SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 2-93668-FW
CURTIS MATHES HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
Texas 75-1975147
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10911 Petal Street, 75238
Dallas, Texas (Zip Code)
(Address of principal executive offices)
(214) 503-8880
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. YES X NO
At December 31, 1996, there were 31,779,717 shares of
Registrant's common stock outstanding.
<PAGE>
GENERAL INDEX
Page
Number
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 9
EXHIBIT INDEX 10
<PAGE>
CURTIS MATHES HOLDING CORPORATION
and Subsidiaries
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
A. BASIS OF INTERIM FINANCIAL STATEMENT PREPARATION
The interim financial statements and summarized notes included
herein were prepared, without audit, pursuant to rules and regulations
of the Securities and Exchange Commission. Because certain information
and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles were condensed
or omitted pursuant to such rules and regulations, it is suggested that
these 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 preceding fiscal year. These
interim financial statements and notes hereto reflect all adjustments
which are, in the opinion of management, necessary for a fair statement
of results for the interim periods presented. Such financial results,
however, should not be construed as necessarily indicative of future
earnings.
<TABLE>
CURTIS MATHES HOLDING CORPORATION
Consolidated Balance Sheets (Unaudited)
<CAPTION>
December 31 June 30
1996 1996
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 4,230,527 $ 4,150,481
Subscriptions receivable -- 4,351,500
Accounts receivable 3,312 48,445
Notes receivable 344,749 354,807
Inventory 457,512 646,929
Current portion of restricted cash -- 47,423
Investments 631,575 --
Prepaid expenses and other 1,333,124 585,583
Total current assets 7,000,799 10,185,168
Long-term notes receivable 2,823 --
Property and equipment 2,115,791 1,327,448
Less depreciation (850,260) (671,346)
Goodwill 4,915,755 4,915,755
Less amortization (726,143) (577,389)
Other assets 470 30,770
TOTAL ASSETS $12,459,235 $15,210,406
</TABLE>
<PAGE>
<TABLE>
CURTIS MATHES HOLDING CORPORATION
Consolidated Balance Sheets (Unaudited) - Continued
<CAPTION>
December 31 June 30
1996 1996
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 485,940 $ 807,847
Current maturities of obligations under capital leases 38,296 109,487
Trade accounts payable 388,141 134,522
Accrued and other current liabilities 533,106 649,456
Deferred gain -- 1,252,461
Total Current Liabilities 1,445,483 2,953,773
Long-Term Debt
Obligations under notes payable, less current maturities 120,592 186,310
Obligations under capital leases, less current maturities 18,157 88,876
Other liabilities 203,150 257,915
Total Long-Term Liabilities 341,899 533,101
Stockholders' Equity
Preferred stock, cumulative, $1.00 par value;
1,000,000 shares authorized:
Series A, 140,000 shares (liquidation
preference of $140,000) $ 140,000 $ 140,000
Series G, zero and 117,305 shares (liquidation
preference of $0 and $1,173,050) -- 117,305
Series H, 7 and 55 shares (liquidation
preference of $175,000 and $1,375,000) 7 55
Series I, zero and 5,385 shares (liquidation
preference of $0 and $5,385,000) -- 5,385
Series J, 250 shares issued September 1996
(liquidation preference $287,500 and $0) 250 --
Common stock, $.01 par value; 80,000,000 shares
authorized; 31,779,717 and 24,311,188 shares issued
and outstanding at December 31, and June 30, 1996 317,797 243,112
Additional paid-in-capital 23,118,631 22,193,525
Accumulated deficit, since July 1, 1993 quasi
reorganization in which an accumulated deficit
of $4,140,595 was eliminated (10,975,850) (10,975,850)
Current year profit (loss) (1,928,982)
Total Stockholders' Equity $10,671,853 $ 11,723,532
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $12,459,235 $ 15,210,406
</TABLE>
<PAGE>
<TABLE>
CURTIS MATHES HOLDING CORPORATION
Consolidated Statements of Operations (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31 December 31 December 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUE
