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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1995 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: 0-14323
SPEC'S MUSIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-1362127
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1666 N.W. 82ND AVENUE
MIAMI, FLORIDA 33126
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 592-7288
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
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(TITLE OF CLASS)
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, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [X]
As of October 16, 1995, the aggregate market value of the common stock held
by non-affiliates of the Registrant was approximately $8,256,378.
As of October 16, 1995, the number of shares of common stock of the
Registrant issued and outstanding was 5,247,762.
DOCUMENTS INCORPORATED BY REFERENCE
Part III--Definitive Proxy Statement for the 1995 Annual Meeting of
Shareholders.
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<PAGE>
INDEX TO FORM 10-K
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 13
Item 3. Legal Proceedings............................................. 16
Item 4. Submission of Matters to a Vote of Security Holders........... 16
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters............................. 18
Item 6. Selected Financial Data....................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................... 20
Item 8. Financial Statements and Supplementary Data................... 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................... 38
Item 10. Directors and Executive Officers of the Registrant............ 38
Item 11. Executive Compensation........................................ 38
Item 12. Security Ownership of Certain Beneficial Owners
and Management.......................................... 38
Item 13. Certain Relationships and Related Transactions................ 38
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................. 39
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Spec's Music, Inc. (the "Company") incorporated in 1948, is one of the
largest specialty retailers of prerecorded music and related products in Florida
and Puerto Rico, and the largest such retailer in the South Florida and Tampa
Bay markets, by number of stores. The Company sells cassettes; audio compact
discs; video movies and music on VHS tape and laser disc; blank audio and video
tapes; and a variety of audio and video accessories and boutique items. In
addition, the Company rents video movies and operates cafe's in certain stores.
The Company opened eleven new stores, renovated one store and closed
eight stores during fiscal 1995, and as of July 31, 1995, operated an aggregate
of 58 stores of which 54 are located in Florida and four are located in Puerto
Rico. Of these stores, 21 are located in enclosed malls, nine stores are
freestanding and the remainder are located in shopping centers and downtown
areas. The Company operates 21 "superstores" which typically contain
7,000-10,000 square feet and two "megastores" with at least 20,000 square feet
in the Sawgrass Mills Mall in Sunrise, Florida, and in the Coconut Grove area of
Miami. Subsequent to year end, the Company opened its third megastore in South
Miami Beach as well as an additional store in an enclosed mall location.
The following table summarizes the number of stores opened and closed
during the five year period ended July 31, 1995:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of stores:
At beginning of period 55 56 63 57 55
Opened during the period 11 5 5 8* 5
Closed during the period (8) (6) (12) (2) (3)
-- -- -- -- --
At end of period 58 55 56 63 57
== == == == ==
<FN>
* Includes the acquisition of four Q Records and Tapes stores.
</FN>
</TABLE>
3
<PAGE>
The Company maintains a wide assortment of products at its stores at
competitive prices, with a strong emphasis placed on customer service, store
appearance and atmosphere. In the past several years, the product mix in the
stores has evolved, in response to changing consumer demands and technological
developments, from primarily records and cassettes to include a wider range of
home entertainment products, such as prerecorded videos, audio compact discs,
blank video tapes, and laser discs. Management continually monitors developing
trends and demands in its markets and adapts the Company's product lines in
response.
During fiscal 1993, the Company undertook a strategic planning process,
which included a major expansion of the chain, new store and logo designs,
organizational changes and a significant shift in the Company's merchandising
mix and market coverage. Since the implementation of the 1993 strategic plan,
the Company opened 18 new stores, including the two opened subsequent to year
end, renovated six stores, closed 14 unproductive stores and thirty video rental
departments and successfully implemented its new megastore concept design which
it now operates in three locations. The Company has substantially completed its
1993 strategic plan.
The Company intends to concentrate its resources on being the dominant
specialty retailer providing prerecorded music and music related products in
each of its markets. The Company plans to seek store sites in multiple
destination centers that feature music, video and bookstores, and entertainment
such as multi screen theaters and comedy clubs, etc. The two new Coconut Grove
and South Miami Beach megastores that opened in fiscal 1995 and 1996,
respectively, are located in such areas.
The design of new and renovated stores allow the Company to provide
customers with a unique shopping experience. While committing to maintain a
comprehensive selection in virtually all music categories, the Company's new
stores feature listening posts where hit songs and new releases can be
previewed, information kiosks that customers can use to search product listings
and an on-line customer service network accessing over 130,000 industry titles
for special orders. During fiscal 1995, the Company increased the number of
music and video titles it actively manages from 63,000 to 83,000.
The Company believes that its new megastore concept is unique because of
its extensive inventory, variety of product and services, its event oriented
marketing styles and their locations, which are heavily trafficked tourist and
night life destinations. The Company's megastores typically stay open past
midnight and feature hundreds of listening posts, multi-media attractions, cafes
and classical listening rooms, and periodically feature local and national
artists who perform and sign autographs in these stores. The Company considers
these stores an "Amusement Park for the Ears."
4
<PAGE>
On November 9, 1994, the Company announced that it had engaged
PaineWebber Incorporated to act as its financial advisor in connection with
exploring a potential sale of the Company and to review the Company's other
strategic and financial alternatives. On March 14, 1995, the Company announced
that it had ended its exploration of the sale of the Company. The Company
however, will continue to explore appropriate courses of action that will
enhance the Company's value.
During the past two years, a large number of mass merchandisers have
begun to sell CDs and cassettes at or below cost in order to attract customers
to their stores to generate sales of other products. During the fourth quarter
of fiscal 1995, a major mass merchandiser entered the South Florida market. In
response, the Company adjusted its regular and promotional pricing and changed
and enhanced its marketing and advertising campaigns. See "Competition."
5
<PAGE>
PRODUCTS
The following table shows the percentage of total revenues attributable
to each product group sold in the Company's stores during each of the last five
fiscal years:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Audio Products:
Compact Discs 61% 57% 49% 44% 39%
Cassettes 20 22 25 27 29
Video Products:
Rentals 3 5 8 12 15
Sales 8 8 10 9 9
--- --- --- --- ---
Other Products: 8 8 8 8 8
=== === === === ===
100% 100% 100% 100% 100%
</TABLE>
AUDIO PRODUCTS
The Company sells prerecorded compact discs and cassettes manufactured
by all major domestic and certain foreign manufacturers. The Company also sells
blank audio cassettes.
All of the Company's stores carry a wide assortment of compact discs
and cassettes of popular artists on prominent labels, including Columbia, Warner
Bros., Sony, Elektra, Atlantic, Polygram, RCA, MCA, Motown, A&M, Arista,
Capitol, EMI, SBK and Geffen Records. The Company sells a broad range of music
including current popular selections, as well as rock, pop, rap, country, jazz,
classical, Latin and other recordings. During fiscal 1995 and 1994 as part of
its strategic plan, the Company significantly increased the number of CD and
cassette titles it carries in its inventory, particularly in its superstores and
megastores.
Sales of compact discs increased significantly as a percentage of
total revenues, from 44% in fiscal 1992 to 61% in fiscal 1995. Estimated market
penetration of compact disc players is currently at 44%, and industry
projections suggest that sales of compact disc players are likely to increase in
the foreseeable future.
6
<PAGE>
VIDEO PRODUCTS
As part of its 1993 strategic plan, the Company determined that it
would exit the video rental business. As a result of that decision, the Company
closed a total of 30 video rental departments during the past three years. The
remaining 11 video rental departments may be phased out over the next few years,
depending on market conditions.
All of the Company's stores sell prerecorded video movies. The
Company's prerecorded video products consist of current popular feature films,
children's films, movie classics, music videos, educational and entertainment
titles such as concerts, sporting events and exercise programs. Prerecorded
video movies range in sales price from approximately $9 to $99 and average
approximately $17, including used copies which were previously in rental
inventory. The Company also sells prerecorded movies on laser disc format in 54
of its stores. The retail price of laser discs range in price from $20 to $99
and average approximately $39.
OTHER PRODUCTS
The Company carries music-related accessories such as storage and
carrying cases for cassettes, compact discs and movies, cleaning and maintenance
kits for these products, songbooks and sheet music. The stores also sell
music-related boutique items, such as posters, buttons and t-shirts. The new
megastores carry items such as magazines, jewelry, trading cards, post cards and
musical instruments.
The Company has opened cafes in its Melbourne, Coconut Grove and South
Miami Beach locations serving specialty coffee drinks, premium waters, gourmet
teas, pastries, yogurt, sandwiches and salads. The cafe is viewed as a
value-added service to the customer, encouraging the customer to remain in the
store for longer periods of time. Two of the Company's cafes also sell coffee by
the pound, coffee mugs and coffee related gift packages. Magazines and
newspapers are merchandised near the cafe area. The cafe in the South Miami
Beach location has become a venue for local artists who perform informally.
ADVERTISING AND MARKETING
The Company's marketing strategy is to position itself as the dominant
music entertainment retailer in the geographic areas in which it operates by
providing a broad selection of inventory at competitive prices and a high level
of customer service. The Company's objective is to appeal to customers' desires
for new products and to respond to customers' demands for existing products.
The Company pursues mass media advertising programs, primarily through
radio, television, newspapers and mass mailings, and frequently offers specials
and promotions. In conjunction with major music suppliers, the Company
participates in special promotions for appearances of prominent recording
artists. The Company
7
<PAGE>
attempts to maximize the cost effectiveness of radio and television advertising
by concentrating its stores around major media markets. Approximately 60% of the
Company's advertising budget will be placed on radio. This enables the Company
to target specific customer musical tastes such as Latin, classical, jazz and
alternative rock. The Company is also developing a mailing list to target
classical and jazz customers as well as customers who purchase children's
product.
The Company has hired an events coordinator to book local and national
recording artists of all musical genres to perform in its megastores. This has
resulted in a differentiated shopping experience for the Company's customers and
a unique marketing strategy. The events coordinator is also responsible for
community relations and promotions with local charities.
The Company's advertising stresses promotional pricing, broad
assortment and depth of merchandise, as well as the convenience of its store
locations. The Company's approach is to be flexible in decisions regarding
advertising and to make changes, where necessary, to advertising on short notice
in order to publicize product promotions and to take advantage of new products
or unexpected market developments.
Most of the suppliers from whom the Company purchases prerecorded
music and blank audio and video tapes offer their customers an advertising
allowance which is often based on a percentage of the customer's purchases.
Usually these allowances require a participating customer to submit advertising
campaigns to the appropriate vendor for approval prior to their use. The Company
takes full advantage of such advertising allowances.
During fiscal 1993, the Company completed a new store design which
includes a new layout, fixtures, wall and window treatments, newly designed
signage materials, listening posts and special display areas featuring new
releases, information kiosks and an on-line customer service network. The
Company renovated five stores to its new design in fiscal 1994 and one store in
fiscal 1995. The Company plans to build all future stores using elements of its
new store design.
PURCHASING AND INVENTORY
Substantially all the products sold by the Company are purchased under
individual purchase orders from manufacturers who deliver the merchandise within
several days after an order is placed. The Company purchases merchandise for all
of its stores from approximately 200 suppliers. Approximately 59% of the
merchandise
8
<PAGE>
purchased during the year ended July 31, 1995, came from the nine largest
vendors, with one vendor supplying 14% of the merchandise purchased. Management
believes that alternate sources of supply are available for each category of
merchandise purchased by the Company.
Approximately 93% of merchandise for sale in the Company's stores is
delivered directly to the Company's Miami, Florida distribution center and is
generally distributed two times a week to the stores in Southeast Florida on two
Company trucks. Deliveries from the distribution center to stores outside of
this area, including Puerto Rico, are made by common carriers which in most
cases provide next day service. The balance of the inventory for the Company's
stores is shipped by suppliers directly to the stores. The amount of merchandise
distributed to each store is based on model stock levels which are adjusted
dynamically based on recent sales trends for each store.
Under current trade practices in the prerecorded music industry, the
Company may return most products to manufacturers. Most manufacturers from whom
the Company purchases prerecorded music do not have limitations on product
returns, but have return penalties which range from zero to 35% of unit cost.
Manufacturers of video movies limit the return privilege to approximately 10-20%
of purchases. Video rental products usually are not eligible for return to the
manufacturer. Notwithstanding these limitations, the Company has been able to
return substantially all music and video inventory that it has desired to
return. The return privilege policy as currently offered by manufacturers of
prerecorded music and video cassettes may change in the future. During fiscal
1995, the Company returned approximately 18% of its purchases to the
manufacturers.
STORE OPERATIONS AND PERSONNEL
All of the Company's stores are typically open seven days a week,
including weekday and Saturday evenings. Each store has a manager and assistant
manager who are responsible for supervising customer service associates and
generally assuring that the store is managed in accordance with the Company's
guidelines and procedures. The Vice President - Store Operations and Human
Resources and two district managers supervise the operation of the Company's
stores within their territories and visit those stores regularly to provide
on-site management and support of the store managers. A Senior Manager program
has been implemented which gives experienced managers responsiblity for three to
five stores while continuing to manage their own stores. The Company has an
incentive cash bonus plan for its district and store managers based upon various
performance criteria.
The number of trained managers and assistant managers of the Company's
existing stores provides it with a pool of experienced managers with which to
help staff
9
<PAGE>
its future stores. In addition, the Company recruits managers with prior
experience from outside sources. The Company has a formal "Manager-in-Training"
program for associates who have been identified or hired as potential store
managers. The program includes a manager's handbook, video training films,
classroom study and on-the-job training, and assures the Company the continued
availability of talented and well trained managers. The Vice President - Store
Operations and Human Resources oversees the Company's recruiting, training,
compensation and benefits programs.
Customer sales transactions are processed on point-of-sale cash
terminals. Approximately 66% of the Company's sales are made for cash or check,
with the balance under national credit card plans in which the Company assumes
no credit risk and pays between 1.7% and 3% of credit card sales as a service
charge. The Company's policy is to exchange or give refunds for merchandise that
is defective or unopened or for which customers express dissatisfaction.
As of July 31, 1995, the Company had approximately 526 full-time and
420 part-time employees (associates). Additional temporary associates are
usually added during peak sales periods. None of the Company's associates are
covered by any collective bargaining agreement. The Company has never
experienced a strike or work stoppage, and management believes that relations
with its associates are good.
All customer service associates are compensated on an hourly basis and
do not receive sales commissions. To encourage sales efforts, the Company
jointly with its vendors sponsor store sales and display contests. The Company
stresses promotion from within its organization.
MANAGEMENT INFORMATION SYSTEMS
The Company has an automated, bar code based, inventory management and
distribution system, which enables it to centrally purchase and manage
inventory, control the quantity and type of inventory in each store, and keep
in-store payroll and product costs to a minimum. With this system, substantially
all products are purchased centrally and distributed to the Company's stores.
The Company uses a model stock concept to control store inventory levels. Such
model stock levels are adjusted dynamically, on an on-going basis, based
primarily on recent sales trends.
The Company has an automated store transfer and product returns
inventory handling system. The Company routinely calls back non-selling
merchandise from its stores. Merchandise returned from a store is scanned into
the computer by an operator using bar-code laser scanners. The computer
instructs the operator as to the product's disposition. Such merchandise may
either be returned to regular warehouse stock or returned to the vendor,
depending on its status and recent sales history. This process
10
<PAGE>
has reduced handling and increased accuracy and productivity in processing store
transfers and product returns. Under this system, returns made by one store can
be used to replenish the inventory of another store thereby avoiding return
penalties and lowering purchasing costs.
During fiscal 1989, the Company installed new point-of-sale ("POS")
hardware and software. The Company's POS system utilizes laser scanners which
read the product bar code, perform price look-up (including items on "sale"),
capture complete and accurate sales data and process credit card transactions.
The POS terminals are polled nightly by the Company's central computer to
retrieve cash accountability, sales and inventory data. Simultaneously with the
nightly polling process, the Company updates its sales, cash management,
perpetual inventory and inventory replenishment files. On a daily basis, cash
accountability, sales audit and exception reports are reviewed to determine if
further audit is needed. Utilizing the POS terminals, store managers can order
products, report cash deposits, enter information about newly hired associates
and report payroll hours. The Company continues to utilize portable data
collection devices to process store transfers and physical inventories.
During fiscal 1995, the Company installed a new POS system, which is
multi-user, micro-computer based. The new software allows enhanced functionality
and increased efficiencies in the selling process including faster checkout and
credit card authorization and streamlining of certain transactions such as gift
certificates and concert ticket sales. The system gives the store manager new
back office functionality to control shrinkage by providing more detailed
information on customer transactions by cashier. There are also new reporting
features at the store level for top sellers allowing the store managers to
identify and replenish fast-selling products. Certain high traffic stores are
equipped with electronic journaling, signature capture and check verification.
The new POS system also allows for tracking the effectiveness of coupon
promotions.
The Company also has an on-line customer service network which allows
store personnel to access information in the Company's central computer system.
Using the customer service network, associates can inquire about inventory
status and availability, or take customer special orders which are trasmitted to
the Company's distribution center or directly to a vendor using Electronic Data
Interchange (EDI). The Company believes the customer service network is unique
among music retailers in its markets.
During the fourth quarter of fiscal 1994, the Company completed the
installation of a new Data General Aviion 9500 UNIX based, high availability
central computer. The conversion to a new central computer has enabled the
Company to increase
11
<PAGE>
productivity and response time and implement a local area network and data base
sales analysis tools.
During fiscal 1995, the Company utilized Electronic Data Interchange
(EDI) to conduct business with several of its suppliers. The EDI program
includes electronic transmission of purchase orders directly to the vendors'
computer, the electronic receipt of the vendors' invoice and direct shipment of
product to the stores. Merchandise received in the stores is entered and matched
against the electronic invoice transmission which is further used to update the
Company's perpetual inventory and accounts payable files. The Company plans to
expand its EDI program during fiscal 1996 to include many of its major vendors.
SERVICEMARKS
All of the Company's stores operate under the name "Spec's." The mark
"Spec's" and the Company's logo are servicemarks registered with the United
States Patent and Trademark Office. The mark and logo are important to the
Company's business in connection with its advertising and promotional
activities. The Company has also registered the name "Spec's" and logo as a
servicemark in the State of Florida.
COMPETITION
The business in which the Company operates is highly competitive in
that there are many retailers which sell many of the same products carried by
the Company. The Company competes with mass merchants, discount stores, video
rental outlets, electronic and computer stores, book stores, mail order clubs,
warehouse outlets and specialty music stores. Many of the Company's competitors
are national in scope and have greater financial resources than the Company. In
addition, the Company's products may compete with other forms of entertainment
such as movies, concerts, video games, CD ROM, computers and software. The
Company also competes for new store locations and for existing locations as
leases come up for renewal.
The Company competes principally by offering a broad selection of
merchandise at competitive prices, with a strong emphasis on customer service,
store appearance and atmosphere. The Company believes that its success is
dependent primarily upon the widespread consumer recognition of the "Spec's"
name in its geographic markets, the number, quality and location of its stores,
its pricing policies, its marketing expertise, which enables it to respond
quickly to consumers' changing tastes, the depth and breadth of merchandise
offered in its stores, and its advertising program.
12
<PAGE>
During the past two years, a large number of mass merchandisers have
begun to sell cassettes and CDs at or near cost in order to attract customers to
their stores to generate sales of other products. During the fourth quarter, a
national electronic retailer entered the South Florida market with seven stores.
During the summer of 1995, several other South Florida competitors lowered
prices on compact discs and cassettes in response to the new arrival. The
Company is constantly revising and evaluating its pricing policy in order to
remain competitive. Despite these pricing pressures, the Company believes that
its superior locations, megastore concept, extensive selection of titles and
premium customer service will allow it to compete effectively in its markets.
ITEM 2. PROPERTIES.
The Company leases 56 stores and owns the land and building of a
former store located in Gainesville, Florida, which was sublet subsequent to
year end. The Company also owns the buildings of stores located in Tampa,
Florida and Miami Beach, Florida, the latter of which opened subsequent to
fiscal 1995 year-end. The stores contain an average of approximately 6,400
square feet of total space with selling area averaging approximately 91% of
total space. Twenty-one of the Company's stores are located in enclosed malls,
nine stores are freestanding and the remainder are located in shopping centers
and downtown areas. The Company operates 21 superstores which typically contain
7,000-10,000 square feet and two megastores with at least 20,000 square feet in
the Sawgrass Mills Mall in Sunrise, Florida, and in the Coconut Grove area of
Miami. Subsequent to year end, the Company opened its third megastore in South
Miami Beach and an additional store in an enclosed mall location.
