<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
COMMISSION FILE NUMBER: 0-8966
RHODES, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-0536190
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4370 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30319
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 264-4600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED:
- - ------------------- ------------------------------------------
Common Stock, without par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. ________
AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT: $96,532,000
As of May 16, 1994 the registrant had outstanding 9,778,933 shares of
its Common Stock (without par value), its only outstanding class of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the annual Proxy
Statement relating to the 1994 Annual Meeting of Shareholders of Rhodes, Inc.
are incorporated by reference into Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS
RECENT DEVELOPMENTS
A number of important events occurred during Rhodes, Inc.'s ("Rhodes"
or the "Company") fiscal year ended February 28, 1994. The full impact of
these events is best analyzed by reading the enclosed pro forma results of
operations in addition to the historical financial statements presented herein.
RECAPITALIZATION
On June 24, 1993, the Company completed a series of transactions
(described below) constituting a recapitalization of the Company (the
"Recapitalization"). The Recapitalization enhanced the Company's strategic,
financial and operating flexibility by increasing shareholders' equity and
reducing indebtedness and interest expense. Each component of the
Recapitalization was consummated on June 24, 1993, except for the 17% Debenture
Redemption (defined below) which was consummated on July 26, 1993.
COMMON STOCK OFFERING
The Company offered 4,167,000 shares of Common Stock for sale to the
public at $12.00 per share in an initial public offering (the "Offering"), of
which Green Capital Investors, L.P. ("Green Capital") purchased 250,000 shares.
Green Capital is controlled by Holcombe T. Green, Jr., Chairman of the Board of
the Company. The net proceeds from the Offering (after deducting underwriting
discounts and expenses paid by the Company) were approximately $45.5 million.
SENIOR SECURED FINANCING
Certain institutional investors purchased $40.0 million principal
amount of long-term indebtedness (the "Senior Secured Financing") concurrently
with the closing of the Offering. The Senior Secured Financing consists of two
tranches, with a $30.0 million aggregate principal amount maturing in 1999 and
bearing interest at a rate of 9% per annum and a $10.0 million aggregate
principal amount maturing in 2000 and bearing interest at a rate of 10% per
annum. The net proceeds to the Company from the Senior Secured Financing were
approximately $38.7 million. The Senior Secured Financing is secured by liens
on all of the real estate owned by the Company.
<PAGE> 3
THE EXCHANGE
On the terms and subject to the conditions contained in an exchange
agreement between the Company and Green Capital (the "Exchange Agreement"), the
Company issued 2,859,115 shares of Common Stock to Green Capital in exchange
for approximately 78.1% of the Company's 17% Junior Discount Subordinated
Redeemable Debentures Due 2000 (the "17% Debentures"), at their accreted value
($34.3 million as of June 24, 1993), owned by Green Capital. Additionally,
pursuant to the Exchange Agreement, the Company issued 1,221,666 shares of
Common Stock to Green Capital in exchange for all of the shares of the
Company's Class A Preferred Stock (1,000 shares with a stated value of $10.0
million and accumulated, unpaid dividends aggregating approximately $4.7
million as of June 24, 1993).
REPAYMENT OF INDEBTEDNESS
12% SECURED TERM LOAN
As part of the Recapitalization, the Company repaid the $36.2 million
principal amount of its 12% Secured Term Loan with Jackson National Life
Insurance Co. ("Jackson National"). The 12% Secured Term Loan, which was
scheduled to mature on April 1, 1997, was prepaid by the Company without
penalty.
15% NOTES
As part of the Recapitalization, on June 24, 1993 the Company redeemed
the $40.0 million principal amount of the Company's 15% Senior Subordinated
Notes due September 20, 1998 (the "15% Notes"). Although the 15% Notes were
not redeemable at that date, the consent of the holders thereof to early
redemption was obtained. In connection with the redemption of the 15% Notes,
the Company incurred $2.6 million of prepayment penalties, $2.3 million of
which was payable to Jackson National, the holder of $35.0 million principal
amount of the 15% Notes.
17% DEBENTURES
Upon consummation of the other components of the Recapitalization, the
Company called for redemption of all the 17% Debentures that were not subject
to the Exchange in accordance with the provisions of the indenture under which
the 17% Debentures were issued (the "17% Debenture Redemption"). The 17%
Debenture Redemption was completed at a redemption price equal to the aggregate
accreted value of the 17% Debentures of approximately $9.7 million on July 26,
1993.
<PAGE> 4
MISCELLANEOUS
In order to consummate the Recapitalization, the Company borrowed
approximately $4.0 million under a committed, unsecured line of credit
maintained with Green Capital. Borrowings under this line of credit had an
annual interest rate of 8.0%. All amounts outstanding under this line of
credit have been repaid and the line of credit was terminated prior to the end
of fiscal 1994.
Effective upon consummation of the Recapitalization, the Company
terminated the management arrangement with Green Capital pursuant to which
Rhodes paid to Green Capital a $400,000 annual management fee for certain
management services.
GENERAL INFORMATION
BACKGROUND
Rhodes is one of the largest specialty furniture retailers in the
United States. Founded in 1875, the Company operates 78 stores in metropolitan
areas of 11 contiguous Southeastern and Midwestern states and for many years
has focused on selling brand name residential furniture to middle-income
customers.
The Rhodes retailing philosophy is to provide value to its customers
through a combination of quality, price and service. Each of the Company's
stores offers a broad line of brand name merchandise, emphasizing good quality
and an extensive selection. The Company employs an aggressive pricing policy,
under which it guarantees to sell each item at the lowest advertised price in
the market. Rhodes emphasizes superior service through in-store credit, prompt
delivery of merchandise, professionally trained salespeople and convenient
locations.
In September, 1988 Rhodes was acquired (the "Acquisition") by a group
of investors led by Holcombe T. Green, Jr., who is currently Chairman of the
Board of Directors of the Company. As of April 29, 1994, Mr. Green
beneficially owned approximately 29.8% of the outstanding shares of Common
Stock.
STORE BASE
In fiscal 1993, the Company initiated a store remodeling and
refurbishing program designed to significantly upgrade its existing stores and
increase sales per store. This program is designed to provide a more
attractive in-store atmosphere by professionally redesigning and redecorating
existing display space in order to improve the consumer's shopping experience
and enhance the appearance of displayed merchandise.
Remodeling a store typically involves redesigning the store's display
space and reconfiguring its model room settings, replacing its carpet and
wallpaper, repainting its interior walls, and replacing or updating its
lighting. Remodeling a store may include work on its exterior (such as paint,
lighting and signage), but does not typically increase the store's existing
display space. The cost for the complete remodeling of a store in fiscal 1995
is anticipated to be approximately $300,000. Refurbishing a store typically
involves replacing carpet and wallpaper, repainting and making minor
improvements to the store's lighting. The cost to refurbish a store in fiscal
1995 is anticipated to be approximately $125,000. Stores generally remain open
during a remodeling or refurbishing and the event is advertised as an
opportunity for customers to enjoy increased savings.
<PAGE> 5
The Company also has a program designed to increase its store base by
adding stores in existing markets and, when possible, new markets. In pursuing
this program, the Company seeks to add new cluster stores that may be served
from existing regional distribution centers ("RDCs").
In evaluating the feasibility of entering a new market, the Company
would typically consider (a) the size of the market, focusing on locations that
have a local population base of more than 100,000 people, (b) existing
competitive conditions and (c) the feasibility of serving the new stores from
an existing RDC. The Company would generally seek to enter a new market by
acquiring or opening two or more stores that may operate as a cluster, although
the Company believes that single stores may be operated profitably in certain
markets. New markets were opened in the metropolitan areas of Nashville,
Tennessee in fiscal 1990 and Birmingham, Alabama in fiscal 1991, with the
Company currently operating four stores in each of these markets. Single
stores were opened in Chattanooga and Knoxville, Tennessee in fiscal 1994.
The table below summarizes openings, closings and remodelings or
refurbishings of stores during the fiscal years indicated and the Company's
current plans for fiscal years 1995 through 1997.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28 OR 29,
------------------------------------
1990 1991 1992 1993 1994 1995* 1996* 1997*
---- ---- ---- ---- ---- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of stores at beginning of year 69 72 75 76 76 78 88 96
Opened or acquired 4 6 1 1 3 10 8 6
Closed or sold (1) (3) -- (1)+ (1) -- -- (1)
--- --- --- --- --- --- --- ---
Number of stores at end of year 72 75 76 76 78 88 96 101
--- --- --- --- --- --- --- ---
Stores remodeled or refurbished 0 1++ 2++ 4 16 18 16 3
</TABLE>
* Proposed
+ On August 24, 1992, Hurricane Andrew destroyed one of the
Company's four Miami stores.
++ Remodelings and refurbishings prior to fiscal 1993 were not
part of the Company's current remodeling and refurbishing
program and therefore are not comparable.
STORE OPERATIONS
TARGET MARKET
For many years, the Company has focused its retailing strategy on
selling good quality furniture to a broad base of middle-income customers. The
Company intends to maintain this focus both in its existing markets and as it
enters new markets. The Company carefully tracks the demographic profile of
its customer base, designs its merchandising and promotions to appeal to its
targeted market, and evaluates particular programs by analyzing changes in the
profile of the resulting customer base. In the year ended February 28, 1994,
approximately 67% of customers using the Rhodes credit card were in the 25 to
49 year-old age group, and approximately 57% had annual income in the $20,000
to $50,000 range.
STORE FORMAT AND SITE SELECTION
The Company's stores average 30,000 square feet of display space.
Furniture typically is displayed in model room settings, complete with
accessories. Stores are open 362 days each year and at least five evenings per
week.
<PAGE> 6
The Company continuously assesses retail trade areas and specific
sites in its existing markets and targeted metropolitan areas to evaluate the
feasibility of opening new stores. Within a trade area, the Company carefully
analyzes prospective sites for new stores with respect to traffic-count levels
along contiguous roadways, visibility of the site and ingress/egress
characteristics, proximity to competitors and other retail trade generators,
zoning restrictions, availability of suitable leasable space and other factors.
MERCHANDISING AND PURCHASING
The Company's merchandising strategy is to offer a broad selection of
affordably priced home furnishings. Each of the Company's stores offers a full
line of residential furniture, including upholstered furniture, recliners and
occasional tables for dens and living rooms; bedroom suits and bedding;
dinettes and more formal dining room suits; and desks, lamps, and other
accessories. The table below sets forth the percentage of sales derived from
the types of merchandise indicated during each of the last three fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28,
----------------------------------
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Living Room Furniture 48.8% 50.9% 49.3%
Bedroom Furniture 22.3 23.0 24.5
Dining Room Furniture 13.6 12.2 11.8
Bedding 10.9 10.7 11.7
All Other Merchandise and Accessories 4.4 3.2 2.7
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The Company's centralized merchandising and buying group selects all
lines of merchandise, negotiates purchase prices and terms with suppliers and
places orders for each of the Company's stores and RDCs. The Company purchases
merchandise from a large number of manufacturers, including well-known brands
such as Armstrong, Bassett, Berkline, Broyhill, Dunmore, Kincaid, Klaussner,
La-Z-Boy, Peoplelounger, River Oaks, Sealy, Simmons and Universal. As of
February 28, 1994, one manufacturer, making products under the brand names
La-Z-Boy and Kincaid, accounted for 17.6% of the Company's total purchases. The
Company's inventory control system provides its headquarters group with
merchandising information, and the group also receives information from
regional and store managers regarding local preferences and market conditions.
PROMOTIONS AND ADVERTISING
The Company relies to a considerable extent upon promotions and
advertising to produce sales, with much of the Company's marketing featuring
the availability of in-store credit and special credit plans. The Company
conducts over 40 Company-wide promotional events each year. Sales are
generally related to holidays and other promotional events. The Company's
headquarters staff develops a monthly calendar of Company-wide promotional
events.
<PAGE> 7
The Company advertises extensively throughout the year in newspapers
and by use of radio and television in each of its markets. Color circulars
also are issued several times a year in special mailings or newspaper inserts.
In the year ended February 28, 1994, newspaper and print media advertising
accounted for approximately 44.9% of the Company's total advertising expense.
Regional managers along with the Company's headquarters staff and advertising
agency are responsible for determining the appropriate media mix for the
monthly advertising budget in each market. All advertising is prepared by the
Company's headquarters staff in conjunction with an outside advertising agency.
MANAGEMENT INFORMATION SYSTEM
The Company has developed and installed an inventory control and
point-of-sale information system. This system expedites the processing
of customer transactions and credit approval, controls inventory levels and is
designed to support future growth. Specifically, the Company accounts for
merchandise in each store and RDC, and the movement of items, by inventory
stock identification numbers known as SKU numbers. Management and each store
manager are furnished with daily sales and gross margins by SKU category and
for each salesperson.
The Company believes that the centralization and standardization of
its operating systems, and the successful implementation of these systems in
its existing stores, will allow the Company to support the operation of new
stores without major capital expenditures or substantial increases in its
corporate overhead. Although entering a new market will require the expansion
of certain systems, the Company believes that its existing merchandising,
promotional, inventory and training systems will allow it to add new stores in
existing or new markets in a cost-effective manner.
MANAGEMENT AND TRAINING
The Company's senior management is supported through the Company's
seven operating regions, each of which has a regional manager and multiple
area managers. The seven regional managers and one division manager have a
combined 91 years of experience with Rhodes.
Store management personnel undergo extensive and regular training,
which is designed to keep managers and employees informed of all standardized
Company operating policies, including procedures for sales, inventory
maintenance, credit extension, advertising, store administration and
merchandise display. Training programs are conducted both at the Company's
stores and at the Company's headquarters in Atlanta. Through the training
process, management believes it has identified employees whose experience and
training will qualify them to be store managers in all stores expected to be
opened in the current fiscal year.
DISTRIBUTION AND DELIVERY
Inventories are maintained in RDCs, from which merchandise is shipped
to the appropriate store for delivery to the customer's home. The seven RDCs,
which collectively have more than 600,000 square feet, have cantilever racking
and computer-controlled inventory storage. The Company anticipates expanding
the capacity of certain RDCs to support new store growth.
<PAGE> 8
Typically, each store is within 200 miles of one of the RDCs.
Substantially all of the Company's merchandise is distributed to its stores
through its RDCs. The Company operates a fleet of trucks which delivers
merchandise from an RDC to each store several times each week.
Deliveries to customers are made from the Company's stores by
Company-operated trucks or, in certain markets, by independent contractors. In
certain of its major metropolitan markets, the Company guarantees next-day
delivery for all in-stock purchases and the Company believes that this program,
and its prompt delivery for all stores, provides it with a competitive
advantage.
CREDIT OPERATIONS
The Company offers its customers the option to purchase furniture
using cash, the Rhodes credit card or other major nationally recognized credit
cards. Approximately 67.1% of the Company's sales in the year ended February
28, 1994 were made through the Rhodes credit card, which operates as a
revolving charge account. All credit applications, sales and many payments on
account are processed electronically through the Company's point-of-sale
system. The terms for the Rhodes credit card purchases are flexible and on
most purchases allow up to 48 months to pay. The Company also provides
promotional credit plans to its customers in which no interest is charged on
purchases made under the plan or in which monthly payments are deferred.
On June 18, 1992, the Company sold its portfolio of customer
installment receivables (the "Receivables Sale") to Beneficial National Bank
U.S.A. ("BNB") in the amount of approximately $174.3 million (including an
advance of $4.3 million against future revenue to be earned by the Company
under a related merchant agreement (the "Merchant Agreement")). Under the
Merchant Agreement, the Company also contracted to sell all future receivables
for three years following the Receivables Sale and received approximately $4.3
million, net of a $0.5 million contingency deposit, in advance against future
revenue to be earned by the Company under the Merchant Agreement. The Company
derives income under the Merchant Agreement from commissions earned from BNB on
certain credit transactions. The Merchant Agreement is subject to early
termination by BNB in the event of a bankruptcy filing by or against Rhodes or
upon 30 days notice in the event of a material change in any law or regulation
or in the operation, assets, condition (financial or otherwise), business or
ownership of Rhodes. After the initial three-year term, the Merchant Agreement
remains in effect unless terminated by either party on 180 days notice. Upon
termination of the Merchant Agreement, Rhodes may, at its option, repurchase
the total portfolio of outstanding consumer installment receivables for 106% of
the outstanding principal balances, including accrued interest, subject to
certain rights of BNB to securitize and sell the portfolio.
COMPETITION
The retail home furnishings business is highly competitive and
fragmented. The Company competes with a large number of independent furniture
stores which operate in single markets, other regional and national furniture
store chains, and various department stores and mass merchandisers. Based on
statistics published by Furniture/Today for calendar 1993, the Company was the
third largest conventional furniture retailer in the United States; however,
the 10 largest conventional furniture retailers accounted for less than 12% of
industry sales in 1993. Some of the furniture store chains, department stores
and mass merchandisers with which the Company competes have greater financial
and other resources than the Company.
<PAGE> 9
The retail furniture industry competes primarily on the basis of
quality, price and service. Each of the Company's stores offers a broad line
of brand name merchandise, emphasizing good quality and an extensive selection.
The Company employs an aggressive pricing policy, under which it guarantees to
sell each item at the lowest advertised price in the market. Rhodes emphasizes
superior service through in-store credit, prompt delivery of merchandise,
professionally trained salespersons and convenient locations.
SERVICE MARKS
The Company conducts its business under the names "Rhodes,"
"Crossroads" (in Kentucky and Missouri), "Marks-Fitzgerald" (in Birmingham,
Alabama) and "Fowler's Furniture Center" (in Knoxville, Tennessee). The
Company holds service marks for each of these names and believes that the names
are well-recognized in their markets and of great value to the Company.
EMPLOYEES
As of March 31, 1994 the Company employed 2,481 persons, including
2,193 in sales and store operations, 172 in its RDCs and 116 in its corporate
office. The Company has never experienced a work stoppage due to labor
difficulties. The Company is not a party to any collective bargaining
agreements and considers its relations with employees to be good.
ITEM 2. PROPERTIES
PROPERTIES
The Company's stores are free-standing units or are located in
shopping centers, and have display space ranging from approximately 15,000
square feet to approximately 78,000 square feet (with an average of
approximately 30,000 square feet). As of February 28, 1994, the Company owned
14 of its stores and leased the remaining 64, of which nine were leased
pursuant to sale/leaseback arrangements. See Notes 1 and 6 to Consolidated
Financial Statements.
Store leases have initial terms which will expire at various dates
through 2014, with an average lease term, including renewal options, of
approximately 12 years. The Company's leases generally provide for fixed
monthly rentals, although some provide for fixed minimum rentals with a
percentage rental based on sales.
The Company's principal executive offices are located in a 29,505
square foot leased facility located in Atlanta, Georgia. The facility is
leased by the Company pursuant to two leases, one of which extends to July 2005
and the other of which extends to May 2002 and which the Company has an option
to extend for an additional 10 year term. Management believes that the Company
has adequate expansion opportunities to accommodate its needs for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings which, in the
judgment of management, would have a material adverse effect on its operations
or financial condition if adversely determined. However, due to the nature of
the Company's business, it is from time to time a party to certain legal
proceedings arising in the ordinary course of its business.
<PAGE> 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1994.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to
each person who is an executive officer of the Company, as indicated below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- - ---- --- -------------------------
<S> <C> <C>
Irwin L. Lowenstein 58 President, Chief Executive Officer and Director
Joel T. Lanham 38 Executive Vice President, Operations
Joel H. Dugan 55 Senior Vice President, Finance and Administration
Jack A. Hurst 61 Senior Vice President, Training & Human Resources
Donald M. Parker 50 Senior Vice President, Merchandising
Michael Beindorff 42 Senior Vice President, Marketing
Barbara W. Snow 36 Corporate Controller
</TABLE>
Irwin L. Lowenstein joined the Company in 1972 and has served as
President, Chief Operating Officer and Director of the Company since 1977.
Effective in 1989, Mr. Lowenstein was elected Chief Executive Officer of the
Company.
Joel T. Lanham joined the Company in 1976. For the past five years he
has served as Regional Vice President and Senior Vice President before being
promoted to his current position as Executive Vice President, Operations in
1991. He is a director of the National Home Furnishings Association.
Joel H. Dugan joined the Company in 1985. Mr. Dugan, a certified
public accountant formerly with Price Waterhouse, was elected Vice President,
Accounting and Information Services in 1985 and Senior Vice President, Finance
and Administration in 1988.
Jack A. Hurst joined the Company in 1957 and has served as Senior Vice
President, Training & Human Resources since 1986.
Donald M. Parker joined the Company in 1987 as the Regional Manager
for the Atlanta area stores, and served in that capacity until being named
Senior Vice President of Merchandising in May 1993. Prior to joining the
Company, Mr. Parker served as General Manager for Maxwell Furniture, a
furniture retailer.
Michael A. Beindorff joined the Company as Senior Vice President,
Marketing in 1993. Prior to joining Rhodes, Mr. Beindorff spent fourteen years
with The Coca-Cola Company in various marketing roles, serving most recently as
Vice President of Marketing for Coca-Cola USA and Director of Global
Advertising.