Sales Revenues $ 413,200 $ 3,271,272 $ 2,503,583 $ 5,767,299
Other Income -- -- -- --
TOTAL REVENUE $ 413,200 $ 3,271,272 $ 2,503,583 $ 5,767,299
COSTS AND EXPENSES
Costs of Goods Sold $ 253,141 $ 2,949,431 $ 2,258,212 $ 5,208,803
Amortization 83,213 61,249 148,754 122,497
Financing Expense 7,914 347,040 17,747 755,464
Freight Expense 15,326 62,154 43,952 89,506
Occupancy & Office Expense 164,511 139,446 421,234 461,865
Payroll & Related Expense 286,430 372,427 543,826 724,173
Professional Services/Fees 101,200 68,297 235,697 387,429
Travel & Entertainment 100,353 30,796 136,569 51,025
Taxes 20,551 1,277 40,551 117,506
Warranty/Reorganization Provision 151,041 156,185 203,301 207,018
Advertising 1,446,834 -- 1,511,008 --
Other Expenses 268,041 180,437 313,079 334,008
TOTAL COSTS AND EXPENSES $ 2,898,555 $ 4,368,739 $ 5,873,930 $ 8,459,294
OTHER INCOME:
Deferred gain on early payoff of debt -- 1,252,498 --
Interest income 121,634 -- 188,867 --
TOTAL OTHER INCOME 121,634 -- 1,441,365 --
INCOME/(LOSS) FROM CONTINUING OPERATIONS $(2,363,721) $(1,097,467) $(1,928,982) $(2,691,995)
INCOME FROM DISCONTINUED OPERATIONS $ -- $ -- $ -- $ --
NET INCOME/(LOSS) $(2,363,721) $(1,097,467) $(1,928,982) $(2,691,995)
NET INCOME/(LOSS) Per Share
Cont. Operations $ (0.078) $ (0.065) $ (0.068) $ (0.184)
NET INCOME/(LOSS) Per Share $ (0.078) $ (0.065) $ (0.068) $ (0.184)
WEIGHTED AVERAGE SHARES OUTSTANDING 30,308,675 16,961,466 28,395,237 14,649,799
</TABLE>
<PAGE>
<TABLE>
CURTIS MATHES HOLDING CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31 December 31 December 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income/(Loss) $(2,363,721) $(1,097,467) $(1,928,982) $(2,691,995)
Adjustments to reconcile net profit/(loss)
to net cash used by operating activities
Amortization 83,213 61,248 148,754 122,497
Depreciation 75,625 54,632 178,914 162,159
Increase (decrease) in accounts payable 333,923 (434,721) 253,619 (379,723)
Increase (decrease) in accrued and other liabilities 37,394 (488,197) 111,782 (608,170)
Increase (decrease) in pre-petition liabilities -- (16,812) -- (34,588)
Increase (decrease) in warranty reserves 151,041 13,999 203,301 27,862
Increase (decrease) in deferred gain -- -- (1,252,461) --
Decrease (increase) in accounts receivable 31,525 392,161 55,191 979,150
Decrease (increase) in subscriptions receivable 558,000 -- 4,351,500 --
Decrease (increase) in inventory 252,234 1,749,807 189,417 2,379,119
Decrease (increase) in other current assets 174,832 14,314 (747,541) 22,866
Decrease (increase) in other assets -- 13,408 30,300 243,512
Decrease (increase) in restricted cash 8,000 168,131 47,423 184,632
Cash provided (used) by operating activities $ (657,934) $ 430,503 $ 1,641,217 $ 407,321
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets (745,131) -- (788,343) (105,293)
Decrease (increase) in investments (80,806) -- (631,575) --
Cash used by investing activities $ (825,937) $ -- $(1,419,918) $ (105,293)
CASH FLOW FROM FINANCING ACTIVITIES
Increase (decrease) in credit line advances -- (1,640,643) -- (2,475,112)
Issuance of long-term debt -- 122,876 -- 393,979
Issuance of notes payable -- (45,696) -- (742,443)
Issuance of notes receivable -- 385 (2,823) --
Payments on notes receivable 6,763 -- -- (375,206)
Payments on long-term debt (264,445) -- (584,300) 180,000
Redemption of preferred stock -- -- (1,170,305) --
Payments on preferred stock -- -- -- (14,958)
Proceeds from common stock -- 1,069,863 -- 2,830,731
Proceeds from preferred stock 562,715 -- 1,616,175 --
Cash provided (used) by financing activities $ 305,033 $ (493,215) $ (141,253) $ (203,009)
NET INCREASE (DECREASE) IN CASH $(1,178,838) $ (62,712) $ 80,046 $ 99,019
CASH AT BEGINNING OF PERIOD $ 5,409,365 $ 253,424 $ 4,150,481 $ 91,693
CASH AT END OF PERIOD $ 4,230,527 $ 190,712 $ 4,230,527 $ 190,712
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion provides information to assist in the
understanding of the Company's financial condition and results of
operations for the fiscal quarter ended December 31, 1996. It should
be read in conjunction with the Consolidated Financial Statements and
Notes thereto appearing in the Company's Annual Report on Form 10-K for
fiscal year ended June 30, 1996.
