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 JUNE 30, 1995
[ ] 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 0-15194
SOUND ADVICE, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-1520531
- ------------------------------- ------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1901 TIGERTAIL BOULEVARD, DANIA, FLORIDA 33004
- ---------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 922-4434
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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TITLE OF CLASS
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [ ] NO [X]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K (17CFR 229.405) 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 THIS FORM 10-K [X]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant on September 19, 1995, based upon the closing
market price of the registrant's voting stock on the NASDAQ National Market on
September 19, 1995, as reported in THE WALL STREET JOURNAL, was approximately
$7,219,000.
The registrant had 3,728,894 shares of common stock, $.01 par value,
outstanding as of September 19, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
(Specific sections incorporated are identified under applicable items herein)
Certain portions of the registrant's Proxy Statement to be filed in
connection with its 1995 annual meeting of shareholders are incorporated by
reference in Part III of this report.
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TABLE OF CONTENTS
PAGE NO.
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PART I
ITEM 1. BUSINESS.................................................. 1
General.......................................... 1
Products......................................... 2
Marketing Strategy............................... 3
Advertising...................................... 4
Operations....................................... 6
Expansion........................................ 9
Seasonality...................................... 10
Servicemarks..................................... 11
Competition...................................... 11
Employees........................................ 11
ITEM 2. PROPERTIES................................................ 12
ITEM 3. LEGAL PROCEEDINGS......................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.......................................... 15
ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT...................... 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS........................... 17
ITEM 6. SELECTED FINANCIAL DATA................................... 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 21
Results of Operations............................ 21
Liquidity and Capital Resources.................. 25
Impact of Inflation and Foreign
Currency Fluctuations............................ 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............... 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.................... 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT............................................ 29
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ITEM 11. EXECUTIVE COMPENSATION.................................... 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..................................... 29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............ 29
PART IV 30
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K................................... 30
SIGNATURES 31
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PART I
ITEM 1. BUSINESS.
GENERAL
Sound Advice, Inc. (the "Registrant"), incorporated in Florida on March
12, 1974, is a full service specialty retailer of a broad range of high-quality,
upscale entertainment and consumer electronic products. As of June 30, 1995, the
Registrant operated 21 stores in Florida which sell home and car audio systems,
large screen televisions, video products, cellular telephones and other personal
electronics, such as personal computers, home telephones, answering machines and
hand held audio systems, car security systems, home entertainment furniture and
related customized services and accessories. In contrast to mass merchandisers
and discounters of consumer electronic products, the Registrant targets
customers seeking informed advice concerning product selection and system
integration as well as a broad selection of products incorporating the latest
technology.
The Registrant's net sales have increased from approximately $120
million to approximately $191 million during the past five years. The Registrant
attributes such growth to its marketing and operating strategies and product
selection. The Registrant's marketing strategy is to build customer satisfaction
and loyalty through its customer support program which includes a technically
proficient sales force and custom design, installation and repair services. The
Registrant's showrooms provide comfortable surroundings and contain
demonstration rooms and areas in its stores where customers are encouraged to
test and compare the products. In its stores, the Registrant emphasizes a broad
selection of higher-end and specialty brand consumer electronic products.
The Registrant's operating strategy is to cluster its stores in larger
markets and maximize selling space per store in order to achieve economies of
scale, as well as provide convenient locations for its customers. The
Registrant's stores are currently clustered in four areas in Florida, including
the Miami/Ft. Lauderdale/West Palm Beach area (the "East Coast Stores"), the
Tampa/St. Petersburg/Clearwater/Sarasota/Fort Myers area (the "West Coast
Stores"), the Orlando area (the "Central Florida Stores") and Jacksonville (the
"Jacksonville Stores"). In fiscal year 1995, the Registrant added one new West
Coast Store by opening a store in Fort Myers, Florida in November 1994 and
relocated one East Coast Store to a larger facility. As of this date, the
Registrant operates 21 stores.
During fiscal year 1994 the Registrant had commenced the establishment
of a dedicated communications area in certain of its stores, which by the end of
fiscal 1995 was part of 19 stores.
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During fiscal 1995 the Registrant added a personal computer and software
department to substantially all of its stores as part of its commencing to offer
personal computers, peripherals and multi-media products in the fall of 1994. It
also completed during fiscal year 1995 the establishment at 18 stores an area
where an on-site technician (a "quicktech") is available to answer technical
product questions of customers and to make adjustments, clean and make minor
repairs on products. The Registrant also commenced offering direct broadcast
satellite dishes in the fall of 1994.
The Registrant, as recently announced, has delayed expansion into the
Washington, D.C./Baltimore metropolitan area. It currently does not expect to
enter such market, if at all, until fiscal 1997. It currently plans to relocate
possibly one of its East Coast Stores and one of its West Coast stores during
fiscal year 1996. See "Expansion" in this ITEM 1. On October 13, 1995, the
Registrant completed the extension and refinancing of its senior credit facility
with NationsBank of Florida, N.A.. See "Liquidity and Capital Resources" in ITEM
7.
PRODUCTS
The Registrant offers its customers an extensive selection of
high-quality, brand-name entertainment and consumer electronic products,
including products incorporating the latest technology and not generally carried
by most of its competitors. In a typical store a customer can choose from more
than 2,200 products from approximately 180 manufacturers.
For the 1995 fiscal year the Registrant's products and services may be
grouped into home and car audio, television and video, service, installation and
product warranty, personal computer and miscellaneous products.
The home and car audio product group includes receivers, speakers,
audio compact disc players, cassette decks, turntables, tuners, equalizers,
signal processors, mini and normal sized pre-packaged audio systems, amplifiers,
car AM-FM radios, car antennas, security systems and radar detectors and audio
accessories.
The television and video product group includes stereo televisions,
large screen televisions, standard televisions, video recorders, video
camcorders, laser disc players, video enhancement devices, home theater systems,
direct broadcast satellite dishes and video accessories.
The service, installation and product warranty group includes car
stereo installation, custom home installation, repair services, delivery,
installation and extended warranty contracts offered by
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the Registrant for most of its audio, video, car stereo and personal electronics
merchandise.
The personal computer product group includes personal computers,
peripherals and multi-media products.
The miscellaneous product group includes personal and portable stereos,
answering machines, home telephones, hand held audio systems, organizers,
facsimile machines, equipment and activation fees for cellular telephone service
and home entertainment furniture.
The table below shows the approximate percentage of the Registrant's
sales for the fiscal years ended June 30, 1995, 1994 and 1993 attributable to
each of the foregoing product groups. Since in fiscal years prior to 1994 the
Registrant's products and services had been grouped into different product
groups for reporting purposes, the percentages below for fiscal year 1993
reflect the current presentation of product groupings. In addition, the personal
computer product group has been added in fiscal year 1995.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
PRODUCT GROUP 1995 1994 1993
- ------------- ---- ---- ----
<S> <C> <C> <C>
Home and Car Audio . . . . . . 39% 43% 43%
Television and Video . . . . 33% 36% 36%
Service, Installation and
Product Warranty . . . . . . 10% 11% 10%
Personal Computer . . . . . . 6% - -
Miscellaneous Products . . . . 12% 10% 11%
--- --- ---
Total . . . . . . . . . . . . 100% 100% 100%
--- --- ---
</TABLE>
The percentage of sales by each product group is affected by
promotional activities, consumer trends, store displays and the development of
new products and, thus, the current mix may not be indicative of the mix in
future years. See "Expansion" hereinbelow.
MARKETING STRATEGY
The Registrant views itself as being in a service business and
emphasizes to its sales personnel the need to provide personal attention and
assistance to each customer. The Registrant trains its sales personnel to assist
customers in their purchases by demonstrating products and providing information
with respect to features, price, quality and system integration. At each store,
segregated areas and displays of systems and products promote sales by enabling
sales personnel to demonstrate the use of systems and products and by permitting
customers to compare and test the
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performance and features of similar products. Consistent with this approach to
marketing, the Registrant over the last several years has expanded the size of
its showrooms and the number of demonstration areas per store to permit display
and demonstration of electronic and entertainment products and systems
(particularly higher quality systems and products incorporating the latest
technology and fully-integrated audio/video systems). In recent years, the
Registrant has introduced a full-service personal electronics center in its
stores. During fiscal 1994 it commenced the establishment of a dedicated
communications area in certain stores, which by the end of fiscal year 1995 was
part of 19 stores. During fiscal year 1995 the Registrant added a personal
computer and software department to substantially all of its stores as part of
its commencing to offer personal computers, peripherals and multi-media products
in the fall of 1994.
The Registrant has pursued a strategy of building customer satisfaction
and loyalty by having (i) a broad range of top-quality products including
products incorporating the latest technology and not generally sold by most of
its competitors; (ii) technically proficient sales personnel providing extensive
customer service; (iii) customer oriented showrooms where products can be
demonstrated to and tested by customers; and (iv) a support program including
custom design and installation and repair services.
The Registrant attempts to build customer satisfaction by offering a
comprehensive customer support program. This program seeks to assure that each
customer has the product or system best suited for that individual. Any
merchandise sold by the Registrant may be auditioned on the customer's premises
and, if a customer is not satisfied, may be returned within 30 days for a refund
or exchanged for credit toward the purchase of another product or system.
Customers are encouraged to upgrade speakers originally purchased from the
Registrant by trading in such speakers within the first year for credit at the
original purchase price toward the purchase of new speakers. Car audio products
(if installed by the Registrant) carry a one year "defective replacement
guaranty" and, once the Registrant installs car stereo equipment, a customer
will not be charged for reinstallation into another car, for installing
component upgrades or reinstalling after repair service. The Registrant's custom
department will visit a customer's home to design and install audio and video
products and systems. The Registrant believes that the costs of its customer
support program is warranted in light of the additional sales created by such
ongoing program.
ADVERTISING
To support its marketing strategy the Registrant promotes its
merchandise through an advertising program which emphasizes the print media
(consisting of newspaper advertising, catalogs and
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other customer mailings) and, to a lesser extent, television and radio
advertising. Such advertising consists of name recognition advertising
emphasizing the Sound Advice name and its competitive prices, its broad and
high-quality product selection, available financing arrangements, its
technically proficient sales force, its support program, its customer oriented
showrooms and its customer service and repair program. In addition, newspaper
and catalog advertisements and customer mailings are directed towards specific
products and their prices and specific financing plans in connection with
specific sales events and promotions. The Registrant has an extensive customer
database which is used for targeting its mailings of catalogs and other
promotional advertisements and materials.
The table below shows the Registrant's net advertising expense as a
percentage of net sales for the fiscal years ended June 30, 1995, 1994 and 1993.
Net advertising expense represents gross advertising expense less market
development funds, cooperative advertising and other promotional amounts
received from vendors for incentive and promotional programs.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1995 1994 1993
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Net advertising expense . . . . . $4,745 $4,832 $6,320
Percentage of net sales . . . . . 2.5% 2.8% 4.0%
</TABLE>
In fiscal 1995, net advertising expense remained substantially constant
as compared to fiscal 1994 primarily as a result of an increase as compared to
the prior fiscal year in market development funds and other promotional amounts
received by the Registrant from vendors which offset increased advertising
expense and the vendors' marketing support in connection with the Registrant's
opening of the additional West Coast Store and the introduction of personal
computers as part of its product line. In addition, the increase in net sales
was generated, in part, by successful financing promotions in lieu of increasing
advertising expenditures. In fiscal 1994, net advertising expense decreased from
fiscal 1993 primarily as a result of the increase in market development funds
and other promotional amounts received by the Registrant from vendors and the
Registrant not having any initial or extraordinary advertising expenses similar
to the prior fiscal year which include initial advertising expenses incurred in
connection with opening an additional East Coast Store and the advertising
required after Hurricane Andrew to inform the public that the Registrant's
stores affected by the hurricane had reopened. In addition, the increase in net
sales was also generated, in part, by successful financing promotions in lieu of
increasing advertising expenditures. Net advertising expense as a percentage of
net sales decreased in each of fiscal 1995 and 1994 from the respective prior
fiscal year as a result of the increase in net sales while total net advertising
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expense remained substantially the same in fiscal year 1995 and decreased in
fiscal year 1994 for the reasons indicated above.
The Registrant handles all of its advertising through its in-house
advertising staff. The Registrant's use of an in-house staff allows it to be
more flexible in decisions regarding advertising, to make changes to advertising
copy on short notice to publicize special product promotions and to take
advantage of new products and unexpected market developments on a timely basis.
OPERATIONS
Suppliers, Purchasing and Distribution:
The Registrant has no long-term merchandise purchase contracts or
commitments. The Registrant acquires its products from approximately 180
manufacturers, five of which manufacturers account for a majority of total
product purchases. Management believes that competitive sources of supply would
be available for substantially all of the Registrant's products in the event
that one or more of such primary sources of supply were no longer available.
The Registrant's policy is to take advantage of cash or payment
discounts offered by manufacturers. The Registrant has also been able to obtain
substantial levels of manufacturers' rebates based on volume buying levels and
on occasion has been able to negotiate favorable terms on very large volume
purchases. Since March 1986, the Registrant has been a member of Progressive
Retailers Organization, Inc., a buying group comprised of approximately 14
retailers of home entertainment and consumer electronic products located
throughout the country ("Progressive Retailers Organization").
Substantially all inventory purchased by the Registrant is shipped
directly to its central distribution facility located in Deerfield Beach,
Florida. Such facility is currently the central distribution facility for its
stores. Inventory is also shipped to and distributed from the Registrant's
support warehouses located in Tampa and Orlando, Florida, which service the West
Coast Stores and Central Florida Stores, respectively. Each store receives
shipments of inventory from the central distribution and/or support warehouse
facilities, at least three times a week, and sometimes on a daily basis, thereby
increasing availability to customers by enabling each store to maintain
reasonable inventories of all products and promptly to replenish inventories of
fast moving products. The Registrant believes that its distribution system
allows it to support a broad selection of merchandise within the stores, while
minimizing store level inventory requirements. Inventory turn was approximately
4.2, 4.0, and 4.1 times during the fiscal years ended June 30, 1995, 1994 and
1993, respectively.
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The Registrant's current sales, inventory, purchasing and other key
information is tracked at the Registrant's corporate headquarters on its
computer system. This system provides management with information which
facilitates merchandising, pricing, sales management and the management of
warehouse and store inventories. This system enables management to review and
analyze the performance of each of its stores and sales personnel on a periodic
basis. The central purchasing department of the Registrant monitors current
sales and inventory at the stores on a daily basis. In addition, the Registrant
currently completes a physical inventory approximately 4 times a year and in
between such physical inventories it periodically conducts a cycle count on
selected types of inventory. The purchasing department also establishes the
level of inventory required at each store and handles the replenishment of store
inventory on a daily or weekly basis. In an attempt to upgrade its computer
system, the Registrant acquired in the spring of 1994 at an aggregate cost of
approximately $1.3 million (exclusive of approximately $700,000 for new related
communications equipment) and attempted to install during 1994 a new retail
management information system (the "New MIS System"). The installation of the
New MIS System could not be successfully completed. The New MIS System was
returned to the vendor thereof as part of a settlement reached with such vendor.
The related communications equipment also purchased at the same time was
installed and is currently in operation in conjunction with the Registrant's
existing management information system. See "Liquidity and Capital Resources" in
ITEM 7. and note 3(b) to Notes to Consolidated Financial Statements.
Sales and Store Operations:
Sales to customers are primarily made on a cash and bank credit card
basis. In addition, customers who qualify can obtain longer term financing by
obtaining a Sound Advice credit card, which the Registrant makes available to
its customers, without an annual fee, through a private label credit card
arrangement with an unrelated finance company and at no recourse to the
Registrant. The Registrant also periodically, as part of its promotional
activities, makes special financing programs available to its customers. A part
of the cost of such special financing programs is at times borne by the
Registrant. In addition, certain of the Registrant's vendors periodically
participate with and support the Registrant in financing promotions.
Each store has its own management structure consisting of a full time
general showroom manager having overall responsibility at each location and a
full time sales manager under such general showroom manager. Certain of the
Registrant's stores also have an individual in charge of the mobile electronics
department. Each general showroom manager's and sales manager's compensation is
dependent in part on the store's gross profit. As of September 15, 1995,
approximately 420 sales personnel working at the stores were
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compensated on a commission basis. Commissions vary depending on the price and
gross margin of the product.
As part of a reorganization during fiscal year 1995 of its sales
management group to expedite decision-making and to allow better communication
throughout its corporate structure, the Registrant now has four regional sales
vice presidents, each overseeing one of its four regions and who report to the
Chief Executive Officer. The Registrant also utilizes, as part of its management
team, one company-wide mobile sales director, four product sales trainers and
three in-store merchandisers. The Registrant has historically generally
experienced employee stability with many sales persons moving up to positions of
greater responsibility, although the Registrant does experience some turn-over
of employees during their initial six month period of employment. See
"Employees" in this ITEM 1.
Merchandise sold at a store is generally delivered to the customer at
the store at the time of sale, with the exception of certain large screen
televisions, home entertainment furniture and integrated systems for which the
Registrant offers home delivery and installation service. In addition, the
Registrant offers custom home audio and video and personal computer installation
service. The Registrant also installs car stereo systems, cellular telephones
and car security systems at all but one of its stores.
Service and Repair:
The Registrant has its repair facility at its corporate headquarters in
South Florida. The Registrant is an authorized manufacturer's service
representative for substantially all of its products and is reimbursed by the
manufacturer for the service or repair it performs on products still covered by
a manufacturer's warranty. Products brought to the stores by customers for
service or repair are shipped to the Registrant's repair facility. In addition,
the Registrant has established as of this date at approximately 18 stores an
area where a quicktech is available to answer technical product questions of
customers and to make adjustments, clean and make minor repairs on products.
The Registrant offers, through an unrelated insurance company on a
nonrecourse basis, an extended warranty contract for most of the audio, video
and other merchandise it sells, whereby a customer is provided coverage beyond
the warranty period covered by the manufacturer. The Registrant collects the
retail sales price of the extended warranty contract from the customer and
remits the customer information and the Registrant's cost for the contract to
the insurance company. The insurance obligation is solely the responsibility of
the insurance company, since the contract is between the customer and the
insurance company. As an authorized service center for the insurance company,
the Registrant may also perform the services required under the extended
warranty contracts
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for which it is separately paid by the insurer. Gross margins from the sale of
extended warranty contracts are higher than gross margins from the sale of the
Registrant's other products. Revenues from the sale of extended warranty
contracts have historically averaged 5% to 6% of sales. See note (1)(j) to Notes
to Consolidated Financial Statements.
In connection with the promotion of the sale of extended warranty
contracts, the Registrant had offered prior to March 1, 1993, and has commenced
as of July 1994 to once again offer, the purchasers of such contracts the right
to apply the amount of the sales price for an extended warranty contract, which
has expired and has not been used for any repair or maintenance procedure,
toward the purchase of merchandise, subject to such purchaser providing
appropriate documentation verifying the purchase of such contract. The
Registrant has established a reserve on its balance sheet to cover the potential
cost of this sales incentive program. See the Consolidated Financial Statements
and related notes appearing elsewhere in this report (in particular, note (1)(k)
thereto).
EXPANSION
During fiscal year 1995, the Registrant added a new West Coast Store by
opening a store in Fort Myers, Florida in November 1994 and relocated one East
Coast Store in Hollywood, Florida to a larger facility in December 1994. The new
West Coast Store represented its sixth store in such market area. See "ITEM 2.
PROPERTIES". Accordingly, as of the date of this report, it operates 21 stores.
During fiscal 1995 the Registrant completed the establishing at 18 stores of an
area where a quicktech is available to answer technical product questions of
customers and to make adjustments, clean and make minor repairs on products, as
well as a dedicated communications area at 19 of its stores. The Registrant also
added a personal computer and software department to substantially all of its
stores as part of its commencing to offer in the fall of 1994 personal computers
manufactured by certain companies (including Apple, IBM and Acer), together with
peripheral equipment and multi-media products such as CD-ROM. These products are
targeted specifically toward the home market and enable customers to purchase
complete systems (including personal computers with modem, CD-ROM and software
pre-installed and ready-to-use) or update their existing personal computer
capabilities. As part of its personal computer offerings, the Registrant carries
a selection of primarily educational multi-media software titles. In addition,
the Registrant commenced offering direct broadcast satellite dishes for sale
commencing in the fall of 1994.
The Registrant currently plans during fiscal 1996 to relocate possibly
one of its East Coast Stores and one of its West Coast Stores at the expiration
of its lease into larger showrooms.
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However, although the Registrant continues to explore the opening of new stores
in geographic areas within its existing Florida distribution network and/or
advertising radius in order to realize efficiencies and cost benefits as a
result of the Registrant's clustering of stores, it currently has no plans to
open any additional stores in fiscal year 1996.
The Registrant had previously announced in July 1994 its plans to open
between seven and ten stores in the Washington, D.C./Baltimore metropolitan
area. The new stores would have been the Registrant's first locations outside of
Florida. The Registrant selected this region for its expansion after studying
several other markets in the southeastern and middle-atlantic states and
concluding that the population and income characteristics of the region were
very similar to the markets in which its most successful stores are currently
located. However, during the third quarter of fiscal 1995, the Company announced
its intentions to postpone its expansion plans into the Washington,
D.C./Baltimore market area and currently does not expect to enter such market,
if at all, until fiscal 1997.
Management estimates that as of this time the cost (other than initial
inventory) of opening an additional store built to suit for the Registrant by an
owner or landlord is approximately $500,000 to $700,000. Management also
currently estimates that, if the Registrant acquires an existing store location,
it will cost between $800,000 and $1,000,000 to retrofit such property.
Management estimates initial inventory cost for a new store to be approximately
$1,000,000.
The extent of any future expansion within or without Florida is
dependent on future general economic and business conditions, the Registrant's
operating performance and the availability of sufficient financing. See "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. - Liquidity and Capital Resources".
SEASONALITY
Historically, due to the holiday season, the Registrant has realized
greater sales and profits during its second fiscal quarter. The Registrant's
marketing strategy and, in particular, its year round use of newspaper,
television and radio advertising, catalogs and promotions (including, without
limitation, vendor specific promotional sales in selected months), attempts to
minimize the seasonality of the Registrant's business.
The following table sets forth the Registrant's quarterly net sales in
dollars and as a percentage of annual net sales for the three fiscal years ended
June 30, 1995:
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<TABLE>
<CAPTION>
NET SALES
----------------------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL
YEAR ENDED (JULY- (OCTOBER- (JANUARY- (APRIL- FOR
JUNE 30, SEPTEMBER) DECEMBER) MARCH) JUNE) YEAR
- ---------- ---------- --------- --------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
1995. . . . . . . . . . $46,721 $60,854 $43,781 $39,148 $190,504
. . . . . . . . . . 24.5% 31.9% 23.0% 20.6% 100%
1994. . . . . . . . . . $41,657 $54,883 $40,779 $37,442 $174,761
. . . . . . . . . . 23.9% 31.4% 23.3% 21.4% 100%
1993. . . . . . . . . . $37,753 $51,667 $34,965 $33,704 $158,089
. . . . . . . . . . 23.9% 32.7% 22.1% 21.3% 100%
</TABLE>
SERVICEMARKS
The Registrant has registered the "Sound Advice" and "Audio Garage"
names in Florida. It has not registered either the "Sound Advice" or "Audio
Garage" name with the United States Patent and Trademark Office. The Registrant
is not aware of any adverse claims concerning the Registrant's use of the "Sound
Advice" or "Audio Garage" name.
COMPETITION
The brand-name home entertainment and consumer electronics business is,
and can be expected to remain, highly competitive, with price, customer service
and financing plans or programs being the main competitive factors. The
Registrant believes that it competes effectively on the basis of such factors
and its product mix has been selected to include higher-end audio and video
products not generally offered by many of its competitors. The Registrant's
principal competitors include other retailers specializing in similar products,
department stores, discount stores, mass merchandisers, catalogue showrooms and
specialty stores. Many of the Registrant's competitors are national in scope and
have greater financial resources than the Registrant.
EMPLOYEES
As of September 15, 1995, the Registrant employed approximately 860
persons, of whom approximately 580 were commissioned persons, including
approximately 80 car stereo and mobile installers, 50 service department
technicians and 30
11
<PAGE>
delivery and custom installers. Substantially all of the Registrant's employees
are full-time. The Registrant's employees are not unionized and it has never
experienced a strike or work stoppage. Management believes that its employee
relations are good.
ITEM 2. PROPERTIES.
The Registrant's 21 stores are located in four geographic areas on the
east and west coasts of Florida, in north central Florida and in Jacksonville,
Florida, and currently most of the Registrant's stores average approximately
15,000 gross square feet. Retail selling area represents the substantial square
footage of each store, with the balance used for merchandise storage and, in all
but one store, car audio and accessory installation. The stores are located
either in free standing buildings or in multi-store shopping centers. The stores
are generally close to regional malls or in shopping districts. The following
map displays the locations of the Registrant's 21 stores.
STORE LOCATIONS
A map of Florida indicates the general location of the Registrant's 21 stores in
the four geographic areas.
JACKSONVILLE STORES
Jacksonville (Regency)
Jacksonville (Orange Park)
CENTRAL FLORIDA STORES
Orlando (East Colonial)
Orlando (Sandlake)
Altamonte Springs
WEST COAST STORES
Tampa (2)
Clearwater
St. Petersburg
Sarasota
Fort Myers
EAST COAST STORES
West Palm Beach
Boca Raton
Plantation
Ft. Lauderdale
Hollywood
North Miami Beach
Hialeah
Coral Gables
West Kendall
South Kendall
12
<PAGE>
All of the Registrant's 21 stores are currently leased or subleased,
one of which is accounted for as a capital lease. Leases expire on various dates
between 1996 and 2014, without giving effect to renewal options. The average
unexpired lease term of the Registrant's stores is approximately 18 years if the
renewal options are included.
Generally, the store leases provide for a base rental with annual cost
of living adjustments or stipulated annual percentage increases (or a
combination thereof) and do not provide for a percentage of sales in addition to
the fixed rent. In addition, the leases generally require the Registrant to pay
all or a portion of the real estate taxes and assessments, utilities, insurance
and/or common area and interior maintenance and repairs. See note (9) to Notes
to Consolidated Financial Statements.
The Registrant's headquarters are located in a 53,850 square foot
facility which also contains its executive offices, accounting, data processing,
purchasing and advertising operations, service and repair center. The lease
expires in March 1999 (exclusive of one ten-year renewal option). In May 1993,
the Registrant entered into a three-year lease (exclusive of one two-year
renewal option and two five-year renewal options) for a 56,320 square foot
distribution facility located in Deerfield Beach, Florida, approximately 15
miles north of its corporate headquarters. In June 1993, it relocated its
central warehouse and distribution facility from its corporate headquarters to
such Deerfield Beach facility. The sales training center for the East Coast
Stores and the Registrant's custom sales department were relocated during fiscal
year 1995 from its corporate headquarters to the Registrant's new Hollywood
store.
The Registrant occupies an approximate 12,500 square foot leased
facility in Tampa, Florida area which is used as a warehouse and support
facility for the West Coast Stores. The lease for such facility expires in
January 1998 (exclusive of one 3-year renewal option). The Registrant also
occupies an approximate 10,000 square foot leased facility in Orlando, Florida
which is used as a warehouse and support facility for the Central Florida
Stores. The lease for such facility expires in May 2000.
A portion of the Registrant's former Ft. Lauderdale store is currently
being used for car installations, with the balance of such building having been
leased to a nonaffiliated company for a term of five years (exclusive of one
five-year renewal option).
ITEM 3. LEGAL PROCEEDINGS.
In May 1992, two substantially similar actions [MANTHEI, ET AL. V.
PETER BESHOURI, ROY C. CASEY AND SOUND ADVICE, INC. (Case No. 92-6457) and
KROOP, ET AL. V. SOUND ADVICE, INC., PETER
13
<PAGE>
BESHOURI, MICHAEL BLUMBERG AND ROY C. CASEY (Case No. 92-6590)] were filed, each
as a purported class action, against the Registrant and certain of its officers
and directors in the United States District Court, Southern District of Florida.
The two actions were consolidated as IN RE: SOUND ADVICE, INC. SECURITIES
LITIGATION (Case No. 92-6457) and a consolidated and amended class action
complaint was filed on or about December 31, 1992, adding the Registrant's
independent auditors during the relevant times, Deloitte & Touche LLP, as a
defendant, and which, in very general terms, alleged that the Registrant, and
the individual defendants as control persons, issued, or caused to be issued,
false and misleading financial information with respect to the operations of the
Registrant during the fiscal year ended June 30, 1991 and the first two quarters
of fiscal year 1992, and sought damages incurred by purchasers of the
Registrant's common stock during the relevant period. On January 28, 1994, the
Registrant entered into a stipulation of settlement (the "Stipulation") with the
plaintiffs and other defendants to globally settle the consolidated class action
based upon an agreement in principle reached in November 1993. Pursuant to the
terms of the Stipulation, the Registrant (a) has paid a cash amount totalling
approximately $141,000 and (b) has issued 306,335 warrants to purchase its
common stock, which warrants have been valued at $3.00 per warrant, as its
portion of the total maximum settlement amount of approximately $2,765,000. The
warrants are exercisable for a four year period from June 15, 1995 through June
14, 1999, at an exercise price per share of $8.70. The Court entered an Order
and Final Judgment dated March 25, 1994, approving the settlement, and the
agreed upon settlement funds and warrants were distributed in or about July 1995
to the claimants.
In October 1992, the Registrant became aware that the Securities and
Exchange Commission ("SEC") was conducting a private formal investigation
pursuant to Section 21(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") arising from certain allegations made by a former employee of the
Registrant in April 1992 asserting that the Registrant's financial statements
for certain fiscal periods prior to June 30, 1992, included intentional
misstatements and certain other matters related to such financial statements. In
that regard, the Registrant's Board of Directors had engaged in 1992 a law firm
to serve as special counsel to investigate such allegations. As a result of the
report of special counsel and the Registrant's own internal review of its
financial records, the Registrant has previously restated in 1992 its 1988
through 1991 consolidated financial statements. The SEC has recently completed
its investigation and, in connection therewith, the Registrant voluntarily
agreed with the SEC to the entry of a cease and desist order by the SEC on
August 9, 1995, concerning its Form 10-K for fiscal year 1991 and Forms 10-Q for
the quarters ended September 30 and December 31, 1991, which the SEC found in
such order had been materially misstated. The cease and desist order issued
pursuant to Section 21C of the Exchange Act prohibits
14
<PAGE>
the Registrant from violating certain provisions of the securities laws that
require public companies to keep accurate books and records, to maintain
appropriate internal accounting controls and to file accurate annual and
quarterly reports. The Registrant neither admitted nor denied any wrongdoing and
no censure, fine or penalty was involved. As part of the completion of the SEC's
investigation and such cease and desist order, Peter Beshouri, the Registrant's
Chairman of the Board, President and Chief Executive Officer, and Mr. Roy Casey,
its former Chief Financial Officer, also voluntarily consented, without
admitting or denying any wrongdoing, to the entry of similar orders by the SEC
with respect to their supervisory responsibilities. See note (11)(a) to Notes to
Consolidated Financial Statements.
In addition, the Registrant is from time to time involved in litigation
relating to claims arising out of its operations in the normal course of
business. Such claims against the Registrant are generally covered by insurance.
The Registrant believes that none of these claims will have a material adverse
impact on its financial conditions or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Construction G(3) of Form 10-K, the information
regarding executive officers of the Registrant called for by Item 401 of
Regulation S-K is hereby included in Part I of this report.
The following table sets forth the name, age (as of September 15,
1995) and position(s) held by each executive officer of the Registrant:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH
- ---- --- REGISTRANT
----------------
<S> <C> <C>
Peter Beshouri 41 Director, Chairman of the
Board, President and
Chief Executive Officer
Michael Blumberg 47 Director, Senior Vice
President and Secretary
Christopher O'Neil 48 Executive Vice President,
Chief Operating Officer
and Assistant Secretary
15
<PAGE>
G. Kay Griffith 50 Executive Vice President
and Chief Administrative
Officer
Kenneth L. Danielson 45 Chief Financial and
Accounting Officer and
Treasurer
</TABLE>
The Registrant's officers are elected annually by the Board of
Directors and hold office at the pleasure of the Board.
PETER BESHOURI, who has been an employee of the Registrant since 1974,
has served as Chairman of the Board and Chief Executive Officer of the
Registrant since August 1982. Prior thereto he was the general sales manager of
the Registrant, as well as having served as a showroom manager and district
manager. He was elected President of the Registrant in May 1985. Mr. Beshouri
currently serves as a director of Progressive Retailers Organization. In August
1995, Mr. Beshouri, together with the Registrant and a former chief financial
officer of the Registrant, voluntarily agreed with the SEC, without admitting or
denying any wrongdoing, to the entry of a cease and desist order by the SEC
concerning the Registrant's Form 10-K for fiscal year 1991 and Forms 10-Q for
the quarters ended September 30 and December 31, 1991. See "ITEM 3. LEGAL
PROCEEDINGS."
MICHAEL BLUMBERG, a founder and a director of the Registrant, was
elected a Vice President in August 1982, Vice President - Purchasing and Finance
in May 1986, Vice President - Purchasing and Marketing in December 1987, and
Senior Vice President in May 1989. From the Registrant's inception until
February 1995, Mr. Blumberg served as Treasurer of the Registrant and, since
October 13, 1989, he has also been serving as Secretary of the Registrant. His
responsibilities include overall supervision of all purchasing and selecting new
product categories and lines for the Registrant, as well as consulting with
certain of the Registrant's manufacturers in connection with product design.
CHRISTOPHER O'NEIL joined the Registrant in 1979 as a car audio buyer.
He was elected Vice President - Purchasing of the Registrant in May 1986, Vice
President - Car Audio Purchasing in May 1989 and his title was changed to Vice
President/Purchasing in May 1990. Effective February 1992, Mr. O'Neil was
elected Executive Vice President and Chief Operating Officer of the Registrant.
In his current position, his principal responsibilities are the supervision of
service, warehouse, distribution security and product support functions for the
Registrant's stores. Since December 1990, Mr. O'Neil has also served as an
Assistant Secretary of the Registrant.
G. KAY GRIFFITH joined the Registrant as an employee in May 1993 and
was formally elected Executive Vice President and Chief Administrative Officer
in September 1993. Ms. Griffith had previously been elected a director of the
Registrant and a member of the Audit Committee of its Board of Directors in July
1992.
16
<PAGE>
From March 1992 until joining the Registrant as an employee, she was President
and Chief Executive Officer of Admiralty Bank, headquartered in Palm Beach
Gardens, Florida. From June 1991 to March 1992, Ms. Griffith was a senior
partner of GKG Management Services, a firm providing consulting services to
banks and businesses who require assistance with their banking relationships.
From September 1983 to June 1991, she held a variety of officer positions with
NCNB National Bank of Florida, N.A. (now known as NationsBank of Florida, N.A.),
the last of which was Senior Vice President/Regional Banking Executive. Ms.
Griffith's principal role at the Registrant is to oversee, supervise and
coordinate all aspects of human resources/benefits and employee recruiting and
training.
KENNETH L. DANIELSON joined the Registrant as an employee on September
1, 1993 and effective October 1, 1993, assumed the responsibilities of and
became Chief Financial Officer of the Registrant. In February 1995, he was also
elected Treasurer. Prior to joining the Registrant for approximately fifteen
years, Mr. Danielson was employed by Storer Communications, Inc. ("Storer")
based in Miami, Florida, which was one of the ten largest cable companies in the
United States. During his employment with Storer, Mr. Danielson held various
positions, including Director of Accounting, Assistant Treasurer, Vice
President, Treasurer and Chief Financial Officer, with his positions as Vice
President, Treasurer and Chief Financial Officer being held concurrently from
November 1988 through August 1993. Prior to Mr. Danielson's employment by
Storer, he was employed by Coopers & Lybrand from 1971 to 1978. Mr. Danielson is
a certified public accountant.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Registrant's Common Stock, par value $.01 per share ("Common
Stock"), is traded under the symbol "SUND" in the over-the-counter market of the
NASDAQ and is quoted on the NASDAQ Stock Market (NASDAQ National Market).
The following table sets forth, for the fiscal quarters indicated, the
high and low sales prices for the Registrant's Common Stock on the NASDAQ Stock
Market. NASDAQ Stock Market quotations are based on actual transactions and not
bid prices.
17
<PAGE>
<TABLE>
<CAPTION>
PRICES
------
1994 HIGH LOW
- ---- ---- ---
<S> <C> <C>
First Quarter (7/1/93 to 9/30/93) $6-7/8 $5-1/2
Second Quarter (10/1/93 to 12/31/93) 8-3/8 5-5/8
Third Quarter (1/1/94 to 3/31/94) 6-5/8 4-1/2
Fourth Quarter (4/1/94 to 6/30/94) 6 4-5/8
1995
- ----
First Quarter (7/1/94 to 9/30/94) $ 7-3/8 $ 5-1/2
Second Quarter (10/1/94 to 12/31/94) 6-3/4 5-1/8
Third Quarter (1/1/95 to 3/31/95) 6-1/8 3-7/8
Fourth Quarter (4/1/95 to 6/30/95) 4-1/8 2-3/8
</TABLE>
As of September 19, 1995, there were approximately 235 holders of
record of the Common Stock, and, based upon information previously provided to
the Registrant by depositories and brokers, the Registrant believes it has in
excess of 500 beneficial owners.
The Registrant has never paid cash dividends on its Common Stock and
does not plan to pay cash dividends in the foreseeable future. The Registrant
has been and continues to be prohibited under its revolving credit facility from
paying cash dividends. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION. - Liquidity and Capital
Resources."
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for fiscal years 1995, 1994, 1993, 1992
and 1991 should be read in conjunction with the Consolidated Financial
Statements and related notes and independent auditors report appearing elsewhere
in this report and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
18
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Net Sales .................................. $ 190,504 $ 174,761 $ 158,089 $ 137,670 $ 119,572
Cost of Goods Sold ......................... 134,800 119,373 107,726 97,810 83,223
---------- ---------- ---------- ---------- ---------
Gross Profit ............................... 55,704 55,388 50,363 39,860 36,349
Selling, General, and
Administrative Expenses ................. 54,502 50,891 49,150 43,251 33,270
Loss Due to Impairment
of Asset (1) ............................ 400 - - - -
----------- ---------- ---------- ---------- ---------
Income (Loss) From
Operations............................... 802 4,497 1,213 (3,391) 3,079
Other Income (Expense):
Interest Expense......................... (1,425) (503) (584) (1,037) (749)
Provision for Shareholder
Settlement(2)......................... 56 (1,252) - - -
Other, Net............................... (66) (7) 1,060 26 113
----------- ---------- ---------- ---------- ---------
(Loss) Income Before
Income Taxes (Benefit) .................. (633) 2,735 1,689 (4,402) 2,443
Income Taxes (Benefit)...................... (152) 1,008 561 (1,473) 879
----------- ---------- ---------- ---------- ---------
Net (Loss) Income Before
Cumulative Effect of
Change in Accounting
Principle................................ (481) 1,727 1,128 (2,929) 1,564
Cumulative Effect of Change
in Accounting Principle(3)............... - - - 442 -
----------- ---------- ---------- ---------- ---------
Net (Loss) Income ........................ $ (481) $ 1,727 (2) $ 1,128 $ (2,487) $ 1,564
=========== ========== ========== ========== =========
(Loss) Income per Common and
Common Equivalent Share:
Net (Loss) Income Before
Cumulative Effect of
Change in Accounting
Principle(3)........................... $ (.13) $ .46(2) $ .30 $ (.79) $ .42
Cumulative Effect of
Change in Accounting
Principle (3) ......................... - - - .12 -
----------- --------- ---------- ---------- ---------
Net (Loss) Income ........................ $ (.13) $ .46(2) $ .30 $ (.67) $ .42
=========== ========= ========== ========== =========
Pro Forma Amounts Assuming
Change in Accounting
Principle is Applied
Retroactively (3):
Net (Loss) Income....................... $ (2,929) $ 1,635
========= =========
Net (Loss) Income Per
Share................................. $ (.79) $ .44
========= =========
Weighted Average Number of
Shares Outstanding..................... 3,729 3,743 3,722 3,716 3,685
=========== ========= ========== ========= =========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets ............................. $39,191 $ 41,642 $ 31,574 $ 36,368 $ 34,685
Current Liabilities ........................ 29,107 27,997 19,858 29,974 25,680
Working Capital ............................ 10,084 13,645 11,717 6,394 9,005
Total Assets ............................... 56,702 57,537 46,384 51,861 48,588
Borrowings Under Revolving
Credit Agreement.......................... 8,677 9,730 4,810 18,743 13,506
Current Installments of Long-Term
Debt (included in Current
Liabilities) ............................. 2,674 1,238 682 21 21
Long-Term Debt (excluding
current installments).................... 908 3,575 3,273 534 555
Shareholders' Equity........................ 21,396 21,933 19,181 18,044 20,471
STORE DATA:
Number of Stores Open
at End of Period ......................... 21 20 20 20(4) 18(4)
Weighted Average Net
Sales Per Store(5)(6)..................... $9,261 $ 8,738 $ 8,038 $ 7,578 $ 6,832
<FN>
- ----------------
(1) The Loss Due to Asset Impairment in the amount of $400,000 in fiscal
year 1995 relates to the return of the New MIS System to, and
settlement with, the vendor thereof as a result of the unsuccessful
installation and implementation of the New MIS System. See "ITEM 1.