<PAGE> 11
Barbara W. Snow joined the Company in 1981 and has served as Corporate
Controller since 1988. Ms. Snow, a certified public accountant, served in the
capacity of Accounting Manager prior to being promoted to Corporate Controller.
All executive officers of the Company are elected by the Board of
Directors and serve for a one-year term and until their successors have been
elected and qualified.
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock was quoted on The Nasdaq Stock Market from
June 17, 1993, the date of the Recapitalization, through March 23, 1994.
Beginning March 24, 1994 the Common Stock was listed on the New York Stock
Exchange. The following table sets forth the high and low sales prices of the
Common Stock as reported by The Nasdaq Stock Market or the New York Stock
Exchange, as applicable, for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1994:
Second Quarter (June 17, 1993 through August 31, 1993) $12 1/4 $ 8 3/4
Third Quarter (ended November 30, 1993) $14 3/4 $10 3/4
Fourth Quarter (through February 28, 1994) $19 1/4 $13 1/4
FISCAL 1995:
First Quarter (through May 16, 1994) $20 1/4 $14
</TABLE>
The Company has paid no cash dividends since the Acquisition in 1988
and it has no plans to commence payment of cash dividends on its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following information with respect to the Company's consolidated
financial statements for the fiscal years ended February 28, 1990 and 1991,
February 29, 1992 and February 28, 1993 and 1994 has been derived from, and
should be read in conjunction with, the Company's audited consolidated
financial statements. The report of Arthur Andersen & Co. with respect to such
consolidated financial statements as of February 28, 1993 and 1994 and for the
years ended February 29, 1992, February 28, 1993 and 1994 is included in the
consolidated financial statements of the Company appearing elsewhere in this
Annual Report.
The following financial information should be read in conjunction with
"Management Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company appearing
elsewhere in this Annual Report.
CERTAIN DEFINITIONS
INVENTORY TURNOVER: Cost of Goods Sold on a FIFO basis for the fiscal
year divided by the average of FIFO inventory levels at the beginning of the
fiscal year and at the end of each month during the fiscal year.
AVERAGE DISPLAY SQUARE FOOTAGE: Average of the total square feet of
display area open at the beginning of the fiscal year and at the end of each
month during the fiscal year.
COMPARABLE STORE SALES GROWTH: Growth in furniture and services sold
and delivered by stores open for the same months in each comparative period.
<PAGE> 13
SALES PER SQUARE FOOT: Net sales for the fiscal year divided by the
average square feet of display area of those stores open at the beginning of
the fiscal year and at the end of each month during the fiscal year.
SALES PER EMPLOYEE: Net sales for the fiscal year divided by the
average number of employees at the end of each month during the fiscal year.
SALES PER STORE: Net sales for the fiscal year divided by the average
number of stores open at the end of each month during the fiscal year.
<PAGE> 14
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28,
------------------------------
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales $250,731 $256,594 $265,924 $286,527 $325,255
Cost of Goods Sold 133,574 135,473 139,876 150,344 168,425
-------- -------- -------- -------- --------
Gross Profit 117,157 121,121 126,048 136,183 156,830
-------- -------- -------- -------- --------
Finance Charges and
Insurance Commissions 35,564 37,816 37,725 13,853 4,892
-------- -------- -------- -------- --------
Operating Expenses:
Selling, general and
administrative 113,615 118,971 127,446(1) 129,225 136,269
Provision for credit losses 12,978 12,958 7,413(1) 4,803 213
Amortization of intangibles 3,130 2,700 3,433 3,253 3,132
Nonrecurring items 5,000 5,000 -- -- --
Other (income) expense, net (768) 236 868 (575) 8
-------- -------- -------- --------- ---------
133,955 139,865 139,160 136,706 139,622
-------- -------- -------- -------- --------
Operating Income (Loss) 18,766 19,072 24,613 13,330 22,100
Nonrecurring items 2,471 -- 1,162 -- --
Interest Expense, Net 36,561 36,856 33,920 24,306 11,545
-------- -------- -------- -------- -------
Income (Loss) Before Income
Taxes, Change in Accounting
Principle and Extraordinary
Item (20,266) (17,784) (10,469) (10,976) 10,555
Provision (Benefit) for
Income Taxes (7,272) (4,253) (1,234) (1,145) 4,508
-------- -------- -------- -------- -------
Net Income (Loss) Before Change
in Accounting Principle and
Extraordinary Item(2) (12,994) (13,531) (9,235) (9,831) 6,047
Cumulative Effect on Prior Years
of Change in Accounting for
Income Taxes -- -- (719) -- --
Extraordinary Item(2) -- -- -- -- (2,727)
-------- -------- -------- -------- -------
Net Income (Loss) $(12,994) $(13,531) $ (9,954) $ (9,831) $3,320
======== ======== ======== ========= ======
Per Share Data:
Net Income (Loss) Before
Extraordinary Item(2) $ (14.29) $ (13.77) $ (8.85) $ (6.68) $ 0.83
Net Income (Loss) (14.29) (13.77) (8.85) (6.68) 0.45
Dividends -- -- -- -- --
Weighted Average Shares
Outstanding (000's) 909 983 1,125 1,472 7,302
OTHER OPERATING DATA:
Depreciation and Amortization $ 9,731 $ 9,197 $ 10,021 $ 9,717 $ 9,531
Non-Cash Interest Expense 4,992 5,756 6,257 6,653 2,626
Capital Expenditures 6,148 2,589 2,769 3,405 6,860
Gross Profit Percentage 46.7% 47.2% 47.4% 47.5% 48.2%
Inventory Turnover 3.4x 3.4x 3.8x 4.0x 4.0x
STORE DATA:
Stores Open at Period End 72 75 76 76 78
Average Display Square
Footage (000's) 2,004 2,143 2,182 2,184 2,270
Total Store Sales Growth 0.9% 2.3% 3.6% 7.7% 13.5%
Comparable Store Sales Growth 6.8%(3) (2.5)% (0.6)% 7.0%(4) 10.0%(5)
Sales Per Square Foot $ 125 $ 120 $ 122 $ 131 $ 143
Sales Per Employee (000's) 114 111 116 131 140
Sales Per Store (000's) 3,582 3,467 3,538 3,795 4,229
BALANCE SHEET DATA (at end
of period):
Working Capital $(31,503) $ (7,975) $ (9,759) $(10,077) $ 608
Total Assets 365,772 356,055 349,152 175,754 185,604
Total Debt (including
Obligations Under Capital Leases) 316,627 317,374 307,821 145,706 60,831
Shareholders' Equity (Deficit) (6,233) (9,764) (14,073) (23,850) 59,909
</TABLE>
<PAGE> 15
(1) In fiscal 1992, the Company sold, without recourse, a portion of its
written-off accounts to an affiliate. The effect of these
transactions was to reduce the provision for credit losses by
$1,001,000 and increase selling, general and administrative expenses
by $494,000. See Note 9 to Consolidated Financial Statements.
(2) In the year ended February 28, 1994, the Company recorded an
extraordinary charge, net of taxes, against net income of $2,727,000,
or $(0.38) per share, which resulted from the early retirement of debt
principally in connection with the Recapitalization.
(3) Comparable store sales growth for fiscal 1990 has been adjusted to
eliminate the results for stores closed or sold during the applicable
period.
(4) Comparable store sales growth, excluding the three Florida stores that
were favorably impacted in fiscal 1993 by increased sales following
Hurricane Andrew, was 6.2% for fiscal 1993 compared with fiscal 1992.
(5) Comparable store sales growth for fiscal 1994, excluding the results
of three Florida stores that were favorably impacted in fiscal 1993 by
increased sales following Hurricane Andrew, was 12.2% compared with
fiscal 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following table sets forth the unaudited pro forma results of
operations as if the Recapitalization had been completed as of the beginning of
fiscal 1993 and 1994. Additionally, fiscal 1993 was adjusted to reflect the
Receivables Sale. Management believes that these pro forma results present the
most meaningful comparison of historical operating performance as a basis for
understanding future operations.
The pro forma information does not purport to represent what the
Company's results of operations would actually have been if such transactions
had occurred on such dates or project the Company's results of operations for
future periods. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management of the Company
believes are reasonable under the circumstances.
<PAGE> 16
<TABLE>
<CAPTION>
PRO FORMA RESULTS OF OPERATIONS
(UNAUDITED)
FISCAL YEAR FISCAL YEAR
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
1993 1994
---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales $286,527 $325,255
Cost of Goods Sold 150,344 168,425
-------- --------
Gross Profit 136,183 156,830
-------- --------
Finance Charges and Insurance
Commissions 5,102 4,892
-------- --------
Operating Expenses:
Selling 47,793 51,865
General and
administrative 77,218 84,285
Provision for credit losses 240 213
Amortization of intangibles 3,119 3,118
Other (income) expenses, net (271) 8
-------- --------
Operating Income 13,186 22,233
Interest Expense, net 8,086 7,032
-------- --------
Income Before Income Taxes and
Extraordinary Item 5,100 15,201
Provision for Income Taxes 2,203 6,096
-------- --------
Net Income Before
Extraordinary Item $ 2,897 $ 9,105
======== ========
PER SHARE DATA:
Net Income Before
Extraordinary Item $ 0.30 $ 0.92
Weighted Average Shares
Outstanding (000s) 9,781 9,901
OTHER OPERATING DATA:
Depreciation and Amortization $ 9,517 $ 9,398
</TABLE>
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth certain financial data expressed as a
percentage of net sales for the fiscal years ended February 29, 1992, February
28, 1993 and 1994.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED PRO FORMA YEAR
FEBRUARY 28 OR 29 ENDED FEBRUARY 28,
---------------------------- ------------------
1992 1993 1994 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 52.6 52.5 51.8 52.5 51.8
----- ----- ----- ----- -----
Gross Profit 47.4 47.5 48.2 47.5 48.2
----- ----- ----- ----- -----
Finance Charges and Insurance Commissions 14.2 4.8 1.5 1.8 1.5
----- ----- ----- ----- -----
Operating Expenses:
Selling 15.3 16.7 15.9 16.7 15.9
General and administrative 32.6 28.3 25.9 26.9 25.8
Amortization of intangibles 1.3 1.1 1.0 1.1 1.0
Provision for credit losses 2.8 1.7 .1 .1 .1
Other (income) expense, net 0.3 (0.2) -- (.1) --
----- ------ ----- ---- ----
52.3 47.7 42.9 44.7 42.8
---- ----- ----- ---- ----
Operating Income 9.3 4.7 6.8 4.6 6.8
Interest Expense, net 12.8 8.5 3.5 2.8 2.2
Income (Loss) Before Income Taxes,
Change in Accounting for Taxes and
Extraordinary Item (3.9) (3.8) 3.3 1.8 4.7
Net Income (Loss) Before Extraordinary Item (3.7) (3.4) 1.9 1.0 2.8
</TABLE>
FISCAL YEARS 1993 AND 1994 COMPARED--PRO FORMA BASIS
Net sales increased 13.5% to $325,255,000 from $286,527,000 for fiscal
1994 compared with the prior fiscal year. Comparable store sales growth was
10.0% for fiscal 1994. Comparable store sales growth, excluding the three
stores that were favorably impacted in fiscal 1993 by increased sales following
Hurricane Andrew, was 12.2% for fiscal 1994. Pro forma operating income for
fiscal 1994 of $22,233,000 (6.8% of net sales) increased 68.6% compared with
$13,186,000 (4.6% of net sales ) for fiscal 1993 on a net sales increase of
$38,728,000. Pro forma net income before extraordinary item for fiscal 1994
increased 214% to $9,105,000, or $.92 per share, compared with $2,897,000, or
$.30 per share, for the prior fiscal year.
During fiscal 1994, Rhodes opened one new store in Chattanooga,
Tennessee, acquired one new store in Knoxville, Tennessee and opened a new
store in Clarksville, Indiana (a suburb of Louisville, Kentucky), to bring the
total stores in operation to 78 compared with 76 stores in operation at
February 28, 1993. The Company closed one store in Sarasota, Florida in January
1994, which closing had no adverse impact on the Company. Rhodes has also
entered into leases for five future store locations and is in active
negotiations to lease additional store locations.
<PAGE> 18
Gross profit as a percentage of net sales for fiscal 1994 increased to
48.2% from 47.5%, compared with fiscal 1993. Gross margin improvement is
partially attributable to improved sales penetration of extended warranties,
which have a higher gross profit. Also, the credit promotions discussed below
permitted less discounting of selling prices, contributing to the higher gross
profit percentage. Inventory turnover on a FIFO basis was 4.0x for each of
the fiscal years 1994 and 1993. Inventories were approximately $10.9 million
higher at February 28, 1994 than February 28, 1993 due to three more stores in
operation and management's anticipation of an improved economic climate.
Finance charge and insurance commission income derives from
commissions earned from BNB under the Merchant Agreement and from commissions
on credit insurance on credit customer balances. The amounts earned were down
due to lower net yields on credit insurance commissions.
Selling expense for fiscal 1994 declined substantially as a percentage
of net sales to 15.9%, compared with 16.7% for fiscal 1993. The expense of
interest-free and deferred payment credit promotions was more than off-set by
reduced net advertising expenditures and reduced sales commissions compared
with the prior year. Sales commissions have decreased as a percentage of net
sales as a result of revisions made to the commission structure at the
beginning of fiscal 1994.
Pro forma general and administrative expenses for fiscal 1994
increased to $84,285,000 (25.9% of net sales) from $77,218,000 (26.9% of net
sales) for fiscal 1993. The increased expense is due to adding three new
stores plus increases in employee expenses. The improvement in the percentage
of net sales is due to the increased sales volume.
Interest expense on the Company's indebtedness is generally fixed and
is expected to decline slightly in future periods as such debt is reduced from
internal cash flow.
FISCAL YEARS 1993 AND 1994 COMPARED--HISTORICAL BASIS
On a historical basis, results for fiscal 1994 are not comparable with
the prior fiscal year due to the Receivables Sale, which took place on June 18,
1992 and the completion of the Recapitalization, which took place on June 24,
1993. As a result of the Receivables Sale, the Company no longer earns finance
charge income, and general and administrative expenses, credit losses and
interest expense related to the credit operation have been eliminated. Also,
as a result of the Recapitalization, interest expense has been substantially
reduced. The following information describes results of operations on a
historical basis to the extent that the historical information differs from the
pro forma information set forth under "Fiscal Year Ended February 28, 1993 and
1994 Compared--Pro Forma Basis."
Finance charges and insurance commissions income was $4,892,000 for
fiscal 1994, compared with $13,853,000 for fiscal 1993. As a result of the
Receivables Sale, the related finance charge income is no longer earned by the
Company.
<PAGE> 19
General and administrative expenses for the year ended February 28,
1994 increased to $84,404,000 (25.9% of net sales) from $81,432,000 (28.4% of
net sales) for fiscal 1993 due to the cost of adding three new stores plus
increases in employee expenses, partially offset by the elimination of the
Company's credit operations following the Receivables Sale. The improvement in
general and administrative expenses as a percentage of net sales is due
principally to the increased sales volume.
The provision for credit losses of $4,803,000 reported for fiscal 1993
decreased to $213,000 for fiscal 1994 due to the Receivables Sale, which
eliminated the Company's risk of credit losses on the customer credit accounts
sold to BNB under the Merchant Agreement. As a result, the only credit loss
expenses to the Company are write-offs associated with bankcard and check
transactions.
Interest expense for fiscal 1994 decreased to $11,545,000, compared
with $24,306,000 for fiscal 1993 as a result of the Recapitalization and
Receivables Sale and related reduction in the Company's indebtedness.
In fiscal 1994 the Company expensed certain charges incurred
principally in connection with the Recapitalization. These extraordinary items
represent non-recurring prepayment penalties of $2,624,000 for early retirement
of debt and the write-off of $903,000 in related deferred loan costs, less
income tax benefit of $800,000.
FISCAL YEARS 1993 AND 1992 COMPARED--HISTORICAL BASIS
Operating income for fiscal 1993 is not comparable with the prior year
due to the Receivables Sale. Although operating income attributable to the
Company's credit operations (which was $877,000 in fiscal 1993) has been
reduced as a result of the elimination of finance charge revenue, partially
offset by reductions in general and administrative expense and in provision for
credit losses, management believes that the Receivables Sale positively
impacted net income by eliminating credit-related interest expense.
Net furniture sales increased 7.7% for fiscal 1993 over fiscal 1992,
and comparable store sales were up 7.0% for the same period. Comparable store
sales growth, excluding the three Florida stores that were favorably impacted
in fiscal 1993 by increased sales following Hurricane Andrew, was 6.2% for
fiscal 1993 compared with fiscal 1992. Net warranty sales of $1.3 million,
less direct expenses of $280,000, were deferred to future periods in fiscal
1993. The Company markets extended warranty contracts to its customers on
certain merchandise at the time of the initial sale. The Company had 76 stores
in operation at February 29, 1992 and February 28, 1993, due to the loss of one
store to Hurricane Andrew and the opening of one new store in February 1993.
Gross profit was 47.5% of net sales in fiscal 1993, compared with
47.4% for the prior year, due to the recognition of more extended warranty
income.
Finance charges and insurance commissions income was $13.9 million for
fiscal 1993 compared with $37.7 million for fiscal 1992. As a result of the
Receivables Sale, the related finance charge income, which totaled $33.3
million for fiscal 1992 and $9.0 million for fiscal 1993, is no longer earned
by the Company. Insurance commission income earned for fiscal 1993 was $4.0
million compared with $4.5 million in fiscal 1992 as a result of lower average
accounts receivable balances and lower credit insurance sales penetration in
fiscal 1993.
<PAGE> 20
Selling expense was 16.7% of net sales for fiscal 1993 versus 15.3%
for fiscal 1992, largely because selling expense increased sharply during the
middle part of fiscal 1993 as a result of the transition to operating under the
Merchant Agreement. The total increase in selling expense resulting from this
transition was approximately $3.7 million for fiscal 1993, all of which related
to discounts paid to BNB for offering interest-free credit promotions.
Although the Company continues to offer interest- free credit promotions from
time to time, management imposed budgetary and operational guidelines during
the fourth quarter of fiscal 1993 with respect to the use of credit promotions.
General and administrative expense for fiscal 1993 was down to $81.4
million (28.4% of net sales) compared with $86.8 million (32.6% of net sales)
for fiscal 1992. The decrease is largely attributable to the elimination of
(i) 105 employee positions through the closing of the Company's credit center
in Greenwood, South Carolina, (ii) fees paid to the outside credit processor
and (iii) other related costs following the Receivables Sale on June 18, 1992.
In addition, the sale of previously written-off accounts to Green Financial
Services Corp., an affiliated company ("GFSC") set up for that purpose,
increased general and administrative expenses by $494,000 in fiscal 1992.
The provision for credit losses decreased to $4.8 million for fiscal
1993 compared with $7.4 million for fiscal 1992 as a result of the Receivables
Sale. The provision for credit losses in fiscal 1992 was reduced $1.0 million
by the sale of previously written-off accounts to GFSC, and by charging
write-offs on accounts existing at the time of the 1988 Merger to the allowance
for credit losses in the amount of $4.6 million for fiscal 1992. The remaining
balance of $8.4 million in the allowance for credit losses at the time of the
Receivables Sale was reversed and is included in the gain on this transaction.
Interest expense in fiscal 1993 was substantially less than in fiscal
1992 due to the reduction of short-term debt following the Receivables Sale and
the termination of the related commercial paper facility.
SEASONALITY
The Company typically experiences its strongest sales in its third
quarter. Gross profit margin is generally lower in the Company's second and
fourth quarters, during which the Company conducts its clearance sales.
EFFECTS OF INFLATION ON OPERATIONS
Although the rate of inflation has remained low and has had little
impact on the Company during the last three fiscal years ended February 28,
1994, the Company's operating results could be adversely affected by high rates
of inflation. The area which could be most affected is the Company's cost to
replenish inventory. An increase in the cost of inventory would be mitigated,
however, to the extent the Company was able to pass along such costs to its
customers through price increases. The Company's interest rate risk is limited
to the variable rate of interest paid under the Revolving Credit Agreement.
<PAGE> 21
INCOME TAXES
At February 28, 1994, the Company had approximately $12 million of net
operating loss carryforwards ("NOLs") for federal income tax purposes. The
transfer of Common Stock from an affiliate of Green Capital Investors to WPS
Investors (also an affiliate of Green Capital) on February 25, 1994 and the
secondary sale of Common Stock completed on March 24, 1994 caused an "ownership
change" as defined in Section 382 of the Internal Revenue Code of 1986, as
amended, which will give rise to an annual limitation on the amount of taxable
income that such NOLs can offset in a particular year. The Company believes
that such limitation will not significantly affect net income or cash flow.
LIQUIDITY AND CAPITAL RESOURCES
Currently, the Company's principal sources of liquidity are cash flow
from operations and additional borrowing capacity under its Revolving Credit
Agreement. The Company had net cash provided by operating activities of
approximately $11.6 million, $6.2 million (adjusted for the short-term debt
paydown related to the Receivables Sale), and $19.4 million in fiscal years
1992, 1993 and 1994, respectively. The Company's principal uses of cash are
debt service obligations, capital expenditures and working capital needs.