Store leases generally provide for fixed monthly rental payments and
require the Company to pay real estate taxes and certain other charges. In some
leases, the monthly rental payment is subject to escalation formulas and, in
other leases, additional rent based on a percentage of net sales, ranging from
3% to 7%, may also be due. The Company's leases have terms ranging from three to
fifteen years and many have renewal options for longer terms. The Company's
leases expire at various times between 1995 and 2010. For the year ended July
31, 1995, the Company's rental expense was $8,542,000 including $383,000 in
percentage rental. All of the Company's stores are leased from unrelated
parties, except the South Dixie Highway store in Coral Gables and 66th Street in
St. Petersburg which are leased from trusts; the trustees and beneficiaries of
which include Ann S. Lieff, President of the Company, and Rosalind S. Zacks and
William A. Lieff, Vice Presidents of the Company. The lease for the Coral Gables
store expires during the first quarter of fiscal 1996. In March, 1995,
disinterested members of the Board of Directors approved a renewal of this
lease, which the Company is currently negotiating.
13
<PAGE>
The Company's executive offices and distribution center comprise 56,000
square feet of space located near Miami International Airport. The lease for the
premises contains a five year term and expires in 1996, with renewal options.
During the first quarter of fiscal 1995, the Company air conditioned its
distribution center and built a 7,000 square foot addition to its second floor
mezzanine.
14
<PAGE>
Spec's Music Locations
FLORIDA
NORTH CENTRAL
/bullet/ University Drive
Gainesville
/bullet/ 34th Street Plaza
Gainesville
/bullet/ Silver Springs Boulevard
Ocala
/bullet/ Paddock Mall
Ocala
/bullet/ Parkway Center
Tallahassee
SOUTH CENTRAL
/bullet/ South Florida Avenue
Lakeland
/bullet/ Spring Lake Square
Winter Haven
/bullet/ Winter Haven Mall
Winter Haven
/bullet/ Walden Wood
Plant City
/bullet/ Lakeland Square Mall
Lakeland
TAMPA BAY
/bullet/ Cortez Road
Bradenton
/bullet/ Seminole Mall (2)
Seminole
/bullet/ Highway 60
Brandon
/bullet/ 66th Street
St Petersburg
/bullet/ Fowler Avenue
Tampa
/bullet/ North Dale Mabry
Tampa
/bullet/ Town & Country
Tampa
SOUTHWEST
/bullet/ Gulf Gate Mall
Sarasota
/bullet/ Tamiami Trail
Sarasota
/bullet/ Sarasota Square Mall
Sarasota
/bullet/ Winkler Avenue
Ft. Myers
/bullet/ Tamiami Trail
Naples
/bullet/ Pelican Bay Mall
Naples
CENTRAL
/bullet/ Shoppes of Melbourne
Melbourne
TREASURE COAST
/bullet/ Luria Plaza
Vero Beach
/bullet/ Regency Plaza
Stuart
/bullet/ Market Place
Jensen Beach
/bullet/ Okeechobee Boulevard
Palm Beach
/bullet/ Palm Beach Mall
West Palm Beach
/bullet/ Congress Avenue
Boynton Beach
SOUTHEAST
/bullet/ South Dixie Highway
Coral Gables
/bullet/ Westland Mall
Hialeah
/bullet/ Dadeland Mall
Miami
/bullet/ Miracle Center
Miami
/bullet/ Mall of the Americas
Miami
/bullet/ SE 1st Street
Downtown Miami
/bullet/ Columbus Bazaar
Downtown Miami
/bullet/ Biscayne Boulevard
North Miami
/bullet/ NE 209th Street
North Miami
/bullet/ 163rd Street Mall
North Miami Beach
/bullet/ Kennedy Drive
Key West
/bullet/ Duval Street
Key West
/bullet/ Suniland Center
South Miami
/bullet/ Sawgrass Mills
Sunrise
/bullet/ Washington & Lincoln (2)
Miami Beach
/bullet/ South Dixie Highway
Miami
/bullet/ Kendall Drive
Miami
/bullet/ Pines Boulevard
Pembroke Pines
/bullet/ Cutler Ridge Mall
Miami
/bullet/ Crossroads
Homestead
/bullet/ Aventura Mall
North Miami
/bullet/ Miami International Mall
Miami
/bullet/ 49th Street
Hialeah
/bullet/ Grand Avenue
Coconut Grove
/bullet/ 5th & Collins (1)
South Miami Beach
/bullet/ Coral Square Mall (1)
Coral Springs
PUERTO RICO
/bullet/ Plaza Las Americas
Hato Rey
/bullet/ Plaza Del Caribe Mall
Ponce
/bullet/ Santa Rosa Mall
Bayamon
/bullet/ Monteheidra Mall
Monteheidra
- -------------------------
(1) Opened in fiscal 1996
(2) Closed in fiscal 1996
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
16
<PAGE>
EXECUTIVE OFFICERS
All executive officers of the Company were elected to their present offices at
the Annual Meeting of the Board of Directors held on June 12, 1995. The
following table sets forth, as of October 1, 1995, certain information regarding
the executive officers of the Company.
PRINCIPAL BUSINESS EXPERIENCE
NAME AGE DURING THE PAST FIVE YEARS
- ---- --- -----------------------------
Martin W. Spector 90 Chairman of the Board of Directors of the Company
since 1980; President and Chief Executive Officer
and Director of the Company and its predecessors
1948-1980.
Ann S. Lieff 43 President and Chief Executive Officer of the Company
since 1980; Director since 1979.
Vicki Carmichael 45 Vice President - Store Operations and Human
Resources since April, 1995; Vice President - Human
Resources from April 1993 to April 1995; Vice
President from September 1987 to April 1993;
Assistant to the President of the Company 1985 -
September 1987; Regional Director 1983 - 1985; Store
Manager 1979 - 1983.
Jeffrey Clifford 44 Vice President - Merchandising and Marketing since
April, 1995; Vice President - Store Operations from
April 1993 to April 1995; Vice President from
September 1987 to April 1993; Regional Supervisor
from 1985 to September 1987; Store Manager 1978 -
1985.
William A. Lieff 51 Vice President - Development of the Company since
1980; Store Manager and other positions 1975 - 1980.
Dorothy J. Spector 76 Secretary and a Director of the Company since its
incorporation in 1970.
Rosalind S. Zacks 45 Vice President since April 1993; Executive Vice
President and Treasurer of the Company from 1981 to
1993; Director since 1979.
17
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
STOCK PRICE INFORMATION
The Company's Common Stock is traded in the NASDAQ National Market System under
the symbol "SPEK." The following table shows high and low bid price information
as quoted by NASDAQ for the two most recent fiscal years. Such quotations
reflect inter-dealer prices, without retail mark-ups, markdowns or commissions,
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1995 HIGH LOW 1994 HIGH LOW
<S> <C> <C> <S> <C> <C>
First quarter 5-3/4 4-1/4 First quarter 6-1/2 3-7/8
Second quarter 6 4-1/4 Second quarter 8-1/4 5-3/4
Third quarter 6-1/2 3-1/2 Third quarter 8-1/4 4-1/2
Fourth quarter 4-1/4 3 Fourth quarter 7-1/4 5
</TABLE>
The Company has not paid any cash dividends on its common stock during the
periods shown, and does not intend to pay dividends in the foreseeable future.
Under the Company's new credit agreement, cash dividends are limited to 25% of
earnings. (See Item 8, Note E.)
On October 16, 1995, the Company had 5,247,762 shares of common stock
outstanding held by 447 stockholders of record, and approximately 2,100
beneficial owners.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31, 1995 1994 1993 1992 1991
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Revenues $79,603 $78,388 $ 72,733 $ 63,056 $ 59,534
Gross profit 28,406 28,590 26,664 22,929 22,156
Store operating, general and administrative expenses 26,338 24,136 22,834 20,157 19,248
Restructuring charge -- -- 3,204 -- --
Interest (expense) and other income (410) 44 1,013 128 (113)
------- ------- -------- -------- --------
Earnings before income taxes 1,658 4,498 1,639 2,900 2,795
Income taxes 626 1,681 485 970 1,029
------- ------- -------- -------- --------
Net earnings $ 1,032 $ 2,817 $ 1,154 $ 1,930 $ 1,766
======= ======= ======== ======== ========
Net earnings per common share $ .20 $ .54 $ .22 $ .36 $ .33
======= ======= ======== ======== ========
Weighted average number of common shares outstanding 5,248 5,264 5,195 5,338 5,342
======= ======= ======== ======== ========
BALANCE SHEET DATA (AS OF JULY 31,):
Working capital $16,263 $12,117 $ 10,779 $ 8,325 $ 7,342
Total assets 46,058 37,364 31,155 29,035 26,840
Capital lease obligation and long term debt 11,435 67 97 126 1,600
Common stockholders' equity 23,168 22,000 18,971 18,269 16,692
Common stockholders' equity per share 4.41 4.22 3.66 3.47 3.13
Return on sales 1.3% 3.6% 1.6% 3.1% 3.0%
Return on average common stockholders' equity 4.6% 13.8% 6.2% 11.0% 11.2%
OPERATING DATA:
Number of stores (at July 31) 58 55 56 63 57
Weighted average revenue per store $1,385,000 $1,375,000 $1,198,000 $1,095,000 $1,037,000
Square feet of selling space (at July 31) 336,130 280,100 273,400 323,900 288,300
Weighted average revenue per square foot
of selling space $ 266 $ 279 $ 242 $ 210 $ 210
</TABLE>
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following table sets forth, for the periods indicated, the relative
percentages that certain items in the Company's Consolidated Statements of
Earnings bear to revenues and the percentage change in those items from period
to period.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
YEARS ENDED JULY 31, 1995 1994 1993
<S> <C> <C> <C>
Product sales 97.1% 95.3% 91.7%
Video rental 2.9 4.7 8.3
----- ----- -----
Total revenues 100.0 100.0 100.0
Gross profit - product sales 35.1 35.6 35.6
Gross profit - video rental 55.9 55.1 48.3
----- ----- -----
Total gross profit 35.7 36.5 36.7
Store operating, general and administrative expenses 33.1 30.8 31.4
Restructuring charge -- -- 4.4
Other income (0.5) 0.1 1.4
----- ----- -----
Earnings before income taxes 2.1 5.7 2.3
Income taxes .8 2.1 0.7
----- ----- -----
NET EARNINGS 1.3 3.6 1.6
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
PERIOD TO PERIOD PERCENTAGE
INCREASE (DECREASE)
YEARS ENDED JULY 31, 1995 1994 1993
<S> <C> <C> <C>
Product sales 3.5% 12.0% 20.2%
Video rental (38.0) (38.6) (20.1)
Total revenues 1.6 7.8 15.3
Gross profit - product sales 2.2 11.8 21.6
Gross profit - video rental (37.1) (30.0) (14.0)
Total gross profit (.6) 7.2 16.3
Store operating, general and administrative expenses 9.1 5.7 13.3
Restructuring charge -- -- n/m
Other income (expense) n/m (95.7) 691.1
Earnings before income taxes (63.1) 174.3 (43.5)
Income taxes (62.8) 246.1 (50.0)
NET EARNINGS (63.4) 144.1 (40.2)
</TABLE>
20
<PAGE>
RESULTS OF OPERATIONS
REVENUES
Total revenues increased by $1,215,000 or 1.6% from fiscal 1994 to fiscal 1995.
On a same-store basis (stores open more than one year) revenue decreased by 2.3%
over last year.
Revenue from product sales rose by 3.5% for the chain as a whole and decreased
by .8% on a same-store basis. The increase in product sales is due to the
addition of eleven new stores during fiscal 1995. Same-store revenues declined
primarily because of the lack of significant new hit release titles which
contribute not only to greater sales but to greater in-store traffic. In
addition, the entry of a significant new competitor in the Company's South
Florida market has contributed to lower same-store revenues particularly in the
fourth quarter.
Video rental revenue decreased by 38% for the chain as a whole and by 15% on a
same-store basis as compared to fiscal 1994. The closing of one video rental
department, and lower demand contributed to lower revenue.
Revenue also declined due to an increase in competition. During the past two
years, a large number of mass merchandisers have begun to sell CDs and cassettes
at or near cost in order to attract customers to their stores to generate sales
of other products. During the fourth quarter of fiscal 1995, a national
electronic mass merchandiser has entered the South Florida market with a
significant number of new stores which offer CDs and cassettes at prices which
are lower than those offered by the Company. The entry of this competitor has
caused other competitors in the market to lower their prices. In response, the
Company has selectively reduced its compact disc prices which resulted in lower
revenues and lower margins. See "Competition."
The Company plans to continue to review and adjust its prices and increase its
marketing and advertising campaign, particularly as it relates to its new
megastore concept. However, the Company believes that in the foreseeable future,
same-store revenues may decrease.
From fiscal 1993 to fiscal 1994, total revenues increased by $5,655,000 or 7.8%
for the chain as a whole. On a same-store basis, revenues increased by 10%.
Revenue from product sales rose by 12% for the chain as a whole and by 13% on a
same-store basis in fiscal 1994. This increase is due in part to a 50% increase
in the number of titles carried in many of the Company's stores to meet
increased demand for audio compact discs and video laser discs. Audio compact
discs and video laser discs are the Company's fastest growing configurations and
have higher retail prices than audio cassettes and VHS tape which experienced
declining sales in fiscal 1994. During fiscal 1994, the Company converted a
portion of the seling square footage in nine stores from video rental to product
sales, which also contributed to increased product sales.
In fiscal 1994, video rental revenue decreased by 39% for the chain as a whole
and by 9% on a same-store basis. The closing of 13 video rental departments,
including nine in existing stores and lower demand for video rentals contributed
to lower revenue.
Weighted average revenue per store increased by .7% to $1,385,000 in fiscal 1995
and increased by 15% in fiscal 1994. The weighted average revenue per square
foot of selling space decreased to $266, or 4.7% in fiscal 1995 and increased to
$279 or 15% in fiscal 1994. The decrease in fiscal 1995 reflects the addition of
larger stores toward the end of the fiscal year. The improvement in 1994 was
achieved by increasing inventory levels and product selection which increased
demand for the Company's products and the closure of 12 underperforming stores
in 1993 and six stores in 1994.
21
<PAGE>
GROSS PROFIT
Gross profit for product sales, which is net of product management and
distribution costs, was 35.1% in fiscal 1995 and 35.6% in fiscal 1994 and 1993.
Gross profit declined in fiscal 1995 primarily because of promotional markdowns
and the continued shift in sales mix to compact and laser discs, which have
lower gross margins than audio cassettes and VHS tapes.
During the course of the year, and in particular during the fourth quarter, the
Company reduced its regular shelf and promotional prices in certain markets for
certain products in order to respond to a changing competitive environment. The
Company believes that it will be necessary to continue to offer such reduced
prices during the current fiscal year.
Gross profit for video rentals was 55.9%, 55.1% and 48.3% in fiscal 1995, 1994
and 1993, respectively. Since fiscal 1993, the Company closed 30 video rental
departments. Most of the departments closed had experienced declining revenue
and gross profits.
Total gross profit was 35.7%, 36.5% and 36.7% in fiscal 1995, 1994 and 1993,
respectively. The Company expects total gross profit as a percentage of revenue
to decline in the foreseeable future because of its continued shift in sales mix
to compact discs, continued decline of video rental revenues and increased
pricing pressures due to a heightened competitive environment, described above.
STORE OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
Store operating, general and administrative expenses were 33.1%, 30.8% and 31.4%
of revenues in fiscal 1995, 1994 and 1993, respectively. Store occupancy costs,
as a percentage of revenue, increased significantly because of a decline in
same-store revenue and because of the impact of eleven new store openings during
fiscal 1995, whose expenses were higher relative to revenue in their initial
year of operations. In addition, depreciation and amortization during fiscal
1995 also increased as a percentage of revenue because of capital investment
associated with new stores and the expansion and renovation of one store and the
Company's distribution center. During fiscal 1995, the Company incurred
significantly higher professional fees associated with the engagement of
PaineWebber, Incorporated, described below. Store operating, general and
administrative expenses declined as a percentage of revenues in fiscal 1994 due
to same-store revenue increases and the closure of underperforming stores.
RESTRUCTURING CHARGE
As part of its 1993 strategic plan, the Company provided for a $3.2 million
($2.0 million after tax or $.38 per share) restructuring charge to cover the
cost of closing 11 stores, eliminating all video rental departments including
rental inventory write-down, and abandoning certain assets as part of its new
design renovation program. The plan also included a major expansion of the
chain, new logo and store design, organizational changes and a planned shift in
the Company's merchandising mix and market coverage.
Since the adoption of its strategic plan, the Company has opened 18 new stores,
renovated 6 stores, closed 14 stores, eliminated 30 video rental departments and
abandoned certain assets as part of its store renovation program at a combined
cost of approximately $2.9 million. The Company considers its 1993 strategic
plan substantially completed.
INTEREST EXPENSE AND OTHER INCOME
The Company incurred interest expense of $442,000 in fiscal 1995, $46,000 in
fiscal 1994 and $21,000 in fiscal 1993. The significant increase in fiscal 1995
is due to capital investment and working capital related to new store expansion
and renovations in fiscal 1995 which required the Company to increase its
22
<PAGE>
borrowings to $11.4 million at the end of such fiscal year. The Company expects
its borrowings to remain at or near the current level in the foreseeable future
and accordingly expects interest expense in fiscal 1996 to be higher than it was
in fiscal 1995. During fiscal 1993, the Company recorded a $954,000 ($585,000
after tax or $.11 per share) gain from insurance proceeds for business
interruption and property damage incurred from Hurricane Andrew, which is
included in other income.
INCOME TAXES
The effective income tax rate as a percentage of earnings before income taxes,
was 37.7%, 37.4% and 29.6% in fiscal 1995, 1994 and 1993, respectively. The
decrease in the effective rates in fiscal 1993 is due principally to the
availability of certain tax credits which reduced the federal and state income
tax liability.
NET EARNINGS
Net earnings for fiscal 1995, were $1,032,000 or $.20 per share, compared to
$2,817,000 or $.54 per share in fiscal 1994. Fiscal 1995 earnings decreased by
63.4% because of lower same-store sales and lower gross margins resulting from
increased competition and higher store operating, general and administrative
costs associated with new store openings. Fiscal 1994 earnings increased because
of increased same-store revenue and the absence of the restructuring charge from
fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $16.3 million, $12.1 million and $10.8 million at July 31,
1995, 1994 and 1993, respectively. The increase in working capital in fiscal
1995 was the result of working capital provided by operations, the
reclassification of the company's line-of-credit facility to long-term debt and
the use of long-term debt to finance inventory. The increase in working capital
during fiscal 1994 was the result of working capital provided by operations
reduced by the cost of property and equipment acquired for new and existing
stores.
Cash flows from operating activities provided $.4 million, $2.3 million and $4.2
million in fiscal 1995, 1994 and 1993, respectively. In both fiscal 1995 and
1994, increases in inventory levels net of accounts payable, which increased by
$3.1 million, $2.6 million and $1.8 million in 1995, 1994 and 1993,
respectively, contributed to lower operating cash flows. During fiscal 1995 and
1994, the Company increased its inventory level by increasing the number of
titles offered in many of its stores and by opening new and larger stores.
Cash flows used in investing activities increased from $4.6 million in fiscal
1994 to $10.9 million in fiscal 1995. The primary reason for the increase is the
significant capital investment related to property and equipment for 11 new
stores opened during fiscal 1995 and preparation for two stores which opened in
the first quarter of fiscal 1996. This increase in property and equipment was
partially offset by a decrease in net video rental inventory investing
activities.