BUSINESS - Operations."
(2) Excluding the Provision for Shareholder Settlement, which was
equivalent to approximately $788,000 or $.21 per share after taxes, Net
Income would have been $2,515,000 or $.67 per share for fiscal year
1994. Based on the actual aggregate amount of claims made, the
Registrant only issued 306,335 warrants to purchase its common stock
out of a maximum number of 325,000 warrants available as part of the
shareholder settlement. Accordingly, the Provision for Shareholder
Settlement was adjusted in 1995 by a credit to income of $56,000. See
"ITEM 3. LEGAL PROCEEDINGS." regarding the settlement in fiscal year
1994 of the consolidated class action against the Registrant.
(3) Effective July 1, 1991, the Registrant changed its accounting policy to
include in inventory certain indirect costs associated with purchasing,
handling and storage of inventories. Previously, the Registrant had
expensed such costs as incurred. The pro forma amounts shown have been
presented to reflect the accounting change as if the new method was
applied retroactively to all years shown.
20
<PAGE>
(4) Includes the Registrant's store located in Winter Park which was an
outlet only for car audio and personal electronics products and which
was closed in August 1992, but does not include the Registrant's new
store opened in August 1992 in West Kendall, Florida.
(5) Weighted average net sales per store represents net sales for the
period divided by the number of stores open during the period, weighted
to account for stores open for only a portion of the period.
(6) Excludes Winter Park store.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
OVERVIEW
The following tables set forth for fiscal years ended June 30, 1995,
1994 and 1993 (i) certain items in the Registrant's statements of operations
expressed as a percentage of net sales and (ii) the percentage change in dollar
amounts of such items as compared to the indicated prior fiscal year.
<TABLE>
<CAPTION>
PERIOD TO PERIOD
ITEMS AS A PERCENTAGE PERCENTAGE INCREASE
OF NET SALES / (DECREASE)
------------------------------------ ------------------------
YEARS ENDED YEARS ENDED
JUNE 30, JUNE 30,
------------------------------------ ------------------------
1995 1994 1993 1994-95 1993-94
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 9.0% 10.5%
Cost of Goods Sold . . . . . . . . . . . 70.8 68.3 68.1 12.9 10.8
----- ---- ----
Gross Profit . . . . . . . . . . . . . . 29.2 31.7 31.9 0.6 10.0
Selling, General and Admini-
strative Expense . . . . . . . . . . . 28.6 29.1 31.1 7.1 3.5
Loss Due to Impairment of
Asset. . . . . . . . . . . . . . . . . 0.2 - - ** -
----- ---- ----
Income (Loss) from
Operations . . . . . . . . . . . . . . 0.4 2.6 0.8 (82.2) 270.6
Other Income (Expense):
Interest Expense . . . . . . . . . . . (0.7) (0.3) (0.4) 183.4 (14.0)
Other, Net . . . . . . . . . . . . . . * (0.7) 0.7 99.2 (218.8)
----- ---- ----
(Loss) Income Before Income
Taxes (Benefit) . . . . . . . . . . . .(0.3) 1.6 1.1 (123.1) 62.0
===== ==== ====
Net (Loss) Income . . . . . . . . . . . .(0.3)% 1.0% 0.7% (127.8)% 53.2%
===== ==== ====
<FN>
- ----------------
* Negligible
** Not meaningful
</FN>
</TABLE>
21
<PAGE>
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for the fiscal year ended June 30, 1995, were approximately
$190,504,000, an increase of approximately $15,743,000 or 9.0% over the prior
fiscal year. The increase is primarily attributable to the introduction of
personal computers to the product mix, the opening of the new Fort Myers store
and the relocation and expansion of the Hollywood store. Comparable store net
sales increased 5.9% in fiscal year 1995 compared to fiscal year 1994. The
comparable store sales were adjusted to exclude the new store opened in November
1994 and another relocated to a larger showroom in December 1994. The
Registrant's operations, in common with other retailers in general, are subject
to seasonal influences. Historically, the Registrant has realized more of its
net sales and operating income in the second quarter ending in December.
Gross profit for fiscal year 1995 was approximately $55,703,000, an
increase of approximately $315,000 or 0.6% over the prior fiscal year. Gross
profit as a percentage of net sales decreased by 2.5% to 29.2% for the fiscal
year ended June 30, 1995, as compared to the prior fiscal year. The decrease in
gross profit percentage when compared to the prior fiscal year is attributable
to competitive marketing strategies, reduced availability in certain audio and
video products in the third and fourth quarters of fiscal 1995 and the
introduction of personal computers to the product mix.
Selling, general and administrative expense for the fiscal year ended
June 30, 1995, was approximately $54,902,000, an increase of approximately
$4,011,000 or 7.9% over the prior fiscal year. The overall increase includes a
$400,000 provision for asset impairment (see note (7) of Notes to Consolidated
Financial Statements) and a $197,000 write-off of expenses associated with the
postponed entry into the Washington, D.C./Baltimore metropolitan area. The
remaining increase is attributable to commissions on increased sales, expenses
associated with the Registrant's entry into the personal computer business,
changes in certain store level compensation programs, increased payroll related
costs, increased depreciation and amortization expenses and costs associated
with the unsuccessful implementation of the New MIS System. Even with the
inclusion of the provision for asset impairment and the write-off of expenses
associated with the postponed entry into the Washington, D.C./Baltimore market,
selling, general and administrative expense as a percentage of net sales
decreased to 28.8% from 29.1% in the prior fiscal year.
During fiscal year 1994, the Registrant recorded a provision for
shareholder settlement of $1,252,000 in connection with a global settlement of
class actions filed against the Registrant and others. The provision for
shareholder settlement reflected the value of the common stock purchase
warrants, the Registrant's
22
<PAGE>
portion of the cash settlement and other expenses associated with the
settlement. See "Fiscal 1994 Compared to Fiscal 1993" below. In 1995, this
amount was reduced by $56,000 based upon the actual number of warrants issued.
Interest expense for the fiscal year ended June 30, 1995, was
$1,425,000, an increase of $922,000 from the prior fiscal year. The increase was
primarily reflective of the increased borrowing under the Registrant's revolving
credit facility, additional outstanding term loans and higher interest rates
during fiscal 1995.
For the fiscal year ended June 30, 1995, the effective income tax
benefit was 24% and for fiscal year 1994 the effective income tax rate was 37%.
Net loss for the fiscal year ended June 30, 1995, was approximately
$481,000, or $.13 per share, compared to net income of approximately $1,727,000,
or $.46 per share, for the prior fiscal year. The reduction in net income was
primarily attributable to reduced gross profit margin on increased sales,
increased depreciation and interest expenses, a provision for asset impairment
and a write-off of expenses related to the postponement of expansion into
Washington, D.C./Baltimore metropolitan area. Net income for the 1994 fiscal
year was reduced by approximately $788,000, or $.21 per share, as a result of
the aftertax effect of the shareholder settlement.
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales for the fiscal year ended June 30, 1994, were approximately
$174,761,000, an increase of approximately $16,672,000 or 10.5% over the prior
fiscal year. The increase is primarily attributable to successful promotions and
new product offerings. Comparable store sales increased 9.8% in fiscal year 1994
compared to fiscal year 1993. The comparable store sales were adjusted to give
effect to the West Kendall location opened during fiscal 1993, the temporary
closure of the South Kendall store for approximately three months due to the
effects of Hurricane Andrew in August 1992 and closure of the Winter Park
location in August 1992, which sold only car audio and personal electronics.
Gross profit for fiscal year 1994 was approximately $55,388,000, an
increase of approximately $5,025,000 or 10.0% over the prior fiscal year. The
dollar amount of the gross profit in the prior fiscal year was partially
impacted by $740,000 of the proceeds from business interruption insurance
received by the Registrant to compensate it for periods when its stores were not
open as a result of Hurricane Andrew being reported as other income during
fiscal 1993. If the stores had been operational, management estimates that this
amount would have been included in gross profit. Gross profit as a percentage of
net sales decreased by 0.2%
23
<PAGE>
to 31.7% for the fiscal year ended June 30, 1994 compared to the prior fiscal
year. The slight decrease in gross profit percentage when compared to the prior
fiscal year is primarily attributable to the product mix and marketing
strategies in fiscal year 1994.
Selling, general and administrative expense for the fiscal year ended
June 30, 1994, was approximately $50,891,000, an increase of approximately
$1,742,000 or 3.5% over the prior fiscal year. Selling, general and
administrative expense as a percentage of net sales decreased to 29.1% from
31.1% in the prior fiscal year. The selling, general and administrative expense
as percentage of net sales for fiscal 1993 was higher primarily as a result of
Hurricane Andrew. The expenses of the closed stores caused by Hurricane Andrew
were, for the most part, not variable and, accordingly, the selling, general and
administrative expenses associated with the closed stores are included in the
total expenses for fiscal year 1993, although no sales were being made when such
stores were closed. However, insurance proceeds from business interruption
insurance associated with Hurricane Andrew for recovery of gross profit and
selling, general and administrative expense (net of deductible) were included in
other income. In addition, in fiscal year 1993 professional fees and bad debt
were relatively higher than in fiscal 1994. Selling, general and administrative
expense on an absolute basis and as a percentage of net sales for fiscal 1994
was impacted as a result of the costs incurred in early fiscal 1994 associated
with the Registrant's relocation of its warehouse distribution facility from its
corporate headquarters to Deerfield Beach and throughout fiscal year 1994 for
increased store personnel to facilitate sales and controls.
Other income, net for fiscal year 1993 includes $740,000 of the
business interruption insurance received by the Registrant and interest income
of $278,000 resulting from interest accrued on tax refunds due the Registrant.
As compared to the other income, net in fiscal 1993, the Registrant in the
second quarter of fiscal 1994 recorded a provision for shareholder settlement of
$1,252,000. On January 28, 1994, the Registrant signed the Stipulation to
globally settle class actions filed in May 1992 against the Registrant and
others. In connection with the settlement, the Registrant recognized a
$1,252,000 charge reflecting the value of its common stock purchase warrants to
be issued in connection with such settlement, the Registrant's portion of the
cash settlement and other expenses associated with the settlement. See "ITEM 3.
LEGAL PROCEEDINGS." and note (10) to Notes to Consolidated Financial Statements.
Interest expense for the fiscal year ended June 30, 1994, was $503,000,
a decrease of $81,000 from the prior fiscal year. The reduction is due to
reduced levels of borrowing under the Registrant's revolving credit facility and
term loan. See "Liquidity and Capital Resources" hereinbelow.
24
<PAGE>
Income before income taxes increased by $1,046,000 in the fiscal year
ended June 30, 1994, as compared to the prior year. The increase in the income
before income taxes during fiscal 1994 was after giving effect to the $1,252,000
provision for the shareholder settlement.
For the fiscal years ended June 30, 1994 and 1993 the effective tax
rates were 37% and 33%, respectively. The prior year's effective tax rate took
into account state tax benefits from prior years.
Net income for the fiscal years ended June 30, 1994 and 1993 was
$1,727,000, or $.46 per share, and $1,128,000, or $.30 per share, respectively.
The provision for shareholder settlement, net of income taxes, reduced net
earnings by approximately $788,000 or $.21 per share for fiscal year 1994.
Accordingly, excluding such charge, net income would have been $2,515,000 or
$.67 per share, an increase of 123% over net income in the prior fiscal year.
The higher net income in fiscal year 1994 was related to higher net sales, the
maintenance of gross margins at a level higher than industry norms and the
decrease of selling, general and administrative expense as a percentage of net
sales.
LIQUIDITY AND CAPITAL RESOURCES
In March 1995, the Registrant extended its then existing revolving
credit facility (the "Revolving Credit Facility") with its bank, NationsBank of
Florida, N.A. ("NationsBank"), to September 29, 1995, which expiration date was
recently extended until October 13, 1995, in order to enable the Registrant and
NationsBank to complete their negotiations to further extend and refinance such
facility. On October 13, 1995, the Revolving Credit Facility was further
extended and modified on the terms discussed hereinbelow (the "Extended
Facility"). During fiscal year 1995 under the then terms of the Revolving Credit
Facility, the Registrant was able to borrow up to $30,000,000 limited to a
borrowing base equal to the sum of (a) 60% of eligible inventory, as defined,
and (b) 75% of eligible accounts receivable, as defined. The foregoing borrowing
availability was reduced by the total amount outstanding from time to time under
the Term Loan discussed below. Borrowings under the Revolving Credit Facility
bore interest at the Registrant's option based upon NationsBank's prime rate or
a variable rate equal to NationsBank's thirty (30) day floating certificate of
deposit rate plus 250 basis points.
The Registrant had previously entered into a term loan facility with
NationsBank (the "Term Loan") in February 1993, which was restructured as
described below on October 13, 1995, as part of the extension and refinancing of
the Revolving Credit Facility. During fiscal year 1995 the Term Loan, in the
original principal
25
<PAGE>
amount of $3,600,000, bore interest at NationsBank's prime rate and originally
provided for a four year term, with graduated monthly payments as follows: (i)
$45,000 per month commencing March 31, 1993; (ii) $75,000 per month commencing
March 31, 1994; and (iii) $90,000 per month commencing March 31, 1995 through
February 28, 1997.
The financing arrangements with NationsBank prior to being replaced by
the Extended Facility were collateralized by, among other assets, the
Registrant's accounts receivable, inventory, fixed assets and general
intangibles. The credit agreement covering the Revolving Credit Facility and
Term Loan (a) provided that the proceeds of the borrowings were used exclusively
for general working capital needs, supporting the growth of accounts receivable
and inventory, financing the issuance of standby letters of credit within the
subfacility of $1,500,000 and the purchase of fixed assets in an amount not to
exceed $5,200,000; (b) provided for, among other things, various affirmative and
negative covenants and financial ratios, and various periodic reports,
information and certifications; and (c) limited capital expenditures, additional
debt and liens, lease rental obligations, mergers, acquisitions, investments and
affiliated transactions and prohibited the repurchase of capital stock and the
payment of cash dividends. See note (3) to Notes to Consolidated Financial
Statements.
The Extended Facility, which replaced on October 13, 1995, the
Revolving Credit Facility and Term Loan, is a $20,000,000 credit facility
comprised of a term loan facility in the amount of $6,680,000 and a revolving
credit facility pursuant to which the Registrant is able to borrow, repay and
reborrow up to $13,320,000 limited to a borrowing base equal to 65% of eligible
inventory (as defined) in excess of $6,680,000. The borrowing availability under
the revolving credit facility is reduced by the outstanding undrawn face amount
of standby letters of credit issuable pursuant to a letter of credit subfacility
of up to $1,200,000. The term loan facility bears interest at NationsBank prime
rate plus 1.5% per annum and is repayable as follows: (i) monthly installments
of principal in the approximate amount of $56,000 plus accrued interest payable
on the first day of each month commencing November 1, 1995, through December 31,
1996 (the "Maturity Date"), (ii) a principal reduction payment of $723,000 due
45 days following the closing of the Extended Facility and (iii) a balloon
principal payment of approximately $5,178,000 plus accrued and unpaid interest
due on the Maturity Date. The revolving credit facility bears interest at
NationBank's prime rate plus 1% per annum with monthly interest only
installments payable until the Maturity Date, at which time the entire unpaid
principal balance and accrued and unpaid interest thereon is due in full. The
Registrant paid at closing a structuring and facility fee equal to 1.375% of the
committed amount of the Extended Facility (the "Committed Amount") and is
obligated to pay so long as the Extended Facility is outstanding the following
additional fees: (a) 3/4% of
26
<PAGE>
the Committed Amount on February 28, 1996, (b) 1% of the Committed Amount on
July 1, 1996; and (c) 1% of the Committed Amount on September 30, 1996.
The financing arrangements under the Extended Facility are collaterized
by, among other assets, the Registrant's accounts receivable, inventory, fixed
assets, general intangibles, tax refund receivable and depository accounts. The
credit agreement covering the Extended Facility provides for various affirmative
and negative covenants which, among other things, require the Registrant to (i)
maintain an interest coverage ratio of at least 1.5:1 as of closing, increasing
to 2:1 as of January 31, 1996, 2.5:1 as of April 30, 1996, and 3:1 as of July
31, 1996, on a trailing 12 month basis tested monthly, (ii) maintain a fixed
charge coverage ratio of at least 1.05:1 on a trailing 12 month basis tested
monthly, (iii) maintain a tangible net worth of at least $19,500,000, (iv)
maintain a ratio of total liabilities to tangible net worth of not more than 2:1
tested on a quarterly basis, (v) limit capital expenditures, additional debt and
liens, lease rental obligations, mergers, acquisitions, investments and
affiliate transactions and refrain from repurchasing capital stock and the
paying of cash dividends, (vi) maintain a cash collateral depository account
with NationsBank where the Registrant shall deposit all cash receipts and other
collections which will be applied on a daily basis against outstanding
borrowings under the revolving credit facility and (vii) provide various
periodic reports, financial statements, information and certificates. See note
12 to Notes to Consolidated Financial Statements.
On May 4, 1994, the Registrant had obtained a five year term loan of
approximately $1,608,000 from General Electric Capital Corporation ("GECC") for
the purpose of financing the majority of its New MIS System and related
communications equipment. The interest rate under the GECC financing is based
upon a short term commercial paper rate plus 259 basis points. The Registrant
has the option to convert to a fixed interest rate loan based on certain
Treasury Note rates tied to the then remaining term of the loan plus 310 basis
points. The GECC financing is repayable in 60 consecutive monthly installments
of principal and interest originally in the approximate amount of $31,000 each
and a final installment of unpaid principal and interest due on May 1, 1999. The
repayment of such financing was originally collateralized by the New MIS System
and related communication equipment. As part of the return of the New MIS System
to and the settlement reached with the vendor thereof, the outstanding principal
amount of the GECC financing was reduced to $575,000 and, as a result, is now
repayable in consecutive monthly installments of principal and interest in the
approximate amount of $13,800 each. The remaining unpaid balance of such
financing remains collateralized by certain computer equipment. See "ITEM 1.
BUSINESS - Operations" and note 3(b) to Notes to Consolidated Financial
Statements.
27
<PAGE>
The Registrant had working capital of approximately $10,084,000 as of
June 30, 1995, a decrease of approximately $3,561,000 from June 30, 1994. The
decrease in working capital between fiscal years was a result, in part, of the
net loss of the Registrant, the increases by approximately $693,000 and
$1,400,000, respectively, of trade payables (including cash overdraft) and
current installments of long-term debt, respectively (offset in part by a
decrease of approximately $1,052,000 in borrowings under the Revolving Credit
Facility), and the reduction in the Registrant's inventory. The decrease in the
Registrant's inventory by $3,371,000 as of June 30, 1995, as compared to June
30, 1994, is primarily attributable to the Registrant's implementing an
inventory reduction program commencing in the third quarter of fiscal 1995 in
order to reduce the level of inventory required to support the Registrant's
sales volume and to improve inventory turns.
Interest rates under the Revolving Credit Facility and Term Loan
fluctuated between 7.25% and 9.0% during fiscal year 1995. As of June 30, 1995,
the outstanding borrowings under the Revolving Credit Facility were $8,677,413
and under the Term Loan were $1,800,000. Over the past several years, trade
creditors have shortened the period by which payment must be made in order to be
eligible for cash or payment discounts. Accordingly, the Registrant has used its
short term bank financing in part to take advantage of such discounts.
The Registrant's ownership of its former Ft. Lauderdale store is
encumbered by a first mortgage loan from a bank in the amount of $640,000, with
a balance of approximately $492,000 at June 30, 1995. See "ITEM 2. PROPERTIES."
Such loan bears interest at the rate of 1/2 of 1% above the prime rate of such
lender (such lender's prime rate was 9.0% at June 30, 1995) and is payable in
one hundred ninety consecutive monthly installments of principal in the amount
of $1,779 each, together with accrued interest, and in one balloon principal
payment of approximately $428,300, together with any accrued and unpaid
interest, due on July 12, 1998.
The Registrant currently believes that funds from the Registrant's
operations combined with borrowings available under its Extended Facility with
NationsBank and vendor and floor plan financing arrangements will be sufficient
to satisfy its currently projected operating cash requirements during fiscal
year 1996. However, the Registrant would need to seek additional sources of
financing (debt and/or equity or a combination thereof) in order to proceed with
any material expansion program beyond fiscal year 1996.
IMPACT OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
In addition, the Registrant does not believe that either inflation or
foreign currency fluctuations has had a material
28
<PAGE>
impact upon its operating results because technological advances in the products
sold by the Registrant and changes in the components of products, together with
increased competition among the Registrant's vendors, have kept the product
prices stable. Where the prices of products have increased, the Registrant has
generally been able to pass on such increases to its customers.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements and notes thereto and the
Consolidated Financial Statement Schedule and the report of the independent
auditors thereon set forth on pages F-1 to F-21 and S-1 herein are filed as part
of this report and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference from the Registrant's 1995 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K,
except that the information regarding the Registrant's executive officers called
for by Item 401 of Regulation S-K has been included in Item 4.1 in PART I of
this report.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference from the Registrant's 1995 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated by reference from the Registrant's 1995 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference from the Registrant's 1995 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. and 2. The financial statements and the required
financial statement schedule listed in the accompanying Table
of Contents to Consolidated Financial Statements and Financial
Statement Schedule at page F-1 herein are filed as part of
this report.
(a) 3. The exhibits listed in the Exhibit Index to the
Exhibit Volume accompanying this report are filed with or
incorporated by reference as part of this report.
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the last quarter of fiscal year 1995. However, on
August 10, 1995, a Form 8-K, dated August 9, 1995, of the
Registrant, was filed reporting in Item 5 thereof, among other things,
that the Registrant had voluntarily agreed with the SEC to an
entry of a cease and desist order by the SEC on August 9,
1995, concerning the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1991, and Quarterly Reports
on Form 10-Q for the quarters ended September 30 and December
31, 1991. See "ITEM 3. LEGAL PROCEEDINGS."
30
<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 the 16th day of
October, 1995.
Sound Advice, Inc.
By: \s\ PETER BESHOURI
------------------------------
Peter Beshouri, Chairman of
the Board, 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:
SIGNATURE TITLE DATE
--------- ----- ----
\s\ PETER BESHOURI Chairman of the Board,
- ------------------ President and Chief Executive Officer
Peter Beshouri (Principal Executive Officer) October 16, 1995
Director,
\s\ MICHAEL BLUMBERG Senior Vice President
- -------------------- and
Michael Blumberg Secretary October 16, 1995
\s\ GREGORY STURGIS
- -------------------
Gregory Sturgis Director October 16, 1995
\s\ JOSEPH PICCIRILLI
- ---------------------
Joseph Piccirilli Director October 16, 1995
\s\ G. KAY GRIFFITH Director,
- ------------------- Executive Vice President
G. Kay Griffith and Chief Administrative Officer October 16, 1995
\s\ RICHARD W. MCEWEN
- ---------------------
Richard W. McEwen Director October 16, 1995
Chief Financial Officer
\s\ KENNETH L. DANIELSON and Treasurer
- ------------------------ (Principal Financial and
Kenneth L. Danielson Accounting Officer) October 16, 1995
31
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Changes in Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts S-1
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sound Advice, Inc.:
We have audited the accompanying consolidated balance sheets of Sound Advice,
Inc. and subsidiaries as of June 30, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended June 30, 1995. In connection with our
audits of the consolidated financial statements, we also have audited the
accompanying financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sound Advice, Inc.
and subsidiaries as of June 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related 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.
KPMG PEAT MARWICK LLP
September 28, 1995, except as to
note 12, which is as of
October 13, 1995
F-2
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and 1994
ASSETS 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 46,950 44,992
Receivables:
Vendors 4,232,746 3,906,918
Trade 1,010,135 781,614
Employees 280,755 216,778
------------ ------------
5,523,636 4,905,310
Less allowance for doubtful accounts (470,000) (460,000)
------------ ------------
5,053,636 4,445,310
Inventories 31,758,744 35,129,665
Prepaid and other current assets 1,242,569 1,211,132
Deferred tax assets 537,308 443,000
Prepaid income taxes 551,683 368,000
------------ ------------
Total current assets 39,190,890 41,642,099
Property and equipment, net 15,063,283 14,258,143
Property under capital lease, net 795,630 --
Deferred tax asset, net 1,003,157 812,308
Other assets 453,698 604,822
Goodwill, net 195,341 219,791
------------ ------------
$ 56,701,999 57,537,163
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Borrowings under revolving credit agreement $ 8,677,413 9,729,685
Accounts payable 11,091,255 9,809,147
Cash overdraft 1,234,066 1,823,256
Accrued liabilities 5,430,521 5,397,283
Current installments of long-term debt 2,673,570 1,237,785
----------- -----------
Total current liabilities 29,106,825 27,997,156
Long-term debt, excluding current installments 907,913 3,574,868
Capital lease obligation 821,277 --
Other liabilities and deferred credits 4,469,969 4,032,297
----------- -----------
35,305,984 35,604,321
----------- -----------
Shareholders' equity:
Common stock; $.01 par value. Authorized 10,000,000 shares;
issued and outstanding 3,728,894 shares in 1995 and 1994 37,289 37,289
Additional paid-in capital 11,058,655 11,114,655
Retained earnings 10,300,071 10,780,898
----------- -----------
Total shareholders' equity 21,396,015 21,932,842
Commitments and contingencies ----------- -----------
$56,701,999 57,537,163
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For each of the years in the three-year
period ended June 30, 1995
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 190,503,745 174,760,907 158,088,736
Cost of goods sold 134,800,287 119,372,566 107,725,572
------------- ------------- -------------
Gross profit 55,703,458 55,388,341 50,363,164
Selling, general and administrative expense 54,501,903 50,891,343 49,149,723
Loss due to impairment of asset 400,000 -- --
------------- ------------- -------------
Income from operations 801,555 4,496,998 1,213,441
Other income (expense):
Other income (expense) (65,529) (6,774) 781,973
Interest income -- -- 277,836
Interest expense (1,424,693) (502,730) (584,286)
Provision for shareholder settlement 56,000 (1,252,000) --
------------- ------------- -------------
(Loss) income before income taxes (benefit) (632,667) 2,735,494 1,688,964
Income taxes (benefit) (151,840) 1,008,350 561,300
------------- ------------- -------------
Net (loss) income $ (480,827) 1,727,144 1,127,664
============= ============= =============
Common and common equivalent per share amounts:
Net (loss) income per share $ (.13) .46 .30
============= ============= =============
Weighted average number of shares outstanding 3,728,894 3,742,861 3,722,469
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For each of the years in the three-year
period ended June 30, 1995
ADDITIONAL RETAINED
COMMON COMMON PAID-IN EARNINGS
STOCK SHARES STOCK CAPITAL (LOSS) TOTAL
------------ ------ ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1992 3,718,894 $ 37,189 10,080,757 7,926,090 18,044,036
Net income -- -- -- 1,127,664 1,127,664
Proceeds for paid-in capital -- -- 8,998 -- 8,998
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1993 3,718,894 37,189 10,089,755 9,053,754 19,180,698
Net income -- -- -- 1,727,144 1,727,144
Issuance of common stock 10,000 100 49,900 -- 50,000
Common stock warrant valuation -- -- 975,000 -- 975,000
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1994 3,728,894 37,289 11,114,655 10,780,898 21,932,842
Net loss -- -- -- (480,827) (480,827)
Adjustment to common stock warrant
valuation -- -- (56,000) -- (56,000)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1995 3,728,894 $ 37,289 11,058,655 10,300,071 21,396,015
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the years in the three-year
period ended June 30, 1995
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net cash flows from operating activities:
Net (loss) income $ (480,827) 1,727,144 1,127,664
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,322,041 2,788,200 2,774,459
Provision for asset impairment 400,000 -- --
Deferred income taxes (285,157) (211,905) (511,600)
Loss on disposition of assets 65,529 19,669 7,377
Common stock warrant valuation (56,000) 975,000 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables (608,326) (222,390) 1,540,275
Inventories 3,370,921 (9,857,960) 1,529,821
Prepaid and other current assets 684,391 (755,257) 254,183
Prepaid income taxes (183,683) 1,205,055 1,500,482
Other assets 15,096 (262,978) 22,447
Increase (decrease) in:
Accounts payable 1,282,108 3,115,900 2,388,214
Accrued liabilities 33,238 1,371,467 768,144
Other liabilities 437,672 (40,289) 763,872
----------- ----------- -----------
Net cash provided by (used in) operating
activities 7,997,003 (148,344) 12,165,338
----------- ----------- -----------
Investing activities:
Capital expenditures (5,115,790) (3,861,758) (1,608,943)
----------- ----------- -----------
Net cash used in investing activities (5,115,790) (3,861,758) (1,608,943)
----------- ----------- -----------
Financing activities:
Net (repayments) borrowings under revolving credit
agreement (1,052,272) 4,919,287 (13,933,009)
Repayments of long-term debt (1,231,170) (749,483) (200,980)
Increase in cash overdraft (589,190) (1,823,256)
Reduction in capital lease obligation (6,623) -- --
Proceeds from issuance of long-term debt -- 1,607,661 3,600,000
Proceeds from issuance of common stock -- 50,000 --
Proceeds for paid-in capital -- -- 8,998
----------- ----------- -----------
Net cash (used in) provided by financing
activities (2,879,255) 4,004,209 (10,524,991)
----------- ----------- -----------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Increase (decrease) in cash $ 1,958 (5,893) 31,404
Cash, beginning of year 44,992 50,885 19,481
----------- ---------- ----------
Cash, end of year $ 46,950 44,992 50,885
=========== ========== ==========
Supplemental disclosures of cash flow information:
Interest paid $ 1,281,687 496,608 561,011
=========== ========== ==========
Income taxes paid, net of refunds $ 317,000 98,496 (700,000)
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Sound Advice, Inc. and subsidiaries (the "Company") operate in a
single business segment, the retailing and servicing of home and
car audio systems, video products, cellular telephones, personal
computers and other personal electronics, home entertainment
furniture and related customized services and accessories. Its
operations are conducted in Florida through 21 stores and three
support centers.
(B) BASIS OF PRESENTATION
The accompanying financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(C) RECEIVABLES
Receivables from vendors consist of cooperative advertising and
other amounts earned based on annual promotional and market
development agreements under various incentive programs. The
funds received under these programs are determined based upon
the Company's level of purchases and/or the inclusion of the
vendors' products in the Company's advertising and promotional
programs. Once earned, the funds are applied against product
cost or recorded as a reduction of advertising expense. Also,
included in receivables from vendors are amounts due for
warranty repairs. Trade receivables consist primarily of amounts
due from cellular activation providers, credit card and finance
companies resulting from customer purchases.
(D) INVENTORIES
Merchandise and service parts inventories are stated at the
lower of cost or market. Cost is determined using a moving
average which approximates the first-in, first-out method, and
is recorded net of volume and purchase discounts and rebates.
The Company allocates to inventory certain indirect costs
associated with purchasing, hauling and storage of inventories.
For the years ended June 30, 1995 and 1994, allocated
purchasing, hauling and storage costs were $3,975,000 and
$3,675,000, respectively, with $988,000 and $860,000,
respectively, remaining in inventory.
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization is computed using the straight-line method over the
estimated useful lives of the respective assets or the remaining
lease terms for leasehold improvements, whichever is shorter.
F-9 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The depreciable lives of property and equipment are as follows:
Building 30 years
Furniture and equipment 5 to 7 years
Display fixtures 7 years
Leasehold improvements Shorter of lease term or 15 years
Vehicles 5 years
(F) INCOME TAXES
The Company has adopted Financial Accounting Standards Board
Statement No. 109, ACCOUNTING FOR INCOME TAXES. Statement No.
109 requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.
(G) PREOPENING COSTS
Costs incurred in the opening of new stores are capitalized and
amortized over a one-year period following the opening of each
new store. Amortization of preopening costs was approximately
$94,500, $24,000 and $402,800 for the years ended June 30, 1995,
1994 and 1993, respectively.
(H) NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income
(loss) by the weighted average number of shares of common stock
and common stock equivalents outstanding during each year.
Common stock equivalents in 1994 and 1993 represent the dilutive
effect of the assumed exercise of certain outstanding stock
options and warrants. Common stock equivalents are not included
in net income (loss) per share in 1995 because they are
anti-dilutive.
(I) GOODWILL
Goodwill is amortized straight-line over 15 years. Goodwill is
presented net of accumulated amortization of $171,409 and
$146,959 at June 30, 1995 and 1994, respectively.
(J) EXTENDED WARRANTY SERVICE CONTRACTS
The Company offers extended warranty service contracts on most
of its products, on behalf of an unrelated third party, which
are on a nonrecourse basis to the Company. The Company includes
revenues from the sale of extended warranty contracts in net
sales and cost of goods sold for the amounts due the third party
for the cost for such contracts at the time of sale as the
earnings process has been completed. Revenues from the sale of
such contracts represent approximately 5 to 6 percent of
consolidated net sales in 1993 through 1995. Gross margins from
the sale of extended warranty contracts are higher than gross
margins from the sale of the Company's other products.
F-10 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(K) SALES INCENTIVE PROGRAM
From 1986 through February 1993 and July 1994 through June 30,
1995, the Company offered the purchasers of extended warranty
service contracts the right to apply the sales price of the
contract toward the future purchase of merchandise if the
purchaser did not utilize the contract during its term. The
total amount of extended warranty contracts sold from 1986
through February 1993 and July 1994 through June 1995 was
approximately $33 million and $10 million, respectively. The
Company records a liability (included in accrued liabilities and
other liabilities and deferred credits) at the time of sale for
the estimated amount of future redemptions. At June 30, 1995 and
1994, the recorded liability for such redemptions was
approximately $1,830,000 and $1,761,000, respectively.
(L) ACCRUED RENT
Certain store lease agreements provide for scheduled base rental
increases over the lease term or provide free rent periods. The
Company recognizes the aggregate rent expense on a straight-line
basis over the lease term, and the difference between rent
expense on a straight-line basis and the base rental is accrued
and included in other liabilities and deferred credits in the
consolidated balance sheet. At June 30, 1995 and 1994, the
recorded liability for accrued rent was approximately $2,317,000
and $2,034,000, respectively.
(M) SELF-INSURANCE LIABILITY
The Company is self-insured, up to certain limits, for employee
group health and workers' compensation benefits and,
accordingly, accrues for unpaid claims and associated expenses
including incurred but not reported losses.
(N) CUSTOMER DEPOSITS
Included in accrued liabilities at June 30, 1995 and 1994 is
approximately $2,168,000 and $1,917,000, respectively, of
customer deposits on future sales orders.
(O) RECLASSIFICATIONS
Certain amounts in the 1994 financial statements have been
reclassified to conform with the 1995 presentations.
F-11 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
1995 1994
---- ----
Land $521,465 521,465
Building 434,605 434,605
Furniture and equipment 7,814,945 8,044,226
Leasehold improvements 14,236,432 12,003,332
Display fixtures 4,799,236 3,934,506
Vehicles 964,323 1,002,714
----------- -----------
28,771,006 25,940,848
Less accumulated depreciation (13,707,723) (11,682,705)
----------- -----------
Property and equipment, net $15,063,283 14,258,143
=========== ===========
Depreciation expense approximated $3,129,000, $2,735,000 and $2,266,000
for the year ended June 30, 1995, 1994 and 1993, respectively.
(3) DEBT
(A) REVOLVING CREDIT AGREEMENT
On December 28, 1993, the Company entered into an Amended and
Restated Revolving Credit Agreement ("Revolving Credit
Agreement") with a bank through March 31, 1995, which was
extended to and refinanced on October 13, 1995 (see note 12).
Under the Revolving Credit Agreement, the Company may borrow up
to $30 million (which includes a letter of credit subfacility
for $1,500,000), limited to a borrowing base equal to the sum of
(i) 60 percent of eligible inventory, as defined, and (ii) 75
percent of eligible accounts receivable, as defined. The
availability under the Revolving Credit Agreement is reduced by
the total amount outstanding from time to time under the term
loan and standby letters of credit (see below). Interest is
based, at the option of the Company, on the bank's prime rate or
a variable rate equal to the bank's 30 day floating certificate
of deposit rate plus 2.5 percent.
The Revolving Credit Agreement contains various affirmative and
negative covenants requiring the Company to (i) maintain a ratio
of total liabilities to tangible net worth plus subordinated
debt of not more than 2.25 to 1; (ii) maintain tangible net
worth greater than $17.5 million, and (iii) maintain a cash flow
ratio, as defined, of not less than 1.25 to 1 on a quarterly
basis. There are also restrictive covenants including those
covering the amount of dividends, lease obligations, the
incurrence of additional debt and the amount of capital
expenditures and acquisitions.
Borrowings under the Revolving Credit Agreement are
collateralized by the Company's accounts receivable,
inventories, property and equipment and general intangibles. The
Company is also permitted to provide a corporate guaranty of up
to $50,000 in the aggregate to guarantee loans to employees.
The effective interest rate under the foregoing financing
arrangement at June 30, 1995, 1994 and 1993 was 9 percent, 6.8
percent and 5 percent, respectively.
F-12 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(B) LONG-TERM DEBT
Long-term debt consists of the following:
1995 1994
---- ----
Term loan $1,800,000 2,760,000
Promissory note 1,289,704 1,539,546
Mortgage note 491,779 513,107
---------- ----------
Total 3,581,483 4,812,653
Less current installments 2,673,570 1,237,785
---------- ----------
Long-term debt, excluding current
installments $ 907,913 3,574,868
========== ==========
On February 26, 1993, the Company entered into an agreement with
a bank to provide for a term loan in an aggregate principal
amount of $3,600,000 due February 28, 1997. Principal payments
under the term loan are due in 48 consecutive monthly
installments, plus interest at the bank's prime rate, as
follows: (i) $45,000 per month commencing March 31, 1993; (ii)
$75,000 per month commencing March 31, 1994, and (iii) $90,000
per month commencing March 31, 1995 through February 28, 1997.
