 2002.
Since February 1, 1999, we have opened one new store, have completed the
purchase of five new store locations, have entered into agreements to purchase
14 new store locations, have leased one new store site, and have under
consideration an additional 40 sites. We open the majority of our stores in our
third and fourth fiscal quarters in time for the holiday selling season, and a
substantial majority of our new stores are profitable on a store operating basis
upon completion of their first holiday selling season.
INCREASING OUR SAME STORE SALES
We plan to increase our same store sales by:
implementing new merchandising initiatives, including the recent
introduction of Sony and Maytag products;
offering new products and product categories including DVD players,
digital camcorders, high definition television and cellular telephones and
subscriptions; and
increasing usage of local television and radio advertising to supplement
our newspaper advertising.
EXPANDING OUR E-COMMERCE INITIATIVE
We plan to profitably expand our online retailing initiatives which include
selling selected merchandise through third-party auction sites, including
Amazon.com Auctions, eBay and Yahoo! and on our own Internet Web site at
www.rexstores.com. By utilizing third-party auction sites, we are able to
capitalize on their infrastructure, brand awareness and customer traffic. We
plan to
25
<PAGE>
seek other third-party auction sites. We also plan to expand our online product
offerings, explore increased e-commerce advertising and improve the
functionality of our Web site.
STORE OPERATIONS
STORES. We locate our stores in the general vicinity of major retail
shopping districts and design our stores to generate their own traffic.
Currently, 148 stores are located in free-standing buildings, with the balance
situated in strip shopping centers and regional malls. Stores located in malls
have exterior access and signage rights.
Our stores are designed with minimal interior fixtures to provide an open
feeling and a view of all product categories upon entering the store. The stores
are generally equipped with neon signage above each product category to further
direct the customer to particular products. We believe the interior layout of
our stores provides an inviting and pleasant shopping environment for the
customer.
Our existing stores average approximately 10,900 square feet, including
approximately 7,600 square feet of selling space and approximately 3,300 square
feet of storage. New stores are planned to be approximately 12,000 square feet.
Stores are open seven days and six nights per week, except for certain holidays.
Hours of operation are 10:00 a.m. to 9:00 p.m. Monday through Saturday and
12:00 p.m. to 6:00 p.m., or 1:00 p.m. to 5:00 p.m. in some states, on Sunday.
Our operations are divided into regional districts, containing from two to
12 stores whose managers report to a district manager. Our 38 district managers
report to one of four regional vice presidents. Each store is staffed with a
full-time manager and one or two assistant managers, commissioned sales
personnel and, in higher-traffic stores, seasonal support personnel. Store
managers are paid on a commission basis and have the opportunity to earn bonuses
based upon their store's sales and gross margins. Sales personnel work on a
commission basis.
We evaluate the performance of our stores on a continuous basis and, based
on an assessment of overall profitability, future cash flows and other factors
we deem relevant, will close any store which is not adequately contributing to
our profitability. We closed 12, 8 and 6 stores during fiscal 1997, 1998 and
1999, respectively, and have closed three stores in fiscal 2000. In fiscal 1999,
we opened 12 new stores: three stores each in Idaho and New York, two stores in
Pennsylvania and one store each in Alabama, Florida, Ohio and South Carolina. In
fiscal 2000, we have opened one new store in Montana.
26
<PAGE>
STORE LOCATIONS. The following table shows the states in which we operated
stores and the number of stores in each state as of August 26, 1999:
<TABLE>
<CAPTION>
STATE NUMBER OF STORES
- ----- ----------------
<S> <C>
Alabama..................... 12
Arkansas.................... 1
Colorado.................... 3
Florida..................... 26
Georgia..................... 7
Idaho....................... 5
Illinois.................... 10
Indiana..................... 3
Iowa........................ 12
Kansas...................... 2
Kentucky.................... 3
Louisiana................... 6
Maryland.................... 2
Massachusetts............... 2
Michigan.................... 3
Minnesota................... 1
Mississippi................. 11
Missouri.................... 3
<CAPTION>
STATE NUMBER OF STORES
- ----- ----------------
Montana..................... 3
Nebraska.................... 3
New York.................... 20
North Carolina.............. 5
North Dakota................ 3
Ohio........................ 17
Oklahoma.................... 2
Pennsylvania................ 18
South Carolina.............. 10
South Dakota................ 3
Tennessee................... 6
Texas....................... 10
Virginia.................... 1
Washington.................. 2
West Virginia............... 5
Wisconsin................... 4
Wyoming..................... 2
</TABLE>
SITE SELECTION. We select locations for future stores based on our
evaluation of individual site economics and market conditions. When deciding
whether to enter a new market or open another store in an existing market, we
evaluate a number of criteria, including:
sales volume potential;
competition within the market area, including size, strength and
merchandising philosophy of former, existing and potential competitors;
cost of advertising;
newspaper circulation; and
size and growth pattern of the population.
In choosing specific sites, we apply standardized site selection criteria
taking into account numerous factors, including:
local demographics;
real estate occupancy expense based upon ownership and/or leasing;
traffic patterns; and
overall retail activity.
Stores typically are located on high traffic arteries, adjacent to or in
major shopping malls, with adequate parking to support high sales volume.
We either lease or purchase new store sites depending upon opportunities
available to us and relative costs. Of the 20 new stores opened in fiscal 1999
and 1998, ten were leased sites and ten were purchased sites.
STORE ECONOMICS. For leased stores, we anticipate per store capital
expenditures of $75,000 to $250,000. This amount may increase to the extent we
are responsible for the remodeling or renovation of the new leased site. We
anticipate expenditures of approximately $800,000 to $1,200,000 when we purchase
real estate, which include the cost of the land purchased, building construction
and fixtures. The purchase amount varies depending upon the size and location of
the store. Historically, we have obtained long-term mortgage financing of
approximately 75% of the land and building cost of opening owned stores.
Mortgage financing is generally obtained after a
27
<PAGE>
store is opened, either on a site by site or multiple store basis. The extent to
which we seek mortgage financing for owned stores is dependent upon mortgage
rates, terms and availability.
The inventory requirements for new stores are estimated at $350,000 to
$500,000 per store depending upon the season and store size. Approximately
one-third of this inventory is financed through trade credit.
A substantial majority of our new stores are profitable on a store
operating basis upon completion of their first holiday selling season. Virtually
all of our existing stores are profitable on a store operating basis.
PERSONNEL. We train our employees to explain and demonstrate to customers
the use and operation of our merchandise and to develop good sales practices.
Our in-house training program for new employees combines on-the-job training
with use of a detailed company-developed manual entitled 'The REX Way.' Sales
personnel attend in-house training sessions conducted by experienced salespeople
or manufacturers' representatives and receive sales, product and other
information in meetings with managers. Management and sales personnel are
compensated on a commission basis.
We also have a manager-in-training program that consists of on-the-job
training of the assistant manager at the store. Our policy is to staff store
management positions with personnel promoted from within REX and to staff new
store management positions with existing managers or assistant managers.
SERVICES. Virtually all of the products we sell carry manufacturers'
warranties. Except for our least expensive items, we offer extended service
contracts to customers, usually for an additional charge, which typically
provide one to five years of extended warranty coverage. We offer maintenance
and repair services for most of the products we sell. These services are
generally subcontracted to independent repair firms.
Our return policy provides that any merchandise may be returned for
exchange or refund within seven days of purchase if accompanied by original
packaging material and verification of sale.
We accept MasterCard, Visa and Discover. We estimate that, during fiscal
1999, approximately 31% of our total sales were made on these credit cards, and
approximately 11% were made on installment credit contracts arranged through
banks or independent finance companies which bear the credit risk of these
contracts. We work with local consumer finance companies in each of our markets
in implementing these credit arrangements and are able to offer competitive
credit packages, generally including 12 months of interest-free financing.
MERCHANDISING
PRODUCTS. We offer a broad selection of brand name consumer electronics and
home appliance products at a range of price points. We emphasize depth of
product selection within selected key product categories, with the greatest
depth in televisions, big screen TVs, VCRs, camcorders and audio equipment. We
sell approximately 1,000 products produced by approximately 50 manufacturers.
Our product categories include:
<TABLE>
<CAPTION>
TELEVISIONS VIDEO AUDIO APPLIANCES OTHER
- ----------- ----- ----- ---------- -----
<S> <C> <C> <C> <C>
TVs VCRs Stereo Systems Air Conditioners Extended Service
Big Screen TVs Camcorders Receivers Microwave Ovens Contracts
TV/VCR Digital Satellite Systems Compact Disc Players Washers Ready to Assemble
Combos DVD Players Tape Decks Dryers Furniture
Speakers Ranges Recordable Tapes
Car Stereos Dishwashers Telephones
Portable Radios Refrigerators Fax Machines
Turntables Freezers Audio/Video Accessories
Vacuum Cleaners Radar Detectors
Dehumidifiers CB Radios
Garbage Disposals
</TABLE>
28
<PAGE>
Among the leading brands sold by us during fiscal 1999, in alphabetical
order, were Aiwa, General Electric, Hitachi, Hotpoint, JVC, Panasonic, Phillips
Magnavox, Pioneer, RCA, Sharp, Technics, Toshiba, Whirlpool and Zenith. In
fiscal 2000 we added Sony and Maytag products.
All our stores carry a broad range of televisions, video and audio
products, microwave ovens and air conditioners and a limited line of home office
products. In addition, 223 stores carry major appliances.
The following table shows the approximate percent of net sales for each
major product group for the last three fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------
PRODUCT CATEGORY 1997 1998 1999
---------------- ---- ---- ----
<S> <C> <C> <C>
Televisions................................................. 36% 36% 36%
Video....................................................... 18 19 17
Audio....................................................... 18 17 18
Appliances.................................................. 18 20 21
Other....................................................... 10 8 8
--- --- ---
100% 100% 100%
--- --- ---
--- --- ---
</TABLE>
PRICING. Our policy is to offer our products at guaranteed lowest prices
combined with frequent special sales and promotions. Our retail prices are
established by our merchandising department, but each district manager is
responsible for monitoring the prices offered by competitors and has authority
to adjust prices to meet local market conditions. Our commitment to offer the
lowest prices is supported by our guarantee to refund 125% of the difference in
price if, within 30 days of purchase, a customer can locate the same item
offered by a local competitor at a lower price.
ADVERTISING. We use a 'price and item' approach in our advertising,
stressing the offering of nationally recognized brands at significant savings.
The emphasis of our advertising is our Guaranteed Lowest Price. Our guarantee
states:
'Our prices are guaranteed in writing. If you find any other local store
stocking and offering to sell for less the identical item in a factory
sealed box within 30 days after your REX purchase, we'll refund the
difference plus an additional 25% of the difference.'
Advertisements are concentrated principally in newspapers and preprinted
newspaper inserts, which are produced for us by an outside advertising agency.
We supplement our newspaper advertising with television and radio advertisements
in certain markets. Advertisements are also complemented by in-store signage
highlighting special values, including 'Value Every Day,' 'Best Value,' and 'Top
of the Line.' Our advertising strategy includes preferred customer private
mailers, special events such as 'Midnight Madness Sales' and coupon sales to
provide shopping excitement and generate traffic.
PURCHASING. Our merchandise purchasing and opportunistic buying are
performed predominantly by three members of senior management. Each individual
has responsibility for a specific product category, and two share appliance
buying responsibility. By purchasing merchandise in large volume, we are able to
obtain quality products at competitive prices and advertising subsidies from
vendors to promote the sale of their products. For fiscal 1999, six vendors
accounted for approximately 55% of our purchases. We typically do not maintain
long-term purchase contracts with vendors and operate principally on an
order-by-order basis.
E-COMMERCE
In April 1999, we began selling selected televisions, audio and video
products and small appliances on our Web site at www.rexstores.com. We are an
Amazon.com Auctions Charter Merchant and also offer selected products on the
eBay and Yahoo! auction Web sites. The entry into e-commerce offers us the
opportunity to expand our sales into larger markets.
29
<PAGE>
DISTRIBUTION
Our stores are supplied by three regional distribution centers. The
distribution centers consist of:
a 315,000 square foot leased facility in Dayton, Ohio;
a 180,000 square foot owned facility in Pensacola, Florida, of which we
lease 90,000 square feet to an outside company; and
a 145,000 square foot owned facility in Cheyenne, Wyoming.
We also lease a 67,000 square foot auxiliary warehouse in Pensacola,
Florida. In addition, we lease overflow warehouse space as needed to accommodate
seasonal inventory requirements and opportunistic purchases.
INVENTORY MANAGEMENT
The regional distribution centers reduce inventory requirements at
individual stores, while preserving the benefits of volume purchasing and
facilitating centralized inventory and accounting controls. Virtually all of our
merchandise is distributed through our distribution centers, with the exception
of major appliances which are often shipped directly by the vendor to the retail
location. All deliveries to stores are made by independent contract carriers.
MANAGEMENT INFORMATION SYSTEMS
We have developed a computerized management information system which
operates an internally developed software package. Our computer system provides
management with the information necessary to manage inventory by stock keeping
unit (SKU), monitor sales and store activity on a daily basis, capture marketing
and customer information, track productivity by salesperson and control our
accounting operations.
Our mainframe computer is an IBM A/S 400E series model and is Year 2000
compliant. The host computer is integrated with our point-of-sale system which
serves as the collection mechanism for all sales activity. The combined system
provides for next-day review of inventory levels, sales by store and by SKU and
commissions earned, assists in cash management and enables management to track
merchandise from receipt at the distribution center until time of sale.
As is the case with most business organizations, we utilize software and
related technology that are date sensitive and may be affected by the date
change which will occur in the year 2000. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' for further
discussion of the Year 2000 issue.
COMPETITION
Our business is characterized by substantial competition. Our competitors
include national and regional large format merchandisers and superstores such as
Best Buy and Circuit City, other specialty electronics retailers including
RadioShack, department and discount stores such as Sears, Wal-Mart and
Montgomery Ward, furniture stores, warehouse clubs, home improvement retailers
and Internet and store-based retailers who sell competitive products online. We
also compete with small chains and specialty single-store operators in some
markets, as well as Sears' dealer-operated units. Some of our competitors have
greater financial and other resources than us, which may increase their ability
to purchase inventory at a lower cost, better withstand economic downturns or
engage in aggressive price competition. Competition within the consumer
electronics/appliance retailing industry is based upon price, breadth of product
selection, product quality and customer service. We expect competition within
the industry to increase.
FACILITIES
We own 111 of our stores. The remaining 115 stores operate on leased
premises, with the unexpired terms of the leases ranging from one year to
26 years, inclusive of options to renew,
30
<PAGE>
except for four month to month leases. For fiscal 1999, the total net rent
expense for our leased facilities was approximately $6,932,000.
To date, we have not experienced difficulty in securing leases or
purchasing sites for suitable store locations. We continue to remodel and
upgrade existing stores as appropriate. In addition, to minimize construction
costs, we have developed prototype formats for new store construction.
EMPLOYEES
At August 26, 1999, we had 142 hourly and salaried employees and 884
commission-based sales employees. We also employ additional personnel during
peak selling seasons. None of our employees are represented by a labor union. We
consider our relationship with our employees to be good.
SERVICE MARKS
We have registered our rights in our service mark 'REX' with the United
States Patent and Trademark Office. We are not aware of any adverse claims
concerning our service mark.
31
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Set forth below is certain information concerning our directors, executive
officers and key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Stuart Rose.................................. 44 Chairman of the Board and Chief Executive
Officer(1)
Lawrence Tomchin............................. 71 President, Chief Operating Officer and
Director(1)
Douglas Bruggeman............................ 39 Vice President -- Finance and Treasurer
Edward Kress................................. 50 Secretary and Director
Robert Davidoff.............................. 72 Director(2)(3)
Lee Fisher................................... 48 Director(2)(3)
KEY EMPLOYEES:
David Fuchs.................................. 45 Vice President -- Management Information Systems
Keith Magby.................................. 40 Vice President -- Operations
Zafar Rizvi.................................. 49 Vice President -- Loss Prevention
Richard Santia............................... 53 Vice President -- Corporate Development
David Hyatt.................................. 36 Vice President -- Store Operations
Robert Immekus............................... 48 Vice President -- Store Operations
Philip Kellar................................ 45 Vice President -- Store Operations
Walter Partlow, Jr........................... 37 Vice President -- Store Operations
</TABLE>
- ------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
Stuart Rose has been our Chairman of the Board and Chief Executive Officer
since our incorporation in 1984 as a holding company to succeed to the ownership
of Rex Radio and Television, Inc., Kelly & Cohen Appliances, Inc. and Stereo
Town, Inc. Prior to 1984, Mr. Rose was Chairman of the Board and Chief Executive
Officer of Rex Radio and Television, Inc., which he founded in 1980 to acquire
the stock of a corporation which operated four retail stores.