At July 31, 1994, the Company had a $7 million unsecured revolving
line-of-credit, which had an outstanding balance of $1.6 million. On September
20, 1994, the Company entered into a new 10 year credit agreement which includes
a $15 million revolving credit facility (declining to $6 million by 2003) and a
$1 million standby letter of credit facility which expires December 1996. Under
its new credit agreement, the Company has agreed not to incur or create certain
additional indebtedness or liens on the Company's assets other than real estate
mortgage financing and unsecured convertible subordinated debt, without the
lender's consent. The Company is further required to maintain certain financial
ratios related to net worth, leverage and fixed charges coverage and has further
agreed to limit the amount of cash dividends paid to 25% of net earnings.
Effective July 31, 1995, the Company and its lender entered into a modification
to its credit agreement to ease certain of the financial covenants contained
therein. The Company is continuing to negotiate with its lender to obtain
additional modifications to certain of the covenants. In the event the Company
is unable to obtain such modifications, the Company may, if appropriate, seek to
refinance such loan, the ability of which no assurance can be given. Borrowings
under the new credit agreement bear interest at the LIBOR rate plus 150 basis
points or the Company may fix its interest rate for periods not to exceed five
years at 150 basis points
23
<PAGE>
over the corresponding U.S. Treasury security yield. At July 31, 1995, the
Company had an outstanding balance of $11.4 million under the credit agreement.
The Company substantially completed its current expansion program during the
first quarter of fiscal 1996. The Company's future liquidity and its ability to
reduce its long term debt level depends upon its ability to generate cash flow
from operating activities by reducing its store operating, general and
adminstrative expenses and increasing its inventory turnover rate. The Company's
future profitibility or the lack thereof, will have a substantial impact on its
liquidity and the availability of capital resources necessary to conduct its
business, renovate its stores and open additional new stores.
On November 9, 1994, the Company announced that it had engaged PaineWebber
Incorporated to act as its financial advisor in connection with exploring a
potential sale of the Company and to review the Company's other strategic and
financial alternatives. On March 14, 1995, the Company announced that it had
ended its exploration of the sale of the Company. The Company however, will
continue to explore appropriate opportunities that will enhance the Company's
value.
INFLATION AND ECONOMIC TRENDS
The Company is affected by general economic trends, particularly in Florida and
Puerto Rico. The Company does not believe that inflation has had a material
effect on the results of its operations during the past three fiscal years.
SEASONALITY
The Company experiences higher sales volume during the Christmas selling season.
Revenues during the month of December, as a percentage of annual revenues, were
16.7%, 16.0% and 15.3% in fiscal 1995, 1994 and 1993, respectively.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Spec's Music, Inc., and Subsidiary
Miami, Florida
We have audited the consolidated balance sheets of Spec's Music, Inc. and
Subsidiary (the "Company") as of July 31, 1995 and 1994, and the related
consolidated statements of earnings, changes in stockholders' equity and cash
flows for each of the three years in the period ended July 31, 1995. Our audits
also included the financial statement schedule listed in the Index at Item
14(a)2. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Spec's Music, Inc. and Subsidiary
as of July 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended July 31, 1995 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
October 6, 1995
25
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
July 31, 1995 1994
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 552,224 $ 1,339,140
Receivables 722,945 462,210
Inventories 24,464,990 23,638,987
Prepaid expenses 1,017,706 570,166
Prepaid income taxes 280,000 87,000
Deferred tax asset 537,000 897,000
------------ ------------
Total current assets 27,574,865 26,994,503
Video rental inventory, net 722,899 835,296
Property and equipment, net 16,587,026 8,652,579
Other assets 1,173,371 881,597
------------ ------------
Total assets $ 46,058,161 $ 37,363,975
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line-of-credit -- $ 1,600,000
Accounts payable 8,308,785 10,398,392
Accrued expenses 2,751,813 2,146,626
Restructuring charge 251,203 732,155
------------ ------------
Total current liabilities 11,311,801 14,877,173
Long term debt 11,400,000 --
Capital lease obligation 34,732 67,152
Deferred income taxes 144,000 420,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; 10,000,000
shares authorized; 5,343,808 and 5,355,158
shares issued at 1995 and
1994, respectively 53,439 53,552
Additional paid-in capital 3,835,604 3,918,256
Retained earnings 19,762,157 18,729,886
Less 96,046 and 139,391 shares in treasury,
at cost, in 1995 and 1994, respectively (483,572) (702,044)
------------ ------------
Total stockholders' equity 23,167,628 21,999,650
------------ ------------
Total liabilities and stockholders' equity $ 46,058,161 $ 37,363,975
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended July 31, 1995 1994 1993
REVENUES:
<S> <C> <C> <C>
Product sales $ 77,306,250 $ 74,681,858 $ 66,694,263
Video rentals 2,296,892 3,705,869 6,038,993
------------ ------------ ------------
Total revenues 79,603,142 78,387,727 72,733,256
Cost of goods sold - product sales 50,182,698 48,132,054 42,948,723
Cost of goods sold - video rental 1,014,070 1,665,758 3,120,799
------------ ------------ ------------
Gross profit 28,406,374 28,589,915 26,663,734
Store operating, general and administrative expenses 26,337,806 24,136,232 22,834,134
Restructuring charge -- -- 3,203,655
------------ ------------ ------------
Operating income 2,068,568 4,453,683 625,945
Other income (expense):
Insurance settlement -- -- 954,373
Interest income -- 26,526 29,101
Interest expense (441,527) (46,100) (21,100)
Other 31,230 63,216 51,111
------------ ------------ ------------
Total other income (expense) (410,297) 43,642 1,013,485
------------ ------------ ------------
Earnings before income taxes 1,658,271 4,497,325 1,639,430
Provision for income taxes 626,000 1,680,549 485,500
------------ ------------ ------------
NET EARNINGS $ 1,032,271 $ 2,816,776 $ 1,153,930
============ ============ ============
NET EARNINGS PER COMMON SHARE $ .20 $ .54 $ .22
============ ============ ============
Weighted average number of common shares outstanding 5,248,000 5,264,000 5,195,000
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL
COMMON STOCK PAID-IN RETAINED TREASURY STOCK
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1992 5,370,858 $ 53,709 $ 3,980,639 $14,759,180 (105,000) ($525,004) $18,268,524
Net earnings -- -- -- 1,153,930 -- -- 1,153,930
Repurchase of common stock -- -- -- -- (109,733) (554,154) (554,154)
Contributions to 401(K) Plan -- -- (1,303) -- 9,821 49,105 47,802
Cancellation of restricted
stock award (8,000) (80) (51,828) -- -- -- (51,908)
Restricted stock awards granted -- -- (11,850) -- 23,700 118,500 106,650
--------- -------- ----------- ----------- -------- --------- -----------
Balance, July 31, 1993 5,362,858 $ 53,629 $ 3,915,658 $15,913,110 (181,212) ($911,553) $18,970,844
Net earnings -- -- -- 2,816,776 -- -- 2,816,776
Exercise of stock options -- -- 130 -- 3,168 15,967 16,097
Contribution to 401(K) Plan -- -- 11,192 -- 9,753 49,042 60,234
Cancellation of restricted
stock award (7,700) (77) (37,624) -- -- -- (37,701)
Restricted stock awards granted -- -- 28,900 -- 28,900 144,500 173,400
--------- -------- ----------- ----------- -------- --------- -----------
Balance, July 31, 1994 5,355,158 $ 53,552 $ 3,918,256 $18,729,886 (139,391) ($702,044) $21,999,650
Net earnings -- -- -- 1,032,271 -- -- 1,032,271
Exercise of stock options -- -- 187 -- 1,334 6,737 6,924
Contributions to 401(K) Plan -- -- (9,006) -- 12,711 64,063 55,057
Cancellation of restricted
stock award (11,350) (113) (58,011) -- -- -- (58,124)
Restricted stock awards granted -- -- (15,822) -- 29,300 147,672 131,850
--------- -------- ----------- ----------- -------- --------- -----------
Balance, July 31, 1995 5,343,808 $ 53,439 $ 3,835,604 $19,762,157 (96,046) ($483,572) $23,167,628
========= ======== =========== =========== ======== ========= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $1,032,271 $2,816,776 $1,153,930
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Amortization of video rental inventory 1,176,621 1,794,682 3,423,439
Depreciation and amortization of property and equipment 2,150,366 1,641,258 1,466,150
Amortization of preopening expenses 281,779 218,479 321,550
Loss on disposal of property and equipment 9,007 3,820 197,282
Gain on disposal of video rental inventory (192,840) (93,581) (261,629)
Changes in assets and liabilities:
(Increase) decrease in assets:
Receivables (260,735) (74,458) (130,139)
Inventories (826,005) (5,441,590) (2,801,751)
Prepaid expenses (729,319) (247,238) (269,088)
Prepaid income taxes (193,000) (87,000) 165,545
Deferred tax asset 360,000 308,000 (887,000)
Other assets (317,130) (326,073) (269,623)
Increase (decrease) in liabilities:
Accounts payable (2,089,607) 2,833,798 (969,137)
Accrued expenses 735,111 374,195 1,128,451
Restructuring charge (480,952) (1,140,872) 1,873,027
Income taxes payable -- (140,787) 140,787
Deferred income taxes (276,000) (120,000) (59,000)
----------- ----------- -----------
Net cash provided by operating activities 379,567 2,319,419 4,222,794
----------- ----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of video rental inventory (1,114,239) (1,802,214) (3,131,339)
Disposition of video rental inventory 242,855 926,207 1,040,084
Additions to property and equipment (10,701,608) (4,352,716) (1,767,266)
Disposition of property and equipment 632,005 667,972 575,231
----------- ----------- -----------
Net cash used in investing activities (10,940,987) (4,560,751) (3,283,290)
----------- ----------- -----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from borrowings 36,500,000 17,200,000 13,300,000
Repayments of debt and capital lease (26,732,420) (15,630,047) (13,328,394)
Exercise of stock options 6,924 16,097 --
Repurchase of common stock, net -- -- (554,154)
----------- ----------- -----------
Net cash provided by (used in) financing activities 9,774,504 1,586,050 (582,548)
----------- ----------- -----------
Net (decrease) increase in cash and equivalents (786,916) (655,282) 356,956
Cash and equivalents at beginning of year 1,339,140 1,994,422 1,637,466
----------- ----------- -----------
Cash and equivalents at end of year $ 552,224 $ 1,339,140 $ 1,994,422
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A / SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
The Company is a specialty retailer in Florida and Puerto Rico of prerecorded
music and video products and is also engaged in the rental of video tapes.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of the
Company and its wholly-owned subsidiary. All material intercompany transactions
and balances have been eliminated.
CASH EQUIVALENTS
The Company considers all highly liquid short-term investments purchased with a
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis) or
market.
VIDEO RENTAL INVENTORY
The cost of video rental inventory is being amortized in proportion to the
estimated rental income of the tapes without salvage value. Opening stock of new
stores is amortized on a straight line method over three years. All other video
rental tapes are amortized on an accelerated method over a period of two years.
The cost and accumulated amortization of video tapes which are sold or otherwise
disposed are removed from their appropriate accounts and the resulting gain or
loss is reflected in gross profit.
PREOPENING EXPENSES
The Company defers certain expenses incurred in connection with the opening of
new stores. Such preopening expenses are included in prepaid expenses and are
amortized over the twelve-month period following the opening of each store.
Unamortized preopening expenses at July 31, 1995 and 1994 were $570,000 and
$120,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is provided by the straight-line method over their estimated useful
lives. Leasehold improvements are amortized on a straight-line method over the
life of the lease, including renewal options that are probable of exercise, or
the estimated useful lives of the assets, whichever is shorter.
INCOME TAXES
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting, in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes."
EARNINGS PER SHARE
Earnings per share are computed based on net earnings for the year, divided by
the weighted average number of common shares and equivalents outstanding during
the respective years. Stock options have been included in the earnings per share
computation.
30
<PAGE>
B / SUPPLEMENTAL CASH FLOW INFORMATION:
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION FOR THE YEARS ENDED JULY 31 IS
AS FOLLOWS:
<TABLE>
<CAPTION>
Cash paid during the year for: 1995 1994 1993
<S> <C> <C> <C>
Interest $ 378,000 $ 46,000 $ 21,000
Income taxes 700,000 1,720,000 1,065,000
</TABLE>
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES INFORMATION
The Company contributed $55,000, $60,000 and $48,000 of treasury stock to the
Company's 401(K) Plan during the year ended July 31, 1995, 1994 and 1993,
respectively.
During the fiscal years ended July 31, 1995, 1994 and 1993, the Company
cancelled restricted stock awards totalling $58,000, $38,000 and $52,000,
respectively.
The Company granted 29,000 shares of treasury stock totalling $132,000 as
restricted stock awards during fiscal 1995. The Company also granted 29,000 and
24,000 shares of treasury stock totaling $173,000 and $107,000 as restricted
stock awards during fiscal 1994 and 1993, respectively.
C / VIDEO RENTAL TAPES:
The following comprise cost and accumulated amortization of video rental tapes
at July 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cost $ 2,945,477 $ 3,312,005
Less accumulated amortization 2,222,578 2,476,709
----------- -----------
$ 722,899 $ 835,296
=========== ===========
</TABLE>
D / PROPERTY AND EQUIPMENT:
The following comprise property and equipment at July 31:
<TABLE>
<CAPTION>
USEFUL LIVES 1995 1994
<S> <C> <C> <C>
Land -- $ 177,571 $ 177,571
Building 31 years 212,054 230,662
Equipment, furniture and fixtures 5-8 years 10,473,740 8,632,982
Transportation equipment 2-5 years 125,558 125,558
Signs 1-10 years 1,343,217 804,678
Leasehold improvements 1-31 years 8,122,626 5,328,419
Construction in progress -- 4,031,897 116,616
----------- -----------
24,486,663 15,416,486
Less accumulated depreciation
and amortization 7,899,637 6,763,907
----------- -----------
$16,587,026 $ 8,652,579
----------- -----------
</TABLE>
31
<PAGE>
Included in equipment, furniture and fixtures is equipment under a capital lease
with a cost of $152,000 and related accumulated amortization of $106,000 and
$89,000 as of July 31, 1995 and 1994, respectively.
E / DEBT AND CAPITAL LEASE OBLIGATION:
At July 31, 1994, the Company had a $7 million unsecured revolving
line-of-credit, which had an outstanding balance of $1.6 million. On September
20, 1994, the Company entered into a new 10 year credit agreement which includes
a $15 million revolving credit facility (declining to $6 million by 2003) and a
$1 million standby letter of credit facility which expires December 1996. Under
its new credit agreement, the Company has agreed not to incur or create certain
additional indebtedness or liens on the Company's assets other than real estate
mortgage financing and unsecured convertible subordinated debt, without the
lender's consent. The Company is further required to maintain certain financial
ratios related to net worth, leverage and fixed charges coverage and has further
agreed to limit the amount of cash dividends paid to 25% of net earnings.
Effective July 31, 1995, the Company and its lender entered into a modification
to its credit agreement to ease certain of the financial covenants contained
therein. The Company is continuing to negotiate with its lender to obtain
additional modifications to certain of the covenants. In the event the Company
is unable to obtain such modifications, the Company may, if appropriate, seek to
refinance such loan, the ability of which no assurance can be given. Borrowings
under the new credit agreement bear interest at the LIBOR rate plus 150 basis
points or the Company may fix its interest rate for periods not to exceed five
years at 150 basis points over the corresponding U.S. Treasury security yield.
The interest rate at July 31, 1995 was 7.38%. The Company has classified the
entire balance as long-term.
Future minimum lease payments under the capital lease for equipment is
summarized as follows:
1996........................................................ $ 36,000
----------
Less amount representing interest........................... 1,368
----------
Present value of future minimum lease payments.............. $ 34,732
==========
The interest rate used in the present value calculation is 6.9%, equivalent to
the rates which would have been incurred to borrow, over a similar term, the
funds necessary to purchase the leased asset.
32
<PAGE>
F / INCOME TAXES:
Components of income taxes for the years ended July 31, consist of the
following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
FEDERAL:
Current $ 463,000 $ 1,295,200 $ 1,216,500
Deferred 71,000 177,700 (808,000)
---------- ----------- -----------
534,000 1,472,900 408,500
---------- ----------- -----------
STATE:
Current $ 79,000 $ 197,349 $ 215,000
Deferred 13,000 10,300 (138,000)
---------- ----------- -----------
92,000 207,649 77,000
---------- ----------- -----------
$ 626,000 $ 1,680,549 $ 485,500
========== =========== ===========
</TABLE>
The difference between the expected federal income tax rate and the Company's
effective tax rate for the years ended July 31, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Expected federal tax rate 34.0% 34.0% 34.0%
State income tax, net of federal
income tax benefit 3.1 3.1 3.1
Tax credits, net (2.3) (2.4) (7.0)
Other 3.0 2.7 (.5)
----- ----- -----
37.8% 37.4% 29.6%
===== ===== =====
</TABLE>
The approximate tax effect of each type of temporary difference that gave rise
to the Company's deferred tax asset and liability on the accompanying balance
sheet is as follows:
<TABLE>
<CAPTION>
JULY 31, 1995
-----------------------------------
ASSETS LIABILITIES TOTAL
------ ----------- -----
<S> <C> <C> <C>
Accelerated depreciation on property
and equipment for tax purposes $ -- ($369,000) ($369,000)
Capitalization for tax purposes of
inventory related costs 339,000 -- 339,000
Preopening expenses -- (214,000) (214,000)
Restructuring charge 94,000 -- 94,000
Accrued rent 151,000 -- 151,000
Return authorization reserve 141,000 -- 141,000
Other 251,000 -- 251,000
-------- --------- ---------
$976,000 ($583,000) $393,000
======== ========= =========
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
JULY 31, 1994
-------------------------------------------
ASSETS LIABILITIES TOTAL
------ ----------- -----
<S> <C> <C> <C>
Accelerated depreciation on property
and equipment for tax purposes $ -- ($ 420,000) ($ 420,000)
Capitalization for tax purposes of
inventory related costs 307,000 -- 307,000
Restructuring charge 275,000 -- 275,000
Accrued rent 140,000 -- 140,000
Return authorization reserve 107,000 -- 107,000
Other 68,000 -- 68,000
--------- ---------- ---------
$ 897,000 ($ 420,000) $ 477,000
========= ========== =========
</TABLE>
G / PROFIT-SHARING PLAN:
The Company has a profit-sharing plan which includes a salary deferral provision
under section 401(k) of the Internal Revenue Code. Participation in the plan is
available to all full-time employees who are over 20 1/2 years old and have
completed 6 months of continuous service. Contributions are determined annually
by the Board of Directors. For the years ended July 31, 1995, 1994 and 1993, the
Company provided $86,000, $69,000 and $64,000 respectively, for contribution to
the 401(k) Plan. Approximately $55,000, $60,000 and $48,000 of the contribution
was made in the Company's common stock for fiscal 1995, 1994 and 1993,
respectively.
H / STOCKHOLDERS' EQUITY:
COMMON STOCK
During fiscal 1991, the Board of Directors authorized a common stock repurchase
program of up to 300,000 shares of the Company's common stock. The Board of
Directors authorized the purchase of an additional 300,000 shares of the
Company's common stock during fiscal year 1993. During fiscal 1993, the Company
purchased 109,733 shares under those programs. During fiscal 1994 and 1995 no
shares were purchased. In connection with contributions to the 401(K) Plan,
grants of restricted stock awards and the exercise of stock options, 43,345,
41,821 and 33,521 shares were issued from treasury stock in 1995, 1994 and 1993,
respectively. The remaining shares are included in treasury stock at July 31,
1995.
STOCK OPTION PLANS
In May, 1986, the Board of Directors approved the adoption of an employee stock
option plan. Under the plan, 500,000 shares of common stock have been reserved
for issuance. In fiscal 1987, the plan was amended and restated as an incentive
stock plan which includes stock options, stock appreciation rights, restricted
stock and performance shares.
On September 21, 1993, the Board of Directors created two new plans: The 1993
Non-Employee Director Plan and the 1993 Employee Stock Option Plan. The Company
reserved 50,000 shares under the Director's plan and granted 15,000 options. The
Company reserved 500,000 shares for the 1993 Employee Stock Option Plan.