On June 24, 1993, the Company completed the Recapitalization to
enhance the Company's strategic, financial and operating flexibility by
increasing shareholders' equity and reducing indebtedness and interest expense.
Management believes that the new capital structure provides sufficient cash
flow to fund its planned expansion, remodeling, and refurbishing programs and
debt service requirements. On June 18, 1992, the Company completed the
Receivables Sale. The Company also contracted to sell all future receivables
until June 1995, unless extended, under the Merchant Agreement (the term of
which is extended automatically unless terminated by one of the parties),
whereby BNB provides credit to customers under the Rhodes credit card name for
future credit sales. This arrangement removed the need for Rhodes to fund that
portion of the accounts receivable not financed by the commercial paper
facility. The net proceeds of the Receivables Sale were used principally to
reduce short-term debt, including terminating the related commercial paper
program.
At the end of fiscal years 1992, 1993, and 1994, LIFO inventories were
$38.5 million, $37.3 million, and $48.2 million, respectively. FIFO inventory
turns in these years have increased to 4.0x for fiscal 1994 and 1993 from 3.8x
in fiscal year 1992. The Company has historically had low or negative working
capital, primarily as a result of its tight inventory controls, low cash
balances and the inclusion in current liabilities of deferred revenues, such as
merchandise sold but not delivered and deferred warranty revenue.
<PAGE> 22
The Company made additions to property and equipment of approximately
$2.8 million, $3.4 million and $6.9 million for fiscal years 1992, 1993 and
1994, respectively. These expenditures have been both for the opening of new
stores and capital replacements in existing stores, including the remodeling
completed for four stores in fiscal 1993 and 16 stores in fiscal 1994. Prior
to the Recapitalization, the Company's capital expenditures were restricted by
covenants contained in the various loan agreements and by the significant
financial constraints imposed by its high debt and interest expense levels.
Upon completion of the Recapitalization, the Company substantially increased
its capital expenditures in fiscal 1994 (although capital expenditure funding
continues to be subject to restrictions in the Senior Notes and Revolving
Credit Agreement), and plans to spend $12.0 million and $9.1 million in fiscal
1995 and 1996, respectively. These increases reflect the cost of remodeling
and refurbishing the existing store base and the addition of 18 new stores. The
Company does not plan to purchase any real estate in acquiring and opening new
stores. The Company anticipates that these increased capital expenditures will
be funded primarily from cash flow from operations. If the Company's cash flow
from operations were insufficient to fund such capital expenditures, the
Company would consider additional means to finance its remodeling and
refurbishing and expansion programs or delaying or limiting such programs.
The Company's consolidated funded indebtedness at February 28, 1994,
including obligations under capital leases, was $60.8 million, down from $145.7
million at February 28, 1993 and $307.8 million at February 29, 1992 due to the
Recapitalization and the Receivables Sale and the payments previously
described. Set forth below are the scheduled principal payments required under
the Company's existing debt agreements.
Fiscal 1995 $ 516,000
Fiscal 1996 518,000
Fiscal 1997 8,020,000
The maximum availability of funds under the Revolving Credit Agreement
is the lesser of $30.0 million or 50% of eligible inventory. The Revolving
Credit Agreement is secured by substantially all of the inventory of the
Company. As of May 3, 1994, borrowings under the Revolving Credit Agreement
were approximately $6.4 million and approximately $14.7 million remained
available for borrowing. Loans outstanding under the Revolving Credit
Agreement generally will bear interest at one of two interest rate options
selected by the Company: (i) Prime Rate + .5% per annum or (ii) a quoted LIBOR
+ 2.375% per annum for specified interest periods. The "Prime Rate" is the
rate of interest announced publicly by the lender, from time to time, as its
prime rate. The Company is required to pay a commitment fee of 0.375% per
annum of the average daily unused portion of the lender's commitment under the
Revolving Credit Agreement. The Revolving Credit Agreement is scheduled to
terminate in February 1996.
The Senior Notes consist of two tranches: (i) Tranche A Notes in the
aggregate principal amount of $30 million which mature in June 1999 (subject to
mandatory annual redemption payments of $7.5 million per year commencing in
June 1996) and bear interest at a rate of 9% per annum, payable semiannually;
and (ii) Tranche B Notes in the aggregate principal amount of $10 million,
which mature in June 2000 and bear interest at a rate of 10% per annum, payable
semiannually. The Senior Notes are secured by all real property owned by the
Company.
<PAGE> 23
The terms of the Revolving Credit Agreement and the Senior Notes
impose restrictions that affect, among other things, the Company's ability to
(i) incur certain additional indebtedness, (ii) create liens on assets, (iii)
sell assets, (iv) engage in mergers or consolidations, (v) make investments,
(vi) pay dividends and make distributions and (vii) engage in certain
transactions with affiliates and subsidiaries. The Revolving Credit Agreement
and the Senior Notes also require the Company to comply with certain specified
financial ratios and tests.
The Company expects to continue to finance inventories, future
expansion, debt service requirements and other cash needs with cash flow from
operations supplemented by other potential sources of capital, principally the
sources described above. Although there can be no assurance as to the
availability of other sources of funding, management believes that internally
generated funds and amounts available under the Company's existing credit
facility will be sufficient to fund the Company's present and proposed
operations and capital expenditure program.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements of the Company are set forth herein beginning on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Item X hereof and incorporated herein by reference to the annual
proxy statement relating to the 1994 annual meeting of shareholders of the
Company.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the annual proxy statement relating to
the 1994 annual meeting of shareholders of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the annual proxy statement relating to
the 1994 annual meeting of shareholders of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
Incorporated by reference to the annual proxy statement relating to
the 1994 annual meeting of shareholders of the Company.
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements (beginning on page
F-1 - F-26) are filed under Item 8 of this Annual
Report:
Report of Independent Public Accountants
Consolidated balance sheets as of February
28, 1993 and February 28, 1994
Consolidated statements of operations for the
years ended February 29, 1992, February 28,
1993 and February 28, 1994
Consolidated statements of shareholders'
equity for the years ended February 29, 1992,
February 28, 1993 and February 28, 1994
Consolidated statements of cash flows for the
years ended February 29, 1992, February 28,
1993 and February 28, 1994
Notes to consolidated financial statements
for the years ended February 29, 1992,
February 28, 1993 and February 28, 1994
2. The following financial statement schedules (beginning
on page F-27 - F-33) are filed as part of this Annual
Report:
Report of Independent Public Accountants
Schedule IV - Indebtedness to related
parties-not current for the three years ended
February 28, 1994
Schedule V - Property and Equipment for the
three years ended February 28, 1994
Schedule VI - Accumulated depreciation,
depletion and amortization of property and
equipment for the three years ended February
28, 1994
Schedule VIII - Valuation and qualifying
accounts for the three years ended February
28, 1994
Schedule IX - Short-term borrowings for the
three years ended February 28, 1994
Schedule X - Supplementary income statement
information for the three years ended
February 28, 1994
<PAGE> 26
3. Exhibits.
The Exhibits listed on the accompanying Index to
Exhibits are filed as part of this Annual Report.
(b) Reports on Form 8-K
None
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------ -----------
<S> <C> <C>
3.1 -- Restated and Amended Articles of Incorporation of the Registrant dated as of April 8, 1993 (incorporated by
reference to Exhibit 3.1 to Registrant's Registration Statement on Form S-1, as amended (File No. 33-60962)).
3.2 -- Amended Bylaws of the Registrant dated as of April 7, 1993 (incorporated by reference to Exhibit 3.2 to
Registrant's Registration Statement on Form S-1, as amended (File No. 33-60962)).
4.1 -- Indenture, dated as of September 20, 1988, between the Registrant and The Citizens and Southern National Bank, as
Trustee, relating to the Registrant's Junior Discount Subordinated Redeemable Debentures Due 2000 (incorporated by
reference to Exhibit 4 to Registrant's Current Report on Form 8-K dated September 29, 1988).
4.2 -- Loan and Security Agreement dated as of February 24, 1994 between the Registration and Wachovia Bank of Georgia,
N.A. and Master Note between the Registrant payable to Wachovia Bank of Georgia, N.A. as of February 24, 1994.
4.3 -- Form of Note Purchase Agreement between the Company, Sun Life Insurance Company of America, The Equitable Private
Income and Equity Partnership II, L.P., The Life Insurance Company of Virginia and Protective Life Insurance
Company (incorporated by reference to Exhibit 10.25 to the Registrant's Registration Statement on Form S-1, as
amended (File No. 33-60962)).
10.1 -- Rhodes, Inc. Employees' Savings Plan (incorporated by reference to Exhibit 10.6 to Registrant's Annual Report on
Form 10-K for the year ended February 28, 1986).
10.2 -- Form of Exchange Agreement by and between Rhodes, Inc. and Green Capital Investors, L.P. (incorporated by
reference to Exhibit 10.9 to Registrant's Registration Statement on Form S-1, as amended (File No. 33-60962)).
10.3 -- Rhodes, Inc. 1991 Stock Option Plan (incorporated by reference to Exhibit 10.35 to Registrant's Annual Report on
Form 10-K for the year ended February 28, 1991).
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------ -----------
<S> <C> <C>
10.4 -- Master Note by RHD Holdings Corp. (predecessor to the Registrant) payable to Green Capital Investors, L.P., dated
as of December 15, 1989 (incorporated by reference to Exhibit 10.37 to Registrant's Annual Report on Form 10-K for
the year ended February 28, 1991).
10.5 -- First Amendment to Master Note by RHD Holdings Corp. (incorporated by reference to Exhibit 10.14 to Registrant's
Registration Statement on Form S-1, as amended (File No. 33-60962)).
10.6 -- Policy issued by Life Insurance Company of North America, dated March 1, 1989 covering the Rhodes, Inc. Employee
Disability Plan (incorporated by reference to Exhibit 10.38 to Registrant's Annual Report on Form 10-K for the year
ended February 28, 1991).
10.7 -- Purchase Agreement by and between Rhodes Financial Services Corp. and Beneficial National Bank USA, dated as of
May 15, 1992, (incorporated by reference to Exhibit 10.41 to Registrant's Annual Report on Form 10-K for the year
ended February 29, 1992).
10.8 -- Merchant Agreement by and between Beneficial National Bank USA and Rhodes, Inc., dated as of May 15, 1992
(incorporated by reference to Exhibit 10.42 to Registrant's Annual Report on Form 10-K for the year ended
February 29, 1992).
10.9 -- Form of Option Agreement between the Registrant and James V. Napier (incorporated by reference to Exhibit 10.23 to
the Registrant's Registration Statement on Form S-1, as amended (File No. 33-60962))
10.10 -- Form of Option Agreement between the Registrant and Don L. Chapman (incorporated by reference to Exhibit 10.24 to
the Registrant's Registration Statement on Form S-1, as amended (File No. 33-60962))
10.11 -- Stock Purchase Agreement dated as of November 18, 1992 by and between Green Capital Investors L.P. and Bankers
Fidelity Life Insurance Company (incorporated by reference to Exhibit 10.22 to Registrant's Registration Statement
on Form S-1, as amended (File No. 33-60962))
11 -- Rhodes, Inc. Computation of Net Income Per Share
21 -- List of subsidiaries of the Registrant (incorporated by reference to Exhibit 22 to Registrant's Registration
Statement on Form S-1, as amended (File No. 33-60962))
</TABLE>
<PAGE> 28
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.
RHODES, INC.
By: /s/ JOEL H. DUGAN
------------------
Joel H. Dugan
Senior Vice President,
Finance and Administration
Date: May 26, 1994
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:
PRINCIPAL EXECUTIVE OFFICER:
/s/ IRWIN L. LOWENSTEIN
- - ------------------------
Irwin L. Lowenstein
Director, President and Chief
Executive Officer
Date: May 26, 1994
PRINCIPAL FINANCIAL OFFICER:
/s/ JOEL H. DUGAN
- - ------------------
Joel H. Dugan
Senior Vice President,
Finance and Administration
Date: May 26, 1994
PRINCIPAL ACCOUNTING OFFICER:
/s/ BARBARA SNOW
- - -----------------
Barbara Snow
Corporate Controller
Date: May 26, 1994
DIRECTORS:
/s/ HOLCOMBE T. GREEN, JR.
- - ---------------------------
Holcombe T. Green, Jr.
Chairman of the Board of Directors
Date: May 26, 1994
<PAGE> 29
/s/ JAMES R. KUSE
- - ------------------
James R. Kuse
Date: May 26, 1994
/s/ JAMES V. NAPIER
- - --------------------
James V. Napier
Date: May 26, 1994
/s/ DON L. CHAPMAN
- - -------------------
Don L. Chapman
Date: May 26, 1994
/s/ IRWIN L. LOWENSTEIN
- - ------------------------
Irwin L. Lowenstein
Date: May 26, 1994
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
THE SHAREHOLDERS OF RHODES, INC.
We have audited the accompanying consolidated balance sheets of
Rhodes, Inc. (a Georgia corporation) and subsidiaries as of February 28, 1993
and 1994 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended February
28, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Rhodes, Inc. and
subsidiaries as of February 28, 1993 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1994 in conformity with generally accepted accounting principles.
As more fully discussed in Note 2 to the financial statements,
effective March 1, 1991 the Company adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes".
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Atlanta, Georgia
April 22, 1994
F-1
<PAGE> 31
RHODES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
February 28, February 28,
ASSETS 1993 1994
------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 158 $ 235
Accounts and other receivables 2,913 2,073
Inventories at LIFO cost 37,326 48,187
Prepaid expenses and other 4,152 4,375
Deferred tax assets 2,658 2,941
------- -------
Total Current Assets 47,207 57,811
------- -------
PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation and
amortization of $25,210 at February 28, 1993 and $29,805 at February 28, 1994 46,845 48,027
------- -------
CAPITALIZED REAL ESTATE LEASES, at cost, less accumulated amortization
of $3,367 at February 28, 1993 and $4,125 at February 28, 1994 8,577 7,819
------- -------
INTANGIBLE ASSETS, net
Goodwill 63,914 62,116
Favorable leases 5,888 4,797
Other intangibles 2,331 2,638
------- -------
Total Intangible Assets 72,133 69,551
------- -------
OTHER ASSETS 992 2,396
------- -------
TOTAL ASSETS $175,754 $185,604
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------
CURRENT LIABILITIES:
Notes and loans payable $ 7,447 $ 2,471
Current maturities of long-term debt and capital lease obligations 5,041 1,308
Accounts payable 19,279 27,753
Accrued interest 3,058 759
Accrued liabilities 13,832 15,862
Deferred income 8,309 8,732
Current portion deferred gain--sale/leasebacks 318 318
-------- --------
Total Current Liabilities 57,284 57,203
-------- --------
DEFERRED INCOME TAXES 5,759 8,415
-------- --------
LONG-TERM DEBT, less current maturities 118,171 42,046
-------- --------
OBLIGATIONS UNDER CAPITAL LEASES 15,047 15,006
-------- --------
DEFERRED GAIN--SALE/LEASEBACKS 3,343 3,025
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Class A Preferred Stock, cumulative dividends, no par value,
1 share authorized and issued at February 28, 1993 14,181 --
Common Stock, no par value, 10,000 shares authorized and
1,476 shares issued and outstanding at February 28, 1993,
20,000 shares authorized and 9,777 shares issued and outstanding
at February 28, 1994 -- --
Paid-in Capital 12,487 107,107
Accumulated deficit (50,518) (47,198)
-------- --------
Total Shareholders' Equity (Deficit) (23,850) 59,909
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 175,754 $ 185,604
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
F-2
<PAGE> 32
RHODES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------
February 29, February 28, February 28,
1992 1993 1994
------------ ------------- -------------
<S> <C> <C> <C>
NET SALES $ 265,924 $ 286,527 $ 325,255
COST OF GOODS SOLD 139,876 150,344 168,425
-------- -------- --------
GROSS PROFIT 126,048 136,183 156,830
-------- -------- --------
FINANCE CHARGES AND INSURANCE COMMISSIONS 37,725 13,853 4,892
-------- -------- --------
OPERATING EXPENSES:
Selling 40,665 47,793 51,865
General and administrative 86,781 81,432 84,404
Provision for credit losses, net of $1,001 of recoveries
in 1992 through sale of written-off accounts to an
affiliate (Note 9) 7,413 4,803 213
Amortization of intangibles 3,433 3,253 3,132
Other expense (income), net 868 (575) 8
-------- -------- --------
139,160 136,706 139,622
-------- -------- --------
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES 24,613 13,330 22,100
Nonrecurring item (Note 10) 1,162 -- --
Interest expense, net 33,920 24,306 11,545
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES, CHANGE IN ACCOUNTING
FOR INCOME TAXES, AND EXTRAORDINARY ITEM (10,469) (10,976) 10,555
PROVISION (BENEFIT) FOR INCOME TAXES (1,234) (1,145) 4,508
-------- -------- --------
NET INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING FOR
INCOME TAXES, AND EXTRAORDINARY ITEM (9,235) (9,831) 6,047
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN
ACCOUNTING FOR INCOME TAXES (NOTE 2) (719) -- --
-------- -------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (9,954) (9,831) 6,047
EXTRAORDINARY ITEM-EARLY RETIREMENT OF DEBT, NET OF
INCOME TAX EFFECT (NOTE 11) -- -- (2,727)
-------- -------- --------
NET INCOME (LOSS) $ (9,954) $ (9,831) $ 3,320
======== ======== ========
NET INCOME (LOSS) PER SHARE OF COMMON STOCK BEFORE
EXTRAORDINARY ITEM $ (8.85) $ (6.68) $ 0.83
EXTRAORDINARY ITEM PER SHARE OF COMMON STOCK -- -- (0.38)
-------- -------- --------
NET INCOME (LOSS) PER SHARE $ (8.85) $ (6.68) $ 0.45
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 1,125 1,472 7,302
======== ======== ========
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM (UNAUDITED) (NOTE 1) $ 0.30 $ 0.92
======== ========
PRO FORMA WEIGHTED AVERAGE SHARES 9,781 9,901
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-3
<PAGE> 33
RHODES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Class A
Preferred stock, Total
Cumulative Common Shareholders'
Dividends, Stock, Paid-in Accumulated Equity
no par value no par value Capital Deficit (Deficit)
----------------- -------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE, February 28, 1991 $ 10,000 $ -- $ 10,969 $ (30,733) $ (9,764)
Net loss -- -- -- (9,954) (9,954)
Issuance of common stock, net of
issuance expenses (Note 9) -- -- 5,645 -- 5,645
--------- --------- --------- ---------- --------
BALANCE, February 29, 1992 10,000 -- 16,614 (40,687) (14,073)
Net loss -- -- -- (9,831) (9,831)
Accrual of cumulative dividends on
Series A Preferred Stock 4,181 -- (4,181) -- --
Issuance of common stock, from
exercise of stock options -- -- 54 -- 54
--------- --------- --------- ---------- --------
BALANCE, February 28, 1993 14,181 -- 12,487 (50,518) (23,850)
Net Income 3,320 3,320
Accrual of cumulative dividends on
Series A Preferred Stock 479 (479) -- --
Issuance of common stock, net of
issuance expenses (Note 9) 45,499 45,499
Exchange of long-term debt for Common Stock 34,309 34,309
Exchange of preferred stock and accumulated
dividends for Common stock (14,660) -- 14,660 -- --
Issuance of common stock, from
exercise of stock options 631 -- 631
--------- --------- --------- ---------- --------
BALANCE, February 28, 1994 $ -- $ -- $ 107,107 $ (47,198) $ 59,909
========= ========= ========= ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 34
<TABLE>
<CAPTION>
RHODES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Years Ended
-----------------------------------------
February 29, February 28, February 28,
1992 1993 1994
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (9,954) (9,831) 3,320
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Extraordinary item-early retirement of debt -- -- 3,527
Depreciation and amortization 6,588 6,464 6,399
Change in deferred income taxes (1,234) (1,145) 2,373
Amortization of intangibles 3,433 3,253 3,132
Noncash interest expense 6,257 6,653 2,626
Cumulative effect of change in accounting for income taxes 719 -- --
Amortization of gain-sale/leasebacks (318) (318) (318)
Write-off of intangible assets -- 297 --
Changes in current assets and liabilities:
Accounts and Other Receivables, net 1,646 169,305 840
Inventories 668 1,159 (10,861)
Prepaid expenses and other 900 (830) (223)
Accounts payable and accrued liabilities 1,419 (6,213) 8,206
Deferred income 1,502 3,512 423
------ -------- --------
Net cash provided by operating activities 11,626 172,306 19,444
------ -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Retirements of property and equipment, net 1,034 327 97
Additions to property and equipment (2,769) (3,405) (6,860)
Additions to intangible assets -- -- (1,407)
Decrease (increase) in other assets 271 (493) (1,511)
(Decrease) increase in obligations under capital leases (301) (256) 147
------ -------- --------
Net cash used in investing activities (1,765) (3,827) (9,534)
------ -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term debt, net (9,076) (163,506) (4,976)
Repayment of long-term debt (519) (5,006) (88,363)
Prepayment penalty for early retirement of debt -- -- (2,624)
Proceeds from the Senior Secured Financing -- -- 40,000
Expenditures paid in stock for debt exchange (269) -- --
Proceeds from sale of common stock -- -- 45,499
Exercise of stock options -- 54 631
------ -------- --------
Net cash used in financing activities (9,864) (168,458) (9,833)
------ -------- --------
INCREASE (DECREASE) IN CASH (3) 21 77
CASH AT BEGINNING OF YEAR 140 137 158
------ -------- --------
CASH AT END OF YEAR $ 137 $ 158 $ 235
====== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest $ 27,663 $ 17,652 $ 8,919
====== ======== ========
Income taxes $ 154 $ 105 $ 1,320
====== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Issuance of Common Stock for debt, net
of issuance expenses $ 5,645 $ -- $ 34,309
====== ======== ========
Exchange of preferred stock and accumulated dividends for Common Stock $ -- $ -- $ 14,660
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 35
RHODES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 1992, FEBRUARY 28, 1993 AND 1994
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
INTRODUCTION
On September 20, 1988, Rhodes Acquisition Corp., a wholly owned
subsidiary of RHD Holdings Corp. ("RHD Holdings" or "RHD"), was merged with and
into Rhodes, Inc. ("Rhodes" or the "Company"), in which merger (the
"Acquisition") Rhodes was the surviving corporation. As a result of the
Acquisition, Rhodes became a wholly owned subsidiary of RHD Holdings.