Results of Operations
Revenues. The statement of the revenues of the Company during the
fiscal quarters ended December 31, 1996 and 1995 excludes any effect of
Southwest Memory, Inc. ("SMI"), which was sold in December, 1994. The
Company reports revenues of $413,200 in the second fiscal quarter,
compared to $3,271,272 for the same quarter last year. This decrease
in revenue is primarily due to the elimination of commodity products
(television screen sizes of 27" or less), VCR's, and other low margin
products. Sales are expected to remain at low levels until the
introduction of the Company's Internet related product line
("uniView(tm)") during the fourth fiscal quarter.
Net Sales. Net sales are net of discounts and are recognized
upon shipment of an order to a customer. The Company reports net sales
of $413,200 for the second fiscal quarter, compared to $3,271,272 for
the same quarter last year.
Gross Profit. Gross Profit equals net sales less cost of goods
sold (both labor and material), non-direct, fixed manufacturing costs
(such as salaries, leasing costs, and depreciation charges related to
production operations), and non-direct, variable manufacturing costs
(such as supplies and employee benefits). In the second fiscal
quarter, the Company reports Gross Profit of $160,059, compared to
$321,841 for the same quarter last year.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses (SGA expense) consists primarily of non-
manufacturing salaries, sales commissions, and other general expenses.
The Company reports SGA expense of $2,645,414 for the second fiscal
quarter, compared to $1,419,308 for the same quarter last year, which
amounts to an 86% increase from the same period last year. The
increase in these expenses is primarily due to the Company's commitment
to make uniView a superior Internet related product line, and the
resulting ramp-up costs of designing, producing, and implementing this
exciting new technology.
<PAGE>
Net Income. As a result of the above factors, the Company
reports a net loss of ($2,363,721) for the second fiscal quarter, which
translates into a ($0.078) loss per share, compared to a net loss for
the same period last year of ($1,097,467), or loss per share of
($0.068). This net loss is attributable to several factors: (1)
advertising and marketing expenses related to the introduction of
uniView; (2) income recognized as a result of the deferred gain
related to early payoff of debt as reported in the June 30, 1996, Form
10-K; (3) significantly lower financing costs due to elimination of the
previous line of credit (replaced with a more favorable line of credit
discussed under "Liquidity" below); and (4) increased payroll and
related expenses required for ramp-up of the new product line.
Interest Expense. The Company reports interest expense for the
second fiscal quarter of $7,914, compared to $347,040 for the same
quarter last year. Interest expense continued to decline during the
second quarter due to sufficient cash reserves on hand which alleviated
the need to use debt funds.
Liquidity and Capital Resources
Prior to September 30, 1996, the Company established a new credit
line with an international investment group for up to $10,000,000. The
terms of the line of credit allow the Company to utilize the line as
management deems necessary. As of December 31, 1996, the Company had
not activated the line of credit due to its existing cash reserves.
Management believes that sufficient cash resources and credit
facilities are available or can be obtained to support the Company's
continued growth and continues to evaluate additional sources of equity
and/or credit facilities to maintain and increase the growth and
profitability of the Company.
Quarterly Results
Management believes that, as a consumer electronics firm,
the Company's business is affected by the same seasonal factors that
affect the industry as a whole. The Company's sales and earnings may
vary from quarter to quarter, which are contingent upon demand for such
product. The Company's operating results for any particular quarter,
therefore, may not be indicative of the results for any future quarter
or year.