34
<PAGE>
Transactions and other information relating to stock options granted are
summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
<S> <C> <C>
Outstanding, July 31, 1992 156,987 $4.50-5.19
Granted, October 23, 1992 47,200 $4.50
Cancelled (9,332) $4.50-5.19
-------
Outstanding, July 31, 1993 194,855 $4.50-5.19
Granted, September 21, 1993 112,000 $5.00-6.00
Exercised (3,835) $4.50-5.19
Cancelled (8,500) $4.50-6.00
-------
Outstanding, July 31, 1994 294,520 $4.50-6.00
Granted, September 30, 1994 119,000 $3.00-4.50
Exercised (1,334) $5.19
Cancelled (68,312) $4.50-6.00
-------
Outstanding, July 31, 1995 343,874 $3.00-6.00
=======
</TABLE>
All stock options were granted with option prices that were equal to market
value at the date of grant. The term of the options granted may be no more than
ten years from the effective date of grant. During fiscal 1992 and 1993 the
Company extended the exercise period of the 1987 outstanding stock options from
September 1992 to September 1994. On September 14, 1994, the Company's Board of
Directors extended the current expiration dates on all outstanding stock options
to a nine year term. At July 31, 1995, options to purchase 120,536 shares of
common stock were exercisable.
On October 23, 1992, the Board of Directors granted 23,700 shares of restricted
stock to 77 management associates which vest 50% after two years and the
remaining 50% after three years. At July 31, 1995, 6,750 shares of restricted
stock awards remain outstanding after cancellations. On October 25, 1993, the
Board of Directors granted 28,900 shares of restricted stock to 80 management
associates which vest as described above. At July 31, 1995, 21,500 shares remain
outstanding after cancellations. On September 30, 1994, the Board of Directors
granted 29,300 shares of restricted stock to 86 management associates which vest
as described above. At July 31, 1995, 25,200 shares remain outstanding after
cancellations.
I / COMMITMENTS:
The Company leases certain facilities and equipment under noncancellable
operating leases which expire at various dates through fiscal 2010. Future
minimum lease payments under leases that have terms in excess of one year are:
1996...................................................... 6,793,000
1997...................................................... 6,200,000
1998...................................................... 5,770,000
1999...................................................... 4,742,000
2000...................................................... 4,453,000
Thereafter................................................ $ 20,798,000
------------
$ 48,756,000
============
35
<PAGE>
Base rent expenses, including real estate taxes, insurance, and related common
area repairs and maintenance, were $8,542,000, $7,465,000 and $7,512,000 for
each of the years ended July 31, 1995, 1994 and 1993, respectively. Some leases
provide for additional contingent rent based on applying a specified percentage
of sales in excess of a predetermined base. Such contingent rent expense was
$383,000, $399,000 and $302,000 in each of the years ended July 31, 1995, 1994
and 1993, respectively. Most leases contain renewal options.
J / RELATED-PARTY TRANSACTIONS:
The Company leases its store in Coral Gables, Florida from the Martin W. Spector
Irrevocable Trust, certain of whose trustees and beneficiaries are officers and
directors of the Company. Rental payments for each of the three years ended July
31, 1995, 1994 and 1993 were $154,000, $151,000 and $142,000 respectively.
The Company also leases a store located in St. Petersburg, Florida, from the
Lieff Family Trust and the Zacks Family Trust, whose trustees are officers and
directors of the Company. Rental payments for each of the years ended July 31,
1995, 1994 and 1993 were $157,000, $154,000 and $150,000, respectively.
K / RESTRUCTURING CHARGE:
During the third quarter of fiscal 1993, the Company adopted a five-year
strategic plan which included a major expansion of the chain, new store and logo
designs, organizational changes and a planned shift in the Company's
merchandising mix and market coverage. As part of the strategic plan, the
Company recorded a restructuring charge of $3,204,000 ($2.0 million after income
tax benefits) representing a provision for the closing of 11 stores including
lease termination costs, write-down of video rental inventory and write-down of
certain assets which the Company expected to abandon in the renovation process.
Since the adoption of its strategic plan, the Company has opened 18 stores,
renovated six stores, closed 14 stores, eliminated 30 video rental departments
and abandoned certain assets as part of its store renovation program at a
combined cost of approximately $2.9 million. The Company has substantially
completed its 1993 strategic plan and restructuring program.
L / OTHER INCOME:
On August 24, 1992, Hurricane Andrew struck Southern Dade County, Florida which
resulted in the loss of two stores. In addition, the Company experienced
business interruption in 15 stores located in the immediate area for periods
ranging up to four weeks.
During the second quarter of fiscal 1993, the Company settled its insurance
claim and received total proceeds of $1,653,000. The combined business
interruption and property gain from the settlement totaled $954,000. This amount
is included in the "other income (expense)" caption for 1993 in the accompanying
consolidated statements of earnings.
36
<PAGE>
M / QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Summarized quarterly financial results for fiscal 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE)
WEIGHTED
NET AVERAGE NET EARNINGS
GROSS EARNINGS SHARES (LOSS) PER
REVENUES PROFIT (LOSS) OUTSTANDING COMMON SHARE
<S> <C> <C> <C> <C> <C>
1995:
First quarter $17,273 $5,953 $ (54) 5,249 $(0.01)
Second quarter 26,533 9,349 1,476 5,270 0.28
Third quarter 18,371 6,933 32 5,249 0.01
Fourth quarter 17,422 6,171 (422) 5,248 (0.08)
1994:
First quarter $16,798 $6,287 $ 274 5,196 $ 0.05
Second quarter 25,268 9,140 1,826 5,257 0.35
Third quarter 18,328 6,729 457 5,269 0.09
Fourth quarter 17,994 6,434 260 5,268 0.05
</TABLE>
37
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the directors of the Company set forth under
the caption "Election of Directors" in the definitive Proxy Statement of the
Company for its 1995 Annual Meeting of Shareholders (the "1995 Proxy Statement")
is incorporated herein by reference.
Information concerning the executive officers of the Company is
included in Part I herein under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth in the 1995 Proxy Statement under the caption
"Compensation of Officers" and "Board of Directors - Compensation of Directors"
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Principal Stockholders and
Security Ownership of Management" in the 1995 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Transactions with
Management and Others" in the 1995 Proxy Statement is incorporated herein by
reference.
38
<PAGE>
PART IV
ITEM 14. EXHIBITS. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
The following consolidated financial statements of the Company are included
herein:
PAGE
----
Independent Auditors' Report 25
Consolidated Balance Sheets as of July 31, 1995 and 1994 26
Consolidated Statements of Earnings for each of the years in the
three year period ended July 31, 1995 27
Consolidated Statements of Changes in Stockholders' Equity for
each of the years in the three year period ended July 31, 1995 28
Consolidated Statements of Cash Flows for each of the years in
the three year period ended July 31, 1995 29
Notes to Consolidated Financial Statements 30
(a) 2. Financial Statement Schedules.
PAGE
----
Schedule II - Valuation and Qualifying
Accounts and Reserve 41
(a) 3. Exhibits.
*3.1 Articles of Incorporation of the Company (Exhibit 3.1 to Registration
Statement No. 33-00178-A).
*3.2 Bylaws of the Company (Exhibit 3.2 to Registration Statement No.
33-00178-A).
*10.1 Business Lease, effective as of November 1, 1985, between the Martin W.
Spector Irrevocable Trust and the Company (Exhibit 10.3 to Registration
Statement No. 33-00178-A).
*10.2 Shareholders' Agreement and Right of First Refusal, dated as of
September 5, 1985, between Ann S. Lieff and Rosalind S. Zacks (formerly
Rosalind S. Spooner) (Exhibit 10.4 to Registration Statement No.
33-00178-A).
*10.3 Spec's Music, Inc. 1986 Incentive Stock Plan, as Amended (Exhibit 28 to
Registration Statement on Form S-8 No. 33-16778).
*10.4 Business Lease, effective August 1, 1991, between Lieff Family 1989
Trust, Rosalind S. Zacks Family 1989 Trust and the Company (Exhibit
10.6 to 1991 Form 10-K No. 0-14323).
*10.5 First Amendment to Amended and Restated Credit Agreement dated October
17, 1991 between the Company and NCNB National Bank of Florida.
*10.6 Credit Agreement dated September 20, 1994 between the Company and
Nationsbank of Florida, N.A. (Exhibit 10.6 to 1994 Form 10-K).
*10.7 Spec's Music, Inc. 1993 Incentive Stock Plan (Exhibit 10.7 to
1994 Form 10-K).
*10.8 Spec's Music, Inc. 1993 Non-Employee Directors Stock Option Plan
(Exhibit 10.8 to 1994 Form 10-K).
10.9 First Amendment to Credit Agreement dated July 27, 1995 between the
Company and NationsBank of Florida, N.A.
39
<PAGE>
10.10 Master Equipment Lease Agreement dated October 18, 1994 between the
Company and AT&T Capital Corporation.
10.11 Second Amendment to Credit Agreement dated November 2, 1995 between
the Company and NationsBank of Florida, N.A.
*21 Subsidiaries of the Company (Exhibit 22 to 1988 Form 10-K No. 0-14323).
23 Consent of Independent Auditors relating to Registration Statement on
Form S-8 No. 33-16778.
24 Power of Attorney - see signature page of this report.
--------------------
* Incorporated by reference to indicated filings.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of fiscal
1995.
40
<PAGE>
SPEC'S MUSIC, INC. AND SUBSIDIARY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVE
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------- ------------ ----------- ------------ -----------
ADDITIONS
BALANCE AT CHARGED TO
DESCRIPTION BEGINNING OF COST OF BALANCE AT
PERIOD PERIOD GOODS SOLD DEDUCTIONS * END OF
- ------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Accumulated
amortization
deducted from
video rental
inventory
Year ended:
July 31, 1993 $ 6,565,010 $ 3,423,439 $ 5,268,635 $ 4,719,814
July 31, 1994 4,719,814 1,794,682 4,037,787 2,476,709
July 31, 1995 2,476,709 1,176,621 1,430,752 2,222,578
<FN>
- ----------------
* Accumulated amortization on video rental tape disposals.
</FN>
</TABLE>
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 27th day of
October, 1995. The registrant and each person whose signature appears below
hereby authorizes and appoints Ann S. Lieff as attorney-in-fact to sign and file
on behalf of the registrant and each such person, in each capacity below, any
and all amendments to this report.
SPEC'S MUSIC, INC.
By: ANN S. LIEFF
------------------------
Ann S. Lieff, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
ANN S. LIEFF President, Chief Executive October 27, 1995
- ------------------------------- Officer and Director
Ann S. Lieff (Principal Executive Officer;
Principal Financial and Accounting Officer)
BARRY J. GIBBONS Director October 27, 1995
- -------------------------------
Barry J. Gibbons
ARTHUR H. HERTZ Director October 27, 1995
- -------------------------------
Arthur H. Hertz
DOROTHY J. SPECTOR Director October 27, 1995
- -------------------------------
Dorothy J. Spector
MARTIN W. SPECTOR Director October 27, 1995
- -------------------------------
Martin W. Spector
CYNTHIA COHEN TURK Director October 27, 1995
- -------------------------------
Cynthia Cohen Turk
ROSALIND S. ZACKS Director October 27, 1995
- -------------------------------
Rosalind S. Zacks
</TABLE>
42
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
*3.1 Articles of Incorporation of the Company (Exhibit 3.1 to
Registration statement No. 33-00178-A).
*3.2 Bylaws of the Company (Exhibit 3.2 to Registration
Statement No. 33-00178-A).
*10.1 Business Lease, effective as of November 1, 1985, between
the Martin W. Spector Irrevocable Trust and the Company
(Exhibit 10-3 to Registration Statement No. 33-00178-A).
*10.2 Shareholders' Agreement and Right of First Refusal, dated
as of September 5, 1985, between Ann S. Lieff and
Rosalind S. Zacks (formerly Rosalind S. Spooner)
(Exhibit 10.4 to Registration Statement No. 33-00 1 78-A).
*10.3 Spec's Music, Inc. 1986 Incentive Stock Plan, as Amended.
(Exhibit 28 to Registration Statement on Form S-8 No.
33-16778).
*10.4 Business Lease, effective August 1, 1991, between Lieff
Family 1989 Trust, Rosalind S. Zacks Family 1989 Trust
and the Company.
*10.5 First Amendment to Amended and Restated Credit Agreement
dated October 16, 1992 between the Company and NCNB
National Bank of Florida.
*10.6 Credit Agreement dated September 20, 1994 between the
Company and Nationsbank of Florida, N.A. (Exhibit 10.6 to
1994 Form 10-K).
*10.7 Spec's Music, Inc. 1993 Incentive Stock Plan (Exhibit 10.7
to 1994 Form 10-K).
*10.8 Spec's Music, Inc. 1993 Non-Employee Directors Stock
Option Plan (Exhibit 10.8 to 1994 Form 10-K).
10.9 First Amendment to Credit Agreement dated July 27, 1995
between the Company and NationsBank of Florida, N.A.
10.10 Master Equipment Lease Agreement dated October 18, 1994
between the Company and AT&T Capital Corporation.
10.11 Second Amendment to Credit Agreement dated November 2,
1995 between the Company and NationsBank of Florida, N.A.
*21 Subsidiaries of the Company (Exhibit 22 to 1988 Form 10-K.
No. 0-14323).
23 Consent of Independent Auditors relating to Registration
Statement on Form S-8 No. 33-16778.
24 Power of Attorney - see signature page of this report.
--------------------
* Incorporated by reference to indicated filings.
43
NationsBank
Commercial Banking Corp
150 Southeast Third Avenue
Miami, FL 33131
NationsBank
July 27, 1995
Spec's Music, Inc.
1666 N.W. 82nd Avenue
Miami, Florida 33126
Attention: Ms. Ann Spector Lieff, President
Re: Credit Agreement by and between Spec's Music, Inc.
("Borrower") and NationsBank of Florida, N.A. ("Lender"),
dated as of September 20, 1994 (the "Credit Agreement")
Dear Ms. Lieff:
Pursuant to your request on behalf of the Borrower, please
be advised that the Credit Agreement has been modified and amended
as follows:
1. Section 7.17 of the Credit Agreement is hereby deleted
in its entirety and replaced with the following:
"7.17 MANAGEMENT. Ensure that Ann Spector Lieff shall
at all times remain active in the day-to-day management
of the Borrower, and implement a senior management team
(to include at a minimum Ms. Lieff and a chief financial
officer) reasonably acceptable to the Lender on or before
November 30, 1995. In the event the Borrower fails to implement
such management team on or before November 30, 1995, said
failure shall constitute an Event of Default under the
Credit Agreement."
2. In addition to the above, the following changes shall
be made to Section 10.1 of the Credit Agreement:
All notices, requests, demands and other communications
in accordance with Section 10.1 of the Credit Agreement
shall be sent to the Borrower to the attention of Ann Spector
Lieff, and all copies of any such notices to the Lender
shall be forwarded to Buchanan Ingersoll, P.A., 19495 Biscayne
Boulevard, Suite 606, Miami, Florida 33180, attention:
Ralph B. Bekkevold, Esq.
<PAGE>
Spec's Music, Inc.
July 27, 1995
Page 2
Except as modified herein, all remaining terms and conditions
of the Credit Agreement shall remain in full force and effect
and the modifications set forth herein shall not in any way
alter, impair, diminish or affect any of the remaining terms
and conditions of the Credit Agreement.
Should you have any questions or comments with respect
to any of the foregoing or any aspect of the above referenced
transaction, please feel free to contact the undersigned at
your earliest convenience.
Sincerely,
/s/ JULIA H. ROCAWICH
Julia H. Rocawich,
Vice President
CC: Ralph B. Bekkevold, Esq.
Mr. Peter Blei, Vice President & CFO, Spec's Music, Inc.
Lou Vendittelli, Esq.
AT&T CAPITAL CORPORATION
MASTER EQUIPMENT LEASE AGREEMENT
LESSEE: SPEC'S MUSIC, INC. LESSOR: NCR CREDIT CORP.
1666 NW 82ND AVENUE 9797 SPRINGBORO PIKE
MIAMI, FLORIDA 33126 MIAMISBURG, OH 45342
LEASE NUMBER: 4057
1. AGREEMENT. Lessor agrees to lease to Lessee and Lessee agrees to lease from
Lessor the equipment (Equipment) described In any schedule (Schedule) that
incorporates this Master Equipment Lease Agreement (Agreements) by reference. A
Schedule shall incorporate this Agreement by reference by listing the above
referenced Lease Number thereon. Such lease shall be governed by the terms and
conditions of this Agreement, as well as by the terms and conditions set forth
In the applicable Schedule. Each Schedule shall constitute an agreement separate
and distinct from this Agreement and any other Schedule. In the event of a
conflict between the provisions of this Agreement and a Schedule, the provisions
of the Schedule shall govern.
2. ASSIGNMENT OF PURCHASE DOCUMENTS. Lessee shalt execute and deliver to Lessor
a writing acceptable to Lessor whereby Lessor Is assigned all of Lessees rights
and interest in and to: (a) the Equipment described In the applicable Schedule
and (b) any purchase order, contract or other documents (collectively, Purchase
Documents) relating thereto that Lessee has entered into with the Seller (as
specified in the applicable Schedule). If Seller is not an affiliate of Lessor,
Lessee shall deliver to Lessor a writing acceptable to Lessor whereby Seller
acknowledges, and provides any required consent to such assignment. If Lessee
has not entered Into any Purchase Document for the Equipment with Seller, Lessee
authorizes Lessor to act as Lessee's agent to issue a purchase order to Seller
for the Equipment and for associated matters, and such purchase order shall be
subject to this Section 2 and all references in this Agreement to Purchase
Documents shall include such purchase order. By executing the applicable
Schedule, Lessee represents and warrants that Lessee either (y) has reviewed,
approved and received a copy of the applicable Purchase Documents or (z) has
been informed by Lessor (I) of the identity of the Seller, (ii) that Lessee may
have rights under the Purchase Documents and (iii) that Lessee may contact
Seller for a description of such rights.
3. DELIVERY; ACCEPTANCE. Lessee shall cause the Equipment to be delivered to
Lessee at the Equipment Location (as specified in the applicable Schedule) and
Lessee shall accept the Equipment as soon as it is delivered or, if acceptance
criteria is specified in the applicable Purchase Documents, as soon as it has
met such criteria. Lessee shall evidence its acceptance of the Equipment and
commencement of the Lease with respect thereto by executing and delivering to
Lessor a commencement certificate (Commencement Certificate) in a form
acceptable to Lessor. By executing and delivering a Commencement Certificate to
Lessor, (a) Lessee represents and warrants that it has selected the Equipment
and Seller specified on the applicable
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Schedule and (b) Lessee shall irrevocably accept such Equipment under lease.
4. PURCHASE OF EQUIPMENT. Provided that no Event of Default (as defined in
Section 19) exists, and no event has occurred and is continuing that with notice
or the lapse of time or both would constitute an Event of Default, Lessor shall
be obligated to purchase the Equipment from Seller and to lease the Equipment to
Lessee if (and only if) Lessor receives on or before the Latest Commencement
Date (as specified In the applicable Schedule) the related Commencement
Certificate and Schedule (both executed by Lessee), and such other documents or
assurances as Lessor may reasonably request.
5. TERM. The initial term of each Schedule (Initial Term) shall begin on the
date specified as the Commencement Date on the Commencement Certificate with
respect to such Schedule and shall continue for the period specified in such
Schedule. Any renewable term of a Schedule (Renewal Term) shall begin on the
expiration of, as applicable, the Initial Term or any preceding Renewal Term
(collectively, Term).