For financial statement purposes, the Acquisition was accounted for by
the purchase method of accounting effective September 21, 1988. The
consolidated financial statements herein include the accounts of the Company
and its subsidiaries after adjustment as of September 21, 1988 of certain
assets and liabilities to their estimated fair values based on management's
estimates, certain appraisals and other data and after reflecting the costs of
the Acquisition.
THE 1991 MERGER
Upon approval by the board of directors of the Company and RHD
Holdings on June 11, 1991, the Company and RHD Holdings entered into an
Agreement and Plan of Merger, which provided for the merger of RHD Holdings
with and into the Company (the "1991 Merger"). Rhodes was the surviving
corporation in the 1991 Merger.
Pursuant to the 1991 Merger, each outstanding share of common stock of
the Company was canceled and eight shares of common stock of RHD Holdings
outstanding immediately prior to the 1991 Merger were converted into the right
to receive one newly issued share of common stock, without par value, of the
Company ("Common Stock"). Further, each option to purchase common stock of RHD
Holdings outstanding immediately prior to the 1991 Merger was assumed by the
Company and converted into the right to purchase one share of Common Stock of
the Company for each eight shares of common stock of RHD Holdings (rounded to
the next whole share). The 1991 Merger was accounted for by combining the
merged entities' accounts at their historical cost in a manner similar to a
pooling of interests. The Company's historical financial statements have been
restated accordingly. The effects of this restatement were not material.
F-6
<PAGE> 36
INITIAL PUBLIC OFFERING
In April 1993, the Company's board of directors approved a plan of
recapitalization ("Recapitalization") whereby it would offer a certain number
of shares of Common Stock for sale to the public (the "Offering") and Green
Capital Investors, L.P. ("Green Capital") would exchange its Class A Preferred
Stock (including accumulated, unpaid dividends) and Junior Discount
Subordinated Redeemable Debentures Due 2000 for Common Stock of the Company
(the "Exchange"), at an exchange price equal to the stock price in an initial
public offering. The Company effected a 1.8-for-1 stock split of the Company's
Common Stock prior to the Offering. As a part of the Recapitalization, the
Company also refinanced and repaid certain of its outstanding debt (see Note
3).
As a result of the Recapitalization, the Company recorded the
accumulated, unpaid Class A Preferred Stock dividends of $4,181,000 as of
February 28, 1993 in the accompanying financial statements. Because of the
Company's accumulated deficit, the dividends were recorded as a reduction of
Paid-in Capital. Also, all share and per share amounts in the accompanying
financial statements were restated to reflect the 1.8-for-1 stock split.
In conjunction with the above, the Company also increased the number
of authorized shares of Common Stock to 20,000,000.
SALE OF INSTALLMENT RECEIVABLES PORTFOLIO
On May 15, 1992, Rhodes and its wholly owned subsidiary, Rhodes
Financial Services Corp. ("Rhodes Financial"), entered into a definitive
agreement with Beneficial National Bank USA ("BNB") to sell to BNB all
outstanding customer installment receivables in the approximate amount of
$174,000,000 (the "Receivables Sale"). The Receivables Sale was completed on
June 18, 1992 (the "Closing Date"). The Company also contracted to sell all
future receivables for the next three years in an on-going merchant agreement
("Merchant Agreement") whereby BNB will provide Rhodes with its private label
credit facility for future credit sales. This arrangement removed the need for
Rhodes to fund that portion of the accounts receivable not financed by the
commercial paper facility and eliminated the risks from credit losses and
interest rate fluctuations on its accounts receivable portfolio. The Merchant
Agreement is subject to early termination by BNB in the event of a bankruptcy
filing by or against Rhodes or upon 30 days notice in the event of a material
change in any law or regulation or in the operation, assets, condition
(financial or otherwise), business or ownership of Rhodes. After the initial
three-year term, the Merchant Agreement remains in effect unless terminated by
either party on 180 days notice. BNB has no recourse against the Company for
the accounts receivable acquired under the Receivables Sale or under the
Merchant Agreement.
F-7
<PAGE> 37
Rhodes received $170,006,000 or approximately 97.77% of the balance of
the outstanding accounts receivable in cash on the Closing Date and, in
addition, received approximately $4,262,000, net of a $500,000 contingency
deposit, in advances against future revenue to Rhodes to be earned under the
on-going Merchant Agreement. Under the Merchant Agreement, Rhodes continues to
receive the credit insurance commission income and a commission on certain
classes of credit sales sold to BNB.
The net proceeds of the Receivables Sale are set forth below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Proceeds from Receivables Sale and advances, net of contingency deposit $174,312
Payments and expenses:
Commercial paper 139,695
Deferred sales tax 4,502
Cash expenses 3,740
--------
Net proceeds $ 26,375
========
</TABLE>
The net proceeds were used to pay down the Company's existing lines of
credit and to repay the outstanding balance of an industrial revenue bond.
The effect of the Receivables Sale on fiscal 1993 loss before income
taxes is set forth below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Proceeds from the Receivables Sale and advances, net of contingency deposit $174,312
Other advances--net of contingency deposit 4,262
Interest Earned 44
---------
Net Receivables Sale Price 170,006
Net book value of installment receivables sold 165,468
Expenses, including non-cash expenses 4,234
--------
Effect of Receivables Sale on loss before income taxes--gain $ 304
========
</TABLE>
Under its on-going Merchant Agreement with BNB, Rhodes continues to
offer the Rhodes Credit Card on substantially the same terms to customers.
F-8
<PAGE> 38
The following provides the historical results of the Company's credit
operations for fiscal years 1992 and 1993 before the Receivables Sale:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1992 1993
---- ----
<S> <C> <C>
Finance charge revenue $ 33,254 $ 9,033
Operating expenses:
General and administration 11,504 3,814
Provision for credit losses, net 7,210 4,563
Amortization of intangibles 249 83
Other (income) expense, net 770 (304)
------- -------
Operating income 13,521 877
Interest expense, net 10,749 2,312
------- -------
Net income (loss) before income taxes 2,772 (1,435)
Provision (benefit) for income taxes 326 (149)
------- -------
Net income (loss) $ 2,446 $(1,286)
======= =======
</TABLE>
COMMERCIAL PAPER PROGRAM
The Commercial Paper Program ceased to exist upon closing of the
Receivables Sale of the installment receivables portfolio and all obligations
related thereto were paid at that time.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Rhodes include the accounts
of the Company and all subsidiaries, including the effects of the 1991 Merger
discussed above. All significant intercompany balances and transactions have
been eliminated in consolidation.
RECLASSIFICATION
Certain reclassifications of prior years' amounts have been made to
conform with the current year's presentation.
BUSINESS SEGMENT
The Company has one business segment consisting of the retail sale of
home furnishings.
INSTALLMENT RECEIVABLES AND REVENUE RECOGNITION
All merchandise sales are recorded upon delivery of furniture. As a
result of the Receivables Sale, accounts receivable consists primarily of
miscellaneous receivables from customers and amounts awaiting funding.
F-9
<PAGE> 39
Finance commissions following the sale of installment receivables are
recognized for the sale of certain installment contracts to BNB. Finance
charge income previously earned by the Company on installment receivables is no
longer earned following the Receivables Sale.
The Company offers credit insurance coverage through third parties in
connection with its furniture sales and earns monthly commissions.
INVENTORIES
Inventories are stated at the lower of cost (last in, first out method
- - -- LIFO) or market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are stated at their fair value in
the accompanying financial statements at February 28, 1994; and February 28,
1993, are stated at their fair value with the exception of long-term debt (see
Note 3).
PROPERTY AND EQUIPMENT
Depreciation is provided using the straight-line method for financial
reporting and accelerated methods for income tax purposes. The ranges of
annual depreciation percentages, which reflect estimated useful lives, are as
follows: buildings--2% to 4% and equipment and other assets--10% to 25%.
Capitalized real estate leases are amortized on a straight-line basis over the
terms of the leases which range from 18 to 25 years. Leasehold improvements
are amortized over the life of the asset or the lease term, whichever is
shorter. Repair and maintenance costs are expensed as incurred.
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1993 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land $ 8,313 $ 8,313
Buildings 30,926 30,899
Leasehold improvements, equipment and other 32,816 38,620
-------- --------
72,055 77,832
Less accumulated depreciation and amortization (25,210) (29,805)
-------- ---------
$ 46,845 $ 48,027
======== ========
</TABLE>
F-10
<PAGE> 40
Capitalized real estate leases are summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1993 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land $ 2,267 $ 2,267
Buildings 9,677 9,677
------- -------
11,944 11,944
Less accumulated amortization (3,367) (4,125)
------- ---------
$ 8,577 $ 7,819
======= =======
</TABLE>
INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over identifiable
assets acquired at the time of the Acquisition and is being amortized on a
straight-line basis over 40 years. Amortization expense for goodwill totaled
$1,798,000 for fiscal 1992, 1993, and 1994. Accumulated amortization for
goodwill totaled $7,994,000, and $9,792,000 as of February 28, 1993 and 1994,
respectively. Subsequent to the Acquisition, the Company continually evaluates
whether events and circumstances have occurred which would indicate the
remaining estimated useful life of goodwill may warrant revision. When factors
indicate that goodwill should be evaluated for possible impairment, the Company
uses an estimate of undiscounted net income over the remaining life of the
goodwill in measuring whether the goodwill is recoverable.
Favorable leases represent the difference between market rates and
contract rates of store leases as of the time of the Acquisition and are being
amortized over the remaining terms of the leases. Amortization expense for
favorable leases totaled $1,163,000, $1,149,000 and $1,091,000 for fiscal 1992,
1993, and 1994, respectively. Accumulated amortization for favorable leases
totaled $5,661,000 and $6,752,000 as of February 28, 1993 and 1994,
respectively.
Other intangibles include deferred loan costs incurred in connection
with the Acquisition and subsequent refinancing, which are being amortized over
the terms of the applicable debt. Amortization expense for these items
(exclusive of the fiscal 1992 write-off of loan costs associated with
Commercial Paper discussed above and the fiscal 1994 write-off of loan costs
related to the Recapitalization (see Note 11)) for fiscal 1992, 1993, and 1994,
totaled approximately $472,000, $306,000 and $190,000, respectively.
Accumulated amortization for deferred loan costs totaled $8,457,000 and
$367,000 as of February 28, 1993 and 1994, respectively.
F-11
<PAGE> 41
WARRANTY CONTRACTS
The Company markets extended warranty contracts to its customers on
certain merchandise at the time of the initial sale. Extended warranty
contract revenue is deferred and recognized over the contract period on a
straight-line or other reasonable basis. The Company is recognizing such
income based on its historical data on service and repair claims. Historical
data on service and repair claims is updated periodically and the income
recognition on warranties is adjusted accordingly. As a result, net warranty
sales of $2,263,000, $1,272,000, and $1,587,000 less net direct expenses of
$498,000, $280,000, and $349,000, respectively, were deferred to future
periods in fiscal 1992, 1993, and 1994, respectively.
EARNINGS PER SHARE
The historical net income (loss) per common share is calculated by
dividing net income (loss) applicable to Common Stock by the weighted average
shares of Common Stock outstanding. All stock options were antidilutive for
earnings per share calculations for fiscal 1992 and fiscal 1993 and dilutive
for fiscal 1994.
Unaudited pro forma earnings per share in the consolidated statement
of operations are presented on a pro forma basis assuming the Recapitalization
and the Receivables Sale had taken place at the beginning of the periods for
February 28, 1993 and 1994.
ACCOUNTING FOR POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
In December 1990, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 106 which
establishes standards for employers' accounting for postretirement benefits
other than pensions. Additionally, in November 1992, the FASB issued SFAS No.
112, "Employers' Accounting for Postemployment Benefits", which establishes
accounting standards for employers who provide benefits to former or inactive
employees after employment, but before retirement. The Company does not provide
any post-retirement benefits to its former employees under SFAS No. 106. The
Company is required to adopt SFAS No. 112 in fiscal 1995; however, management
believes such adoption will not have a material adverse effect on the Company's
financial position or results of operations because such benefits are limited.
2. FEDERAL AND STATE INCOME TAXES
During fiscal 1992, the FASB issued SFAS No. 109, "Accounting for
Income Taxes". SFAS No. 109 requires the determination of deferred income
taxes using the liability method under which deferred tax assets and
liabilities are determined based on the differences between the financial
accounting and tax basis of assets and liabilities. Deferred tax assets or
liabilities at the end of each period are determined using the currently
enacted tax rate expected to apply to taxable income in the periods in which
the deferred tax asset or liability is expected to be settled or realized.
F-12
<PAGE> 42
The Company elected to adopt SFAS No. 109 during fiscal 1992 and
recorded the effect of the adoption as of March 1, 1991 in a manner similar to
the cumulative effect of a change in accounting principle. Accordingly, as of
March 1, 1991, the Company, in accordance with SFAS No. 109, adjusted certain
assets acquired in the Acquisition by writing up the net-of-tax amounts to the
respective pre-tax amounts by approximately $7,149,000 and recorded a net
deferred tax liability of approximately $5,590,000. The Company is amortizing
this write-up over the remaining useful lives of the related assets.
The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1993 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Total deferred tax liabilities $ 19,446 $ 17,488
Total deferred tax assets (19,275) (14,944)
Valuation allowance 2,930 2,930
-------- -------
Net deferred tax liabilities $ 3,101 $5,474
======== ======
</TABLE>
The net deferred tax liabilities are classified on the Company's
balance sheets as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1993 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Net deferred tax assets $ (2,658) $ (2,941)
Net non-current deferred income taxes 5,759 8,415
-------- -------
Net deferred tax liabilities $ 3,101 $5,474
======== ======
</TABLE>
The sources of the difference between the financial accounting and tax
basis of the Company's assets and liabilities which give rise to the deferred
tax liabilities and deferred tax assets and the tax effects of each are as
follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1993 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Stepped-up basis in fixed assets $ 6,323 $ 6,854
Favorable leases 2,238 1,871
Acquisition costs 3,406 1,663
Depreciation 3,123 2,822
Inventories 3,743 3,429
Other 613 849
------- -------
$19,446 $17,488
======= =======
</TABLE>
F-13
<PAGE> 43
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1993 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Capitalized leases $ 2,489 $ 2,690
Gain--Sale/leaseback 1,270 1,180
Gain on property disposals 1,076 1,175
Deferred rent 701 730
Accrued expenses 1,210 1,453
Deferred revenues 2,096 2,059
Uniform inventory cost capitalization 608 764
Net operating loss carryforwards 6,460 4,674
Book over tax basis differences in Debentures 2,660 --
Other 705 219
-------- ------
$19,275 $14,944
======= =======
</TABLE>
The Company established a valuation allowance of $2.9 million in
fiscal 1993 and 1994 because of the uncertainty regarding the realizability of
certain deferred tax assets.
The consolidated provision (benefit) for income taxes before
extraordinary item consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $1,332
State -- -- 3
Deferred:
Federal (1,104) (1,025) 2,848
State (130) (120) 325
------- ------- -------
$(1,234) $(1,145) $4,508
======= ======= ======
</TABLE>
F-14
<PAGE> 44
The tax provision (benefit) differed from the amounts resulting from
multiplying the income (loss) before income taxes and extraordinary item by the
statutory federal income tax rates. The reasons for these differences were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Federal income tax provision (benefit) at
statutory rates $(3,559) $(3,732) $3,694
State income tax provision (benefit),
net of federal income tax
provision (benefit) (419) (439) 422
Amortization of intangible assets not
deductible for tax purposes 709 698 717
Limitation on recognition of tax provision 2,011 1,534 --
Increase in net deferred tax liabilities from
fiscal 1994 tax rate change -- -- 31
Other 24 794 (356)
------- ------- -------
$(1,234) $(1,145) $4,508
======= ======= ======
</TABLE>
At February 28, 1994, the Company had net operating loss carryforwards
of approximately $11,984,000 which can be used to reduce future federal income
taxes. If not utilized, these carryforwards will expire in 2009.
F-15
<PAGE> 45
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1993 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Senior Secured Notes:
Tranche A, 9%, due June 15, 1999 -- $30,000
Tranche B, 10%, due June 15, 2000 -- 10,000
Mortgage Note Payable at 10% interest with interest only
payable until September 1, 1992 and principal payments
in quarterly installments of $125,000 beginning
September 1, 1992 2,895 2,395
15% Senior Subordinated Notes due September 20,
1998; paid off in fiscal 1994 40,000 --
12% Secured Term Loan; paid off in fiscal 1994 37,339 --
17% Junior Discount Subordinated Redeemable Debentures;
exchanged or redeemed in fiscal 1994 41,521 --
Industrial revenue bond; paid off in fiscal 1994 650 --
Other, with interest rates from 5.5% to 12% due in
installments to May 2001 203 167
-------- -------
122,608 42,562
Less current portion (4,437) (516)
-------- --------
$118,171 $ 42,046
======== ========
</TABLE>
The aggregate annual payments required for the above notes during each
of the next five fiscal years are as follows:
1995 $ 516,000
1996 518,000
1997 8,020,000
1998 8,023,000
1999 8,026,000
F-16
<PAGE> 46
FAIR VALUE OF DEBT
The estimated fair value of the Company's long-term debt was
approximately $129,470,000 at February 28, 1993, of which $32,430,000 was owed
to related parties. In accordance with SFAS No. 107, "Disclosures About Fair
Value of Financial Investments," the fair value of short-term debt is estimated
to be its carrying value. The fair value of long-term debt is estimated based
on approximate market interest rates for similar issues. The fair value of
long-term debt at February 28, 1994 is equal to the carrying amount included in
the accompanying balance sheet.
TERMS
The Senior Secured Notes consist of two tranches: (i) Tranche A Notes
in the aggregate principal amount of $30 million which mature in June 1999
(subject to mandatory annual redemption payments of $7.5 million per year
commencing in June 1996) and bear interest at a rate of 9% per annum, payable
semiannually; and (ii) Tranche B Notes in the aggregate principal amount of $10
million, which mature in June 2000 and bear interest at a rate of 10% per
annum, payable semiannually. The Senior Secured Notes are secured by all real
property owned by the Company.
On November 20, 1991, the Company signed an agreement of renewal and
extension of the 10% mortgage note. The new repayment terms call for 24
consecutive quarterly installments in the amount of $125,000 payable beginning
September 1, 1992 and a final payment of $145,000 due September 1, 1998. The
note is secured by property having an original cost of $3,700,000.
The industrial revenue bond was secured by the property for which it
was written, having an original cost of $796,000. This bond was fully paid in
fiscal 1994.
The 15% Senior Subordinated Note and the 12% Secured Term Loan were
repaid with the proceeds from the Offering (see Note 1). The Junior Discount
Subordinated Redeemable Debentures Due 2000 were exchanged for common stock in
conjunction with the Offering (see Note 1) and approximately $9.6 million were
repaid in July of 1993.
The terms of the revolving loan (see Note 8) and the Senior Secured
Notes impose restrictions that affect, among other things, the Company's
ability to (i) incur certain additional indebtedness, (ii) create liens on
assets, (iii) sell assets, (iv) engage in mergers or consolidations, (v) make
investments, (vi) pay dividends and make distributions, and (vii) engage in
certain transactions with affiliates and subsidiaries. The revolving loan and
the Senior Secured Notes also require the Company to comply with certain
specified financial ratios and tests. The Company was in compliance with the
restrictive covenants at February 28, 1994.