Forward Looking Statements
This report may contain "Forward Looking Statements," which are
Company plans and projections which may or may not materialize, and
which are subject to various risks and uncertainties. For a discussion
of risk factors associated with some of these plans and projections,
please refer to the section entitled "Risk Factors" beginning on page 4
of the Company's S-2 Registration Statement, as well as the Company's
other SEC filings, which contain additional discussion about those
factors which could cause actual results to differ from management's
expectations.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Reference is made to the Exhibit Index beginning on page 10
of this Form 10-Q for a list of all exhibits filed with and
incorporated by reference in this report.
(b) Reports on Form 8-K
During the three months ended December 31, 1996 the Company
has filed no Current Reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Curtis Mathes Holding Corporation
(Registrant)
By: /s/ F. Shelton Richardson, Jr.
F. Shelton Richardson, Jr.
Vice President - Chief Financial Officer
(Principal Financial and Duly Authorized
Officer)
Date: February 14, 1997
CURTIS MATHES HOLDING CORPORATION
and Subsidiaries
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
10* Revolving Credit Agreement dated as of October 1,
1996 between Emerald Capital Corporation and the
Company pertaining to a $10 million line of credit.
27* Financial Data Schedule.
_______________
* Filed herewith.
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS AGREEMENT dated as of October 1, 1996 between CURTIS MATHES
HOLDING CORPORATION, a Texas corporation with its principal place of
business at 10911 Petal Street, Dallas, Texas 75238 ("Company"), and
EMERALD CAPITAL CORPORATION, a Virginia corporation with its principal
place of business at 1350 Beverly Road, #115-339, McLean, Virginia
22101 ("Lender"). Company and Lender agree as follows:
Article I
Revolving Credit
1. Lender hereby establishes a Revolving Credit in favor of
Company on the terms hereof in an aggregate principal amount at any one
time outstanding not exceeding $10,000,000.
2. Subject to the provisions of this Agreement and if Company is
not in default hereunder and if no condition exists which, but for the
giving of notice or the lapse of time or both, would constitute an
event of default hereunder, the Company may avail itself of such
Revolving Credits, in whole or in part, from time to time. The amount
of any borrowing may be repaid in whole or in part within one (1) year
from the date of funding and such repaid amounts may be thereafter
reborrowed. The principal and accrued interest due on each borrowing
must be repaid within one (1) year from the date of funding.
3. At the time of each borrowing under the Revolving Credit,
Company shall execute and deliver to Lender a note ("Revolving Credit
Note") payable to the order of Lender for the amount of its loan to
Company. Each such Revolving Credit Note shall be in the form of
"Exhibit 1" attached hereto, with blanks suitably filled, shall be
dated the date of the borrowing, and shall mature on or before one (1)
year from the date of funding. The annual rate of interest before
maturity shall be at a rate equivalent to the rate described by the
Wall Street Journal as the prime rate in effect from time to time
(computed on a 365-day basis) ("Prime Rate"), plus one and one-half
percent (1.5%.)
Article II
Provisions Relative to Borrowing and Payments
1. Company shall give the Lender at least five full business
days notice of each proposed borrowing hereunder. Each borrowing under
the revolving credits shall be in units of at least $500,000. Not
later than 11 a.m. Dallas time on the day of a proposed borrowing,
Lender shall wire US federal funds to the Company's designated bank
account against delivery of the Revolving Credit Note for the
borrowing. Payments by Company shall be in accordance with the
Revolving Credit Note executed in connection with each borrowing.
2. By mutual agreement of the parties, Lender may convert any
outstanding principal balance and accrued interest to common stock of
the Company, according to such terms as may be mutually agreed at the
time of conversion.
<PAGE>
Article III
Representations and Warranties
Company represents and warrants that:
1. The Annual Report on Form 10-K of Company and its
subsidiaries for fiscal year ended June 30, 1996, containing audited
financial statements of Company, heretofore furnished to Lender, are
complete and correct and fairly present the consolidated financial
condition of Company and its subsidiaries as at the date of said
Annual. To the best of Company's knowledge and belief, neither Company
nor any subsidiary has any material or substantial contingent
obligation or liability for taxes not disclosed by or reserved against
in said Annual Report. Since June 30, 1996, there has been no material
adverse change in the consolidated financial condition of Company and
its subsidiaries, except as may be reflected in a subsequent Quarterly
Report on Form 10-Q for subsequent fiscal quarter(s).