The term loan is collateralized under the same terms as the
Revolving Credit Agreement. In connection with the refinancing
discussed in (a) above, this loan was replaced with a new term
loan facility on October 13, 1995 (see note 12).
On May 4, 1994, the Company entered into a five year promissory
note for the purpose of financing its new retail management
information system. The promissory note is repayable in equal
monthly installments based upon a short-term commercial paper
rate plus 2.6 percent. The Company has the option to convert to
a fixed interest rate loan based on certain Treasury note rates
tied to the then-remaining term of the loan plus 3.1 percent.
Borrowings under the promissory note are collateralized by
certain computer equipment. In connection with the return of the
new management information system (see note 7), the outstanding
obligation under this loan was reduced to approximately $575,000
in July 1995. The related monthly payment amounts were reduced
to amortize the loan balance over the remainder of the five-year
period.
The mortgage note is repayable in monthly installments of
$1,779, including interest at the lender's prime rate plus .5
percent with a balloon payment due July 12, 1998. The loan is
secured by land, building and improvements with a net book value
of approximately $862,000 at June 30, 1995.
The aggregate maturities of long-term debt for each of the five
years subsequent to June 30, 1995 are as follows:
YEAR ENDED AMOUNT
---------- ------
1996 $2,673,570
1997 153,367
1998 164,780
1999 589,766
----------
Total $3,581,483
==========
F-13 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(C) LETTERS OF CREDIT
The Company has standby letters of credit, in the aggregate of
approximately $900,000, with a maturity of 1996, primarily
supporting self-insurance reserves that were not drawn upon as
of June 30, 1995.
(4) INCOME TAXES
The components of the provision (benefit) for income taxes are as
follows:
YEARS ENDED JUNE 30,
------------------------------------------
1995 1994 1993
---- ---- ----
Current:
Federal $89,702 1,130,218 1,072,900
State 43,615 90,037 -
--------- --------- ---------
133,317 1,220,255 1,072,900
Deferred (285,157) (211,905) (511,600)
--------- --------- ---------
Total $(151,840) 1,008,350 561,300
========= ========= =========
The provision (benefit) for deferred income taxes consists of the
following:
1995 1994 1993
---- ---- ----
Accrued rent expense $(106,449) (117,406) (129,979)
Provision for
redemption rights 26,049 104,904 (194,511)
Provision for doubtful
accounts (5,682) (20,785) 129,633
Preopening expenses 60,667 13,666 (124,938)
Valuation allowance 20,000 - -
Inventory adjustments (47,414) - 30,589
Accelerated
depreciation (246,477) (191,537) (72,955)
Prepaid expenses (196,849) 55,972 (70,650)
Other 210,998 (56,719) (78,789)
--------- -------- --------
Total $(285,157) (211,905) (511,600)
========= ======== ========
The reconciliation of the Federal statutory rate and the Company's
effective tax rate is as follows:
YEARS ENDED JUNE 30,
-------------------------------------
1995 1994 1993
---- ---- ----
Statutory income tax rate (34.0)% 34.0% 34.0%
Effect of state taxes (.2) 1.3 -
Nondeductible expenses 8.8 1.0 1.5
Provision for valuation
allowance 1.4 - -
Other - .6 (2.3)
----- ---- ----
Effective income
tax rate (24.0)% 36.9% 33.2%
===== ==== ====
F-14 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at June
30, 1995 are as follows:
ASSETS LIABILITIES TOTAL
------ ----------- -----
Accelerated depreciation $ - (213,347) (213,347)
Allowance for warranty
redemptions 718,910 - 718,910
Accrued rent expense 906,470 - 906,470
Allowance for doubtful
accounts 190,138 - 190,138
Inventory adjustments 122,937 - 122,937
Preopening expenses - (81,818) (81,818)
Prepaid advertising - (107,708) (107,708)
Legal settlement expense 49,151 - 49,151
Valuation allowance (207,280) - (207,280)
Prepaid expenses - (23,950) (23,950)
Deferred gain on sale 54,321 - 54,321
Other 132,641 - 132,641
---------- -------- ---------
Total $1,967,288 (426,823) 1,540,465
========== ======== =========
(5) SHAREHOLDERS' EQUITY
(A) STOCK OPTION PLAN
During 1995, the Company amended its stock option plan and
increased the number of shares reserved for issuance to 750,000.
The amended stock option plan provides for the issuance of
either incentive stock options or non-qualified stock options.
The exercise price of incentive stock options shall not be less
than the fair market value per share on the date of grant. The
exercise price of any non-qualified stock options shall not be
less than 85 percent of the fair market value per share on the
date of grant. For each of the years ended June 30, 1995, 1994
and 1993, the option price represents the fair market value of
each underlying share of common stock at the date of grant
established by the Company's board of directors. The option term
may not be longer than ten years. No options may be granted
under the stock option plan after November 10, 2001. At June 30,
1995, the Company had 689,000 shares of common stock available
for issuance under the stock option plan. No options have been
granted subsequent to the amendment of the plan.
F-15 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the number of shares subject to option and option
prices are summarized as follows:
SHARES PRICE
------ -----
Outstanding, June 30, 1992 115,750 $ 5.45 - 10.48
Granted 23,000 4.20 - 4.76
Exercised - -
Canceled (27,750) 5.45 - 6.25
-------
Outstanding, June 30, 1993 111,000 4.20 - 10.48
Granted 51,000 6.29
Exercised - -
Canceled (7,000) 5.45 - 5.98
-------
Outstanding, June 30, 1994 155,000 4.20 - 10.48
Granted 45,000 5.96
Exercised - -
Canceled (58,500) 4.20 - 8.04
-------
Outstanding, June 30, 1995 141,500
=======
Exercisable 141,500
=======
Available for future grants 547,500
=======
(B) WARRANTS
A former director of the Company has been issued warrants to
purchase the Company's common stock as follows:
ISSUED SHARES PRICE EXPIRATION
------ ------ ----- ----------
November 1991 10,000 $ 8.78 October 1996
July 1992 10,000 3.99 June 1997
During 1994, the former director exercised a warrant to purchase
10,000 shares of common stock for an aggregate exercise price of
$50,000.
F-16 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Effective as of July 1, 1989, the Company established and adopted an
Employee Stock Ownership Plan and Trust (the "ESOP") for all of its
employees. Contributions to the ESOP are made at the discretion of the
board of directors. Although no contributions were made in 1995,
contributions totaling $50,000 and $12,000 were made during 1994 and
1993, respectively.
(7) PROVISION FOR ASSET IMPAIRMENT
During fiscal 1995, the Company was unable to successfully complete the
implementation of a new management information system purchased in the
latter part of fiscal 1994. A provision of $400,000 for loss on
impairment of these assets was recorded in March 1995. The Company
reached a settlement with the vendor for return of the new management
information system in July 1995. The value of the assets returned and
amount of financing repaid from the settlement proceeds have been
included in prepaid and other current assets and current installments
of long-term debt, respectively, in the June 30, 1995 consolidated
balance sheet.
(8) INSURANCE RECOVERY
During August 1992, Hurricane Andrew damaged certain facilities of the
Company. In 1993, the Company received its claim for property and
inventory damage and business interruption insurance of $1,800,000. Of
this amount, $740,000 related to business interruption has been
included in other income in the consolidated statements of operations
in 1993.
(9) LEASE COMMITMENTS
All (but one) of the Company's facilities, including distribution
centers, temporary storage, installation facilities and stores, are
leased under long-term leases accounted for as operating leases. In
addition, the Company leases office equipment and vehicles. The leases
generally contain provisions for increases based on the Consumer Price
Index, and contain options, for periods of up to 15 years, to renew at
the then fair rental value. The Company also leases a building under a
capital lease.
F-17 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum annual rental payments required under operating leases
that have initial or remaining noncancelable lease terms in excess of
one year as of June 30, 1995 and the capital lease payments are as
follows:
CAPITAL OPERATING
YEAR ENDED LEASE LEASES
---------- ------- ---------
1996 $ 162,396 5,364,826
1997 162,396 4,934,530
1998 162,396 4,856,846
1999 162,396 4,486,990
2000 162,396 3,961,273
Thereafter 2,341,209 19,623,752
---------- -----------
Total minimum lease payments 3,153,189 $43,228,217
===========
Less amount representing
interest (at an effective
interest rate of
approximately 19%) (2,327,501)
----------
Present value of net
minimum capital lease
payments 825,688
Less current installments of
obligations under capital
lease (4,411)
----------
Obligations under
capital lease,
excluding current
installments $ 821,277
==========
Total rental expense under the noncancelable operating leases, included
in selling, general and administrative expenses in the accompanying
consolidated statements of operations was approximately $6,123,000,
$5,971,000 and $5,780,000 in 1995, 1994 and 1993, respectively.
In June 1994, the Company entered into a limited partnership agreement
with a development company in connection with the acquisition and
development of a parcel of land in Lee County, Florida. The Company was
a 40 percent limited partner and made capital contributions of
approximately $250,000. This limited partnership was formed to develop
a retail commercial building for its Fort Myers retail store. The
Company has agreed to lease the building for a period of 20 years and
has recorded a portion of the Fort Myers lease as a capital lease. In
April 1995, the land and building was sold by the limited partnership.
The Company's portion of the gain on sale is being amortized over the
life of the lease.
Property under capital lease includes the following amounts in the
accompanying financial statements:
ESTIMATED
1995 USEFUL LIFE
---- -----------
Building $685,000 20 years
Furniture and equipment 142,900 7 years
--------
Subtotal 827,900
Less accumulated depreciation (32,270)
--------
Total $795,630
========
F-18 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) SHAREHOLDERS' SETTLEMENT
In May 1992, two substantially similar actions were filed, each as a
purported class action, against the Company and certain of its officers
and directors in the United States District Court, Southern District of
Florida. Each complaint alleged that the Company and the individual
defendants issued or caused to be issued, false and misleading
financial information with respect to the operations of the Company
during the fiscal year ended June 30, 1991 and the first two quarters
of fiscal 1992.
In January 1994, the Company and other defendants entered into a
settlement agreement to globally settle the two class actions filed in
1992. The terms of the settlement required the payment of $1,790,000 in
cash, of which the Company was to pay a maximum of $150,000, and the
issuance of warrants to purchase up to 325,000 shares of common stock,
valued at $3.00 per warrant. The warrants are exercisable for four
years from June 15, 1995 at an exercise price of $8.70 per share. In
1994, the Company recognized a $1,252,000 charge reflecting the value
of the warrants, the Company's portion of the cash settlement and other
expenses associated with the settlement. In 1995, a $56,000 reduction
in the settlement was recorded since the actual number of warrants
issued was only 306,335.
(11) COMMITMENT AND CONTINGENCIES
(A) SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
In October 1992, the Company became aware that the United States
Securities and Exchange Commission (SEC) was conducting a
private formal investigation pursuant to section 21(a) of the
Securities and Exchange Act of 1934 arising from certain
allegations made by a former employee of the Company in April
1992, asserting that the Company's financial statements for
certain fiscal periods prior to June 30, 1992, included
intentional misstatements. In that regard, the board of
directors had engaged in 1992, a law firm to serve as special
counsel to investigate the allegations. As a result of the
report of special counsel and the Company's own internal review
of its financial records, the Company has previously restated in
1992, its 1988 through 1991 consolidated financial statements.
The SEC has recently completed its investigation and the Company
has voluntarily agreed with the entry of a cease and desist
order by the SEC on August 9, 1995, concerning its Form 10-K for
fiscal year 1991 and Forms 10-Q for the quarters ended September
30 and December 31, 1991, which the SEC found in such order had
been materially misstated. The cease and desist order prohibits
the Company from violating certain provisions of the securities
laws that require public Companies to keep accurate books and
records, to maintain appropriate internal accounting controls
and to file accurate annual and quarterly reports. The Company
neither admitted or denied any wrong doing and no censure, fine
or penalty was involved.
F-19 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(B) BONUS PLAN
During 1995, the Company implemented a bonus plan for certain
managerial positions based upon the annual operating performance
of the Company. Under the terms of the plan, bonuses ranging
between 10 percent and 25 percent of annual compensation may be
earned for achievement of various levels of targeted operating
performance as approved by the Board of Directors. During 1995,
no bonus amounts were earned under the plan.
(C) EMPLOYMENT AGREEMENTS
Two of the Company's officers had employment agreements which
expired on June 30, 1995, which provided for aggregate annual
base salaries of $611,050 for each of the fiscal years ending
June 30, 1995, 1994 and 1993. For the year ended June 30, 1993,
the employment agreements provided for annual aggregate bonuses
equal to 6 percent of the Company's net income before income
taxes and extraordinary items in excess of $7 million without
taking into account such aggregate annual bonuses. There were no
bonuses earned under such arrangement in 1993. In 1994, bonuses
totaling $71,000 were paid to the two officers. In 1995, no
bonuses were paid under the Company's new bonus plan (see (b)
above).
(D) OTHER
The Company is a defendant in other legal actions which arose in
the normal course of business, the outcome of which, in the
opinion of management, will not have a material effect on the
Company's financial position.
(12) SUBSEQUENT EVENT - REFINANCING
On October 13, 1995, the Company replaced its existing revolving credit
agreement and term loan facility which had been extended through the
closing date. The new $20,000,000 credit facility is comprised of a
term loan of $6,680,000 and a revolving credit facility of $13,320,000
under which the Company is able to borrow, repay and reborrow based on
the lesser of a borrowing base equal to 65% of eligible inventory in
excess of $6,680,000 or $13,320,000. The availability is reduced by
outstanding letters of credit which are limited to $1,200,000. The term
loan facility bears interest at prime plus 1.5% and is repayable in
monthly principal installments of approximately $56,000, an additional
principal reduction of $723,000 within 45 days of closing and a balloon
payment of the outstanding balance at December 31, 1996. The revolving
credit facility matures on December 31, 1996 and bears interest on the
outstanding balance at prime plus 1%. The Company paid a 1.375%
commitment fee in connection with the closing and is obligated to pay
additional fees of .75% on February 28, 1996, 1% on July 1, 1996 and 1%
on September 30, 1996, based on the commitment amount of the term loan
and revolving credit facility on the respective dates.
F-20 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The credit agreement also contains various affirmative and negative
covenants requiring the Company to (i) maintain an interest coverage
ratio of at least 1.5 to 1 increasing to 2.0 to 1 on January 31, 1996,
2.5 to 1 on April 30, 1996 and 3.0 to 1 on July 31, 1996, (ii) maintain
a fixed charge coverage ratio of not less than 1.05 to 1, (iii)
maintain a tangible net worth of $19,500,000, (iv) maintain a ratio of
total liabilities to tangible net worth of not more than 2.0 to 1 and
(v) limits capital expenditures, incurrence of additional debt, lease
obligations, acquisitions, investments and dividends.
Borrowings under the revolving credit and term loan facility are
collateralized by the Company's depository accounts, receivables,
inventories, property and equipment and intangible assets.
F-21
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER CHANGES END OF
DESCRIPTION YEAR EXPENSES ADD (DEDUCT) YEAR
----------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
June 30, 1995 $ 460,000 380,474 (370,474) 470,000
========== ========== ============= ==========
June 30, 1994 $ 403,000 416,688 (359,688) 460,000
========== ========== ============= ==========
June 30, 1993 $1,200,000 965,477 (1,762,477) 403,000
========== ========== ============= ==========
Allowance for redemption of extended service warranty contracts:
June 30, 1995 $1,761,222 69,223(A) -- 1,830,445
========== ========== ============= ==========
June 30, 1994 $2,040,000 -- (278,778)(A) 1,761,222
========== ========== ============= ==========
June 30, 1993 $1,950,000 90,000(A) -- 2,040,000
========== ========== ============= ==========
Allowance for inventory obsolescence:
June 30, 1995 $ 273,000 327,000 -- 600,000
========== ========== ============= ==========
June 30, 1994 $ 273,000 -- -- 273,000
========== ========== ============= ==========
June 30, 1993 $ 200,000 73,000 -- 273,000
========== ========== ============= ==========
<FN>
(A) Amounts represent net change between beginning of period and end of period balances.
</FN>
</TABLE>
S-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
JUNE 30, 1995 0-15194
----------------------------------
SOUND ADVICE, INC.
- -----------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Page No.
- ------- ----------
3.1 Articles of Incorporation, as amended,
of the Registrant (incorporated by
reference from Registration Statement
No. 33-5942, Exhibit 3.1, filed May 23,
1986)
3.2 By-laws of the Registrant (incorporated
by reference from Registration Statement
No. 33-5942, Exhibit 3.2, filed May 23,
1986)
4.1 Form of certificate evidencing ownership
of Common Stock of the Registrant
(incorporated by reference from
Amendment No. 1 to Registration
Statement No. 33-5942, Exhibit 4.1,
filed June 24, 1986)
9. Right of First Refusal and Voting Trust
Agreement, dated June 30, 1986, among
Peter Beshouri, Gregory Sturgis, Michael
Blumberg and Joseph Piccirilli
(incorporated by reference from the
Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1986,
Exhibit 9, File No. 33-5942)
10.1 Amended and Restated Credit Agreement,
dated as of February 4, 1993, among the
Registrant, SAI Distributors, Inc. and
NationsBank (incorporated by reference
from the Registrant's Quarterly Report
on Form 10-Q for the quarter ended
December 31, 1992, Exhibit 10.1, File
No. 0-15194), First Amendment to Credit
Agreement, dated as of February 26,
1993, among the Registrant, SAI
Distributors, Inc. and NationsBank
(incorporated by reference from the
Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31,
1993, Exhibit 10.1, File No. 0-15194),
Second Amendment to Credit Agreement,
dated as of December 28, 1993, among the
Registrant, SAI Distributors, Inc. and
NationsBank (incorporated by reference
from the Registrant's Quarterly Report
i
<PAGE>
Exhibit Sequential
No. Page No.
- ------- ----------
on Form 10-Q for the quarter ended
December 31, 1993, Exhibit 10.2, File
No. 0-15194), Third Amendment to Credit
Agreement, dated March 29, 1995, among
the Registrant, SAI Distributors, Inc.
and NationsBank (incorporated by
reference from the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, Exhibit
10.1, File No. 0-15194), and Fourth
Amendment to Credit Agreement, dated
September 29, 1995, among the
Registrant, SAI Distributors, Inc. and
NationsBank (filed herewith)
10.2 Amended and Restated Credit Agreement
(without Exhibits), dated as of
October 10, 1995, among the Registrant,
the Registrant's wholly-owned subsidiaries
and NationsBank, together with Amended and
Restated Security Agreement (without
Schedule), dated as of October 10, 1995,
between the Registrant and NationsBank
(filed herewith)
10.3 Mortgage Note, dated July 12, 1988, from
the Registrant payable to Bank Atlantic
in the principal amount of $640,000,
together with Mortgage and Security
Agreement, dated July 12, 1988, between
the Registrant and BankAtlantic and
Assignment of Leases, Rents and Profits,
dated July 12, 1988, between the
Registrant and BankAtlantic
(incorporated by reference from the
Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1988,
Exhibit 10.42, File No. 0-15194)
10.4* Amended and Restated Sound Advice, Inc.
1986 Stock Option Plan (incorporated by
reference from the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990, Exhibit
- --------
* Management contract or compensation plan
or arrangement required to be filed as
an exhibit to this report pursuant to
Item 14(c) of Form 10-K.
ii
<PAGE>
Exhibit Sequential
No. Page No.
- ------- ----------
10.2, File No. 0-15194) and Form of
Incentive Stock Option Agreement of the
Registrant pursuant to which incentive
stock options (i) totalling 69,000
shares of Common Stock were issued on
February 7, 1990, to 41 employees of the
Registrant at an exercise price of $5.98
per share and (ii) totalling 5,000
shares of Common Stock were issued on
June 18, 1990 to one (1) employee of the
Registrant at an exercise price of $6.14
per share (incorporated by reference
from the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March
31, 1990, Exhibit 10.3, File No.
0-15194)
10.5 Form of Incentive Stock Option Agreement
of the Registrant pursuant to which
incentive stock options totalling 10,000
shares of Common Stock were issued on
January 14, 1991 to one (1) employee of
the Registrant at an exercise price of
$6.25 per share (incorporated by
reference from Registration Statement
No. 33-38851 on Form S-8, Exhibit 4.7,
filed on February 7, 1991)
10.6 Form of Incentive Stock Option Agreement
of the Registrant pursuant to which
incentive stock options (i) totalling
2,000 shares of Common Stock were issued
on May 24, 1991 to one (1) employee of
the Registrant at an exercise price of
$10.48 per share, (ii) totalling 11,000
shares of Common stock were issued on
July 12, 1991, to four (4) employees of
the Registrant at an exercise price of
$7.27 per share, (iii) totalling 1,000
shares of Common Stock were issued on
August 12, 1991 to one (1) employee of
the Registrant at an exercise price of
$9.27 per share and (iv) totalling 2,000
shares of Common Stock were issued on
October 18, 1991 to one (1) employee at
an exercise price of $8.04 per share
(incorporated by reference from
Registration Statement No. 33-38851 on
iii
<PAGE>
Exhibit Sequential
No. Page No.
- ------- ----------
Form S-8, Exhibit 4.8, filed on February
7, 1991)
10.7* Second Amended and Restated Sound
Advice, Inc. 1986 Stock Option Plan
(incorporated by reference from the
Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31,
1991, Exhibit 10.2, File No. 0-15194),
as amended by Amendments to Second
Amended and Restated Sound Advice, Inc.
1986 Stock Option Plan (incorporated by
reference from the Registrant's
Definitive Proxy Statement dated
December 30, 1994, Exhibit "A," File No.
0-15194)
10.8 Form of Incentive Stock Option Agreement
of the Registrant pursuant to which
incentive stock options (i) totalling
53,250 shares of Common Stock were
issued on December 27, 1991, to 53
employees of the Registrant at an
exercise price of $5.45 per share
(incorporated by reference from the
Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31,
1991, Exhibit 10.3, File No. 0-15194),
(ii) totalling 20,000 shares of Common
Stock were issued on September 28, 1992
to one (1) employee of the Registrant at
an exercise price of $4.20 per share,
(iii) totalling 3,000 shares of Common
Stock were issued on May 24, 1993, to
one (1) employee of the Registrant at an
exercise price of $4.76 per share, (iv)
totalling 51,000 shares of Common Stock
were issued on September 22, 1993 to
three (3) employees of the Registrant at
an exercise price of $6.29 per share and
(v) totalling 45,000 shares of Common
Stock were issued on December 14, 1994
- --------
* Management contract or compensation plan
or arrangement required to be filed as
an exhibit to this report pursuant to
Item 14(c) of Form 10-K.
iv
<PAGE>
Exhibit Sequential
No. Page No.
- ------- ----------
to three (3) employees of the Registrant
at an exercise price of $5.96 per share
10.9 Sound Advice, Inc. Employee Stock
Ownership Plan and Trust, made January
15, 1990, between the Registrant and
Peter Beshouri, Michael Blumberg,
Gregory Sturgis, Joseph Piccirilli and
Jacob E. Farkas, the trustees
(incorporated by reference from the
Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31,
1990, Exhibit 10.2, File No. 0-15194),
First Amendment to the Sound Advice,
Inc. Employee Stock Ownership Plan and
Trust, dated as of December 23, 1992
(incorporated by reference from the
Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31,
1992, Exhibit 10.2, File No. 0-15194),
Second Amendment to the Sound Advice,
Inc. Employee Stock Ownership Plan and
Trust, dated as of July 9, 1993
(incorporated by reference from the
Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993,
Exhibit 10.15, File No. 0-15194) and
Third Amendment to the Sound Advice,
Inc. Employee Stock Ownership Plan and
Trust, dated as of December 30, 1994
(filed herewith)
10.10* Employment Agreements, dated June 30,
1986, between Registrant and each of
Peter Beshouri and Michael Blumberg
(incorporated by reference from the
Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1986,
Exhibit 10.26, File No. 33-5942), First
Amendments to Employment Agreements,
both dated as of May 20, 1989, between
the Registrant and each of Peter
- --------
* Management contract or compensation plan
or arrangement required to be filed as
an exhibit to this report pursuant to
Item 14(c) of Form 10-K.
v
<PAGE>
Exhibit Sequential
No. Page No.
- ------- ----------
Beshouri and Michael Blumberg
(incorporated by reference from
Registration Statement No. 33-28745,
Exhibit 10.20, filed May 16, 1989),
Second Amendments to Employment
Agreements, both dated as of October 27,
1989, between the Registrant and each of
Peter Beshouri and Michael Blumberg
(incorporated by reference from the
Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31,
1989, Exhibit 10.2, File No. 0-15194),
Third Amendments to Employment
Agreements, both dated as of July 1,
1992, between the Registrant and each of
Peter Beshouri and Michael Blumberg
(incorporated by reference from the
Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1992,
Exhibit 10.15, File No. 0-15194), Fourth
Amendments, both dated as of July 1,
1993, between the Registrant and each of
Peter Beshouri and Michael Blumberg
(incorporated by reference from the
Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993,
Exhibit 10.16, File No. 0-15194) and
Fifth Amendments, both effective as of
July 1, 1994, between the Registrant and
each of Peter Beshouri and Michael
Blumberg (incorporated by reference from
the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December
31, 1994, Exhibit 10.2, File No. 0-15194)
10.11 Associate Agreement, dated March 1, 1986
between the Registrant and Progressive
Retailers Organization, Inc. ("PRO"),
together with PRO Policy and Procedure
Manual (incorporated by reference from
Amendment No. 1 to Registration
Statement No. 33-5942, Exhibit 10.28,
filed June 24, 1986)
10.12 Lease, dated September 23, 1987, between
Designer's Place at Dania, a Florida
general partnership consisting of Marvin
vi
<PAGE>
Exhibit Sequential
No. Page No.
- ------- ----------
Mandel, Philip Mandel and G&E Investment
Company, and the Registrant
(incorporated by reference from the
Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30,
1987, Exhibit 10.1, File No. 0-15194)
10.13 Amended and Restated Lease, dated as of
December 1, 1991, between Chase,
Gunsaullus, Scherer and the Registrant
(incorporated by reference from the
Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1992,
Exhibit 10.19, File No. 015194)
10.14 Dealer Agreement, dated January 1, 1995,
between McCaw Communications of Florida,
Inc. d/b/a Cellular One ("McCaw") and
the Registrant, as amended by that
certain Amendment to Dealer Agreement,
dated January 1, 1995, between McCaw and
the Registrant (filed herewith).
10.15* Consulting Agreement effective as of
July 1, 1991, between the Registrant and
J.E. Farkas, Ltd. together with Form of
Warrant to Purchase 10,000 Shares of
Common Stock of Sound Advice, Inc.
attached as Exhibit "A" thereto,
pursuant to which a warrant to purchase
10,000 shares of Common Stock of the
Registrant has been issued to Jacob E.
Farkas on each of November 1, 1991 and
July 1, 1992 at an exercise price per
share of $8.78 and $3.99, respectively,
which is exercisable, in whole or in
part, for five (5) years from date of
its issuance (incorporated by reference
from the Registrant's Annual Report on
Form 10-K for the fiscal year ended June
30, 1991, Exhibit 10.23, File No.
0-15194)
- --------
* Management contract or compensation plan
or arrangement required to be filed as
an exhibit to this report pursuant to
Item 14(c) of Form 10-K.
vii
<PAGE>
Exhibit Sequential
No. Page No.
- ------- ----------
10.16 Credit Card Program Agreement, dated
August 12, 1992, between Monogram Credit
Card Bank of Georgia and the Registrant
(incorporated by reference from the
Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1992,
Exhibit 10.29, File No. 0-15194)
10.17 Sales Agreement, dated August 10, 1989,
between Progressive Casualty Insurance
Company and the Registrant (incorporated
by reference from the Registrant's
Annual Report on Form 10-K for the
fiscal year ended June 30, 1992, Exhibit
10.32, File No. 0-15194)
10.18 Letter Agreement, dated January 4, 1993,
from the Registrant to and accepted by
Gregory Sturgis (incorporated by
reference from the Registrant's
Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1993,
Exhibit 10.2, File No. 0-15194)
10.19 Lease, dated as of May 22, 1993, between
L&T Limited Partnership, as landlord,
and the Registrant, as tenant
(incorporated by reference from the
Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993,
Exhibit 10.34, File No. 0-15194)
10.20 Promissory Note, dated May 4, 1994, from
the Registrant payable to General
Electric Capital Corporation ("GECC") in
the original principal amount of
$1,607,661.17, as amended, together with
Master Security Agreement, dated as of
May 4, 1994, between the Registrant and
GECC (incorporated by reference from the
Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1994,
Exhibit 10.28, File No. 0-15194)
10.21 Stipulation of Settlement, dated as of
January 26, 1994, regarding IN RE: SOUND
ADVICE, INC. SECURITIES LITIGATION,
which has annexed as one of the exhibits
viii
<PAGE>
Exhibit Sequential
No. Page No.
- ------- ----------
thereto, among other documents, the form
of Warrant Agreement between the
Registrant and American Stock Transfer &
Trust Company, as warrant agent,
covering the 306,335 warrants issued in
connection with the settlement of the
class action (incorporated by reference
from the Registrant's current report on
Form 8-K, dated January 31, 1994,
reporting an event on January 28, 1994,
Exhibit 2, File No. 0-15194)
21 Subsidiaries of the Registrant (filed
herewith)
23 Consent of Independent Public
Accountants of KPMG Peat Marwick LLP
(filed herewith)
27 Financial Data Schedule (filed herewith)
ix
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT, dated as of September 29,
1995 (the "Fourth Amendment") is among SOUND ADVICE, INC., a Florida corporation
(the "Borrower"), SAI DISTRIBUTORS, INC., a Florida corporation (the
"Guarantor") and NATIONSBANK OF FLORIDA, N.A., a national banking association
(the "Lender" or "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantor and the Lender previously entered
into an "Amended and Restated Credit Agreement", dated as of February 4, 1993,
as amended by the "First Amendment to Credit Agreement" dated as of February 26,
1993 ("First Amendment"), as amended by the "Second Amendment to Credit
Agreement" dated as of December 28, 1993 ("Second Amendment "), as amended by
the Third Amendment to Credit Agreement dated as of March 29, 1995 ("Third
Amendment") (collectively, the "Credit Agreement"), pursuant to which the Lender
has extended to Borrower a commitment to make revolving credit loans and to
issue letters of credit and make a $3,600,000.00 term loan in favor of the
Borrower (the "Commitment"); and
WHEREAS, the Commitment is evidenced by an Amended and Restated Renewal
Revolving Credit Promissory Note in the principal amount of THIRTY MILLION
DOLLARS ($30,000,000.00), dated March 29, 1995 and a Term Note dated February
26, 1993 in the original principal amount of Three Million Six Hundred Thousand
Dollars ($3,600,000.00) ("Term Note"), which Term Note is a part of the
Commitment; and
WHEREAS, in order to secure its obligations and indebtedness under the
Note and the Credit Agreement, the Borrower executed and delivered to Lender an
Amended and Restated Security Agreement, dated as of February 4, 1993 (the
"Security Agreement") granting to Lender a first, perfected security interest in
the Collateral (as defined in the Security Agreement); and
WHEREAS, in order to induce Lender to make the Commitment available to
the Borrower, the Guarantor executed and delivered to Lender a Continuing and
Unconditional Guaranty, dated as of February 4, 1993 which has been confirmed by
the Guarantor from time to time (the "Guaranty") (the Credit Agreement, the
Security Agreement and the Guaranty are hereinafter referred to as the "Loan
Documents"); and
WHEREAS, the Borrower and the Guarantor have requested that the Lender
extend the Note and the Credit Agreement; and
WHEREAS, the Lender is willing to do so on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. RECITALS. The foregoing recitals are true and correct and
are incorporated as part of this Agreement.
1
<PAGE>
2. DEFINITIONS. All capitalized terms used herein shall, except
as modified hereby, have the meanings ascribed to them in the Credit Agreement.
3. RENEWAL PROMISSORY NOTE.
Even date herewith, Borrower shall execute the Amended and
Restated Renewal Revolving Credit Promissory Note in the amount of THIRTY
MILLION DOLLARS ($30,000,000.00) in the form attached hereto as EXHIBIT A
("Renewal Revolving Note"), which Renewal Revolving Note and any modifications,
renewals, replacements and substitutions therefor made from time to time
hereafter shall constitute the "Revolving Credit Note" contemplated in the
Credit Agreement.
4. TERMINATION DATE. The "Termination Date" shall mean October
13, 1995, time being of the essence. Borrower acknowledges that Lender shall
have no obligation to extend the Termination Date. As of the Termination Date,
all Obligations of the Borrower to the Lender shall be due and payable and all
available credit from Lender to Borrower including, without limitation, the
Commitment and any letter(s) of credit shall be terminated. Notwithstanding
anything in this Fourth Amendment, the Renewal Revolving Note or any of the Loan
Documents to the contrary, in the event the Borrower and Lender do not enter
into a commitment letter with respect to the Loan Documents upon terms and
conditions acceptable to both the Lender and the Borrower (as determined in
their sole and absolute discretion) on or prior to 2:00 p.m. October 3, 1995
(time being of the essence), then Lender shall have the right to accelerate the
Termination Date to October 3, 1995. Nothing herein shall be deemed to
constitute an offer by the Lender to grant a commitment or an agreement by the
Lender to negotiate a commitment with the Borrower in good faith. The Borrower
acknowledges and agrees that there has been no warranty or representation made
by the Lender to grant a commitment.
5. USE OF LOAN. Section 4.12(iv) of the Credit Agreement is,
effective as of January 1, 1995, intentionally left blank.
6. CAPITAL EXPENDITURE. The maximum capital expenditure during
any fiscal year, as contemplated by Section 6.8 of the Credit Agreement, is,
effective as of January 1, 1995, until June 30, 1995, amended from FOUR MILLION
DOLLARS ($4,000,000.00) to FIVE MILLION TWO HUNDRED THOUSAND DOLLARS
($5,200,000.00). As of July 1, 1995, the maximum capital expenditure shall
revert to FOUR MILLION DOLLARS ($4,000,000.00) from FIVE MILLION TWO HUNDRED
THOUSAND DOLLARS ($5,200,000.00).
7. ADDITIONAL REPORTING REQUIREMENTS. In addition to any other
financial reporting currently required to be provided by the Borrower to the
Lender, the Borrower shall also provide the following to Lender:
(i) Copy of Borrower's monthly inventory, reconciliation
reports on a form satisfactory to Lender on or prior to the thirtieth (30th)
day of each month for the preceding month; and
(ii) Borrowing base certificates based upon Borrower's
closed month end general ledger balance on or prior to thirty (30) days
following the applicable month end.
2
<PAGE>
8. RELEASE. AS A MATERIAL INDUCEMENT FOR LENDER TO EXECUTE THIS
AGREEMENT, BORROWER AND GUARANTOR DO HEREBY RELEASE, WAIVE, DISCHARGE, COVENANT
NOT TO SUE, ACQUIT, SATISFY AND FOREVER DISCHARGE LENDER ITS OFFICERS,
DIRECTORS, EMPLOYEES, AND AGENTS AND ITS AFFILIATES AND ASSIGNS FROM ANY AND ALL
LIABILITY, CLAIMS, COUNTERCLAIMS, DEFENSES, ACTIONS, CAUSES OF ACTION, SUITS,
CONTROVERSIES, AGREEMENTS, PROMISES AND DEMANDS WHATSOEVER IN LAW OR IN EQUITY
WHICH BORROWER OR GUARANTOR EVER HAD, NOW HAVE, OR WHICH ANY PERSONAL
REPRESENTATIVE, SUCCESSOR, HEIR OR ASSIGN OF BORROWER OR GUARANTOR HEREAFTER
CAN, SHALL OR MAY HAVE AGAINST LENDER, ITS OFFICERS, DIRECTORS, EMPLOYEES, AND
AGENTS, AND ITS AFFILIATES AND ASSIGNS, FOR, UPON, OR BY REASON OF ANY MATTER,
CAUSE OR THING WHATSOEVER THROUGH THE DATE HEREOF. BORROWER AND GUARANTOR
FURTHER EXPRESSLY AGREE THAT THE FOREGOING RELEASE AND WAIVER AGREEMENT IS
INTENDED TO BE AS BROAD AND INCLUSIVE AS PERMITTED BY THE LAWS OF THE STATE OF
FLORIDA. IN ADDITION TO, AND WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
AND IN CONSIDERATION OF LENDER'S EXECUTION OF THIS AGREEMENT, BORROWER AND
GUARANTOR COVENANT WITH AND WARRANT UNTO LENDER, AND ITS AFFILIATES AND ASSIGNS,
THAT THERE EXIST NO CLAIMS, COUNTERCLAIMS, DEFENSES, OBJECTIONS, OFFSETS OR
CLAIMS OF OFFSETS AGAINST LENDER OR THE OBLIGATION OF BORROWER AND GUARANTOR TO
PAY THE LOAN TO LENDER WHEN AND AS THE SAME BECOMES DUE AND PAYABLE.
9. RATIFICATION OF SECURITY AGREEMENT.
(a) The Borrower, by execution of this Fourth
Amendment: (i) acknowledges the continued effectiveness of the Security
Agreement securing all Obligations (as defined in the Security Agreement) of the
Borrower to the Lender, including the Renewal Revolving Note and the Term Note;
and (ii) ratifies and confirms the Security Agreement. The term "Obligations" is
hereby amended to include the indebtedness and obligations of the Borrower to
the Lender evidenced by the Renewal Revolving Note and the Term Note.
(b) The Borrower represents and warrants that: (i) each
of the representations and warranties of the Borrower contained in the Security
Agreement is true and correct as of the date hereof; (ii) the Borrower is in
full compliance with each of the covenants of the Borrower set forth in the
Security Agreement; and (iii) no Event of Default (as defined in the Security
Agreement) or event which, with the lapse of time, the giving of notice, or
both, would become an Event of Default has occurred and is continuing under the
Security Agreement.
10. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The Borrower
represents and warrants that: (a) each of the representations and warranties of
the Borrower contained in Article 4 of the Credit Agreement is true and correct
as of the date hereof; provided, however, Borrower hereby discloses the
existence of the following Subsidiaries: (i) SAI Realty Investments, Inc., a
Florida corporation; (ii) Sound Advice of Virginia, Inc., a Virginia
corporation; and (iii) Sound Advice Electronics of Maryland, Inc., a Maryland
corporation; (b) no Default or Event of Default has occurred and is continuing
under the Credit Agreement; and (c) Borrower has no defenses, offsets or
counterclaims to any of its obligations or indebtedness under the Credit
Agreement or this Fourth
3
<PAGE>
Amendment or any other document executed in connection with or pursuant to
the Credit Agreement or this Fourth Amendment.
11. RATIFICATION OF GUARANTY. The Guarantor, by execution of
this Fourth Amendment, consents to the execution and delivery by the Borrower of
this Fourth Amendment and all of the documents contemplated hereby and ratifies
and confirms the effectiveness and enforceability of the Guaranty. The term
Liabilities (as defined in the Guaranty) is hereby amended to include, without
limitation, the indebtedness and obligations of the Borrower to the Lender
evidenced by the Renewal Revolving Note and the Term Note. The Guarantor
represents and warrants that it has no counterclaims, defenses or offsets under
the Guaranty or under any other document executed in connection with or pursuant
to the Guaranty.
12. EXPENSES. The Borrower shall reimburse Lender for all
reasonable expenses and fees paid or incurred in connection with the
documentation, negotiation and closing of the transactions contemplated by this
Fourth Amendment and the documents required hereby, including, without
limitation, documentary stamp taxes and similar state and local taxes and fees,
filing and recording fees and the fees and expenses of Lender's counsel, whether
such fees and expenses are incurred prior to or after the date of execution
hereof.