6. RENT; ADVANCE RENT; LATE CHARGES. Lessee shall pay Lessor the first Rental
Payment (as specified in the applicable Schedule) for the Equipment on or before
the Commencement Date of the applicable Schedule, and shall pay Lessor the
remaining periodic Rental Payments on or before the periodic payment dates
specified in the applicable Schedule or, if periodic payment dates are not
specified, on or before the corresponding day of each subsequent period during
the Initial Term of the applicable Schedule, regardless of whether Lessee has
received notice that such Rental Payments are due. Additionally, if pursuant to
this Agreement or the applicable Schedule the Term is extended or a renewal
option exercised, Lessee shall also pay all Rental Payments required with
respect thereto. All Rental Payments will be sent to Lessor's above-referenced
address, or to such other address as specified by Lessor in writing. Lessee
shall also pay Lessor Advance Rent (as specified in the applicable Schedule) for
the Equipment when it signs the applicable Schedule and such Advance Rent shall
be refunded without interest to Lessee only if Lessor declines to sign the
applicable Schedule. Advance Rent shall be credited to Lessee's first Rental
Payment under the applicable Schedule, and any excess Advance Rent shall be
credited to Lessee's final Rental Payment(s). Lessee agrees to pay Lessor a late
charge of 5% of any Rental Payment (or other amount due hereunder) that is not
paid within 10 days of its due date plus interest at the rate of 1 1/2% per
month on any such amounts (or such lesser rate as is the maximum rate allowable
under applicable law). Also, in the event that more than one Schedule is entered
into hereunder the parties will use their best efforts to implement a common
billing date for all Schedules.
7. ADJUSTMENTS. The Total Purchase Price (as specified in the applicable
Schedule) and Rental Payment set forth in each Schedule are estimates, and if
the final invoice from Seller specifies a Total Purchase Price (including taxes
delivery installation and other charges) that is greater or less than such
estimated Total Purchase Price, Lessee hereby authorizes Lessor to adjust the
Total Purchase Price and Rental Payment on the applicable Schedule to reflect
the final invoice amount (Final Invoice Amount). If Option B in the Schedule has
been selected, Lessee
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<PAGE>
also authorizes Lessor to adjust such purchase and renewal options to reflect
the Final Invoice Amount. However, if the Final Invoice Amount exceeds the
estimated Total Purchase Price by more than 10%, Lessor will notify Lessee and
obtain Lessee's prior written approval of the aforementioned adjustments
provided however that such written approval shall not be required when such
adjustments are caused by Equipment changes or system reconfigurations requested
or caused by Lessee. Additionally, if Lessor financed any down payment for the
Equipment pursuant to an interim financing agreement (Financing Agreement) with
Lessee, Lessor may also adjust the Total Purchase Price and Rental Payment with
respect to such Equipment to reflect any accrued interest that Lessee elects to
finance. All references in this Agreement and in any Schedule to Total Purchase
Price and Rental Payment shall mean the estimates thereof specified in the
applicable Schedule as adjusted pursuant to this Section 7.
8. INSURANCE. At its own expense, Lessee shall provide and maintain the
following insurance: (a) insurance against the loss or theft of or damage to the
Equipment for the greater of the Stipulated Loss Value (computed as described in
the applicable Schedule) or full replacement value thereof, naming Lessor as a
loss payee; and (b) public liability and third party property damage insurance,
naming Lessor as an additional insured. Such insurance shall be in a form,
amount and with companies reasonably satisfactory to Lessor, shall contain the
insurer's agreement to give Lessor 30 days' prior written notice before
cancellation or material change thereof and shall be payable to Lessor
regardless of any act, omission or breach by Lessee. Lessee shall deliver to
Lessor the insurance policies or copies thereof or certificates of such
insurance on or before the Commencement Date of the applicable Schedule, and at
such other times as Lessor may reasonably request. If no Event of Default exists
and no event has occurred and is continuing that with notice or the lapse of
time or both would constitute an Event of Default, the proceeds of any insurance
required under clause (a) hereof that have been paid to Lessor shall be applied
against Lessee's obligations to Lessor under Section 13 hereof.
9. TAXES. Lessee shall reimburse Lessor for (or pay directly, but only if
instructed by Lessor) all taxes, fees, and assessments that may be imposed by
any taxing authority on the Equipment or on its purchase, ownership, delivery,
possession, operation, rental return to Lessor or purchase by Lessee
(collectively Taxes); provided however that Lessee shall not be liable for any
such Taxes (whether imposed by the United States of America or by any other
domestic or foreign taxing authority) imposed on or measured by Lessor's net
income or tax preference items. Lessee's obligation includes, but is not limited
to, the obligation to pay all license and registration fees and all sales, use,
personal property and other taxes and governmental charges, together with any
penalties, fines and interest thereon, that may be imposed during the Term of
the applicable Schedule. Lessee is liable for these Taxes whether they are
imposed upon Lessor, Lessee, the Equipment, this Agreement, the applicable
Schedule or any Financing Agreement. If Lessee is required by law or
administrative practice to make any report or return with respect to such Taxes
Lessee shall promptly advise Lessor thereof in writing and shall cooperate with
Lessor to ensure that such reports are properly filed and accurately reflect
Lessor's interest in the Equipment. Lessor has no obligation to contest any such
Taxes, however Lessee may do so provided that: (a) Lessee does so in its own
name and at its own expense; (b) the contest does not and will not
3
<PAGE>
result in any lien attaching to any Equipment or otherwise jeopardize Lessor's
right to any Equipment; and (c) Lessee indemnifies Lessor for all expenses
(including legal fees and costs), liabilities and losses that Lessor incurs as a
result of any such contest.
10. REPAIRS; USE; LOCATION; LABELS. Lessee shall: (a) at its own expense, keep
the Equipment in good repair, condition and working order and maintained in
accordance with the manufacturer's recommended engineering and maintenance
standards; (b) use the Equipment lawfully and exclusively in connection with its
business operations and for the purpose for which the Equipment was designed and
intended; and (c) without Lessor's prior written consent, not move the Equipment
from the Equipment Location. If Lessor supplies Lessee with labels stating that
the Equipment is owned by Lessor, Lessee shall affix such labels to the
Equipment pursuant to Lessor's instructions.
11. MAINTENANCE; INSPECTION; ALTERATIONS. At its own expense, Lessee shall: (a)
enter into and maintain a maintenance agreement for the Equipment with the
manufacturer or other party acceptable to Lessor; (b) maintain the Equipment in
the same condition as when delivered subject only to ordinary wear and tear, and
in good operating order and appearance; (c) make all alterations or additions to
the Equipment that may be required or supplied by the Seller or legally
necessary; and (d) make no other alterations or additions to the Equipment
(except for alterations or additions that will not impair the value or
performance of the Equipment and that are readily removable without damage to
the Equipment). Any modifications, alterations or additions that Lessee makes to
the Equipment (except as permitted by Section 11 (d) above) shall become
Lessor's property and shall also be deemed to be Equipment. Upon request, Lessor
or any party designated by Lessor, shall have the right to inspect the Equipment
and Lessee's applicable maintenance agreement and records at any reasonable
time.
12. PERSONAL PROPERTY; LIENS AND ENCUMBRANCES; TITLE. The Equipment shall at all
times remain personal property, notwithstanding that the Equipment or any part
thereof, may be (or becomes) affixed or attached to real property or any
improvements thereon. Except for the interest of Lessor, Lessee shall keep the
Equipment free and clear of all levies, liens and encumbrances of any nature
whatsoever. Except as expressly set forth in this Agreement, the Equipment shall
at all times remain the property of Lessor and Lessee shall have no right, title
or interest therein.
13. RISK OF LOSS. As between Lessor and Lessee, Lessee shall bear the entire
risk of loss, theft, destruction or damage to the Equipment from any cause
whatsoever or requisition of the Equipment by any governmental entity or the
taking of title to the Equipment by eminent domain or otherwise (collectively,
Loss). Lessee shall advise Lessor in writing within 10 days of any such Loss.
Except as provided below no such Loss shall relieve Lessee of the obligation to
pay Lessor Rental Payments and all other amounts owed hereunder. In the event of
any such Loss, Lessor, at its option, may: (a) if the Loss has not materially
impaired the Equipment (in Lessor's reasonable judgment) require Lessee upon
Lessor's demand to place the Equipment in good condition and repair reasonably
satisfactory to Lessor; or (b) if the Loss has materially impaired the Equipment
4
<PAGE>
(in Lessor's reasonable judgment), require Lessee, upon Lessor's demand, to pay
Lessor its anticipated return (Lessor's Return), which shall consist of the
following amounts: (i) the Rental Payments (and other amounts) then due and
owing under the applicable Schedule; plus (ii) the Stipulated Loss Value
(computed as described in the applicable Schedule) of the Equipment; plus (iii)
all other amounts that become due and owing under the applicable Schedule, but
only to the extent such amounts are not included in the moneys paid to Lessor
pursuant to clauses (i) and (ii) above. Upon Lessor's full receipt of such
Lessor's Return: (y) the applicable Schedule shall terminate, and except as
provided in Section 25, Lessee shall be relieved of all obligations under the
applicable Schedule; and (z) Lessor shall transfer all of its interest in the
Equipment to Lessee "AS IS, WHERE IS" and without any warranty, express or
implied from Lessor, other than the absence of any liens or claims by, through,
or under Lessor.
14. NON-CANCELLABLE NET LEASE. ALL LEASES HEREUNDER SHALL BE NON-CANCELLABLE NET
LEASES, AND LESSEE AGREES THAT IT HAS AN UNCONDITIONAL OBLIGATION TO PAY ALL
RENTAL PAYMENTS AND OTHER AMOUNTS WHEN DUE. LESSEE IS NOT ENTITLED TO ABATE OR
REDUCE RENTAL PAYMENTS OR ANY OTHER AMOUNTS DUE, OR TO SET OFF ANY CHARGES
AGAINST THOSE AMOUNTS. LESSEE IS NOT ENTITLED TO RECOUPMENTS, CROSS-CLAIMS,
COUNTERCLAIMS OR ANY OTHER DEFENSES TO ANY RENTAL PAYMENTS OR OTHER AMOUNTS DUE
HEREUNDER, WHETHER THOSE DEFENSES ARISE OUT OF CLAIMS BY LESSEE AGAINST LESSOR,
SELLER, THIS AGREEMENT, ANY SCHEDULE OR OTHERWISE. NEITHER DEFECTS IN EQUIPMENT,
DAMAGE TO IT, NOR ITS LOSS, DESTRUCTION OR LATE DELIVERY SHALL TERMINATE THIS
AGREEMENT OR ANY SCHEDULE, OR AFFECT LESSEE'S OBLIGATIONS HEREUNDER. UNLESS
LESSEE'S OBLIGATION TO PAY RENTAL PAYMENTS AND OTHER AMOUNTS HAS BEEN TERMINATED
PURSUANT TO THE EXPRESS TERMS OF THIS AGREEMENT, ALL RENTAL PAYMENTS AND OTHER
AMOUNTS SHALL CONTINUE TO BE DUE AND PAYABLE HEREUNDER.
15. LESSOR DISCLAIMERS, LIMITATION OF REMEDIES. IT IS SPECIFICALLY UNDERSTOOD
AND AGREED THAT: (A) LESSOR SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION,
WARRANTY OR PROMISE MADE BY SELLER, NEITHER SELLER NOR LESSOR SHALL ACT AS, OR
BE DEEMED TO BE, AN AGENT OF THE OTHER, AND LESSOR SHALL NOT BE BOUND BY, OR
LIABLE FOR, ANY REPRESENTATION OR PROMISE MADE BY SELLER (EVEN IF LESSOR IS
AFFILIATED WITH SELLER); (B) LESSOR SHALL NOT BE LIABLE FOR ANY FAILURE OF ANY
EQUIPMENT OR ANY DELAY IN ITS DELIVERY OR INSTALLATION; (C) LESSOR SHALL NOT BE
LIABLE FOR ANY BREACH OF ANY WARRANTY THAT SELLER MAY HAVE MADE; (D) LESSEE HAS
SELECTED ALL EQUIPMENT WITHOUT LESSOR'S ASSISTANCE; (E) LESSOR IS NOT A
MANUFACTURER OF ANY EQUIPMENT; AND (F) LESSOR HAS NOT MADE AND DOES NOT NOW MAKE
ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE DESIGN,
COMPLIANCE WITH SPECIFICATIONS, OPERATION, OR CONDITION OF
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<PAGE>
ANY EQUIPMENT (OR ANY PART THEREOF), THE MERCHANTABILITY OR FITNESS OF EQUIPMENT
FOR A PARTICULAR PURPOSE, OR ISSUES REGARDING PATENT INFRINGEMENT, TITLE AND THE
LIKE. IT IS FURTHER AGREED THAT LESSOR SHALL HAVE NO LIABILITY TO LESSEE,
LESSEE'S CUSTOMERS, OR ANY THIRD PARTIES FOR ANY DIRECT, INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR ANY SCHEDULE OR
CONCERNING ANY EQUIPMENT, OR FOR ANY DAMAGES BASED ON STRICT OR ABSOLUTE TORT
LIABILITY OR LESSOR'S NEGLIGENCE; PROVIDED, HOWEVER, THAT NOTHING IN THIS
AGREEMENT SHALL DEPRIVE LESSEE OF ANY RIGHTS IT MAY HAVE AGAINST ANY PERSON
OTHER THAN LESSOR. LESSEE SHALL LOOK SOLELY TO SELLER FOR ANY AND ALL CLAIMS AND
WARRANTIES RELATING TO THE EQUIPMENT. Lessor hereby assigns to Lessee for the
Term of the applicable Schedule the right to enforce, provided no Event of
Default then exists under this Agreement and such enforcement is pursued in
Lessee's name, any representations, warranties and agreements made by Seller
pursuant to the Purchase Documents, and Lessee may retain any recovery resulting
from any such enforcement efforts. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE BY ARTICLE
2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE
THAT MAY LIMIT OR MODIFY LESSOR'S RIGHTS AS DESCRIBED IN THIS SECTION OR OTHER
SECTIONS OF THIS AGREEMENT.
16. LESSEE WARRANTIES. Lessee represents, warrants and covenants to Lessor that:
(a) unless it is an individual, Lessee is duly organized, validly existing and
in good standing under applicable law; (b) Lessee has the power and authority to
enter into this Agreement, all Schedules and all other related instruments or
documents hereunder (collectively, Fundamental Agreements); (c) such Fundamental
Agreements are enforceable against Lessee in accordance with their terms and do
not violate or create a default under any instrument or agreement binding on
Lessee; (d) there are no pending or threatened actions or proceedings before any
court or administrative agency that could have a material adverse effect on
Lessee or any Fundamental Agreement, unless such actions are disclosed to Lessor
and consented to in writing by Lessor; (e) Lessee shall comply in all material
respects with all Federal, state and municipal laws and regulations the
violation of which could have a material adverse effect upon the Equipment or
Lessee's performance of its obligations under any Fundamental Agreement; (f)
Lessee shall obtain all governmental approvals necessary for it to enter into
and perform each Fundamental Agreement; (g) each Fundamental Agreement shall be
effective against all creditors of Lessee under applicable law, including
fraudulent conveyance and bulk transfer laws, and shall raise no presumption of
fraud; (h) financial statements and other related information furnished by
Lessee shall be prepared in accordance with generally accepted accounting
principles and shall present Lessee's financial position as of the dates given
on such statements; (I) Lessee shall furnish Lessor with as certified financial
statements, opinions of counsel, resolutions, and such other information and
documents as Lessor may reasonably request; (j) ALL EQUIPMENT IS LEASED FOR
BUSINESS PURPOSES ONLY, AND NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES; and
(k) all Equipment is tangible personal property and shall not become a fixture
or real property
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under Lessee's use thereof. Lessee shall be deemed to have reaffirmed the
foregoing warranties each time it executes any Fundamental Agreement.
17. GENERAL INDEMNITY. Lessee shall indemnify, hold harmless, and, if so
requested by Lessor defend Lessor against all claims (Claims) directly or
indirectly arising out of or connected with the Equipment or any Fundamental
Agreement. Claims refers to all losses, liabilities, damages, penalties,
expenses (including legal fees and costs), claims, actions and suits, whether
based on a theory of strict liability of Lessor or otherwise, and includes, but
is not limited to, matters regarding: (a) the selection, manufacture, purchase,
acceptance, rejection, ownership, delivery, lease, possession, maintenance, use,
condition, return or operation of the Equipment; (b) any latent detects or other
defects in any Equipment, whether or not discoverable by Lessor or by Lessee;
(c) any patent, trademark or copyright infringement; and (d) the condition of
any Equipment arising or existing during Lessee's use.
18. SURRENDER; EXTENSION OF TERM. Unless Lessee purchases the Equipment or
renews the Term pursuant to the applicable Schedule, or acquires the Equipment
pursuant to Section 13 hereof, Lessee shall, at its expense, deinstall, inspect,
test and properly pack the Equipment at the expiration of the Term, free of all
liens and rights of others, by delivering it on board such common carrier as
Lessor may specify with freight prepaid to any destination within the United
States of America specified by Lessor. It Lessor so requests, Lessor and its
agents shall have the right to enter upon any premises where Equipment may be
located to perform any of Lessee's tasks noted above in this Section 18, and
Lessee shall reimburse Lessor for all costs and expenses Lessor incurs in
fulfilling such tasks. Lessee agrees that the Equipment, when returned to
Lessor, shall be in the same condition as when delivered to Lessee, reasonable
wear and tear excepted, and certified as being eligible for Seller's or the
manufacturer's generally available maintenance contract at then prevailing
rates, without Lessor incurring any expense to repair, rehabilitate or certify
such Equipment. (Lessee shall be liable for all costs and expenses Lessor incurs
to place the Equipment in such condition.) If requested by Lessor, Lessee, at
its expense shall store the Equipment on its premises for a reasonable period,
during which period the Equipment shall be subject to all of the terms and
conditions hereof, except for the obligation to make Rental Payments. In all
instances where Lessee is returning Equipment to Lessor, Lessee shall give
Lessor written notice thereof in accordance with the terms of the applicable
Schedule. If Lessee fails to provide the aforementioned notice or return the
Equipment to Lessor in the time and manner provided above, the Term shall be
extended in accordance with the terms of the applicable Schedule. If any
Schedule is extended pursuant to the preceding sentence, Lessee shall continue
to pay the higher of the periodic Rental Payments in effect prior to the
expiration of the then existing term of the applicable Schedule (whether it be
the Initial Term or any Renewal Term (Applicable Term) or such other periodic
rental payment amount as is specified for such extension period in the Schedule,
and all other provisions of this Agreement shall continue to apply.
19. EVENTS OF DEFAULT. Any of the following shall constitute an Event of Default
under this Agreement and all Schedules: (a) Lessee fails to pay any Rental
Payment or any other amount
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payable to Lessor hereunder within 10 days after its due date; or (b) Lessee
fails to perform or observe any other representation, warranty, covenant
condition or agreement to be performed or observed by Lessee hereunder or in any
other agreement with Lessor, or in any agreement with any other person that in
Lessor's sole opinion is a material agreement, and Lessee fails to cure any such
breach within 10 days aver notice thereof; or (c) any representation or warranty
made by Lessee hereunder, or in any other instrument provided to Lessor by
Lessee, proves to be incorrect in any material respect when made; or (d) Lessee
makes an assignment for the benefit of creditors, whether voluntary or
involuntary; or (e) a proceeding under any bankruptcy, reorganization,
arrangement of debts, insolvency or receivership law is filed by or against
Lessee or Lessee takes any action to authorize any of the foregoing matters; or
(f) Lessee becomes insolvent or fails generally to pay its debts as they become
due, the Equipment is levied against seized or attached, or Lessee seeks to
effectuate a bulk of sale of Lessee's inventory or assets, or (g) Lessee
voluntarily or involuntarily dissolves or is dissolved, or terminates or is
terminated; or (h) any guarantor dies or revokes a guaranty provided to Lessor
under this Agreement or (I) any guarantor under this Agreement is the subject of
an event listed in clauses (b) through (g) above; or (j) any letter of credit
required pursuant to any Schedule is breached, canceled, terminated or not
renewed during the Term of any such Schedule.