2. There are no suits or proceedings pending or, to Company's
knowledge, threatened against or affecting Company or any subsidiary
which, in the opinion of Company's counsel, will have a material
adverse effect on the financial condition or business of Company and
its subsidiaries.
3. Company has full power and authority to execute and perform
the terms and provisions of this Agreement and to borrow hereunder.
Article IV
Conditions of Borrowing
The obligation of Lender to lend hereunder is subject to the
satisfaction of the following conditions:
1. Company shall avail itself of the Revolving Credits to the
extent necessary to provide it with funds for any corporate purpose, to
be described and mutually agreed between the Lender and Company at the
time of each borrowing.
2. The Lender shall have received, from Billy J. Robinson,
General Counsel for Company, a favorable opinion to the effect that (a)
Company is a validly organized and existing corporation, (b) Company
has the power and authority to execute, deliver and carry out this
Agreement and has duly authorized its officers executing this Agreement
so to do, (c) the making of this Agreement by Company is not in
violation of any charter provision, bylaw, or regulation of Company, or
any contractual obligation binding upon Company, and (d) this Agreement
so executed and Company's notes given pursuant hereto will constitute
Company's valid and binding obligations.
3. Company shall have furnished to Lender a certified copy of
all resolutions of Company's Board of Directors pertaining to the
execution of this Agreement and the borrowing of money pursuant hereto.
<PAGE>
Article V
Affirmative Covenants
1. Company covenants and agrees that until all indebtedness
incurred hereunder has been paid in full and Company no longer has the
right to borrow hereunder, it will:
(a) Furnish to Lender, not later than 120 days after the end
of each fiscal year, an Annual Report on Form 10-K of Company and its
subsidiaries for such year, certified by the Company's independent
public accountants;
(b) Furnish to Lender, not later than 60 days after the
close of each quarter-annual period (except the last quarter-annual
period of each year), a Quarterly Report on Form 10-Q of Company and
its subsidiaries for the current fiscal year to and including the
period then ending, certified by an appropriate officer of Company;
(c) From time to time furnish to Lender all financial
information, including proxy statements, furnished by Company to its
shareholders;
(d) At all times keep its property insured against loss or
damage to the extent and against the risks that similar property is
usually insured by other companies engaged in the same business, and
will cause its subsidiaries to do the same; and
(e) Promptly pay and discharge, and cause its subsidiaries
to pay and discharge, all taxes and assessments levied and assessed or
imposed upon its property or upon its income as well as all claims
which, if unpaid, might by law become a lien or charge upon its
property. Nothing herein contained, however, shall require Company or
any subsidiary to pay any such taxes, assessments or claims so long as
Company or such subsidiary in good faith contests the validity and
stays the execution and enforcement thereof.
2. At the time of furnishing each financial statement specified
in this Article V, Section 1(a) and (b) hereof, Company shall furnish
to Lender upon request an officer's certificate stating that there
exists no event of default, as defined hereinbelow, or if any such
event of default exists, specifying the nature thereof, the period of
existence thereof, and what action Company proposes to take with
respect thereto.
Article VI
Negative Covenants
1. Company covenants and agrees that until all indebtedness
incurred hereunder has been paid in full and Company no longer has the
right to borrow hereunder, it will not pay or declare any dividend on
its common stock at any time after the date of this Agreement, or at
any time after said date make any other distribution on account of any
class of its stock, or redeem, purchase or otherwise acquire, directly
or indirectly, any shares of its stock of any class. Notwithstanding
the foregoing limitation, however, Company may expend after the date of
this Agreement for all of such purposes an amount not in excess of (1)
$10,000,000, plus (2) the consolidated net earnings of Company after
<PAGE>
the date of this Agreement, determined in accordance with generally
accepted accounting principles. In addition to the foregoing, Company
may, after the date of this Agreement, expend (i) for the purpose of
purchasing and retiring its shares of any class an amount equivalent to
the cash and the fair value of property (as determined in good faith by
Company's Board of Directors at the time of acquisition) received after
said date by Company in exchange for the issuance of its stock of any
class, plus (ii) the amount required for the purpose of redeeming its
presently outstanding preferred stock, plus (iii) any amount expended
by Company to purchase its own stock pursuant to its deferred
compensation plan. For the purpose of making any computation required
by this paragraph, consolidated net earnings shall be computed for the
period (taken as one accounting period) commencing on the date of this
Agreement and terminating at the end of the last fiscal quarter
preceding the date of any payment for the purposes mentioned in this
paragraph.