13. NO FURTHER MODIFICATION. Except as hereinabove specifically
modified, all of the provisions of the Credit Agreement, the Security Agreement
and the Guaranty shall remain unaltered and in full force and effect. It is the
intent of the parties that this Fourth Amendment constitute a modification and
not a novation of the existing agreements between the parties. BORROWER
ACKNOWLEDGES AND AGREES THAT THE LENDER IS NOT OBLIGATED TO FURTHER MODIFY OR
EXTEND THE TERMINATION DATE.
14. ADDITIONAL PROVISIONS.
(a) This Fourth Amendment is non-transferrable and
non-assignable by the Borrower. No one other than the parties hereto shall be
entitled to rely on this Fourth Amendment.
(b) This Fourth Amendment may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original for evidentiary purposes and all of which together shall constitute one
and the same instrument.
(c) This Fourth Amendment shall be governed by and
construed in accordance with the internal laws of the State of Florida.
(d) This Fourth Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns, heirs and personal representatives.
(e) This Fourth Amendment may not be amended except in
a writing signed by the party against whom enforcement is sought.
(f) Time is of the essence with respect to this Fourth
Amendment, the Loan Documents and all the documents contemplated in each of
them.
4
<PAGE>
(g) DEFAULT. An "Event of Default" under documents
evidencing and securing any existing or future loans between Borrower and
Guarantor and Bank shall constitute an Event of Default under the Credit
Agreement, and an Event of Default under the Credit Agreement shall constitute
an Event of Default under any such existing or future loan.
15. MANDATORY ARBITRATION. Any controversy or claim between or
among the parties hereto including, but not limited to, those arising out of or
relating to this Fourth Amendment or any related agreements or instruments,
including any claim based on or arising from an alleged tort, shall be
determined by binding arbitration in accordance with the Federal Arbitration Act
(or if not applicable, the applicable state law), the Rules of Practice and
Procedure for the Arbitration of Commercial Disputes of Judicial Arbitration and
Mediation Services, Inc. (J.A.M.S.), and the "Special Rules" set forth below. In
the event of any inconsistency, the Special Rules shall control. Judgment upon
any arbitration award may be entered in any court having jurisdiction. Any party
to this Fourth Amendment may bring an action, including a summary or expedited
proceeding, to compel arbitration of any controversy or claim to which this
Fourth Amendment applies in any court having jurisdiction over such action.
(a) SPECIAL RULES. The arbitration shall be conducted
in the city of Fort Lauderdale, Florida and administered by Endispute, Inc.,
d/b/a J.A.M.S./Endispute, who will appoint an arbitrator; if J.A.M.S./Endispute
is unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will be
commenced within ninety (90) days of the demand for arbitration; further, the
arbitrator shall only, upon a showing of cause, be permitted to extend the
commencement of such hearing for up to an additional sixty (60) days.
(b) RESERVATION OF RIGHTS. Nothing in this Fourth
Amendment shall be deemed to: (i) limit the applicability of any otherwise
applicable statutes of limitation or repose and any waivers contained in this
Fourth Amendment; or (ii) be a waiver by the Bank of the protection afforded to
it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii)
limit the right of the Bank hereto (A) to exercise self help remedies such as
(but not limited to) setoff, or (B) to foreclose against any real or personal
property collateral, or (C) to obtain from a court provisional or ancillary
remedies such as (but not limited to) injunctive relief or the appointment of a
receiver. The Bank may exercise such self help rights, foreclose upon such
property, or obtain such provisional or ancillary remedies before, during or
after the pendency of any arbitration proceeding brought pursuant to this Fourth
Amendment. At Bank's option, foreclosure under a deed of trust or mortgage may
be accomplished by any of the following: the exercise of a power of sale under
the deed of trust or mortgage, or by judicial sale under the deed of trust or
mortgage, or by judicial foreclosure. Neither this exercise of self help
remedies nor the institution or maintenance of an action for foreclosure or
provisional or ancillary remedies shall constitute a waiver of the right of any
party, including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
(c) WAIVER OF JURY TRIAL. BY AGREEING TO BINDING
ARBITRATION, THE PARTIES HERETO HEREBY KNOWINGLY, IRREVOCABLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING, BUT NOT
LIMITED TO, THOSE ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS FOURTH
AMENDMENT AND ANY
5
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OTHER DOCUMENT EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS BETWEEN OR
AMONG THE PARTIES HERETO. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THE
AGREEMENT TO ARBITRATE, TO THE EXTENT ANY SUCH CONTROVERSY OR CLAIM BETWEEN OR
AMONG THE PARTIES HERETO IS NOT ARBITRATED, THE PARTIES HEREBY KNOWINGLY,
IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF SUCH CONTROVERSY OR CLAIM. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR BANK'S EXTENDING THE LOAN EVIDENCED BY THE REVOLVING
CREDIT NOTE.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be dated for convenience as of the date and year first above
written.
SOUND ADVICE, INC., a Florida
corporation
By: /s/ G. KAY GRIFFITH (SEAL)
Print Name: G. Kay Griffith
Title: Executive Vice President
CONSENTED AND AGREED TO:
SAI DISTRIBUTORS, INC., a Florida
corporation
By: /s/ G. KAY GRIFFITH (SEAL)
Print Name: G. Kay Griffith
Title: Executive Vice President
NATIONSBANK OF FLORIDA, N.A.
By: /s/ DENISE M. DOCAL
Print Name: Denise M. Docal
Title: Vice President
STATE OF GEORGIA )
) ss:
COUNTY OF Fulton )
I HEREBY CERTIFY that on this day, before me, an officer duly
authorized in the State aforesaid and in the County aforesaid to take
acknowledgments, the foregoing instrument was acknowledged before me by
G. Kay Griffith, the Exec VP of SOUND ADVICE, INC., a Florida corporation,
freely and voluntarily under authority duly vested in him/her by said
6
<PAGE>
corporation and that the seal affixed thereto is the true corporate seal of
said corporation. He/She is personally known to me or who has produced driver's
license as identification.
WITNESS my hand and official seal in the County and State last
aforesaid this 29 day of September, 1995.
/s/ MARTHA T. ZEMANEK
Notary Public
MARTHA T. ZEMANEK
Typed, printed or stamped name of Notary Public
Notary Public, Fulton County, Georgia
My Commission Expires: Oct. 21, 1997
STATE OF GEORGIA )
) ss:
COUNTY OF Fulton )
I HEREBY CERTIFY that on this day, before me, an officer duly
authorized in the State aforesaid and in the County aforesaid to take
acknowledgments, the foregoing instrument was acknowledged before me by
G. Kay Griffith, the Exec VP of SAI DISTRIBUTORS, INC., a Florida corporation,
freely and voluntarily under authority duly vested in him/her by said
corporation and that the seal affixed thereto is the true corporate seal of
said corporation. He/She is personally known to me or who has produced drivers
license as identification.
WITNESS my hand and official seal in the County and State last
aforesaid this 29 day of September, 1995.
/s/ MARTHA T. ZEMANEK
Notary Public
MARTHA T. ZEMANEK
Typed, printed or stamped name of Notary Public
STATE OF GEORGIA )
) ss:
COUNTY OF Fulton )
I HEREBY CERTIFY that on this day, before me, an officer duly
authorized in the State aforesaid and in the County aforesaid to take
acknowledgments, the foregoing instrument was
7
<PAGE>
acknowledged before me by Denise M. Docal, the Vice Pres of NATIONSBANK OF
FLORIDA, N.A., a national banking association, freely and voluntarily under
authority duly vested in him/her by said association. She is personally known to
me or who has produced _________________ as identification.
WITNESS my hand and official seal in the County and State last
aforesaid this 29 day of September, 1995.
/s/ MARTHA T. ZEMANEK
Notary Public
MARTHA T. ZEMANEK
Typed, printed or stamped name of Notary Public
Notary Public, Fulton County, Georgia
My Commission Expires Oct. 21, 1997
8
<PAGE>
EXHIBIT A
SOUND ADVICE, INC.
AMENDED AND RESTATED
RENEWAL REVOLVING CREDIT PROMISSORY NOTE
Amount: $30,000,000.00 Effective Date: September 29, 1995
FOR VALUE RECEIVED, the undersigned, SOUND ADVICE, INC., a Florida
corporation ("Maker" or "Borrower"), promises to pay to the order of NATIONSBANK
OF FLORIDA, N.A., successor by merger to NCNB National Bank of Florida ("Lender"
or "Bank"), at the offices of Lender in Fort Lauderdale, Florida, or at such
other place as the holder of this Note may from time to time designate, the
principal sum of THIRTY MILLION DOLLARS ($30,000,000.00) in lawful money of the
United States of America, or the aggregate unpaid principal amount of all
advances made by Lender to the undersigned under this Note, whichever is less,
and to pay interest on the principal amount of each advance remaining from time
to time outstanding from the date hereof until maturity, at the "Rate" (as
hereinafter defined) adjusted daily to reflect changes in such Rate, with each
adjustment to become effective on the date the change occurs. The "Rate" shall
be selected by the Borrower and shall constitute either the Lender's Prime Rate
or the Lender's unadjusted thirty (30) day floating certificate of deposit rate
plus 250 basis points. Unless otherwise designated, the Rate shall be the
Lender's Prime Rate. "Lender's Prime Rate" means, for the purposes hereof, that
index rate of interest per annum which Lender from time to time announces as its
prime rate. The Prime Rate is not necessarily the best or lowest rate charged or
offered by Lender to its borrowing customers.
Notwithstanding the foregoing, however, in no event shall the interest
rate applicable to principal outstanding under this Note exceed the maximum rate
of interest allowed by applicable law, as amended from time to time. If any
payment of interest or in the nature of interest thereunder would cause the
foregoing interest rate limitation to be exceeded, then such excess payment
shall be credited as a payment of principal unless the undersigned notifies
Lender in writing that the undersigned wishes to have such excess sum returned,
together with interest at the rate specified in Section 687.04(2), Florida
Statutes, or any successor statute.
Interest shall be computed on the basis of a year of 360 days and the
actual number of days elapsed. Payments made pursuant to the terms of this Note
shall first be credited to interest and lawful charges then accrued and the
remainder to principal.
Accrued interest, together with the outstanding principal balance
hereunder, shall be due and payable October 13, 1995, unless sooner due and
payable as set forth pursuant to the terms of that certain Amended and Restated
Credit Agreement, dated as of February 4, 1993 among Borrower, SAI Distributors,
Inc. and Lender, as amended by the First, Second, Third and Fourth Amendments
thereto (the "Agreement").
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<PAGE>
If any payment of principal under this Note is not paid when due
(whether on demand, by acceleration or otherwise), each amount shall bear
interest from such date at the highest lawful rate until paid, provided,
however, that such rate shall not exceed twenty-five percent (25%) per annum.
This Note is issued pursuant to, and is subject to, the provisions of
the Agreement. This Note is secured by collateral, as described more fully in
the Agreement and other security documents executed pursuant to the Agreement
(collectively, together with this Note and the Agreement, the "Loan Documents").
Reference is made to such Loan Documents for a description of the relative
rights and obligations of the undersigned and Lender, including rights and
obligations of prepayment, events of default, and rights of acceleration of
maturity in the event of default, which terms are incorporated herein.
This Note is a renewal of that certain Renewal Revolving Credit
Promissory Note from the undersigned to Lender in the amount of $30,000,000.00,
with an Effective Date of March 29, 1995. Accrued but unpaid interest on the
Note renewed hereby shall be paid on the first payment date hereunder.
The undersigned agrees to pay all costs of collection incurred in
enforcing this Note, including reasonable attorneys' fees, regardless of whether
suit or other proceedings are instituted, and if instituted, for all trial,
appellate, and other proceedings, if any.
All persons now or at any time liable for payment of this Note hereby
waive presentment, protest, notice of protest, and notice of dishonor. The
undersigned expressly consents to any extensions and renewals of this Note, in
whole or in part, and all delays in time of payment or other performance under
this Note which Lender may grant at any time from time to time, without
limitation and without any notice or further consent of the undersigned. All
notices, demands, and other communications required or permitted in connection
with this Note shall be given in the manner specified in the Agreement.
The remedies of Lender, as provided herein, or in any other agreement
between the undersigned and Lender are cumulative and concurrent (except as may
be provided in the Loan Documents) and may be pursued singularly, successively,
or together, and may be exercised as often as the occasion therefor shall arise.
This Note has been made, executed and delivered by the undersigned in
Atlanta, Georgia.
MANDATORY ARBITRATION. Any controversy or claim between or among the
parties hereto including, but not limited to, those arising out of or relating
to this Note or any related agreements or instruments, including any claim based
on or arising from an alleged tort, shall be determined by binding arbitration
in accordance with the Federal Arbitration Act (or if not applicable, the
applicable state law), the Rules of Practice and Procedure for the Arbitration
of Commercial Disputes of Judicial Arbitration and Mediation Services, Inc.
(J.A.M.S.), and the "Special Rules" set forth below. In the event of any
inconsistency, the Special Rules shall control. Judgment upon any arbitration
award may be entered in any court having jurisdiction. Any party to this Note
may bring an action, including a summary or expedited proceeding, to compel
arbitration of any controversy or claim to which this Note applies in any court
having jurisdiction over such action.
10
<PAGE>
a. SPECIAL RULES. The arbitration shall be conducted
in the city of Fort Lauderdale, Florida and administered by Endispute, Inc.,
d/b/a J.A.M.S./Endispute, who will appoint an arbitrator; if J.A.M.S./Endispute
is unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will be
commenced within ninety (90) days of the demand for arbitration; further, the
arbitrator shall only, upon a showing of cause, be permitted to extend the
commencement of such hearing for up to an additional sixty (60) days.
b. RESERVATION OF RIGHTS. Nothing in this Note shall
be deemed to: (i) limit the applicability of any otherwise applicable statutes
of limitation or repose and any waivers contained in this Note; or (ii) be a
waiver by the Bank of the protection afforded to it by 12 U.S.C. Sec. 91 or any
substantially equivalent state law; or (iii) limit the right of the Bank hereto
(A) to exercise self help remedies such as (but not limited to) setoff, or (B)
to foreclose against any real or personal property collateral, or (C) to obtain
from a court provisional or ancillary remedies such as (but not limited to)
injunctive relief or the appointment of a receiver. The Bank may exercise such
self help rights, foreclose upon such property, or obtain such provisional or
ancillary remedies before, during or after the pendency of any arbitration
proceeding brought pursuant to this Note. At Bank's option, foreclosure under a
deed of trust or mortgage may be accomplished by any of the following: the
exercise of a power of sale under the deed of trust or mortgage, or by judicial
sale under the deed of trust or mortgage, or by judicial foreclosure. Neither
this exercise of self help remedies nor the institution or maintenance of an
action for foreclosure or provisional or ancillary remedies shall constitute a
waiver of the right of any party, including the claimant in any such action, to
arbitrate the merits of the controversy or claim occasioning resort to such
remedies.
c. WAIVER OF JURY TRIAL. BY AGREEING TO BINDING
ARBITRATION, THE PARTIES HERETO HEREBY KNOWINGLY, IRREVOCABLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING, BUT NOT
LIMITED TO, THOSE ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE AND ANY
OTHER DOCUMENT EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS BETWEEN OR
AMONG THE PARTIES HERETO. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THE
AGREEMENT TO ARBITRATE, TO THE EXTENT ANY SUCH CONTROVERSY OR CLAIM BETWEEN OR
AMONG THE PARTIES HERETO IS NOT ARBITRATED, THE PARTIES HEREBY KNOWINGLY,
IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF SUCH CONTROVERSY OR CLAIM. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR BANK'S EXTENDING THE LOAN EVIDENCED BY THE REVOLVING
CREDIT NOTE.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
as of the day and year first above written.
Signed, Sealed and Delivered
in the Presence of: SOUND ADVICE, INC., a Florida corporation
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<PAGE>
________________________________ By: _______________________________(SEAL)
Name: _______________________________
________________________________ Title: _______________________________
STATE OF GEORGIA )
) SS:
COUNTY OF FULTON )
I HEREBY CERTIFY that on this day, before me, an officer duly
authorized in the State aforesaid and in the County aforesaid to take
acknowledgments, the foregoing instrument was acknowledged before me by
_______________________________, the ________ of SOUND ADVICE, INC., a Florida
corporation, freely and voluntarily under authority duly vested in him by said
corporation and that the seal affixed thereto is the true corporate seal of said
corporation. He is personally known to me or who has produced __________________
as identification.
WITNESS my hand and official seal in the County and State last
aforesaid this ___________ day of _________, 1995.
________________________________________________
Notary Public
________________________________________________
Typed, printed or stamped name of Notary Public
My Commission Expires:
12
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October 10,
1995 (the "Agreement"), is among SOUND ADVICE, INC., a Florida corporation (the
"Borrower"), SAI DISTRIBUTORS, INC., a Florida corporation, SAI REALTY
INVESTMENTS, INC., a Florida corporation, SOUND ADVICE OF VIRGINIA, INC., a
Virginia corporation and SOUND ADVICE ELECTRONICS OF MARYLAND, INC., a Maryland
corporation (collectively, the "Guarantor") and NATIONSBANK OF FLORIDA, N.A., a
national banking association, successor by merger to NCNB National Bank of
Florida (the "Lender").
R E C I T A L S:
A. Lender, Borrower and SAI Distributors, Inc. have previously
executed and entered into that certain Amended and Restated Credit Agreement
dated as of February 4, 1993, as amended from time to time (collectively
referred to as the "Existing Agreement").
B. Pursuant to the Existing Agreement, Lender has extended a
revolving line of credit to the Borrower of up to $30,000,000 ("Existing Line").
C. The Existing Line will expire on October 13, 1995, and
Borrower has requested an extended maturity to the Existing Line.
D. The Lender has agreed to extend the maturity date of the
Existing Line subject to certain modifications of the Existing Line including,
without limitation, decreasing the availability thereunder to an amount no
greater than $20,000,000.
E. Simultaneously with the execution and delivery of this Amended
and Restated Credit Agreement (the "Agreement"), the Existing Agreement shall be
amended and restated in its entirety to read as set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
SECTION 1.1 DEFINITIONS. In addition to terms defined elsewhere in
this Agreement, the following terms have the meanings indicated, which meanings
shall be equally applicable to both the singular and the plural forms of such
terms:
"AFFILIATE" shall mean any Person (other than a Subsidiary) which
directly or indirectly through one or more intermediaries controls, or is
controlled by or is under common control with,
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<PAGE>
the Borrower, or 5% or more of the equity interest of which is held beneficially
or of record by the Borrower or a Subsidiary. The term "control" means the
possession, directly or indirectly, of the power to cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"AGREEMENT" shall mean this Agreement, as the same may from time to
time be amended.
"BORROWER" shall have the meaning assigned to that term in the
introduction to this Agreement.
"BORROWING" shall mean the drawing down by the Borrower of the Term
Loan, a Revolving Credit Loan or Revolving Credit Loans from the Lender or the
issuance of a Letter of Credit or Letters of Credit by the Lender on any given
Borrowing Date.
"BORROWING BASE" shall mean, at any date of determination thereof, the
sum of sixty-five percent (65%) of the lower of cost or fair market value of
Eligible Inventory.
"BORROWING DATE" shall mean the date as of which a Borrowing is
consummated.
"BUSINESS DAY" shall mean a day on which commercial banks are open for
business in Fort Lauderdale, Florida.
"CAPITAL EXPENDITURES" shall mean any expenditure by a Person which is
or is required to be capitalized on its balance sheet for financial reporting
purposes in accordance with generally accepted principles, exclusive of
Capitalized Lease Obligations.
"CAPITALIZED LEASE OBLIGATIONS" shall mean, as to any Person, the
obligations of such Person, as lessee or guarantor, to pay rent or other amounts
under a lease of (or other agreement conveying the right to use) real and/or
personal property, which obligations are required to be classified and accounted
for as a capital lease on a balance sheet of the Person under generally accepted
accounting principles. For purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with generally accepted accounting principles.
"CLOSING DATE" shall mean the date hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMITMENT" shall mean the Existing Line as renewed under the terms of
this Agreement pursuant to which the Lender has agreed to make the Term Loan,
Revolving Credit Loans and issue Letters of Credit in the aggregate principal
amount of up to $20,000,000.00 pursuant to Article 2 hereof.
"DEFAULT" shall mean any event which, with the lapse of time, the
giving of notice, or both, would become an Event of Default.
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<PAGE>
"DEFAULT RATE" shall mean the maximum rate permitted by law; provided,
however, that such rate shall not exceed twenty-five percent (25%) per annum.
"ELIGIBLE INVENTORY" shall mean all of the Inventory which are finished
goods other than:
(a) work-in-process and supplies;
(b) Inventory on consignment;
(c) Inventory in an amount equal to the aggregate
outstanding indebtedness owed by the Borrower to
lenders (other than the Lender) having
non-subordinated purchase money security interests in
such Inventory of the Borrower and its Subsidiaries;
(d) Inventory that is damaged or in need of repair;
(e) Inventory that has been repossessed from or has been
otherwise returned by a customer unless such
Inventory is in the same or better condition as
similar Inventory held for sale by the Borrower and
can be resold at the original retail price;
(f) Inventory which is located in a jurisdiction where
the security interest of the Lender is not perfected;
(g) Inventory equal to accounts payable and outstanding
under any floor plan lines to the extent not fully
subordinated to the Lender;
(h) Intentionally Left Blank;
(i) paid in full sales of on-hand Inventory awaiting
delivery adjusted to cost;
(j) capitalized distribution costs;
(k) in-transit inventory;
(l) computers and computer-related Inventory;
(m) service and repair parts; and
(n) Inventory that is reasonably determined by the Lender
to be ineligible for any reason whatsoever.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as the same may from time to time be amended.
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<PAGE>
"EVENT OF DEFAULT" shall have the meaning assigned to that term in
Section 7.1 hereof.
"GUARANTOR" shall have the meaning assigned to that term in the
introduction to this Agreement.
"GUARANTY" shall mean, as to any Person, all liabilities or obligations
of such Person in respect of any Indebtedness or other obligations of others
guaranteed, directly or indirectly, in any manner by such Person, or in effect
guaranteed, directly or indirectly, by such Person through an agreement,
contingent or otherwise, to purchase such Indebtedness or obligation, or to
purchase or sell property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of the Indebtedness or obligation
or to assure the owner of such Indebtedness or obligation against loss, or to
supply funds to or in any manner invest in the debtor or otherwise.
"GUARANTY AGREEMENT(S)" shall mean, individually and collectively, the
Guaranty Agreement executed by each of the Guarantors dated even date herewith.
"HAZARDOUS MATERIALS" shall mean all materials defined as hazardous
wastes or substances under any local, state or federal environmental laws, rules
or regulations, and petroleum, petroleum products, oil and asbestos.
"INDEBTEDNESS" of any Person shall mean (i) all indebtedness for
borrowed money or for the deferred purchase price of any property (other than
accounts payable to trade creditors under customary trade credit terms) or
services for which the Person is liable as principal, (ii) all indebtedness
(excluding unaccrued finance charges) secured by a Lien on property owned or
being purchased by the Person, whether or not such indebtedness shall have been
assumed by the Person, (iii) all Capitalized Lease Obligations (excluding
unaccrued finance charges) of the Person, (iv) any arrangement (commonly
described as a sale-and-leaseback transaction) with any financial institution or
other lender or investor providing for the leasing to the Person of property
which at the time has been or is to be sold or transferred by the Person to the
lender or investor, or which has been or is being acquired from another Person
by the lender or investor for the purpose of leasing the property to the Person
and (v) all obligations of partnerships or joint ventures in respect of which
the Person is primarily or secondarily liable as a partner or joint venturer or
otherwise (provided that in any event for purposes of determining the amount of
the Indebtedness, the full amount of such obligations, without giving effect to
the contingent liability or contributions of other participants in the
partnership or joint venture, shall be included); provided however, that the
definition of Indebtedness shall not include Rentals.
"INTERCREDITOR AGREEMENT" shall mean the Intercreditor Agreements by
and between Borrower, Lender and certain of Borrower's vendors and creditors
which must be in form and substance satisfactory to Lender in Lender's sole
discretion.
"INVENTORY" shall mean all of the Borrower's inventory, including raw
materials, work-in-process, and finished goods of every kind or character,
whether presently in existence or hereafter acquired, and wherever located.
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<PAGE>
"INVESTMENTS" shall mean, with respect to any Person, all advances,
loans or extensions of credit to any other Person, other than accounts
receivable generated by the sale of inventory arising in the ordinary course of
business, and all purchases or commitments to purchase any stock, bonds, notes,
debentures or other securities of any other Person, and any investment in other
Persons, including partnerships or joint ventures.
"LENDER" has the meaning assigned to that terms in the introduction to
this Agreement and shall include any affiliates of Lender.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" shall mean the standby letter
of credit or standby letters of credit, respectively, issued by the Lender at
the request of the Borrower pursuant to Section 2.1 hereof.
"LETTER OF CREDIT APPLICATION" shall have the meaning assigned to that
terms in Section 2.1 hereof.
"LIEN" shall mean a mortgage, pledge, lien, security interest or other
charge or encumbrance or any segregation of assets or revenues or other
preferential arrangement (whether or not constituting a security interest) with
respect to any present or future assets, including fixtures, revenues or rights
to the receipt of income of the Person referred to in the context in which the
term is used.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Letter of
Credit Application, the Security Agreement, the Guaranty Agreement(s) and all of
the other documents, agreements, certificates, schedules, notes, statements and
opinions referred to herein or executed and delivered pursuant hereto or in
connection with the Term Loan, the Revolving Credit Loans or the Letters of
Credit or any other transaction contemplated by this Agreement.
"NOTES" shall mean, individually and collectively, the Term Note in the
original principal amount of $6,680,000 and the Renewal Revolving Credit
Promissory Note in the original principal amount of $13,320,000, both dated even
date herewith, and any modifications, renewals, replacements and substitutions
therefor made from time to time hereafter.
"PERMITTED LIENS" shall mean the liens granted to those parties set
forth on EXHIBIT 1.1 hereto and the liens permitted pursuant to Section 6.1
hereof.
"PERSON" shall mean any natural person, corporation, unincorporated
organization, trust, joint-stock company, joint venture, association, company,
partnership or government, or any agency or political subdivision of any
government.
"PLAN" shall mean any employee benefit plan which is subject to the
provisions of Title IV of ERISA and which is maintained in whole or in part for
employees of the Borrower or the Subsidiary.
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<PAGE>
"PRIME RATE" shall mean that index rate of interest per annum the
Lender announces from time to time as its Prime Rate. The Prime Rate is not
necessarily the best or lowest rate charged or offered by Lender to its
borrowing customers.
"RECEIVABLES" shall mean all of the Borrower's accounts, instruments,
contract rights, chattel paper, documents and general intangibles arising from
its sales and the proceeds thereof, now existing or created hereafter and all
returned, reclaimed or repossessed goods, and all books and records pertaining
to the foregoing.
"RENEWAL REVOLVING CREDIT PROMISSORY NOTE" shall mean the Amended and
Restated Renewal Revolving Credit Promissory Note dated even date herewith
executed by Borrower in favor of the Lender in the original principal amount of
$13,320,000, together with any modification, renewal or substitution thereof.
"RENTALS" of any Person shall mean, as of any date, the aggregate
amount of the obligations and liabilities (including future obligations and
liabilities not yet due and payable) of such Person to make payments under all
leases, subleases and similar arrangements for the use of real, personal or
mixed property, other than under Capitalized Leases. The definition of Rentals
shall include amounts required to be accrued under generally accepted accounting
principles for straight line rent.
"REVOLVING CREDIT LOAN" and "REVOLVING OF CREDIT LOANS" shall mean the
principal amount and the aggregate principal amount, respectively, advanced by
the Lender as a loan or loans to the Borrower pursuant to Section 2.1(a) hereof,
or, where the context requires, the amount then outstanding.
"REVOLVING MAXIMUM AMOUNT" shall mean the following during the
following time periods: (a) from the date hereof until October 27, 1995: the
lesser of: (i) $13,320,000; and (ii) the Borrowing Base less $5,580,000; (b)
from October 28, 1995 until November 10, 1995: the lesser of: (i) $13,320,000;
and (ii) the Borrowing Base less $6,130,000; and (c) following November 10,
1995: the lesser of: (i) $13,320,000; and (ii) the Borrowing Base less
$6,680,000.
"SALES" shall mean the delivery of goods and/or rendition of services
by the Borrower in the ordinary course of its business, which have not been
returned, repossessed or rejected.
"SECURITY AGREEMENT" shall mean the Amended and Restated Security
Agreement between Borrower and Lender dated even date herewith.
"SUBORDINATED DEBT" shall mean Indebtedness of the Borrower or any
Subsidiary which is in all respects subordinate and junior to the Indebtedness
of the Borrower to the Lender,.
"SUBSIDIARY" shall mean any Person in which Borrower or a Wholly-Owned
Subsidiary may own, directly or indirectly, an equity interest of more than 50%,
or which may effectively be controlled by the Borrower or a Wholly-Owned
Subsidiary, during the term of this Agreement.
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"TANGIBLE NET WORTH" shall mean, at the time any determination thereof
is to be made, the aggregate amount of all assets shown on the consolidated
balance sheet of the Borrower and its Subsidiaries at the relevant date (but
excluding from such assets capitalized organization and development costs,
capitalized interest, debt discount and expense, goodwill, patents, trademarks,
copyrights, franchise licenses, amounts due from Affiliates, Subsidiaries,
officers, employees, directors or stockholders and such other assets as are
properly classified as "intangible assets" under generally accepted accounting
principles), less Total Liabilities.
"TAX INDEMNITY AGREEMENT" shall mean the Tax Indemnity Agreement
between Borrower and Lender dated even date herewith.
"TERM LOAN" shall mean the loan evidenced by the Term Note.
"TERM NOTE" shall mean the Amended and Restated Term Note dated even
date herewith executed by the Borrower in favor of the Lender in the original
principal amount of $6,680,000 together with any modification, renewal or
substitution thereof.
"TOTAL LIABILITIES" shall mean, at the time any determination thereof
is to be made, the aggregate amount of all liabilities of the Borrower and its
Subsidiaries on a consolidated basis determined in accordance with general
accepted accounting principles.
"TOTAL MAXIMUM AMOUNT" shall mean $20,000,000.
"TERMINATION DATE" shall mean December 31, 1996. Borrower acknowledges
that Lender shall have no obligation to extend the Termination Date.
"TERMINATION EVENT" shall mean a "reportable event" as defined in
Section 4043(b) of ERISA or the filing of a notice of intent to terminate under
Section 4041 of ERISA.
"WHOLLY-OWNED SUBSIDIARY' shall mean any Subsidiary, 100% of the
outstanding capital stock of all classes of which is owned directly or
indirectly by the Borrower.
SECTION 1.2 ACCOUNTING TERMS. Accounting terms not specifically
defined in this Agreement shall have the meaning given to them under accounting
principles and practices generally accepted in the United States, applied on a
consistent basis with the financial statements referred to in Section 4.3
hereof, and shall be determined both as to classification of items and amounts
in accordance therewith. All Subsidiaries shall be consolidated to the fullest
extent permitted by such principles and practices, and any accounting terms,
financial covenants and financial statements referred to herein shall be
determined and prepared on the basis of such consolidation.
SECTION 1.3 OTHER DEFINITIONAL PROVISIONS. The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and section (ss. ), subsection and exhibit references are to
this Agreement unless otherwise specified.
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ARTICLE 2 - COMMITMENT
SECTION 2.1 COMMITMENT.
(A) REVOLVING CREDIT LOANS. The Lender agrees, on the
terms of this Agreement, to renew the Existing Line under which the Lender shall
make the Term Loan and shall from time to time make revolving credit loans
("Revolving Credit Loans") and issue Letters of Credit (subject to the sub-limit
set forth below) in United States Dollars to the Borrower for a period
terminating on the earlier of the Termination Date or termination in full of the
Commitment of the Lender pursuant to Article 7 hereof, on a revolving credit
basis, at such time, and subject to Section 2.2 below, in such amounts as the
Borrower shall request, provided that the aggregate principal amount of the
Revolving Credit Loans and Letters of Credit outstanding at one time shall not
exceed the Revolving Maximum Amount. Within the limits of the Commitment and
subject to the provisions of this Agreement and provided no Event of Default
exists hereunder, the Borrower may borrow, repay and reborrow from time to time
for the period commencing on the date hereto to and including the earlier of the
Termination Date or the termination in full of the Commitment of the Lender
pursuant to Article 7 hereof. In the event the aggregate outstanding principal
balance of the Revolving Credit Loans and Letters of Credit exceed the Revolving
Maximum Amount or, in the event the aggregate of the outstanding principal
balance of the Term Loan, the Revolving Credit Loans and Letters of Credit
exceed the Total Maximum Amount, then the Borrower shall, immediately and
without notice or demand of any kind, make such payments as shall be necessary
to reduce the outstanding principal balance of the Commitment below the
Revolving Maximum Amount and the Total Maximum Amount, respectively.
(B) LETTERS OF CREDIT.
(I) The Borrower may use up to $1,200,000 of the
Commitment for the issuance of Letters of Credit. The undrawn amount of all
Letters of Credit plus any and all amounts paid by Lender in connection with
drawings under any Letter of Credit for which Lender has not been reimbursed
shall be reserved under the Commitment and shall not be available for Revolving
Credit Loans thereunder. Each draft paid by Lender under a Letter of Credit
shall be deemed a Revolving Credit Loan under the Commitment and shall be repaid
in accordance with the terms of the Revolving Credit Loans; provided, however,
if the Commitment is not available for any reason whatsoever, at the time any
draft is paid by Lender, or if Revolving Credit Loans are not available under
the Commitment in such amount due to any limitation of borrowing set forth
herein, then the full amount of such draft or drafts shall be immediately due
and payable, together with interest thereon, from the date such amount is paid
by Lender to the date such amount is fully repaid by Borrower, at the Default
Rate.
(II) The Borrower shall request the issuance of
each Letter of Credit by submitting to the Lender a completed application for
standby letter of credit (the "Letter of Credit Application") on the Lender's
standard form and provided no Event of Default exists hereunder and Borrower
pays all applicable fees, then upon the fulfillment of the applicable conditions
set forth in
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the Letter of Credit Application and this Agreement, a Letter of Credit shall be
issued. Letters of Credit issued under the Commitment shall have an expiration
date not later than January 31, 1997.
(C) LIMITATION ON BORROWINGS. Notwithstanding anything in
this Agreement to the contrary, the total amount of Revolving Credit Loans made
and Letters of Credit issued under the Commitment shall be determined in the
discretion of the Lender acting in good faith consistent with the value of
Eligible Inventory, taking into account all fluctuations of the value thereof in
light of the Lender's experience and sound business principles. The Lender shall
be under no obligation to make any Revolving Credit Loan or issue any Letter of
Credit to Borrower in excess of the limitations stated in Section 2.1.
SECTION 2.2 MANNER OF BORROWING.
(A) THIS SPACE IS INTENTIONALLY LEFT BLANK.
(B) All Borrowings under this Agreement shall be made as
follows:
(I) the Borrower shall give written (or
telephonic notice promptly confirmed in writing) to the Lender prior to 11:00
A.M., Fort Lauderdale time, on the proposed Borrowing Date specifying (A) the
Borrowing Date (which shall be a Business Day) and (B) the amount of the
proposed Borrowing.
(II) each Borrowing under this Section 2.2(b)
shall be made at the office of the Lender, at its address set forth opposite its
signature at the end of this Agreement, by crediting the Borrower's general
disbursement account with Lender in the amount thereof.
SECTION 2.3 NOTES.
(A) The Commitment made available to the Borrower by the
Lender under this Article 2 shall be evidenced by, and repaid with interest in
accordance with the Term Note and the Renewal Revolving Credit Promissory Note.
(B) The Borrower hereby irrevocably authorizes the Lender
to record in its computerized records the date and the amount of the Term Loan
and each Revolving Credit Loan made or Letter of Credit issued by the Lender
under this Article 2, and each repayment thereof; PROVIDED, HOWEVER, that the
failure to make a notation in the Lender's records with respect to the Term Loan
or any Revolving Credit Loan or Letter of Credit shall not limit or otherwise
affect the obligation of the Borrower hereunder or under the Notes with respect
to the Term Loan or the Revolving Credit Loans or the Letter of Credit
Applications with respect to the Letters of Credit or any other obligation of
the Borrower relating to the Term Loan, Revolving Credit Loans or Letter of
Credits, and the Borrower's obligation to make payments of principal and
interest on the Notes and to reimburse Lender for any drawings on a Letter of
Credit shall not be affected by the failure to make a notation thereof in its
computerized records. The Lender's recordation of the date and the amount of the
Term Loan and each Revolving Credit Loan or Letter of Credit and each repayment
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thereof shall, absent manifest error, constitute PRIMA FACIE evidence of the
accuracy of the information recorded.
(C) THIS SPACE IS INTENTIONALLY LEFT BLANK.
SECTION 2.4 INTEREST. Interest shall accrue on the unpaid principal
amount of the Term Loan and the Revolving Credit Loans for each day any amount
thereof is outstanding and said interest shall be paid at the times set forth in
the respective Notes. Interest on the Term Loan and the Revolving Credit Loans
shall accrue at a rate per annum (computed on the actual number of days elapsed
over a 360-day year; i.e., 1/360th of a full year's interest shall accrue for
each day any principal balance under the Notes is outstanding) at all times
equal to the rate or rates per annum set forth in the respective Notes;
PROVIDED, any principal and, to the extent permitted by law, interest which is
not paid when due (whether at stated maturity, by acceleration or otherwise)
shall bear interest at a rate per annum (computed as aforesaid) equal to the
Default Rate. Interest on any unreimbursed drawing on a Letter of Credit that is
not converted into a Revolving Credit Loan under the provisions of Section
2.1(b) above shall accrue at a rate per annum (computed on the actual number of
days elapsed over a 360-day year; i.e., 1/360th of a full year's interest shall
accrue for each day any unreimbursed drawing on a Letter of Credit is
outstanding) equal to the Default Rate.
SECTION 2.5 FEES.
(A) Borrower shall pay to Lender a non-refundable
commitment fee of $275,000.00 on or prior to the Closing Date. The commitment
fee is paid to Lender as compensation for committing to make funds available to
the Borrower and is not paid as compensation for the Commitment or for any other
purpose.
(B) Borrower shall pay to Lender the Lender's standard
letter of credit fees upon issuance of each Letter of Credit.
(C) In addition to the fees set forth in subparagraphs (a)
and (b) above, so long as the Commitment shall be in effect, the following
additional fee(s) shall be due the Lender on both the Term Loan and the
Revolving Credit Loan equal to the following: (i) three-quarters of one percent
(0.75%) of the committed amount under both the Term Loan and the Revolving
Credit Loan, which additional fee shall be due and payable on February 28, 1996;
(ii) one percent (1%) of the committed amount under both the Term Loan and the
Revolving Credit Loan, which additional fee shall be due and payable on July 1,
1996; and (iii) one percent (1%) of the committed amount under both the Term
Loan and the Revolving Credit Loan, which additional fee shall be due and
payable on September 30, 1996. As set forth herein, "committed amount" shall
mean as follows: (i) the outstanding principal amount under the Term Loan as of
each respective date; and (ii) $13,320,000 with respect to the Revolving Credit
Loan.
(D) Borrower shall pay to Lender all of Lender's expenses
associated with the monitoring of the Revolving Credit Loan.