20. REMEDIES. If an Event of Default occurs, Lessor may, in its sole discretion,
exercise one or more of the following remedies: (a) terminate this Agreement or
any or all Schedules; or (b) take possession of, or render unusable, any
Equipment wherever the Equipment may be located, without demand or notice,
without any court order or other process of law and without liability to Lessee
for any damages occasioned by such action, and no such action shall constitute a
termination of any Schedule; or (c) require Lessee to deliver the Equipment at a
location designated by Lessor; or (d) declare the Lessor's Return (as defined in
Section 13 hereof and calculated by Lessor as of the date of the Event of
Default) for each applicable Schedule due and payable as liquidated damages for
loss of a bargain and not as a penalty and in lieu of any further Rental
Payments under the applicable Schedule, or (e) proceed by court action to
enforce performance by Lessee of any Schedule; and/or to recover all damages and
expenses incurred by Lessor by reason of any Event of Default; or (f) terminate
any other agreement that Lessor may have with Lessee; or (g) exercise any other
right or remedy available to Lessor at law or in equity. Also, Lessee shall pay
Lessor all costs and expenses (including legal fees and costs and fees of
collection agencies) incurred by Lessor in enforcing any of the terms,
conditions or provisions of this Agreement. Upon repossession or surrender of
any Equipment, Lessor shall lease, sell or otherwise dispose of the Equipment in
a commercially reasonable manner, with or without notice and at public or
private sale, and apply the net proceeds thereof (after deducting all expenses
(including legal fees and costs) incurred in connection therewith) to the
amounts owed to Lessor hereunder, provided however, that Lessee shall remain
liable to Lessor for any deficiency that remains after and sale or lease of such
Equipment. Lessee agrees that with respect to any notice of a sale required by
law to be given, 10 days' notice shall constitute reasonable notice. These
remedies are cumulative of every other right or remedy given hereunder or now or
hereafter existing at law or in equity or by statute or otherwise, and may be
enforced concurrently therewith or from time to time.
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21. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee fails to perform any
of its obligations hereunder, Lessor may perform any act or make any payment
that Lessor deems reasonably necessary for the maintenance and preservation of
the Equipment and Lessor's interests therein; provided, however, that the
performance of any act or payment by Lessor shall not be deemed a waiver of, or
release Lessee from, the obligation at issue. All sums so paid by Lessor,
together with expenses (including legal fees and costs) incurred by Lessor in
connection therewith, shall be paid to Lessor by Lessee immediately upon demand.
22. FINANCING OF ADDITIONS. If, under any Schedule, Lessee intends to make any
addition to the Equipment, Lessee shall, in writing, request Lessor to finance
the costs of such addition. Lessee shall provide Lessor with the terms under
which it hopes to obtain the financing, and upon receiving such a request Lessor
shall determine, in its sole discretion, whether to provide such financing. If
Lessor does not, within 20 days after receiving Lessee's request, offer to
finance the addition upon the terms requested by Lessee, Lessee may obtain
offers from third parties for financing the addition, and Lessee shall notify
Lessor of the details of any third party financing offer Lessee would like to
accept (Third Party Offer). If Lessor has not made a financing offer to Lessee
on terms substantially similar to the Third Party Offer within 20 days of
receiving Lessee's notice, Lessee may accept the Third Party Offer unless: (a)
the aggregate cost to Lessee of obtaining financing from the Third Party Offer
is greater than the aggregate cost under Lessor's financing offer; (b) the Third
Party Offer would create a security interest in, or a lien on, the Equipment; or
(c) the addition is not permitted under Section 11 (d) hereof.
23. ASSIGNMENT BY LESSOR. Lessor shall have the unqualified right to assign
pledge, transfer, mortgage or otherwise convey any of its interests hereunder or
in any Schedule or any Equipment, in whole or in part, without notice to, or
consent of, Lessee. If any Schedule is assigned, Lessee shall: (a) unless
otherwise specified by the Lessor and the assignee (Assignee) specified by
Lessor pay all amounts due under the applicable Schedule to such Assignee,
notwithstanding any defense, setoff or counterclaim whatsoever that Lessee may
have against Lessor or Assignee; (b) not permit the applicable Schedule to be
amended or the terms thereof waived without the prior written consent of the
Assignee; (c) not require the Assignee to perform any obligations of Lessor,
other than those that are expressly assumed in writing by such Assignee; and (d)
execute such acknowledgments thereto as may be requested by Lessor. It is
further agreed that: (x) each Assignee shall be entitled to all of Lessor's
rights, powers and privileges under the applicable Schedule, to the extent
assigned; (y) any Assignee may reassign its rights and interests under the
applicable Schedule with the same force and effect as the assignment described
herein; and (z) any payments received by the Assignee from Lessee with respect
to the assigned portion of the Schedule shall, to the extent thereof, discharge
the obligations of Lessee to Lessor with respect to the assigned portion of the
Schedule. LESSEE ACKNOWLEDGES THAT ANY ASSIGNMENT OR TRANSFER BY LESSOR OR ANY
ASSIGNEE SHALL NOT MATERIALLY CHANGE LESSEE'S OBLIGATIONS UNDER THE ASSIGNED
SCHEDULE.
24. ASSIGNMENT OR SUBLEASE BY LESSEE. WITHOUT LESSOR'S PRIOR WRITTEN
9
<PAGE>
CONSENT LESSEE SHALL NOT ASSIGN THIS AGREEMENT OR ANY SCHEDULE OR ASSIGN ITS
RIGHTS IN OR SUBLET THE EQUIPMENT OR ANY INTEREST THEREIN; provided, however,
that Lessee may sublease or assign a Schedule to an affiliate or a wholly-owned
subsidiary of Lessee if: (a) Lessee and such sublessee or assignee execute and
deliver to Lessor a writing (to be provided by Lessor) whereby the sublessee or
assignee agrees to assume joint and several liability with Lessee for the full
and prompt payment, observance and performance when due of all of the
obligations of the Lessee under such Schedule; and (b) Lessor consents to such
sublease or assignment, which consent shall not be unreasonably withheld. In no
event, however, shall any such sublease or assignment discharge or diminish any
of Lessee's obligations to Lessor under such Schedule.
25. SURVIVAL; QUIET ENJOYMENT. All representations, warranties and covenants
made by Lessee hereunder shall survive the termination of this Agreement and
shall remain in full force and effect. All of Lessor's rights, privileges and
indemnities, to the extent they are fairly attributable to events or conditions
occurring or existing on or prior to the termination of this Agreement, shall
survive such termination and be enforceable by Lessor and any successors and
assigns. So long as no Event of Default exists, and no event has occurred and is
continuing that with notice or the lapse of time or both would constitute an
Event of Default, neither Lessor nor any Assignee will interfere with Lessee's
quiet enjoyment of the Equipment.
26. FILING FEES; FURTHER ASSURANCES; NOTICES. Lessee will promptly reimburse
Lessor for any filing or recordation fees or expenses (including lien search
fees, legal fees and costs) incurred by Lessor in perfecting or protecting its
interests in the Equipment and under this Agreement. Lessee shall promptly
execute and deliver to Lessor such documents and take such further action as
Lessor may from time to time reasonably request in order to carry out the intent
and purpose of this Agreement and to protect the rights and remedies of Lessor
created or intended to be created hereunder. All notices under this Agreement
shall be sent to the respective party at its address set forth on the front page
of this Agreement or on the applicable Schedule or at such other address as the
parties may provide to each other in writing from time to time. Any such notice
mailed to said address shall be effective when deposited in the United States
mail, duly addressed and with first class postage prepaid.
27. WAIVER OF JURY TRIAL; SUCCESSORS. LESSEE AND LESSOR EACH IRREVOCABLY WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER
LITIGATION OR PROCEEDING UPON, ARISING OUT OF, OR RELATED TO THIS AGREEMENT, ANY
OTHER FUNDAMENTAL AGREEMENT, OR THE DEALINGS OR RELATIONSHIP BETWEEN OR AMONG
LESSOR, LESSEE, SELLER OR ANY OTHER PERSON. This Agreement and all Schedules
inure to the benefit of and are binding upon the permitted successors or assigns
of Lessor and Lessee.
28. NO WAIVER; LESSOR APPROVAL. Any failure of Lessor to require strict
performance by Lessee, or any written waiver by Lessor of any provision hereof,
shall not constitute consent or
10
<PAGE>
waiver of any other breach of the same or any other provision hereof. Neither
this Agreement nor any other Fundamental Agreement shall be binding upon Lessor
unless and until executed by Lessor.
29. CAPTIONS; COUNTERPARTS; LESSOR'S AFFILIATES. The captions contained in this
Agreement are for convenience only and shall not affect the interpretation of
this Agreement Only one counterpart of the Schedule shall be marked "Original"
(Original), and all other counterparts thereof shall be marked as, and shall be,
duplicates. To the extent that any Schedule constitutes chattel paper (as such
term is defined in the Uniform Commercial Code in effect in any applicable
jurisdiction), no security interest in such Schedule may be created through the
transfer or possession of any counterpart other than the Original. Lessee
understands and agrees that AT&T Capital Corporation or any affiliate or
subsidiary thereof may, as lessor, execute Schedules under this Agreement, in
which event the terms and conditions of the applicable Schedule and this
Agreement as it relates to the lessor under such Schedule shall be binding upon
and shall inure to the benefit of such entity executing such Schedule as lessor,
as well as any successors or assigns of such entity.
30. CHOICE OF LAW; INTEGRATION; ENTIRE AGREEMENT. EACH LEASE UNDER THIS
AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF NEW JERSEY (STATE). If any provision of this
Agreement or such Schedule shall be prohibited by or invalid under that law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement or such Schedule. Lessor and Lessee
consent to the jurisdiction of any local, state or Federal court located within
the State, and waive any objection relating to improper venue or forum non
conveniens to the conduct of any proceeding in any such court. This Agreement
and all other Fundamental Agreements executed by both Lessor and Lessee
constitute the entire agreement between Lessor and Lessee relating to the
leasing of the Equipment, and supersede all prior agreements relating thereto
whether written or oral, and may not be amended or modified except in a writing
signed by the parties hereto.
SPEC'S MUSIC, INC. NCR CREDIT CORP.
--------------------------------- ---------------------------------
LESSEE
By: X /s/ PETER BLEI By: X /s/ G. KAMMENER
--------------------------------- ---------------------------------
Lessee Authorized Signature Lessor Authorized Signature
PETER BLEI, VP & CFO G. KAMMENER, V.P. CREDIT
--------------------------------- ---------------------------------
Print Name & Title Print Name & Title
7/5/94 10-18-94
--------------------------------- ---------------------------------
Date Date
11
<PAGE>
AT&T CAPITAL CORPORATION
MASTER EQUIPMENT
LEASE AGREEMENT
SCHEDULE
LESSEE: Spec's Music, Inc.
STREET ADDRESS: 1666 Northwest 82nd Avenue
CITY/STATE/ZIP: Miami, FL 33126
LESSOR: NCR Credit Corp.
ADDRESS: 9797 Springboro Pike, Miamisburg, OH 45342
LEASE NUMBER: 4057
SCHEDULE NUMBER: 00080
SELLER: Applied Retail Solutions, Glidden Electronics, Teledata Concepts,
Execusoft Corporation, and POS Warehouse
DESCRIPTION OF ITEMS TO BE LEASED (THE EQUIPMENT): 3333 PC, POS Printer,
Scan Plus, Ports, UPS, & Software
TOTAL PRICE INCLUDING INSTALLATION/ONE-TIME CHARGES: $154,911.00
TOTAL PURCHASE PRICE (SUM OF TOTAL PRICES INCLUDING
INSTALLATION/ONE-TIME CHARGES): $154,911.00
OPTION A: ............................. YES [X] NO [ ]
Lessee selects a fair market value purchase
option and a fair rental value renewal option.
OPTION B: ............................. YES [ ] NO [X]
Lessee selects (i) a fixed price purchase option
of either $ n/a or n/a % of the Total Purchase Price
and (ii) a fixed price renewal option of n/a %
of the periodic Rental Payment.
THE TERMS AND CONDITIONS OF THE FOREGOING OPTIONS AND OTHER
IMPORTANT PROVISIONS ARE SET FORTH ON THE BACK OF THIS SCHEDULE.
PAYMENT IN ARREARS .................... YES [ ]
If this payments in arrears option is selected, Lessee shall pay Lessor
the first Rental Payment for the Equipment on the last day of the first
Rental Payment Period, which shall begin at Lessor's option on either the
Commencement Date or the first day of the month following the month in
which the Commencement Date occurs, and shall pay Lessor the remaining
periodic Rental Payments on or before the last day of each subsequent
Rental Payment Period.
EQUIPMENT LOCATION: 1666 Northwest 82nd Avenue
Miami, FL 33126
ADVANCE RENT: $3,384.81
RENTAL PAYMENT: $3,384.81
RENTAL PAYMENT PERIOD: Monthly
LATEST COMMENCEMENT DATE: Base Term Commencement Date 7/1/95
LENGTH OF INITIAL TERM: Base Term of 48 Months
THIS SCHEDULE SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF THE
MASTER EQUIPMENT LEASE AGREEMENT REFERENCED BY THE LEASE NUMBER SPECIFIED
ABOVE (AGREEMENT) BY AND BETWEEN LESSEE, AS LESSEE, AND LESSOR OR
AT&T CAPITAL CORPORATION OR ANY AFFILIATE OR SUBSIDIARY THEREOF.
AS LESSOR, AND BY THE TERMS AND CONDITIONS SET FORTH ON THE FRONT AND
BACK OF THIS SCHEDULE, PURSUANT TO SUCH TERMS AND CONDITIONS (WHICH
LESSEE ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS), LESSEE AGREES
TO LEASE FROM LESSOR (AS SPECIFIED BELOW) AND LESSOR AGREES TO LEASE
TO LESSEE THE ABOVE REFERENCED EQUIPMENT. IT IS UNDERSTOOD AND AGREED
THAT THE TERMS AND CONDITIONS OF THIS SCHEDULE MAY BE DIFFERENT FROM
THE TERMS AND CONDITIONS OF PRIOR SCHEDULES AND THAT ANY ASSIGNMENT
OR TRANSFER PURSUANT TO SECTION 23 OF THE AGREEMENT BY LESSOR OR ANY
ASSIGNEE SHALL NOT MATERIALLY CHANGE LESSEE'S OBLIGATIONS HEREUNDER.
LESSEE REPRESENTS AND WARRANTS THAT IT SHALL LOOK ONLY TO THE SELLER
FOR ANY AND ALL CLAIMS AND WARRANTIES RELATING TO THE EQUIPMENT AND
THAT IT EITHER HAS REVIEWED, APPROVED AND RECEIVED A COPY OF THE
APPLICABLE PURCHASE DOCUMENTS OR HAS BEEN INFORMED BY LESSOR THAT IT
MAY HAVE RIGHTS UNDER THE PURCHASE DOCUMENTS AND MAY CONTACT SELLER FOR
A DESCRIPTION OF SUCH RIGHTS TO THE EXTENT PERMITTED BY APPLICABLE LAW.
LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON LESSEE BY
ARTICLE 2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUE OR OTHERWISE THAT MAY LIMIT OR MODIFY THE LESSOR'S RIGHTS AS
DESCRIBED IN THE AGREEMENT, THIS SCHEDULE OR ANY OTHER FUNDAMENTAL
AGREEMENT (AS DEFINED IN THE AGREEMENT).
SPEC'S MUSIC, INC.
- -------------------------------
LESSEE
BY: X /s/ [illegible]
- -------------------------------
LESSEE AUTHORIZED SIGNATURE
[illegible]
- -------------------------------
PRINT NAME AND TITLE
[illegible]
- -------------------------------
DATE
NCR CREDIT CORP.
BY: /s/ [illegible]
- --------------------------------
LESSOR AUTHORIZED SIGNATURE
[illegible]
- --------------------------------
PRINT NAME AND TITLE
[illegible]
- --------------------------------
DATE
LESSEE'S COPY
<PAGE>
AT&T CAPITAL CORPORATION
MASTER EQUIPMENT
LEASE AGREEMENT
SCHEDULE
LESSEE: Spec's Music, Inc.
STREET ADDRESS: 1666 Northwest 82nd Avenue
CITY/STATE/ZIP: Miami, FL 33126
LESSOR: NCR Credit Corp.
ADDRESS: 9797 Springboro Pike, Miamisburg, OH 45342
LEASE NUMBER: 4057
SCHEDULE NUMBER: 00070
SELLER: AT&T Global Information Solutions
DESCRIPTION OF ITEMS TO BE LEASED (THE EQUIPMENT): 7450's, 7890,
& 5991 Equipment
TOTAL PRICE INCLUDING INSTALLATION/ONE-TIME CHARGES: $227,736.46
TOTAL PURCHASE PRICE (SUM OF TOTAL PRICES INCLUDING
INSTALLATION/ONE-TIME CHARGES): $227,736.46
OPTION A: ............................. YES [X] NO [ ]
Lessee selects a fair market value purchase
option and a fair rental value renewal option.
OPTION B: ............................. YES [ ] NO [X]
Lessee selects (i) a fixed price purchase option
of either $ n/a or n/a % of the Total Purchase Price
and (ii) a fixed price renewal option of n/a %
of the periodic Rental Payment.
THE TERMS AND CONDITIONS OF THE FOREGOING OPTIONS AND OTHER
IMPORTANT PROVISIONS ARE SET FORTH ON THE BACK OF THIS SCHEDULE.
PAYMENT IN ARREARS .................... YES [ ]
If this payments in arrears option is selected, Lessee shall pay Lessor
the first Rental Payment for the Equipment on the last day of the first
Rental Payment Period, which shall begin at Lessor's option on either the
Commencement Date or the first day of the month following the month in
which the Commencement Date occurs, and shall pay Lessor the remaining
periodic Rental Payments on or before the last day of each subsequent
Rental Payment Period.
EQUIPMENT LOCATION: 1666 Northwest 82nd Avenue
Miami, FL 33126
ADVANCE RENT: $4,976.04
RENTAL PAYMENT: $4,976.04
RENTAL PAYMENT PERIOD: Monthly
LATEST COMMENCEMENT DATE: Base Term Commencement Date 7/1/95
LENGTH OF INITIAL TERM: Base Term of 48 Months
THIS SCHEDULE SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF THE
MASTER EQUIPMENT LEASE AGREEMENT REFERENCED BY THE LEASE NUMBER SPECIFIED
ABOVE (AGREEMENT) BY AND BETWEEN LESSEE, AS LESSEE, AND LESSOR OR
AT&T CAPITAL CORPORATION OR ANY AFFILIATE OR SUBSIDIARY THEREOF.
AS LESSOR, AND BY THE TERMS AND CONDITIONS SET FORTH ON THE FRONT AND
BACK OF THIS SCHEDULE, PURSUANT TO SUCH TERMS AND CONDITIONS (WHICH
LESSEE ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS), LESSEE AGREES
TO LEASE FROM LESSOR (AS SPECIFIED BELOW) AND LESSOR AGREES TO LEASE
TO LESSEE THE ABOVE REFERENCED EQUIPMENT. IT IS UNDERSTOOD AND AGREED
THAT THE TERMS AND CONDITIONS OF THIS SCHEDULE MAY BE DIFFERENT FROM
THE TERMS AND CONDITIONS OF PRIOR SCHEDULES AND THAT ANY ASSIGNMENT
OR TRANSFER PURSUANT TO SECTION 23 OF THE AGREEMENT BY LESSOR OR ANY
ASSIGNEE SHALL NOT MATERIALLY CHANGE LESSEE'S OBLIGATIONS HEREUNDER.
LESSEE REPRESENTS AND WARRANTS THAT IT SHALL LOOK ONLY TO THE SELLER
FOR ANY AND ALL CLAIMS AND WARRANTIES RELATING TO THE EQUIPMENT AND
THAT IT EITHER HAS REVIEWED, APPROVED AND RECEIVED A COPY OF THE
APPLICABLE PURCHASE DOCUMENTS OR HAS BEEN INFORMED BY LESSOR THAT IT
MAY HAVE RIGHTS UNDER THE PURCHASE DOCUMENTS AND MAY CONTACT SELLER FOR
A DESCRIPTION OF SUCH RIGHTS TO THE EXTENT PERMITTED BY APPLICABLE LAW.
LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON LESSEE BY
ARTICLE 2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUE OR OTHERWISE THAT MAY LIMIT OR MODIFY THE LESSOR'S RIGHTS AS
DESCRIBED IN THE AGREEMENT, THIS SCHEDULE OR ANY OTHER FUNDAMENTAL
AGREEMENT (AS DEFINED IN THE AGREEMENT).
SPEC'S MUSIC, INC.