2. Company covenants and agrees that until all indebtedness
incurred hereunder has been paid in full and Company no longer has the
right to borrow hereunder, it will not and will not permit any
subsidiary to:
(a) Create, assume, or suffer to exist any mortgage, pledge,
encumbrance, lien, or charge of any kind upon any of its property or
assets, whether now owned or hereafter acquired, except (1) liens for
taxes not yet due or which are being contested in good faith by
appropriate proceedings, (2) other liens, charges and encumbrances
incidental to the conduct of its business or the ownership of its
property and assets which were not incurred in connection with the
borrowing of money or the obtaining of advances or credits, and which
do not in the aggregate materially detract from the value of its
property or assets or materially impair the use thereof in the
operation of its business, (3) mortgages or other liens on property or
assets of a subsidiary to secure obligations of such subsidiary to
Company or another subsidiary, or (4) purchase money obligations not
exceeding $2,000,000 in the aggregate at any one time outstanding;
(b) Create, incur, or suffer to exist any funded or current
debt, except (1) funded or current debt represented by the Revolving
Credit Notes and the Term Notes, (2) funded or current debt represented
by purchase money obligations permitted by the provisions of this
Article VI Section 2(a), (3) funded or current debt owing by any
subsidiary to Company or to any other subsidiary, (4) guarantees and
other contingent liabilities permitted by the provisions of this
Article VI, Section 2(c), (5) current debt of Company (other than debt
evidenced by the Revolving Credit Notes) not in excess of $10,000,000
at any time outstanding;
(c) Assume, guarantee, endorse, contingently agree to
purchase, or otherwise become liable upon the obligation of any person,
firm, or corporation, except by the endorsement of negotiable
instruments for deposit or collection, in excess of $10,000,000 for the
amount of all such guarantees, endorsements, and other contingent
liabilities at any one time outstanding;
<PAGE>
(d) Sell or otherwise dispose of any shares of stock or
funded or current debt of any subsidiary except to Company or another
subsidiary, except that all shares of stock and debt of any subsidiary
at the time owned by or owed to Company and all subsidiaries may be
sold as an entirety for a cash consideration which represents the fair
value (as determined in good faith by Company's Board of Directors) at
the time of sale of the shares and debt so sold, if the assets of such
subsidiary do not constitute a substantial part of the consolidated
assets of Company and all subsidiaries, and also if, at the time of
such sale, such subsidiary does not , directly or indirectly own any
shares of stock or debt of any other subsidiary (unless all of the
shares of stock and debt of such other subsidiary are simultaneously
being sold as permitted by this Section 2(d));
(e) Merge or consolidate with any other corporation, or
sell, lease, transfer or otherwise dispose of all or a substantial part
of its assets, except that (1) any subsidiary may merge or consolidate
with Company (if Company is the continuing or surviving corporation) or
with any one or more other subsidiaries, (2) any subsidiary may sell,
lease, transfer or otherwise dispose of any of its assets to Company or
another subsidiary, (3) any subsidiary may sell or otherwise dispose of
all or substantially all of its assets subject to the conditions
specified in Section 2(d) of this Article VI with respect to a sale of
the stock of such subsidiary, (4) Company and any subsidiary may sell
in the ordinary course of their respective businesses products
manufactured by either of them, and (5) Company may merge or
consolidate, or sell of dispose of all or substantially all of its
assets, if (i) Company is the continuing or surviving corporation, or
(ii) the successor or acquiring corporation assumes all of Company's
obligations under this Agreement and on the notes, including all
covenants herein and therein contained, and (iii) Company as the
continuing or surviving corporation or the successor or acquiring
corporation, as the case may be, is not, immediately after such merger
or consolidation, or such sale or other disposition, in default under
any of such obligations;
(f) Enter into, or permit to remain in effect, any
agreements to rent or lease any real property used for manufacturing
operations providing for payments in excess of an aggregate of $500,000
per annum by Company and all subsidiaries;
(g) Enter into any arrangement with any bank, insurance
company, or other lender or investor providing for the leasing by
Company or any subsidiary of real property which has been or is to be
sold or transferred by Company or any subsidiary to such lender or
investor; or
(h) Discount or sell with recourse, or sell for less than
the face value thereof, any of its notes or accounts receivable, except
that Company may discount or sell with recourse notes and accounts
receivable received by it from the sale of its products, if the
contingent liability on all such notes and accounts receivable does not
exceed an aggregate of $10,000,000 at any time outstanding.