F-17
<PAGE> 47
4. INVENTORIES
The Company uses the LIFO method for valuing inventories in order to
more closely match current costs with related revenue. Under this method,
current costs are charged to cost of sales through application of Department
Store Price Indices published by the Bureau of Labor Statistics. If LIFO
inventories were valued at current costs, the inventory amounts would have been
$358,000 and $1,282,000 higher than those reported as of February 28, 1993 and
1994, respectively.
As discussed in Note 8, the Company has a revolving loan with a bank,
which is secured by a priority lien on the Company's inventories.
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain store locations under operating lease
agreements with various expiration dates through 2014. Rentals under all store
leases were approximately $9,339,000, $9,651,000 and $10,464,000 for fiscal
1992, 1993, and 1994, respectively. As of February 28, 1994, the minimum
obligations under lease commitments with original terms beyond one year are as
follows:
1995 $10,060,000
1996 9,759,000
1997 8,506,000
1998 6,866,000
1999 5,585,000
After 1999 23,413,000
-----------
$64,189,000
===========
Certain of the leases above are renewable at the Company's option, and
some contain clauses requiring payment of contingent rentals based upon sales
in excess of specified amounts. Contingent rental amounts based on sales are
immaterial.
CONTINGENCIES
The Company is subject to claims and lawsuits arising in the normal
course of business. It is the opinion of management that any such claims will
not have a material adverse effect on the financial position or results of
operations of the Company.
F-18
<PAGE> 48
6. CAPITAL LEASES
Certain of the property and equipment used in the Company's business
is leased under capital leases. In prior years, the Company completed sale and
leaseback agreements on nine stores previously owned and operated by the
Company with terms ranging from 18 to 25 years and options to renew for
additional periods. Equipment leases are for terms of up to seven years.
The following is a schedule by fiscal year of the future minimum lease
payments on these leases together with the present value of net minimum lease
payments as of February 28, 1994:
<TABLE>
<S> <C>
1995 $ 2,693,000
1996 2,732,000
1997 2,699,000
1998 2,691,000
1999 2,602,000
After 1999 15,132,000
------------
Total minimum lease payments 28,549,000
Less amount representing interest at rates of 11.89% to 12.83% (12,751,000)
------------
Present value of total minimum obligation 15,798,000
Less current portion (792,000)
------------
Long-term obligations under capital leases $ 15,006,000
============
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially
all employees. During fiscal 1992, 1993, and 1994, net pension expense was
approximately $210,000, $217,000, and $400,000, respectively. The Company's
policy is to fund amounts necessary to satisfy the requirements of the Employee
Retirement Income Security Act of 1974.
The pension cost for the defined benefit plan for fiscal 1992, 1993,
and 1994 includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during
the period $ 455,000 $ 568,000 $660,000
Interest cost on projected benefit
obligation 795,000 865,000 916,000
Actual return on assets (2,388,000) (214,000) (786,000)
Net amortization and deferral 1,348,000 (1,002,000) (390,000)
----------- ----------- ---------
Net pension expense for period $ 210,000 $ 217,000 $ 400,000
=========== ========== =========
</TABLE>
F-19
<PAGE> 49
The funded status of the defined benefit plan as of February 28, 1993
and February 28, 1994 was as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28,
1993 1994
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefits $ 8,472,000 $ 9,533,000
Nonvested benefits 514,000 305,000
------------ -----------
Accumulated benefit obligation 8,986,000 9,838,000
Effect of projected future compensation levels 2,084,000 1,068,000
------------ -----------
Projected benefit obligation 11,070,000 10,906,000
Plan assets at fair value (11,283,000) (11,507,000)
------------ -------------
Plan assets in excess of projected benefit obligation 213,000 601,000
Unrecognized prior service cost 109,000 (15,000)
Unrecognized net gain (136,000) (998,000)
Unrecognized net asset from initial application
of SFAS No. 87 (2,044,000) (1,846,000)
------------ ------------
Pension liability recognized in the balance sheet $ (1,858,000) $(2,258,000)
============ ============
</TABLE>
The projected benefit obligation was calculated using an 8.0% assumed
discount rate as of February 28, 1993 and 1994 and an assumed long-term
compensation increase rate of 5% in fiscal 1993 and 4.9% in fiscal 1994.
Pension expense was determined using a 9% assumed long-term rate of return on
plan assets. At February 28, 1994, plan assets consisted primarily of equity
securities (60%), fixed income securities (31%) and money market instruments
(9%).
The Company has an employees' savings plan. Under the provisions of
this plan, the Company will match 50% of employee contributions which are
limited to a maximum of 6% of pay. The Company's savings plan expense was
$320,000, $365,000 and $345,000 in fiscal 1992, 1993 and 1994, respectively.
Prior to the consummation of the Acquisition, the board of directors
and stockholders of RHD Holdings adopted a non-qualified restricted stock
option plan (the "Stock Option Plan") which provided for the granting of
options to officers and key employees of RHD Holdings and its subsidiaries to
acquire an aggregate of up to 300,000 shares of RHD Holdings' common stock at
an exercise price of not less than $0.01 per share. Upon consummation of the
1991 Merger, all options outstanding under the Stock Option Plan (options to
purchase 284,800 shares of RHD common stock (the "Plan Options")), along with
options to purchase an aggregate of 23,095 shares of RHD common stock granted
outside the Stock Option Plan (the "Substitution Options"; the Substitution
Options and the Plan Options are referred to collectively as the "Options") at
an exercise price of $0.08 per share, were assumed by the Company and converted
into options to purchase an adjusted amount of 53,702 shares of Common Stock at
an exercise price of $0.04 per share. No additional options may be granted
under the Stock Option Plan. An expense in the amount of $150,000, net of
canceled options, is recorded for the accretion of the value of these Plan
Options in each year over the five-year period during which they become
exercisable. All options of the Stock Option Plan were exercised during fiscal
1994.
F-20
<PAGE> 50
1991 STOCK OPTION PLAN
On June 11, 1991, the Company's board of directors adopted the Rhodes,
Inc. Stock Option Plan (the "1991 Stock Option Plan"), pursuant to which
options to purchase Common Stock ("1991 Options") may be granted to eligible
employees. The purpose of the 1991 Stock Option Plan is to provide an
incentive for such employees to work to increase the value of the Company's
capital stock and to provide such employees with a stake in the future of the
Company which corresponds to the stake of each of the Company's stockholders.
As of February 28, 1994, a maximum of 700,000 shares of Common Stock
may be issued under the 1991 Stock Option Plan. The Plan allows for the grant
of either qualified incentive stock options ("ISO", as defined by the Internal
Revenue Code) or non-qualified options ("Non-ISO"). At February 28, 1994,
645,000 options had been granted under the 1991 Stock Option Plan.
The option price of each 1991 Option is set by a committee of the
Board of Directors subject to certain limitations. The option price for an ISO
may not be less than the fair market value (or for a stockholder holding stock
possessing more than 10% of the total combined voting power of all classes of
stock of the company (a "Ten Percent Stockholder"), 110% of the fair market
value) of Common Stock on the date the ISO is granted. The option price for a
Non-ISO may be more than, less than or equal to the fair market value of such
stock on the date the Non-ISO is granted but may not be less than an amount
which the Committee determines to be adequate consideration. The options carry
a 5 year vesting period.
Also, options to purchase an additional 15,000 shares of Common Stock
have been granted to certain directors of the Company.
The following table details the Company's stock option activity for
the past three fiscal years:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICES
------- -------------
<S> <C> <C>
Options outstanding at February 28, 1991 70,593 $.04
Options Granted -- --
Options Exercised (1,890) .04
Options Cancelled or Terminated -- --
-------- ------------
Options outstanding at February 29, 1992 68,703 .04
Options Granted -- --
Options Exercised (7,126) .04
Options Cancelled or Terminated (7,875) .04
-------- -----------
Options outstanding at February 28, 1993 53,702 .04
Options Granted 660,000 12.00-18.25
Options Exercised (53,702) .04
-------- -----------
Options outstanding at February 28, 1994 660,000 12.00-18.25
======= ===========
Options exercisable at February 28, 1994 102,500 12.00-13.50
======= ===========
</TABLE>
F-21
<PAGE> 51
8. SHORT-TERM DEBT
NOTES AND LOANS PAYABLE
At February 28, 1993, the Company had a revolving credit facility with
Security Pacific Business Credit, Inc. ("SPBC"), which was secured by a
priority lien on the Company's inventory. Effective December 7, 1992, the
Company and SPBC agreed to the extension of the revolving loan agreement until
November 30, 1994 with automatic annual renewals thereafter unless 60 days'
written notice of non-renewal was given by either party.
On February 24, 1994, the Company cancelled its revolving credit
facility with SPBC and entered into a revolving credit agreement ("Revolving
Credit Agreement") with Wachovia Bank of Georgia, N.A. (the "Senior Lender").
The maximum availability of funds under the Revolving Credit Agreement is the
lesser of $30 million or 50% of eligible inventory. The Revolving Credit
Agreement is secured by substantially all of the inventory of the Company.
Loans outstanding under the Revolving Credit Agreement generally will bear
interest at one or two interest rate options selected by the Company: (i) Prime
Rate + .5% per annum or (ii) a quoted LIBOR + 2.375% per annum for specified
interest periods. The "Prime Rate" is the rate of interest announced publicly
by the Senior Lender, from time to time, as its prime rate. The Company is
required to pay a commitment fee of 0.375% per annum of the average daily
unused portion of the Senior Lender's commitment under the Revolving Credit
Agreement. The Revolving Credit Agreement is scheduled to terminate in
February 1996. At February 28, 1994 the Company had $2,471,000 outstanding
under the Revolving Credit Agreement. The amount available under the Revolving
Credit Agreement at February 28, 1994 is $18,696,000.
The revolving loan has, among other restrictions, covenants whereby
the Company must meet certain goals with respect to cash interest coverage,
fixed charge coverage, and profit after taxes plus amortization of intangibles.
These goals, expressed in terms of defined minimum ratios and amounts, become
more restrictive over the term of the loan agreement. The agreement also
provides, among other things, limitations on the Company's ability to incur
debt (including lease obligations); to make capital expenditures; to enter into
transactions involving mergers, consolidations, acquisitions or sales; or to
declare, pay or make any dividend or other distribution of property with
respect to its capital stock.
Included in interest expense for fiscal 1992, 1993, and 1994 is
interest of $11,088,000, $2,796,000, and $506,000, respectively, related to
short-term debt (including interest on commercial paper).
F-22
<PAGE> 52
9. RELATED-PARTY TRANSACTIONS
In June 1993, the Company consummated the Recapitalization, pursuant
to which the Company issued 2,859,115 shares of Common Stock to Green Capital,
an affiliate of Holcombe T. Green, Jr., in exchange for outstanding
indebtedness of the Company to Green Capital having an accreted value of $34.3
million. The Company also issued 1,221,666 shares of Common Stock to Green
Capital in exchange for preferred stock of the Company with a stated value of
$10.0 million and accrued and unpaid dividends aggregating $4.7 million. In
addition, Green Capital purchased 250,000 shares in the public offering which
was part of the Recapitalization.
Green Capital previously maintained an unsecured line of credit for
the Company of up to $10.0 million for working capital purposes, and has
advanced funds to the Company from time to time to meet short-term cash needs.
Interest is payable monthly at a floating interest rate equal to the prime rate
plus 2%. The line of credit was terminated upon execution by the Company of the
Revolving Credit Agreement on February 24, 1994. The maximum amount outstanding
in the period beginning March 1, 1991 and ending February 24, 1994 was $7.8
million and total interest paid to Green Capital during such period was
$478,000.
In December 1993 and January and February 1994, the Company had
outstanding advances to Green Capital in varying amounts, with the largest
principal amount outstanding at any time being $3.0 million. Interest accrued
on outstanding principal at a rate of 8% per annum, and total interest paid by
Green Capital to the Company for these advances was approximately $22,000. No
advances were outstanding as of February 28, 1994.
On June 28, 1990, the Company entered into a $40.0 million secured
term loan with Jackson National Life Insurance Company ("Jackson National"),
secured by all real estate and certain other personal property of the Company,
excluding inventories. Interest accrued on the outstanding principal at a rate
of 12% per annum. At the time of the loan, Jackson National owned more than 5%
of the common stock of the Company and $35.0 million of the $40.0 million
outstanding 15% Senior Subordinated Notes due September 20, 1998 of the Company
(the "15% Notes"). In connection with the Recapitalization, the 12% Secured
Term Loan and 15% Notes were repaid and Jackson National and the other holders
of the 15% Notes consented to the prepayment of the 15% Notes in consideration
of $2.6 million of prepayment penalties, $2.3 million of which was paid to
Jackson National (see Note 11).
On May 15, 1990, Green Capital purchased from the Company $6.0 million
in Class A Preferred Stock. Green Capital purchased another $4.0 million in
Class A Preferred Stock on June 28, 1990. The Class A Preferred Stock was
entitled to cumulative dividends of 15% per annum payable semiannually and all
such preferred stock was repurchased in exchange for Common Stock by the
Company in the Exchange.
F-23
<PAGE> 53
Pursuant to an agreement dated November 15, 1991 between the Company
and Bankers Fidelity, an affiliate of Atlantic American Corporation, Bankers
Fidelity exchanged 17% Junior Discount Subordinated Debentures due 2000 (the
"17% Debentures") owned by it having an aggregate stated face amount of $10.2
million for an aggregate of 485,398 newly issued shares of Common Stock (an
exchange rate of 47.7613 shares of Common Stock for each $1,000 stated face
amount of 17% Debentures). On November 18, 1991, Green Capital acquired all
such shares of Common Stock from Bankers Fidelity for a purchase price of $3.0
million, thereby increasing the beneficial ownership by Holcombe T. Green, Jr.
and Green Capital of the outstanding Common Stock of the Company at that time
to 80.2% and 56.6%, respectively. During June and July 1992, Green Capital
purchased from Atlantic American Corporation and affiliates 17% Debentures
having an aggregate face value of $20.1 million for an aggregate purchase price
of $6.0 million.
Rhodes Financial (a wholly owned subsidiary of Rhodes) and Green
Financial Services Corp. ("GFSC"), which is a wholly owned subsidiary of Green
Capital, entered into a Continuing Accounts Purchase and Collection Services
Agreement effective as of January 15, 1990 pursuant to which GFSC agreed to
purchase, without recourse, certain accounts receivable of Rhodes Financial
that had been written off. The purchase price for such receivables was an
amount determined by the parties to be the estimated realizable value of the
purchased accounts. Rhodes Financial performed billing and collection services
with respect to the purchased accounts. In connection with the Receivables
Sale, the remaining uncollected receivables were repurchased by the Company for
$235,000 and the Agreement was terminated effective June 10, 1992. The net
effect of the above transactions reduced the Companys' provision for credit
losses by $1,001,000 and increased administrative expenses by $494,000.
On June 26, 1992, Rhodes redeemed an industrial revenue bond with an
interest rate of 9% (the "Bond"), which had an outstanding principal amount of
$2.1 million. Green Capital owned a participation in the Bond and received the
aggregate amount of $987,905 ($945,637 of which represented principal and
$42,268 of which represented accrued and unpaid interest) in connection with
the redemption of the Bond. Green Capital had acquired its participation in
the Bond in September 1991 in satisfaction of an obligation of Rhodes to effect
a partial redemption of the Bond from the original holder thereof.
For the period from July 1990 through the date of the
Recapitalization, the Company had paid RHD Investors a monthly fee of $33,333
for management services, including financial and strategic planning. Prior to
July 1990, the monthly management fee was $20,833. Although Holcombe T. Green,
Jr., who through affiliates controls RHD Investors, personally devotes
substantial efforts on the Company's behalf in his capacity as Chairman of the
Board of the Company, Mr. Green receives no directors' fees or other
compensation from the Company. Payment of the monthly management fee
terminated effective upon consummation of the Recapitalization.
F-24
<PAGE> 54
10. NONRECURRING ITEM
On December 18, 1991, the Company, because of stock market conditions,
postponed a planned public offering (the "1991 Offering") of its Common Stock.
The Company also withdrew its offer to exchange its Common Stock for its
Debentures, which was conditioned on the closing of the 1991 Offering. As a
result of the decision not to complete the 1991 Offering or the exchange offer,
the Company wrote off the associated expenses incurred of $1,162,000 as a
nonrecurring item in fiscal 1992.
11. EXTRAORDINARY ITEM
During fiscal 1994, the Company expensed certain charges incurred
principally in connection with the Recapitalization (see Note 1). These
extraordinary items represent non-recurring prepayment penalties of $2,624,000
for early retirement of debt and write-off of $903,000 in related deferred loan
costs, less an income tax benefit of $800,000.
12. SUBSEQUENT EVENT
On March 24, 1994 affiliates of Mr. Holcombe T. Green, Jr., Chairman
of the Board and beneficial owner of 52.8% of the outstanding common stock of
the Company, sold 2,240,494 shares in a secondary offering at $18.50 per share.
Jackson National Life sold 248,880 shares in the same offering. Consummation
of the sale reduced Mr. Green's beneficial ownership to 29.8%. No shares were
sold by the Company in this offering. Upon consumation of the secondary
offering, the Company became listed on the New York Stock Exchange.
F-25
<PAGE> 55
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth a summary of the quarterly unaudited
results of operations for the years ended February 28, 1993 and 1994:
<TABLE>
<CAPTION>
FISCAL 1993 FISCAL 1994
(IN THOUSAND'S, EXCEPT PER SHARE DATA) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Total 1st 2nd 3rd 4th 1st 2nd 3rd 4th
Company Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $66,533 $72,489 $79,071 $68,434 $70,448 $82,560 $86,179 $86,068
Gross Profit $31,829 $33,943 $38,304 $32,107 $34,218 $39,299 $41,920 $41,393
Income (loss) before ($2,740) ($3,301) ($839) ($2,951) ($1,160) $1,489 $3,444 $2,274
extraordinary item
Extraordinary item --- --- --- --- --- ($2,727) --- ---
Net income (loss) ($2,740) ($3,301) ($839) ($2,951) ($1,160) ($1,238) $3,444 $2,274
PER COMMON SHARE
DATA:
Net income (loss) ($1.87) ($2.24) ($0.57) ($2.00) ($0.79) $0.19 $0.35 $0.23
before extraordinary
item
Extraordinary item --- --- --- --- --- ($0.35) --- ---
Net income (loss) ($1.87) ($2.24) ($0.57) ($2.00) ($0.79) ($0.16) $0.35 $0.23
</TABLE>
F-26
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
THE SHAREHOLDERS OF RHODES, INC.