Lawrence Tomchin has been our President and Chief Operating Officer since
1990. From 1984 to 1990, he was our Executive Vice President and Chief Operating
Officer. Mr. Tomchin has been a director since 1984. Mr. Tomchin was Vice
President and General Manager of the corporation which was acquired by Rex Radio
and Television, Inc. in 1980 and served as Executive Vice President of Rex Radio
and Television, Inc. after the acquisition.
Douglas Bruggeman has been our Vice President -- Finance and Treasurer
since 1989. From 1987 to 1989, Mr. Bruggeman was our Manager of Corporate
Accounting. Mr. Bruggeman was employed with the accounting firm of Ernst & Young
prior to joining us in 1986.
Edward Kress has been our Secretary since 1984 and a director since 1985.
Mr. Kress has been a partner of the law firm of Chernesky, Heyman & Kress
P.L.L., our legal counsel, since 1988. From 1985 to 1988, Mr. Kress was a member
of the law firm of Smith & Schnacke. Mr. Kress has practiced law in Dayton, Ohio
since 1974.
Robert Davidoff has been a director since 1984. Mr. Davidoff has been
employed by Carl Marks & Co., Inc., an investment banking firm, since 1950 and
currently is Vice President in charge of corporate finance. Mr. Davidoff is also
a director of Hubco Exploration, Inc., Marisa Christina, Inc. and Aquis
Communications Group, Inc.
Lee Fisher has been a director since 1996. Mr. Fisher is the President and
Chief Executive Officer of the Center for Families and Children, a private
nonprofit human services organization.
32
<PAGE>
Mr. Fisher was a partner of the law firm of Hahn Loeser & Parks LLP from 1995 to
March 1999. Mr. Fisher served as Ohio Attorney General from 1991 to 1995, State
Senator, Ohio General Assembly, from 1983 to 1991, and State Representative,
Ohio General Assembly, from 1981 to 1983. Mr. Fisher also practiced law with
Hahn Loeser & Parks from 1978 to 1991.
David Fuchs has been our Vice President -- Management Information Systems
since 1989. From 1985 to 1989, Mr. Fuchs was our Manager of Management
Information Systems. Mr. Fuchs is responsible for our management information
systems and buys digital satellite systems.
Keith Magby joined us as Vice President -- Operations in 1991. Mr. Magby's
primary responsibilities include warehouse and distribution operations and
appliance buying. Mr. Magby has been employed within the consumer
electronics/appliance retailing industry since 1982.
Zafar Rizvi joined us as Vice President -- Loss Prevention in 1991. Mr.
Rizvi's primary responsibilities include internal audit and loss prevention,
negotiating advertising contracts with newspapers, e-commerce initiatives and
Web site development. Mr. Rizvi has served in various management positions
within the video retailing industry since 1986.
Richard Santia has been our Vice President -- Corporate Development since
1984 and has been employed by us since 1980. Mr. Santia's primary
responsibilities include site selection and store construction and remodeling.
Mr. Santia has been employed within the consumer electronics/appliance retailing
industry since 1975.
David Hyatt has been Vice President -- Store Operations for our southern
region stores since 1996 and has been employed by us since 1985.
Robert Immekus has been Vice President -- Store Operations for our western
region stores since 1996. Mr. Immekus has been employed by us and our subsidiary
Kelly & Cohen Appliances, Inc. since 1974.
Philip Kellar has been Vice President -- Store Operations for our northern
region stores since 1990 and has been employed by us since 1988. Mr. Kellar has
been employed within the consumer electronics/appliance retailing industry since
1977.
Walter Partlow, Jr. has been Vice President -- Store Operations for our
southern region stores since 1996 and has been employed by us since 1987.
33
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of August 26, 1999, and as adjusted
to give effect to the sale of common stock offered hereby, by:
each of our directors and executive officers;
all directors and executive officers as a group;
each selling stockholder; and
each person or group known by us to own more than 5% of our common stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1)
------------------------------------------- SHARES
NAME NUMBER PERCENT BEING OFFERED
---- ------ ------- -------------
<S> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND
SELLING STOCKHOLDERS:(3)
Stuart Rose(4)........................ 2,300,059 27.8% 700,747
Lawrence Tomchin(5)................... 583,912 7.4 177,898
Douglas Bruggeman(6).................. 54,266 * 17,500
Edward Kress(7)....................... 53,735 * --
Robert Davidoff(8).................... 97,983 1.3 --
Lee Fisher(9)......................... 9,037 * 3,855
All directors and executive officers
as a group (6 persons)(10).......... 3,098,992 35.9 900,000
5% BENEFICIAL OWNERS:
FMR Corp.(11) ........................ 636,400 8.3 --
82 Devonshire Street
Boston, MA 02109
Investment Counselors of 583,500 7.6 --
Maryland, Inc.(12) ...................
803 Cathedral Street
Baltimore, MD 21201-5297
Dimensional Fund Advisors Inc.(13) ... 533,100 7.0 --
1299 Ocean Avenue,
11th Floor
Santa Monica, CA 90401
The TCW Group, Inc.(14) .............. 513,100 6.7 --
865 South Figueroa St.
Los Angeles, CA 90017
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER THE OFFERING(2)
-------------------------------------------
NAME NUMBER PERCENT
---- ------ -------
<S> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND
SELLING STOCKHOLDERS:(3)
Stuart Rose(4)........................ 1,599,312 16.4%
Lawrence Tomchin(5)................... 406,014 4.3
Douglas Bruggeman(6).................. 36,766 *
Edward Kress(7)....................... 53,735 *
Robert Davidoff(8).................... 97,983 1.1
Lee Fisher(9)......................... 5,182 *
All directors and executive officers
as a group (6 persons)(10).......... 2,198,992 21.7
5% BENEFICIAL OWNERS:
FMR Corp.(11) ........................ 636,400 7.0
82 Devonshire Street
Boston, MA 02109
Investment Counselors of 583,500 6.4
Maryland, Inc.(12) ...................
803 Cathedral Street
Baltimore, MD 21201-5297
Dimensional Fund Advisors Inc.(13) ... 533,100 5.8
1299 Ocean Avenue,
11th Floor
Santa Monica, CA 90401
The TCW Group, Inc.(14) .............. 513,100 5.6
865 South Figueroa St.
Los Angeles, CA 90017
</TABLE>
- ------------
* Less than 1%.
(1) Beneficial ownership numbers and percentages are calculated on the basis of
the number of shares owned and outstanding on August 26, 1999 plus the
number of shares issuable upon the exercise of options held by the person
or group which are exercisable within 60 days after August 26, 1999.
(2) Assumes no exercise of the underwriters' over-allotment option. If the
underwriters' over-allotment option is exercised in full, the number of
shares owned and the percentage of ownership after the offering for Mr.
Rose would be 1,494,200 shares and 14.9%, for Mr. Tomchin would be 379,329
shares and 3.9%, for Mr. Bruggeman would be 34,141 shares and less than 1%,
for Mr. Fisher would be 4,604 shares and less than 1% and for all directors
and executive officers as a group would be 2,063,992 shares and 20.0%.
(3) The address of Mr. Rose, Mr. Tomchin and Mr. Bruggeman is 2875 Needmore
Road, Dayton, Ohio 45414. Mr. Fisher's address is Western Reserve Building,
1468 West 9th Street, Cleveland, Ohio 44113.
(4) Includes 146,084 shares held by the Stuart Rose Family Foundation, an Ohio
nonprofit corporation of which Mr. Rose is the sole member, chief executive
officer and one of three
(footnotes continued on next page)
34
<PAGE>
(footnotes continued from previous page)
members of the board of trustees, the other two being members of his
immediate family. Also includes 621,818 shares issuable upon the exercise
of options.
(5) Includes 4,583 shares held by Mr. Tomchin's wife and 278,497 shares
issuable upon the exercise of options.
(6) Includes 36,766 shares issuable upon the exercise of options.
(7) Includes 16,960 shares held by Mr. Kress as co-trustee of a trust for the
benefit of adult children of Mr. Tomchin with respect to which Mr. Kress
has shared voting and investment power, 2,123 shares held by Mr. Kress as
trustee of two trusts for the benefit of his minor children and 14,651
shares issuable upon the exercise of options.
(8) Includes 14,651 shares issuable upon the exercise of options.
(9) Includes 9,037 shares issuable upon the exercise of options. Mr. Fisher
will exercise options to purchase 3,855 shares at an exercise price of
$10.38 per share for sale to the underwriters in this offering.
(10) Includes 975,420 shares issuable upon the exercise of options.
(11) Based on a Schedule 13G filing dated February 1, 1999. Fidelity Management
& Research Company, a wholly-owned subsidiary of FMR Corp. and a registered
investment adviser, is the beneficial owner of 636,400 shares of REX common
stock as a result of acting as investment adviser to various registered
investment companies. One investment company, Fidelity Low-Priced Stock
Fund, owns 571,400 shares. Edward C. Johnson 3d (Chairman of FMR Corp.),
FMR Corp., through its control of Fidelity Management & Research Company,
and the funds each has sole power to dispose of the 636,400 shares owned by
the funds, while the sole power to vote or direct the voting of such shares
resides solely with the funds' boards of trustees.
(12) Based on a Schedule 13G filing dated February 1, 1999. All shares of common
stock are owned by various investment advisory clients of Investment
Counselors of Maryland, Inc., which is deemed to be a beneficial owner of
those shares due to its discretionary power to make investment decisions
over such shares for its clients and its ability to vote such shares.
Investment Counselors of Maryland, Inc. has sole power to vote and dispose
of 583,500 shares.
(13) Based on a Schedule 13G filing dated February 11, 1999. Dimensional Fund
Advisors Inc., a registered investment adviser, furnishes investment advice
to four registered investment companies and serves as investment manager to
certain other investment vehicles, including commingled group trusts.
Dimensional Fund Advisors Inc. has sole power to vote and dispose of
533,100 shares owned by those portfolios. Dimensional Fund Advisors Inc.
disclaims beneficial ownership of all such shares.
(14) Based on a Schedule 13G filing dated February 12, 1999. The TCW Group, Inc.
and Robert Day (an individual who may be deemed to control The TCW Group,
Inc.) have shared power to vote and dispose of 513,100 shares, which shares
are held by Trust Company of the West, TCW Asset Management Company and
Oakmont Corporation.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Our authorized capital stock consists of 45,000,000 shares of common stock,
$.01 par value per share. Each share of common stock is entitled to participate
pro rata in distributions upon liquidation and to one vote on all matters
submitted to a vote of shareholders. The holders of common stock may receive
dividends as declared by the board of directors out of funds legally available
for dividends, subject to limitations in our revolving credit agreement. Holders
of common stock have no preemptive or similar rights, nor do they have
cumulative voting rights. The outstanding shares of common stock are, and the
shares offered by us hereby when issued will be, fully paid and nonassessable.
The holders of a majority of the outstanding shares have the voting power to
elect all directors and to approve mergers, sales of assets and similar material
corporate transactions.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law. In
general, Section 203 prevents a publicly-held Delaware corporation from engaging
in a 'business combination' with an 'interested stockholder' for three years
after the date the person became an interested stockholder, unless:
Prior to the date the person became an interested stockholder, the board
of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an
interested stockholder;
Upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding stock held by persons who are
directors and also officers of the corporation and stock held by certain
employee stock plans; or
On or subsequent to the date of the transaction in which the person became
an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds
of the outstanding voting stock of the corporation which is not owned by
the interested stockholder.
A 'business combination' includes:
Any merger or consolidation involving the corporation and an interested
stockholder;
Any sale, lease, exchange, mortgage, pledge, transfer or other disposition
involving an interested stockholder of 10% or more of the assets of the
corporation;
Subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to
an interested stockholder;
Any transaction involving the corporation or any majority-owned subsidiary
of the corporation which has the effect of increasing the proportionate
share of the stock of any class or series of the corporation or of any
such subsidiary beneficially owned by the interested stockholder; or
The receipt by an interested stockholder of any loans, guarantees, pledges
or other financial benefits provided by or through the corporation or any
majority-owned subsidiary.
An 'interested stockholder' is any person who beneficially owns 15% or more
of the outstanding voting stock of the corporation or any person affiliated with
or controlling or controlled by any such person.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company, New York, New York is the transfer
agent and registrar for our common stock.
36
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus, each underwriter named below has severally
agreed to purchase, and REX and the selling stockholders have agreed to sell to
each underwriter, the number of shares of common stock set forth opposite the
name of that underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Salomon Smith Barney Inc. ..................................
Credit Suisse First Boston Corporation......................
Gerard Klauer Mattison & Co., Inc. .........................
ING Barings LLC.............................................
Morgan Keegan & Company, Inc. ..............................
---------
Total.................................................. 2,400,000
---------
---------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and to other conditions. The underwriters
are obligated to purchase all the shares, other than those covered by the
over-allotment option described below, if they purchase any of the shares.
The underwriters, for whom Salomon Smith Barney Inc., Credit Suisse First
Boston Corporation, Gerard Klauer Mattison & Co., Inc., ING Barings LLC and
Morgan Keegan & Company, Inc. are acting as representatives, propose to offer
some of the shares directly to the public at the public offering price set forth
on the cover page of this prospectus and some of the shares to certain dealers
at the public offering price less a concession not in excess of $ per share.
The underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share on sales to certain other brokers and dealers. If all
of the shares are not sold at the initial offering price, the representatives
may change the public offering price and the other selling terms.
REX and the selling stockholders have granted to the underwriters an
option, exercisable for 30 days from the date of this prospectus, to purchase up
to 360,000 additional shares of common stock at the public offering price less
the underwriting discount. Such additional shares will be purchased from REX and
the selling stockholders on a pro rata basis. The underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, in connection
with this offering. To the extent such option is exercised, each underwriter
will be obligated, subject to certain conditions, to purchase a number of
additional shares approximately proportionate to such underwriter's initial
purchase commitment.
REX and the selling stockholders have agreed that, for a period of 90 days
and 270 days, respectively, from the date of this prospectus, they will not,
without the prior written consent of Salomon Smith Barney Inc., on behalf of the
underwriters, offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, or otherwise dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock. These restrictions shall
not apply, however, to:
the common stock to be sold in this offering;
the issuance by REX of common stock upon the exercise of an option or
warrant or the conversion of a security outstanding on the date of this
prospectus;
the issuance by REX of additional options to purchase shares of common
stock pursuant to REX's existing stock option plans; and
certain other limited transactions.
37
<PAGE>
Salomon Smith Barney Inc. in its sole discretion may release any of the
securities subject to these lock-up agreements at any time without notice.
The common stock is listed on the New York Stock Exchange under the symbol
'RSC.'
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by REX and the selling stockholders in connection with
this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.
<TABLE>
<CAPTION>
PAID BY REX PAID BY SELLING STOCKHOLDERS
--------------------------- -----------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Per share............................ $ $ $ $
Total................................ $ $ $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the New York
Stock Exchange or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
REX and the selling stockholders estimate that their respective portions of
the total expenses of this offering will be $218,750 and $131,250.
REX and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make in
respect of any of those liabilities.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for REX and the selling stockholders by Chernesky, Heyman & Kress P.L.L.,
Dayton, Ohio. Edward Kress, a partner of Chernesky, Heyman & Kress P.L.L., is
secretary and a director of REX. Mr. Kress owns 20,001 shares of REX common
stock for his own account, holds 19,083 shares as trustee for the benefit of
others and holds options to purchase 35,032 shares. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Cahill
Gordon & Reindel (a partnership including a professional corporation), New York,
New York.
EXPERTS
The audited consolidated financial statements and schedule included or
incorporated by reference in this prospectus and elsewhere in the registration
statement, to the extent and for the periods indicated in their reports, have
been audited by Arthur Andersen LLP, independent public accountants, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
38
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. Investors may read and
copy these reports, proxy statements and other information at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
these documents are available upon payment of a duplicating fee by writing to
the SEC. Investors may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. The address
of the site is http://www.sec.gov. Reports, proxy statements and other
information concerning us can also be inspected and copied at the offices of the
New York Stock Exchange at 20 Broad Street, New York, New York 10005.
For more information concerning us and the common stock offered hereby, we
refer you to the registration statement on Form S-3 filed by us with the SEC
under the Securities Act. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits to the
registration statement. Statements contained in this prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or document filed as an exhibit to the registration statement.
The SEC allows us to 'incorporate by reference' the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information.
The following documents filed by us with the SEC are incorporated by
reference in this prospectus:
Our annual report on Form 10-K for the fiscal year ended January 31, 1999;
Our quarterly reports on Form 10-Q for the quarters ended April 30 and
July 31, 1999; and
The description of common stock contained in our registration statement on
Form 8-A filed under the Exchange Act.
All documents subsequently filed by us with the SEC pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of this
offering shall be deemed to be incorporated by reference in this prospectus and
to be a part of this prospectus from the date of filing.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference in this prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
We will provide to each person, including any beneficial owner, to whom
this prospectus is delivered, a copy of any or all of the information
incorporated by reference in this prospectus other than exhibits to documents
which are not specifically incorporated by reference in such documents. We will
provide this information upon written or oral request and at no cost to the
requester. Requests for this information must be made to Douglas Bruggeman, Vice
President -- Finance and Treasurer, REX Stores Corporation, 2875 Needmore Road,
Dayton, Ohio 45414, telephone (937) 276-3931.