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ARTICLE 3 - CONDITIONS PRECEDENT TO BORROWING
The Lender shall not be obligated to make any Revolving Credit Loan or
issue any Letter of Credit to the Borrower hereunder unless the following
conditions have been satisfied, in the sole opinion of the Lender and its
counsel:
SECTION 3.1 CONDITIONS PRECEDENT TO BORROWING. The obligation of
the Lender to make each Revolving Credit Loan and to issue each Letter of Credit
pursuant to Article 2 herein is subject to the following conditions precedent,
each of which shall have been met or performed by the Borrowing Date:
(A) NOTICE OF BORROWING. In the event the borrowing
procedure described in Section 2.2(b) is in effect, the Borrower shall have been
given or delivered to the Lender the Notice of Borrowing provided for in Section
2.2(b).
(B) LETTER OF CREDIT APPLICATION. In the case of a Letter
of Credit, the Borrower shall have delivered a duly executed and completed
Letter of Credit Application to Lender, all in form and substance acceptable to
Lender.
(C) NO DEFAULT. No Default or Event of Default shall have
occurred and be continuing or will occur upon the making of the Revolving Credit
Loan or issuance of the Letter of Credit on such Borrowing Date, and all
representations and warranties made by the Borrower and its Subsidiaries herein
or otherwise in writing on connection herewith shall be true and correct with
the same effect as though the representations and warranties had been made on
and as of such Borrowing Date.
SECTION 3.2 INITIAL BORROWING. The obligation of the Lender to make
the Term Loan, the initial Revolving Credit Loan and to issue the initial Letter
of Credit pursuant to Article 2 herein is subject to the following additional
conditions precedent, each of which shall have been met or performed by the
Closing Date.
(A) NOTES. Each Note shall have been duly executed,
completed and delivered to the Lender outside the State of Florida.
(B) SECURITY AGREEMENT. The Amended and Restated Security
Agreement, duly executed and completed, shall have been delivered to the Lender.
(C) TAX INDEMNITY AGREEMENT. The Tax Indemnity Agreement,
duly executed and completed, shall have been delivered to the Lender.
(D) GUARANTY AGREEMENT(S). The Guaranty Agreements, duly
executed and completed by each Guarantor in form and substance satisfactory to
Lender, shall have been delivered to the Lender.
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(E) OPINION OF COUNSEL. The Lender shall have received
from Rubin Baum Levin Constant Friedman & Bilzin, counsel to the Borrower, a
legal opinion in form and substance acceptable to the Lender.
(F) INTERCREDITOR AGREEMENT(S). The Lender shall have
received the Intercreditor Agreement from each vendor and creditor of the
Borrower set forth on EXHIBIT 1.1 attached hereto which is marked with (***)
subordinating their security interest to the interest of the Lender, all in form
and substance acceptable to the Lender.
(G) SUPPORTING DOCUMENTS. The Borrower shall have
delivered to the Lender such opinions, documents and certificates that the
Lender or its counsel may require, and all such opinions, certificates and
documents specified in this Article 3 shall be satisfactory in form and
substance to the Lender and its counsel.
SECTION 3.3 LANDLORD'S WAIVERS OF LIENS. With respect to each
facility for which Borrower has not previously delivered a Landlord's Waiver of
Lien acceptable to Lender, the Borrower shall use its best efforts, which shall
not include the payment of any money to any landlord other than such landlord's
reasonable legal costs, to obtain and furnish to Lender, within sixty (60) days
of the date hereof, (i) either Landlord's Waiver of Lien in the form of EXHIBIT
3.3 hereto with respect to each leased facility in which the Borrower maintains
Inventory or otherwise conducts business or the lease for such leased facility
shall contain a landlord's lien waiver in form and substance reasonably
satisfactory to Lender, and (ii) legal descriptions for each such facility to
enable Lender to perfect its security interest in all fixtures located in such
facilities. The failure of Borrower to obtain a Landlord's Waiver of Lien or
legal description with respect to any such facility shall not be deemed an Event
of Default hereunder so long as, in Lender's reasonable judgment, the Borrower
has used its best efforts to obtain such waiver and/or legal description.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make
the Term Loan, the Revolving Credit Loans and issue the Letters of Credit
provided for herein, the Borrower makes the following representations and
warranties to the Lender, all of which shall survive the execution and delivery
of this Agreement and the Notes:
SECTION 4.1 CORPORATE EXISTENCE AND POWER. Each of the Borrower and
the Guarantor is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and is duly
qualified or licensed to transact business in all places where such
qualification or license is necessary. The Borrower has the corporate power to
make and perform this Agreement, the Security Agreement, the Notes, the Letter
of Credit Applications and this Agreement does, and the Notes and Letter of
Credit Applications when duly executed and delivered for value will, constitute
the legal, valid and binding obligations of the Borrower, enforceable in
accordance with their respective terms except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the
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enforcement of creditors' rights generally and general principles of equity
which may limit the availability of equitable remedies.
SECTION 4.2 CORPORATE AUTHORITY. The making and performance by the
Borrower of this Agreement, the Security Agreement, the Notes, the Letter of
Credit Applications and any additional documents contemplated to be executed in
connection herewith have been duly authorized by all necessary corporate action
of the Borrower, and do not and will not violate any provision of law or
regulation, or any writ, order or decree of any court, governmental, regulatory
authority or agency or any provision of the articles or certificate of
incorporation of the Borrower, and do not and will not, with the passage of time
or the giving notice, result in a breach of, or constitute a default or require
any consent under, or result in the creation of any lien, charge or encumbrance
upon any property or assets of the Borrower or any Subsidiary pursuant to, any
instrument or agreement to which the Borrower or any Subsidiary is a party or by
which the Borrower or any Subsidiary or their respective properties may be bound
or affected.
SECTION 4.3 FINANCIAL CONDITION. The consolidated balance sheet of
the Borrower and its Subsidiaries as of June 30, 1995, and the consolidated
statements of operations, statements of retained earnings and statements of cash
flows of the Borrower and its Subsidiaries for the fiscal year ending on that
date, including any related notes, certified, in the case of the consolidated
balance sheet, by the Borrower's independent certified public accountants
pursuant to their audit of the financial records of the Borrower and its
Subsidiaries, in the draft form heretofore furnished to the Lender, were
prepared in accordance with generally accepted accounting principles
consistently applied, are complete and correct and fairly present the
consolidated financial condition of the Borrower and its Subsidiaries as of that
date and the results of their operations for the fiscal period ending on that
date, respectively. The finally-issued copy of the foregoing statements shall be
delivered to Lender within five (5) days following the execution of this
Agreement. Other than as disclosed by those financial statements, as of the date
hereof, neither the Borrower nor its Subsidiaries has any direct or contingent
obligations or liabilities which would be material to the consolidated financial
position of the Borrower and its Subsidiaries, nor any material unrealized or
anticipated losses from any commitments of the Borrower or its Subsidiaries.
Since the date of such financial statements, there has been no material adverse
change in the business or financial condition of the Borrower and its
Subsidiaries, taken as a whole.
SECTION 4.4 FULL DISCLOSURE. The financial statements referred to
in Section 4.3 shall not, nor does this Agreement, or any written statement
furnished by the Borrower to the Lender in connection with the negotiation of
this Agreement and the Commitment, contain any untrue statement of a material
fact or omit a material fact necessary to make the statements contained therein
or herein not misleading. There is no fact which materially and adversely
affects nor, so far as the Borrower can now foresee, is reasonably likely to
prove to materially and adversely affect the business or financial condition of
the Borrower or the ability of the Borrower to perform this Agreement.
SECTION 4.5 LITIGATION. There are no suits or proceedings pending,
or to the knowledge of the Borrower, threatened before any court or by or before
any governmental or regulatory
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authority, commission, bureau or agency of any public regulatory body against or
affecting the Borrower or its Subsidiaries which, if adversely determined, would
have a material adverse effect on the business or financial condition of the
Borrower and its Subsidiaries, except as disclosed in the opinion of Borrower's
counsel delivered pursuant to Section 3.2(c).
SECTION 4.6 PAYMENT OF TAXES. Each of the Borrower and its
Subsidiaries have filed or caused to be filed, or have obtained or requested
extensions to file all federal, state and local tax returns which are required
to be filed, and have paid or caused to be paid, or have reserved on their books
amounts sufficient for the payment of, all taxes as shown on said returns or on
any assessment received by them, to the extent that the taxes have become due,
except as otherwise permitted by the provisions hereof. Borrower shall provide
Lender with copies of all extensions to file tax returns within ten (10) days of
the filing thereof. No tax liens have been filed and neither the Borrower nor
any of its Subsidiaries have been notified of, or otherwise have knowledge of,
any claim being asserted with respect to any such taxes, fees, or other charges
which could have a material adverse effect on the business or financial
condition of the Borrower or any of its Subsidiaries. The Borrower and its
Subsidiaries have set up reserves which are reasonably believed by the officers
of the Borrower to be adequate for the payment of said taxes for the years that
have not been audited by the respective tax authorities.
SECTION 4.7 NO ADVERSE RESTRICTIONS OR DEFAULTS. Neither the
Borrower nor any of its Subsidiaries is a party to any agreement or instrument,
nor subject to any court order or judgment, governmental decree, charter or
other corporate restriction materially adversely affecting its business,
properties or assets, operations or condition (financial or otherwise). Neither
the Borrower nor any of its Subsidiaries is in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party or by which the
Borrower or any of its Subsidiaries or their respective properties may be bound
or affected, or under any law, regulation, decree, order or the like, which
default would have a material adverse effect on the business or financial
condition of the Borrower and its Subsidiaries taken as a whole.
SECTION 4.8 INVESTMENT COMPANY ACT. Neither the Borrower nor any of
its Subsidiaries is an "investment company' or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 4.9 AUTHORIZATIONS. All authorizations, consents,
approvals, and licenses required under applicable law or regulation for the
ownership or operation of the property owned or operated by the Borrower or its
Subsidiaries (including, without limitation, shares of the capital stock of any
Subsidiary) or for the conduct of business in which the Borrower or its
Subsidiaries is engaged, have been duly issued and are in full force and effect,
and neither the Borrower nor any of its Subsidiaries is in default under any
order, decree, ruling, regulation, closing agreement, or other decision or
instrument of any governmental commission, bureau or other administrative agency
or public regulatory body having jurisdiction over the Borrower or any of its
Subsidiaries, which default would have a material adverse effect on the Borrower
and its Subsidiaries taken as a whole. No approval, consent or authorization of,
or filing or registration with, any governmental
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commission, bureau or other decision or instrument of any governmental
commission, bureau or other regulatory authority or agency is required with
respect to the Borrower's execution, delivery or performance of this Agreement,
the Security Agreement, the Notes, or the Letter of Credit Applications, except
for the filing of UCC-1 financing statements and a power of attorney with the
Internal Revenue Service.
SECTION 4.10 SUBSIDIARIES AND AFFILIATES. As of the date of
execution of this Agreement, the Borrower has no Subsidiaries or, to the best of
its knowledge, Affiliates, except as set forth on EXHIBIT 4.10 attached hereto.
All of the capital stock and evidence of the equity rights held by the Borrower
or a Subsidiary in each Subsidiary is and will be owned by the Borrower and/or
another Subsidiary, beneficially and of record, free and clear of all Liens.
SECTION 4.11 TITLE TO PROPERTIES. The Borrower and its Subsidiaries
have, respectively, good and marketable fee title to all real property, and good
and marketable title to all other property and assets, reflected in the latest
audited balance sheet referred to in Section 4.3 or purported to have been
acquired by the Borrower or any Subsidiary subsequent to such date, except
property and assets sold or otherwise disposed of subsequent to such date in the
ordinary course of business. All property and assets of any kind of the Borrower
and its Subsidiaries are free from any Liens except for Permitted Liens. The
Borrower and its Subsidiaries enjoy peaceful and undisturbed possession under
all of the leases under which they are operating, none of which contains any
unusual or burdensome provisions that will materially impair or adversely affect
the operations of the Borrower or its Subsidiaries. All of such leases are
valid, subsisting and in full force and effect and none of such leases is in
material default and no event has occurred which, with the passage of time or
the giving of notice, or both, would constitute a material default under any
such leases. The Borrower and its Subsidiaries possess all patents, patent
rights or licenses, trademarks and copyrights which are required to conduct
their respective businesses as now conducted without known conflict with the
rights of others.
SECTION 4.12 USE OF LOANS. The proceeds of each Borrowing under the
Commitment shall be used by the Borrower exclusively for the following purposes:
(i) to finance permanent general working capital with respect to the Term Loan;
and (ii) to finance the seasonal working capital needs of the Borrower, finance
capital expenditures to the extent permitted under this Agreement and to provide
a $1,200,000.00 letter of credit availability with respect to the Revolving
Credit Loan. Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Borrowing hereunder will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock. If requested by the Lender, the
Borrower will furnish to the Lender, in connection with any Borrowing hereunder,
a statement in conformity with the requirements of Federal Reserve Form U-1
referred to in said Regulation.
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SECTION 4.13 ERISA.
(A) None of the Plans or the trusts created thereunder has
engaged in a prohibited transaction which could subject any such Plan or trust
to a material tax or penalty on prohibited transactions imposed under Code
Section 4975 or ERISA.
(B) None of the Plans or the trusts created thereunder has
been terminated with any deficiency; nor has any such Plan incurred any
liability to the Pension Benefit Guaranty Corporation, other than for required
insurance premiums which have been paid when due, or incurred any accumulated
funding deficiency; nor has there been any reportable event, or other event or
condition, which presents a risk of termination of any such Plan by the Pension
Benefit Guaranty Corporation.
(C) The present value of all accrued benefits under the
Plans did not, as of the most recent valuation date, exceed the then current
value of the assets of Plans allocable to such accrued benefits.
(D) Neither the Borrower nor any of its Subsidiaries is
or has been a party to or has any employees who are covered by any
multi-employer pension or benefit plan.
(E) As used in this Section 4.13, the terms "accumulated
funding deficiency," "reported event" and "accrued benefits" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Code Section 4975 and
ERISA.
SECTION 4.14 ENVIRONMENTAL LAW COMPLIANCE. The conduct of Borrower's
business operations do not and will not violate any federal laws, rules or
ordinances for environmental protection, regulations of the Environmental
Protection Agency and any applicable local or state law, rule, regulation, or
rule of common law and any judicial interpretation thereof relating primarily to
the environment or Hazardous Materials at any of Borrower's places of business
except such materials as are incidental to Borrower's normal course of business,
maintenance and repairs. Borrower agrees to permit Lender, its agents,
contractors and employees to enter and inspect any of Borrower's places of
business at any reasonable times upon three (3) days prior notice for the
purposes of conducting an environmental investigation and audit (including
taking physical samples) to insure that Borrower is complying with this covenant
and Borrower shall promptly reimburse Lender for the costs of any such
environmental investigation and audit. Borrower shall provide Lender, its
agents, contractors, employees, and representatives with access to and copies of
any and all data and documents relating to or dealing with any Hazardous
Materials used, generated, manufactured, stored, or disposed of by Borrower's
business operations within five (5) business days of the request therefor.
SECTION 4.15 SOLVENCY.
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(A) Borrower has no intention of filing any petition or
initiating any Bankruptcy proceeding.
(B) Borrower has not entered into this Agreement and the
transactions contemplated hereby to provide preferential treatment to Lender,
Lender's nominee or any other creditor of Borrower or any guarantor in
anticipation of seeking relief under the federal or any state bankruptcy code or
similar law, nor has Borrower entered into this Agreement and the transactions
contemplated hereby with the intent to hinder, delay or defraud any creditors.
ARTICLE 5 - AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that from the Closing Date and until
payment in full of the principal of and interest on the Notes and all drawings
under the Letters of Credit and until the termination of the Revolving Credit
Loan, unless the Lender shall otherwise consent in writing, the Borrower will,
and will cause each of its Subsidiaries to:
SECTION 5.1 LOAN PROCEEDS. Use the proceeds of the Term Loan, the
Revolving Credit Loans and Letters of Credit only for the purposes set forth in
Section 4.12 and furnish the Lender with all evidence that it may reasonably
require with respect to such use.
SECTION 5.2 CORPORATE EXISTENCE. Do or cause to be done all things
necessary to maintain, preserve and keep in full force and effect its existence
in the jurisdiction of its incorporation, and qualify and remain qualified in
each jurisdiction where qualification is necessary or desirable in view of its
business operations or the ownership of its properties.
SECTION 5.3 MAINTENANCE OF BUSINESS AND PROPERTIES. Continue to
conduct and operate its business substantially as conducted and operated during
the present and preceding fiscal year; at all times maintain, preserve and
protect all rights, privileges, patents, franchises, and trade names necessary
or desirable in the conduct of its business and preserve all the remainder of
its property used or useful in the conduct of its business and keep the same in
good repair, working order and condition, and from time to time make, or cause
to be made, all reasonable repairs, replacements, betterments and improvements
thereto so that the business carried on in connection therewith may be conducted
properly and advantageously at all times.
SECTION 5.4 INSURANCE. Insure and keep insured with good and
responsible insurance companies and in amounts reasonably satisfactory to the
Lender, all insurable property owned by it which is of a character usually
insured by companies similarly situated and operating like properties, against
loss or damage from such hazards or risks, including fire, as are insured by
companies similarly situated and operating like properties, insure and keep
insured employers' and public liability risks in good and responsible insurance
companies of the types and amounts usually insured by companies similarly
situated; maintain such other insurance as may be required by law or as may
reasonably be required in writing by the Lender; and upon request of the Lender
furnish a certificate setting forth in summary form the nature and extent of the
insurance maintained by the Borrower pursuant to this Section 5.4.
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SECTION 5.5 PAYMENT OF INDEBTEDNESS, TAXES, ETC. Pay all of its
Indebtedness and obligations promptly and in accordance with normal terms and
comply in all material respects with all material agreements, indentures,
mortgages, or documents binding on it or affecting its properties or business;
and pay and discharge or cause to be paid and discharged promptly all taxes,
assessments and governmental charges or levies imposed upon it or upon its
property or upon any part thereof, before the same shall become in default, as
well as all lawful claims for labor materials and supplies or otherwise which,
if unpaid, might become a Lien upon such properties or any part thereof;
provided, however, that neither the Borrower nor any of its Subsidiaries shall
be required to pay and discharge or to cause to be paid and discharged any
Indebtedness, obligation, tax, assessment, charge, levy, or claim so long as the
validity thereof shall be contested in good faith by appropriate proceedings and
the Borrower or such Subsidiary, as the case may be, shall have set aside on its
books adequate reserves with respect to any Indebtedness, obligation, tax,
assessment, charge, levy or claim, so contested.
SECTION 5.6 COMPLIANCE WITH LAWS. Duly observe, conform and comply
with all laws, decisions, judgments, rules, regulations, and orders of all
governmental authorities relative to the conduct of business, its properties,
and assets, except (i) those being contested in good faith by appropriate
proceedings diligently pursued and (ii) those the failure to comply with which
in the aggregate will not have a material adverse effect on the business or
financial condition of the Borrower and its Subsidiaries taken as a whole; and
obtain, maintain and keep in full force and effect all governmental licenses,
authorizations, consents, and permits necessary to the proper conduct of its
business.
SECTION 5.7 NOTICE OF DEFAULT. Upon the occurrence of any Default
or Event of Default of which the Borrower or any of its officers has knowledge,
promptly furnish written notice thereof to the Lender specifying the nature and
period of existence thereof and the action which the Borrower is taking or
proposes to take with respect thereto.
SECTION 5.8 FINANCIAL STATEMENTS, REPORTS, ETC. In the case of the
Borrower, furnish to the Lender:
(A) within 120 days after the end of each fiscal year of
the Borrower (being each June 30), consolidated balance sheets and consolidated
statements of operations, statements of retained earnings and statements of cash
flow, together with supporting schedules, all in reasonable detail and
accompanied by an unqualified opinion thereon of a firm of independent certified
public accountants of recognized standing selected by the Borrower and
acceptable to the Lender to the effect that the consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied, showing the financial condition of the Borrower
and its Subsidiaries at the close of such year and the results of operations of
the Borrower and its Subsidiaries during such year, together with a certificate
of such accountants stating that they have no knowledge of any event which
constitutes a Default or Event of Default (a certificate as to such matters
being herein called a "NO-DEFAULT CERTIFICATE"). Lender acknowledges that a
"going concern" qualification in the June 30, 1996 audited statements based
solely upon the upcoming maturity of the Notes shall not in and of itself
constitute an Event of Default hereunder.
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As used herein, "unqualified opinion" means relative
to the opinion of any independent public accountant as to any financial
statement of Borrower or any Guarantor that said opinion contains no
qualification or exception to any such opinion (i) which is of a "going concern"
or similar nature; (ii) which relates to the limitation on the scope of
examination of matters relevant to such financial statements; (iii) which
relates to the treatment or classification of any item in such financial
statement in which, as a condition to its removal, would require an adjustment
to said item, the effect of which would be to cause Borrower or any Guarantor to
be in default of any of the financial covenants under any of the Loan Documents;
or (iv) which is otherwise unacceptable to the Lender, in its reasonable
discretion.
(B) within 30 days after the end of each month (unless the
month in question is the end of the quarter, in which event Borrower shall have
45 days), similar financial statements to those referred to in subsection 5.8(a)
above, unaudited but certified by the president or chief financial officer of
the Borrower, such balance sheets to be as of the end of such month and such
statements of operations and cash flows to be for the period from the beginning
of the fiscal year to the end of such month, in each case subject to audit and
year-end adjustments;
(C) within 30 days after the end of each month, a
completed Compliance Certificate, in form and content satisfactory to Lender,
certified by the President or chief financial officer of the Borrower verifying
that Borrower is in compliance with the covenants, terms and conditions of this
Agreement and which shall include all calculations utilized therein;
(D) weekly, a completed Borrowing Base Certificate in the
form of EXHIBIT 5.8(D) hereto and made a part hereof, in form and content
satisfactory to Lender, certified by the President or chief financial officer of
the Borrower which shall include, without limitation, a summary of the
Borrower's inventory position;
(E) within 20 days after the end of each month, a summary
of the Borrower's accounts receivable aging report and, upon the Lender's
request, a complete copy of the Borrower's accounts receivable aging report;
(F) with the statements submitted under subsections
5.8(a), 5.8(b) and 5.8(c) above, a certificate of the Borrower signed by the
president or chief financial officer of the Borrower to the effect that to the
best of his knowledge, after due inquiry, no Default or Event of Default has
occurred and is continuing;
(G) promptly upon becoming available, a copy of all
financial statements, reports, notices, and proxy statements sent by the
Borrower or any of its Subsidiaries to stockholders, and of all regular and
periodic reports filed by the Borrower or any of its Subsidiaries with any
securities exchange or with the Securities and Exchange Commission or with any
governmental authority succeeding to any or all of the functions of said
Commission;
(H) within 15 days of the filing thereof, a copy of all
income tax returns of the Borrower (and each Guarantor which is not consolidated
with the Borrower) filed with federal or
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state governmental authorities, or copies of extensions should the income tax
returns not be filed by the applicable due date;
(I) Intentionally Left Blank;
(J) within 20 days after the receipt thereof, copies of
all management letters the Borrower receives from its audit firm;
(K) within 30 days after the end of each month, an updated
litigation report for all claims in excess of $100,000.00 containing the
following information with respect to each lawsuit filed by or against the
Borrower or any Subsidiary: (i) copies of all pleadings by or against the
Borrower or any Subsidiary; (ii) status of all motions and hearings; (iii)
status of all discovery, including schedules of upcoming depositions; (iv)
summaries of all depositions; (v) litigation-related expenses; and (vi)
schedules for all trial and appellate proceedings;
(L) monthly, commencing with the month following the date
hereof, a report certified by an officer of the Borrower setting forth the sales
and gross margin results for each store of the Borrower on a store-by-store
basis, showing the results for the current month and the results for the year to
date and comparing such results to the month and year to date for the prior
year. The foregoing shall be in form and substance satisfactory to the Lender
and such shall be delivered to the Lender within 20 days following the end of
each such month;
(M) within 30 days of the end of each month, a copy of
Borrower's monthly inventory reconciliation reports for the preceding month, all
in form and content acceptable to Lender;
(N) on or prior to forty (40) days following the end of
any month, borrowing base certificates based upon Borrower's closed month-end
general ledger balance;
(O) unless consolidated with the Borrower, each Guarantor
shall provide annual financial statements within forty-five (45) days following
fiscal year end; and
(P) promptly, from time to time, such other information
regarding the operations, business, affairs, and financial condition of the
Borrower and its Subsidiaries as the Lender may reasonably request.
All financial statements required to be furnished to the
Lender under this Section 5.8 shall be prepared in accordance with generally
accepted accounting principles applied on a basis consistent with the accounting
practices of the Borrower reflected in its audited financial statements referred
to in Section 4.3 hereof, or to the extent such treatment has changed, with a
reconciliation thereof. Each set of financial statements delivered pursuant to
subsection 5.8(a) above shall be accompanied by a report setting forth
computations showing, in detail satisfactory to the Lender, whether the Borrower
was at the end of, and for, the respective year in compliance with its
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obligations under Sections 6.11 through 6.14 hereof, which computations shall be
certified by the independent public accountants.
SECTION 5.9 VISITATION RIGHTS. Permit any authorized representative
of the Lender, from time to time, to examine and copy the records and books of,
and visit and inspect the properties of, the Borrower and any of its
Subsidiaries during normal business hours with reasonable notice and to discuss
the affairs and finances of the Borrower and any of its Subsidiaries with any of
their respective officers, directors, employees, and independent public
accountants.
SECTION 5.10 NOTICE OF LITIGATION AND OTHER PROCEEDINGS. Give prompt
notice in writing to the Lender upon the earlier of (i) actual knowledge or (ii)
receipt of service of process, of the commencement of (a) all material
litigation which, if adversely determined, might adversely affect the business
or financial condition of the Borrower or its Subsidiaries taken as a whole; (b)
all other litigation involving a claim against the Borrower or any of its
Subsidiaries for $100,000.00 or more in excess of applicable insurance coverage;
and (c) any citation, order, decree, ruling, or decision issued by, or any
denial of any application or petition to, or any proceedings before any
governmental commission, bureau or other administrative agency or public
regulatory body against or affecting the Borrower or any of its Subsidiaries or
any property of the Borrower or any of its Subsidiaries, or any lapse,
suspension or other termination or modification of any certification, license,
consent, or other authorization of any agency or public regulatory body, or any
refusal of any thereof to grant any application therefor or renewal thereof, in
connection with the operation of any business conducted by the Borrower or any
of its Subsidiaries, which might have a material and adverse effect upon the
business or financial condition of the Borrower and its Subsidiaries taken as a
whole.
SECTION 5.11 ERISA. Furnish to the Lender:
(A) As soon available and in any event within 15 days
after Borrower knows or has reason to know that any Termination Event has
occurred, a statement of a senior officer of the Borrower describing the
Termination Event and the action which the Borrower proposes to take so that the
Termination Event shall not be continuing;
(B) Promptly after receipt of request therefor by the
Lender, copies of each annual report filed by the Borrower or any of its
Subsidiaries pursuant to Section 104 of ERISA with respect to each Plan
(including, to the extent required by Section 103 of ERISA, the related
financial and actuarial statements and opinions and other supporting statements,
certifications, schedules, and information referred to in said Section 103) and
each annual report, if any, required to be filed with respect to each Plan under
Section 4065 of ERISA;
(C) Promptly after receipt thereof by the Borrower or any
of its Subsidiaries from the Pension Benefit Guaranty Corporation, copies of
each notice received by such party of the Pension Benefit Guaranty Corporation's
intention to terminate any Plan or to have a Trustee appointed to administer any
Plan; and
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(D) Promptly after such request, any other documents and
information relating to any Plan that the Lender may reasonably request from
time to time.
SECTION 5.12 COLLATERAL AUDITS. Permit any authorized representative
of the Lender to conduct audits of the Collateral (as defined in the Security
Agreement) and provide such authorized representatives of Lender with all
necessary information to complete such audits to the Lender's satisfaction. The
Borrower agrees to pay the cost of one such audit per calendar quarter and to
pay the cost of monthly UCC-11 lien searches to be obtained by Lender to monitor
its position with respect to the Collateral.
SECTION 5.13 APPRAISAL. Permit Borrower to conduct appraisal(s) of
the Inventory and Borrower's furniture, fixtures and equipment, the cost of one
(1) such appraisal(s) shall be paid for by the Borrower.
SECTION 5.14 BUSINESS PLAN. Submit to Lender, by October 31, 1995, a
detailed business plan for the Borrower, reasonably acceptable in form and
substance to the Lender, which shall include, without limitation, revised
projections demonstrating to Lender's satisfaction the Borrower's ability to
meet the covenants set forth in this Agreement.
SECTION 5.15 DEPOSITORY ACCOUNT. For Collateral purposes so long as
the Notes remain unpaid, Borrower covenants and agrees to cause all of its and
its Subsidiaries' cash and receipts of whatever nature to be deposited in a lock
box depository account with Lender. In addition to the foregoing, Borrower
authorizes Lender to change the name of the Borrower's existing depository
account with Lender into Lender's name and to delete the Borrower (or its
designee[s]) as authorized signatories on that account. The Borrower agrees to
execute such additional documents deemed reasonably necessary by Lender to carry
out the intent of this Section.
ARTICLE 6 - NEGATIVE COVENANTS
The Borrower covenants and agrees that from the Closing Date and until
payment in full of the principal of and interest on each of the Notes and all
drawings under the Letter of Credit and the termination of the Revolving Credit
Loan, unless the Lender shall otherwise consent in writing, the Borrower will
not, nor will it permit any of its Subsidiaries to:
SECTION 6.1 LIMITATION ON LIENS. Create or suffer to exist any Lien
upon, or transfer or assignment of, any of its property or revenues or assets
now owned or hereafter acquired to secure any Indebtedness or obligations, or
enter into any arrangement for the acquisition of any property subject to
conditional sale agreements or leases or other title retention agreements;
excluding, however, from the operation of this covenant: (a) deposits or pledges
to secure payment of workers' compensation, unemployment insurance, old age
pensions, or other social security benefits; (b) deposits or pledges to secure
performance of bid, tenders, contracts (other than contracts for the payment of
money) or leases, public or statutory obligations, surety or appeal bonds or
other deposits or pledges for purposes of like general nature in the ordinary
course of business; (c) Liens for property taxes, assessments and similar taxes
not delinquent and Liens for taxes which in good faith
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are being contested or litigated; (d) mechanics', carriers', workmens',
repairmens', landlords', or other like liens arising in the ordinary course of
business securing obligations which are not overdue for a period of 60 days or
more or which are in good faith being contested or litigated; (e) existing Liens
set forth on EXHIBIT 1.1 attached hereto; (f) purchase money security interests
in Inventory purchased with the proceeds of Indebtedness permitted to be
incurred under Section 6.2 hereof; (g) purchase money security interests in
fixed assets purchased with the proceeds of Indebtedness permitted to be
incurred under Section 6.2 hereof; and (h) the lien in favor of NationsBank of
Florida, N.A.
SECTION 6.2 LIMITATION ON INDEBTEDNESS. Incur, create, assume or
permit to exist any Indebtedness, except:
(A) the Notes, the Letters of Credit and any other
Indebtedness of the Borrower or its Subsidiaries to the Lender;
(B) purchase money Indebtedness not subordinated to Lender
incurred to purchase Inventory in an amount not to exceed fifteen percent (15%)
of the lower of fair market value or cost of the Borrower's Inventory balance;
(C) purchase money Indebtedness incurred to acquire fixed
assets in an amount not to exceed $500,000 in the aggregate outstanding at any
one time; provided that at least eighty percent (80%) of the purchase price of
each fixed asset acquired with the proceeds of Indebtedness incurred under this
Section 6.2(c) shall be financed by such Indebtedness;
(D) Indebtedness incurred in connection with the
Borrower's Employee Stock Ownership Plan (the "ESOP") in an amount not to exceed
$500,000.00; and
(E) Existing Indebtedness reflected on EXHIBIT 1.1
attached hereto and the capitalized lease for the Borrower's Fort Myers,
Florida, location (subject to the limitations in Section 6.9 hereof).
SECTION 6.3 GUARANTIES. Be or become liable in respect of any
Guaranty, except for: (a) the endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; (b)
Guaranties by the Borrower of Indebtedness of the ESOP or any of its
Subsidiaries and by any of its Subsidiaries of Indebtedness of the Borrower or
the ESOP to the extent the Indebtedness is permitted in Section 6.2 hereof; and
(c) performance bonds entered into by the Borrower or any of its Subsidiaries to
secure the obligations of itself or such Subsidiary. Borrower shall be permitted
to provide a corporate guaranty of up to $50,000, in the aggregate, to guarantee
loans to employees of the Borrower. The foregoing amount(s) of
employee-guaranteed loans which are the subject of Borrower's guaranty shall be
reserved under the Commitment and shall not be available for Revolving Credit
Loans or Letters of Credit.
SECTION 6.4 MERGERS, CONSOLIDATIONS AND ACQUISITIONS OF ASSETS.
Merge or consolidate with any corporation, or acquire all or substantially all
of the assets of any person except that: (a)
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the Borrower may merge or consolidate with any Subsidiary provided that the
Borrower is the surviving corporation; and (b) any Subsidiary may merge or
consolidate with any Wholly-Owned Subsidiary.
SECTION 6.5 SALE, LEASE, ETC. Sell, lease, assign, transfer, or
otherwise dispose of any of its assets or revenues (other than obsolete or
worn-out personal property or personal property or real estate not used or
useful in its business) whether now owned or hereafter acquired, other than in
the ordinary course of business, including, without limitation, the stock of any
Subsidiary, or sell, assign or discount any of its accounts receivable or any
promissory note held by it, with or without recourse, other than the discount of
such notes in the ordinary course of business for collection.
SECTION 6.6 INVESTMENTS. Make or suffer to exist any Investments,
except that this prohibition shall not apply to (a) the purchase of direct
obligations of the government of the United States of America, or any agency
thereof, or obligations unconditionally guaranteed by the United States of
America; (b) certificates of deposit of any bank organized or licensed to
conduct a banking business under the laws of the United States or any State
thereof having capital, surplus and undivided profits of not less than
$100,000,000; and (c) Investments in commercial paper which, at the time of
acquisition by the Borrower or any Subsidiary, is rated A2/P2 by Standard &
Poor's Corporation, Moody's Investors Services, Inc. or any other nationally
recognized credit rating agency of similar standing.
SECTION 6.7 TRANSACTIONS WITH AFFILIATES. Enter into or be a party
to, any transaction or arrangement with any Affiliate (including, without
limitation, the purchase from, sale to or exchange of property with, or the
rendering of any service by or for, any Affiliate), except in the ordinary
course of and pursuant to the reasonable requirements of the Borrower's or any
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Borrower or any such Subsidiary than would be obtained in a comparable arm's
length transaction with a Person other than an Affiliate.
SECTION 6.8 CAPITAL EXPENDITURES. Make capital expenditures during
any month in excess of $100,000.00 in the aggregate and/or in excess of
$1,000,000.00 in the aggregate during the term of each of the Notes.
SECTION 6.9 LEASE OBLIGATIONS. Incur or suffer to exist any
obligations to pay in any consecutive 12-month period Rentals and Capitalized
Lease Obligations aggregating in excess of $7,500,000.00 for the Borrower and
its Subsidiaries.
SECTION 6.10 DIVIDENDS. Declare or pay any dividend (other than a
dividend payable in stock of the Borrower) or authorize or make any other
distribution on any stock of the Borrower (other than a distribution payable in
stock of the Borrower), whether now or hereafter outstanding, or make, or permit
any Subsidiary to make, any payment on account of the purchase, acquisition,
redemption, or other retirement of any shares of such stock (such dividends,
distributions and payments being herein called "cash distributions"); provided,
that any Subsidiary may pay a dividend to its parent.
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SECTION 6.11 LEVERAGE RATIO. Permit the ratio of Total Liabilities
to Tangible Net Worth to be greater than 2.1:1.0 at the end of any quarter.
SECTION 6.12 TANGIBLE NET WORTH. Permit its Tangible Net Worth to
be less than $19,500,000.00, tested monthly.
SECTION 6.13 FIXED CHARGE COVERAGE RATIO. Permit the Fixed Charge
Coverage Ratio to be less than 1.05:1. As set forth herein, the Fixed Charge
Coverage Ratio shall be determined as follows: Net income plus taxes plus
interest expense plus non-cash charges plus rent/lease expenses divided by
current maturities of long-term debt (exclusive of those relating to the balloon
portion of the Term Note and the principal amount outstanding under the
Revolving Credit Loan), plus interest payments plus rent/lease payments. The
foregoing shall be tested monthly based upon the trailing twelve (12) months.
SECTION 6.14 INTEREST COVERAGE RATIO. Permit the Interest Coverage
Ratio to be less than 1.5:1 as of the date hereof and increased as follows: (i)
2.0 as of January 31, 1996; (ii) 2.5 as of April 30, 1996; and (iii) 3.0 as of
July 31, 1996. As set forth herein, the Interest Coverage Ratio shall be
determined by dividing the Borrower's earnings before interest, taxes,
depreciation and amortization by Borrower's cash interest expense. The foregoing
shall be tested monthly based upon the trailing twelve (12) months.
ARTICLE 7 - EVENTS OF DEFAULT
SECTION 7.1 EVENTS OF DEFAULT. If any one of the following "EVENTS
OF DEFAULT" shall occur and shall not have been remedied:
(A) Any representation or warranty made by the Borrower
herein or in any certificate or report furnished by the Borrower hereunder shall
prove to have been incorrect in any material respect; or
(B) The Borrower shall fail to pay, when due, any
principal or interest on either Notes, to reimburse any drawing on a Letter of
Credit on the date made, or to pay when due any other sum payable under this
Agreement; or
(C) The Borrower shall default in the performance of any
agreement, covenant or obligation contained herein not provided for elsewhere in
this Article 7, if the default continues for a period of thirty (30) days after
notice of default to the Borrower by the Lender; or
(D) There shall occur any default in the due observance or
performance of any covenant, condition or agreement on the part of the Borrower
to be observed or performed pursuant to the terms of Article 6 hereof; or
(E) (i) the rendering of any judgment or judgments
against the Borrower or any Subsidiary which in the aggregate exceed $1,000,000
over applicable insurance coverage; (ii) the
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entry by the Borrower or any Subsidiary into an agreement or agreements to
settle any action or actions for more than $1,000,000 in the aggregate over
applicable insurance coverage; or (iii) a combination of judgments rendered and
settlements entered into aggregating in excess of $1,000,000 over applicable
insurance coverage. For purposes of this subsection 7.1(e), a judgment shall not
be deemed to have been rendered if it is being appealed on good faith grounds
and a stay of execution thereof has been issued and remains in effect. A
judgment shall be deemed rendered if it is not appealed within the applicable
statutory period or it becomes unappealable.