- -------------------------------
LESSEE
BY: X /s/ [illegible]
- -------------------------------
LESSEE AUTHORIZED SIGNATURE
[illegible]
- -------------------------------
PRINT NAME AND TITLE
[illegible]
- -------------------------------
DATE
NCR CREDIT CORP.
BY: /s/ [illegible]
- --------------------------------
LESSOR AUTHORIZED SIGNATURE
[illegible]
- --------------------------------
PRINT NAME AND TITLE
[illegible]
- --------------------------------
DATE
LESSEE'S COPY
<PAGE>
AT&T CAPITAL CORPORATION
MASTER EQUIPMENT
LEASE AGREEMENT
SCHEDULE
LESSEE: Spec's Music, Inc.
STREET ADDRESS: 1666 Northwest 82nd Avenue
CITY/STATE/ZIP: Miami, FL 33126
LESSOR: NCR Credit Corp.
ADDRESS: 9797 Springboro Pike, Miamisburg, OH 45342
LEASE NUMBER: 4057
SCHEDULE NUMBER: 00060
SELLER: Teledata Concepts, Glidden Electronics, Inc.,
Execusoft Inc., and System Builder Corporation
DESCRIPTION OF ITEMS TO BE LEASED (THE EQUIPMENT): 3333, Modems,
Phone System, Scanners, and Consulting
TOTAL PRICE INCLUDING INSTALLATION/ONE-TIME CHARGES: $144,444.84
TOTAL PURCHASE PRICE (SUM OF TOTAL PRICES INCLUDING
INSTALLATION/ONE-TIME CHARGES): $144,444.84
OPTION A: ............................. YES [X] NO [ ]
Lessee selects a fair market value purchase
option and a fair rental value renewal option.
OPTION B: ............................. YES [ ] NO [X]
Lessee selects (i) a fixed price purchase option
of either $ n/a or n/a % of the Total Purchase Price
and (ii) a fixed price renewal option of n/a %
of the periodic Rental Payment.
THE TERMS AND CONDITIONS OF THE FOREGOING OPTIONS AND OTHER
IMPORTANT PROVISIONS ARE SET FORTH ON THE BACK OF THIS SCHEDULE.
PAYMENT IN ARREARS .................... YES [ ]
If this payments in arrears option is selected, Lessee shall pay Lessor
the first Rental Payment for the Equipment on the last day of the first
Rental Payment Period, which shall begin at Lessor's option on either the
Commencement Date or the first day of the month following the month in
which the Commencement Date occurs, and shall pay Lessor the remaining
periodic Rental Payments on or before the last day of each subsequent
Rental Payment Period.
EQUIPMENT LOCATION: See Attached
ADVANCE RENT: $3,199.45
RENTAL PAYMENT: $3,199.45
RENTAL PAYMENT PERIOD: Monthly
LATEST COMMENCEMENT DATE: Base Term Commencement Date 4/1/95
LENGTH OF INITIAL TERM: Base Term of 48 Months
THIS SCHEDULE SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF THE
MASTER EQUIPMENT LEASE AGREEMENT REFERENCED BY THE LEASE NUMBER SPECIFIED
ABOVE (AGREEMENT) BY AND BETWEEN LESSEE, AS LESSEE, AND LESSOR OR
AT&T CAPITAL CORPORATION OR ANY AFFILIATE OR SUBSIDIARY THEREOF.
AS LESSOR, AND BY THE TERMS AND CONDITIONS SET FORTH ON THE FRONT AND
BACK OF THIS SCHEDULE, PURSUANT TO SUCH TERMS AND CONDITIONS (WHICH
LESSEE ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS), LESSEE AGREES
TO LEASE FROM LESSOR (AS SPECIFIED BELOW) AND LESSOR AGREES TO LEASE
TO LESSEE THE ABOVE REFERENCED EQUIPMENT. IT IS UNDERSTOOD AND AGREED
THAT THE TERMS AND CONDITIONS OF THIS SCHEDULE MAY BE DIFFERENT FROM
THE TERMS AND CONDITIONS OF PRIOR SCHEDULES AND THAT ANY ASSIGNMENT
OR TRANSFER PURSUANT TO SECTION 23 OF THE AGREEMENT BY LESSOR OR ANY
ASSIGNEE SHALL NOT MATERIALLY CHANGE LESSEE'S OBLIGATIONS HEREUNDER.
LESSEE REPRESENTS AND WARRANTS THAT IT SHALL LOOK ONLY TO THE SELLER
FOR ANY AND ALL CLAIMS AND WARRANTIES RELATING TO THE EQUIPMENT AND
THAT IT EITHER HAS REVIEWED, APPROVED AND RECEIVED A COPY OF THE
APPLICABLE PURCHASE DOCUMENTS OR HAS BEEN INFORMED BY LESSOR THAT IT
MAY HAVE RIGHTS UNDER THE PURCHASE DOCUMENTS AND MAY CONTACT SELLER FOR
A DESCRIPTION OF SUCH RIGHTS TO THE EXTENT PERMITTED BY APPLICABLE LAW.
LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON LESSEE BY
ARTICLE 2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUE OR OTHERWISE THAT MAY LIMIT OR MODIFY THE LESSOR'S RIGHTS AS
DESCRIBED IN THE AGREEMENT, THIS SCHEDULE OR ANY OTHER FUNDAMENTAL
AGREEMENT (AS DEFINED IN THE AGREEMENT).
SPEC'S MUSIC, INC.
- -------------------------------
LESSEE
BY: X /s/ PETER BLEI
- -------------------------------
LESSEE AUTHORIZED SIGNATURE
Peter Blei, VP & CFO
- -------------------------------
PRINT NAME AND TITLE
4/5/95
- -------------------------------
DATE
NCR CREDIT CORP.
BY: /s/ JAMES SOUTHERN
- --------------------------------
LESSOR AUTHORIZED SIGNATURE
James Southern
- --------------------------------
PRINT NAME AND TITLE
5/3/95
- --------------------------------
DATE
LESSEE'S COPY
<PAGE>
AT&T CAPITAL CORPORATION
MASTER EQUIPMENT
LEASE AGREEMENT
SCHEDULE
LESSEE: Spec's Music, Inc.
STREET ADDRESS: 1666 Northwest 82nd Avenue
CITY/STATE/ZIP: Miami, FL 33126
LESSOR: NCR Credit Corp.
ADDRESS: 9797 Springboro Pike, Miamisburg, OH 45342
LEASE NUMBER: 4057
SCHEDULE NUMBER: 00050
SELLER: A&T Global Information Solutions
DESCRIPTION OF ITEMS TO BE LEASED (THE EQUIPMENT): 7450, 7890,
and 5900 Systems
TOTAL PRICE INCLUDING INSTALLATION/ONE-TIME CHARGES: $98,432.46
TOTAL PURCHASE PRICE (SUM OF TOTAL PRICES INCLUDING
INSTALLATION/ONE-TIME CHARGES): $98,432.46
OPTION A: ............................. YES [X] NO [ ]
Lessee selects a fair market value purchase
option and a fair rental value renewal option.
OPTION B: ............................. YES [ ] NO [X]
Lessee selects (i) a fixed price purchase option
of either $ n/a or n/a % of the Total Purchase Price
and (ii) a fixed price renewal option of n/a %
of the periodic Rental Payment.
THE TERMS AND CONDITIONS OF THE FOREGOING OPTIONS AND OTHER
IMPORTANT PROVISIONS ARE SET FORTH ON THE BACK OF THIS SCHEDULE.
PAYMENT IN ARREARS .................... YES [ ]
If this payments in arrears option is selected, Lessee shall pay Lessor
the first Rental Payment for the Equipment on the last day of the first
Rental Payment Period, which shall begin at Lessor's option on either the
Commencement Date or the first day of the month following the month in
which the Commencement Date occurs, and shall pay Lessor the remaining
periodic Rental Payments on or before the last day of each subsequent
Rental Payment Period.
EQUIPMENT LOCATION: 1666 Northwest 82nd Avenue
Miami, FL 33126
ADVANCE RENT: $2,180.28
RENTAL PAYMENT: $2,180.28
RENTAL PAYMENT PERIOD: Monthly
LATEST COMMENCEMENT DATE: Base Term Commencement Date 4/1/95
LENGTH OF INITIAL TERM: Base Term of 48 Months
THIS SCHEDULE SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF THE
MASTER EQUIPMENT LEASE AGREEMENT REFERENCED BY THE LEASE NUMBER SPECIFIED
ABOVE (AGREEMENT) BY AND BETWEEN LESSEE, AS LESSEE, AND LESSOR OR
AT&T CAPITAL CORPORATION OR ANY AFFILIATE OR SUBSIDIARY THEREOF.
AS LESSOR, AND BY THE TERMS AND CONDITIONS SET FORTH ON THE FRONT AND
BACK OF THIS SCHEDULE, PURSUANT TO SUCH TERMS AND CONDITIONS (WHICH
LESSEE ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS), LESSEE AGREES
TO LEASE FROM LESSOR (AS SPECIFIED BELOW) AND LESSOR AGREES TO LEASE
TO LESSEE THE ABOVE REFERENCED EQUIPMENT. IT IS UNDERSTOOD AND AGREED
THAT THE TERMS AND CONDITIONS OF THIS SCHEDULE MAY BE DIFFERENT FROM
THE TERMS AND CONDITIONS OF PRIOR SCHEDULES AND THAT ANY ASSIGNMENT
OR TRANSFER PURSUANT TO SECTION 23 OF THE AGREEMENT BY LESSOR OR ANY
ASSIGNEE SHALL NOT MATERIALLY CHANGE LESSEE'S OBLIGATIONS HEREUNDER.
LESSEE REPRESENTS AND WARRANTS THAT IT SHALL LOOK ONLY TO THE SELLER
FOR ANY AND ALL CLAIMS AND WARRANTIES RELATING TO THE EQUIPMENT AND
THAT IT EITHER HAS REVIEWED, APPROVED AND RECEIVED A COPY OF THE
APPLICABLE PURCHASE DOCUMENTS OR HAS BEEN INFORMED BY LESSOR THAT IT
MAY HAVE RIGHTS UNDER THE PURCHASE DOCUMENTS AND MAY CONTACT SELLER FOR
A DESCRIPTION OF SUCH RIGHTS TO THE EXTENT PERMITTED BY APPLICABLE LAW.
LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON LESSEE BY
ARTICLE 2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUE OR OTHERWISE THAT MAY LIMIT OR MODIFY THE LESSOR'S RIGHTS AS
DESCRIBED IN THE AGREEMENT, THIS SCHEDULE OR ANY OTHER FUNDAMENTAL
AGREEMENT (AS DEFINED IN THE AGREEMENT).
SPEC'S MUSIC, INC.
- -------------------------------
LESSEE
BY: X /s/ PETER BLEI
- -------------------------------
LESSEE AUTHORIZED SIGNATURE
Peter Blei, VP & CFO
- -------------------------------
PRINT NAME AND TITLE
4/5/95
- -------------------------------
DATE
NCR CREDIT CORP.
BY: /s/ JAMES SOUTHERN
- --------------------------------
LESSOR AUTHORIZED SIGNATURE
James Southern
- --------------------------------
PRINT NAME AND TITLE
5/3/95
- --------------------------------
DATE
LESSEE'S COPY
<PAGE>
AT&T CAPITAL CORPORATION
MASTER EQUIPMENT
LEASE AGREEMENT
SCHEDULE
LESSEE: Spec's Music, Inc.
STREET ADDRESS: 1666 Northwest 82nd Avenue
CITY/STATE/ZIP: Miami, FL 33126
LESSOR: NCR Credit Corp.
ADDRESS: 9797 Springboro Pike, Miamisburg, OH 45342
LEASE NUMBER: 100036
SCHEDULE NUMBER: 00040
SELLER: AT&T Global Information Solutions
DESCRIPTION OF ITEMS TO BE LEASED (THE EQUIPMENT): NCR 7450, NCR 7890,
& NCR 5900 Systems
TOTAL PRICE INCLUDING INSTALLATION/ONE-TIME CHARGES: $51,278.78
TOTAL PURCHASE PRICE (SUM OF TOTAL PRICES INCLUDING
INSTALLATION/ONE-TIME CHARGES): $51,278.78
OPTION A: ............................. YES [X] NO [ ]
Lessee selects a fair market value purchase
option and a fair rental value renewal option.
OPTION B: ............................. YES [ ] NO [X]
Lessee selects (i) a fixed price purchase option
of either $ n/a or n/a % of the Total Purchase Price
and (ii) a fixed price renewal option of n/a %
of the periodic Rental Payment.
THE TERMS AND CONDITIONS OF THE FOREGOING OPTIONS AND OTHER
IMPORTANT PROVISIONS ARE SET FORTH ON THE BACK OF THIS SCHEDULE.
PAYMENT IN ARREARS .................... YES [ ]
If this payments in arrears option is selected, Lessee shall pay Lessor
the first Rental Payment for the Equipment on the last day of the first
Rental Payment Period, which shall begin at Lessor's option on either the
Commencement Date or the first day of the month following the month in
which the Commencement Date occurs, and shall pay Lessor the remaining
periodic Rental Payments on or before the last day of each subsequent
Rental Payment Period.
EQUIPMENT LOCATION: 1666 Northwest 82nd Avenue
Miami, FL 33126
7795 West Flagler Street
Miami, FL 33144
ADVANCE RENT: $1,148.64
RENTAL PAYMENT: $1,148.64
RENTAL PAYMENT PERIOD: Monthly
LATEST COMMENCEMENT DATE: Base Term Commencement Date 7/1/95
LENGTH OF INITIAL TERM: Base Term of 48 Months
THIS SCHEDULE SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF THE
MASTER EQUIPMENT LEASE AGREEMENT REFERENCED BY THE LEASE NUMBER SPECIFIED
ABOVE (AGREEMENT) BY AND BETWEEN LESSEE, AS LESSEE, AND LESSOR OR
AT&T CAPITAL CORPORATION OR ANY AFFILIATE OR SUBSIDIARY THEREOF.
AS LESSOR, AND BY THE TERMS AND CONDITIONS SET FORTH ON THE FRONT AND
BACK OF THIS SCHEDULE, PURSUANT TO SUCH TERMS AND CONDITIONS (WHICH
LESSEE ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS), LESSEE AGREES
TO LEASE FROM LESSOR (AS SPECIFIED BELOW) AND LESSOR AGREES TO LEASE
TO LESSEE THE ABOVE REFERENCED EQUIPMENT. IT IS UNDERSTOOD AND AGREED
THAT THE TERMS AND CONDITIONS OF THIS SCHEDULE MAY BE DIFFERENT FROM
THE TERMS AND CONDITIONS OF PRIOR SCHEDULES AND THAT ANY ASSIGNMENT
OR TRANSFER PURSUANT TO SECTION 23 OF THE AGREEMENT BY LESSOR OR ANY
ASSIGNEE SHALL NOT MATERIALLY CHANGE LESSEE'S OBLIGATIONS HEREUNDER.
LESSEE REPRESENTS AND WARRANTS THAT IT SHALL LOOK ONLY TO THE SELLER
FOR ANY AND ALL CLAIMS AND WARRANTIES RELATING TO THE EQUIPMENT AND
THAT IT EITHER HAS REVIEWED, APPROVED AND RECEIVED A COPY OF THE
APPLICABLE PURCHASE DOCUMENTS OR HAS BEEN INFORMED BY LESSOR THAT IT
MAY HAVE RIGHTS UNDER THE PURCHASE DOCUMENTS AND MAY CONTACT SELLER FOR
A DESCRIPTION OF SUCH RIGHTS TO THE EXTENT PERMITTED BY APPLICABLE LAW.
LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON LESSEE BY
ARTICLE 2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUE OR OTHERWISE THAT MAY LIMIT OR MODIFY THE LESSOR'S RIGHTS AS
DESCRIBED IN THE AGREEMENT, THIS SCHEDULE OR ANY OTHER FUNDAMENTAL
AGREEMENT (AS DEFINED IN THE AGREEMENT).
SPEC'S MUSIC, INC.
- -------------------------------
LESSEE
BY: X /s/ PETER BLEI
- -------------------------------
LESSEE AUTHORIZED SIGNATURE
Peter Blei, VP & CFO
- -------------------------------
PRINT NAME AND TITLE
[illegible]
- -------------------------------
DATE
NCR CREDIT CORP.
BY: /s/ [illegible]
- --------------------------------
LESSOR AUTHORIZED SIGNATURE
[illegible]
- --------------------------------
PRINT NAME AND TITLE
[illegible]
- --------------------------------
DATE
LESSEE'S COPY
<PAGE>
AT&T CAPITAL CORPORATION
MASTER EQUIPMENT
LEASE AGREEMENT
SCHEDULE
LESSEE: Spec's Music, Inc.
STREET ADDRESS: 1666 Northwest 82nd Avenue
CITY/STATE/ZIP: Miami, FL 33126
LESSOR: NCR Credit Corp.
ADDRESS: 9797 Springboro Pike, Miamisburg, OH 45342
LEASE NUMBER: 100036
SCHEDULE NUMBER: 00030
SELLER: Applied Retail Solutions, System Builder Corporation, Data,
General Corporation, Teledata Concepts, & Glidden Electronics
DESCRIPTION OF ITEMS TO BE LEASED (THE EQUIPMENT): UPS, IBM Terminals,
Modems 3333, HP LaserJet, Pinpoint Consulting, Phone System,
Custom Software Development
TOTAL PRICE INCLUDING INSTALLATION/ONE-TIME CHARGES: $199,581.86
TOTAL PURCHASE PRICE (SUM OF TOTAL PRICES INCLUDING
INSTALLATION/ONE-TIME CHARGES): $199,581.86
OPTION A: ............................. YES [X] NO [ ]
Lessee selects a fair market value purchase
option and a fair rental value renewal option.
OPTION B: ............................. YES [ ] NO [X]
Lessee selects (i) a fixed price purchase option
of either $ n/a or n/a % of the Total Purchase Price
and (ii) a fixed price renewal option of n/a %
of the periodic Rental Payment.
THE TERMS AND CONDITIONS OF THE FOREGOING OPTIONS AND OTHER
IMPORTANT PROVISIONS ARE SET FORTH ON THE BACK OF THIS SCHEDULE.
PAYMENT IN ARREARS .................... YES [ ]
If this payments in arrears option is selected, Lessee shall pay Lessor
the first Rental Payment for the Equipment on the last day of the first
Rental Payment Period, which shall begin at Lessor's option on either the
Commencement Date or the first day of the month following the month in
which the Commencement Date occurs, and shall pay Lessor the remaining
periodic Rental Payments on or before the last day of each subsequent
Rental Payment Period.
EQUIPMENT LOCATION: See Attached
ADVANCE RENT: $4,470.63
RENTAL PAYMENT: $4,470.63
RENTAL PAYMENT PERIOD: Monthly
LATEST COMMENCEMENT DATE: Base Term Commencement Date 1/1/95
LENGTH OF INITIAL TERM: Base Term of 48 Months
THIS SCHEDULE SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF THE
MASTER EQUIPMENT LEASE AGREEMENT REFERENCED BY THE LEASE NUMBER SPECIFIED
ABOVE (AGREEMENT) BY AND BETWEEN LESSEE, AS LESSEE, AND LESSOR OR
AT&T CAPITAL CORPORATION OR ANY AFFILIATE OR SUBSIDIARY THEREOF.
AS LESSOR, AND BY THE TERMS AND CONDITIONS SET FORTH ON THE FRONT AND
BACK OF THIS SCHEDULE, PURSUANT TO SUCH TERMS AND CONDITIONS (WHICH
LESSEE ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS), LESSEE AGREES
TO LEASE FROM LESSOR (AS SPECIFIED BELOW) AND LESSOR AGREES TO LEASE
TO LESSEE THE ABOVE REFERENCED EQUIPMENT. IT IS UNDERSTOOD AND AGREED
THAT THE TERMS AND CONDITIONS OF THIS SCHEDULE MAY BE DIFFERENT FROM
THE TERMS AND CONDITIONS OF PRIOR SCHEDULES AND THAT ANY ASSIGNMENT
OR TRANSFER PURSUANT TO SECTION 23 OF THE AGREEMENT BY LESSOR OR ANY
ASSIGNEE SHALL NOT MATERIALLY CHANGE LESSEE'S OBLIGATIONS HEREUNDER.