We have audited in accordance with generally accepted auditing
standards the consolidated financial statements of Rhodes, Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon
dated April 22, 1994. Our audits were made for the purpose of forming opinions
on the basic financial statements taken as a whole. The schedules listed in
Item 14(a)(2) in this Form 10-K are the responsibility of the Company's
management and are presented for purposes of complying with the Security and
Exchange Commission's Rules and Regulations and are not a required part of the
basic financial statements. This information has been subjected to the
auditing procedures applied in our audits of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial, statements taken as a whole.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Atlanta, Georgia
April 22, 1994
F-27
<PAGE> 57
<TABLE>
<CAPTION>
RHODES, INC. AND SUBSIDIARIES
SCHEDULE IV
INDEBTEDNESS TO RELATED PARTIES - NOT CURRENT
For the three years ended February 28, 1994
(In Thousands)
-Indebtedness to-
Balance at ---------------------------- Balance
Name Beginning at End
of Person of Period Additions Deductions of Period
- - ------------------------------------ ------------ ----------- ------------- ------------
Year Ended
February 29, 1992
- - ------------------------------------
<S> <C> <C> <C> <C>
Jackson National Life $ 75,000 $ --- $ (161) $ 74,839
Green Capital Investors, L.P. (A) 12,572 2,400 --- 14,972
-------- ------- --------- --------
$ 87,572 $ 2,400 $ (161) $ 89,811
======== ======= ========= ========
Year Ended
February 28, 1993
- - ------------------------------------
Jackson National Life $ 74,839 $ --- $ (2,500) $ 72,339
Green Capital Investors, L.P. (A) 14,972 19,625 (2,150) 32,447
-------- ------- --------- --------
$ 89,811 $ 19,625 $ (4,650) $ 104,786
======== ======= ========= ========
Year Ended
February 28, 1994
- - ------------------------------------
Jackson National Life $ 72,339 $ --- $ (72,339) $ ---
Green Capital Investors, L.P. (A) 32,447 1,862 (34,309) ---
-------- ------- --------- --------
$ 104,786 $ 1,862 $ (106,648) $ ---
======== ======= ========= ========
</TABLE>
(A) Relates to ownership of 17% Junior Discount Subordinated Redeemable
Debentures
F-28
<PAGE> 58
<TABLE>
<CAPTION>
RHODES, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY AND EQUIPMENT
For the three years ended February 28, 1994
(In Thousands)
Other Balance
Balance at Disposals Changes at
Beginning Additions and Add End of
Description of Period at Cost Retirements (Deduct) Period
- - -------------------------------- --------- --------- ----------- ---------- ------------
Year Ended
February 29, 1992
- - --------------------------------
<S> <C> <C> <C> <C> <C>
Land $ 8,313 $ --- $ --- $ --- $ 8,313
Buildings 24,673 --- --- 6,253 30,926
Leasehold improvements,
equipment, and other 29,140 2,769 (1,676) --- 30,233
------- ------ ------- ------- -------
$ 62,126 $ 2,769 $ (1,676) $ 6,253 $ 69,472
======= ====== ======= ======= =======
Land -- capitalized leases $ 2,267 $ --- $ --- $ --- $ 2,267
Buildings -- capitalized leases 9,677 --- --- --- 9,677
------- ------ ------- ------- -------
$ 11,944 $ --- $ --- $ --- $ 11,944
======= ====== ======= ======= =======
Year Ended
February 28, 1993
- - --------------------------------
Land $ 8,313 $ --- $ --- $ --- $ 8,313
Buildings 30,926 --- --- --- 30,926
Leasehold improvements,
equipment, and other 30,233 3,405 (822) --- 32,816
------- ------ ------- ------- -------
$ 69,472 $ 3,405 $ (822) $ --- $ 72,055
======= ====== ======= ======= =======
Land -- capitalized leases $ 2,267 $ --- $ --- $ --- $ 2,267
Buildings -- capitalized leases 9,677 --- --- --- 9,677
------- ------ ------- ------- -------
$ 11,944 $ --- $ --- $ --- $ 11,944
======= ====== ======= ======= =======
Year Ended
February 28, 1994
- - --------------------------------
Land $ 8,313 $ --- $ --- $ --- $ 8,313
Buildings 30,926 --- (27) --- 30,899
Leasehold improvements,
equipment, and other 32,816 6,860 (1,056) --- 38,620
------- ------ ------- ------- -------
$ 72,055 $ 6,860 $ (1,083) $ --- $ 77,832
======= ====== ======= ======= =======
Land -- capitalized leases $ 2,267 $ --- $ --- $ --- $ 2,267
Buildings -- capitalized leases 9,677 --- --- --- 9,677
------- ------ ------- ------- -------
$ 11,944 $ --- $ --- $ --- $ 11,944
======= ====== ======= ======= =======
</TABLE>
F-29
<PAGE> 59
<TABLE>
<CAPTION>
RHODES, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION,
and AMORTIZATION OF PROPERTY and EQUIPMENT
For the three years ended February 28, 1994
(In Thousands)
Balance at Additions Retirements,
Beginning Charged Renewals, and Balance at
Description of Period to Income Replacements End of Period
- - --------------------------- ---------- --------- ------------- -------------
Year Ended
February 29, 1992
- - ---------------------------
<S> <C> <C> <C> <C>
Buildings $ 2,897 $ 1,638 $ 1,014 $ 5,549
Leasehold improvements,
equipment, and other 11,035 4,121 (642) 14,514
------- ------ ------ --------
$ 13,932 $ 5,759 $ 372 $ 20,063
======= ====== ====== ========
Capitalized leases $ 1,852 $ 757 $ -- $ 2,609
------- ------ ------ --------
$ 1,852 $ 757 $ -- $ 2,609
======= ====== ====== ========
Year Ended
February 28, 1993
- - ---------------------------
Buildings $ 5,549 $ 1,641 $ -- $ 7,190
Leasehold improvements,
equipment, and other 14,514 4,001 (495) 18,020
------- ------ ------ --------
$ 20,063 $ 5,642 $ (495) $ 25,210
======= ====== ====== ========
Capitalized leases $ 2,609 $ 758 -- $ 3,367
------- ------ ------ --------
$ 2,609 $ 758 -- $ 3,367
======= ====== ====== ========
Year Ended
February 28, 1994
- - ---------------------------
Buildings $ 7,190 $ 1,046 $ -- $ 8,236
Leasehold improvements,
equipment, and other 18,020 4,535 (986) 21,569
------- ------ ------ --------
$ 25,210 $ 5,581 $ (986) $ 29,805
======= ====== ====== ========
Capitalized leases $ 3,367 $ 758 $ -- $ 4,125
------- ------ ------ --------
$ 3,367 $ 758 $ -- $ 4,125
======= ====== ====== ========
</TABLE>
Reconciliation to depreciation and amortization shown in financial statements:
<TABLE>
<CAPTION>
For the Year For the Year For the Year
Ended Ended Ended
February 29, 1992 February 28, 1993 February 28, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Depreciation and
amortization expense $ 6,516 $ 6,400 $ 6,339
Amortization of other assets 72 64 60
------ ------ ------
$ 6,588 $ ,464 $ 6,399
====== ====== ======
</TABLE>
F-30
<PAGE> 60
<TABLE>
<CAPTION>
RHODES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For the three years ended February 28, 1994
(In Thousands)
Additions
Balance Charged Balance
at to at
Beginning Costs and End of
Description of Period Expense Deductions Period
- - ---------------------------- ------------- ------------ --------------- -------------
Year Ended
February 29, 1992
- - ----------------------------
<S> <C> <C> <C> <C>
Allowance for credit losses $ 15,500 $ 7,413 $ (14,513)(A) $ 8,400
======= ====== ======== ======
Year Ended
February 28, 1993
- - ----------------------------
Allowance for credit losses $ 8,400 $ 4,803 $ (13,203)(A) $ ---
======= ====== ======= ======
Year Ended
February 28, 1994
- - ----------------------------
Allowance for credit losses $ --- $ --- $ ---(A) $ ---
======= ====== ======== ======
</TABLE>
(A) Charges to the allowance for purposes for which the allowance was as
created.
F-31
<PAGE> 61
<TABLE>
<CAPTION>
RHODES, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
For the three years ended February 28, 1994
(In Thousands)
Weighted Maximum Average Weighted
Average Amount Amount Average
Balance Interest Outstanding Outstanding Interest
at Rate at During During Rate
Category of End of End of the the During the
Aggregate Short-Term Borrowings Period Period Period Period (C) Period (D)
- - ------------------------------ -------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Year Ended
February 29, 1992
- - ------------------------------
Notes payable to banks (A) $ 22,053 8.0% $ 26,656 $ 22,965 9.6%
Commercial paper (B) 146,750 4.4 154,086 151,329 5.9
Related-party loans (E) 2,150 11.0 7,800 2,522 11.0
Year Ended
February 28, 1993
- - ------------------------------
Notes payable to banks (A) $ 7,447 7.5% $ 24,254 $ 10,862 7.9%
Commercial paper (B) -- -- 146,750 42,268 4.3
Related-party loans (E) -- -- 6,200 1,099 11.0
Year Ended
February 28, 1994
- - ------------------------------
Notes payable to banks (A) $ 2,471 6.5% $ 13,822 $ 5,783 7.5%
Related-party loans (E) -- -- 4,000 1,015 8.0
</TABLE>
(A) Notes payable to banks represent borrowings under revolving credit
agreements.
(B) Commercial paper matures from 5 days to not more than 270 days from date
of issue with no provision for the extension of its maturity.
(C) The average amount outstanding during the period was computed by dividing
the total of average monthly outstanding principal balances by the number
of months in the period.
(D) The weighted average interest rate during the period was computed by
dividing the actual interest expense by the average amount outstanding
during the period.
(E) Related-party loans represent borrowings from Green Capital Investors,
L.P.
F-32
<PAGE> 62
<TABLE>
<CAPTION>
RHODES, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT
INFORMATION
For the three years ended February 28, 1994
(In Thousands)
Year Ended Year Ended Year Ended
Item February 29, 1992 February 28, 1993 February 28, 1994
- - ------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Repairs and maintenance -- -- --(A)
------- ------ -------
Amortization of
of intangible assets $ 3,433 $ 3,253 $ 3,132
------- ------ -------
Taxes, other than payroll
and income taxes -- -- --(A)
------- ------ -------
Royalties -- -- --(A)
------- ------ -------
Advertising costs $ 21,711 $ 23,485 $ 21,658
------- ------ -------
$ 25,144 $ 26,738 $ 24,790
======= ======= =======
</TABLE>
(A) Amounts are not presented, as such amounts are less than 1% of net sales.
F-33
<PAGE> 63
EXHIBIT INDEX
Exhibit 4.2 - Loan and Security Agreement by and between Rhodes, Inc. and
Wachovia Bank of Georgia, N.A. February 24, 1994
Exhibit 11 - Rhodes, Inc. Computation of Net Income Per Share
<PAGE> 1
EXHIBIT 4.2
<PAGE> 2
LOAN AND SECURITY AGREEMENT
by and between
RHODES, INC.
and
WACHOVIA BANK OF GEORGIA, N.A.
February 24, 1994
<PAGE> 3
TABLE OF CONTENTS
1. DEFINITIONS, TERMS AND REFERENCES . . . . . . . . . . . 1
1.1 Certain Definitions . . . . . . . . . . . . . . . 1
1.2 Use of Defined Terms . . . . . . . . . . . . . . 12
1.3 Accounting Terms . . . . . . . . . . . . . . . . 12
1.4 UCC Terms . . . . . . . . . . . . . . . . . . 12
1.5 Terminology . . . . . . . . . . . . . . . . . . 12
1.6 Exhibits . . . . . . . . . . . . . . . . . . 13
2. THE FINANCING . . . . . . . . . . . . . . . . . . 13
2.1 Line of Credit . . . . . . . . . . . . . . . . . 13
2.2 Method of Borrowing . . . . . . . . . . . . . . . 14
2.2.1 Notice to Lender . . . . . . . . . . . . . 14
2.2.2 When Revolver Loans Made . . . . . . . . . 14
2.2.3 Application of Proceeds from Certain
Borrowings . . . . . . . . . . . . . . . 14
2.2.4 Certain Payments Deemed Made . . . . . . . 15
2.2.5 Limitation on Euro-Dollar Rate Loans . . . 15
2.3 Interest . . . . . . . . . . . . . . . . . . . . . 15
2.3.1 Prime Rate Loans . . . . . . . . . . . . . 15
2.3.2 Euro-Dollar Rate Loans . . . . . . . . . . 15
2.4 Fees . . . . . . . . . . . . . . . . . . . . . . . 16
2.4.1 Commitment Fee . . . . . . . . . . . . . . 16
2.4.2 Unused Line Fee . . . . . . . . . . . . . . 16
2.5 Computation of Interest and Fees . . . . . . . . 16
2.6 Maximum Interest . . . . . . . . . . . . . . . . 16
2.7 General Provisions as to Payments . . . . . . . . 17
2.7.1 Maturity of Revolver Loans . . . . . . . . 17
2.7.2 Timing . . . . . . . . . . . . . . . . . . 17
2.7.3 Next Banking Day . . . . . . . . . . . . . 17
2.8 Term and Termination of Line of Credit . . . . . 17
3. CHANGE IN CIRCUMSTANCES; COMPENSATION . . . . . . . . . 18
3.1 Basis for Determining Interest Rate Inadequate
or Unfair . . . . . . . . . . . . . . . . . . 18
3.2 Illegality . . . . . . . . . . . . . . . . . . 18
3.3 Increased Cost and Reduced Return . . . . . . . . 18
3.3.1 Change of Law . . . . . . . . . . . . . . . 18
3.3.2 Capital Adequacy . . . . . . . . . . . . . 19
3.3.3 Notice of Determination . . . . . . . . . . 19
3.4 Prime Rate Loans Substituted for Affected
Euro-Dollar Rate Loans . . . . . . . . . . . . 20
3.5 Compensation for Funding Losses . . . . . . . . . 20
4. SECURITY INTEREST - - COLLATERAL . . . . . . . . . . . . 20
5. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO
INVENTORY COLLATERAL . . . . . . . . . . . . . . . . . . 21
5.1 Sale of Inventory Collateral . . . . . . . . . . 21
5.2 Insurance. . . . . . . . . . . . . . . . . . . . . 21
5.3 Good Title; No Existing Encumbrances . . . . . . 21
<PAGE> 4
5.4 Right to Grant Security Interest; No Further
Encumbrances . . . . . . . . . . . . . . . . . 22
5.5 Location of Inventory Collateral . . . . . . . . 22
6. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO
BALANCES COLLATERAL . . . . . . . . . . . . . . . . . . 22
6.1 Ownership . . . . . . . . . . . . . . . . . . 22
6.2 Remedies . . . . . . . . . . . . . . . . . . 22
6.3 Liens . . . . . . . . . . . . . . . . . . 23
7. GENERAL REPRESENTATIONS AND WARRANTIES . . . . . . . . . 23
7.1 Corporate Existence and Qualification . . . . . . 23
7.2 Corporate Authority; Validity and Binding Effect 23
7.3 No Material Litigation . . . . . . . . . . . . . 24
7.4 Taxes . . . . . . . . . . . . . . . . . . 24
7.5 Capital Stock . . . . . . . . . . . . . . . . . . 24
7.6 Corporate Organization . . . . . . . . . . . . . 24
7.7 Insolvency . . . . . . . . . . . . . . . . . . 24
7.8 Title . . . . . . . . . . . . . . . . . . 24
7.9 Margin Stock . . . . . . . . . . . . . . . . . . 24
7.10 No Violations . . . . . . . . . . . . . . . . . . 25
7.11 ERISA . . . . . . . . . . . . . . . . . . 25
7.12 Financial Statements . . . . . . . . . . . . . . 25
7.13 Delivery of Certain Collateral . . . . . . . . . 26
7.14 Purchase of Collateral . . . . . . . . . . . . . 26
7.15 Pollution and Environmental Control . . . . . . . 26
7.16 Possession of Franchises, Licenses, Etc . . . . . 26
7.17 Disclosure . . . . . . . . . . . . . . . . . . 27
7.18 Rental Payments . . . . . . . . . . . . . . . . . 27
8. GENERAL AFFIRMATIVE COVENANTS . . . . . . . . . . . . . 27
8.1 Records Respecting Collateral . . . . . . . . . . 27
8.2 Further Assurances . . . . . . . . . . . . . . . 27
8.3 Right to Inspect . . . . . . . . . . . . . . . . 28
8.4 Reports . . . . . . . . . . . . . . . . . . 28
8.5 Settlement Sheets . . . . . . . . . . . . . . . . 28
8.6 Periodic Financial Statements . . . . . . . . . . 29
8.7 Annual Financial Statements . . . . . . . . . . . 29
8.8 Payment of Taxes . . . . . . . . . . . . . . . . 29
8.9 Maintenance of Insurance . . . . . . . . . . . . 29
8.10 Maintenance of Property and Management . . . . . 30
8.11 Certificate of No Event of Default . . . . . . . 30
8.12 Change of Principal Place of Business . . . . . . 30
8.13 Waivers. . . . . . . . . . . . . . . . . . . . . . 30
8.14 Preservation of Corporate Existence . . . . . . . 30
8.15 Compliance With Laws . . . . . . . . . . . . . . 31
8.16 ERISA . . . . . . . . . . . . . . . . . . . . . . 31
8.17 . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.18 Certain Required Notices . . . . . . . . . . . . 31
8.19 Consolidated Fixed Charge Coverage Ratio . . . . 31
8.20 Minimum Consolidated Net Worth . . . . . . . . . 32
-ii-
<PAGE> 5
8.21 Consolidated Leverage Ratio . . . . . . . . . . . 32
8.22 Banking Relationship . . . . . . . . . . . . . . . 32
8.23 Business Plan and Financial Projections . . . . . 33
8.24 SEC Filings; Shareholder Reports . . . . . . . . 33
9. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . 33
9.1 No Encumbrances . . . . . . . . . . . . . . . . . 33
9.2 Indebtedness for Borrowed Funds . . . . . . . . . 33
9.3 Capital Expenditures and Leases . . . . . . . . . 33
9.4 Contingent Liabilities . . . . . . . . . . . . . 33
9.5 Distributions. . . . . . . . . . . . . . . . . . . 34
9.6 Restricted Investments . . . . . . . . . . . . . . 34
9.7 Merger; Business Changes . . . . . . . . . . . . . 34
9.8 Business Locations . . . . . . . . . . . . . . . . 34
9.9 ERISA. . . . . . . . . . . . . . . . . . . . . . . 34
9.10 Loans. . . . . . . . . . . . . . . . . . . . . . . 34
9.11 Affiliate Transactions . . . . . . . . . . . . . 35
9.12 Subsidiaries . . . . . . . . . . . . . . . . . . . 35
9.13 Fiscal Year. . . . . . . . . . . . . . . . . . . . 35
10. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 35
10.1 Master Note. . . . . . . . . . . . . . . . . . . . 35
10.2 Obligations. . . . . . . . . . . . . . . . . . . . 35
10.3 Misrepresentations . . . . . . . . . . . . . . . 36
10.4 Covenants . . . . . . . . . . . . . . . . . . . . 36
10.5 Default Under Guaranty . . . . . . . . . . . . . 36
10.6 Damage, Loss, Theft or Destruction of Collateral 36
10.7 Other Debts. . . . . . . . . . . . . . . . . . . . 36
10.8 Voluntary Bankruptcy . . . . . . . . . . . . . . 36
10.9 Involuntary Bankruptcy . . . . . . . . . . . . . 37
10.10 Judgments. . . . . . . . . . . . . . . . . . . . . 37
10.11 ERISA. . . . . . . . . . . . . . . . . . . . . . . 37
10.12 Bankruptcy of Affiliated Party . . . . . . . . . 37
10.13 Prepayment of Senior Notes . . . . . . . . . . . 38
10.14 Material Adverse Change . . . . . . . . . . . . . 38
10.15 Change of Control . . . . . . . . . . . . . . . . 38
11. REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . 38
11.1 Acceleration of the Obligations . . . . . . . . . 38
11.2 Remedies of a Secured Party . . . . . . . . . . . 39
11.3 Set Off. . . . . . . . . . . . . . . . . . . . . . 40
11.4 Other Remedies . . . . . . . . . . . . . . . . . . 40
12. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . 40
12.1 No Default . . . . . . . . . . . . . . . . . . . . 40
12.2 Board of Resolutions and Incumbency Certificate . 40
12.3 Certificate of Good Standing . . . . . . . . . . . 40
12.4 Articles/By-Laws . . . . . . . . . . . . . . . . . 40
12.5 Loan Documents and any Guaranty . . . . . . . . . 40
12.6 Hazard Insurance Certificate . . . . . . . . . . . 41
12.7 Financing Statements . . . . . . . . . . . . . . . 41
- iii -
<PAGE> 6
12.8 Opinion of Counsel . . . . . . . . . . . . . . . 41
12.9 Landlord Agreements . . . . . . . . . . . . . . . 41
12.10 Excess Availability . . . . . . . . . . . . . . . 41
12.11 Intercreditor Agreement . . . . . . . . . . . . . 41
12.12 Miscellaneous . . . . . . . . . . . . . . . . . . 41
13. PARTICIPANT IN REVOLVER LOANS . . . . . . . . . . . . . 41
14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 42
14.1 Waiver . . . . . . . . . . . . . . . . . . . . . . 42
14.2 Governing Law. . . . . . . . . . . . . . . . . . . 42
14.3 Survival . . . . . . . . . . . . . . . . . . . . . 42
14.4 No Assignment by Borrower; Sale of Interest
by Lender. . . . . . . . . . . . . . . . . . . . 42
14.5 Counterparts . . . . . . . . . . . . . . . . . . . 43
14.6 Reimbursement . . . . . . . . . . . . . . . . . . 43
14.7 Successors and Assigns . . . . . . . . . . . . . 43
14.8 Severability . . . . . . . . . . . . . . . . . . . 43
14.9 Notices . . . . . . . . . . . . . . . . . . . . . 43
14.10 Entire Agreement - Amendment . . . . . . . . . . 44
14.11 Time of the Essence . . . . . . . . . . . . . . . 44
14.12 Interpretation . . . . . . . . . . . . . . . . . . 44
14.13 Lender Not a Joint Venturer . . . . . . . . . . . 44
14.14 Jurisdiction . . . . . . . . . . . . . . . . . . . 44
14.15 Acceptance . . . . . . . . . . . . . . . . . . . . 45
14.16 Waiver of Rights . . . . . . . . . . . . . . . . . 45
14.17 Cure of Defaults by Lender . . . . . . . . . . . 45
14.18 Recitals . . . . . . . . . . . . . . . . . . . . . 45
14.19 Attorney-in-Fact . . . . . . . . . . . . . . . . . 45
14.20 Sole Benefit . . . . . . . . . . . . . . . . . . . 46
14.21 Jury Trial Waiver. . . . . . . . . . . . . . . . . 46
EXHIBIT "A" - Collateral Locations
EXHIBIT "B" - Master Note
EXHIBIT "C" - Schedule of Permitted Encumbrances
EXHIBIT "D" - Notice of Borrowing
EXHIBIT "E" - Compliance Certificate
EXHIBIT "F" - Board Resolutions/Incumbency Certificate
EXHIBIT "G" - Opinion of Counsel
EXHIBIT "H" - Schedule of Additional Required
Documentation
EXHIBIT "I" - Excluded Leased Locations
EXHIBIT "J" - Pending Litigation
-iv-
<PAGE> 7
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made by and between Borrower and
Lender, this 24th day of February, 1994.