(F) The Borrower or any Subsidiary shall (i) voluntarily
terminate operations or apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of the
Borrower or any Subsidiary, as the case may be, or of all or of a substantial
part of the assets of the Borrower or any Subsidiary, as the case may be, (ii)
admit in writing its inability, or be generally unable, to pay its debts as the
debts become due, (iii) make a general assignment for the benefit of its
creditors, (iv) commence a voluntary case under the United States Bankruptcy
Code (as now or hereafter in effect), (v) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, (vi) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code, or (vii) take any
corporate action for the purpose of effecting any of the foregoing; or
(G) The Borrower shall fail to furnish to the Lender
notice of default in accordance with Section 5.7 hereof, within 5 days after any
such Default or Event of Default becomes known to the president or chief
financial officer of the Borrower, whether or not notification to the Borrower
is furnished by the Lender; or
(H) Without its application, approval or consent, a
proceeding shall be commenced, in any court of competent jurisdiction, seeking
in respect of the Borrower or any Subsidiary: the liquidation, reorganization,
dissolution, winding-up, or composition or readjustment of debt, the appointment
of a trustee, receiver, liquidator or the like of the Borrower or any
Subsidiary, as the case may be, or of all or any substantial part of the assets
of the Borrower or any Subsidiary or other like relief in respect of the
Borrower or any Subsidiary, as the case may be, under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment
of debts unless such proceeding is contested in good faith by the Borrower or
any Subsidiary; and, if the proceeding is contested in good faith by the
Borrower or any Subsidiary, as the case may be, the same shall continue
undismissed, or unstayed and in effect, for any period of 60 consecutive days,
or an order for relief against the Borrower or any Subsidiary shall be entered
in any involuntary case under the Bankruptcy Code; or
(I) The Borrower, any Guarantor or any Subsidiary shall
(i) default in the payment of principal or interest on any Indebtedness (other
than the Notes) having a principal balance equal to or greater than $50,000
beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness was created or (ii) default in the observance or
performance beyond the period of grace, if any, of any other agreement contained
in any such Indebtedness or in any instrument or agreement evidencing, securing
or relating thereto, or any other
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event shall occur, the effect of which default or other event is to cause, or
permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause, such Indebtedness to become due
prior to its stated maturity; or
(J) The invalidation or loss of priority of any security
interest or lien granted pursuant to this Agreement, any existing loan document
or agreement previously executed by the Borrower in favor of the Lender or the
other documents executed in connection herewith; or
(K) A Termination Event has occurred; or a trustee shall
be appointed to administer any Plan or Plans under Section 4042 of ERISA; or the
Pension Benefit Guaranty Corporation shall institute proceedings to terminate,
or to have a trustee appointed to administer, any Plan or Plans, and the
proceeding shall not be dismissed within 30 days; or a voluntary notice of
intent to terminate is filed under Section 4041 of ERISA which would, in the
opinion of the Lender, have a material adverse effect on the financial condition
of the Borrower or the Subsidiary; or, with respect to any Plan as to which the
Borrower or any Subsidiary may have any liability, there shall exist a
deficiency in the Plan assets available to satisfy the benefits guaranteeable
under ERISA with respect to the Plan which is material to the financial
condition of the Borrower or such Subsidiary, and (i) steps are undertaken to
terminate the Plan or (ii) the Plan is terminated or (iii) any Reportable Event
which presents a material risk of termination with respect to the Plan shall
occur; or
(L) Borrower or any Guarantor shall be in default under
any other agreement between Lender and Borrower or any Guarantor; or
(M) A default by Peter Beshouri or Michael Blumberg under
their joinder to this Agreement; or
(N) The failure of the Borrower to deliver to Lender on or
prior to October 19, 1995, at 2:00 p.m., fully-executed originals of the
Intercreditor Agreements from the entities listed in Paragraphs 6.10, 6.11,
6.12, 6.13 and 6.14 of EXHIBIT 1.1 hereto in the form of EXHIBIT 7.1(N) hereto;
THEREUPON, in the case of any such event other than an event described in
subsection 7.1(f) or subsection 7.1(h) above, the Lender may, by written notice
to the Borrower, at its option: (a) immediately terminate the Commitment of the
Lender hereunder, and/or (b) immediately declare the principal of, and interest
accrued on, the Notes forthwith due and payable; and, in the case of any event
described in subsection 7.1(f) or subsection 7.1(h) above, the Commitment of the
Lender hereunder shall automatically terminate, without any action on the part
of the Lender, and the principal of, and interest accrued on, the Notes shall
become immediately due and payable, both as to principal and interest, and any
contingent obligation of the Borrower under the Letters of Credit shall become
immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived, anything contained
herein or in the Notes or any Letter of Credit Application to the contrary
notwithstanding.
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SECTION 7.2 RESERVE FOR CONTINGENT LIABILITIES. Upon the occurrence
of an Event of Default, the Borrower shall, at the request of the Lender,
establish a special reserve account with the Lender as security for any
contingent liabilities of the Borrower under any Letter of Credit. Upon demand
of the Lender, Borrower shall immediately deposit or cause to be deposited in
such reserve account an amount equal to all contingent liabilities of the
Borrower under the Letters of Credit. The Lender may pay any and all
reimbursement obligations of the Borrower in respect of any Letters of Credit
from such reserve account as such obligations become due.
ARTICLE 8 - MISCELLANEOUS
SECTION 8.1 NO WAIVER, REMEDIES CUMULATIVE. No failure on the part
of the Lender to exercise, and no delay in exercising, any right granted
hereunder, or in the Notes, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof, or the exercise of any other right. The remedies herein
provided are cumulative and are not exclusive of any remedies provided by law.
SECTION 8.2 SURVIVAL OF REPRESENTATIONS. All representations and
warranties made herein shall survive the making of the Revolving Credit Loans
hereunder, the issuance of the Letters of Credit and the delivery of the Notes,
and shall continue in full force and effect so long as the Notes are outstanding
and unpaid, any Letter of Credit is outstanding and the Commitment has not been
terminated.
SECTION 8.3 EXPENSES. Whether or not any of the Revolving Credit
Loans herein provided for shall be made or Letters of Credit issued, the
Borrower agrees to pay on demand all costs and expenses of the Lender in
connection with the preparation, printing, execution, delivery and
administration of this Agreement, the Loan Documents and other instruments and
documents to be delivered hereunder and thereunder, including the reasonable
fees and out-of-pocket expenses of legal counsel for the Lender, with respect
thereto, as well as the reasonable fees and out-of-pocket expenses of legal
counsel, independent public accountants and other outside experts retained by
the Lender in connection with the administration of this Agreement, and all
reasonable costs and expenses, if any, in connection with the enforcement of
this Agreement, the Loan Documents and the other instruments and documents to be
delivered hereunder and thereunder. In addition, the Borrower shall pay any and
all stamp and other taxes payable or determined to be payable in connection with
the execution and delivery of this Agreement, the Loan Documents and the other
instruments and documents to be delivered hereunder and thereunder, and agrees
to save the Lender harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omitting to pay such taxes.
All obligations provided for in this Section 8.3 shall survive any termination
of this Agreement. The Lender is hereby irrevocably authorized to debit any of
the Borrower's deposit accounts maintained with the Lender from time to time in
an amount equal to any amount due to the Lender pursuant to this Section 8.3.
SECTION 8.4 NOTICES. Any written notice or other communication
hereunder to any party hereto shall be by telegram, telex, telecopy or
registered or certified mail and shall be deemed to have been given or made when
telegraphed, telexed, telecopied or deposited in the mails, postage
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prepaid, addressed to the party at its address specified next to its signature
hereto (or at any other address that the party may hereafter specify to the
other parties in writing), except that written notices by the Borrower under
Section 2.2(b) hereof shall not be effective until received.
SECTION 8.5 CONSTRUCTION. This Agreement and the Notes shall be
deemed a contract made under the laws of the State of Florida and shall be
governed by and construed in accordance with the internal laws of said state.
SECTION 8.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the Borrower and the Lender, and their
respective successors and assigns; provided, that the Borrower may not assign
any of its rights hereunder without the prior written consent of the Lender.
SECTION 8.7 JURISDICTION, SERVICE OF PROCESS.
(A) Any suit, action or proceeding against the Borrower
with respect to this Agreement, the Notes or any judgment entered by any court
in respect of any thereof may be brought in the courts of the State of Florida
or in the United States District Court for the Southern District of Florida as
the Lender (in its sole discretion) may elect, and the Borrower hereby accepts,
the non-exclusive jurisdiction of those courts for the purpose of any suit,
action or proceeding.
(B) In addition, the Borrower hereby irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceedings arising
out of or relating to this Agreement or the Notes or any judgment entered by any
court in respect thereof brought in the State of Florida, and hereby further
irrevocably waives any claim that any suit, action or proceeding brought in the
State of Florida has been brought in an inconvenient forum. The Borrower further
agrees that if any such suit, action or proceeding is pending in more than one
jurisdiction, the Lender's selection of the forum shall be binding upon the
parties hereto.
SECTION 8.8 LIMIT ON INTEREST. Anything herein or in any of the
Notes to the contrary notwithstanding, the obligations of the Borrower under
this Agreement and each of the Notes to the Lender shall be subject to the
limitation that payments of interest to the Lender shall not be required to the
extent that receipt of any such payment by the Lender would be contrary to
provisions of law applicable to the Lender (if any) which limit the maximum rate
of interest which may be charged or collected by the Lender; PROVIDED, HOWEVER,
that nothing herein shall be construed to limit the Lender to presently existing
maximum rates of interest, if an increased rate is hereafter permitted by reason
of applicable federal or state legislation.
SECTION 8.9 PAYMENT ON OTHER THAN A BUSINESS DAY; TIME OF THE
ESSENCE. Should any payment required by this Agreement become due and payable
other than on a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day, and in the case of principal, with interest thereon at
the rate specified in this Agreement. Time shall be of the essence under this
Agreement.
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SECTION 8.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original and all
of which when taken together shall constitute but one and the same instrument.
SECTION 8.11 HEADINGS. The headings of this Agreement are for
convenience only and are not to affect the construction of or to be taken into
account in interpreting the substance of this Agreement.
SECTION 8.12 SEVERABILITY. In the event that any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
SECTION 8.13 COURSE OF DEALING; AMENDMENT; SUPPLEMENTAL AGREEMENTS;
INTERPRETATION. No course of dealing between the Lender and the Borrower shall
be effective to amend, modify or change any provision of this Agreement. This
Agreement may not be amended, modified or changed in any respect except by an
agreement in writing signed by the Lender and the Borrower. The Lender and the
Borrower may, subject to the provisions of this Section 8.13, from time to time,
enter into written agreements supplemental hereto for the purpose of adding any
provisions to this Agreement or changing in any manner the rights and
obligations of the Lender and the Borrower hereunder. Any such supplemental
agreement in writing shall be binding upon the Lender and the Borrower. This
Agreement shall not be construed more strictly against either party by virtue of
the preparation of this Agreement.
SECTION 8.14 MANDATORY ARBITRATION. Any controversy or claim
between or among the parties hereto including, but not limited to, those arising
out of or relating to this Agreement or any related agreements or instruments,
including any claim based on or arising from an alleged tort, shall be
determined by binding arbitration in accordance with the Federal Arbitration Act
(or if not applicable, the applicable state law), the Rules of Practice and
Procedure for the Arbitration of Commercial Disputes of Judicial Arbitration and
Mediation Services, Inc. (J.A.M.S.), and the "Special Rules" set forth below. In
the event of any inconsistency, the Special Rules shall control. Judgment upon
any arbitration award may be entered in any court having jurisdiction. Any party
to this Agreement may bring an action, including a summary or expedited
proceeding, to compel arbitration of any controversy or claim to which this
Agreement applies in any court having jurisdiction over such action.
(A) SPECIAL RULES. The arbitration shall be conducted in
the city of Fort Lauderdale, Florida and administered by Endispute, Inc., d/b/a
J.A.M.S./Endispute, who will appoint an arbitrator; if J.A.M.S./Endispute is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will be
commenced within ninety (90) days of the demand for arbitration; further, the
arbitrator shall only, upon a
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showing of cause, be permitted to extend the commencement of such hearing for up
to an additional sixty (60) days.
(B) RESERVATION OF RIGHTS. Nothing in this Agreement shall
be deemed to: (i) limit the applicability of any otherwise applicable statutes
of limitation or repose and any waivers contained in this Agreement; or (ii) be
a waiver by the Lender of the protection afforded to it by 12 U.S.C. Sec. 91 or
any substantially equivalent state law; or (iii) limit the right of the Lender
hereto (A) to exercise self help remedies such as (but not limited to) setoff,
or (B) to foreclose against any real or personal property collateral, or (C) to
obtain from a court provisional or ancillary remedies such as (but not limited
to) injunctive relief or the appointment of a receiver. The Lender may exercise
such self help rights, foreclose upon such property, or obtain such provisional
or ancillary remedies before, during or after the pendency of any arbitration
proceeding brought pursuant to this Agreement. At Lender's option, foreclosure
under a deed of trust or mortgage may be accomplished by any of the following:
the exercise of a power of sale under the deed of trust or mortgage, or by
judicial sale under the deed of trust or mortgage, or by judicial foreclosure.
Neither this exercise of self help remedies nor the institution or maintenance
of an action for foreclosure or provisional or ancillary remedies shall
constitute a waiver of the right of any party, including the claimant in any
such action, to arbitrate the merits of the controversy or claim occasioning
resort to such remedies.
(C) WAIVER OF JURY TRIAL. BY AGREEING TO BINDING
ARBITRATION, THE PARTIES HERETO HEREBY KNOWINGLY, IRREVOCABLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING, BUT NOT
LIMITED TO, THOSE ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND
ANY OTHER DOCUMENT EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS BETWEEN OR
AMONG THE PARTIES HERETO. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THE
AGREEMENT TO ARBITRATE, TO THE EXTENT ANY SUCH CONTROVERSY OR CLAIM BETWEEN OR
AMONG THE PARTIES HERETO IS NOT ARBITRATED, THE PARTIES HEREBY KNOWINGLY,
IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF SUCH CONTROVERSY OR CLAIM. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR LENDER'S MAKING THE LOAN(S) EVIDENCED BY THE TERM NOTE
AND THE REVOLVING CREDIT NOTE.
SECTION 8.16 RELEASE. AS A MATERIAL INDUCEMENT FOR LENDER TO
EXECUTE THIS AGREEMENT, BORROWER AND EACH GUARANTOR DO HEREBY RELEASE, WAIVE,
DISCHARGE, COVENANT NOT TO SUE, ACQUIT, SATISFY AND FOREVER DISCHARGE LENDER ITS
OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS AND ITS AFFILIATES AND ASSIGNS FROM
ANY AND ALL LIABILITY, CLAIMS, COUNTERCLAIMS, DEFENSES, ACTIONS, CAUSES OF
ACTION, SUITS, CONTROVERSIES, AGREEMENTS, PROMISES AND DEMANDS WHATSOEVER IN LAW
OR IN EQUITY WHICH BORROWER OR GUARANTOR EVER HAD, NOW HAVE, OR
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WHICH ANY PERSONAL REPRESENTATIVE, SUCCESSOR, HEIR OR ASSIGN OF BORROWER OR ANY
GUARANTOR HEREAFTER CAN, SHALL OR MAY HAVE AGAINST LENDER, ITS OFFICERS,
DIRECTORS, EMPLOYEES, AND AGENTS, AND ITS AFFILIATES AND ASSIGNS, FOR, UPON, OR
BY REASON OF ANY MATTER, CAUSE OR THING WHATSOEVER THROUGH THE DATE HEREOF.
BORROWER AND GUARANTOR FURTHER EXPRESSLY AGREE THAT THE FOREGOING RELEASE AND
WAIVER AGREEMENT IS INTENDED TO BE AS BROAD AND INCLUSIVE AS PERMITTED BY THE
LAWS OF THE STATE OF FLORIDA. IN ADDITION TO, AND WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, AND IN CONSIDERATION OF LENDER'S EXECUTION OF THIS
AGREEMENT, BORROWER AND EACH GUARANTOR COVENANT WITH AND WARRANT UNTO LENDER,
AND ITS AFFILIATES AND ASSIGNS, THAT THERE EXIST NO CLAIMS, COUNTERCLAIMS,
DEFENSES, OBJECTIONS, OFFSETS OR CLAIMS OF OFFSETS AGAINST LENDER OR THE
OBLIGATION OF BORROWER AND EACH GUARANTOR TO PAY THE LOAN TO LENDER WHEN AND AS
THE SAME BECOMES DUE AND PAYABLE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
dated for convenience as of the date and year first above written, but have in
fact executed this Agreement on October 13, 1995.
SOUND ADVICE, INC., a Florida corporation
By: /s/ Kenneth L. Danielson (SEAL)
Print Name: Kenneth L. Danielson
Title: Chief Financial Officer and Treasurer
NATIONSBANK OF FLORIDA, N.A.
By: /s/ F. Gerard Litrento
Print Name: F. Gerard Litrento
Title: Senior Vice President
SAI DISTRIBUTORS, INC., a Florida corporation
By: /s/ Kenneth L. Danielson (SEAL)
Print Name: Kenneth L. Danielson
Title: Chief Financial Officer and Treasurer
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SAI REALTY INVESTMENTS, INC., a Florida
corporation
By: /s/ Kenneth L. Danielson (SEAL)
Print Name: Kenneth L. Danielson
Title: Chief Financial Officer and Treasurer
SOUND ADVICE OF VIRGINIA, INC., a Virginia
corporation
By: /s/ Kenneth L. Danielson (SEAL)
Print Name: Kenneth L. Danielson
Title: Chief Financial Officer and Treasurer
SOUND ADVICE ELECTRONICS OF
MARYLAND, INC., a Maryland corporation
By: /s/ Kenneth L. Danielson (SEAL)
Print Name: Kenneth L. Danielson
Title: Chief Financial Officer and Treasurer
J O I N D E R
THE UNDERSIGNED, jointly and severally, for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
covenant, warrant and represent to Lender as follows:
1. Each of the undersigned is the beneficial owner and holder of
340,467 shares of the issued and outstanding common stock of the Borrower (the
"Shares") which shares are subject to a right of first refusal and voting trust
agreement dated June 30, 1986 which expires June 30, 1996.
2. So long as the Notes shall be outstanding, neither any of the
Shares nor any additional shares of the Borrower owned directly or indirectly by
the undersigned (other than an aggregate of approximately 510 shares each which
are held in their respective ESOPs) shall be sold, transferred, hypothecated or
otherwise encumbered.
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3. The undersigned acknowledge that a breach by either of them of
this Joinder shall constitute an Event of Default under this Agreement and the
Lender's remedy for such breach shall be solely against the Borrower and not
against the undersigned for such breach.
/s/ PETER BESHOURI
----------------------------------------
PETER BESHOURI
/s/ MICHAEL BLUMBERG
----------------------------------------
MICHAEL BLUMBERG
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SCHEDULE OF EXHIBITS
Exhibit 1.1 - Permitted Liens
Exhibit 3.3 - Forms of Landlord Lien Waiver
Exhibit 4.10 - Subsidiaries and Affiliates
Exhibit 5.8(d) - Borrowing Base Certificate
Exhibit 7.1(n) - Intercreditor Agreements
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AMENDED AND RESTATED SECURITY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AGREEMENT (the "Security
Agreement"), dated as of October 10, 1995, is from SOUND ADVICE, INC., a Florida
corporation (the "Debtor"), whose mailing address is 1901 Tigertail Boulevard,
Dania, Florida 33004, to NATIONSBANK OF FLORIDA, N.A., a national banking
association, (the "Secured Party"), whose address is One Financial Plaza, Fort
Lauderdale, Florida 33394.
WHEREAS, the Debtor previously executed and delivered to the Secured
Party (i) an Amended and Restated Security Agreement dated as of February 4,
1993, from the Debtor to the Secured Party, as amended or reaffirmed
(collectively, the "Existing Security Agreements"), to secure the obligations
and indebtedness of the Debtor to the Secured Party; and
WHEREAS, simultaneously with the execution hereof, the Debtor and the
Secured Party are entering into the Credit Agreement (defined below) pursuant to
which the Lender has agreed to renew the Existing Line (as defined in the Credit
Agreement) in the amount of $20,000,000.00 on the terms and subject to the
conditions set forth therein; and
WHEREAS, the Lender's agreement to renew the Existing Line is subject
to the Borrower's execution and delivery of this Security Agreement; and
WHEREAS, simultaneously with the execution and delivery of this
Security Agreement, the Existing Security Agreements will be amended, restated
and consolidated in their entirety to provide as set forth below, without
interrupting the lien created by the Existing Security Agreements.
NOW, THEREFORE, in consideration of the premises and the Secured
Party's agreement to renew the Existing Line pursuant to the Credit Agreement,
and for other value received by the Debtor, and in further consideration of
other financial accommodations extended by the Secured Party to the Debtor or to
other persons and guaranteed by the Debtor, the Debtor hereby grants a
continuing security interest in, and assigns to the Secured Party, the
Collateral to secure payment and performance of all of the Obligations of the
Debtor to the Secured Party.
Section 1. DEFINITIONS. Definitions in the Code apply to words and
phrases in the Security Agreement and, if Code definitions conflict, definitions
in Article 9 (Chapter 679, Florida Statutes) of the Code shall apply. In
addition to terms defined in the Code or elsewhere in this Security Agreement,
the following terms have the meanings indicated below, which meanings shall be
equally applicable to both the singular and the plural forms of such terms:
"Code" means the Uniform Commercial Code as in effect from
time to time in the State of Florida (Chapters 671 through 680, inclusive,
Florida Statutes).
"Collateral" means and includes any and all of the following
owned by the Debtor or in which the Debtor has an interest, whether now owned or
existing or hereafter created or acquired:
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(a) Accounts;
(b) Chattel Paper;
(c) Documents;
(d) General Intangibles;
(e) Goods, including Equipment, Inventory and
Fixtures exclusive of the following: (i)
computers and related collateral financed by
General Electric Capital Corporation under
Filing No.: 940000094921; and (ii) computers
and related collateral financed by IBM
Credit Corporation under Filing No.:
950000118629;
(f) Instruments;
(g) all cash or non-cash proceeds of any of the
foregoing, including insurance proceeds and
all products thereof;
(h) all ledger sheets, files, records, documents
and instruments (including, but not limited
to, computer programs, tapes and related
electronic data processing software)
evidencing an interest in or relating to the
above; and
(i) any and all property of the Debtor now or
hereafter delivered to or left in or coming
into the possession, control or custody of
the Secured Party, whether expressly as
collateral security or for any other purpose
(including, without limitation, cash, tax
refunds, stock, and other dividends, and all
rights to subscribe for securities incident
to, declared or granted in connection with
such property), and property described in
collateral receipts or other documents
signed or furnished by the Debtor, and any
and all replacements of any of the
foregoing, whether or not in the possession
of the Secured Party.
"Credit Agreement" shall mean that certain Amended and
Restated Credit Agreement dated as of October 10, 1995, among the Debtor, SAI
Distributors, Inc., SAI Realty Investments, Inc., Sound Advice of Virginia,
Inc., Sound Advice Electronics of Maryland, Inc. and the Secured Party.
"Obligations" shall include:
(a) that certain Amended and Restated Renewal
Revolving Credit Promissory Note dated
October 10, 1995, and that certain Amended
and Restated Renewal Term Promissory Note
dated October 10, 1995, both from the Debtor
to the Secured Party in the principal amount
of $13,320,000 and $6,680,000, respectively,
issued under
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the Credit Agreement, and any and all
renewals, modifications, amendments and
replacements thereof, together with any and
all other indebtedness, obligations and
liabilities of the Debtor to the Secured
Party now or hereafter existing, incurred or
created under the Credit Agreement;
(b) the Letters of Credit (as defined in the
Credit Agreement), the Letter of Credit
Application (as defined in the Credit
Agreement) and the obligation of the Debtor
to reimburse Secured Party for all drawings
thereunder and all other obligations in
respect to the Letters of Credit;
(c) all other liabilities (primary, secondary,
direct, contingent, sole, joint or several),
due or to become due or which may be
hereafter contracted or acquired, of the
Debtor to the Secured Party, whether such
liabilities arise in the ordinary course of
business or not (including, without
limitation, liabilities for overdrafts and
as guarantor, endorser and surety);
(d) all costs incurred by the Secured Party to
obtain, preserve and enforce this Security
Agreement and the security interest created
hereunder, collect the Obligations and to
maintain and preserve the Collateral,
including, without limitation, taxes,
assessments, insurance premiums, repairs,
reasonable attorneys' fees and legal
expenses, rent storage costs and expense of
sale; and
(e) interest on the above amounts at the Default
Rate (as defined in the Credit Agreement).
"Receivables" shall mean all Accounts, Chattel Paper,
Instruments, Documents, General Intangibles (including, without limitation, tax
refunds and insurance proceeds) and any and all other obligations and
indebtedness owed to the Debtor from whatever source arising and whether now
existing or hereafter arising. "Receivables" shall also include any and all
guarantees of Receivables and security therefor and any and all proceeds
thereof.
Section 2. OWNERSHIP OF COLLATERAL. The Debtor warrants and agrees
that it is the owner of the Collateral free and clear of all liens and security
interests except the security interest granted by this Security Agreement and
Permitted Liens (as defined in the Credit Agreement) (herein called "Permitted
Encumbrances").
Section 3. NO OTHER SECURITY INTERESTS. So long as any Obligation
to the Secured Party is outstanding, the Debtor will not without the prior
written consent of the Secured Party grant to any third party a security
interest in any of the Collateral or permit any lien or encumbrance to attach to
any part of the Collateral (except for taxes not yet due and payable) or suffer
or permit any levy to be made on any part of the Collateral, or permit any
financing statement except that of Secured Party to be on file with respect
thereto except with respect to Permitted Encumbrances. The Debtor will not sell,
transfer, lease or otherwise dispose of any of the Collateral or any interest
therein, or allow
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others to do so or permit anything to be done to impair the value of the
Collateral or the security interest, PROVIDED, HOWEVER, the Debtor may sell
inventory in the ordinary course of its business and sell, transfer, or
otherwise dispose of Collateral as permitted under Section 6.5 of the Credit
Agreement. Upon the occurrence of an Event of Default, the Secured Party shall
have the right, by written notice to the Debtor, to terminate the Debtor's
authority to sell, lease, otherwise transfer, manufacture, process or assemble,
or furnish under contracts of service, any or all of the Inventory.
Section 4. REPRESENTATIONS, WARRANTIES AND COVENANTS REGARDING THE
COLLATERAL. The Debtor represents, warrants and covenants that:
4.1 The Collateral shall be kept at the address specified
above or specified on Schedule 1 attached hereto. The Debtor will not permit any
of the Collateral to be moved without the prior written consent of the Secured
Party, other than in the ordinary course of business within the State of
Florida, or Collateral which may be sold as permitted under Section 3 hereof.
4.2 The Debtor will at all times keep the Collateral
insured against loss, damage, theft and such other risks as the Secured Party
may require in such amounts (in any event, not less than the full insurable
value thereof), with such insurance companies, under such policies, in such form
and for such periods as shall be reasonably satisfactory to the Secured Party,
and each such policy shall provide that loss thereunder and proceeds payable
thereunder shall be payable to the Secured Party under a standard mortgagee
endorsement, if available, or, if not available, as an additional loss payee
(and the Secured Party may apply any proceeds of such insurance which may be
received by the Secured Party toward payment of the Obligations whether due or
not due, in such order of application as the Secured Party may determine). Each
such policy shall provide for thirty (30) days written minimum cancellation
notice to the Secured Party. Each such policy shall, if the Secured Party so
requests, be deposited with the Secured Party and the Secured Party may act as
attorney for the Debtor in obtaining, adjusting, settling, and cancelling such
insurance and endorsing any drafts. Such policies shall provide that no act or
default of the Debtor shall affect the right of the Secured Party to recover.
4.3 The Debtor will, at all times, keep the Collateral in
good order and repair (ordinary wear and tear casualty excepted)and will not
waste or destroy the Collateral or any part thereof.
4.4 The Debtor warrants that no financing statement
covering any Collateral or any proceeds thereof is on file in any public office,
other than financing statements naming the Secured Party and financing
statements filed with respect to Permitted Encumbrances. The Debtor will
promptly, if requested by the Secured Party, mark its records evidencing its
Accounts and Chattel Paper in a manner satisfactory to the Secured Party so as
to show the same having been assigned to the Secured Party. The Debtor
authorizes the Secured Party to file financing statements with respect to the
Collateral signed only by the Secured Party. The Debtor will join with the
Secured Party in executing financing statements, notices, affidavits, or similar
instruments in forms satisfactory to the Secured Party and such other documents
as the Secured Party may from time to time request, and will pay the cost of
filing the same in any public office deemed advisable by the Secured Party. The
Debtor will do such other acts and things, all as the Secured Party may request,
to maintain a valid, first perfected security interest in the Collateral (free
of all other liens and claims
4
<PAGE>
whatsoever other than Permitted Encumbrances) to secure the payment of the
Obligations secured hereby. The Secured Party is hereby appointed the Debtor's
attorney-in-fact to do all acts and things which the Secured Party may deem
necessary to perfect and to continue the perfection of the security interest
created hereby and to protect the Collateral.
4.5 The Debtor will not use the Collateral or permit the
same to be used in violation of any statute or ordinance. The Secured Party may
examine and inspect the Collateral at any time, wherever located. The Debtor
will pay, promptly when due, all taxes and assessments upon the Collateral or
for its use or operation or upon this Security Agreement or other writing
evidencing the Obligations, or any of them, except as permitted under Section
5.5 of the Credit Agreement.
4.6 The Debtor keeps the bulk of its Inventory at the
address specified at the beginning of this Security Agreement and/or at the
address or addresses specified on Schedule 1 hereto. The chief executive office
where Debtor keeps its records concerning its Receivables is at the address
specified at the beginning of this Security Agreement unless a different address
as specified on Schedule 1 hereto. The Debtor shall give the Secured Party
written notice of each additional location at which Inventory will be kept and
of any change in the chief executive office of the Debtor at which records of
the Debtor pertaining to Receivables are kept at least thirty (30) days prior to
the location of Inventory at such address or the change of the chief executive
office.
Section 5. SPECIAL COVENANTS REGARDING RECEIVABLES.
(a) Until the Secured Party requests that account debtors
on Receivables of the Debtor be notified of the Secured Party's interest, the
Debtor shall continue to collect them, subject to the direction and control of
the Secured Party at all times. Upon the request of the Secured Party, any
proceeds of Receivables shall be immediately delivered to the Secured Party in
the form received except for necessary endorsements to permit collection. The
Debtor shall, at the request of the Secured Party, notify its account debtors of
the security interest of the Secured Party in any Receivable and that payment
thereof is to be made directly to the Secured Party, and the Secured Party may
itself, at any time, without notice or demand upon the Debtor, so notify account
debtors. The making of such a request or the giving of any such notification
shall not affect the duties of the Debtor described above with respect to
proceeds of collection of Receivables received by the Debtor. The Debtor will,
at any time upon the Second Party's request, deliver to the Secured Party the
original documents in the Debtor's possession for any Chattel Paper, Documents
or Instruments, held or owned by the Debtor.
(b) Debtor and Secured Party shall, upon request of
Secured Party, establish and maintain one or more special lock box or blocked
accounts for the collection of the Receivables. Each such special account shall
be with a bank satisfactory to the Secured Party (which may be an affiliate of
the Secured Party) and shall be subject to the Secured Party's standard form
arrangement. Any checks or other remittances against Receivables which are
received by the Debtor shall be held in trust for the Secured Party and turned
over by Debtor to the Secured Party or to a person designated by the Secured
Party in the identical form received (except for any necessary endorsement) as
specifically as possible.
5
<PAGE>
Section 6. DEFAULTS AND REMEDIES. If any one of the following
"Events of Default" shall occur and shall not have been remedied:
(a) Any "Event of Default" under the Credit Agreement; or
(b) Any default by the Debtor with respect to the payment
of any of the Obligations; or
(c) Any representation or warranty made by the Debtor
herein or in any certificate or report furnished by the Debtor hereunder shall
prove to have been incorrect in any material respect; or
(d) The Debtor shall default in the performance of any
agreement, covenant or obligation contained herein after any applicable notice
and/or expiration of the period of grace applicable thereto, if any:
then the Secured Party may, in addition to any other rights and remedies which
it may have, immediately and without demand, exercise any and all of the rights
and remedies granted to a secured party upon default under the Code; and upon
request or demand of the Secured Party, the Debtor shall, at its expense,
assemble all or any part of the Collateral and make it available to the Secured
Party at a convenient place designated by the Secured Party. The Secured Party
and its agents are authorized to enter into or onto any premises where the
Collateral may be located for the purpose of taking possession of such
Collateral. Any notice of sale, disposition or other intended action by the
Secured Party, sent to the Debtor at the address specified at the beginning of
this Security Agreement or at such other address of the Debtor as may from time
to time be shown on the Secured Party's records, at least ten (10) days prior to
such action, shall constitute reasonable notice to the Debtor. Any proceeds of
any disposition of any of the Collateral may be applied by the Secured Party
toward payment of such of the Obligations and in such order of application as
the Secured Party may from time to time elect.
Section 7. MISCELLANEOUS.
7.1 No waiver by the Secured Party of any default shall
operate as a waiver of any other default or of the same default on a future
occasion. No delay or omission on the part of the Second Party in exercising any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Secured Party of any right or remedy shall preclude any other or
further exercise thereof or the exercise of any other right or remedy. Time is
of the essence of this Security Agreement. The provisions of this Security
Agreement are cumulative and in addition to the provisions of any liability of
the Debtor under any note, any guaranty or any other writing, and the Secured
Party shall have all the benefits, rights and remedies of a secured party under
this Security Agreement and any other document.
7.2 All rights of the Secured Party hereunder shall inure
to the benefit of its successors and assigns, and all Obligations of the Debtor
shall bind the successors and assigns of the Debtor.
6
<PAGE>
7.3 This Security Agreement have been delivered in the
State of Florida and shall be construed in accordance with the internal laws of
Florida.
7.4 The Debtor shall pay on demand all expenses and
expenditures of the Secured Party, including reasonable attorneys' fees and
legal expenses incurred or paid by the Secured Party in protecting, enforcing or
exercising its security interest, rights or remedies created by, connected with
or provided in this Security Agreement or Debtor's performance pursuant to this
Security Agreement.
7.5 At its option, the Secured Party may discharge taxes,
liens or security interests or other encumbrances at any time levied or placed
on the Collateral, may pay for insurance on the Collateral, and may pay for the
maintenance and preservation of the Collateral to the extent Debtor has failed
to pay or perform the same. The Debtor agrees to reimburse the Secured Party on
demand for any payment made, or any expense incurred, by the Secured Party,
pursuant to the foregoing authorization. Except as otherwise expressly provided
in this Security Agreement, until an "Event of Default" (as described in the
Credit Agreement), the Debtor may have possession of the Collateral and use it
in any lawful manner not inconsistent with this Security Agreement and not
inconsistent with any policy of insurance thereon.
7.6 If any of the provisions of this Security Agreement
shall contravene or be held invalid under the laws of any jurisdiction, the
Security Agreement shall be construed as if not containing such provision and
the remainder of this Security Agreement shall be construed and enforced
accordingly.
7.7 The Security Party's rights under the Credit Agreement
and all documents executed pursuant thereof or in connection therewith are
cumulative. Without limiting the generality of the foregoing, the Secured Party
may enforce its rights hereunder in all or part of the Collateral or in any
other security in the order selected by Secured Party.
7.8 MANDATORY ARBITRATION. Any controversy or claim
between or among the parties hereto including, but not limited to, those arising
out of or relating to this Agreement or any related agreements or instruments,
including any claim based on or arising from an alleged tort, shall be
determined by binding arbitration in accordance with the Federal Arbitration Act
(or if not applicable, the applicable state law), the Rules of Practice and
Procedure for the Arbitration of Commercial Disputes of Judicial Arbitration and
Mediation Services, Inc. (J.A.M.S.), and the "Special Rules" set forth below. In
the event of any inconsistency, the Special Rules shall control. Judgment upon
any arbitration award may be entered in any court having jurisdiction. Any party
to this Agreement may bring an action, including a summary or expedited
proceeding, to compel arbitration of any controversy or claim to which this
Agreement applies in any court having jurisdiction over such action.
(a) SPECIAL RULES. The arbitration shall be conducted in
the city of Fort Lauderdale, Florida and administered by Endispute, Inc., d/b/a
J.A.M.S./Endispute, who will appoint an arbitrator; if J.A.M.S./Endispute is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will be
commenced within ninety (90) days of the demand for arbitration; further, the
arbitrator shall only, upon a
7
<PAGE>
showing of cause, be permitted to extend the commencement of such hearing for up
to an additional sixty (60) days.
(b) RESERVATION OF RIGHTS. Nothing in this Agreement shall
be deemed to: (i) limit the applicability of any otherwise applicable statutes
of limitation or repose and any waivers contained in this Agreement; or (ii) be
a waiver by the Secured Party of the protection afforded to it by 12 U.S.C. Sec.
91 or any substantially equivalent state law; or (iii) limit the right of the
Secured Party hereto (A) to exercise self help remedies such as (but not limited
to) setoff, or (B) to foreclose against any real or personal property
collateral, or (C) to obtain from a court provisional or ancillary remedies such
as (but not limited to) injunctive relief or the appointment of a receiver. The
Secured Party may exercise such self help rights, foreclose upon such property,
or obtain such provisional or ancillary remedies before, during or after the
pendency of any arbitration proceeding brought pursuant to this Agreement. At
Secured Party's option, foreclosure under a deed of trust or mortgage may be
accomplished by any of the following: the exercise of a power of sale under the
deed of trust or mortgage, or by judicial sale under the deed of trust or
mortgage, or by judicial foreclosure. Neither this exercise of self help
remedies nor the institution or maintenance of an action for foreclosure or
provisional or ancillary remedies shall constitute a waiver of the right of any
party, including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
(c) WAIVER OF JURY TRIAL. BY AGREEING TO BINDING
ARBITRATION, THE PARTIES HERETO HEREBY KNOWINGLY, IRREVOCABLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING, BUT NOT
LIMITED TO, THOSE ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND
ANY OTHER DOCUMENT EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS BETWEEN OR
AMONG THE PARTIES HERETO. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THE
AGREEMENT TO ARBITRATE, TO THE EXTENT ANY SUCH CONTROVERSY OR CLAIM BETWEEN OR
AMONG THE PARTIES HERETO IS NOT ARBITRATED, THE PARTIES HEREBY KNOWINGLY,
IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF SUCH CONTROVERSY OR CLAIM. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR SECURED PARTY MAKING THE LOAN(S) EVIDENCED BY THE TERM
NOTE AND THE REVOLVING CREDIT NOTE (AS SUCH TERMS ARE DEFINED IN THE CREDIT
AGREEMENT).
8
<PAGE>
IN WITNESS WHEREOF, this Security Agreement has been dated for
convenience as of the date hereinabove first written, but in fact executed on
October 13, 1995.
WITNESS: SOUND ADVICE, INC., a Florida corporation
/s/ Mark K. Somerstein By: /s/ Kenneth L. Danielson (SEAL)
- ---------------------- Print Name: Kenneth L. Danielson
/s/ Alan D. Axelrod Title: Chief Financial Officer and Treasurer
STATE OF FLORIDA )
) ss:
COUNTY OF BROWARD)
I HEREBY CERTIFY that on this day, before me, an officer duly
authorized in the State aforesaid and in the County aforesaid to take
acknowledgments, the foregoing instrument was acknowledged before me by Kenneth
Danielson, the CFO of SOUND ADVICE, INC., a Florida corporation, freely and
voluntarily under authority duly vested in him/her by said corporation and that
the seal affixed thereto is the true corporate seal of said corporation. He/She
is personally known to me or who has produced _______________ as identification.
WITNESS my hand and official seal in the County and State last
aforesaid this 13 day of October, 1995.
/s/ Mark K. Somerstein
-----------------------------------------------
Notary Public, State of Florida
-----------------------------------------------
Typed, printed or stamped name of Notary Public
My Commission Expires:
MARK K. SOMERSTEIN
MY COMMISSION # CC481548 EXPIRES
September 27, 1999
BONDED THRU TROY FAIN INSURANCE, INC.