LESSEE REPRESENTS AND WARRANTS THAT IT SHALL LOOK ONLY TO THE SELLER
FOR ANY AND ALL CLAIMS AND WARRANTIES RELATING TO THE EQUIPMENT AND
THAT IT EITHER HAS REVIEWED, APPROVED AND RECEIVED A COPY OF THE
APPLICABLE PURCHASE DOCUMENTS OR HAS BEEN INFORMED BY LESSOR THAT IT
MAY HAVE RIGHTS UNDER THE PURCHASE DOCUMENTS AND MAY CONTACT SELLER FOR
A DESCRIPTION OF SUCH RIGHTS TO THE EXTENT PERMITTED BY APPLICABLE LAW.
LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON LESSEE BY
ARTICLE 2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUE OR OTHERWISE THAT MAY LIMIT OR MODIFY THE LESSOR'S RIGHTS AS
DESCRIBED IN THE AGREEMENT, THIS SCHEDULE OR ANY OTHER FUNDAMENTAL
AGREEMENT (AS DEFINED IN THE AGREEMENT).
SPEC'S MUSIC, INC.
- -------------------------------
LESSEE
BY: X /s/ PETER BLEI
- -------------------------------
LESSEE AUTHORIZED SIGNATURE
Peter Blei, VP & CFO
- -------------------------------
PRINT NAME AND TITLE
[illegible]
- -------------------------------
DATE
NCR CREDIT CORP.
BY: /s/ KELLY A. EARHART
- --------------------------------
LESSOR AUTHORIZED SIGNATURE
Kelly A. Earhart, Credit Analyst
- --------------------------------
PRINT NAME AND TITLE
2/10/95
- --------------------------------
DATE
LESSEE'S COPY
<PAGE>
AT&T CAPITAL CORPORATION
MASTER EQUIPMENT
LEASE AGREEMENT
SCHEDULE
LESSEE: Spec's Music, Inc.
STREET ADDRESS: 1666 Northwest 82nd Avenue
CITY/STATE/ZIP: Miami, FL 33126
LESSOR: NCR Credit Corp.
ADDRESS: 9797 Springboro Pike, Miamisburg, OH 45342
LEASE NUMBER: I100036
SCHEDULE NUMBER: 00020
SELLER: (See Attached Sellers)
DESCRIPTION OF ITEMS TO BE LEASED (THE EQUIPMENT): (See Attached)
TOTAL PRICE INCLUDING INSTALLATION/ONE-TIME CHARGES: $708,192.09
TOTAL PURCHASE PRICE (SUM OF TOTAL PRICES INCLUDING
INSTALLATION/ONE-TIME CHARGES): $708,192.09
OPTION A: ............................. YES [X] NO [ ]
Lessee selects a fair market value purchase
option and a fair rental value renewal option.
OPTION B: ............................. YES [ ] NO [X]
Lessee selects (i) a fixed price purchase option
of either $ n/a or n/a % of the Total Purchase Price
and (ii) a fixed price renewal option of n/a %
of the periodic Rental Payment.
THE TERMS AND CONDITIONS OF THE FOREGOING OPTIONS AND OTHER
IMPORTANT PROVISIONS ARE SET FORTH ON THE BACK OF THIS SCHEDULE.
PAYMENT IN ARREARS .................... YES [ ]
If this payments in arrears option is selected, Lessee shall pay Lessor
the first Rental Payment for the Equipment on the last day of the first
Rental Payment Period, which shall begin at Lessor's option on either the
Commencement Date or the first day of the month following the month in
which the Commencement Date occurs, and shall pay Lessor the remaining
periodic Rental Payments on or before the last day of each subsequent
Rental Payment Period.
EQUIPMENT LOCATION: Spec's Music, Inc.
1666 Northwest 82nd Avenue
Miami, FL 33126
ADVANCE RENT: $15,530.06
RENTAL PAYMENT: $15,530.06
RENTAL PAYMENT PERIOD: Monthly
LATEST COMMENCEMENT DATE: October 1, 1994
LENGTH OF INITIAL TERM: Base Term of 48 Months
THIS SCHEDULE SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF THE
MASTER EQUIPMENT LEASE AGREEMENT REFERENCED BY THE LEASE NUMBER SPECIFIED
ABOVE (AGREEMENT) BY AND BETWEEN LESSEE, AS LESSEE, AND LESSOR OR
AT&T CAPITAL CORPORATION OR ANY AFFILIATE OR SUBSIDIARY THEREOF.
AS LESSOR, AND BY THE TERMS AND CONDITIONS SET FORTH ON THE FRONT AND
BACK OF THIS SCHEDULE, PURSUANT TO SUCH TERMS AND CONDITIONS (WHICH
LESSEE ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS), LESSEE AGREES
TO LEASE FROM LESSOR (AS SPECIFIED BELOW) AND LESSOR AGREES TO LEASE
TO LESSEE THE ABOVE REFERENCED EQUIPMENT. IT IS UNDERSTOOD AND AGREED
THAT THE TERMS AND CONDITIONS OF THIS SCHEDULE MAY BE DIFFERENT FROM
THE TERMS AND CONDITIONS OF PRIOR SCHEDULES AND THAT ANY ASSIGNMENT
OR TRANSFER PURSUANT TO SECTION 23 OF THE AGREEMENT BY LESSOR OR ANY
ASSIGNEE SHALL NOT MATERIALLY CHANGE LESSEE'S OBLIGATIONS HEREUNDER.
LESSEE REPRESENTS AND WARRANTS THAT IT SHALL LOOK ONLY TO THE SELLER
FOR ANY AND ALL CLAIMS AND WARRANTIES RELATING TO THE EQUIPMENT AND
THAT IT EITHER HAS REVIEWED, APPROVED AND RECEIVED A COPY OF THE
APPLICABLE PURCHASE DOCUMENTS OR HAS BEEN INFORMED BY LESSOR THAT IT
MAY HAVE RIGHTS UNDER THE PURCHASE DOCUMENTS AND MAY CONTACT SELLER FOR
A DESCRIPTION OF SUCH RIGHTS TO THE EXTENT PERMITTED BY APPLICABLE LAW.
LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON LESSEE BY
ARTICLE 2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUE OR OTHERWISE THAT MAY LIMIT OR MODIFY THE LESSOR'S RIGHTS AS
DESCRIBED IN THE AGREEMENT, THIS SCHEDULE OR ANY OTHER FUNDAMENTAL
AGREEMENT (AS DEFINED IN THE AGREEMENT).
SPEC'S MUSIC, INC.
- -------------------------------
LESSEE
BY: X /s/ PETER BLEI
- -------------------------------
LESSEE AUTHORIZED SIGNATURE
Peter Blei, VP & CFO
- -------------------------------
PRINT NAME AND TITLE
11/7/94
- -------------------------------
DATE
NCR CREDIT CORP.
BY: /s/ [illegible]
- --------------------------------
LESSOR AUTHORIZED SIGNATURE
[illegible]
- --------------------------------
PRINT NAME AND TITLE
2/20/95
- --------------------------------
DATE
LESSEE'S COPY
<PAGE>
AT&T CAPITAL CORPORATION
MASTER EQUIPMENT
LEASE AGREEMENT
SCHEDULE
LESSEE: Spec's Music, Inc.
STREET ADDRESS: 1666 Northwest 82nd Avenue
CITY/STATE/ZIP: Miami, FL 33126
LESSOR: NCR Credit Corp.
ADDRESS: 9797 Springboro Pike, Miamisburg, OH 45342
LEASE NUMBER: I100036
SCHEDULE NUMBER: 00010
SELLER: (See Attached) Sale Lease Back
DESCRIPTION OF ITEMS TO BE LEASED (THE EQUIPMENT): Sale Lease Back
(See Attached)
TOTAL PRICE INCLUDING INSTALLATION/ONE-TIME CHARGES: $361,472.56
TOTAL PURCHASE PRICE (SUM OF TOTAL PRICES INCLUDING
INSTALLATION/ONE-TIME CHARGES): $361,472.56
OPTION A: ............................. YES [X] NO [ ]
Lessee selects a fair market value purchase
option and a fair rental value renewal option.
OPTION B: ............................. YES [ ] NO [X]
Lessee selects (i) a fixed price purchase option
of either $ n/a or n/a % of the Total Purchase Price
and (ii) a fixed price renewal option of n/a %
of the periodic Rental Payment.
THE TERMS AND CONDITIONS OF THE FOREGOING OPTIONS AND OTHER
IMPORTANT PROVISIONS ARE SET FORTH ON THE BACK OF THIS SCHEDULE.
PAYMENT IN ARREARS .................... YES [ ]
If this payments in arrears option is selected, Lessee shall pay Lessor
the first Rental Payment for the Equipment on the last day of the first
Rental Payment Period, which shall begin at Lessor's option on either the
Commencement Date or the first day of the month following the month in
which the Commencement Date occurs, and shall pay Lessor the remaining
periodic Rental Payments on or before the last day of each subsequent
Rental Payment Period.
EQUIPMENT LOCATION: Spec's Music, Inc.
1666 Northwest 82nd Avenue
Miami, FL 33126
ADVANCE RENT: $7,912.64
RENTAL PAYMENT: $7,912.64
RENTAL PAYMENT PERIOD: Monthly
LATEST COMMENCEMENT DATE: October 1, 1994
LENGTH OF INITIAL TERM: Base Term of 48 Months
THIS SCHEDULE SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF THE
MASTER EQUIPMENT LEASE AGREEMENT REFERENCED BY THE LEASE NUMBER SPECIFIED
ABOVE (AGREEMENT) BY AND BETWEEN LESSEE, AS LESSEE, AND LESSOR OR
AT&T CAPITAL CORPORATION OR ANY AFFILIATE OR SUBSIDIARY THEREOF.
AS LESSOR, AND BY THE TERMS AND CONDITIONS SET FORTH ON THE FRONT AND
BACK OF THIS SCHEDULE, PURSUANT TO SUCH TERMS AND CONDITIONS (WHICH
LESSEE ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS), LESSEE AGREES
TO LEASE FROM LESSOR (AS SPECIFIED BELOW) AND LESSOR AGREES TO LEASE
TO LESSEE THE ABOVE REFERENCED EQUIPMENT. IT IS UNDERSTOOD AND AGREED
THAT THE TERMS AND CONDITIONS OF THIS SCHEDULE MAY BE DIFFERENT FROM
THE TERMS AND CONDITIONS OF PRIOR SCHEDULES AND THAT ANY ASSIGNMENT
OR TRANSFER PURSUANT TO SECTION 23 OF THE AGREEMENT BY LESSOR OR ANY
ASSIGNEE SHALL NOT MATERIALLY CHANGE LESSEE'S OBLIGATIONS HEREUNDER.
LESSEE REPRESENTS AND WARRANTS THAT IT SHALL LOOK ONLY TO THE SELLER
FOR ANY AND ALL CLAIMS AND WARRANTIES RELATING TO THE EQUIPMENT AND
THAT IT EITHER HAS REVIEWED, APPROVED AND RECEIVED A COPY OF THE
APPLICABLE PURCHASE DOCUMENTS OR HAS BEEN INFORMED BY LESSOR THAT IT
MAY HAVE RIGHTS UNDER THE PURCHASE DOCUMENTS AND MAY CONTACT SELLER FOR
A DESCRIPTION OF SUCH RIGHTS TO THE EXTENT PERMITTED BY APPLICABLE LAW.
LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON LESSEE BY
ARTICLE 2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUE OR OTHERWISE THAT MAY LIMIT OR MODIFY THE LESSOR'S RIGHTS AS
DESCRIBED IN THE AGREEMENT, THIS SCHEDULE OR ANY OTHER FUNDAMENTAL
AGREEMENT (AS DEFINED IN THE AGREEMENT).
SPEC'S MUSIC, INC.
- -------------------------------
LESSEE
BY: X /s/ PETER BLEI
- -------------------------------
LESSEE AUTHORIZED SIGNATURE
Peter Blei, VP & CFO
- -------------------------------
PRINT NAME AND TITLE
11/7/94
- -------------------------------
DATE
NCR CREDIT CORP.
BY: /s/ KELLY A. EARHART
- --------------------------------
LESSOR AUTHORIZED SIGNATURE
Kelly A. Earhart, Credit Analyst
- --------------------------------
PRINT NAME AND TITLE
2/10/95
- --------------------------------
DATE
LESSEE'S COPY
NationsBank
PO Box 81590
Tampa, Florida 33631-3590
November 2, 1995
Spec's Music, Inc.
1666 N.W. 82nd Avenue
Miami, FL 33126
Attention: Anne Spector Lieff, President
Re: Credit Agreement by and between Spec's Music, Inc.
("Borrower") and NationsBank of Florida, N.A. ("Lender"),
dated as of September 20, 1994, as amended by letter
agreement dated July 27, 1995 (the "Credit Agreement")
Ladies & Gentlemen:
Borrower has requested that the Credit Agreement be amended or modified
in several respects. In consideration for the Lender agreeing to the
modifications and amendments described herein, and for other good and valuable
consideration, Borrower and Lender agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, all capitalized
terms used herein shall have the same meaning given to such terms in the Credit
Agreement.
2. EXISTING INDEBTEDNESS.
(a) The outstanding aggregate principal amount of all Advances
under the Revolving Credit is $11,800,000.00. As of the date hereof, accrued
interest under the Revolving Credit is $64,071.92.
(b) The amount of all standby letters of credit issued by Lender,
on behalf of and for the account of Borrower under the Standby L/C Line is
$881,375.00.
(c) Borrower acknowledges that it is indebted to Lender under the
Revolving Credit and the Standby L/C Line, as described above, that there are no
defenses or offsets claimed or existing thereon, and that no claims or
counterclaims exist against Lender with respect to the Loan Documents or
Borrower's obligations thereunder. Borrower further expressly waives and
releases in full any claim, counterclaim, defense or setoff (whether or not now
known to it) which it may have with respect to any of its indebtedness or
obligations under the Loan Documents. Borrower understands that this section
2(c) is a material inducement to Lender's agreement to enter into the
modification described herein.
<PAGE>
November 2, 1995
Page 2
3. TANGIBLE NET WORTH. Effective as of July 31, 1995, Section 7.12
of the Credit Agreement is hereby deleted in its entirety and replaced with the
following:
"7.12 TANGIBLE NET WORTH. At all times, achieve and maintain
a Tangible Net Worth of not less than Sixteen Million Dollars ($16,000,000)."
4. FIXED CHARGE COVERAGE RATIO. Effective as of July 31, 1995,
Section 7.14 of the Credit Agreement is hereby deleted in its entirety and
replaced with the following:
"7.14 FIXED CHARGE COVERAGE RATIO. From and after November
30, 1995, achieve and maintain a Fixed Charge Coverage Ratio of not
less than 1.2 to 1.0. As used herein the Fixed Charge Coverage
Ratio shall be defined as follows: [net profit before interest
expense, taxes, and lease expense] divided by [the sum of interest
expense plus lease expense]. The Fixed Charge Coverage Ratio shall
be computed each month on a rolling twelve (12) month basis,
utilizing Borrower's financial results for the immediately
preceding twelve (12) months."
5. AMOUNTS OUTSTANDING. Section 2.1(a) of the Credit Agreement is
hereby amended and modified, so that the second paragraph thereof is deleted in
its entirety and replaced with the following:
"PERIOD AMOUNT OF REVOLVING CREDIT
Commencing the Closing Date Fifteen Million Dollars
through October 31, 1995 ($15,000,000)
October 31, 1995 through Fourteen Million Five
September 20, 1998 Hundred Thousand Dollars
($14,500,000)
September 20, 1998 through Thirteen Million Five Hundred
September 20, 1999 Thousand Dollars ($13,500,000)
September 20, 1999 through Twelve Million Dollars
September 20, 2000 ($12,000,000)
September 20, 2000 through Ten Million Dollars
September 20, 2001 ($10,000,000)
September 20, 2001 through Nine Million Dollars
September 20, 2002 ($9,000,000)
<PAGE>
November 2, 1995
Page 3
September 20, 2002 through Seven Million Five Hundred
September 20, 2003 Thousand Dollars ($7,500,000)
September 20, 2003 through Six Million Dollars
September 20, 2004 ($6,000,000)"
6. MONTHLY REPORTING. Subsection 7.4(b) is hereby deleted in its
entirety and replaced with the following:
"(b) as soon as available, but in any event not later than thirty
(30) days after the end of each calendar month, unaudited financial
statements of the Borrower, including a balance sheet of the
Borrower as at the end of each month, and related statements of
income and retained earnings and all schedules thereto, all for the
period from the beginning of the then current fiscal year to the
end of such calendar month, the financial statements of the
Borrower setting forth in each case corresponding figures for the
like period of the preceding fiscal year; all in reasonable detail,
prepared in accordance with generally accepted accounting
principles applied on a basis consistently maintained throughout
the period involved and with prior periods."
7. DEFAULTS. Subsection 9.1(c) of the Credit Agreement is hereby
deleted it in its entirety and replaced with the following:
"(c) any default shall occur on the part of the Borrower in the due
observance or performance of any covenant, agreement or other
provision of this Agreement or any of the Loan Documents, other
than for the payment of money, which default remains uncured for a
period of thirty (30) consecutive days; PROVIDED, HOWEVER, that in
the case of defaults under or pursuant to Sections 7.11, 7.12,
7.13, 7.14, or 7.15, the default shall be allowed to remain uncured
only for a period of five (5) consecutive days."
8. NO NOVATION; RATIFICATION. This agreement is a modification
agreement and it is not a novation of the existing Loan Documents. The parties
agree that except as modified herein, all terms, conditions, rights and
obligations under the Loan Documents (as amended by the July 27, 1995, letter
agreement) are hereby reaffirmed and shall otherwise remain in full force and
effect as originally written and agreed. The Loan Documents, this agreement and
any document entered into in connection herewith, shall be construed to give
Lender the greatest possible cumulative rights and remedies; should there be any
apparent conflict between the Loan Documents, this agreement or any other
agreement, this principle of construction shall be applied. In addition, in the
event of any apparent conflict or ambiguity between the Loan Documents and this
agreement, the terms and provisions and intent of this agreement shall govern.
<PAGE>
November 2, 1995
Page 4
9. COUNTERPARTS. This agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute one instrument.
If the foregoing accurately reflects our understanding, please sign below
indicating your acceptance thereof, which shall then constitute a modification
to the Credit Agreement.
Very truly yours,
NATIONSBANK OF FLORIDA, N.A.
By: /s/ CHRISTINE E. MOSS
-----------------------------
Christine E. Moss
Vice President
Agreed and Accepted this
6 day of November, 1995.
SPEC'S MUSIC, INC.
By: /s/ ANNE SPECTOR LIEFF
----------------------
Anne Spector Lieff
President
INDEPENDENT AUDITOR'S CONSENT AND REPORT SCHEDULE
Board of Directors and Shareholders
Spec's Music, Inc.
Miami, Florida
We consent to the incorporation by reference in Registration Statement No.
33-16778 of Spec's Music, Inc. on Form S-8 of our report dated October 6, 1995,
appearing in the Annual Report on Form 10-K of Spec's Music, Inc. for the year
ended July 31, 1995.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
November 10, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 552,224
<SECURITIES> 0
<RECEIVABLES> 722,945
<ALLOWANCES> 0
<INVENTORY> 24,464,990
<CURRENT-ASSETS> 27,574,865
<PP&E> 24,486,663
<DEPRECIATION> (7,899,637)
<TOTAL-ASSETS> 46,058,161
<CURRENT-LIABILITIES> 11,311,801
<BONDS> 11,434,732
<COMMON> 53,439
0
0
<OTHER-SE> 23,114,189
<TOTAL-LIABILITY-AND-EQUITY> 46,058,161
<SALES> 77,306,250
<TOTAL-REVENUES> 79,603,142
<CGS> 50,182,698
<TOTAL-COSTS> 51,196,768
<OTHER-EXPENSES> 26,337,806
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 410,297
<INCOME-PRETAX> 1,658,271
<INCOME-TAX> 626,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,032,271
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