39
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of January 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Income for the years ended
January 31, 1997, 1998 and 1999........................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended January 31, 1997, 1998 and 1999............... F-5
Consolidated Statements of Cash Flows for the years ended
January 31, 1997, 1998 and 1999........................... F-6
Notes to Consolidated Financial Statements.................. F-7
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Unaudited Consolidated Condensed Balance Sheets as of
July 31, 1998 and 1999.................................... F-15
Unaudited Consolidated Statements of Income for the Six
Months Ended July 31, 1998 and 1999....................... F-16
Unaudited Consolidated Statements of Shareholders' Equity
for the periods ended July 31, 1998, January 31, 1999 and
July 31, 1999............................................. F-17
Unaudited Consolidated Statements of Cash Flows for the Six
Months Ended July 31, 1998 and 1999....................... F-18
Notes to Unaudited Consolidated Financial Statements........ F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of REX STORES CORPORATION:
We have audited the accompanying consolidated balance sheets of REX Stores
Corporation (a Delaware corporation) and subsidiaries as of January 31, 1999 and
1998, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three fiscal years in the period ended
January 31, 1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of REX Stores
Corporation and subsidiaries as of January 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
March 24, 1999
F-2
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 16,937 $ 11,912
Accounts receivable, net of allowance for doubtful
accounts of
$428 and $430 in 1998 and 1999, respectively (Note
5).................................................... 2,775 2,297
Merchandise inventory (Note 5)......................... 126,498 132,002
Prepaid expenses and other............................. 2,078 2,039
Equity investment in limited partnerships (Note 2)..... -- 1,838
Future income tax benefits............................. 7,899 9,366
-------- --------
Total current assets.............................. 156,187 159,454
Property and equipment, net (Notes 1, 5 and 6).............. 93,165 98,891
Future income tax benefits.................................. 9,541 8,109
Restricted investments (Note 1)............................. 1,637 1,828
-------- --------
Total assets...................................... $260,530 $268,282
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term mortgage debt (Note 6).... $ 2,959 $ 3,114
Current portion of deferred income and deferred gain on
sale and leaseback (Notes 1 and 8).................... 11,402 11,453
Accounts payable, trade................................ 49,832 52,674
Accrued income taxes................................... 1,671 147
Accrued payroll........................................ 5,810 5,889
Other current liabilities.............................. 7,263 8,817
-------- --------
Total current liabilities......................... 78,937 82,094
Long-term liabilities:
Long-term mortgage debt (Note 6)....................... 52,661 55,478
Deferred income (Note 1)............................... 17,886 16,723
Deferred gain on sale and leaseback (Note 8)........... 5,264 3,777
-------- --------
Total long-term liabilities....................... 75,811 75,978
Commitments and contingencies (Notes 8 and 10)
Shareholders' equity (Notes 4, 5, and 7):
Common stock, 45,000 shares authorized, 9,688 and 9,767
shares issued, at par................................. 97 98
Paid-in capital........................................ 57,896 58,596
Retained earnings...................................... 64,175 75,370
Treasury stock, 1,955 and 2,587 shares................. (16,386) (23,854)
-------- --------
Total shareholders' equity............................. 105,782 110,210
-------- --------
Total liabilities and shareholders' equity........ $260,530 $268,282
-------- --------
-------- --------
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
F-3
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales................................................... $427,378 $411,005 $416,673
-------- -------- --------
Costs and expenses:
Cost of merchandise sold............................... 317,767 297,757 302,894
Selling, general and administrative expenses........... 91,905 94,055 93,578
-------- -------- --------
Total costs and expenses.......................... 409,672 391,812 396,472
-------- -------- --------
Income from operations...................................... 17,706 19,193 20,201
Investment income........................................... 85 202 347
Interest expense............................................ (5,624) (7,143) (6,448)
Gain on sale of real estate................................. -- -- 2,410
Equity in losses of limited partnerships.................... -- -- (1,312)
-------- -------- --------
Income before provision for income taxes............... 12,167 12,252 15,198
Provision for income taxes.................................. 4,805 4,840 4,003
-------- -------- --------
Net income.................................................. $ 7,362 $ 7,412 $ 11,195
-------- -------- --------
-------- -------- --------
Weighted average number of common shares outstanding........ 8,948 7,919 7,427
-------- -------- --------
Basic net income per share.................................. $ 0.82 $ 0.94 $ 1.51
-------- -------- --------
-------- -------- --------
Weighted average number of common and common equivalent
shares outstanding........................................ 9,219 8,178 7,833
-------- -------- --------
Diluted net income per share................................ $ 0.80 $ 0.91 $ 1.43
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-4
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------
ISSUED TREASURY
--------------- ---------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------ ------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1996.................. 9,521 $95 534 $ 3,882 $56,732 $49,401
Net income................................. -- -- -- -- -- 7,362
Treasury stock acquired.................... -- -- 854 7,486 -- --
Common stock issued........................ 81 1 -- -- 497 --
----- --- ----- ------- ------- -------
Balance, January 31, 1997.................. 9,602 96 1,388 11,368 57,229 56,763
Net income................................. -- -- -- -- -- 7,412
Treasury stock acquired.................... -- -- 567 5,018 -- --
Common stock issued........................ 86 1 -- -- 667 --
----- --- ----- ------- ------- -------
Balance, January 31, 1998.................. 9,688 97 1,955 16,386 57,896 64,175
Net income................................. -- -- -- -- -- 11,195
Treasury stock acquired.................... -- -- 632 7,468 -- --
Common stock issued........................ 79 1 -- -- 700 --
----- --- ----- ------- ------- -------
Balance, January 31, 1999.................. 9,767 $98 2,587 $23,854 $58,596 $75,370
----- --- ----- ------- ------- -------
----- --- ----- ------- ------- -------
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-5
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 7,362 $ 7,412 $11,195
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization, net................ 2,943 2,979 3,194
Gain on sale of real estate....................... -- -- (2,410)
Equity in losses of limited partnerships.......... -- -- 1,312
Deferred income................................... 3,221 165 (993)
Deferred income tax provision..................... (2,054) (1,015) (137)
Changes in assets and liabilities:
Accounts receivable............................... 127 (1,298) 478
Merchandise inventory............................. 11,533 8,535 (5,504)
Other current assets.............................. (323) (2,228) 131
Accounts payable, trade........................... (8,260) 18,567 2,842
Other current liabilities......................... (3,678) 2,400 109
------- ------- -------
Net cash provided by operating activities.... 10,871 35,517 10,217
------- ------- -------
Cash flows from investing activities:
Capital expenditures................................... (23,448) (8,015) (12,736)
Proceeds from sale of real estate and capital
disposals............................................ 552 573 4,630
Equity investment in limited partnerships.............. -- -- (3,150)
Restricted investments................................. (120) 8 (191)
------- ------- -------
Net cash used in investing activities........ (23,016) (7,434) (11,447)
------- ------- -------
Cash flows from financing activities:
Increase (decrease) in note payable.................... 2,815 (12,142) --
Proceeds from long-term debt........................... 21,911 4,473 7,003
Payments of long-term debt............................. (2,318) (3,086) (4,031)
Common stock issued.................................... 497 668 701
Treasury stock acquired................................ (7,486) (5,018) (7,468)
------- ------- -------
Net cash provided by (used in) financing
activities................................. 15,419 (15,105) (3,795)
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 3,274 12,978 (5,025)
Cash and cash equivalents, beginning of year................ 685 3,959 16,937
------- ------- -------
Cash and cash equivalents, end of year...................... $ 3,959 $16,937 $11,912
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-6
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation -- The accompanying financial statements
consolidate the operating results and financial position of REX Stores
Corporation and its wholly-owned subsidiaries (the Company). All significant
intercompany balances and transactions have been eliminated. The Company
operates 228 retail consumer electronics and appliance stores under the REX name
in 35 states.
b. Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
c. Cash Equivalents -- Cash equivalents are principally short-term
investments with original maturities of less than three months. The carrying
amount of cash equivalents is a reasonable estimate of fair value.
d. Merchandise Inventory -- Substantially all inventory is valued at the
lower of average cost or market, which approximates cost on a first-in,
first-out (FIFO) basis, including certain costs associated with purchasing,
warehousing and transporting merchandise. The inventory of an acquired
subsidiary, Kelly & Cohen Appliances, Inc. (K&C), is valued at the lower of cost
or market using the last-in, first-out (LIFO) method. Following the lower of
cost or market principle, the K&C inventory value using the LIFO method
($30,203,000 and $32,405,000 at January 31, 1998 and 1999, respectively) is
equivalent to the FIFO value for all years presented. Six suppliers accounted
for approximately 55% of the Company's purchases in 1999.
e. Property and Equipment -- Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method. Estimated useful lives
are 15 to 40 years for buildings and improvements, and 3 to 12 years for
fixtures and equipment. Leasehold improvements are depreciated over 10 to 12
years. The components of property and equipment at January 31, 1998 and 1999 are
as follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land............................................ $ 24,779 $ 26,716
Buildings and improvements...................... 59,006 64,586
Fixtures and equipment.......................... 14,615 15,477
Leasehold improvements.......................... 9,747 10,217
-------- --------
108,147 116,996
Less: accumulated depreciation.................. (14,982) (18,105)
-------- --------
$ 93,165 $ 98,891
-------- --------
-------- --------
</TABLE>
In accordance with SFAS No. 121 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of', the carrying
value of long-lived assets is assessed for recoverability by management when
changes in circumstances indicate that the carrying amount may not be
recoverable, based on an analysis of undiscounted future expected cash flows
from the use and ultimate disposition of the asset. There were no material
impairment losses incurred in the fiscal years ended January 31, 1997, 1998 and
1999.
f. Restricted Investments -- Restricted investments, which are principally
marketable securities, are stated at cost plus accrued interest, which
approximates market. The carrying amount of restricted investments approximates
fair value. Restricted investments at January 31, 1998 and 1999 are restricted
by two states to cover possible future claims under product service contracts.
F-7
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999
g. Revenue Recognition -- The Company recognizes sales of products upon
receipt by the customer. The Company will honor returns from customers within
seven days from the date of sale. The Company establishes liabilities for
estimated returns at the point of sale.
The Company also sells product service contracts covering periods beyond
the normal manufacturers' warranty periods, usually with terms of coverage
(including manufacturers' warranty periods) of between 12 to 60 months. Contract
revenues, net of sales commissions, are deferred and amortized on a
straight-line basis over the life of the contracts after the expiration of
applicable manufacturers' warranty periods. The Company retains the obligation
to perform warranty services and such costs are charged to operations as
incurred.
h. Interest Cost -- Interest expense of $5,624,000, $7,143,000 and
$6,448,000 for the years ended January 31, 1997, 1998 and 1999, respectively, is
net of approximately $193,000, $33,000 and $238,000 of interest capitalized
related to store construction. Total interest expense approximates interest paid
for all years presented.
i. Loan Acquisition Costs -- Direct expenses and fees associated with
obtaining notes payable or long-term mortgage debt are capitalized and amortized
to interest expense over the life of the loan.
j. Advertising Costs -- Advertising costs are expensed as incurred.
Advertising expense was approximately $33,473,000, $32,813,000 and $30,468,000
in 1997, 1998 and 1999, respectively.
k. Store Opening and Closing Costs -- Store opening costs are expensed as
incurred. The costs associated with closing stores are accrued when the decision
is made to close a location. Store closing costs incurred in the fiscal years
ended January 31, 1997, 1998 and 1999 were not material.
2. INVESTMENT IN LIMITED PARTNERSHIPS
During fiscal 1999, the Company invested $3,150,000 in two limited
partnerships which produce synthetic fuels. The Company accounts for its
ownership interest in the limited partnerships, which approximates 30%, under
the equity method. The Company recorded a pre-tax charge of $1,312,000 in fiscal
1999 to reflect its equity in the losses of the limited partnerships. The
limited partnerships also earn Federal income tax credits under Section 29 of
the Internal Revenue Code based upon the quantity and content of synthetic fuel
production. The Company accounts for its share of the income tax credits
(approximately $2,000,000 earned in fiscal 1999) as a reduction of the income
tax provision in the period earned (see Note 9).
3. NET INCOME PER SHARE
The Company reports net income per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128 'Earnings per Share.'
Basic net income per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding
during the year. Diluted net income per share is computed by dividing net income
available to common shareholders by the weighted average number of common and
common equivalent shares outstanding during the year. Common share equivalents
include the number of shares issuable upon the exercise of outstanding options,
less the shares that could be purchased with the proceeds from the exercise of
the options, based on the average trading price of the Company's common stock
for 1997, 1998 and 1999.
F-8
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999
The following table reconciles the basic and diluted net income per share
computations for each year presented (in thousands, except per share data):
<TABLE>
<CAPTION>
1997
------------------------------------
INCOME SHARES PER SHARE
------ ------ ---------
<S> <C> <C> <C>
Basic net income per share........................... $ 7,362 8,948 $0.82
-----
-----
Effect of stock options.............................. -- 271
------- ------
Diluted net income per share......................... $ 7,362 9,219 $0.80
------- ------ -----
------- ------ -----
<CAPTION>
1998
------------------------------------
INCOME SHARES PER SHARE
------ ------ ---------
Basic net income per share. 7,412 7,919 0.94
-----
-----
Effect of stock options.............................. -- 259
------- ------
Diluted net income per share......................... $ 7,412 8,178 $0.91
------- ------ -----
------- ------ -----
<CAPTION>
1999
------------------------------------
INCOME SHARES PER SHARE
------ ------ ---------
Basic net income per share. 11,195 7,427 1.51
-----
-----
Effect of stock options.............................. -- 406
------- ------
Diluted net income per share......................... $11,195 7,833 $1.43
------- ------ -----
------- ------ -----
</TABLE>
For the years ended January 31, 1997, 1998 and 1999, a total of 1,509,000,
1,413,000, and 1,164,000 shares, subject to outstanding options were not
included in the common equivalent shares calculation as the exercise prices were
above the average trading price of the Company's common stock for those periods.
SFAS No. 128 replaced the calculation of primary and fully diluted net
income per share under previous accounting standards with basic and diluted net
income per share. As a result of adopting SFAS No. 128, the Company restated
primary net income per share of $0.80 to basic net income per share of $0.82 for
the year ended January 31, 1997. There was no impact of restating fully diluted
net income per share to diluted net income per share for the year ended
January 31, 1997.
4. COMMON STOCK TRANSACTIONS
During the years ended January 31, 1997, 1998 and 1999, the Company
purchased 854,000, 567,000 and 632,000 shares of its common stock for $7,486,000
$5,018,000 and $7,468,000, respectively. The Company is authorized by its Board
of Directors to purchase an additional 465,000 shares of its common stock and
all shares purchased will be held in treasury for possible future use.
5. REVOLVING LINE OF CREDIT
The Company has a revolving credit agreement with seven banks which expires
on July 31, 2000. Under the terms of the agreement, available revolving credit
borrowings are equal to the lesser of: (i) $100 million for the months of
January through June and $150 million for the months of July through December or
(ii) the sum of specific percentages of eligible accounts receivable and
eligible inventories, as defined. Borrowings available are reduced by any letter
of credit commitments outstanding. The Company had no outstanding borrowings
under the revolving credit agreement at January 31, 1998 and January 31, 1999.
At January 31, 1999, a total of approximately $84.1 million was available for
borrowings under the revolving credit agreement.
F-9
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999
The interest rate charged on borrowings is prime or LIBOR plus 1.875% and
commitment fees of 1/4% are payable on the unused portion. Borrowings are
secured by certain fixed assets, accounts receivable and inventories.
The revolving credit agreement contains restrictive covenants which require
the Company to maintain specified levels of consolidated tangible net worth and
limit capital expenditures and the incurrence of additional indebtedness. The
revolving credit agreement also places restrictions on the amount of common
stock repurchases and the payment of dividends.
6. LONG-TERM MORTGAGE DEBT
Long-term mortgage debt consists of notes payable secured by certain land,
buildings and leasehold improvements. Interest rates range from 6.9% to 10.0%.
Principal and interest are payable monthly over terms which generally range from
10 to 15 years. Substantially all of the notes payable require balloon payments
at the end of the scheduled term.
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 31, AMOUNT
- ----------- ------
<S> <C>
2000..................................................... $ 3,114
2001..................................................... 4,060
2002..................................................... 6,166
2003..................................................... 5,067
2004..................................................... 5,325
Thereafter............................................... 34,860
-------
$58,592
-------
-------
</TABLE>
The fair value of the Company's long-term debt at January 31, 1998 and 1999
was approximately $56.6 million and $60.9 million, respectively. The fair value
was estimated based on rates available to the Company for debt with similar
terms and maturities.