W I T N E S S E T H:
WHEREAS, Borrower has applied to Lender for financing of the type or
types more particularly described hereinbelow; and
WHEREAS, Lender is willing to extend financing to Borrower in
accordance with the terms hereof upon the execution of this Agreement by
Borrower, compliance by Borrower with all of the terms and provisions of this
Agreement and fulfillment of all conditions precedent to Lender's obligations
herein contained;
NOW, THEREFORE, in consideration of the sum of $100, the foregoing
premises, to induce Lender to extend the financing provided for herein, and for
other good and valuable consideration, the sufficiency and receipt of all of
which are acknowledged by Borrower, Lender and Borrower agree as follows:
1. DEFINITIONS. TERMS AND REFERENCES.
1.1 Certain Definitions. In addition to such other terms as
elsewhere defined herein, as used in this Agreement and in any Exhibits, the
following terms shall have the following meanings, unless the context requires
otherwise:
"Account Debtor" shall mean each Person who is obligated with
respect to any account arising from the sale, lease or other disposition of any
Inventory Collateral.
"Acquisition" shall mean any transaction, or any series of related
transactions, by which Borrower directly or indirectly (a) acquires any ongoing
business for all or substantially all of the assets of any Person, whether
through the purchase of assets, or otherwise, (b) acquires (in one transaction
or as the most recent transaction in a series of transactions) control of at
least a majority in ordinary voting power of the securities of a corporation
which have ordinary voting power for the election of directors, or (c) acquires
control of a 50% or more ownership interest in any partnership or joint venture.
"Adjusted LIBOR Rate" applicable to any Interest Period, means that
interest rate per annum determined by Lender to be equal to the quotient
obtained (rounded upwards, if necessary, to the next higher 1/100th of 1%) by
dividing (i) the applicable LIBOR Rate for such Interest Period by (ii) 1.00
minus the then applicable Euro-Dollar Reserve Percentage (if any).
<PAGE> 8
"Affiliate" shall mean, with respect to any Person, any Person
Controlling, Controlled by or under common Control with such Person. For
purposes hereof, Green Capital shall at all times be considered an "Affiliate"
of Borrower.
"Agreement" shall mean this Loan and Security Agreement.
"Applicable Margin" shall mean
(i) until the provisions of clause (ii) of this definition apply,
and for any subsequent period in which Borrower's Consolidated Net Worth is
less than $55,000,000, or at any time that an Event of Default exists, (x)
.625% for any Prime Rate Loan and (y) 2.5% for any Euro-Dollar Rate Loan;
and
(ii) for any period in which Borrower's Consolidated Net Worth
equals or exceeds $55,000,000 and no Event of Default exists, (x) .50% for
any Base Rate Loan and (y) 2.375% for any Euro-Dollar Rate Loan.
The Applicable Margin shall be adjusted based upon any change in Borrower's
Consolidated Net Worth five (5) Domestic Business Days after Lender's receipt
of Borrower's financial statements confirming such Consolidated Net Worth.
"Average Loan Balance" shall mean, for any quarter, the amount
obtained by adding the unpaid balance of Revolver Loans at the end of each day
of each day during such quarter and by dividing such sum by the number of days
in such quarter.
"Balances Collateral" shall mean all property of Borrower left with
Lender or in Lender's possession now or hereafter, all deposit accounts of
Borrower now or hereafter opened with Lender, all certificates of deposit
issued by Lender to Borrower, and all drafts, checks and other items deposited
in or with Lender by Borrower for collection now or hereafter.
"Bankruptcy Code" shall mean Title 11 of the United States Code.
"Beneficial" shall mean Beneficial National Bank USA.
"Beneficial Agreement" shall mean the Merchant Agreement (Revolving
Credit Plans) dated as of May 15, 1992 between Borrower and Beneficial setting
forth the terms of a private label credit card program established by
Beneficial for Borrower's customers.
-2-
<PAGE> 9
"Books and Records" shall mean all books and records of Borrower at
any time relating to any of the Collateral.
"Borrower" shall mean Rhodes, Inc., a corporation organized and
existing under the laws of the State of Georgia, and its successors and
permitted assigns.
"Borrowing" means a borrowing hereunder on a single date consisting
of either a Prime Rate Borrowing or a Euro-Dollar Rate Borrowing, or both.
"Change of Law" shall have the meaning set forth in Section 3.2
hereof.
"Closing Date" shall mean the date on which each of the conditions
precedent set forth in Section 12 hereof are satisfied and Lender makes the
initial Revolver Loan hereunder.
"Collateral" shall mean the property of Borrower described in
Section 4 hereof in which Lender has, or is to have, a security interest
pursuant thereto, as security for payment of the Obligations.
"Collateral Locations" shall mean the Executive Office and those
additional locations set forth and described on Exhibit "A" attached hereto.
"Collateral Reserve Account" shall mean a non-interest bearing
account which Borrower may be required to open and maintain with Lender and
into which Borrower shall cause to be deposited all proceeds of the Collateral.
"Consolidated" shall mean the consolidation in accordance with GAAP
of the accounts or other items as to which such term applies.
"Consolidated Fixed Charge Coverage Ratio" shall mean, for any
fiscal period, the ratio which (A) Consolidated Net Income plus interest
expense, provision for taxes, and operating lease expense of Borrower and its
Consolidated Subsidiaries in such period, bears to (B) the sum of interest
expense and operating lease expense of Borrower and its Consolidated
Subsidiaries for the same said period.
"Consolidated Leverage Ratio" shall mean, at any date, the ratio
which Borrower's Consolidated total liabilities on such date bears to
Consolidated Net Worth on such date, all as determined under GAAP.
-3-
<PAGE> 10
"Consolidated Net Income" for any period, means the net income of
Borrower and its Consolidated Subsidiaries for such period, determined on a
basis in accordance with GAAP, excluding, however, (i) any extraordinary items
and (ii) any equity interest of Borrower or any Consolidated Subsidiary in the
unremitted profits or losses of any Person which is not a Subsidiary, in each
case as likewise determined on a basis in accordance with GAAP.
"Consolidated Net Worth" shall mean the total shareholder's equity
(including capital stock, additional paid-in capital and retained earnings,
after deducting treasury stock) of Borrower and its Consolidated Subsidiaries
which would appear as such on a balance sheet of Borrower and its Consolidated
Subsidiaries prepared in accordance with GAAP, minus amounts due from
Affiliates and any write-up of assets subsequent to the date of this Agreement.
"Consolidated Subsidiary" shall mean, at any date, any Subsidiary
or other entity the accounts of which, in accordance with GAAP, would be
consolidated with those of Borrower in its consolidated financial Statements as
of such date.
"Control" shall mean control of any Person, which control shall be
presumed hereunder in all instances of ownership, directly or indirectly, of
50% or more of the capital stock or equity interest having ordinary power for
the election of directors or others performing similar functions of the
controlled Person.
"Credit Card Receivables Collateral" shall mean any rights to
payment Borrower may now or hereafter have under or by virtue of the Beneficial
Agreement or any other present or future agreement to which Borrower is a party
and pursuant to which Borrower is entitled to payment or remittance by reason
of Borrower's honoring of any credit card of a customer.
"Default Condition" shall mean the occurrence of any event which,
after satisfaction of any requirement for the giving of notice or the lapse of
time, or both, would become an Event of Default.
"Default Rate" shall mean, at any time, that interest rate per
annum equal to two percent (2%) plus the stated interest rate in effect under
the Master Note on such date.
"Distribution" shall mean, in respect of any corporation, (a) the
payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (b) the redemption or
acquisition by the corporation of its capital stock (or any warrant or option
for the purchase of any such stock)
-4-
<PAGE> 11
unless made contemporaneously from the net proceeds of the sale of its capital
stock.
"Documents Collateral" shall mean all documents (including, but not
limited to, warehouse receipts, bills of lading, dock warrants, dock receipts
and other documents of title) in any way relating to any of the Inventory
Collateral.
"Dollars" or "$" shall mean dollars in lawful currency of the
United States of America.
"Domestic Business Day" shall mean any day except a Saturday,
Sunday or other day on which commercial banks are not required to be open for
business in the State of Georgia.
"Eligible Inventory" shall mean new, saleable finished goods
inventory of Borrower consisting of furniture (but excluding any "Accessories"
as such term is defined below), which is deemed by Lender to be eligible for
advances and which is at all times subject to a duly perfected, first priority
(and only) security interest in favor of Lender; is in good and saleable
condition, is not on consignment from or subject to any repurchase agreement
with any supplier; does not constitute returned, repossessed, damaged or
slow-moving goods (and, for purposes hereof, goods will be deemed slow-moving
to the extent of amounts representing more than nine months of sales); conforms
in all respect to the warranties and representations set forth in the Loan
Documents; is not subject to a negotiable warehouse receipt or other negotiable
instrument; is not subject to any license or other agreement that limits or
restricts Borrower's or Lender's right to sell or otherwise dispose of such
inventory; and is located on premises with respect to which Lender holds a
landlord's or mortgagee's waiver agreement acceptable to it (excluding any
location listed on Exhibit "I" attached hereto for which a landlord's or
mortgagee's agreement is not required). Standards of eligibility may be revised
at any time or times that Lender deems necessary or desirable. For purposes of
this definition, the term "Accessories" shall include, without limitation, all
lamps, mirrors, pictures, ashtrays, umbrellas, trash cans and flowers owned by
Borrower.
"Environmental Laws" shall mean all federal, state and local laws,
rules, regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters, including, but
not limited to, the Resource Conservation and Recovery Act; the Comprehensive
Environmental Response, Compensation and Liability Act of 1980; the Toxic
Substances Control Act; the Clean Water Act; the Clean Air Act; the River and
Harbor Act; the Water Pollution Control Act; the Marine Protection Research and
Sanctuaries Act; the Deep-Water Port Act; the Safe Drinking Water Act; the
Superfund Amendments and
-5-
<PAGE> 12
Reauthorization Act of 1986; the Federal Insecticide, Fungicide and Rodenticide
Act; the Mineral Lands and Leasing Act; the Surface Mining Control and
Reclamation Act; the Oil Pollution Act of 1990; the Emergency Planning and
Community Rights to Know Act of 1986; state and federal superlien and
environmental cleanup programs and laws; and U.S. Department of Transportation
regulations.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as may be amended from time to time.
"Euro-Dollar Business Day" shall mean any Domestic Business Day in
which dealings in dollar deposits are carried out in the London Interbank
Euro-Dollar market.
"Euro-Dollar Rate" applicable to any Interest Period, shall mean that
interest rate per annum equal to the sum of (i) the Adjusted LIBOR Rate for
such Interest Period, plus (ii) the Applicable Margin.
"Euro-Dollar Rate Borrowing" shall mean a Euro-Dollar Rate Loan or
Loans made by Lender to Borrower on a single date in accordance with Section 2
hereof.
"Euro-Dollar Rate Loan" shall mean a Revolver Loan made at the
Euro-Dollar Rate pursuant to Section 2 hereof.
"Euro-Dollar Reserve Percentage" shall mean for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in respect of "Eurocurrency liabilities" (or in
respect of any other category of liabilities which includes deposits by
reference to which the interest rate on Euro-Dollar Rate Loans is determined or
any category of extensions of credit or other assets which includes loans by a
non-United States office of any bank to United States residents). The Adjusted
LIBOR Rate shall be adjusted automatically on and as of the effective date of
any change in the Euro-Dollar Reserve Percentage.
"Event of Default" shall mean any of the events or conditions
described in Section 10, provided that any requirement for the giving of notice
or the lapse of time, or both, has been satisfied.
"Executive Office" shall mean 4370 Peachtree Road, N.E., Atlanta,
Georgia 30319.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
-6-
<PAGE> 13
"Green Capital" shall mean Green Capital Investors, L.P., a Georgia
limited partnership.
"Guarantor" shall mean individually and collectively any and all
accommodation makers, endorsers, guarantors or sureties from whom Lender may
require the endorsement of any note or the execution of any contract of
guaranty or suretyship guaranteeing payment of any of the Obligations.
"Guaranty" shall mean any agreement or other writing executed by a
Guarantor guaranteeing payment of any of the Obligations.
"Interest Period" means with respect to each Euro-Dollar Rate
Borrowing, the period commencing on the date of such Borrowing and ending on
the numerically corresponding date in the first, second or third month
thereafter, as Borrower may elect in the applicable Notice of Borrowing;
provided that:
(a) any Interest Period (other than an Interest Period determined
pursuant to paragraph (c) below) which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on
the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall,
subject to paragraph (c) below, end on the last Euro-Dollar Business Day of
the appropriate subsequent calendar month; and
(c) any Interest Period which begins before the Termination Date and
would otherwise end after the Termination Date shall end on the Termination
Date.
"Inventory Collateral" shall mean all inventory of Borrower, or in
which it has rights, whether now owned or hereafter acquired, wherever located,
including, without limitation, all goods of borrower held for sale or lease or
furnished or to be furnished under contracts of service, all goods held for
display or demonstration, goods on lease or consignment, returned and
repossessed goods, all raw materials, work-in-process, finished goods and
supplies used or consumed in Borrower's business.
"Inventory Collateral Proceeds" shall mean all cash and non-cash
proceeds arising out of or resulting from any sale, lease, license or other
disposition of any Inventory Collateral or any interest therein, whether in the
form of cash or constituting accounts, instruments, chattel paper or general
intangibles, and
-7-
<PAGE> 14
all proceeds of any insurance relating to any of the Inventory Collateral.
"Lender" shall mean Wachovia Bank of Georgia, N.A., a national bank
with its principal office in Atlanta, Georgia, and its successors and assigns.
"LIBOR Rate" means with respect to any Interest Period, the rate per
annum determined by Lender on the basis of the offered rate for deposits in
Dollars in the London Interbank Euro-Dollar market of amounts equal to or
comparable to the amount of the Euro-Dollar Rate Loan to which such Interest
Period relates offered for a term comparable to such Interest Period, which
rate appears on the Telerate Screen LIBOR Page as of 11:00 a.m., London time,
two (2) Euro-Dollar Business Days prior to the first day of such Interest
Period; provided, however, that if more than one such offered rate appears on
the Telerate Screen LIBOR Page, "LIBOR Rate" shall be the arithmetic average
(rounded upward, if necessary, to the next higher of 1/100 of 1%) of such
offered rates.
"Line Commitment" shall mean the maximum aggregate amount available
under the Line of Credit, without reference to the Margin Requirement, pursuant
to Section 2.1.
"Line of Credit" shall refer to the line of credit opened by Lender in
favor of Borrower pursuant to the provisions of Section 2.1, in the amount of
the Line Commitment.
"Loan Documents" shall mean this Agreement, the Master Note, any
financing statements covering portions of the Collateral, and any and all other
documents, instruments, certificates and agreements executed and/or delivered
by Borrower in connection herewith, or any one, more, or all of the foregoing,
as the context shall require.
"Margin" shall mean a sum equal the lesser of (x) $30,000,000 or (y)
50% of the dollar amount of Eligible Inventory, valued at the lower of its cost
or market value, as at the date of determination.
"Margin Requirement" shall have the meaning ascribed to such term in
Section 2.1.
"Master Note" shall mean the Master Note dated of even date herewith,
in the principal amount of the Line Commitment, evidencing the Revolver Loans,
which shall be substantially in the form of Exhibit "B" attached hereto.
-8-
<PAGE> 15
"MPPAA" shall mean the Multiemployer Pension Plan Amendments Act of
1980, amending Title IV of ERISA.
"Multiemployer Plan" shall have the meaning set forth in Section
4001(a)(3) of ERISA.
"Noteholders" shall mean Sun Life Insurance Company of America, The
Equitable Private Income and Equity Partnership II, L.P., The Life Insurance
Company of Virginia, and Protective Life Insurance Company and their successors
and assigns.
"Note Purchase Agreement" shall mean that certain Note Purchase
Agreement dated as of June 17, 1993, as amended or modified from time to time,
between the Noteholders and Borrower and pursuant to which the Noteholders
purchased the Senior Notes.
"Note Purchase Documents" shall mean the Note Purchase Agreement and
all instruments, agreements and other writings executed by either Noteholders
or Borrower in connection therewith or with reference thereto.
"Notice of Borrowing" shall have the meaning set forth in Section
2.2.1 hereof.
"Obligations" shall mean any and all indebtednesses, liabilities and
obligations of Borrower to Lender, including, without limitation, any
indebtedness, liability or obligation of Borrower to Lender under any loan made
to Borrower by Lender prior to the date hereof and any and all extensions or
renewals thereof in whole or in part; any indebtedness, liability or obligation
of Borrower to Lender arising hereunder or as a result hereof, whether
evidenced by the Master Note or otherwise, and any and all extensions or
renewals thereof in whole or in part; any indebtedness, liability or obligation
of Borrower to Lender under any later or future advances or loans made by
Lender to Borrower, and any and all extensions or renewals thereof in whole or
in part; any and all present and future indebtedness of Borrower to other
creditors which is purchased by Lender from such other creditors; and any and
all future or additional indebtednesses, liabilities or obligations of Borrower
to Lender whatsoever and in any event, whether existing as of the date hereof
or hereafter arising, whether arising under a loan, lease, credit card
arrangement, line of credit, letter of credit or other type of financing, and
whether direct, indirect, absolute or contingent, as maker, endorser,
guarantor, surety or otherwise, and whether evidenced by, arising out of, or
relating to, a promissory note, bill of exchange, check, draft, bond, letter of
credit, guaranty agreement, bankers' acceptance, foreign exchange contract,
commitment fee, service charge, interest rate swap agreement, interest rate cap
agreement, forward contract, futures contract or otherwise.
-9-
<PAGE> 16
"Original Term" shall have the meaning given such term in Section 2.8
of this Agreement.
"Participant" shall mean Barclays Business Credit, Inc., a Connecticut
corporation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" shall mean (i) liens for taxes not yet due
and payable or being actively contested as permitted by Section 8.8, but only
if such liens do not adversely affect Lender's rights or the priority of
Lender's security interest in the Collateral; (ii) carriers', warehousemen's,
mechanics', materialmen's, repairmen's or other like liens arising in the
ordinary course of business, payment for which is not yet due or which are
being actively contested in good faith and by appropriate, lawful proceedings,
but only if such liens are and remain junior to liens granted in favor of
Lender; (iii) pledges or deposits in connection with worker's compensation,
unemployment insurance and other social security legislation; (iv) deposits to
secure the performance of utilities, leases, statutory obligations and surety
and appeal bonds and other obligations of a like nature incurred in the
ordinary course of business; (v) bankers' liens arising by statute or under
customary terms regarding depository relationships on deposits held by
financial institutions with whom Borrower has a banker-customer relationship;
(vi) typical restrictions imposed by licenses and leases of software (including
location and transfer restrictions); and (vii) those security interests, liens
and encumbrances, if any, set forth and described on Exhibit "C" attached
hereto, pertaining to the type of Collateral involved, as shown thereon.
"Person" shall mean any individual, partnership, corporation, joint
venture, joint stock company, trust, governmental unit or other entity.
"Plan" shall mean any employee benefit plan or other plan for any
employees of Borrower and any employees of any Subsidiary or any other entity
which is a member of a controlled group or under common control with Borrower,
as such terms are defined in Section 4001(a)(14) of ERISA, and which is subject
to the provisions of Title IV of ERISA.
"Prime Rate" refers to that interest rate so denominated and set by
Lender from time to time as an interest rate basis for borrowings. The Prime
Rate is but one of several interest rate bases used by Lender. Lender lends at
interest rates above and below the Prime Rate.
-10-
<PAGE> 17
"Prime Rate Borrowing" shall mean a Prime Rate Loan made by Lender to
Borrower on a single date in accordance with Section 2 hereof.
"Prime Rate Loan" shall mean a Revolver Loan made at the Prime Rate
pursuant to Section 2 hereof.
"Projections" shall mean, for any fiscal year of Borrower, Borrower's
forecasted (a) balance sheet, (b) profit and loss statements, (c) cash flow
statements, (d) capitalization statements for such fiscal year, all prepared on
a basis consistent with Borrower's historical financial statements, together
with appropriate supporting details and a statement of underlying assumptions.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.
"Renewal Term" shall have the meaning given such term in Section 2.8 of
this Agreement.
"Reportable Event" shall mean any of the events described in Section
4043(b) of ERISA.
"Restricted Investment" shall mean any investment in cash or by
delivery of property to any Person, whether by acquisition of stock,
indebtedness or other obligation or security, or by loan, advance or capital
contribution, or otherwise, or in any Property except the following: (i)
investments in one or more Subsidiaries of Borrower; (ii) property to be used
in the ordinary course of business; (iii) current assets arising from the sale
of goods and services in the ordinary course of business of Borrower and its
Subsidiaries; (iv) investments in direct obligations of the United States of
America, or any agency thereof or obligations guaranteed by the United States
of America, provided that such obligations mature within one year from the date
of acquisition thereof; (v) investments in time deposits, demand deposits and
certificates of deposit maturing within one year from the date of acquisition
issued by a bank or trust company organized under the laws of the United States
or any state thereof having capital surplus and undivided profits aggregating
at least $500,000,000; and (vi) investments in commercial paper given the
highest rating by a national credit rating agency and maturing not more than
two hundred seventy (270) days from the date of creation thereof.