9
THIRD AMENDMENT
TO THE
SOUND ADVICE, INC.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
THIS AMENDMENT is made as of this 30th day of December, 1994, by SOUND
ADVICE, INC., a Florida corporation, (the "Employer") to the SOUND ADVICE, INC.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST (the "Plan").
WHEREAS, the Employer adopted the Plan effective as of July 1, 1989; and
WHEREAS, the Employer has reserved the right to amend the Plan and now
deems it appropriate to amend the Plan to provide for the $150,000 required
compensation limit.
NOW, THEREFORE, effective as of July 1, 1994, the Employer amends the Plan
as follows:
Section 2.11 is hereby amended by adding the following to the end thereto:
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual compensation of each Employee
taken into account under the Plan shall not exceed the Omnibus Budget
Reconciliation Act of 1993 (OBRA '93) annual compensation limit. The OBRA '93
annual compensation limit is $150,000, as adjusted by the Commissioner for
increases in the cost-of-living in accordance with Section 401(a) (17) (B) of
the Code. The cost-of-living adjustment in effect for a calendar year applies to
any period, not exceeding twelve (12) months, over which compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than twelve (12) months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is twelve (12).
IN WITNESS WHEREOF, the Employer has caused this Amendment to be executed
as of the day and year first above written.
SOUND ADVICE, INC.
By: /s/ MICHAEL BLUMBERG
-------------------------
Michael Blumberg
DEALER AGREEMENT
---------
McCAW COMMUNICATIONS
OF FLORIDA, INC.
AND ITS
FLORIDA REGION AFFILIATES
---------
January 1, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
1. APPOINTMENT OF DEALER
1.1. General.......................................................... 1
1.2. Incorporation and Amendment of Dealer Program Rules.............. 2
1.3. Other Dealers' and Company's Right to Solicit Potential
Subscribers...................................................... 2
1.4. No Franchise .................................................... 2
2. GENERAL DUTIES OF DEALER.................................................. 2
2.1. Ethical Conduct and Practices.................................... 3
2.2. Records.......................................................... 3
2.3. Employees and Owners............................................. 3
2.4. Compliance with Other Obligations................................ 4
2.5. Compliance with Laws............................................. 4
2.6. Compliance with Company Policies and Procedures.................. 5
2.7. Store Front Location; Advertising Restricted to Area............. 5
2.8. Store Maintenance................................................ 5
3. DUTIES RELATING TO SERVICE................................................ 5
3.1. Best Efforts; Subscriber Contacts................................ 5
3.2. Company Is Service Provider...................................... 5
3.3. Subscriber Forms/Service Agreements.............................. 5
3.4. Rates, Terms and Conditions of Service........................... 5
3.5. Company Exclusive Rate Plans and Subscribers..................... 6
3.6. Changes in Rates and Terms....................................... 6
3.7. Acceptance of Potential Subscriber Applications for Service...... 6
3.8. Rejected Applications............................................ 6
3.9. Service Activation............................................... 6
3.10. Deposits and Subscriber Payments................................. 6
3.11. No Charges or Billing by Dealer.................................. 7
3.12. Billing by Company............................................... 7
3.13. Company's Right to Settle Claims................................. 7
3.14. Relationship Between Dealer and Subscribers...................... 7
3.15. Dealer Shall Not Process Improper Applications................... 7
4. DUTIES RELATING TO EQUIPMENT.............................................. 8
4.1. FCC and Company Equipment Standards.............................. 8
4.2. Dealer's Sales and Lease Terms................................... 8
4.3. Equipment Supplied By Company.................................... 8
4.4. Demonstration Equipment.......................................... 8
5. PROGRAMMING AND EQUIPMENT SERVICES PROVIDED BY DEALERS.................... 9
5.1 Dealer's Obligation to Program Cellular Telephones............... 9
5.2. Only Qualified Personnel Shall Program and Repair Equipment...... 9
5.3. Referral to Company Authorized Service Centers................... 9
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6. COMMISSIONS ON SUBSCRIBER ACTIVATIONS..................................... 9
6.1. Applicability.................................................... 9
6.2. Activations Obtained by Dealer................................... 9
6.3. Commission Rates, Payment and Modification....................... 9
6.4. Commissions Are Total Compensation of Dealer..................... 10
6.5. Company's Right to Offset........................................ 10
6.6. Disputes between Dealers and Others.............................. 10
6.7. Dealer's Obligation to Obtain Confidentiality and Non-Competition
Agreements; Effect on Commissions................................ 10
7. TRAINING AND CERTIFICATION OF DEALER PERSONNEL............................ 10
7.1. Requirement to Attend Training................................... 10
7.2. Certification Program............................................ 10
8. TRADEMARKS, SERVICE MARKS AND TRADE NAMES................................. 11
8.1. Exclusive Property of Company.................................... 11
8.2. Authorization for Use Is Required................................ 11
8.3. Unauthorized Use Is Infringement................................. 11
8.4. No Rights in or to Names......................................... 11
8.5. Termination of Use............................................... 11
9. CO-OP ADVERTISING AND DEALER AIRTIME PROGRAMS............................. 11
9.1. Co-Op Advertising................................................ 11
9.2. Dealer Responsibility to Pay for Advertising..................... 12
9.3. Dealer Airtime Program........................................... 12
10. RELATIONSHIP OF COMPANY AND DEALER....................................... 12
10.1. General Description.............................................. 12
10.2. Dealer Supervision of Its Personnel.............................. 12
10.3. Other Dealer Business Activities................................. 12
10.4. Dealer Responsible for Own Costs................................. 12
10.5. Limitation of Dealer Authority................................... 12
10.6. Variance of Company's Terms and Conditions by Dealer............. 13
11. DEFAULT BY DEALER OR COMPANY............................................. 13
11.1. Events of Default by Dealer...................................... 13
11.2. Events of Default by Company..................................... 13
12. TERM AND TERMINATION..................................................... 14
12.1. Term of Agreement................................................ 14
12.2 Ninety-Day Termination........................................... 14
12.3 Termination for Cause............................................ 14
12.4. Dealer's Right to Terminate Due to Change in Dealer
Program Rules.................................................... 14
12.5. Expiration, Revocation or Transfer of Licenses................... 14
13. OBLIGATIONS FOLLOWING TERMINATION........................................ 15
13.1. Surviving Obligations upon Termination........................... 15
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13.2. Post-Termination Reserve......................................... 15
13.3. Dealer to Cease to Hold Itself Out as a Dealer Post-Termination.. 15
14. CONFIDENTIAL INFORMATION................................................. 16
14.1. "Confidential Information"....................................... 16
14.2. Agreement Establishes Confidential Relationship.................. 16
14.3. Obligations on Termination....................................... 16
14.4. Material Consideration for Agreement............................. 17
14.5. Information in Public Domain..................................... 17
14.6 Customer Lists................................................... 17
14.7. Information of Company's Affiliates.............................. 17
15. NONDIVERSION OF SUBSCRIBERS.............................................. 17
15.1. Dealer Shall Not Divert Subscribers.............................. 17
15.2. Continuation of Confidentiality.................................. 17
15.3. Subscribers Are Customers of Company............................. 18
16. NON-COMPETITION.......................................................... 18
16.1. Covenant Not to Compete.......................................... 18
16.2. Elimination of Non-Competition Period............................ 18
16.3. Covenant Is Ancillary and Necessary.............................. 19
16.4. Construction of Covenants by Courts.............................. 19
17. FINANCIAL DATA........................................................... 19
17.1. Dealer Warranty of Dealer Financial Data......................... 19
17.2. Dealer's Duty to Update Financial Data........................... 19
18. DISPUTES AND CLAIMS...................................................... 19
18.1 Notice of Disputes and Waiver of Claims.......................... 19
18.2 Indemnification.................................................. 20
18.3 Court Proceedings................................................ 20
18.4 Attorneys' Fees.................................................. 20
18.5 Waiver of Consequential Damages.................................. 21
19. MISCELLANEOUS............................................................ 21
19.1 Notices.......................................................... 21
19.2. No Waiver........................................................ 21
19.3. Ambiguities...................................................... 21
19.4. Construction of Agreement........................................ 22
19.5. Amendments....................................................... 22
19.6. Benefit of Agreement; Prohibited Assignments..................... 22
19.7. Severability..................................................... 22
19.8. Sections and Clauses............................................. 22
19.9 Descriptive Headings............................................. 23
19.10. Confidentiality Agreement of Terms............................... 23
19.11. Authority........................................................ 23
19.12. No Interlineation................................................ 23
20. INDEPENDENT INVESTIGATION................................................ 23
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DEALER AGREEMENT
THIS AGREEMENT, effective as of January 1, 1995, is between McCAW
COMMUNICATIONS OF FLORIDA, INC., d/b/a Cellular One, a Florida corporation with
executive offices at 250 Australian Avenue South, West Palm Beach, Florida
33401, on behalf of itself and its affiliates holding licenses from time to time
to provide non-wireline cellular radiotelephone service ("Service") within the
State of Florida (collectively, "Company"), and SOUND ADVICE, INC., a Florida
corporation with executive offices at 1901 Tigertail Blvd., Dania, Florida 33004
("Dealer").
RECITALS
I. Company is authorized to provide Service in certain areas within the
State of Florida, which areas may change from time to time (collectively, the
"Area"), to Subscribers (as defined in Exhibit A to this Agreement), and desires
to enter into agreements with Dealer and with others to obtain their assistance
in obtaining requests from potential Subscribers in the Area. A list of the
areas in Florida within which Company provides Service as of the date set forth
therein pursuant to licenses granted by the Federal Communications Commission
("FCC") is set forth in the attached Schedule 1.
II. Dealer desires to enter into this Agreement with Company to assist
Company in obtaining requests for Service by referring potential Subscribers to
Company for activation on Company's Service in the Area.
AGREEMENTS
In consideration of the covenants and promises contained herein, and
intending to be legally bound hereby, the parties agree as follows:
1. APPOINTMENT OF DEALER
1.1. General. Company appoints Dealer to be an authorized Dealer for
Company within the Area: (i) to obtain requests from potential Subscribers to
Company's Service in the Area; and (ii) to provide such after-activation
assistance to Subscribers for Company's Service as may be authorized by Company.
Dealer hereby accepts this appointment by Company. Dealer shall perform the
functions of a dealer and shall be compensated in accordance with this
Agreement. As an agent for obtaining requests from potential Subscribers for
Company's Service in the Area, Dealer's authority is limited to soliciting
potential Subscribers for Company's Service in the Area and programming the
equipment of all Subscribers whose applications are accepted by Company, in
accordance with this Agreement. Dealer is not a general agent of Company.
<PAGE>
1.2. Incorporation and Amendment of Dealer Program Rules. The terms of
the Dealer Program Rules, including all future amendments and modifications, are
and shall at all times be incorporated into this Agreement. The Dealer Program
Rules which shall apply immediately upon the effectiveness of this Agreement are
attached as Exhibit A. The Dealer Program Rules may be amended and modified by
Company on thirty (30) days advance written notice to Dealer, subject to
Dealer's right to terminate under Clause 12.4. Each amendment to the Dealer
Program Rules shall specify its effective date and shall apply with respect to
activations of Service to Subscribers on or after such date, until further
amendment and modification. The provisions of the Dealer Program Rules in effect
on any particular date shall govern the commissions payable to Dealer,
charge-back periods, and the like with respect to the Subscribers accepted on
such date. The Dealer Program Rules may include, in addition to the matters
referenced in Clause 6.3, such other rules, policies and procedures as Company
may from time to time establish pursuant to this Agreement (although it shall
not be necessary to include all such matters in the Dealer Program Rules),
including, without limitation, reasonable charges to be imposed on Dealer
arising out of irregularities in its performance of its duties hereunder.
1.3. Other Dealers' and Company's Right to Solicit Potential
Subscribers. Dealer acknowledges and agrees that Company shall have, at all
times during the term of this Agreement, the right:
(a) to market its Service to potential Subscribers, to obtain
requests for its Service and to activate Subscribers, itself and through
affiliated and unaffiliated entities, including, without limitation,
other dealers or agents, with or without Dealer's assistance; and to
obtain requests for additional service from existing Subscribers,
whether or not such Subscribers were referred by Dealer; and
(b) to sell or lease cellular radio telephone parts and equipment
and related cellular telephone equipment (e.g., modems, computers, and
fax machines) ("Equipment"); and to provide installation, maintenance or
repair service for such Equipment ("Equipment Service"), itself and
through affiliated and unaffiliated entities, to (i) potential
Subscribers, (ii) Subscribers, (iii) other dealers, and (iv) any other
person or entity.
1.4. No Franchise. Dealer shall not pay, and Dealer acknowledges that it
has not paid, any franchise or other fee for the right to become or to remain
Company's dealer, or to use or to continue to use any trademark, service mark,
or trade name of Company. The parties agree that no franchise is created under
this Agreement and will not be created by any performance of this Agreement.
2. GENERAL DUTIES OF DEALER
Dealer understands and acknowledges that the high quality operation of
its business is very important to Company, to its affiliates, to other dealers
of Company, and to the licensors of the Names (as defined in Clause 8.1)
utilized by Company from time to time. In order to maintain high standards of
service, integrity and fair dealing, and to protect the
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<PAGE>
reputation and goodwill of Company and the Names, Dealer acknowledges and
accepts the following duties:
2.1. Ethical Conduct and Practices. In all dealings with Subscribers,
Company, and members of the public, Dealer will be governed by the highest
standards of honesty, integrity, fair dealing, and ethical conduct. Dealer shall
not engage in any activity harmful to Company's goodwill or reflecting
unfavorably on Company or the Names. This prohibition shall include, but not be
limited to, the commission of any unfair trade practice, the publication of any
false, misleading, or deceptive advertising, or the commission of any fraud or
misrepresentation, including the falsification of Subscriber applications or any
other misrepresentation by Dealer to Company.
2.2. Records. Dealer shall create and maintain reasonable records of all
transactions and activities relating to this Agreement and any other records
required from time to time by applicable law. Dealer shall store such records at
its principal place of business and preserve them for a reasonable time from the
date of their preparation. Dealer shall make these records available to Company
during normal business hours upon 72 hours prior notice.
2.3. EMPLOYEES AND OWNERS.
(a) "Dealer Personnel." Dealer Personnel are defined to be all
persons or entities (whether or not called employees of Dealer) who (i)
are engaged by Dealer primarily to solicit potential Subscribers; (ii)
have access through Dealer to Confidential Information (as defined in
Clause 14.1 herein); or (iii) directly or indirectly own or control ten
percent or more of the ownership interest in Dealer.
(b) Approval of Dealer Personnel. Before hiring anyone or allowing
anyone to act as Dealer Personnel, Dealer agrees to inquire of that
person whether (s)he has any prior experience in the wireless
communications industry. If the person indicates that (s)he has such
experience, Dealer agrees to notify Company, at least seven days in
advance of hiring anyone or allowing anyone to act as Dealer Personnel,
of the person's name, potential position, and experience, and to inquire
of Company whether the person would be approved to solicit business on
behalf of Company. If Company determines not to approve someone (whether
a potential or current Dealer Personnel) to solicit applications for
Company's Service, it shall promptly notify Dealer of that
determination. Dealer agrees to abide by Company's determination, and
not to employ any person as Dealer Personnel not approved by Company.
Approval or non-approval by Company of Dealer Personnel shall not be
deemed to reflect any substantive review of the credentials and
qualifications of such persons. Company, in its sole discretion, and
acting in good faith, shall be entitled to revoke its prior approval of
any Dealer Personnel. Dealer shall advise all Dealer Personnel of
Company's rights under this Clause.
(c) Responsibility for All Personnel. Dealer will be responsible
for the performance by any person or entity associated with Dealer in
connection with Dealer's obligations hereunder, including Dealer
Personnel, as if such acts were performed by Dealer, including, without
limitation, compliance by them with the provisions of this Section and
of Sections 3, 8, 14, 15, and 16. Any action taken or
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omitted by any such associated person or entity may constitute an
event of default under Section 11 hereof as if such action had been
taken by the Dealer. Notwithstanding the foregoing, Company shall be
under no obligation to any such associated person or entity and they
shall not be regarded as intended third-party beneficiaries of this
Agreement. Company shall have no responsibility or liability with
respect to any such associated person or entity.
(d) Sales Agents; Sharing of Commissions. Without Company's
specific written consent, Dealer shall not, directly or indirectly,
share any commissions earned pursuant to this Agreement with any
commission agents, subdealers or other persons or entities, except for
Dealer's own employees.
(e) Confidentiality and Non-Competition Agreements. Dealer shall
cause each Dealer Personnel to enter into a Confidentiality and
Non-Competition Agreement in a form satisfactory to Company, a copy of
which shall be delivered to Company within one week after the
commencement of the Dealer Personnel relationship. A currently
acceptable form is attached as Exhibit B.
(f) Communications between Dealer and Company. In order to
establish and maintain clear lines of communication between Dealer and
Company, Company may elect to deal only with specified officers of the
Dealer, if Dealer is a corporation; a partner, if Dealer is a
partnership; or the proprietor, if Dealer is a proprietorship.
2.4. Compliance with Other Obligations. As a material consideration for
inducing Company to enter into this Agreement, Dealer represents and warrants as
follows:
(a) that, by executing and implementing this Agreement, Dealer is
neither in breach nor in violation of any terms or conditions of any
other contract to which Dealer is or was a party, including, but not
limited to, terms relating to covenants not to compete;
(b) that, during the term of this Agreement, Dealer shall not
disclose to Company, or use, or induce Company to use, any proprietary
information or trade secrets of others. Dealer represents and warrants
that it has returned all property and confidential information belonging
to any other wireless telecommunications provider or to any other dealer
of Company with which it was previously affiliated in the Area except as
otherwise permitted by the owner of such property or information. Dealer
further represents and warrants that its performance of the terms of
this Agreement will not breach any agreement to keep in confidence
proprietary or trade secret information acquired by Dealer in confidence
or in trust prior to Dealer's engagement by Company; and
(c) that Dealer has not entered into, and Dealer agrees it will not
enter into, any agreement in conflict with this Agreement.
2.5. Compliance with Laws. Dealer shall comply with all applicable
federal and state laws, rules, regulations and court orders, including all FCC
rules, federal and state tariffs, and
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rules and procedures relating to the Dealer's obligations under the Agreement
and the conduct of Dealer's or Company's business.
2.6. Compliance with Company Policies and Procedures. Dealer shall
comply with Company's written policies and procedures as promulgated from time
to time (whether before or after the making of this Agreement) as Company deems
reasonable for the administration of its business.
2.7. Store Front Location; Advertising Restricted to Area. Dealer shall
operate its business hereunder at such store-front location(s) as Company
approves from time to time. Dealer shall not establish any other location from
which to conduct business pursuant to this Agreement or advertise Service in a
media that is primarily directed to potential Subscribers residing more than 50
miles from the store without the prior written consent of Company, which may be
granted or withheld in Company's sole discretion. This provision is for the
benefit of Company. Company shall have no liability to Dealer in connection with
its approval of any location of Dealer or of any other dealer; Company's
approval shall not be deemed to imply any assessment of the potential profits or
losses which may arise from Dealer's operations at any location. Dealer
acknowledges that Company may base its decision on confidential information
regarding Company's business plans and that Company may decline to provide any
reason for its decisions. Notwithstanding the foregoing, if Dealer is primarily
engaged in the sale of a broad range of consumer products from one or more
retail outlets, Company may not object to the solicitation of potential
Subscribers at a new location unless Company can show substantial harm to its
general business from such activity.
2.8. Store Maintenance. Dealer agrees that each store location must be
maintained in a first-class manner in order to promote and protect Company's
business, reputation and goodwill, and the Names used by Company.
3. DUTIES RELATING TO SERVICE
3.1. Best Efforts: Subscriber Contacts. Dealer shall use its best
efforts to solicit and obtain requests for Service from potential Subscribers.
Dealer shall use commercially reasonable efforts at all times and give prompt,
courteous, and efficient service to the public. When soliciting potential
Subscribers, Dealer shall perform these duties in the manner provided in this
Agreement, including the Dealer Program Rules.
3.2. Company Is Service Provider. Dealer shall not represent itself as a
licensee of Service. In all dealings with the public with respect to Service,
Dealer will identify Company as Service provider.
3.3. Subscriber Forms/Service Agreements. All service agreements,
applications and other documents relating to Service that are used by Dealer in
its efforts to solicit and obtain requests for Service from potential
Subscribers shall be on forms approved by Company.
3.4. Rates, Terms and Conditions of Service. When soliciting potential
Subscribers for Service, Dealer shall quote only such rates, rate plans, prices,
terms, and conditions of Service as Dealer is specifically authorized by Company
to communicate to potential
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Subscribers. Dealer shall have no authority to offer any other rates, rate
plans, prices, terms, or conditions to Subscribers for Service. Moreover, Dealer
shall not grant any discount or make any adjustment to any rate, rate plan,
price, term, or condition for Service or charge an application or programming
fee for Dealer's services, or agree to any prices, terms, or conditions relating
to Service with Subscribers or potential Subscribers without Company's express
written permission. Dealer acknowledges that the hold harmless obligations of
Clause 18.2 apply to this Clause 3.4, and authorizes Company to offset, against
any commissions owed Dealer, all costs, expenses, losses and damage suffered by
Company from a breach of this Clause 3.4. This remedy is in addition to any
other remedy Company has for breach under this Agreement or applicable law.
3.5. Company Exclusive Rate Plans and Subscribers. Dealer acknowledges
that (i) Company may, from time to time, authorize or not authorize Dealer to
solicit requests for Service from potential Subscribers under certain of
Company's rate plans, including, for example, rate plans designed for
governmental entities or other special categories of Subscribers or potential
Subscribers; and (ii) Company may also, from time to time, authorize or not
authorize Dealer to solicit requests for Service from certain categories of
Subscribers or potential Subscribers, or certain specific Subscribers or
potential Subscribers identified by Company.
3.6. Changes in Rates and Terms. Consistent with applicable regulatory
requirements, laws or tariffs, Company may change or amend its rates, terms, or
conditions for Service at any time for existing or potential Subscribers.
3.7. Acceptance of Potential Subscriber Applications for Service. All
applications received by Dealer for Service from potential Subscribers shall be
subject to acceptance or rejection by Company, based upon the credit of the
potential Subscriber, the sufficiency and validity of information relating to
the potential Subscriber's application, or any other valid business reason as
Company, in its sole reasonable judgment, may determine.
3.8. Rejected Applications. If Company does not accept an application
obtained by Dealer from a potential Subscriber, Dealer shall not enter into a
written agreement for Service with, or otherwise agree to provide Service to,
the potential Subscriber concerned. Furthermore, Dealer may not sell, refer or
disclose any information respecting the rejected applicant to any third party.
3.9. Service Activation. Dealer shall comply with all Service activation
procedures generally utilized by Company of which it is advised from time to
time.
3.10. Deposits and Subscriber Payments. Dealer shall, as trustee for
Company, collect from potential Subscribers prior to activation of Service such
deposits and advance payments for Service as Company shall require. Except as
Dealer is otherwise advised in writing, all deposits and advance payments shall
be made payable to Company, not Dealer. Dealer shall deliver all such payments
to Company in accordance with activation procedures established by Company. If
Dealer fails to collect the required deposits and advance payments, Dealer shall
be liable therefor, and Company shall have the right to collect such amounts
from Dealer.
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3.11. No Charges or Billing by Dealer. Except as otherwise advised in
writing by Company, Dealer shall not charge, bill, or collect any sums from any
person in connection with the person's acquisition or use of Service. Dealer's
sole compensation for assisting such persons shall be the commission provided
for in this Agreement.
3.12. Billing by Company. All billing of Subscribers for Service shall
be made directly by Company, and all remittances resulting from such billings
shall be the property of Company and shall be made payable to Company by such
Subscribers. When requested by Company, Dealer shall give reasonable assistance
to Company in obtaining any information relating to a claim or obligation of a
Subscriber.
3.13. Company's Right to Settle Claims. Company retains for itself the
sole right to collect all monies and to settle all claims by Subscribers
relating to Service. Dealer shall have no right to require Company to assert or
enforce claims against Subscribers beyond what Company believes, in its
reasonable judgment, to be commercially desirable.
3.14. Relationship Between Dealer and Subscribers. The parties
acknowledge that Dealer's duties hereunder consist solely of acting on Company's
behalf as a facilitator to match Service needs of potential Subscribers with
Service made available by Company within the Area. Dealer's only compensation
for this service is the commission provided for by Section 6 herein. Dealer
shall not charge Subscribers for its services in connection with facilitating
Subscribers' relationships with Company. The parties acknowledge and agree that
the provision of Service is a transaction between Company and the Subscriber
only, and that Dealer has no rights in or to the transaction. Dealer shall not
act, directly or indirectly, as a reseller of Service in the Area during this
Agreement or any non-competition period that follows. Without limiting the
generality of the foregoing, neither Dealer nor its parents, subsidiaries,
affiliates, owners, or Dealer Personnel will take any financial responsibility
for payment for Service for third parties, or otherwise suggest, initiate or
facilitate the establishment of any arrangement to mitigate the Subscriber's
financial risk arising out of his agreement for Service or for management of the
account or otherwise interfere with the intended contractual relationship
between Company and Subscriber. Notwithstanding the foregoing, Dealer may submit
applications in its own name as Subscriber and receive commissions thereon if
the Service is provided (i) for the predominant use of employees of Dealer,
Dealer Personnel or their family members and (ii) on a rate plan available to
the general public through Dealer.
3.15. Dealer Shall Not Process Improper Applications. During the term of
this Agreement, Dealer, its owners, Dealer Personnel, and affiliates shall not
at any time process an application for Service involving: (i) a "No Install"
account; (ii) an unauthorized corporate or "Multi-User" account; (iii) "Internal
Churn" or "Delayed Internal Churn" (to the extent and as each is defined from
time to time in the Dealer Program Rules); or (iv) any other action or device
intended to manipulate the timing or inflate the amount of commissions payable
with respect to a Subscriber beyond that which is contemplated by this
Agreement. It shall be a breach of this Agreement for Dealer knowingly to
process any application in violation of this provision, or to encourage or to
permit any Subscriber or potential Subscriber, or any Dealer Personnel, to
submit such applications. Dealer shall be deemed to be in breach of this
Agreement if more than 10% of Dealer's applications for Service for any calendar
month are
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determined to have been submitted in violation of this Clause 3.15, regardless
of whether Dealer had prior knowledge of the violation.
4. DUTIES RELATING TO EQUIPMENT
4.1. FCC and Company Equipment Standards. Dealer acknowledges that the
quality of Equipment used by Subscribers is important because faulty Equipment
may denigrate the quality, security, and reliability of Service. Therefore,
Company shall have the right to approve the Equipment sold or leased by Dealer
to Subscribers to ensure that the minimum technical standards of the FCC and
Company are met. Dealer shall not recommend, sell, lease, or furnish to
potential or actual Subscribers of Company any Equipment disapproved by the FCC
or Company for failure to meet minimum technical, security and reliability
standards. Company's approval of Equipment will not be unreasonably withheld.
4.2. Dealer's Sales and Lease Terms. All sales of Equipment by Dealer to
Subscribers and potential Subscribers and all leases of Equipment to Subscribers
and potential Subscribers, where Dealer is the Seller or Lessor, shall be for
Dealer's own account and not as an agent of Company. Dealer shall be solely
responsible for establishing the price and other terms and conditions for all
such sales and leases of Equipment owned by it. In addition, Company may, at its
option, from time to time provide Dealer the opportunity to sell or lease
Equipment owned by Company or a third-party lessor ("Lease Equipment") to
subscribers. Such programs may be the subject of separate agency or consignment
agreements with Dealer and may or may not include provisions for any additional
commission to Dealer; no entitlement to any additional commission shall be
presumed. In the event such program is offered, Dealer may, as agent for Company
acting as a seller or lessor or for a third-party seller or lessor (collectively
"Seller" or "Lessor"), supply Equipment to Subscribers through sales or leases
between Subscriber and Seller or Lessor. In such event, all terms and
conditions, including price, shall be established and shall be subject to change
by the Seller or Lessor. Dealer shall use forms, applications and other
documents provided by the Seller or Lessor, and shall offer the Equipment to
Subscribers for sale or lease from the Seller or Lessor only at prices and on
terms and conditions established by Seller or Lessor from time to time.
Company's interest in leased Equipment may be sold or assigned to third parties.
4.3. Equipment Supplied By Company. If Company chooses to supply any
type or style of Equipment for sale to Dealer, all of Dealer's purchases of such
Equipment from Company shall be governed by terms and conditions separately
established between Dealer and Company in another agreement. Dealer understands
that Company is not under any obligation to sell Equipment to Dealer under this
Agreement and that Dealer is under no obligation to purchase Equipment from
Company.
4.4. Demonstration Equipment. Company may, at its sole option, supply
Equipment to Dealer for demonstrating Service to potential Subscribers
("Demonstration Equipment"). Notwithstanding Company's ownership of
Demonstration Equipment, Dealer shall bear the risk of loss or damage by any
means whatsoever (ordinary wear and tear excepted) from the time any such
Equipment is placed in the possession of Dealer until it is returned to Company.
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5. PROGRAMMING AND EQUIPMENT SERVICES PROVIDED BY DEALERS
5.1 Dealer's Obligation to Program Cellular Telephones. It shall be
Dealer's obligation to program the Equipment of each Subscriber whose
application for Service was obtained through Dealer's efforts and which
application was accepted by Company with the cellular telephone number assigned
by Company for use on Company's Service and other parameters specified by
Company in connection with Service. The commission paid to Dealer pursuant to
the Dealer Program Rules shall be the only compensation Dealer is entitled to
receive for programming a new Subscriber's Equipment. Dealer may not charge a
new Subscriber for the initial programming of its Equipment.
5.2. Only Qualified Personnel Shall Program and Repair Equipment. Only
personnel who possess the requisite training and equipment (as may be specified
from time to time in rules, policies, or procedures reasonably adopted by
Company) may provide Equipment Services and programming for Equipment that is
activated on the Service.
5.3. Referral to Company Authorized Service Centers. To the extent that
Dealer is not qualified to furnish the Equipment Services required by a
Subscriber, Dealer shall inform Subscribers of the locations of Company's
authorized and approved service centers.
6. COMMISSIONS ON SUBSCRIBER ACTIVATIONS
6.1. Applicability. Subject to the Dealer Program Rules and other
limitations in this Agreement, Dealer shall be entitled to commissions for each
activation of a new Subscriber on a Company authorized rate plan with respect to
which Dealer is specifically authorized to solicit potential Subscribers,
provided that: (i) the activation resulted from an application for Service from
a potential Subscriber that Dealer solicited which was accepted by Company; (ii)
Service is activated during the term of this Agreement; (iii) Dealer programs
the new Subscriber's Equipment as provided in Clause 5.1; (iv) Dealer follows
Company's activation procedures as specified from time to time; and (v) the
Subscriber remains active for the minimum time necessary for Dealer to earn a
commission, if any, as stated in the Dealer Program Rules.
6.2. Activations Obtained by Dealer. Dealer shall be entitled to
commissions only for activations which were obtained solely by Dealer or its
Dealer Personnel. Dealer shall not be entitled to any commission for activations
procured on applications submitted by other dealers of Company, or by Company
itself, or by Company's affiliates.
6.3. Commission Rates, Payment and Modification. The Dealer Program
Rules will specify the rates of commission payable to Dealer by Company, and may
set forth provisions with respect to related matters, such as the timing of the
payment of such commissions, the length of time a Subscriber is required to
remain on Service for Dealer to earn a commission, specifications of authorized
rate plans and other rules relating to the forfeiture or crediting of
commissions.
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6.4. Commissions Are Total Compensation of Dealer. The commissions set
forth in the Dealer Program Rules shall be the total compensation payable to
Dealer by Company for any and all services provided by Dealer to Company.
6.5. Company's Right to Offset. Company shall have the right, at any
time, to offset against commissions owed to Dealer any amounts owed by Dealer to
Company or its affiliates pursuant to this Agreement, or otherwise, including
without limitation, any costs, expenses, losses and damages incurred by Company
and indemnified by Dealer under Clause 18.2.
6.6. Disputes between Dealers and Others. In the event that there is a
dispute between Dealer and another dealer of Company or any third party relating
in any way to any payment alleged to be due Dealer from Company (including the
amount, allocation or accrual of any such payment), Company may, at its sole
option, withhold payment until the parties mutually resolve the dispute or until
the matter is resolved by final order of a court or arbitral tribunal. Company
shall not be under any obligation to accrue interest on the disputed amount.
6.7. Dealer's Obligation to Obtain Confidentiality and Non-Competition
Agreements; Effect on Commissions. In order to receive compensation as to any
Subscriber whose Activation resulted from a request for Service solicited by any
Dealer Personnel, Dealer must have obtained and delivered to Company a duplicate
original of the Confidentiality and Non-Competition Agreement between Dealer
and such Dealer Personnel duly executed by each of them, and approved by
Company, as required by Clause 2.3. In the event any compensation is paid to
Dealer by Company for an Activation resulting from a request for Service
solicited by any Dealer Personnel, and Dealer has not complied with the
foregoing sentence, then Dealer shall, upon demand, repay all such amounts to
Company. Pending such repayment, Company shall be entitled to offset any such
amounts to be repaid against any amounts otherwise owed to Dealer by Company.
7. TRAINING AND CERTIFICATION OF DEALER PERSONNEL
7.1. Requirement to Attend Training. In order to provide the highest
quality service, all Dealer Personnel who obtain applications from potential
Subscribers or who provide programming or Equipment Service shall attend
training courses at reasonable times and locations to be established by Company.
Such training shall be provided by Company at no charge to Dealer or its Dealer
Personnel; provided, however, that any incidental costs (including but not
limited to travel and living expenses) incurred by Dealer or its Dealer
Personnel shall be the sole responsibility of Dealer.
7.2. Certification Program. Should Company determine that a
certification program is required to enhance or maintain the quality of its
Service, then Company shall certify Dealer Personnel individually upon Company
receiving evidence, reasonably acceptable to Company, that each has acquired
current training and skills deemed sufficient by Company. Thereafter, Dealer
shall allow only Dealer Personnel who are certified by Company to engage in
obtaining applications for Service, demonstrating Service, leasing Equipment,
programming Equipment, and Equipment Service. Company may at any time deny or
terminate the certification of any Dealer Personnel who fail to attend or
complete any training course or who otherwise demon-
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strate that they are not qualified to be or remain certified by Company.
Certification does not relieve Dealer of responsibility for Dealer Personnel
conduct as contemplated in Clause 2.3.
8. TRADEMARKS, SERVICE MARKS AND TRADE NAMES
8.1. Exclusive Property of Company. All trademarks, service marks and
trade names of Company ("Names"), including, without limitation, the name
"CELLULAR ONE/registered trademark/," are the exclusive property of Company or
Company's licensors, and Dealer shall not use such Names without the specific
prior written approval of Company. Dealer shall comply with all rules and
procedures pertaining to such Names prescribed by Company or Company's licensors
from time to time.
8.2. Authorization for Use Is Required. Without limiting the generality
of Clause 8.1 above, all signage, brochures, sales documents, print, radio, or
television advertising, stationery, or any other publication or use by Dealer
that contains any Name of Company or Company's licensors must be approved in
advance by Company.
8.3. Unauthorized Use Is Infringement. Any unauthorized use of Names by
Dealer, or by any Dealer Personnel, or any use thereof that is not in compliance
with any rules and procedures prescribed by Company, shall be an infringement of
the rights of Company and of Company's licensors and shall constitute a material
breach of this Agreement. Such use may be restrained by Company's licensors, if
one or more of the licensors' Names is infringed, and by Company if either a
Company or a licensor Name is infringed.
8.4. No Rights in or to Names. Dealer acknowledges that it has no rights
to the Names except as provided herein, and shall not acquire any such rights or
an expectancy to their use during the term of this Agreement, and that Company
may discontinue the use of any Name during the term of this Agreement, or
discontinue licensing any Name, and that Dealer shall have no right to require
Company to continue to use or license any Name.
8.5. Termination of Use. Upon the termination of this Agreement, Dealer
shall immediately discontinue any use of Company's Names, and the Names of
Company's licensors, including any use of the name "CELLULAR ONE/registered
trademark/."
9. CO-OP ADVERTISING AND DEALER AIRTIME PROGRAMS
9.1. Co-Op Advertising. If specified in the Dealer Program Rules or any
Cooperative Advertising Guidelines, Company may maintain a cooperative
advertising account for purposes of partially reimbursing Dealer for cooperative
advertising approved in advance by Company. Such account would pertain only to
advertisements promoting Service. No interest will be paid on credits posted to
this account, and any amounts remaining in the account upon termination of the
Agreement shall be forfeited. Company has no obligation to establish or maintain
any cooperative advertising program, and may cancel any program it may establish
during the term hereof, or may have at the beginning of the term hereof, without
liability to Dealer.
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9.2. Dealer Responsibility to Pay for Advertising. Dealer shall pay, and
will be responsible for paying, all third parties for all expenses of any
advertising that it purchases.
9.3. Dealer Airtime Program. A Dealer Airtime Program providing Service
in the Area to Dealer so that Dealer may demonstrate Service to potential
Subscribers may be made available at the discretion of Company, and will be
governed by separate Dealer Airtime Guidelines. Company has no obligation to
establish or maintain any Dealer Airtime Program, and may cancel any program it
may establish during the term hereof, or may have at the beginning of the term
hereof, without liability to Dealer.
10. RELATIONSHIP OF COMPANY AND DEALER
10.1. General Description. Company and Dealer acknowledge and agree that
the relationship arising from this Agreement does not constitute or create a
general agency, joint venture, partnership, employment relationship, or
franchise between them. Dealer is a limited agent of Company with only the
authority specified in this Agreement or arising by necessary implication.
Except as otherwise provided in this Agreement or by other requirements, rules,
policies and procedures referred to in this Agreement, Dealer shall operate
Dealer's business as Dealer sees fit. Neither Dealer nor any Dealer Personnel
shall be deemed an employee of Company for any purpose.
10.2. Dealer Supervision of Its Personnel. Subject to the provisions of
Clause 2.3 and Section 7 of this Agreement, Dealer may hire and engage Dealer
Personnel as Dealer deems necessary or desirable. Dealer shall exercise the sole
and exclusive control and supervision of such personnel.
10.3. Other Dealer Business Activities. Dealer shall be free to engage in
such other business activities as Dealer may desire to pursue, as long as such
other business activities do not interfere or conflict with any of Dealer's
duties or obligations under this Agreement.
10.4. Dealer Responsible for Own Costs. Dealer will be responsible for
the costs and expenses of conducting and operating Dealer's business. Company
shall not make any deductions, withholdings, or contributions with respect to
Dealer on account of social security, industrial insurance, unemployment
compensation, income tax or otherwise, under any federal, state or local law
applicable to the relationship of employer and employee.
10.5. Limitation of Dealer Authority. Except for the limited purposes
expressly set forth herein or except as expressly directed by Company in
writing, Dealer (i) is in no way the legal representative or agent of Company
for any purpose whatsoever, (ii) has no right or authority to assume or create
any obligation of any kind, express or implied, on behalf of Company, (iii) has
no right to make any representation or warranty on behalf of Company regarding
Service, Equipment Service, or Equipment leased or sold by Dealer as agent for
Company, and (iv) has no right to make any representations or warranties on
behalf of Company concerning Equipment sold by Company to Dealer, if any, except
that Dealer may inform customers of warranties issued in writing by the
manufacturers of such Equipment.
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10.6. Variance of Company's Terms and Conditions by Dealer. Dealer shall
not vary orally or in writing any terms or conditions appearing on any forms
used by Company relating to Service, Equipment Service, or Equipment.