7. EMPLOYEE BENEFITS
Stock Option Plans -- The Company maintains the REX Stores Corporation 1995
Omnibus Stock Incentive Plan (the Omnibus Plan). Under the Omnibus Plan, the
Company may grant to officers and key employees awards in the form of incentive
stock options, non-qualified stock options, stock appreciation rights,
restricted stock, other stock-based awards and cash incentive awards. The
Omnibus Plan also provides for yearly grants of non-qualified stock options to
directors who are not employees of the Company. The exercise price of each stock
based award must be at least 100% of the fair market value of the Company's
common stock on the date of grant. A maximum of 2,000,000 shares of common stock
are authorized for issuance under the Omnibus Plan and at January 31, 1999,
21,405 shares remained available for issuance. At January 31, 1999, 91,559 stock
options also remained outstanding under the 1984 Incentive Stock Option Plan
which expired in fiscal 1995.
On October 14, 1998, the Company's Board of Directors approved a grant of
non-qualified stock options to two key executives for 650,000 shares at an
exercise price of $9.94, which represented the market price on the date of
grant. These options vest over a three-year period commencing on December 31,
2000, and all of these options remained outstanding at January 31, 1999. At
January 31, 1999, non-qualified stock options awarded in 1989 also remained
outstanding and exercisable for 512,079 shares at an exercise price of $3.38 per
share, which represented the market price on the date of grant. All 512,079 of
these non-qualified stock options were exercised subsequent to year-end on
March 23, 1999.
F-10
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999
On February 26, 1997, the Company's Board of Directors approved a
re-pricing of 362,035 stock options, with exercise prices ranging from $13.00 to
$18.98 per share, to the market price as of the date of approval of $8.13 per
share. Stock options held by employees who are members of the Board of Directors
and stock options held by Non-Employee Directors were not re-priced.
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, 'Accounting for Stock Issued to Employees', under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined at fair value consistent with SFAS No. 123, 'Accounting for
Stock-Based Compensation', the Company's net income and net income per share
would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net income (000's):
As reported................................... $7,362 $7,412 $11,195
Pro forma..................................... 5,932 6,167 9,370
Basic net income per share:
As reported................................... $ 0.82 $ 0.94 $ 1.51
Pro forma..................................... 0.66 0.78 1.26
Diluted net income per share:
As reported................................... $ 0.80 $ 0.91 $ 1.43
Pro forma..................................... 0.72 0.79 1.25
</TABLE>
The fair values of options granted were estimated as of the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions used for grants in fiscal 1997, 1998 and 1999, respectively:
risk-free interest rate of 6.3%, 5.7% and 5.7%; expected volatility of 46.7%,
41.5% and 39.2%; and a weighted average stock option life of 5 years, 5 years
and 9 years. In accordance with the provisions of SFAS No. 123, the fair value
method of accounting was not applied to options granted prior to February 1,
1995 in estimating the pro forma amounts. Therefore, the pro forma effect on net
income and net income per share may not be representative of that to be expected
in future years.
The following summarizes stock option activity for the years ended
January 31, 1997, 1998 and 1999 (options granted and cancelled during fiscal
1998 include the effect of the February 26, 1997 re-pricing):
<TABLE>
<CAPTION>
1997 1998 1999
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........... 2,069 $11.60 2,119 $12.15 2,288 $11.06
Granted.................................... 202 15.47 653 9.13 997 10.54
Exercised.................................. (81) 5.34 (86) 7.20 (79) 7.54
Canceled or expired........................ (71) 14.62 (398) 14.54 (11) 13.18
----- ------ ----- ------ ----- ------
Outstanding at end of year................. 2,119 $12.15 2,288 $11.06 3,195 $10.98
----- ------ ----- ------ ----- ------
----- ------ ----- ------ ----- ------
Exercisable at end of year................. 1,143 $10.37 1,368 $10.62 1,639 $11.10
----- ------ ----- ------ ----- ------
----- ------ ----- ------ ----- ------
Weighted average fair value of options
granted.................................. $8.30 $4.68 $6.46
----- ----- -----
----- ----- -----
</TABLE>
F-11
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999
Price ranges and other information for stock options outstanding as of
January 31, 1999 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------ ------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
RANGE OF SHARES AVERAGE REMAINING SHARES AVERAGE
EXERCISE PRICES (000'S) EXERCISE PRICE LIFE (000'S) EXERCISE PRICE
--------------- ------- -------------- ---- ------- --------------
<S> <C> <C> <C> <C> <C>
$3.38....................... 512 $ 3.38 0.8 yrs. 512 $ 3.38
$8.13 to $11.50.................. 1,519 9.98 8.0 yrs. 225 8.69
$12.50 to $18.13.................. 1,159 15.60 5.5 yrs. 898 16.07
$18.98....................... 5 18.98 0.2 yrs. 4 18.98
----- ------ -------- ----- ------
3,195 $10.98 5.9 yrs. 1,639 $11.10
----- ------ -------- ----- ------
----- ------ -------- ----- ------
</TABLE>
Profit Sharing Plan -- The Company has a qualified, noncontributory profit
sharing plan covering full-time employees who meet certain eligibility
requirements. The Plan also allows 401(k) savings contributions by participants
with certain Company matching contributions. Aggregate contributions to the Plan
are determined annually by the Board of Directors and are not to exceed 15% of
total compensation paid to all participants during such year. The Company
contributed matching amounts of approximately $28,000, $31,000 and $36,000 for
the years ended January 31, 1997, 1998 and 1999, respectively, under the Plan.
8. LEASES AND COMMITMENTS
The Company is committed under operating leases for certain warehouse and
retail store locations. The lease agreements are for varying terms through 2007
and contain renewal options for additional periods. Real estate taxes, insurance
and maintenance costs are generally paid by the Company. Contingent rentals
based on sales volume are not significant. Certain leases contain scheduled rent
increases and rent expense is recognized on a straight-line basis over the term
of the leases.
On August 30, 1989, the Company completed a transaction for the sale and
leaseback of certain stores and warehouse facilities under an initial 15-year
lease term. This transaction resulted in a pre-tax financial statement gain of
$15.6 million, which was deferred and is being amortized as a reduction to lease
expense over the term of the leases. The unamortized deferred gain at
January 31, 1999 was approximately $4.6 million.
During the year ended January 31, 1999, the Company purchased three store
locations that were leased pursuant to the sale/leaseback. For financial
statement purposes, the purchase of these three stores resulted in approximately
$660,000 of the deferred gain associated with the sale/leaseback being recorded
as a reduction in the carrying value of properties purchased.
The following is a summary of rent expense under operating leases (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED MINIMUM GAIN SUBLEASE
JANUARY 31, RENTALS AMORTIZATION INCOME TOTAL
- ----------- ------- ------------ ------ -----
<S> <C> <C> <C> <C>
1997........................................... $9,076 $(629) $(1,503) $6,944
1998........................................... 9,453 (943) (1,713) 6,797
1999........................................... 9,729 (943) (1,854) 6,932
</TABLE>
F-12
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999
Future minimum annual rentals and gain amortization on non-cancelable
leases as of January 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED MINIMUM GAIN
JANUARY 31, RENTALS AMORTIZATION
- ----------- ------- ------------
<S> <C> <C>
2000...................................................... $8,663 $ 824
2001...................................................... 8,113 824
2002...................................................... 7,102 824
2003...................................................... 5,924 824
2004...................................................... 5,384 824
Thereafter................................................ 3,981 481
------- ------
$39,167 $4,601
------- ------
------- ------
</TABLE>
9. INCOME TAXES
The provision for income taxes for the years ended January 31, 1997, 1998
and 1999 consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal:
Current................................................ $5,803 $5,007 $3,304
Deferred............................................... (1,824) (957) (217)
------ ------ ------
3,979 4,050 3,087
------ ------ ------
State and Local:
Current................................................ 1,056 848 836
Deferred............................................... (230) (58) 80
------ ------ ------
826 790 916
------ ------ ------
$4,805 $4,840 $4,003
------ ------ ------
------ ------ ------
</TABLE>
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
1998 1999
---- ----
<S> <C> <C>
Assets:
Deferral of service contract income.................... $ 9,991 $ 9,853
Sale and leaseback deferred gain....................... 2,172 1,842
Accrued liabilities.................................... 2,257 2,757
Other items............................................ 3,291 4,053
------- -------
17,711 18,505
Liabilities:
Depreciation........................................... (271) (1,030)
------- -------
Total net future income tax benefits.............. $17,440 $17,475
------- -------
------- -------
</TABLE>
The Company paid income taxes of $9,801,000, $7,604,000 and $5,633,000 in
the years ended January 31, 1997, 1998 and 1999, respectively.
F-13
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999
The effective income tax rate on consolidated pre-tax income differs from
the Federal income tax statutory rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate................ 35.0% 35.0% 35.0%
Tax credits from investment in limited partnerships
(See Note 2)...................................... -- -- (13.2)
State and local taxes, net of federal tax benefit... 4.1 4.2 3.9
Other............................................... 0.4 0.3 0.6
---- ---- -----
39.5% 39.5% 26.3%
---- ---- -----
---- ---- -----
</TABLE>
10. CONTINGENCIES
The Company is involved in various legal actions arising in the normal
course of business. After taking into consideration legal counsels' evaluation
of such actions, management is of the opinion that their outcome will not have a
significant effect on the Company's consolidated financial statements.
F-14
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
JULY 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 6,014 $ 9,734
Accounts receivable, net............................... 518 1,414
Merchandise inventory.................................. 144,523 149,362
Prepaid expenses and other............................. 2,833 2,177
Equity investment in limited partnerships.............. 3,150 781
Future income tax benefits............................. 7,899 9,366
-------- --------
Total current assets.............................. 164,937 172,834
Property and equipment, net................................. 93,624 101,716
Future income tax benefits.................................. 9,577 8,109
Restricted investments...................................... 1,744 1,949
-------- --------
Total assets...................................... $269,882 $284,608
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable.......................................... $ 13,618 $ --
Current portion of long-term debt...................... 3,011 3,203
Current portion, deferred income and deferred gain on
sale and leaseback.................................... 11,379 11,349
Accounts payable, trade................................ 49,507 56,908
Accrued income taxes................................... -- 663
Accrued payroll........................................ 4,388 6,515
Other liabilities...................................... 10,612 11,342
-------- --------
Total current liabilities......................... 92,515 89,980
-------- --------
Long-term liabilities:
Long-term debt......................................... 53,093 58,708
Deferred income........................................ 16,928 16,038
Deferred gain on sale and leaseback.................... 4,793 3,365
-------- --------
Total long-term liabilities....................... 74,814 78,111
-------- --------
Shareholders' equity:
Common stock........................................... 97 99
Paid-in capital........................................ 58,403 57,226
Retained earnings...................................... 66,773 81,555
Treasury stock......................................... (22,720) (22,363)
-------- --------
Total shareholders' equity............................. 102,553 116,517
-------- --------
Total liabilities and shareholders' equity........ $269,882 $284,608
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
statements.
F-15
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
---- ----
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net sales................................................... $180,410 $206,795
Costs and expenses:
Cost of merchandise sold............................... 130,384 149,483
Selling, general and administrative expenses........... 43,034 47,294
-------- --------
Total costs and expenses.......................... 173,418 196,777
-------- --------
Income from operations...................................... 6,992 10,018
Investment income........................................... 223 190
Interest expense............................................ (2,918) (2,756)
Income from limited partnerships............................ -- 796
-------- --------
Income before provision for income taxes............... 4,297 8,248
Provision for income taxes.................................. 1,699 2,063
-------- --------
Net income.................................................. $ 2,598 $ 6,185
-------- --------
Weighted average number of common shares outstanding........ 7,670 7,480
-------- --------
Basic net income per share.................................. $ 0.34 $ 0.83
-------- --------
-------- --------
Weighted average number of common and common equivalent
shares outstanding........................................ 8,034 8,122
-------- --------
Diluted net income per share................................ $ 0.32 $ 0.76
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
statements.
F-16
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIODS ENDED JULY 31, 1998, JANUARY 31, 1999 AND JULY 31, 1999
<TABLE>
<CAPTION>
COMMON SHARES
----------------------------------
ISSUED TREASURY
--------------- ---------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------ ------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1998................... 9,756 $97 2,484 $22,720 $58,403 $66,773
Common stock issued........................ 11 1 -- -- 193 --
Treasury stock acquired.................... -- -- 103 1,134 -- --
Net income................................. -- -- -- -- -- 8,597
----- --- ----- ------- ------- -------
Balance at January 31, 1999................ 9,767 98 2,587 23,854 58,596 75,370
Common stock issued........................ 167 1 (512) (4,721) (1,370) --
Treasury stock acquired.................... -- -- 209 3,230 -- --
Net income................................. -- -- -- -- -- 6,185
----- --- ----- ------- ------- -------
Balance at July 31, 1999................... 9,934 $99 2,284 $22,363 $57,226 $81,555
----- --- ----- ------- ------- -------
----- --- ----- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
statements.
F-17
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1999
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31,
-------------------
1998 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 2,598 $ 6,185
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization, net................ 1,573 1,693
Equity in losses of limited partnerships.......... -- 1,057
Deferred income................................... (981) (696)
Changes in assets and liabilities:
Accounts receivable............................... 2,258 883
Merchandise inventory............................. (18,025) (17,360)
Other current assets.............................. (758) (141)
Accounts payable, trade................................ (325) 4,234
Other liabilities...................................... 256 3,574
-------- --------
Net cash used in operating activities........ (13,404) (571)
-------- --------
Cash flows from investing activities:
Capital expenditures.............................. (4,175) (5,869)
Capital disposals................................. 1,675 943
Equity investment in limited partnerships......... (3,150) --
Restricted investments............................ (143) (121)
-------- --------
Net cash used in investing activities........ (5,793) (5,047)
-------- --------
Cash flows from financing activities:
Increase in notes payable......................... 13,618 --
Payments of long-term debt........................ (2,224) (2,003)
Long-term debt borrowings......................... 2,707 5,322
Common stock issued............................... 507 1,623
Treasury stock issued............................. -- 1,728
Treasury stock acquired........................... (6,334) (3,230)
-------- --------
Net cash provided by financing activities.... 8,274 3,440
-------- --------
Net decrease in cash and cash equivalents................... (10,923) (2,178)
Cash and cash equivalents, beginning of period.............. 16,937 11,912
-------- --------
Cash and cash equivalents, end of period.................... $ 6,014 $ 9,734
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
statements.
F-18
<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999
NOTE 1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included in this report have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments necessary to state fairly the information set forth
therein. Any such adjustments were of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these unaudited consolidated financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for the
year ended January 31, 1999.
NOTE 2. ACCOUNTING POLICIES
The interim consolidated financial statements have been prepared in
accordance with the accounting policies described in the notes to the
consolidated financial statements included in the Company's 1999 Annual Report
on Form 10-K. While management believes that the procedures followed in the
preparation of interim financial information are reasonable, the accuracy of
some estimated amounts is dependent upon facts that will exist or calculations
that will be accomplished at fiscal year end. Examples of such estimates include
changes in the LIFO reserve (based upon the Company's best estimate of inflation
to date) and management bonuses and the provision for income taxes. Any
adjustments pursuant to such estimates during the quarter were of a normal
recurring nature.
Certain reclassifications have been made to prior year amounts to conform
with their fiscal 2000 presentation.
NOTE 3. STOCK OPTION PLANS
The following summarizes options granted, exercised and canceled or expired
during the six months ended July 31, 1999:
<TABLE>
<CAPTION>
SHARES UNDER STOCK
OPTION PLANS
------------
<S> <C>
Outstanding at January 31, 1999 ($3.38 to $18.98 per
share).................................................... 3,194,951
Granted ($11.50 to $22.69 per share)........................ 212,221
Exercised ($3.38 to $10.38 per share)....................... (680,080)
Canceled or expired ($8.13 to $17.25 per share)............. (17,670)
---------
Outstanding at July 31, 1999 ($8.13 to $22.69 per share).... 2,709,422
---------
---------
</TABLE>
F-19
<PAGE>
INSIDE BACK COVER
Map showing store and warehouse locations.