3. Company covenants that it will not permit any subsidiary to
lease, sell, or dispose of any shares of any class of its stock (other
than Directors' qualifying shares) except to Company or another
subsidiary.
<PAGE>
Article VII
Events of Default
The following shall constitute Events of Default under this
Agreement: (a) Company defaults in the payment of any principal on any
note when it becomes due, either under the terms of the note or
otherwise as provided herein; (b) Company defaults in the payment of
any interest on any note for more than 15 days after the due date; (c)
any material representation or warranty made by Company herein or in
any writing furnished in connection with or pursuant to the Agreement
is false in any material respect on the date made; (d) Company defaults
in the performance or observance of any other agreement, term, or
condition contained herein, and such default is not remedied within 30
days after Company receives written notice thereof from Lender; (e)
Company or a subsidiary makes an assignment for the benefit of
creditors; (f) Company or a subsidiary, after the date of this
Agreement, petitions or applies to any tribunal for the appointment of
a trustee or receiver, either of it or of a substantial part of its
assets, or commences any proceedings relating to it under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution, or liquidation law of any jurisdiction; (g) any such
petition or application is filed, or any such proceedings are
commenced, against Company or a subsidiary, and Company or such
subsidiary by any act indicates its approval, consent, or acquiescence,
or an order is entered appointing such trustee or receiver,
adjudicating Company or a subsidiary bankrupt or insolvent, or
approving the petition in any such proceedings, and such order remains
in effect for more than 60 days or (h) an order is entered in any
proceedings against Company decreeing its dissolution or split-up, and
such order remains in effect for more than 60 days. If any one or more
of the above Events of Default occur and continue past any specified
grace period, Lender may, by written notice to Company, declare all of
the notes to be immediately due and payable, together with interest
accrued thereon.
Article VIII
Definitions
For the purpose of this Agreement, the following terms shall have
the following meanings:
1. "Person" shall mean and include an individual, a partnership,
a limited liability company, a corporation, a trust, an unincorporated
organization, and a government or any department or agency thereof;
2. "Subsidiary" shall mean any corporation organized under the
laws of any state of the United States of America, Puerto Rico, Canada,
or any province of Canada, a majority of the voting stock of which
shall, at the time as of which any determination is being made, be
owned by Company, either directly or through subsidiaries;
3. "Purchase Money Obligations" shall mean (a) indebtedness
secured by an existing mortgage or other lien on property hereafter
acquired by Company or a subsidiary, or (b) indebtedness which is
issued as, or the entire proceeds of which are used to pay, a part of
the purchase price paid for property hereafter acquired, regardless of
whether such indebtedness is secured by a mortgage or other lien on
such property provided, however, that as to each such after-acquired
property, the liens thereon immediately after the acquisition thereof
<PAGE>
shall be confined solely to such property and the aggregate amount of
all indebtedness secured thereby or the unsecured indebtedness created
for the purpose of paying part of the purchase price of such property,
as the case may be, shall not exceed 66.66 percent of the lower of cost
or fair value (as determined in good faith by Company's Board of
Directors) of such property at the time of acquisition;
4. "Funded debt" shall mean any obligation payable more than one
year from the date of the creation thereof, which under generally
accepted accounting principles is shown on the balance sheet as a
liability, and "current debt" shall mean any obligation for borrowed
money (and any negotiable instruments payable and drafts accepted
representing extensions of credit whether or not representing
obligations for borrowed money) payable on demand or within a a period
of one year from the date of the creation thereof. Any obligation,
however, shall be treated as funded debt, regardless of its term, if it
is renewable pursuant to the terms thereof or of a revolving credit or
similar agreement effective for more than one year after the date of
the creation of such obligation, or may be payable out of the proceeds
of a similar obligation pursuant to the terms of such obligation or of
any such agreement. "Debt" shall include guarantees, endorsements, or
other contingent liabilities in connection with the obligations, stock,
or dividends of any person, other than endorsements in the ordinary
course of business of negotiable instruments in the course of
collection.