11. DEFAULT BY DEALER OR COMPANY
11.1. Events of Default by Dealer. Each of the following events and
occurrences is hereby defined as, and shall constitute, a "default" of this
Agreement by Dealer:
(a) any breach by Dealer of this Agreement not covered by Clause
11.1(e) below;
(b) the commission of any illegal act (excluding misdemeanor
traffic offenses and other minor misdemeanors not involving dishonesty or
moral turpitude) by, or the filing of any criminal indictment or
information against, Dealer, any person directly or indirectly owning or
controlling ten percent or more of the ownership interest in Dealer, or
any partners or executives of Dealer;
(c) Dealer ceasing to function as a going concern; or ceasing to
conduct its activities pursuant to this Agreement in the normal course of
business; or otherwise experiencing a material deterioration in its
financial condition such that, in Company's reasonable business judgment,
Dealer's ability to perform the terms of this Agreement is threatened; or
becoming insolvent; or becoming the subject of a petition in bankruptcy;
or having a receiver appointed for its business; or entering into any
arrangement with, or assignment for the benefit of, creditors;
(d) Dealer or its related companies defaulting under any other
material agreement between Dealer or any of its related companies, on the
one hand, and Company or any other entity owned or controlled, directly
or indirectly, by McCaw Cellular Communications, Inc., or any successor
to it, on the other hand, so that Company or its related companies has
the present right to terminate such other agreement for default; and
(e) any failure by Dealer to pay Company any amount of money when
due that Dealer does not fully cure within fifteen (15) days after
Company sends Dealer a written notice of the non-payment.
11.2. Events of Default by Company. Each of the following events and
occurrences is hereby defined as, and shall constitute, a "default" of this
Agreement by Company:
(a) any breach by Company of this Agreement not covered by Clause
11.2(d) below;
(b) Company ceasing to function as a going concern; or ceasing to
conduct its activities pursuant to this Agreement in the normal course of
business; or becoming insolvent; or becoming the subject of a petition in
bankruptcy; or having a receiver appointed for its business; or entering
into any arrangement with, or assignment for the benefit of, creditors;
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(c) Company or its related companies defaulting under any other
material agreement between Dealer or any of its related companies, on the
one hand, and Company or any other entity owned or controlled, directly
or indirectly, by McCaw Cellular Communications, Inc., or any successor
of it, on the other hand, so that Dealer or its related companies has the
present right to terminate such other Agreement for default; and
(d) any failure by Company to pay Dealer any amount of money when
due that Company does not fully cure within fifteen (15) days after
Dealer sends Company a written notice of the non-payment.
12. TERM AND TERMINATION
12.1. Term of Agreement. This Agreement shall commence as of the date
first above written and shall continue until terminated as provided herein.
12.2 Ninety-Day Termination. This Agreement may be terminated by either
party without cause (as defined in Clause 12.3 below) upon 90 days' written
notice; provided that Company may not terminate this Agreement without cause
prior to January 1, 1997.
12.3 Termination for Cause. This Agreement may be terminated by either
party for cause immediately upon written notice of termination; provided,
however, that if a default, other than default arising under Clause 11.1(e) or
11.2(d), is capable of being cured within 30 days, then the defaulting party
shall have 30 days from the date notice is given in which to cure the default.
If the default is not cured by the end of the 30 day period, then termination
will be effective without further notice. Cause for termination hereunder shall
be limited to any default as defined in Clause 11.1 or 11.2 above. Defaults
which are not "capable of being cured" shall include, without limitation, all
defaults based on fraud or other actions undertaken in bad faith.
12.4. Dealer's Right to Terminate Due to Change in Dealer Program Rules.
In addition, Dealer may terminate this Agreement upon or following any material
adverse change in commissions under the Dealer Program Rules, provided Dealer
must give Company written notice of such termination at least fifteen (15) days
prior to the effective date of Company's proposed reduction. However, if Company
rescinds the change within twenty (20) days after receiving such notice or such
lesser time as may remain prior to the effective date of the change, this
Agreement will not terminate but shall continue in full force and effect.
12.5. Expiration, Revocation or Transfer of Licenses. If any license
Company requires in order to operate in any portion of the Area expires or is
revoked, this Agreement shall terminate with respect to the portion of the Area
subject to such license. If a required license for any portion of the Area is
transferred by Company to an unaffiliated third party, then Company shall have
the option with respect to such portion of the Area of either terminating this
Agreement, assigning this Agreement to the license transferee, or continuing
this Agreement through the offering of some reasonable substitute for Service.
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13. OBLIGATIONS FOLLOWING TERMINATION
13.1. Surviving Obligations upon Termination. Upon the termination of
this Agreement, all the rights and obligations of the parties hereunder shall
cease without further liability, effective as of the date of termination, except
that the following shall survive:
(a) Dealer's obligations under Clauses 2.2 (to the extent records
were not previously delivered to Company), 2.3(c), 6.5, 6.7, 13.2, 13.3,
and Sections 8, 14, 15, 16, and 18 of this Agreement;
(b) any claims arising out of acts or omissions which occurred
prior to the termination of this Agreement; and
(c) Company's right to recover commissions paid for activations of
Subscribers who discontinue purchasing Service under circumstances which
would have provided Company a right to charge back commissions had the
Agreement not been terminated.
The parties shall cooperate with each other to fulfill any surviving obligations
expeditiously, and the provisions of Section 19 shall continue to apply to any
matters arising subsequent to the termination of this Agreement.
13.2. Post-Termination Reserve.
(a) Following any termination of this Agreement, whether voluntary
or involuntary, and whether with or without cause, Company may withhold
from payment to Dealer any monetary obligation that has accrued prior to
the date of termination or that accrues prior to the end of the calendar
month in which termination occurs, as a reserve to secure Company
against any amounts that Dealer may be or become obligated to reimburse
to Company. The balance of this reserve shall be paid to Dealer within
30 days after the date on which it can be determined that no commissions
previously paid to Dealer remain subject to being charged back pursuant
to the Dealer Program Rules due to the possible suspension or
cancellation of any Subscriber's Service. If at the end of any calendar
month the reserve exceeds the maximum amount which Dealer could
potentially be charged back, then Company shall, upon request by Dealer,
pay over the excess within 30 days.
(b) If Company notifies Dealer of a default which may become the
basis for termination, Company may withhold a reserve as if termination
had occurred on the date such notice was given. If it is determined that
there was no default, Company shall then pay any amounts withheld but
then due plus interest at the rate imposed on unpaid judgments by law
from the date payment would have been due if not withheld until the date
of payment.
13.3. Dealer to Cease to Hold Itself Out as a Dealer Post-Termination.
Following termination of this Agreement, Dealer shall immediately cease to
represent itself in any fashion as a dealer or representative of Company.
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14. CONFIDENTIAL INFORMATION
14.1. "Confidential Information" means all non-public information
provided by Company to Dealer before or after the date of this Agreement, or
otherwise gained by Dealer in any way in the course of Dealer's relationship
with Company, including, without limitation, Company's technical data; trade
secrets; non-public prices and sales volumes; the identity of and all
information concerning present, past and potential Subscribers; Subscriber lists
and records; business and marketing plans and dealer programs for Service; the
contractual terms between Company and its Subscribers and Dealers; Company's
regulatory applications and plans; and Company's technical and marketing data
relating to Service. All Confidential Information is the exclusive property of
Company, even if it was gained or developed by the Dealer as a result of or in
the course of Dealer's relationship with Company.
14.2. Agreement Establishes Confidential Relationship. Dealer
acknowledges that this Agreement establishes a confidential relationship between
it and Company. As a result thereof, Company will disclose to Dealer, and permit
Dealer to develop independently for the benefit of Company, certain Confidential
Information in connection with its operations under this Agreement. Dealer shall
therefore:
(a) Use of Confidential Information. Use the Confidential
Information only as permitted under this Agreement during the term hereof
and not at all thereafter, except as expressly permitted to do so in
writing signed by a Vice President of Company;
(b) Limited Disclosure. Disclose such Confidential Information only
to such persons as are directly connected with the performance of
Dealer's obligations requiring knowledge of Confidential Information (who
shall therefore be deemed "Dealer Personnel" under Clause 2.3) and
disclose only such information as is required to enable them to carry out
their assigned duties;
(c) Confidentiality Obligation. Advise Dealer Personnel of the
confidential nature of the Confidential Information and the obligation
not to disclose it and obtain from Dealer Personnel and deliver to
Company signed Confidentiality and Non-Competition Agreements as
required by Clause 2.3.
(d) Maintaining Confidential Information. Treat and maintain, and
cause all Dealer Personnel to treat and maintain the Confidential
Information as confidential during and after the term of this Agreement,
not disclosing any Confidential Information to any person, firm,
corporation, or other entity at any time.
14.3. Obligations on Termination. Upon termination of this Agreement,
Dealer shall promptly deliver to Company all materials, including but not
limited to written documents, audio and video tapes, computer diskettes, and
other magnetic, optical or other storage media, containing Confidential
Information. Dealer shall also erase all Confidential Information from its
computer hard drives or other storage media which cannot reasonably be
transferred, and shall provide Company, within ten days of the termination, with
a written certification that it has either destroyed or delivered to Company all
copies of any Confidential Information previously in its possession.
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14.4. Material Consideration for Agreement. Dealer's agreement to comply
with the provisions of this Section 14 is a material consideration to Company's
entering into this Agreement and appointing Dealer as its agent hereunder.
Moreover, Dealer expressly recognizes that Company would be irreparably damaged
if Dealer disclosed any Confidential Information to any third-party.
Accordingly, upon any violation of this Section by Dealer or any Dealer
Personnel, Company shall be entitled to (i) damages upon proof of same, (ii) an
injunction enjoining Dealer or such Dealer Personnel from further violation of
this Agreement, and (iii) any other relief permitted by law. The waiver of
consequential damages in Clause 18.5 shall not limit recovery hereunder.
14.5. Information in Public Domain. Confidential Information shall not
include, and the foregoing provisions shall not apply to, any information that
(i) at the time of disclosure by Company to Dealer or development by or for
Dealer, was a part of the public domain; or (ii) after the time of disclosure by
Company to Dealer or development by or for Dealer, became a part of the public
domain through publication or communication by persons other than Dealer or any
Dealer Personnel or persons who obtained the information directly or indirectly,
whether with or without permission, from Dealer or any Dealer Personnel.
14.6 Customer Lists. The parties acknowledge that the sale of cellular
equipment is, in most cases, merely incident to the transaction in which a
person obtains cellular service. Therefore, all information about the people who
purchased cellular equipment from Dealer will be considered Confidential
Information hereunder. However, if less than 10% of a customer list maintained
in the ordinary course of business by Dealer consists of purchasers of cellular
phones from Dealer or Subscribers for Service who were obtained for Company by
Dealer, Dealer may sell or disclose the list so long as it does not facilitate
identification of the purchasers.
14.7. Information of Company's Affiliates. For purposes of this Section
14, "Company" shall be deemed to include Company and all of its affiliates,
whether or not parties to this Agreement.
15. NONDIVERSION OF SUBSCRIBERS
15.1. Dealer Shall Not Divert Subscribers. During the term of this
Agreement, and for one year after its termination (whether voluntary or
involuntary), Dealer, its owners, Dealer Personnel, and affiliates of any of
them shall not at any time (i) request any Subscriber of Company in the Area who
Dealer knows to be a Subscriber of Company to curtail or cancel its business
with Company; or (ii) otherwise solicit, divert or attempt to divert any such
Subscriber from patronizing Company's Service. During the one year period after
termination of this Agreement, any Subscribers of Company who contact Dealer,
whether with respect to existing Service or potential additional Service, shall
be referred directly to Company.
15.2. Continuation of Confidentiality. No inference shall be drawn from
this Section 15 to the effect that Confidential Information may be used at any
time, whether or not within one year of termination of this Agreement, in
violation of Section 14.
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15.3. Subscribers Are Customers of Company. Dealer acknowledges that
Dealer and Company have entered into this Agreement on the premise that all
Subscribers to Company's Service will be customers of Company and not of Dealer
and that Dealer will have been fully compensated for procuring such Subscribers
by the commissions payable hereunder. Dealer further acknowledges that its
willingness to provide Company with the protections set forth in Clause 15.1 has
been a material consideration of Company in entering into this Agreement and
that Company would not have entered into this Agreement but for such agreement
by Dealer. The waiver of consequential damages in Clause 18.5 shall not limit
recovery hereunder.
16. NON-COMPETITION
16.1. Covenant Not to Compete. Dealer acknowledges that it would be
unfair and detrimental to the business of Company and its affiliates if Dealer
were to act on behalf of a competitor of Company or of its affiliates in any
area within the State of Florida in which Company or its affiliates provide
Service in light of the coordinated operations of the Florida Region affiliates
of McCaw Cellular Communications, Inc. and Dealer's access to Confidential
Information about Company and its affiliates which is relevant to their
operations statewide. Therefore, Dealer covenants and agrees that, until
termination of this Agreement (whether voluntary or involuntary), and for a
period of six months thereafter, Dealer and its owners (including partners and
shareholders), officers and affiliates shall not, directly or indirectly:
(a) compete with Company or its affiliates within the Area by
offering, providing, marketing, or procuring or referring customers for a
provider other than Company (the term "provider" shall include any
reseller of Company or any other provider) of any cellular telephone
service, enhanced specialized mobile radio service, personal
communication services, or similar radiotelephone service (other than any
messaging, wireless data service, or radio dispatch service which cannot
be used for two-way voice communication between unaffiliated users); or
(b) act or serve as an owner, partner, shareholder, employee,
agent, contractor, or consultant of any person or entity other than
Company who, directly or indirectly, within the Area, offers, provides,
markets, or procures or refers customers for any cellular telephone
service, enhanced specialized mobile radio service, personal
communications services, or similar radiotelephone service (other than
any messaging, wireless data service, or radio dispatch service which
cannot be used for two-way voice communication between unaffiliated
users).
16.2. Elimination of Non-Competition Period. Dealer shall not be bound by
the provisions of Clause 16.1 under any of the following circumstances:
(a) Company terminates this Agreement without cause pursuant to
Clause 12.2;
(b) Dealer terminates this Agreement pursuant to Clause 12.3, and
Company does not dispute the grounds for termination in good faith;
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<PAGE>
(c) Dealer terminates this Agreement pursuant to Clause 12.4,
provided that (i) Dealer notifies Company of Dealer's intent to compete
at least 90 days prior to the date Dealer actually begins competing;
(ii) if Dealer intends to compete within 45 days after the effective
date of the termination, Dealer may not advertise Equipment or Service
for 45 days prior to such competing; and (iii) Company does not dispute
the grounds for termination in good faith; or
(d) this Agreement terminates pursuant to Clause 12.5.
16.3. Covenant Is Ancillary and Necessary. The parties acknowledge that
(i) by being appointed a dealer by Company, Dealer will obtain significant,
competitive information that would give Dealer an unfair competitive advantage
if Dealer were to compete without restriction with Company during the term
hereof by becoming a dealer for any competing communications service in the Area
or a reseller of any competing communications service in the Area, or after
termination of this Agreement by becoming a dealer or reseller of any competing
communications service in the Area, and (ii) the covenants and agreements in
Section 16 are necessary and reasonably ancillary to the establishment of the
dealer relationship provided in this Agreement. The waiver of consequential
damages in Clause 18.5 shall not limit recovery hereunder.
16.4. Construction of Covenants by Courts. To the extent a court of
competent jurisdiction determines the covenants in Section 16 to be
unenforceable as written, Dealer and Company authorize such court to construe
and interpret these covenants not to compete in the broadest possible way to
provide Company and its affiliates with reasonable protections against
competition from the Dealer.
17. FINANCIAL DATA
17.1. Dealer Warranty of Dealer Financial Data. Dealer warrants and
represents to Company that any and all financial information concerning Dealer
that has been provided to Company by Dealer does not contain any false or
misleading information or omit any material information and accurately
represents the financial condition of Dealer.
17.2. Dealer's Duty to Update Financial Data. Upon request by Company,
Dealer shall quarterly, or more frequently if requested by Company, provide or
update its financial information (including a balance sheet and income
statement), and provide other financial data reasonably requested by Company.
18. DISPUTES AND CLAIMS
18.1 Notice of Disputes and Waiver of Claims. Notice of any claim or
dispute by Dealer or Company relating to the calculation of commissions or
co-operative advertising credits for any given month shall be submitted in
writing within ninety (90) days after Company delivers its initial calculations
for that month. Company's initial calculations shall be conclusive if such
written notice is not given, and failure to provide such notice shall be deemed
a waiver of any claim or dispute with regard to the amounts due for that month.
This
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provision shall not bar claims arising out of fraudulent conduct or actions
undertaken in bad faith. This provision shall not be construed as a shortening
of the applicable statute of limitations, but rather as a pre-condition to the
assertion of a claim. This provision is intended to give the parties ample
opportunity to present their claims while not requiring the other party to
maintain voluminous documents and records for a prolonged period.
18.2 Indemnification. Each party (the "Indemnitor") shall protect,
defend, hold harmless and indemnify the other party, including such party's
parents, subsidiaries, affiliates, licensors and their former, current, and
future officers, directors, employees, agents, successors and assigns (the
"Indemnitee"), from and against any damages, punitive damages, losses,
liabilities, claims, and costs (as "costs" are defined in Clause 18.4), arising
in any way out of or relating to any breach of this Agreement by the Indemnitor,
any conduct of Indemnitor, or contract to which Indemnitor is or was a party
(collectively, "Claims"). Claims shall include, but not be limited, to claims
for breach of contract, tortious interference with contractual relations,
tortious interference with prospective economic advantage, and any other
tortious or illegal conduct; provided, however, that the obligation to defend,
indemnify and hold harmless shall not apply to the extent Claims result from the
other party's negligence or willful misconduct.
Within ten days after being notified of the existence of any Claim to
which these indemnification obligations may apply, the party receiving such
notice shall notify the party from whom the indemnification is sought, and shall
give reasonable opportunity to the Indemnitor to defend the Claim at its own
expense and with counsel of its own selection; provided, however, that the party
seeking indemnification shall at all times have the right to fully participate
at its own expense in the defense of a Claim. Further, Company shall have the
right to approve the selection of counsel by Dealer and any settlement of a
Claim, which approvals shall not be unreasonably withheld. Failure to provide
timely notice shall operate only to limit rights hereunder to the extent the
party entitled to receive notice is prejudiced.
If the Indemnitor shall, within 30 days after notice, fail to accept
defense of the Claim, then the party seeking indemnification shall have the
right, but not the obligation, to undertake the defense of, and to compromise or
settle (exercising reasonable business judgment), the Claim on behalf, for the
account, and at the risk of the Indemnitor. If the Claims cannot by their nature
be defended solely by one party, the other party shall make available all
information and assistance that may reasonably be requested, regardless of any
obligations to indemnify hereunder. The waiver of consequential damages in
Clause 18.5 of this Agreement shall not limit recovery hereunder.
18.3 Court Proceedings. The parties hereby consent to the sole and
exclusive jurisdiction and venue of the State and federal courts located in Palm
Beach County, Florida, for all disputes arising hereunder. Dealer acknowledges
that irreparable damage would result from a breach of Sections 8, 14, 15, or 16
and that, in the event of such breach, Company will be entitled to an injunction
restraining any threatened or continuing breach, without being required to show
any actual damage or to post a bond. If a bond is required by statute or rule,
the amount of the bond shall be the lowest amount permissible.
18.4 Attorneys' Fees. If a court action is commenced by one party against
the other, the substantially prevailing party shall be entitled to recover its
reasonable costs incurred
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therein, including any appeals. For the purposes of this Clause 18.4 and Clause
18.2, the term "costs" shall include, without limitation, attorneys' fees,
paralegal fees, investigative fees, expert witness fees, administrative costs,
and any other charges billed by the attorney to the prevailing party, and the
cost of efforts of in-house legal staff which shall be valued at market rates
for comparable services from private practitioners.
18.5 Waiver of Consequential Damages. EXCEPT AS OTHERWISE PROVIDED IN
THIS AGREEMENT, EACH PARTY HEREBY WAIVES ANY RIGHT TO CONSEQUENTIAL DAMAGES.
19. MISCELLANEOUS
19.1 Notices.
(a) All notices required hereunder shall be given, made or served
when deposited in the U.S. Mail, registered or certified, return receipt
requested, postage prepaid, to the respective parties to this Agreement.
Notice may also be given by facsimile, with a confirming copy sent by
mail, as set forth above. Notice is to be sent to the address of the
respective parties as indicated on the first page of this Agreement.
Notices to Company must also be sent by facsimile, with a confirming copy
sent by mail, as set forth above, to: Cellular One Legal Department,
P.O. Box 24703, West Palm Beach, Florida 33416-4703, facsimile no. (407)
655-7492. Notice given in any other fashion shall be invalid unless
acknowledged in writing by a duly authorized representative of the party
receiving the notice.
(b) The designation of the person to be so notified or the address
of such person for the purposes of such notice may be changed from time
to time by similar notice in writing, except that any communication with
respect to a change of address shall be deemed to be given or made when
received by the party to whom such communication was sent.
(c) Notwithstanding the foregoing, Company may advise Dealer of
changes in Company's general policies and procedures by first-class mail,
electronic facsimile or by in-hand delivery, and such communication shall
be effective upon receipt.
19.2. No Waiver. No failure or delay on the part of Company in exercising
any right, power or privilege under this Agreement or under the Dealer Program
Rules, and no course of dealing between Dealer and Company, shall be deemed a
waiver of any further exercise of any right, power or privilege. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which Company would otherwise have.
19.3. Ambiguities. Any ambiguity in this Agreement shall be resolved by
reference first to generally accepted practice, if any, between Company and its
dealers or, if there is none, by Company acting in good faith. This Agreement
shall not be construed against the drafting party. No inference shall arise from
the failure to negate expressly the possibility of an inference, notwithstanding
that certain statements may be made herein to the effect that something is not
to be implied.
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19.4. Construction of Agreement.
(a) Entire Agreement. This Agreement and the Termination and
Release Agreement of even date herewith represent the entire agreement
between the parties with respect to the matters addressed in this
Agreement and, except as expressly provided herein, shall not be modified
by any other agreements, representations, or understandings, whether oral
or in writing. All prior agency agreements between the parties are hereby
superseded, except that any covenants relating to confidentiality,
business record retention, and other post-termination covenants of prior
agreements shall survive.
(b) The Company. This Agreement shall be construed as a separate
contract with each of the entities listed on Schedule 1 and any
additional entity that provides Service pursuant to this Agreement in the
future. If any such entities cease to be affiliated with McCaw Cellular
Communications, Inc. or its successors in interest, this Agreement may
thereafter be terminated by such entities upon 30 days written notice
(which notice may be given prior to disaffiliation).
19.5. Amendments. Neither this Agreement nor any provision hereof may be
changed, waived, discharged, or terminated orally, but such may be accomplished
only by an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.
19.6. Benefit of Agreement; Prohibited Assignments. This Agreement shall
be binding upon and inure to the benefit of Dealer and Company and their
successors and assigns. Dealer expressly acknowledges that Company is not
prohibited or restricted from assigning its rights or obligations hereunder, or
any portion thereof, to another party or parties affiliated with Company.
Dealer, however, is precluded from assigning all or any of its rights or
delegating any of its obligations hereunder or under any of the other agreements
between Dealer and Company without the prior written consent of Company, which
may be withheld at Company's sole discretion. Such prohibition shall extend to a
change in the control of Dealer, which for the purposes of this Agreement, shall
be defined as any change by which any person or entity acquires 50% or more of
the voting power, interest in income or dividends, or assets of Dealer, or where
any person, by contract or otherwise, obtains the right to control Dealer or its
business.
19.7. Severability. If any provision of this Agreement is held invalid
under any applicable laws, such invalidity shall not affect any other provision
of this Agreement that can be given an effect without the invalid provision,
and, to this end, the provisions hereof are severable.
19.8. Sections and Clauses. The term "Clause" or "Clauses" refers to the
individual paragraphs within each section of this Agreement. For example, this
paragraph is Clause 19.8 within Section 19 of this Agreement.
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19.9 Descriptive Headings. The descriptive headings of the Sections and
Clauses of this Agreement, the Table of Contents, the Glossary, and the
Executive Description of the Agreement, if any, are for convenience only and
shall not affect the meaning or construction of any of the provisions hereof.
19.10. Confidentiality Agreement of Terms. Dealer agrees that all
information regarding commissions or other consideration paid Dealer hereunder
are to be kept strictly confidential between Dealer and Company, except as
otherwise consented to in writing by Company, or as required by Court Order, and
that any breach of this Confidentiality provision shall entitle Company to
terminate this Agreement with cause under Clause 12.3.
19.11. Authority. Each person signing below hereby warrants and
represents that (s)he has full authority to execute this Agreement for the party
on whose behalf (s)he is signing.
19.12. No Interlineation. No interlineation of, including additions to or
deletions of, the standard terms and conditions of this form of Agreement
prepared by Company shall be valid and effective unless authorized in writing by
a Vice President of Company.
20. INDEPENDENT INVESTIGATION
COMPANY AND DEALER ACKNOWLEDGE THEY HAVE READ THIS AGREEMENT AND
UNDERSTAND AND ACCEPT THE TERMS, CONDITIONS AND COVENANTS CONTAINED HEREIN AS
BEING REASONABLY NECESSARY TO MAINTAIN COMPANY'S HIGH STANDARDS FOR SERVICE.
DEALER ACKNOWLEDGES AND UNDERSTANDS THAT COMPANY MAY AT ANY TIME ALSO BE ENGAGED
DIRECTLY OR INDIRECTLY THROUGH OTHER DEALERS, RETAILERS, OR OTHERWISE, IN
SOLICITING POTENTIAL SUBSCRIBERS FOR SERVICE OR FOR THE SALE, LEASE,
INSTALLATION, REPAIR, OR SERVICING OF EQUIPMENT IN THE AREA, ON THE SAME OR
DIFFERENT TERMS AS THOSE PROVIDED TO DEALER. DEALER ALSO ACKNOWLEDGES AND
UNDERSTANDS THAT COMPANY MAY SELL SERVICE TO OTHERS WHO MAY RESELL IT. DEALER
HAS INDEPENDENTLY INVESTIGATED THE CELLULAR SERVICE OR EQUIPMENT SALE/LEASING
BUSINESS AND THE PROFITABILITY (IF ANY) AND RISKS THEREOF AND IS NOT RELYING ON
ANY REPRESENTATlON, GUARANTEE, OR STATEMENT OF COMPANY OTHER THAN AS SET FORTH
HEREIN.
IN PARTICULAR, DEALER ACKNOWLEDGES THAT COMPANY HAS NOT REPRESENTED: (A)
DEALER'S PROSPECTS OR CHANCES FOR SUCCESS SELLING SERVICES UNDER THIS AGREEMENT;
(B) THE TOTAL INVESTMENT THAT DEALER MAY NEED TO MAKE TO OPERATE UNDER THIS
AGREEMENT (COMPANY DOES NOT KNOW THE AMOUNT OF THE TOTAL INVESTMENT THAT MAY BE
REQUIRED FOR THIS PURPOSE); OR (C) THAT IT WILL LIMIT ITS EFFORTS TO SELL
SERVICE OR ESTABLISH OTHER DEALERS IN THE AREA.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
SOUND ADVICE, INC. McCAW COMMUNICATIONS
OF FLORIDA, INC.
on behalf of itself and its Florida Region
Affiliates as described above
By: /s/ PETER BESHOURI By: /s/ EMILIO ECHAVE
-------------------- ------------------
Name: Peter Beshouri Emilio Echave
Title: President Vice President
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AMENDMENT TO DEALER AGREEMENT
This Amendment is executed simultaneously with the Dealer Agreement
(the "Agreement") dated January 1, 1995, between McCaw Communications of
Florida, Inc., and its Florida Region affiliates (collectively, "Company"), and
Sound Advice, Inc. ("Dealer"). Pursuant to this Amendment, the parties agree as
follows:
1. The first sentence of Clause 2.3(b) (Approval of Dealer Personnel) of the
Agreement is modified to read as follows:
Before hiring anyone, or allowing anyone to act, as Dealer
Personnel, Dealer agrees to inquire of that person whether (s)he
has any prior experience in the wireless communications industry.
The remainder of Clause 2.3(b) remains unchanged.
2. Clause 2.3(e) (Confidentiality and Non-Competition Agreements) of the
Agreement is modified to read as follows:
Dealer shall cause each Dealer Personnel to enter into a
Confidentiality and Non-Competition Agreement in a form
satisfactory to Company, a copy of which shall be delivered to
Company within 30 days after the commencement of the Dealer
Personnel relationship. A currently acceptable form is attached as
Exhibit B.
3. Clause 2.4(a) is deleted.
4. The last sentence of Clause 2.7 (Store Front Location; Advertising
Restricted to Area) of the Agreement is modified to read as follows:
Notwithstanding the foregoing, if Dealer will be primarily engaged
in the sale of a broad range of consumer products from one or more
retail outlets and Dealer gives Company reasonable advance notice
of the establishment of the new
<PAGE>
outlet, Company will not object to the solicitation of potential
Subscribers at such new location, and Company's consent otherwise
required by the foregoing shall be deemed to have been given.
The remainder of Clause 2.7 remains unchanged.
5. The second sentence of Clause 4.4 (Demonstration Equipment) of the
Agreement is modified to read as follows:
Notwithstanding Company's ownership of Demonstration Equipment,
Dealer shall bear the risk of loss or damage by any means
whatsoever (ordinary wear and tear and acts of God excepted) from
the time any such Equipment is placed in the possession of Dealer
until it is returned to Company.
The remainder of Clause 4.4 remains unchanged.
6. The following section is added to the end of Clause 6.5 (Company's Right
to Offset) of the Agreement:
Notwithstanding the foregoing, if Company plans to offset against
commissions any amount in excess of $25,000 for any reason (other
than chargebacks of commissions already paid), then Company will
notify Dealer in writing of the planned offset at least ten
business days in advance. Dealer shall then, from the date of
Company's notice, have seven days to inform Company, in writing,
whether it intends to dispute the proposed offset. If Dealer timely
gives notice of its intent to dispute the offset, then Company will
place the disputed amount in a separate bank account pending the
resolution of the dispute, and will notify Dealer of the location
and number of such account. All notices pursuant to this section
shall be given by fax and mail.
The remainder of Clause 6.5 remains unchanged.
7. The second sentence of Clause 6.7 (Dealer's Obligation to Obtain
Confidentiality and Non-Competition Agreements; Effect on Commissions) of
the Agreement is modified to read as follows:
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In the event any compensation is paid to Dealer by Company for an
Activation resulting from a request for Service solicited by any
Dealer Personnel, and Dealer has not complied with the foregoing
sentence, then Dealer shall, upon demand, repay all such amounts to
Company -- unless Dealer provides to Company such duly executed
Confidentiality and Non-Competition Agreement within ten days of
such demand.
The remainder of Clause 6.7 remains unchanged.
8. Clause 8.2 (Authorization for Use Is Required) of the Agreement is
modified to read as follows:
Without limiting the generality of Clause 8.1 above, all signage,
brochures, sales documents, print, radio, or television
advertising, stationery, or any other publication or use by Dealer
that contains any Name of Company or Company's licensors must be in
accordance with the advertising guidelines provided by Company to
Dealer.
9. The first sentence of Clause 9.1 (Co-Op Advertising) of the Agreement is
modified to read as follows:
If specified in the Dealer Program Rules or any Cooperative
Advertising Guidelines, Company may maintain a cooperative
advertising account for purposes of partially reimbursing Dealer
for cooperative advertising in accordance with such Rules or
Guidelines.
The remainder of Clause 9.1 remains unchanged.
10. Sub-section (b) of Clause 11.1 (Events of Default by Dealer) of the
Agreement is deleted. In addition, sub-section (a) of Clause 11.1 is
modified to read as follows.
(a) any material breach by Dealer of this Agreement not
covered by Clause 11.1 (e) below;
The remainder of Clause 11.1 remains unchanged.
-3-
<PAGE>
11. Clause 11.2 (Events of Default by Company) of the Agreement is modified in
two ways. First, sub-section (a) is modified to read as follows:
(a) any material breach by Company of this Agreement not covered
by Clause 11.2(d) below;
Second, sub-section (b) is modified to read as follows:
(b) Company ceasing to function as a going concern; or ceasing
to conduct its activities pursuant to this Agreement in the normal
course of business; or otherwise experiencing a material
deterioration in its financial condition such that, in Dealer's
reasonable business judgment, Company's ability to perform the
terms of this Agreement is threatened; or becoming insolvent; or
becoming the subject of a petition in bankruptcy; or having a
receiver appointed for its business; or entering into any
arrangement with, or assignment for the benefit of, creditors;
The remainder of Clause 11.2 remains unchanged.
12. The first sentence of Clause 12.4 (Dealer's Right to Terminate Due to
Change in Dealer Program Rules) of the Agreement is deleted and replaced
by the following two sentences:
In addition, Dealer may terminate this Agreement upon or following
any change in the Dealer Program Rules or in any Company policy or
procedure which has a material adverse effect on Dealer's
relationship with Company considered as a whole. In order to
effect a termination under this section, Dealer must give Company
written notice of such termination at least fifteen (15) days
prior to the effective date of Company's proposed change.
The remainder of Clause 12.4 remains unchanged.
13. Clause 14.2(b) (Limited Disclosure) of the Agreement is modified to read
as follows:
-4-
<PAGE>
Disclose such Confidential Information only to such persons as are
directly connected with the performance of Dealer's obligations
requiring knowledge of Confidential Information (who shall
therefore be deemed "Dealer Personnel" under Clause 2.3) and
disclose only such information as is required to enable them to
carry out their assigned duties or as otherwise required by law;
provided, however, that notice of receipt of any order or subpoena
requiring the disclosure of Confidential Information shall be
communicated immediately upon receipt to Company's Legal
Department telephonically, and confirmed immediately thereafter in
writing with a copy of the order or subpoena, so that Company will
have the opportunity to intervene to assert whatever rights it may
have with respect to the Confidential Information prior to any
response to the order or subpoena.
The remainder of Clause 14.2 remains unchanged.
14. The second sentence of Clause 14.6 (Customer Lists) of the Agreement is
modified to read as follows:
Therefore, all information about the people who purchased cellular
equipment from Dealer will be considered Confidential Information
hereunder, except such information shall not be subject to Clause
14.3.
The remainder of Clause 14.6 remains unchanged.
15. The first part of the second sentence of Clause 16.1 (Covenant Not to
Compete of the Agreement is modified to read as follows:
Therefore, Dealer covenants and agrees that, until termination of
this Agreement (whether voluntary or involuntary), and for a
period of six months thereafter, Dealer and its owners (including
partners and controlling shareholders), officers and affiliates
shall not, directly or indirectly:
The remainder of Clause 16.1 remains unchanged.
-5-
<PAGE>
16. The following language is inserted at the end of Clauses 14.4 (Material
Consideration for Agreement), 15.3 (Subscribers Are Customers of Company),
and 16.3 (Covenant Is Ancillary and Necessary) of the Agreement:
Notwithstanding the foregoing, upon any violation of this Clause
involving the prohibited use of information about current or
former customers of Company by any Dealer Personnel (at a level
below that of store manager), Dealer's liability shall be limited
to the repayment of the sum of any commissions paid to Dealer by
Company with respect to the Subscribers involved and any amounts
paid by anyone else to Dealer or for Dealer's benefit in
consequence of the violation -- provided that Dealer takes prompt
action to remedy the violation. This provision has no effect on
Clause 18.4.
The remainder of Clauses 14.4, 15.3, and 16.3 remains unchanged.
17. Clause 17.2 (Dealer's Duty to Update Financial Data) of the Agreement is
modified to read as follows:
Dealer shall promptly provide Company with copies of each filing
that it makes with the Securities and Exchange Commission pursuant
to the Securities and Exchange Act of 1934, as amended, and shall
quarterly provide such other financial data reasonably requested
by Company.
18. The first sentence of Clause 18.1 (Notice of Disputes and Waiver of
Claims) of the Agreement is modified to read as follows:
Notice of any claim or dispute by Dealer or Company relating to
the calculation of commissions or co-operative advertising credits
for any given month shall be submitted in writing within 180 days
after Company delivers its initial calculations for that month.
The remainder of Clause 18.1 remains unchanged.
-6-
<PAGE>
19. The second sentence of the second paragraph of Clause 18.2
(Indemnification) of the Agreement is modified to read as follows:
Further, each party shall have the right to approve the selection
of counsel by the other party and any settlement of a Claim, which
approvals shall not be unreasonably withheld.
The remainder of Clause 18.2 remains unchanged.
20. Clause 19.1(a) (Notices) of the Agreement is modified to read as follows:
All notices required hereunder shall be given, made or served when
deposited in the U.S. Mail, registered or certified, return
receipt requested, postage prepaid, or when delivered in person to
the respective parties to this Agreement; provided, however, that
any notice period in this Agreement of fewer than ten days shall
be extended by three days whenever a notice is mailed. Notice may
also be given by facsimile, with a confirming copy sent by mail,
as set forth above. Notice is to be sent to the address of the
respective parties as indicated on the first page of this
Agreement. Notices given in any other fashion shall be invalid
unless acknowledged in writing by a duly authorized representative
of the party receiving the notice.
The remainder of Clause 19.1 remains unchanged.
21. All provisions of the Agreement not specifically amended herein shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by it authorized officers as of the day and year first above written.
McCAW COMMUNICATIONS OF FLORIDA, INC. SOUND ADVICE, INC.
on behalf of itself
and its Florida Region Affiliates
By: /s/ EMILIO ECHAVE By: /s/ PETER BESHOURI
-------------------- ------------------
Emilio Echave Peter Beshouri
Vice-President President
-7-
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY'S NAME STATE OF INCORPORATION
- ----------------- ----------------------
SAI Distributors, Inc. Florida
SAI Realty Investments, Inc. Florida
Sound Advice of Virginia, Inc. Virginia
Sound Advice Electronics of Maryland, Inc. Maryland
The Board of Directors
Sound Advice, Inc.:
We consent to incorporation by reference in the registration statement on Form
S-8 of Sound Advice, Inc. of our report dated September 28, 1995, except as to
note 12, which is as of October 13, 1995, relating to the consolidated balance
sheets of Sound Advice, Inc. and subsidiaries (the "Company") as of June 30,
1995 and 1994, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended June 30, 1995, and related schedule, which report appears in the
June 30, 1995 annual report on Form 10-K of Sound Advice, Inc.
KPMG PEAT MARWICK LLP
Fort Lauderdale, Florida
October 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S
FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 46,950
<SECURITIES> 0
<RECEIVABLES> 5,523,636
<ALLOWANCES> 470,000
<INVENTORY> 31,758,744
<CURRENT-ASSETS> 39,190,882
<PP&E> 28,771,006
<DEPRECIATION> 13,707,723
<TOTAL-ASSETS> 56,701,999
<CURRENT-LIABILITIES> 29,106,825
<BONDS> 0
<COMMON> 37,289
0
0
<OTHER-SE> 21,358,726
<TOTAL-LIABILITY-AND-EQUITY> 56,701,999
<SALES> 190,503,745
<TOTAL-REVENUES> 190,503,745
<CGS> 134,800,287
<TOTAL-COSTS> 134,800,287
<OTHER-EXPENSES> 54,501,903
<LOSS-PROVISION> 400,000
<INTEREST-EXPENSE> 1,424,693
<INCOME-PRETAX> (632,667)
<INCOME-TAX> (151,840)
<INCOME-CONTINUING> (480,827)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (480,827)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