<TABLE>
<S> <C> <C> <C> <C>
Alabama: (12) Idaho: (5) Massachusetts: (2) North Carolina: (5) South Carolina: (10)
- ------------- ------------- ----------------- ------------------- --------------------
Athens Coeur d'Alene Hadley Asheville Aiken
Auburn Idaho Falls Lanesborough Goldsboro Anderson
Daphne Lewiston Hendersonville Charleston
Decatur Pocatello Michigan: (3) Rocky Mount Florence
Florence Twin Falls ------------- Salisbury Greenwood
Gadsden Adrian Murrell's Inlet
Huntsville Illinois: (10) Bay City North Dakota: (3) North Myrtle Beach
Mobile (2) ------------- Benton Harbor ----------------- Orangeburg
Montgomery Alton Bismarck Rock Hill
Oxford Bradley Minnesota: (1) Grand Forks Sumter
Tuscaloosa Carbondale ------------- Minot
Danville Willmar South Dakota: (3)
Arkansas: (1) Decatur Ohio: (17) -----------------
- ------------- Galesburg Mississippi: (11) ------------- Aberdeen
Springdale Pekin ------------- Ashtabula Rapid City
Peru Columbus Beavercreek Watertown
Colorado: (3) Quincy Gautier Dayton (2)
- ------------- Sterling Greenville Defiance Tennessee: (6)
Grand Junction Gulfport Kettering --------------
Greeley Indiana: (3) Hattiesburg Lima Bristol
Pueblo ------------- Jackson (2) Marion Chattanooga
Anderson Meridian Miamisburg Cleveland
Florida: (26) Muncie Ridgeland Middletown Johnson City
- ------------- Richmond Tupelo New Philadelphia Kingsport
Charlotte Harbor Vicksburg Piqua Morristown
Crystal River Iowa: (12) Sandusky
Ft. Pierce ------------- Missouri: (3) St. Clairsville Texas: (10)
Gainesville Burlington ------------- Springfield -----------
Hudson Council Bluffs Jefferson City Wheelersburg Brownsville
Lake City Des Moines (2) Joplin Wooster Denton
Largo Dubuque St. Joseph Harlingen
Leesburg Ft. Dodge Oklahoma: (2) Lake Jackson
Mary Esther Marshalltown Montana: (3) ------------- Longview
Melbourne Mason City ------------- Enid Midland
Merritt Island Ottumwa Butte Lawton Odessa
Naples (2) Sioux City Great Falls San Angelo
Ocala Waterloo Missoula Pennsylvania: (18) Sherman
Palm Harbor West Des Moines ------------------ Victoria
Panama City Nebraska: (3) Altoona
Pensacola (2) Kansas: (2) ------------- Bloomsburg Virginia: (1)
St. Augustine ------------- Grand Island Chambersburg -------------
St. Petersburg Hutchinson Norfolk Cranberry Danville
Spring Hill Lawrence North Platte Erie (2)
Stuart Frackville Washington: (2)
Tallahassee (2) Kentucky: (3) New York: (20) Greensburg ---------------
Titusville ------------- ------------- Hanover Union Gap
Vero Beach Ashland Auburn Hazleton Wenatchee
Hopkinsville Clifton Park Hermitage
Georgia: (7) Paducah Cortland Indiana West Virginia: (5)
- ------------- Fredonia Johnstown ------------------
Albany Louisiana: (6) Geneva Lower Burrell Beckley
Brunswick ------------- Horseheads Meadville Bluefield
LaGrange Alexandria Ithaca New Castle Bridgeport
Macon Baton Rouge Kingston Scranton Morgantown
Rome Houma Lakewood Wilkes-Barre Vienna
Valdosta Lake Charles Latham
Warner Robins New Iberia Lockport Wisconsin: (4)
Opelousas New Hartford --------------
Niagara Falls Fond du Lac
Maryland: (2) Olean Janesville
------------- Plattsburg Manitowac
Cumberland Queensbury Oshkosh
Hagerstown Rome
Schenectady Wyoming: (2)
Utica ------------
Watertown Casper
Cheyenne
</TABLE>
Warehouse/Store Location
Store Locations
<PAGE>
________________________________________________________________________________
2,400,000 SHARES
REX STORES CORPORATION
COMMON STOCK
[LOGO]
----------------
PROSPECTUS
, 1999
----------------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
GERARD KLAUER MATTISON & CO., INC.
ING BARINGS
MORGAN KEEGAN & COMPANY, INC.
________________________________________________________________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than underwriting discounts and
commissions, are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 30,308
NASD filing fees............................................ $ 11,402
NYSE listing fee............................................ $ 6,038
Printing fees............................................... $125,000
Legal fees and expenses..................................... $100,000
Accounting fees and expenses................................ $ 50,000
Transfer agent and registrar fees........................... $ 3,500
Miscellaneous expenses...................................... $ 23,752
--------
Total.................................................. $350,000*
--------
--------
</TABLE>
- ------------
* The selling stockholders named herein will pay the expenses of the offering
attributable to the common stock being sold by them and the fees of their
counsel and other representatives, in addition to the underwriting discounts
and commissions on the common stock to be sold by them.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the registrant's By-laws provides that it shall indemnify
its officers and directors to the extent permitted by the General Corporation
Law of Delaware.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. Section 145 further provides that a corporation
similarly may indemnify any such person serving in any such capacity who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor, against expenses (including attorneys' fees) actually and
reasonably incurred in connection with the defense or settlement of such action
or suit if the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
such other court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Under Section 145, a corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving
II-1
<PAGE>
at the request of the corporation as a director, officer, employee or agent of
another corporation or other legal entity, against any liability asserted
against or incurred by such person in any such capacity whether or not the
corporation would have the power to provide indemnity under Section 145. The
registrant maintains directors and officers liability insurance coverage.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director: (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit. The registrant's Certificate of Incorporation provides that, to the
fullest extent permitted by the Delaware General Corporation Law, directors of
the registrant shall not be liable to the registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director.
ITEM 16. EXHIBITS.
See Exhibit Index on Page II-4.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dayton, State of Ohio, on August 26, 1999.
REX STORES CORPORATION
By /s/ STUART ROSE
..................................
(STUART ROSE,
CHAIRMAN OF THE BOARD)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ STUART ROSE Chairman of the Board and Chief
......................................... Executive Officer (principal
(STUART ROSE) executive officer)
/s/ DOUGLAS BRUGGEMAN Vice President -- Finance and
......................................... Treasurer (principal financial and
(DOUGLAS BRUGGEMAN) accounting officer)
LAWRENCE TOMCHIN* President, Chief Operating Officer August 26, 1999
......................................... and Director
(LAWRENCE TOMCHIN)
/s/ EDWARD KRESS Secretary and Director
.........................................
(EDWARD KRESS)
ROBERT DAVIDOFF* Director
.........................................
(ROBERT DAVIDOFF)
LEE FISHER* Director
.........................................
(LEE FISHER)
*By /s/ STUART ROSE
.........................................
(STUART ROSE, ATTORNEY-IN-FACT)
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(1) Underwriting agreement:
1(a) Form of Underwriting Agreement*.............................
(3) Articles of incorporation and by-laws:
3(a)(1) Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3(a) to Form 10-K for fiscal year ended
January 31, 1994, File No. 0-13283).........................
3(b)(1) By-Laws, as amended (incorporated by reference to
Registration Statement No. 2-95738, Exhibit 3(b), filed
February 8, 1985)...........................................
3(b)(2) Amendment to By-Laws adopted June 29, 1987 (incorporated by
reference to Exhibit 4.5 to Form 10-Q for quarter ended July
31, 1987, File No. 0-13283).................................
(4) Instruments defining the rights of security holders, including
indentures:
4(a) Amended and Restated Loan Agreement dated July 31, 1995
among Rex Radio and Television, Inc., Kelly & Cohen
Appliances, Inc., Stereo Town, Inc. and Rex Kansas, Inc.
(the 'Borrowers'), the lenders named therein, and NatWest
Bank N.A. as agent (incorporated by reference to Exhibit
4(a) to Form 10-Q for quarter ended July 31, 1995, File No.
0-13283)....................................................
4(b) Guaranty of registrant dated July 31, 1995 (incorporated by
reference to Exhibit 4(c) to Form 10-Q for quarter ended
July 31, 1995, File No. 0-13283)............................
4(c) Amendment Agreement dated April 1, 1997 to Amended and
Restated Loan Agreement dated July 31, 1995 and to Guaranty
of registrant dated July 31, 1995 among the Borrowers, the
registrant, the lenders named therein and Fleet Bank, N.A.
(as successor to NatWest Bank N.A.) as agent (incorporated
by reference to Exhibit 4(h) to Form 10-Q for quarter ended
April 30, 1997, File No. 0-13283)...........................
(5) Opinion re legality:
5(a) Opinion of Chernesky, Heyman & Kress P.L.L.*................
(23) Consents of experts and counsel:
23(a) Consent of Arthur Andersen LLP*.............................
23(b) Consent of Chernesky, Heyman & Kress P.L.L. (included in
Exhibit 5(a))
(24) Power of attorney:
Powers of attorney of each person whose name is signed to
this registration statement pursuant to a power of
attorney*...................................................
</TABLE>
- ------------
* Filed herewith
II-4
<PAGE>
REX Stores Corporation
2,400,000 Shares(1)
Common Stock
($0.01 par value)
Underwriting Agreement
New York, New York
, 1999
Salomon Smith Barney Inc.
Credit Suisse First Boston Corporation
Gerard Klauer Mattison & Co., Inc.
ING Barings LLC
Morgan Keegan & Company, Inc.
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
REX Stores Corporation, a corporation organized under the laws of
Delaware (the "Company"), proposes to sell to the several underwriters named in
Schedule I hereto (the "Underwriters"), for whom you (the "Representatives") are
acting as representatives, 1,500,000 shares of Common Stock, $0.01 par value
("Common Stock") of the Company, and the persons named in Schedule II hereto
(the "Selling Stockholders") propose to sell to the several Underwriters 900,000
shares of Common Stock (said shares to be issued and sold by the Company and
shares to be sold by the Selling Stockholders collectively being hereinafter
called the "Underwritten Securities"). The Company and the Selling Stockholders
named in Schedule II hereto also propose to grant to the Underwriters an option
to purchase up to 225,000 and 135,000, respectively, additional shares of Common
Stock to cover over-allotments (the "Option Securities"; the Option Securities,
together with the Underwrit-
- -------------------------------
(1) Plus an option to purchase from the Company and the Selling
Stockholders up to 360,000 additional shares of common stock to cover
over-allotments.
<PAGE>
-2-
ten Securities, being hereinafter called the "Securities"). To the extent there
are no additional Underwriters listed on Schedule I other than you, the term
Representatives as used herein shall mean you, as Underwriters, and the terms
Representatives and Underwriters shall mean either the singular or plural as the
context requires. In addition, to the extent that there is not more than one
Selling Stockholder named in Schedule II, the term Selling Stockholders shall
mean either the singular or plural. The use of the neuter in this Agreement
shall include the feminine and masculine wherever appropriate. Any reference
herein to the Registration Statement, a Preliminary Prospectus or the Prospectus
shall be deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 which were filed under the Exchange Act
on or before the Effective Date of the Registration Statement or the issue date
of such Preliminary Prospectus or the Prospectus, as the case may be; and any
reference herein to the terms "amend", "amendment" or "supplement" with respect
to the Registration Statement, any Preliminary Prospectus or the Prospectus
shall be deemed to refer to and include the filing of any document under the
Exchange Act after the Effective Date of the Registration Statement, or the
issue date of any Preliminary Prospectus or the Prospectus, as the case may be,
deemed to be incorporated therein by reference. Certain terms used herein are
defined in Section 17 hereof.
1. Representations and Warranties.
(i) The Company and each of the Selling Stockholders jointly and
severally represent and warrant to, and agree with, each Underwriter as set
forth below in this Section 1.
(a) The Company meets the requirements for use of Form S-3 under the
Act and has prepared and filed with the Commission a registration statement
(file number 333-[ ]) on Form S-3, including a related preliminary
prospectus, for registration under the Act of the offering and sale of the
Securities. The Company may have filed one or more amendments thereto,
including a related preliminary prospectus, each of which has previously
been furnished to you. Each preliminary prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied
when so filed in all material respects with the applicable requirements of
the Act; provided, however, that the Company and the Selling Stockholders
make no representations or warranties as to the information contained in or
omitted from any such preliminary prospectus (or any supplement thereto) in
reliance upon and in conformity with the information furnished in writing
to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion in any such preliminary
prospectus (or any supplement thereto). The Commission has not issued any
order preventing or suspending the use of any preliminary prospectus. The
Company will next file with the Commission one of the following: either (1)
prior to the Effective Date of such registration statement, a further
amendment to such registration statement, (in-
<PAGE>
-3-
cluding the form of final prospectus) or (2) after the Effective Date of
such registration statement, a final prospectus in accordance with Rules
430A and 424(b). In the case of clause (2), the Company has included in
such registration statement, as amended at the Effective Date, all
information (other than Rule 430A Information) required by the Act and the
rules thereunder to be included in such registration statement and the
Prospectus. As filed, such amendment and form of final prospectus, or such
final prospectus, shall contain all Rule 430A Information, together with
all other such required information, and, except to the extent the
Representatives shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the Execution
Time or, to the extent not completed at the Execution Time, shall contain
only such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Company has advised
you, prior to the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or will, and
when the Prospectus is first filed (if required) in accordance with Rule
424(b) and on the Closing Date (as defined herein) and on any date on which
Option Securities are purchased, if such date is not the Closing Date (a
"settlement date"), the Prospectus (and any supplements thereto) will,
comply in all material respects with the applicable requirements of the Act
and the Exchange Act and the respective rules thereunder; on the Effective
Date and at the Execution Time, the Registration Statement did not or will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein not misleading; and, on the Effective Date, the
Prospectus, if not filed pursuant to Rule 424(b), will not, and on the date
of any filing pursuant to Rule 424(b) and on the Closing Date and any
settlement date, the Prospectus (together with any supplement thereto) will
not, include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the Company and the Selling Stockholders make no
representations or warranties as to the information contained in or omitted
from the Registration Statement or the Prospectus (or any supplement
thereto) in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration Statement or
the Prospectus (or any supplement thereto).
(c) Each of the Company and its subsidiaries has been duly
incorporated or organized, as the case may be, and is validly existing as a
corporation or limited liability company in good standing under the laws of
the jurisdiction in which it is chartered or organized with full power and
authority to own or lease, as the case may be, and to operate its
properties and conduct its business as described in the Prospectus, and is
<PAGE>
-4-
duly qualified to do business as a foreign corporation or limited liability
company and is in good standing under the laws of each jurisdiction which
requires such qualification wherein it owns or leases material properties
or conducts material business and where the failure to be so qualified
would, individually or in the aggregate, have a material adverse effect on
the condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its Subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Prospectus; notwithstanding the
foregoing, the Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of the State of Ohio.
The Company has full power and authority to enter into this Agreement and
to carry out all the terms and provisions hereof to be carried out by it.
All of the Company's subsidiaries (collectively, the "Subsidiaries") are
listed on Schedule III hereto.
(d) all the outstanding shares of capital stock or membership
interests of each Subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set
forth in the Prospectus, all outstanding shares of capital stock and
membership interests of the Subsidiaries (to the extent owned by the
Company) are owned by the Company either directly or through wholly owned
subsidiaries free and clear of any perfected security interest or any other
security interest, claim, lien or encumbrance. The Company owns, directly
or through wholly owned subsidiaries, 100% of the capital stock or
membership interests of each Subsidiary, except for Rex Investment, LLC, as
to which the Company owns through wholly owned subsidiaries 98.032%, 95.46%
and 100% of the Class A, Class B and Class C membership interests,
respectively.
(e) the Company's authorized equity capitalization is as set forth in
the Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock (including the Securities being sold
hereunder by the Selling Stockholders) have been duly and validly
authorized and issued and are fully paid and nonassessable; the Securities
being sold hereunder by the Company have been duly and validly authorized,
and, when issued and delivered to and paid for by the Underwriters pursuant
to this Agreement, will be fully paid and nonassessable; the Securities
being sold by the Selling Stockholders are duly listed, and admitted and
authorized for trading, on the New York Stock Exchange and the Securities
being sold hereunder by the Company are duly listed, and admitted and
authorized for trading, subject to official notice of issuance, on the New
York Stock Exchange; the certificates for the Securities are in valid and
sufficient form; the holders of outstanding shares of capital stock of the
Company are not entitled to preemptive or other rights to subscribe for the
Securities; and, except as set forth in the Prospectus, no options,
warrants or other rights to pur-
<PAGE>
-5-
chase, agreements or other obligations to issue, or rights to convert any
obligations into or exchange any securities for, shares of capital stock of
or ownership interests in the Company are outstanding.
(f) There is no franchise, contract or other document of a character
required to be described in the Registration Statement or Prospectus, or to
be filed as an exhibit thereto, which is not described or filed as
required.
(g) This Agreement has been duly authorized, executed and delivered by
the Company.
(h) The Company is not and, after giving effect to the offering and
sale of the Securities and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as defined
in the Investment Company Act of 1940, as amended.
(i) No consent, approval, authorization, filing with or order of any
court or governmental agency or body is required in connection with the
transactions contemplated herein, except such as have been obtained under
the Act and such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters in the manner contemplated herein and in the
Prospectus and such other approvals as have been obtained.