5. "Event of default" shall mean any event specified in Article
VI, provided that every requirement in connection with such event for
the giving of notice, the lapse of time, or the happening of any
further condition, event or act has been satisfied. "Default" shall
mean any of such events, regardless of whether any such requirement has
been satisfied.
6. "Officer's certificate" shall mean a certificate signed in
the name of Company by its President or one of its Vice Presidents.
7. "Note" shall mean and include both the Revolving Credit Notes
and the Term Notes.
Article IX
Miscellaneous
1. This Agreement may be amended, and Company may take any
action herein prohibited, or omit to perform any act herein required to
be performed if it obtains the written consent of Lender.
2. All representations and warranties contained herein or made
in writing by Company in connection herewith shall survive the
execution and delivery of this Agreement and of the notes.
3. All covenants and agreements in this Agreement contained by
or on behalf of either party to shall bind and inure to the benefit of
its respective successors and assigns.
4. All communications provided for hereunder shall be sent by
first class mail addressed to each party at the address shown in the
first paragraph of this Agreement above, attention President, or to any
other address of which either party notifies the other in writing.
<PAGE>
5. No delay or failure by Lender to exercise any right or remedy
under this Agreement, and no partial or single exercise of that right,
shall constitute a waiver of that or any other right, unless otherwise
expressly provided herein. The rights and remedies expressly specified
herein are cumulative and not exclusive of Lender' other rights and
remedies.
6. This Agreement shall terminate when Company no longer has the
right to borrow hereunder and all notes issued pursuant hereto have
been paid in full.
7. This Agreement may be executed in any number of copies and
separate counterparts. Complete sets of counterparts executed by all of
the parties shall be filed with Company and Lender.
The parties hereto have caused this Agreement to be duly executed
by their respective duly authorized officers as of the day and year
first above written.
COMPANY: CURTIS MATHES HOLDING CORPORATION
By: /S/ Pat Custer
Patrick A. Custer, President
LENDER: EMERALD CAPITAL CORPORATION
By: /s/ Yolanda Herik
Yolanda Herik, President
Exhibit 1
$____________________, 19_____
On or before _____________________ (1yr.), for value received, the
undersigned promises to pay to the order of EMERALD CAPITAL CORPORATION
the sum of $_____________, with interest payable quarter-annually and
at maturity at a rate equivalent to the rate described by the Wall
Street Journal as the prime rate in effect from time to time (computed
on a 365-day basis) ("Prime Rate"), plus one and one-half percent
(1.5%.) After maturity, both principal and interest shall bear
interest at the same rate, and both principal and interest are payable
in lawful money of the United States at the main office of the payee
hereof.
This Note is issued pursuant to an Agreement between the
undersigned and Lender dated as of October 1, 1996 to which Agreement
reference is hereby made for a description of the right of the maker to
anticipate payment hereof, the conditions upon which the maturity
hereof may be accelerated by the holder, and other terms and conditions
upon which this Note is issued.
CURTIS MATHES HOLDING CORPORATION
By:______(Form only)____________
Patrick A. Custer, President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AT DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FOR FISCAL QUARTER ENDED DECEMBER 31, 1996.
</LEGEND>
<S> <C>
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> 6-MOS
<CASH> 4,230,527
<SECURITIES> 0
<RECEIVABLES> 348,061
<ALLOWANCES> 0
<INVENTORY> 457,512
<CURRENT-ASSETS> 7,000,799
<PP&E> 2,115,791
<DEPRECIATION> 850,260
<TOTAL-ASSETS> 12,459,235
<CURRENT-LIABILITIES> 1,445,483
<BONDS> 0
0
140,257
<COMMON> 317,797
<OTHER-SE> 10,213,799
<TOTAL-LIABILITY-AND-EQUITY> 12,459,235
<SALES> 2,503,583
<TOTAL-REVENUES> 2,503,583
<CGS> 2,258,212
<TOTAL-COSTS> 2,258,212
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,747
<INCOME-PRETAX> (1,928,982)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,928,982)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,928,982)
<EPS-PRIMARY> (0.68)
<EPS-DILUTED> (0.68)
</TABLE>