(j) Neither the issue and sale of the Securities nor the consummation
of any other of the transactions herein contemplated nor the fulfillment of
the terms hereof will conflict with, result in a breach or violation of,
constitute a default under or result in the imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
Subsidiaries pursuant to, (i) the charter, by-laws or similar
organizational documents of the Company or any of its Subsidiaries, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which the Company or any of its Subsidiaries is a
party or bound or to which its or their property is subject, or (iii) any
statute, law, rule, regulation, judgment, order or decree applicable to the
Company or any of its Subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or any of its Subsidiaries or any of
its or their properties.
(k) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement, except
for the Selling Stockholders with respect to the Securities being sold by
them pursuant to this Agreement or with respect to certain other shares of
Common Stock as to which the right to such registration has been waived.
<PAGE>
-6-
(l) The consolidated historical financial statements and schedules of
the Company and its consolidated subsidiaries included in the Prospectus
and the Registration Statement present fairly in all material respects the
financial condition, results of operations and cash flows of the Company as
of the dates and for the periods indicated, comply as to form with the
applicable accounting requirements of the Act and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as otherwise noted
therein). The selected financial data set forth under the caption "Selected
Consolidated Financial Data" in the Prospectus and Registration Statement
fairly present, on the basis stated in the Prospectus and the Registration
Statement, the information included therein.
(m) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its Subsidiaries or its or their property is pending or,
to the best knowledge of the Company, threatened that (i) could reasonably
be expected to have a material adverse effect on the performance of this
Agreement or the consummation of any of the transactions contemplated
hereby or (ii) could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its Subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(n) Each of the Company and each of its Subsidiaries owns or leases
all such properties as are necessary to the conduct of its operations as
presently conducted.
(o) Neither the Company nor any Subsidiary is in violation or default
of (i) any provision of its charter, bylaws or similar organizational
documents, (ii) the terms of any indenture, contract, lease, mortgage, deed
of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which it is a party or bound or to
which its property is subject, or (iii) any statute, law, rule, regulation,
judgment, order or decree of any court, regulatory body, administrative
agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or such Subsidiary or any of its properties,
as applicable, which violation or default would, in the case of clauses
(ii) and (iii) above, either individually or in the aggregate with all
other violations and defaults referred to in this paragraph (o) (if any),
have a material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
Subsidiaries, taken as a whole.
(p) Arthur Andersen LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered
their report with respect
<PAGE>
-7-
to the audited consolidated financial statements and schedules included in
the Prospectus, are independent public accountants with respect to the
Company within the meaning of the Act and the applicable published rules
and regulations thereunder.
(q) There are no transfer taxes or other similar fees or charges under
Federal law or the laws of any state, or any political subdivision thereof,
required to be paid in connection with the execution and delivery of this
Agreement or the issuance by the Company or sale by the Company of the
Securities.
(r) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
Subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto) and has paid all taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable,
except for any such assessment, fine or penalty that is currently being
contested in good faith or as would not have a material adverse effect on
the condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its Subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(s) No labor problem or dispute with the employees of the Company or
any of its Subsidiaries exists or is threatened or imminent, and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its or its Subsidiaries' principal suppliers,
contractors or customers, that could have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its Subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(t) The Company and each of its Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; all policies of insurance and any fidelity or surety bonds
insuring the Company or any of its Subsidiaries or their respective
businesses, assets, employees, officers and directors are in full force and
effect; the Company and its Subsidiaries are in compliance with the terms
of such policies and instruments in all material respects; and there are no
claims by the Company or any of its Subsidiaries under any such policy or
instrument as to which any insurance company is denying liability or
defending under a reservation of rights
<PAGE>
-8-
clause except which individually or in the aggregate would not reasonably
be expected to have a material adverse effect on the condition (financial
or otherwise), prospects, earnings, business or properties of the Company
and its Subsidiaries, taken as a whole; neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would
not have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company and
its Subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).
(u) No Subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such Subsidiary's capital stock, from repaying to the
Company any loans or advances to such Subsidiary from the Company or from
transferring any of such Subsidiary's property or assets to the Company or
any other Subsidiary, except as described in or contemplated by the
Prospectus.
(v) The Company and its Subsidiaries possess all licenses,
certificates, permits and other authorizations issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
failed to obtain, or received any notice of proceedings relating to the
revocation or modification of, any such certificate, authorization or
permit which, singly or in the aggregate, if not obtained or the subject of
an unfavorable decision, ruling or finding, would have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its Subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(w) The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
<PAGE>
-9-
(x) The Company has not taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(y) The Company and its Subsidiaries are (i) in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to (A) consumer product safety, communications and occupational
safety ("Operational Laws") and (B) the protection of human health and
safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) have received and
are in compliance with all permits, licenses or other approvals required of
them under applicable Operational Laws and Environmental Laws to conduct
their respective businesses and (iii) have not received notice of any
actual or potential liability for the investigation or remediation of any
disposal or release of hazardous or toxic substances or wastes, pollutants
or contaminants, except where such non-compliance with Operational Laws,
Environmental Laws, failure to receive required permits, licenses or other
approvals, or liability would not, individually or in the aggregate, have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
Subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto). Except as set forth
in the Prospectus, neither the Company nor any of the Subsidiaries has been
named as a "potentially responsible party" under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended.
(z) In the ordinary course of its business, the Company periodically
reviews the effect of Environmental Laws on the business, operations and
properties of the Company and its Subsidiaries, in the course of which it
identifies and evaluates associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws, or
any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties). On the basis of
such review, the Company has reasonably concluded that such associated
costs and liabilities would not, singly or in the aggregate, have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
Subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto).
<PAGE>
-10-
(aa) Each of the Company and its Subsidiaries has fulfilled its
obligations, if any, under the minimum funding standards of Section 412 of
the Internal Revenue Code of 1986, as amended, and Section 302 of the
United States Employee Retirement Income Security Act of 1974 ("ERISA") and
the regulations and published interpretations thereunder with respect to
each "plan" (as defined in Section 3(3) of ERISA and such regulations and
published interpretations) in which employees of the Company and its
Subsidiaries are eligible to participate and each such plan is in
compliance in all material respects with the presently applicable
provisions of ERISA and such regulations and published interpretations. The
Company and its Subsidiaries have not incurred any unpaid liability to the
Pension Benefit Guaranty Corporation (other than for the payment of
premiums in the ordinary course) or to any such plan under Title IV of
ERISA.
(bb) The Company and its Subsidiaries have implemented a
comprehensive, detailed program to analyze and address the risk that their
computer hardware and software may be unable to recognize and properly
execute date-sensitive functions involving certain dates prior to and any
dates after December 31, 1999 (the "Year 2000 Problem") and has determined
that their computer hardware and software are and will be able to process
all date information prior to and after December 31, 1999 without any
errors, aborts, delays or other interruptions in operations associated with
the Year 2000 Problem; and the Company believes, after due inquiry, that
each key supplier, vendor, customer or financial service organization used
or serviced by the Company and its Subsidiaries has remedied or will remedy
on a timely basis the Year 2000 Problem, except to the extent that a
failure to remedy by any such supplier, vendor, customer or financial
service organization would not have a material adverse effect on the
Company and its Subsidiaries, taken as a whole. The Company is in
compliance with the Commission's staff legal bulletin No. 5 dated January
12, 1998 related to Year 2000 compliance, as amended to date.
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by
the Company, as to matters covered thereby, to each Underwriter.
(ii) Each Selling Stockholder represents and warrants to, and agrees
with, each Underwriter that:
(a) Such Selling Stockholder has full power to enter into this
Agreement and the Custody Agreement (as defined below) and to sell, assign,
transfer and deliver to the Underwriters the Securities to be sold by such
Selling Stockholder hereunder in accordance with the terms of this
Agreement; this Agreement and the Custody Agreement have been duly executed
and delivered by such Selling Stockholder; and the
<PAGE>
-11-
Custody Agreement is the valid and binding agreement of such Selling
Stockholder enforceable against such Selling Stockholder in accordance with
its terms.
(b) Such Selling Stockholder is the lawful owner of the Securities to
be sold by such Selling Stockholder hereunder and upon sale and delivery
of, and payment for, such Securities, as provided herein, such Selling
Stockholder will convey to the Underwriters good and marketable title to
such Securities, free and clear of all liens, encumbrances, equities and
claims whatsoever.
(c) Such Selling Stockholder has not taken, directly or indirectly,
any action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities.
(d) Certificates in negotiable form for such Selling Stockholder's
Securities have been placed in custody, for delivery pursuant to the terms
of this Agreement, under a Custody Agreement and Power of Attorney duly
authorized (if applicable) executed and delivered by such Selling
Stockholder, in the form heretofore furnished to you (the "Custody
Agreement") with Edward Kress, as Custodian (the "Custodian"); the
Securities represented by the certificates so held in custody for each
Selling Stockholder are subject to the interests hereunder of the
Underwriters; the arrangements for custody and delivery of such
certificates, made by such Selling Stockholder hereunder and under the
Custody Agreement, are not subject to termination by any acts of such
Selling Stockholder, or by operation of law, whether by the death or
incapacity of such Selling Stockholder or the occurrence of any other
event; and if any such death, incapacity or any other such event shall
occur before the delivery of such Securities hereunder, certificates for
the Securities will be delivered by the Custodian in accordance with the
terms and conditions of this Agreement and the Custody Agreement as if such
death, incapacity or other event had not occurred, regardless of whether or
not the Custodian shall have received notice of such death, incapacity or
other event. Notwithstanding the foregoing, Securities to be sold by
Selling Stockholders that are to be acquired upon the exercise of options
need not be delivered in the manner set forth above but shall be delivered
in a manner and upon terms satisfactory to the Representatives.
(e) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by such
Selling Stockholder of the transactions contemplated herein, except such as
may have been obtained under the Act and such as may be required under the
blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated herein and in the Prospectus and such other approvals as have
been obtained.
<PAGE>
-12-
(f) Neither the sale of the Securities being sold by such Selling
Stockholder nor the consummation of any other of the transactions herein
contemplated by such Selling Stockholder or the fulfillment of the terms
hereof by such Selling Stockholder will conflict with, result in a breach
or violation of, or constitute a default under the terms of any indenture
or other agreement or instrument to which such Selling Stockholder is a
party or bound, or any statute, law, rule, regulation, judgment, order or
decree applicable to such Selling Stockholder of any court, regulatory
body, administrative agency, governmental body or arbitrator having
jurisdiction over such Selling Stockholder.
Any certificate signed by any Selling Stockholder and delivered to the
Representatives or counsel for the Underwriters in connection with the offering
of the Securities shall be deemed a representation and warranty by such Selling
Stockholder, as to matters covered thereby, to each Underwriter.
2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company and the Selling
Stockholders agree, severally and not jointly, to sell to each Underwriter, and
each Underwriter agrees, severally and not jointly, to purchase from the Company
and the Selling Stockholders, at a purchase price of $[ ] per share, the amount
of the Underwritten Securities set forth opposite such Underwriter's name in
Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company and the Selling
Stockholders named in Schedule II hereto hereby grant an option to the several
Underwriters to purchase, severally and not jointly, up to 360,000 Option
Securities at the same purchase price per share as the Underwriters shall pay
for the Underwritten Securities, less an amount per share equal to any dividends
or distributions declared by the Company and payable on the Underwritten
Securities but not payable on the Option Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
the Prospectus upon written or telegraphic notice by the Representatives to the
Company and such Selling Stockholders setting forth the number of shares of the
Option Securities as to which the several Underwriters are exercising the option
and the settlement date. The maximum number of Option Securities to be sold by
the Company is 225,000 and the maximum aggregate number of Option Securities to
be sold by the Selling Stockholders is 135,000. The maximum number of Option
Securities which each Selling Stockholder agrees to sell is set forth in
Schedule II hereto. In the event that the Underwriters exercise less than their
full over-allotment option, the number of Option Securities to be sold by the
Company and each Selling Stockholder listed on Schedule II shall be, as nearly
as
<PAGE>
-13-
practicable, in the respective proportions which the maximum number of Option
Securities to be sold by each of them bears to the aggregate maximum number of
Option Securities to be sold hereunder. The number of Option Securities to be
purchased by each Underwriter shall be the same percentage of the total number
of shares of the Option Securities to be purchased by the several Underwriters
as such Underwriter is purchasing of the Underwritten Securities, subject to
such adjustments as you in your absolute discretion shall make to eliminate any
fractional shares.
3. Delivery and Payment. Delivery of and payment for the Underwritten
Securities and the Option Securities (if the option provided for in Section 2(b)
hereof shall have been exercised on or before the third Business Day prior to
the Closing Date) shall be made at 10:00 AM, New York City time, on [ ],
1999, or at such time on such later date not more than three Business Days after
the foregoing date as the Representatives shall designate, which date and time
may be postponed by agreement among the Representatives, the Company and the
Selling Stockholders or as provided in Section 9 hereof (such date and time of
delivery and payment for the Securities being herein called the "Closing Date").
Delivery of the Securities shall be made to the Representatives for the
respective accounts of the several Underwriters against payment by the several
Underwriters through the Representatives of the respective aggregate purchase
prices of the Securities being sold by the Company and each of the Selling
Stockholders to or upon the order of the Company and the Selling Stockholders by
wire transfer payable in same-day funds to the accounts specified by the Company
and the Selling Stockholders. Delivery of the Underwritten Securities and the
Option Securities shall be made through the facilities of The Depository Trust
Company unless the Representatives shall otherwise instruct.
Each Selling Stockholder will pay all applicable state transfer taxes,
if any, involved in the transfer to the several Underwriters of the Securities
to be purchased by them from such Selling Stockholder and the respective
Underwriters will pay any additional stock transfer taxes involved in further
transfers.
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Company and the Selling
Stockholders named in Schedule II hereto will deliver the Option Securities (at
the expense of the Company and the Selling Stockholders) to the Representatives,
at 388 Greenwich Street, New York, New York, on the date specified by the
Representatives (which shall be within three Business Days after exercise of
said option) for the respective accounts of the several Underwriters, against
payment by the several Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company and the Selling Stockholders
named in Schedule II by wire transfer payable in same-day funds to the accounts
specified by the Company and the Selling Stockholders named in Schedule II
hereto. If settlement for the Option Securities occurs after the Closing Date,
the Company and such Selling Stockholders will deliver to the Representa-
<PAGE>
-14-
tives on the settlement date for the Option Securities, and the obligation of
the Underwriters to purchase the Option Securities shall be conditioned upon
receipt of, supplemental opinions, certificates and letters confirming as of
such date the opinions, certificates and letters delivered on the Closing Date
pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Agreements.
(i) The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectus or any Rule 462(b) Registration
Statement unless the Company has furnished you a copy for your review prior
to filing and will not file any such proposed amendment or supplement to
which you reasonably object. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule 424(b),
the Company will cause the Prospectus, properly completed, and any
supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed and
will provide evidence satisfactory to the Representatives of such timely
filing. The Company will promptly advise the Representatives (1) when the
Registration Statement, if not effective at the Execution Time, shall have
become effective, (2) when the Prospectus, and any supplement thereto,
shall have been filed (if required) with the Commission pursuant to Rule
424(b) or when any Rule 462(b) Registration Statement shall have been filed
with the Commission, (3) when, prior to termination of the offering of the
Securities, any amendment to the Registration Statement shall have been
filed or become effective, (4) of any request by the Commission or its
staff for any amendment of the Registration Statement, or any Rule 462(b)
Registration Statement, or for any supplement to the Prospectus or for any
additional information, (5) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (6) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the institution or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of
any such stop order or the suspension of any such qualification and, if
issued, to obtain as soon as possible the withdrawal thereof.
<PAGE>
-15-
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Prospectus to comply with the
Act or the Exchange Act or the respective rules thereunder, the Company
promptly will (1) notify the Representatives of such event, (2) prepare and
file with the Commission, subject to the second sentence of paragraph
(i)(a) of this Section 5, an amendment or supplement which will correct
such statement or omission or effect such compliance and (3) supply any
supplemented Prospectus to you in such quantities as you may reasonably
request. Neither Salomon Smith Barney Inc.'s consent to nor the
Underwriters' delivery of any such amendment or supplement shall constitute
a waiver of any of the conditions set forth in Section 6.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the Representatives an earnings statement or
statements of the Company and its Subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for
the Underwriters, without charge, signed copies of the Registration
Statement (including exhibits thereto) and to each other Underwriter a copy
of the Registration Statement (without exhibits thereto) and, so long as
delivery of a prospectus by an Underwriter or dealer may be required by the
Act, as many copies of each Preliminary Prospectus and the Prospectus and
any supplement thereto as the Representatives may reasonably request.
(e) The Company will arrange, if necessary, for the qualification of
the Securities for sale under the laws of such jurisdictions as the
Representatives may designate, will maintain such qualifications in effect
so long as required for the distribution of the Securities and will pay any
fee of the National Association of Securities Dealers, Inc., in connection
with its review of the offering; provided that in no event shall the
Company be obligated to qualify to do business in any jurisdiction where it
is not now so qualified or to take any action that would subject it to
service of process in suits, other than those arising out of the offering
or sale of the Securities, in any jurisdiction where it is not now so
subject.
(f) The Company will not, without the prior written consent of Salomon
Smith Barney Inc., offer, sell, contract to sell, pledge, or otherwise
dispose of, (or enter into any transaction which is designed to, or might
reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to
<PAGE>
-16-
cash settlement or otherwise) by the Company or any affiliate of the
Company or any person in privity with the Company or any affiliate of the
Company) directly or indirectly, including the filing (or participation in
the filing) of a registration statement with the Commission in respect of,
or establish or increase a put equivalent position or liquidate or decrease
a call equivalent position within the meaning of Section 16 of the Exchange
Act with respect to, any shares of Common Stock (except for sales to the
Underwriters pursuant to this Agreement) or any securities convertible into
or exercisable or exchangeable for shares of Common Stock, or publicly
announce an intention to effect any such transaction, for a period of 90
days after the date of this Agreement, provided, however, that the Company
may grant options and issue and sell Common Stock pursuant to any employee
stock option plan, stock ownership plan or dividend reinvestment plan of
the Company in effect at the Execution Time and the Company may issue
Common Stock issuable upon the conversion of securities or the exercise of
warrants outstanding at the Execution Time.
(g) The Company will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(h) During a period of three years from the Effective Date, the
Company agrees to furnish to the Representatives copies of all reports or
other communications (financial or other) furnished to stockholders, and to
deliver to the Representatives such additional information concerning the
business and financial condition of the Company as the Representatives may
from time to time reasonably request.
(i) The Company agrees to use the net proceeds received by it from the
sale of the Securities pursuant to this Agreement in the manner specified
in the Prospectus under "Use of Proceeds."
(j) The Company and the Selling Stockholders agree to pay the
following costs and expenses and all other costs and expenses incident to
the performance by the Company and the Selling Stockholders' obligations
hereunder: (i) the preparation, printing or reproduction, and filing with
the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Preliminary Prospectus, each
Prospectus, and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Preliminary Prospectus, each Prospectus, and
all amendments or supplements to any of them, as may be requested for use
in connection with the offering and sale of the Securities; (iii) the
preparation, printing, authentication, issuance and delivery of
certificates for the Securities, including any stamp taxes in connection
with the original issuance and
<PAGE>
-17-
sale of the Securities; (iv) the printing (or reproduction) and delivery of
this Agreement, any blue sky memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the
offering of the Securities; (v) the listing of the Securities on the New
York Stock Exchange; (vi) any registration or qualification of the Shares
for offer and sale under the securities or blue sky laws of the several
states as provided in Section 5(i)(e) hereof (including the reasonable
fees, expenses and disbursements of counsel for the Underwriters relating
to the preparation, printing or reproduction, and delivery of any blue sky
memoranda and such registration and qualification); (vii) the filing fees
in connection with any filings required to be made with the National
Association of Securities Dealers, Inc.; (viii) the transportation and
other expenses incurred by or on behalf of Company representatives in
connection with presentations to prospective purchasers of the Securities;
and (ix) the fees and expenses of the Company's accountants and the fees
and expenses of counsel (including local and special counsel) for the
Company and the Selling Stockholders.
The provisions of this Section 5(i)(j) shall not affect, as between
the Company and the Selling Stockholders, any agreement between them regarding
allocation of expenses to be paid by them hereunder.
(ii) Each Selling Stockholder agrees with the several Underwriters
that:
(a) Such Selling Stockholder will not, without the prior written
consent of Salomon Smith Barney Inc., offer, sell, contract to sell, pledge
or otherwise dispose of, (or enter into any transaction which is designed
to, or might reasonably be expected to, result in the disposition (whether
by actual disposition or effective economic disposition due to cash
settlement or otherwise) by the Company or any affiliate of the Company or
any person in privity with the Company or any affiliate of the Company)
directly or indirectly, including the filing (or participation in the
filing) of a registration statement with the Commission in respect of, or
establish or increase a put equivalent position or liquidate or decrease a
call equivalent position within the meaning of Section 16 of the Exchange
Act with respect to, any shares of Common Stock (except for sales to the
Underwriters pursuant to this Agreement) or any securities convertible into
or exercisable or exchangeable for shares of Common Stock, or publicly
announce an intention to effect any such transaction, for a period of 270
days after the date of this Agreement, other than shares of Common Stock
disposed of as bona fide gifts approved by Salomon Smith Barney Inc.
(b) Such Selling Stockholder will not take, directly or indirectly,
any action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities.
<PAGE>
-18-
(c) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, so long as delivery
of a prospectus relating to the Securities by an underwriter or dealer may
be required under the Act, of (i) any material change in the Company's
condition (financial or otherwise), prospects, earnings, business or
properties, (ii) any change in information in the Registration Statement or
the Prospectus relating to such Selling Stockholder or (iii) any new
material information relating to the Company or relating to any matter
stated in the Prospectus which comes to the attention of such Selling
Stockholder.
6. Conditions to the Obligations of the Underwriters. The obligations
of the Underwriters to purchase the Underwritten Securities and the Option
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders contained herein as of the Execution Time, the Closing Date and any
settlement date pursuant to Section 3 hereof, to the accuracy of the statements
of the Company and the Selling Stockholders made in any certificates pursuant to
the provisions hereof, to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder and to the following
additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 PM New York City time on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date or (ii) 9:30 AM on the Business Day following
the day on which the public offering price was determined, if such
determination occurred after 3:00 PM New York City time on such date; if
filing of the Prospectus, or any supplement thereto, is required pursuant
to Rule 424(b), the Prospectus, and any such supplement, will be filed in
the manner and within the time period required by Rule 424(b); and no stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted
or threatened.
(b) The Company and the Selling Stockholders shall have requested and
caused Chernesky, Heyman & Kress P.L.L., counsel for the Company and the
Selling Stockholders, to have furnished to the Representatives their
opinion, dated the Closing Date and addressed to the Representatives, to
the effect that:
(i) each of the Company and Rex Radio and Television, Inc.,
Stereo Town, Inc., Kelly & Cohen Appliances, Inc., Rex Kansas, Inc.,
Rex Louisiana, Inc., Rex Alabama, Inc., rexstores.com, Inc., AVA
Acquisition Corp. and Rex Investment, LLC (individually a "Subsidiary"
and collectively the "Subsidiaries") has been duly incorporated or
organized, as the case may be, and is validly existing as a
corporation or limited liability company in good standing
<PAGE>
-19-
under the laws of the jurisdiction in which it is chartered or
organized, with full power and authority to own or lease, as the case
may be, and to operate its properties and conduct its business as
described in the Prospectus, and is duly qualified to do business as a
foreign corporation or limited liability company and is in good
standing under the laws of each jurisdiction which requires such
qualification wherein it owns or leases material properties or
conducts material business and where the failure to be so qualified
would, individually or in the aggregate, have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its Subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Prospectus;
notwithstanding the foregoing, the Company is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of the State of Ohio; and the Company has full power and
authority to enter into this Agreement and to carry out all the terms
and provisions hereof to be carried out by it;
(ii) all the outstanding shares of capital stock or membership
interests of each Subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise
set forth in the Prospectus, all outstanding shares of capital stock
and membership interests of the Subsidiaries (to the extent owned by
the Company) are owned by the Company either directly or through
wholly owned subsidiaries free and clear of any perfected security
interest and, to the knowledge of such counsel, after due inquiry, any
other security interest, claim, lien or encumbrance;
(iii) the Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock (including the
Securities being sold hereunder by the Selling Stockholders) have been
duly and validly authorized and issued and are fully paid and
nonassessable; the Securities being sold hereunder by the Company have
been duly and validly authorized, and, when issued and delivered to
and paid for by the Underwriters pursuant to this Agreement, will be
fully paid and nonassessable; the Securities being sold by the Selling
Stockholders are duly listed, and admitted and authorized for trading,
on the New York Stock Exchange and the Securities being sold hereunder
by the Company are duly listed, and admitted and authorized for
trading, subject to official notice of issuance, on the New York Stock
Exchange; the certificates for the Securities are in valid and
sufficient form; the holders of outstanding shares of capital stock of
the Company are not entitled to preemptive or other rights to
subscribe for
<PAGE>
-20-
the Securities; and, except as set forth in the Prospectus, no
options, warrants or other rights to purchase, agreements or other
obligations to issue, or rights to convert any obligations into or
exchange any securities for, shares of capital stock of or ownership
interests in the Company are outstanding;
(iv) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its Subsidiaries or its or their property of a
character required to be disclosed in the Registration Statement which
is not adequately disclosed in the Prospectus, and there is no
franchise, contract or other document of a character required to be
described in the Registration Statement or Prospectus, or to be filed
as an exhibit thereto, which is not described or filed as required;
(v) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the knowledge of
such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened and the Registration
Statement and the Prospectus (other than the financial statements and
other financial information contained therein or incorporated therein
by reference, as to which such counsel need express no opinion) comply
as to form in all material respects with the applicable requirements
of the Act and the Exchange Act and the respective rules thereunder;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Prospectus, will not be, an "investment company"
as defined in the Investment Company Act of 1940, as amended;
(viii) no consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated herein, except such as have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated in this Agreement and in the Prospectus and such other
approvals (specified in such opinion) as have been obtained;
<PAGE>
-21-
(ix) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of, constitute a default under or result in the
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or its Subsidiaries pursuant to, (i) the
charter, by-laws or similar organizational documents of the Company or
its Subsidiaries, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument known to such
counsel to which the Company or its Subsidiaries is a party or bound
or to which its or their property is subject, or (iii) any statute,
law, rule, regulation, judgment, order or decree known to such counsel
and applicable to the Company or its Subsidiaries of any court,
regulatory body, administrative agency, governmental body, arbitrator
or other authority having jurisdiction over the Company or its
Subsidiaries or any of its or their properties; and
(x) no holders of securities of the Company have rights to the
registration of such securities under the Registration Statement,
except for the Selling Stockholders with respect to the Securities
being sold by them pursuant to this Agreement or with respect to
certain other shares of Common Stock as to which the right to such
registration has been waived.
(xi) this Agreement and the Custody Agreement have been duly
executed and delivered by the Selling Stockholders, the Custody
Agreement is valid and binding on the Selling Stockholders and each
Selling Stockholder has full legal right and authority to sell,
transfer and deliver in the manner provided in this Agreement and the
Custody Agreement the Securities being sold by such Selling
Stockholder hereunder;
(xii) the delivery by each Selling Stockholder to the several
Underwriters of the Securities being sold hereunder by such Selling
Stockholder against payment therefor as provided herein, will pass
good and marketable title to such Securities to the several
Underwriters, free and clear of all liens, encumbrances, equities and
claims whatsoever, assuming the Underwriters are bona fide purchasers
without knowledge of any adverse claim;
(xiii) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by any
Selling Stockholder of the transactions contemplated herein, except
such as may have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction in connection
with the purchase and distribution of the Securities by the
Underwriters in the manner contemplated in this Agreement
<PAGE>
-22-
and in the Prospectus and such other approvals (specified in such
opinion) as have been obtained; and
(xiv) neither the sale of the Securities being sold by any
Selling Stockholder nor the consummation of any other of the
transactions herein contemplated by any Selling Stockholder or the
fulfillment of the terms hereof by any Selling Stockholder will
conflict with, result in a breach or violation of, or constitute a
default under the terms of any indenture or other agreement or
instrument known to such counsel and to which any Selling Stockholder
is a party or bound, or any statute, law, rule, regulation, judgment,
order or decree known to such counsel to be applicable to any Selling
Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over any Selling
Stockholder.
Such counsel shall also state that it has no reason to believe that on the
Effective Date or at the Execution Time the Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus (or any amendment
or supplement thereto) as of its date and on the Closing Date contained or
contains any untrue statement of a material fact or omitted or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading (in
each case, other than the financial statements and other financial
information contained therein or incorporated therein by reference, as to
which such counsel need express no opinion).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of Ohio, the general corporation laws of the States of Delaware, Georgia
and Kansas or the Federal laws of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters and (B) as to matters of fact,
to the extent they deem proper, on certificates of responsible officers of
the Company, the Selling Stockholders and public officials. References to
the Prospectus in this paragraph (b) include any supplements thereto at the
Closing Date.
(c) The Representatives shall have received from Cahill Gordon &
Reindel, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date and addressed to the Representatives, with respect to the
issuance and sale of the Securities, the Registration Statement, the
Prospectus (together with any supplement thereto) and other related matters
as the Representatives may reasonably require, and the Company and each
Selling Stockholder shall have furnished to such counsel such documents as
they request for the purpose of enabling them to pass upon such matters.
<PAGE>
-23-
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate
have carefully examined the Registration Statement, the Prospectus, any
supplements to the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct on and as of the Closing Date with the
same effect as if made on the Closing Date and the Company has
complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included or incorporated by reference in the Prospectus (exclusive of
any supplement thereto), there has been no material adverse effect on
the condition (financial or otherwise), prospects, earnings, business
or properties of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(e) Each Selling Stockholder shall have furnished to the
Representatives a certificate, signed by such Selling Stockholder, dated
the Closing Date, to the effect that the signer of such certificate have
carefully examined the Registration Statement, the Prospectus, any
supplement to the Prospectus and this Agreement and that the
representations and warranties of such Selling Stockholder in this
Agreement are true and correct on and as of the Closing Date to the same
effect as if made on the Closing Date.
(f) The Company shall have requested and caused Arthur Andersen LLP to
have furnished to the Representatives, at the Execution Time and at the
Closing Date, letters, dated respectively as of the Execution Time and as
of the Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants within
the meaning of the Act and the Exchange Act and the respective applicable
rules and regulations adopted by the Commission thereunder and that they
have (A) audited the consolidated financial statements of the Company and
its Subsidiaries as of and for each of the fiscal years ended January 31,
1995, 1996, 1997, 1998 and 1999 included or incorporated by reference in
the Registration Statement and
<PAGE>
-24-
the Prospectus and (B) performed a review of the unaudited interim
financial information of the Company and its Subsidiaries for the six-month
periods ended July 31, 1999 and July 31, 1998 and as at July 31, 1999 and
July 31, 1998 in accordance with Statement on Auditing Standards No. 71,
and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules included or incorporated by reference in
the Registration Statement and the Prospectus and reported on by them
comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the
related rules and regulations adopted by the Commission;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its Subsidiaries; their
limited review, in accordance with standards established under
Statement on Auditing Standards No. 71, of the unaudited interim
financial information for the six-month periods ended July 31, 1999
and July 31, 1998, and as at July 31, 1999 and July 31, 1998, included
in or incorporated by reference in the Registration Statement and the
Prospectus; carrying out certain specified procedures (but not an
examination in accordance with generally accepted auditing standards)
which would not necessarily reveal matters of significance with
respect to the comments set forth in such letter; a reading of the
minutes of the meetings of the stockholders, directors and the
executive, audit and compensation committees of the Company and the
Subsidiaries; and inquiries of certain officials of the Company who
have responsibility for financial and accounting matters of the
Company and its Subsidiaries as to transactions and events subsequent
to July 31, 1999, nothing came to their attention which caused them to
believe that:
(1) any unaudited financial statements included or
incorporated by reference in the Registration Statement and the
Prospectus do not comply as to form in all material respects with
applicable accounting requirements of the Act and with the
related rules and regulations adopted by the Commission with
respect to financial statements included or incorporated by
reference in quarterly reports on Form 10-Q under the Exchange
Act; and said unaudited financial statements are not in
conformity with generally accepted accounting principles applied
on a basis substantially consistent with that of the audited
financial statements included or incorporated by reference in the
Registration Statement and the Prospectus;
<PAGE>
-25-
(2) with respect to the period subsequent to July 31, 1999,
there were any changes, at a specified date not more than five
days prior to the date of the letter, in the capital stock of the
Company, increases in long-term debt or decreases in the current
assets or shareholders' equity of the Company and its
Subsidiaries as compared with the amounts shown on the July 31,
1999 consolidated balance sheet included or incorporated by
reference in the Registration Statement and the Prospectus, or
for the period from August 1, 1999 to such specified date there
were any decreases, as compared with the corresponding period in
the preceding year, in net sales, income from operations or
income before provision for income taxes or in total or per share
amounts of net income of the Company and its Subsidiaries, except
in all instances for changes, increases or decreases set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto) or as set forth in such letter, in which case the letter
shall be accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed
necessary by the Representatives; or
(3) the information included or incorporated by reference in
the Registration Statement and Prospectus in response to
Regulation S-K, Item 301 (Selected Financial Data), Item 302
(Supplementary Financial Information) and Item 402 (Executive
Compensation) is not in conformity with the applicable disclosure
requirements of Regulation S-K; and
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its Subsidiaries) set
forth in the Registration Statement and the Prospectus, including the
information set forth under the captions "Prospectus Summary,"
"Capitalization," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" in the Prospectus, the
information included or incorporated by reference in Items 1, 6, 7 and
11 of the Company's Annual Report on Form 10-K, incorporated by
reference in the Registration Statement and the Prospectus, and the
information included in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included or
incorporated by reference in the Company's Quarterly Reports on Form
10-Q, incorporated by reference in the Registration Statement and the
Prospectus, agrees with the ac-
<PAGE>
-26-
counting records of the Company and its Subsidiaries, excluding any
questions of legal interpretation.
References to the Prospectus in this paragraph (f) include any
supplement thereto at the date of the letter.
(g) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (f) of this Section 6 or
(ii) any change, or any development involving a prospective change, in or
affecting the condition (financial or otherwise), earnings, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto) the effect of which, in any case referred to in clause
(i) or (ii) above, is, in the sole judgment of the Representatives, so
material and adverse as to make it impractical or inadvisable to proceed
with the offering or delivery of the Securities as contemplated by the
Registration Statement (exclusive of any amendment thereof) and the
Prospectus (exclusive of any supplement thereto).
(h) Prior to the Closing Date, the Company and the Selling
Stockholders shall have furnished to the Representatives such further
information, certificates and documents as the Representatives may
reasonably request.
(i) The Securities shall have been listed and admitted and authorized
for trading on the New York Stock Exchange, and satisfactory evidence of
such actions shall have been provided to the Representatives.
(j) At the Execution Time, each of the Selling Stockholders shall have
furnished to the Representatives a letter substantially in the form of
Exhibit A hereto addressed to the Representatives.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of such
cancellation shall be given to the Company and each Selling Stockholder in
writing or by telephone or facsimile confirmed in writing.
<PAGE>
-27-
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cahill Gordon & Reindel, counsel for the
Underwriters, at 80 Pine Street, New York, New York 10005, on or before the
Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company or any Selling
Stockholders to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally through Salomon Smith Barney Inc. on demand
for all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with the proposed
purchase and sale of the Securities. If the Company is required to make any
payments to the Underwriters under this Section 7 because of any Selling
Stockholder's refusal, inability or failure to satisfy any condition to the
obligations of the Underwriters set forth in Section 6, the Selling
Stockholders, pro rata in proportion to the percentage of Securities to be sold
by each, shall reimburse the Company on demand for all amounts so paid.
8. Indemnification and Contribution.
(a) The Company and the Selling Stockholders jointly and severally
agree to indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of each Underwriter and each person who controls any
Underwriter within the meaning of either the Act or the Exchange Act against any
and all losses, claims, damages or liabilities, joint or several, to which they
or any of them may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Securities as originally filed or in any amendment thereof,
or in any Preliminary Prospectus or the Prospectus, or in any amendment thereof
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company and the Selling Stockholders will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
the Representatives specifically for inclusion therein. This indem-
<PAGE>
-28-
nity agreement will be in addition to any liability which the Company or the
Selling Stockholders may otherwise have.
(b) Each Underwriter severally and not jointly agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who signs
the Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act and each Selling Stockholder, to
the same extent as the foregoing indemnity to each Underwriter, but only with
reference to written information relating to such Underwriter furnished to the
Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company and each Selling Stockholder
acknowledge that the statements set forth in the last paragraph of the cover
page regarding delivery of the Securities and, under the heading "Underwriting,"
(i) the list of Underwriters and their respective participation in the sale of
the Securities, (ii) the paragraph related to concessions and reallowances and
(iii) the paragraphs related to stabilization, syndicate covering transactions
and penalty bids in any Preliminary Prospectus and the Prospectus constitute the
only information furnished in writing by or on behalf of the several
Underwriters for inclusion in any Preliminary Prospectus or the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure to so notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded
<PAGE>
-29-
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of the institution of such action or
(iv) the indemnifying party shall authorize the indemnified party to employ
separate counsel at the expense of the indemnifying party. An indemnifying party
will not, without the prior written consent of the indemnified parties, settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding and does not include a statement as to or an admission of
fault, culpability or failure to act by or on behalf of any indemnified party.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Selling Stockholders,
jointly and severally, and the Underwriters severally agree to contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company, the Selling Stockholders and one
or more of the Underwriters may be subject in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and by the Underwriters on the other from the
offering of the Securities; provided, however, that in no case shall any
Underwriter (except as may be provided in any agreement among underwriters
relating to the offering of the Securities) be responsible for any amount in
excess of the underwriting discount or commission applicable to the Securities
purchased by such Underwriter hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Company and
the Selling Stockholders, jointly and severally, and the Underwriters severally
shall contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Selling
Stockholders on the one hand and of the Underwriters on the other in connection
with the statements or omissions which resulted in such Losses as well as any
other relevant equitable considerations. Benefits received by the Company and
the Selling Stockholders shall be deemed to be equal to the total net proceeds
from the offering (before deducting expenses) received by each of them, and
benefits received by the Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether any untrue or any alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information provided by the Company or the Selling Stockholders on
the one hand or the Underwriters on the other, the intent of the parties
<PAGE>
-30-
and their relative knowledge, access to information and opportunity to correct
or prevent such untrue statement or omission. The Company, the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e) Notwithstanding the provisions of this Section 8, the liability of
each Selling Stockholder under such Selling Stockholder's representations and
warranties contained in Section 1 hereof and under the indemnity and
contribution agreements contained in this Section 8 shall be limited to an
amount equal to the initial public offering price of the Securities sold by such
Selling Stockholder to the Underwriters. The Company and the Selling
Stockholders may agree, as among themselves and without limiting the rights of
the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
9. Default by an Underwriter. If any one or more Underwriters shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter, the
Selling Stockholders or the Company. In the event of a default by any
Underwriter as set forth in this Section 9, the Closing Date shall be postponed
for such period, not exceeding five Business Days, as the Representatives shall
determine in order that the required changes in the Registration Statement and
the Pro-
<PAGE>
-31-
spectus or in any other documents or arrangements may be effected. Nothing
contained in this Agreement shall relieve any defaulting Underwriter of its
liability, if any, to the Company, the Selling Stockholders and any
nondefaulting Underwriter for damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the New York Stock Exchange or trading in securities generally on
the New York Stock Exchange shall have been suspended or limited or minimum
prices shall have been established on such Exchange, (ii) a banking moratorium
shall have been declared either by Federal or New York State authorities or
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war, or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the sole judgment of the Representatives, impractical or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of each Selling Stockholder and of the Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter,
any Selling Stockholder or the Company or any of the officers, directors,
employees, agents or controlling persons referred to in Section 8 hereof, and
will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed to the Salomon Smith Barney Inc. General Counsel (fax
no.: (212) 816-7912) and confirmed to the General Counsel, Salomon Smith Barney
Inc., at 388 Greenwich Street, New York, New York, 10013, Attention: General
Counsel; or, if sent to the Company, will be mailed, delivered or telefaxed to
REX Stores Corporation (fax no.: (937) 276-8643) and confirmed to it at 2875
Needmore Road, Dayton, Ohio 45414, Attention: Vice President-Finance, with a
copy to Edward M. Kress (fax no.: (937) 463-4947) and confirmed to him at 1100
Courthouse Plaza S.W., Dayton, Ohio 45402; or if sent to any Selling
Stockholder, will be mailed, delivered or telefaxed and confirmed to it at
the address set forth in Schedule II hereto.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers, directors, employees, agents and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder.
<PAGE>
-32-
14. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for convenience
only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this Agreement,
shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(i)(a) above and any preliminary prospectus
included in the Registration Statement at the Effective Date that omits
Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the Securities that
is first filed pursuant to Rule 424(b) after the Execution Time or, if no
filing pursuant to Rule 424(b) is required, shall mean the form of final
prospectus relating to the Securities included in the Registration
Statement at the Effective Date.
<PAGE>
-33-
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(i)(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto or any Rule 462(b) Registration
Statement becomes effective prior to the Closing Date, shall also mean such
registration statement as so amended or such Rule 462(b) Registration
Statement, as the case may be. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(a) hereof.
<PAGE>
-34-
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
REX STORES CORPORATION
By: ___________________________________
Name:
Title:
By: __________________________________
Name:
Title:
As Attorney-In-Fact for the Selling Stockholders
listed on Schedule II to the foregoing Agreement.
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Smith Barney Inc.
Credit Suisse First Boston Corporation
Gerard Klauer Mattison & Co., Inc.
ING Barings LLC
Morgan Keegan & Company, Inc.
By: Salomon Smith Barney Inc.
By: ___________________________
Name:
Title:
For themselves and the other several
Underwriters named in Schedule I
to the foregoing Agreement.
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF UNDERWRITTEN
UNDERWRITERS SECURITIES TO BE PURCHASED
------------ --------------------------
<S> <C>
Salomon Smith Barney Inc..........................
Credit Suisse First Boston Corporation............
Gerard Klauer Mattison & Co., Inc.................
ING Barings LLC...................................
Morgan Keegan & Company, Inc......................
---------------------------
Total..................................... 2,400,000
===========================
</TABLE>
<PAGE>
-36-
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF UNDERWRITTEN MAXIMUM NUMBER OF OPTION
SELLING STOCKHOLDERS: SECURITIES TO BE SOLD SECURITIES TO BE SOLD
- -------------------- ---------------------- ---------------------
<S> <C> <C>
Stuart Rose 700,747 105,112
c/o REX Stores Corporation
2875 Needmore Road
Dayton, Ohio 45414
Lawrence Tomchin 177,898 26,685
c/o REX Stores Corporation
2875 Needmore Road
Dayton, Ohio 45414
Douglas Bruggeman 17,500 2,625
c/o REX Stores Corporation
2875 Needmore Road
Dayton, Ohio 45414
Lee Fisher 3,855 578
Western Reserve Building
1468 West 9th Street
Cleveland, Ohio 44113
------------------ --------------
Total.......................... 900,000 135,000
================== ==============
</TABLE>
<PAGE>
SCHEDULE III
SUBSIDIARIES
- ------------
1. Rex Radio and Television, Inc. (1)
2. Stereo Town, Inc. (1)
3. Kelly & Cohen Appliances, Inc. (1)
4. Rex Kansas, Inc. (2)
5. Rex Louisiana, Inc. (1)
6. Rex Alabama, Inc. (2)
7. rexstores.com, Inc. (1)
8. AVA Acquisition Corp. (3)
9. Rex Investment, LLC (4)
(1) Wholly owned subsidiary of REX Stores Corporation.
(2) Wholly owned subsidiary of Rex Radio and Television, Inc.
(3) Wholly owned subsidiary of Kelly & Cohen Appliances, Inc.
(4) Kelly & Cohen Appliances, Inc. owns 98.032% and 95% of the Class A and
Class C membership interests, respectively, and AVA Acquisition Corp. owns
95.46% and 5% of the Class B and Class C membership interests,
respectively.
<PAGE>
EXHIBIT A
[LETTERHEAD OF SELLING STOCKHOLDER OF
REX STORES CORPORATION]
REX Stores Corporation
Public Offering of Common Stock
, 1999
Salomon Smith Barney Inc.
Credit Suisse First Boston Corporation
Gerard Klauer Mattison & Co., Inc.
ING Barings LLC
Morgan Keegan & Company, Inc.
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), between REX Stores
Corporation, a Delaware corporation (the "Company"), and each of you as
representatives of a group of Underwriters named therein, relating to an
underwritten public offering of Common Stock, $0.01 par value (the "Common
Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned will not, without the prior written
consent of Salomon Smith Barney Inc., offer, sell, contract to sell, pledge or
otherwise dispose of, (or enter into any transaction which is designed to, or
might reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise) by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, including the filing (or participation in the filing) of a
registration statement with the Securities and Exchange Commission in respect
of, or establish or increase a put equivalent position or liquidate or decrease
a call equivalent position within the meaning of Section 16 of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder with respect to, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock, or publicly announce an intention to
effect any such transaction, for a period of 270 days after the date of
<PAGE>
-39-
the Underwriting Agreement, other than shares of Common Stock disposed of as
bona fide gifts approved by Salomon Smith Barney Inc.
If for any reason the Underwriting Agreement shall be terminated prior
to the Closing Date (as defined in the Underwriting Agreement), the agreement
set forth above shall likewise be terminated.
Yours very truly,
[SIGNATURE OF SELLING STOCKHOLDER]
[NAME AND ADDRESS OF SELLING STOCKHOLDER]
<PAGE>
[LETTERHEAD OF CHERNESKY, HEYMAN & KRESS P.L.L.]
August 26, 1999
REX Stores Corporation
2875 Needmore Road
Dayton, Ohio 45414
Gentlemen:
We have acted as counsel for REX Stores Corporation, a Delaware
corporation (the "Company"), in connection with the proposed offering by the
Company and certain stockholders of the Company (the "Selling Stockholders") of
up to an aggregate of 2,760,000 shares of the Company's Common Stock, $.01 par
value (the "Shares") pursuant to a Registration Statement on Form S-3 under the
Securities Act of 1933 filed with the Securities and Exchange Commission. Of the
Shares, 1,725,000 (including 225,000 shares subject to an over-allotment option
granted by the Company to the Underwriters named in the Registration Statement)
are being offered by the Company and are referred to herein as the "Company
Shares," and 1,035,000 (including 135,000 shares subject to an over-allotment
option granted by the Selling Stockholders to such Underwriters) are being
offered by the Selling Stockholders and are referred to herein as the "Selling
Stockholders Shares." Of the Selling Stockholders Shares, 7,058 will be issued
pursuant to options to be exercised by a Selling Stockholder and are referred to
herein as the "Option Shares."
For purposes of rendering this opinion, we have examined the Company's
Certificate of Incorporation, as amended, and the various corporate records and
proceedings relating to the organization of the Company and the issuance of the
Shares, and have made investigation of such other matters as in our judgment
permit us to render an informed opinion on the matters set forth herein.
Based on the foregoing, it is our opinion that:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
2. The Company Shares have been duly authorized and, upon issuance
thereof and payment therefor in accordance with the Underwriting Agreement filed
as an exhibit to the Registration Statement, will be validly issued, fully paid
and non-assessable.
<PAGE>
CHERNESKY, HEYMAN & KRESS P.L.L.
August 26, 1999
Page 2
3. The Selling Stockholders Shares, other than the Option Shares, are
duly authorized, validly issued, fully paid and non-assessable.
4. The Option Shares have been duly authorized and, upon issuance
thereof and payment therefor in accordance with the Company's 1995 Omnibus
Stock Incentive Plan, will be duly authorized, validly issued, fully paid and
non-assessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement on Form S-3, and we consent to the reference to our firm
under the caption "Legal Matters" in the Prospectus forming a part of the
Registration Statement.
Very truly yours,
/s/ Chernesky, Heyman & Kress P.L.L.
Chernesky, Heyman & Kress P.L.L.
This letter prepared
and signed by:
Steven R. Watts, Partner
<PAGE>
As independent public accountants, we hereby consent to the use of our report
included in this registration statement and to the incorporation by reference
in this registration statement of our report dated March 24, 1999 included in
REX Stores Corporation's Form 10-K for the fiscal year ended January 31, 1999
and to all references to our Firm included in this registration statement.
Cincinnati, Ohio ARTHUR ANDERSEN LLP
August 26, 1999
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity
as a director or officer, or both, of REX Stores Corporation, a Delaware
corporation (the "Company"), hereby constitutes and appoints Stuart A. Rose and
Edward M. Kress, or either of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign the Company's
Registration Statement on Form S-3 relating to 2,760,000 shares (or such greater
or lesser number as may be approved by such attorneys-in-fact and agents, or any
one of them) and to sign any and all amendments (including post-effective
amendments) thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto such attorneys-in-fact and agents, and any one of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that such attorneys-in-fact
and agents or any one of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
August 20, 1999.
LAWRENCE TOMCHIN
Lawrence Tomchin
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity
as a director or officer, or both, of REX Stores Corporation, a Delaware
corporation (the "Company"), hereby constitutes and appoints Stuart A. Rose and
Edward M. Kress, or either of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign the Company's
Registration Statement on Form S-3 relating to 2,760,000 shares (or such greater
or lesser number as may be approved by such attorneys-in-fact and agents, or any
one of them) and to sign any and all amendments (including post-effective
amendments) thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto such attorneys-in-fact and agents, and any one of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that such attorneys-in-fact
and agents or any one of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
August 20, 1999.
ROBERT DAVIDOFF
Robert Davidoff
<PAGE>
Exhibit 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity
as a director or officer, or both, of REX Stores Corporation, a Delaware
corporation (the "Company"), hereby constitutes and appoints Stuart A. Rose and
Edward M. Kress, or either of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign the Company's
Registration Statement on Form S-3 relating to 2,760,000 shares (or such greater
or lesser number as may be approved by such attorneys-in-fact and agents, or any
one of them) and to sign any and all amendments (including post-effective
amendments) thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto such attorneys-in-fact and agents, and any one of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that such attorneys-in-fact
and agents or any one of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
August 20, 1999.
LEE FISHER
Lee Fisher