"Revolver Loan" shall mean a Euro-Dollar Rate Loan or a Prime Rate Loan
made by Lender pursuant to Section 2.1 hereof.
-11-
<PAGE> 18
"Security Pacific" shall mean Security Pacific Business Credit, Inc., a
Delaware corporation, and its successors and assigns.
"Senior Notes" shall mean Borrower's 9% Senior Secured Notes due 1999
and 10% Senior Secured Notes due 2000 purchased by the Noteholders pursuant to
the Note Purchase Agreement.
"Senior Officer" shall mean Borrower's Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer or Chief Administrative Officer, in
each case whatever the title nomenclature may be of the person designated.
"Subsidiary" shall mean any corporation, partnership, business
association or other entity (including any Subsidiary of any of the foregoing)
of which Borrower owns, directly or indirectly, 50% or more of the capital
stock or equity interest having ordinary power for the election of directors or
others performing similar functions; provided, however, that the term
Subsidiary shall not include any corporation, partnership, business association
or other entity which has (and for so long as it has) assets with a fair market
value of less than $100,000 or which has gross revenues in any year of less
than $100,000.
"Termination Date" shall mean the last day of the term of the Line of
Credit as set forth in Section 2.8 hereof.
"UCC" shall mean the Uniform Commercial Code - Secured Transactions of
Georgia (OCGA Art. 11-9), as in effect on the date hereof.
1.2 Use of Defined Terms. All terms defined in this Agreement and the
Exhibits shall have the same defined meanings when used in any other Loan
Documents, unless the context shall require otherwise.
1.3 Accounting Terms. All accounting terms not specifically defined
herein shall have the meanings generally attributed to such terms under GAAP.
1.4 UCC Terms. The terms "accounts," "chattel paper," "instruments,"
"documents," "general intangibles" and "inventory" as and when used in the Loan
Documents, shall have the same meanings given such terms under the UCC.
1.5 Terminology and Interpretation. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders; the singular shall include the plural, and the
plural shall include the singular. Titles of Sections in this Agreement are for
convenience
-12-
<PAGE> 19
only, and neither limit nor amplify the provisions of this Agreement, and all
references in this Agreement to Sections, Subsections, paragraphs, clauses,
subclauses or Exhibits shall refer to the corresponding Section, Subsection,
paragraph, clause, subclause of, or Exhibit attached to, this Agreement, unless
specific reference is made to the sections or other subdivisions divisions or,
or Exhibit to, another document or instrument. Wherever in this Agreement
reference is made to any instrument, agreement or other document, including,
without limitation, any of the Loan Documents, such reference shall be
understood to mean and include any and all amendments thereto or modifications,
restatements, renewals or extensions thereof. Wherever in this Agreement
reference is made to any statute, such reference shall be understood to mean
and include any and all amendments thereof and all regulations promulgated
pursuant thereto.
1.6 Exhibits. All Exhibits attached hereto are by
reference made a part hereof.
2. THE FINANCING.
2.1 Line of Credit. Upon the execution of this Agreement
and compliance with its terms and conditions, Lender agrees to open the Line of
Credit in favor of Borrower so that, from the Closing Date to (but not
including) the Termination Date and so long as there is not in existence any
Default Condition or Event of Default, Borrower may borrow and repay and
reborrow up to a maximum aggregate principal amount outstanding at any one time
equal to $30,000,000, which is the Line Commitment, subject, however, to the
requirement that at no time shall the aggregate principal amount outstanding
under the Line of Credit exceed the Margin (such requirement being referred to
herein as the "Margin Requirement"); and provided, further, that if, at any
time hereafter, the Margin Requirement is not satisfied, Borrower shall
immediately repay the then principal balance of the Master Note by that amount
necessary to satisfy the Margin Requirement. All proceeds so obtained under the
Line of Credit may be used by Borrower to satisfy existing indebtedness of
Borrower to Security Pacific and to Green Capital and thereafter for working
capital in such manner as Borrower may elect in the ordinary course of its
business operations and for loans to Green Capital to the extent permitted by
Section 9.10 hereof. All Revolver Loans shall be evidenced by the Master Note,
which shall be executed and delivered simultaneously herewith. Each request for
a Revolver Loan shall be made in accordance with Section 2.2 hereof. The
principal amount of the Master Note shall be due and payable on the Termination
Date and shall bear interest (computed as provided in Section 2.5 hereof from
the date thereof on the unpaid principal amount thereof from time to time
outstanding at the applicable rate or rates per annum set forth in Section 2.3
hereof and payable as provided in Sections
-13-
<PAGE> 20
2.3 and 2.7 hereof. Borrower understands and agrees, however, that in addition
to the right of Lender to terminate the Line of Credit at any time hereafter,
without notice, upon the occurrence of any Event of Default, as hereinafter
provided, the commitment of Lender hereunder with respect to the Line of Credit
shall terminate on the Termination Date.
2.2 Method of Borrowing.
2.2.1 Notice to Lender. Borrower shall give Lender
written notice of Borrower's intent to borrow under the Line of Credit (a
"Notice of Borrowing"), which shall be substantially in the form of Exhibit D,
not later than 11:00 a.m. (Atlanta, Georgia time) on the Domestic Business
Day of each Prime Rate Borrowing and not later than 11:00 a.m. (Atlanta,
Georgia time) at least two (2) Euro-Dollar Business Days before each
Euro-Dollar Rate Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Prime Rate Borrowing or a Euro-Dollar Business
Day in the case of a Euro-Dollar Rate Borrowing,
(b) the amount of such Borrowing (which shall be in the
minimum amount of $2,000,000 or any larger multiple of $1,000,000 in the
case of Euro-Dollar Rate Loans),
(c) whether the Revolver Loans comprising such Borrowing are
to be the Prime Rate Loans or Euro-Dollar Rate Loans, and
(d) the duration of the Interest Period applicable to any
Euro-Dollar Rate Borrowing, subject to the provisions of the definition of
"Interest Period."
2.2.2 When Revolver Loans Made. Subject to
Borrower's timely and proper submission of a Notice of Borrowing and
Borrower's entitlement to receive a Revolver Loan under the Line of Credit as
provided in Section 2.1 hereof, Lender shall (except as provided in Section
2.2.3 hereof) make available such Borrowing to Borrower in federal or other
funds immediately available in Atlanta, Georgia, not later than 12:00 noon
(Atlanta, Georgia time) on the date of each Prime Rate Borrowing and not later
than 11:00 a.m. (Atlanta, Georgia time) on the date of each Euro-Dollar Rate
Borrowing. The funding of Revolver Loans may be effected, at Lender's option,
by way of credit to a controlled disbursement account to be maintained by
Borrower with Lender.
2.2.3 Application of Proceeds from Certain
Borrowings. If Lender makes a Revolver Loan on a day that Borrower is obligated
to repay all or any part of an outstanding Revolver
-14-
<PAGE> 21
Loan, Lender shall apply the proceeds of the new Revolver Loan to make such
repayment and only an amount equal to the difference (if any) between the
amount of the Borrowing and the amount being repaid shall be made available by
Lender to Borrower, or remitted by Borrower to Lender, as the case may be.
2.2.4 Certain Payments Deemed Made. If Borrower is
otherwise entitled under this Agreement to repay any Revolver loans maturing at
the end of an Interest Period applicable thereto with the proceeds of a new
Borrowing, and Borrower fails to repay such Revolver Loans using its own moneys
and fails to give Notice of Borrowing in connection with such new Borrowing,
Lender, at its election (and without obligation) may deem that a new Prime Rate
Borrowing shall have been made on the date such Revolver Loans mature in an
amount equal to the principal amount of the Revolver Loans so maturing.
2.2.5 Limitation on Euro-Dollar Rate Loans.
Notwithstanding anything to the contrary contained herein, there shall not be
more than four (4) Euro-Dollar Rate Loans outstanding at any given time.
2.3 Interest. Subject to the terms of Section 3.1 hereof:
2.3.1 Prime Rate Loans. Each Prime Rate Loan shall
bear interest on the outstanding principal amount thereof, for each day from
the date such Revolver Loan is made at a rate per annum equal to the Prime Rate
for such day plus the Applicable Margin. Such interest shall be due and payable
monthly, in arrears, on the first day of each month. The Prime Rate in effect
on the date hereof is six percent (6%) and therefore, the rate of interest
applicable hereunder on the date hereof with respect to Prime Rate Loans is six
and one-half percent (6.5%) per annum. Any overdue principal of and, to the
extent permitted by applicable law, overdue interest on any Prime Rate Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the Default Rate.
2.3.2 Euro-Dollar Rate Loans. Each Euro-Dollar Rate
Loan shall bear interest on the outstanding principal amount thereof, for the
Interest Period applicable thereto, at the Euro-Dollar Rate for such Interest
Period. Such interest shall be payable for each Interest Period on the last day
thereof. Any overdue principal of and, to the extent permitted by law, overdue
interest on any Euro-Dollar Rate Loan shall bear interest, payable on demand,
for each day until paid at a rate per annum equal to the Default Rate;
provided, however, that the mere application of the Default Rate to these
Revolver Loans shall not give rise to the
-15-
<PAGE> 22
breakage of an Interest Period, but only an increased margin applicable to
these Revolver Loans.
2.4 Fees
2.4.1 Commitment Fee. In consideration of Lender's
establishment of the Line of Credit, Borrower shall pay to Lender a commitment
fee in the amount of $50,000, which shall be deemed fully earned and
nonrefundable on the date hereof and which shall be paid on the Closing Date.
2.4.2 Unused Line Fee. Borrower shall pay to Lender a
quarterly unused Line of Credit fee on the first day of each May, August,
November and February, commencing May 1, 1994, in an amount equal to .375% per
annum multiplied by the amount by which the Average Loan Balance during the
quarter in question is less than the Line Commitment.
2.5 Computation of Interest and Fees. Interest on the
Euro-Dollar Rate Loans shall be computed on the basis of a year of 360 days and
paid for the actual number of days elapsed, calculated as to each Interest
Period from and including the first day thereof to but excluding the last day
thereof. Interest on the Prime Rate Loans shall be computed on the basis of a
year of 360 days and paid for the actual number of days elapsed, calculated
monthly from and including the first day of each month. Unused line fees and
any other fees payable hereunder shall be computed on the basis of a year of
360 days and paid for the actual number of days elapsed (including the first
day but excluding the last day).
2.6 Maximum Interest. In no contingency or event whatsoever
shall the aggregate of all amounts deemed interest hereunder or under the
Master Note and charged or collected pursuant to the terms of this Agreement or
pursuant to the Master Note exceed the highest rate permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that Lender has
charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the
maximum rate permitted by applicable law and Lender shall promptly refund to
Borrower any interest received by Lender in excess of the maximum lawful rate
or, if so requested by Borrower, shall apply such excess to the principal
balance of the Obligations. It is the intent hereof that Borrower not pay or
contract to pay, and that Lender not receive or contract to receive, directly
or indirectly in any manner whatsoever, interest in excess of that which may be
paid by Borrower under applicable law.
-16 -
<PAGE> 23
2.7 General Provisions as to Payments.
2.7.1 Maturity of Revolver Loans. Each Euro-Dollar
Rate Loan shall mature, and the principal amount thereof shall be due and
payable, on the last day of the Interest Period applicable thereto. All
Revolver Loans outstanding at any time as Prime Rate Loans shall be due and
payable on the soonest to occur of (i) the Termination Date, (ii) acceleration
of the maturity or demand for payment of the Revolver Loans upon or after the
occurrence of an Event Default, or (iii) the receipt by Lender in the
Collateral Reserve Account or otherwise of any proceeds of Collateral, to the
extent of the amount of such proceeds.
2.7.2 Timing. Borrower shall make each payment of
principal of, and interest on, the Euro-Dollar Rate Loans and of commitment,
unused line and other fees hereunder, not later than 11:00 a.m. (Atlanta,
Georgia time) on the date when due, in federal or other funds immediately
available in Atlanta, Georgia, to Lender at its main office in Atlanta,
Georgia.
2.7.3 Next Banking Day. Whenever any payment of
principal of, or interest on, any Prime Rate Loans or of any other fees shall
be due on a day which is not a Domestic Business Day, the date for payment
thereof shall be extended to the next succeeding Domestic Business Day.
Whenever any payment of principal of, or interest on, any Euro-Dollar Rate
Loans shall be due on a day which is not a Euro-Dollar Business Day, the date
for payment thereof shall be extended to the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another calendar
month, in which case the date for payment thereof shall be the immediately
preceding Euro-Dollar Business Day.
2.8 Term and Termination of Line of Credit. Subject to
Lender's right to cease making Revolver Loans to Borrower at any time upon or
after the occurrence of any Default Condition or any Event of Default, the Line
of Credit shall be in effect for a period commencing on the date hereof and
ending on February 24, 1996 ("Original Term"); provided, that, Borrower may
request that Lender extend the Original Term for additional periods of one (1)
year (each a "Renewal Term") by giving Lender written notice at least ninety
(90) days prior to the end of the first anniversary of this Agreement or the
Original Term, as the case may be, and Lender may, in its sole and absolute
discretion, agree to such extension or not permit such extension (in which
event the Line of Credit shall terminate on the last day of the Original Term
or the applicable Renewal Term, as the case may be). In no event shall the
term of the Line of Credit extend beyond February 24, 1998. All of the
Obligations shall be due and payable in full on the Termination Date.
-17-
<PAGE> 24
3. CHANGE IN CIRCUMSTANCES: COMPENSATION.
3.1 Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period: Lender
determines that deposits in Dollars (in the applicable amounts) are not being
offered in the relevant market for such Interest Period, or the Adjusted LIBOR
Rate, as determined by Lender, will not adequately and fairly reflect the cost
to Lender of funding the relevant Euro-Dollar Rate Loans for such Interest
Period, then Lender shall forthwith give notice thereof to Borrower, whereupon
until Lender notifies Borrower that the circumstances giving rise to such
suspension no longer exist, the obligation of Lender to make the Euro-Dollar
Rate Loans specified in such notice shall be suspended. Unless Borrower
notifies Lender at least two (2) Domestic Business Days before the date of any
Borrowing of such Euro-Dollar Rate Loans for which a Notice of Borrowing has
previously been given that it elects not to borrow on such date, such Borrowing
shall instead be made as a Prime Rate Borrowing.
3.2 Illegality. If, after the date hereof, the adoption
of any applicable law, rule or regulation, or any change therein, or any change
in the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof (any such agency being referred to as an "Authority" and
any such event being referred to as a "Change of Law"), or compliance by
Lender or Participant with any request or directive (whether or not having the
force of law) of any Authority shall make it unlawful or impossible for Lender
to make, maintain or fund its Euro-Dollar Rate Loans or for Participant to fund
its participation with respect to Euro-Dollar Rate Loans, Lender shall
forthwith give notice thereof to Borrower, whereupon until Lender notifies
Borrower that the circumstances giving rise to such suspension no longer exist,
the obligation of Lender to make Euro-Dollar Rate Loans shall be suspended. If
Lender shall determine that it may not lawfully continue to maintain and fund
any of its outstanding Euro-Dollar Rate Loans to maturity and shall so specify
in such notice, Borrower shall immediately prepay in full the then outstanding
principal amount of each Euro-Dollar Rate Loan, together with accrued interest
thereon. Concurrently with prepaying each such Euro-Dollar Rate Loan, Borrower
shall borrow, pursuant to Section 2.2.3, a Prime Rate Loan in an equal
principal amount from Lender.
3.3 Increased Cost and Reduced Return.
3.3.1 Change of Law. If after the date hereof, a Change of
Law or compliance by Lender with any request or directive (whether or not
having the force of law) of any Authority either:
-18-
<PAGE> 25
(i) shall subject Lender to any tax, duty or other charge with respect to the
Revolver Loans, the Master Note or its obligation to make Revolver Loans, or
shall change the basis of taxation of payments to Lender of the principal of or
interest on the Revolver Loans or any other amounts due under this Agreement in
respect of the Revolver Loans or its obligation to make Revolver Loans (except
for changes in the rate of tax on the overall net income of Lender; or (ii)
shall impose, modify or deem applicable any reserve, special deposit insurance
or similar requirement (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
any such requirement included in an applicable Euro-Dollar Reserve Percentage)
against assets of, deposits with or for the account of, or credit extended by,
Lender or the London Interbank Market any other similar condition affecting the
Revolver Loans, the Master Note or its obligation to make Revolver Loans; and
the result of any of the foregoing is to increase the cost to Lender of making
or maintaining any Revolver Loan, or to reduce the amount of any such received
or receivable by Lender under this Agreement or under the Master Note with
respect thereto, by an amount deemed by Lender to be material, then, within
fifteen (15) days after demand by Lender, Borrower shall pay to Lender such
additional amount or amounts as will compensate Lender for such increased cost
or reduction.
3.3.2 Capital Adequacy. If, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the administration thereof, or compliance by
Lender with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, affects the amount of capital required or expected to be maintained by
Lender or any corporation in control of Lender and Lender determines that the
amount of such capital is increased by or based upon Lender's obligations
hereunder, then from time to time, within fifteen (15) days after demand by
Lender, Borrower shall pay to Lender such additional amount or amounts as will
compensate Lender in light of such circumstances, to the extent that Lender
reasonably determines such increase in capital is allocable to its obligations
hereunder.
3.3.3 Notice of Determination. Lender will promptly
notify Borrower of any event of which it has knowledge, occurring after the
date hereof, which will entitle Lender to compensation pursuant to this
Section. A certificate of Lender claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error. In determining such
-19-
<PAGE> 26
amount, Lender may use any reasonable averaging and attribution methods.
3.4 Prime Rate Loans Substituted for Affected Euro-Dollar
Rate Loans. If (i) the obligation of Lender to make or maintain Euro-Dollar
Rate Loans has been suspended pursuant to Section 3.2 or (ii) Lender has
demanded compensation under Section 3.3, and Borrower shall, by at least five
(5) Euro-Dollar Business Days' prior notice to Lender, have elected that the
provisions of this Section shall apply to Lender, then, unless and until Lender
notifies Borrower that the circumstances giving rise to such suspension or
demand for compensation no longer apply: (i) all Revolver Loans which would
otherwise be made by Lender as Euro-Dollar Rate Loans, shall be made instead as
Prime Rate Loans, and (ii) after each of its Euro-Dollar Rate Loans has been
repaid, all payments of principal which would otherwise be applied to repay
such Euro-Dollar Rate Loans shall be applied to repay its Prime Rate Loans
instead.
3.5 Compensation for Funding Losses. Upon the request of
Lender, Borrower shall pay to Lender such amount or amounts as shall compensate
Lender and Participant for any loss, costs or expense incurred by Lender or
Participant (in connection with the relevant Interest Period) as a result of:
(i) any payment or prepayment (whether pursuant to Section 3.2 or otherwise) of
a Euro-Dollar Rate Loan on a date other than the last day of the Interest
Period for such Euro-Dollar Rate Loan; or (ii) any failure by Borrower to
prepay a Euro-Dollar Rate Loan on the date for such prepayment specified in the
relevant notice of prepayment hereunder; or (iii) any failure by Borrower to
borrow a Euro-Dollar Rate Loan on the date specified in the applicable Notice
of Borrowing delivered pursuant to Section 2.2.1 hereof. Such compensation
shall include, without limitation, an amount equal to the excess, if any, of
(x) the amount of interest which would have accrued on the amount so paid or
prepaid or not prepaid or borrowed for the period from the date of such
payment, prepayment or failure to prepay or borrow to the last day of the then
current Interest Period for such Euro-Dollar Rate Loan (or, in the case of a
failure to prepay or borrow, the Interest Period for such Euro-Dollar Rate Loan
which would have commenced on the date of such failure to prepay or borrow) at
the applicable rate of interest for such Euro-Dollar Rate Loan provided for
herein over (y) the amount of interest (as reasonably determined by Lender)
that Lender would have paid on deposits in Dollars of comparable amounts having
terms comparable to such period placed with it by leading banks in the London
Interbank Market.
4. SECURITY INTEREST -- COLLATERAL. As security for the payment
of the Master Note and all Obligations whatsoever of Borrower to Lender,
Borrower hereby grants to Lender a continuing,
-20-
<PAGE> 27
general lien upon and security interest in and to the following described
property, wherever located, whether now existing or hereafter acquired or
arising:
(a) the Inventory Collateral;
(b) the Documents Collateral;
(c) the Balances Collateral;
(d) the Credit Card Receivables Collateral;
(e) the Inventory Collateral Proceeds; and
(f) the Books and Records.
Borrower agrees to execute the UCC-1 financing statements provided for by the
Code or other applicable law, together with any and all other instruments,
assignments or documents and shall take such other action as may be required to
perfect or to continue the perfection of Lender's security interest in the
Collateral.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO
INVENTORY COLLATERAL. With respect to the Inventory Collateral, Borrower hereby
represents, warrants and covenants to Lender as set forth in Sections 5.1
through 5.5, inclusive.
5.1 Sale of Inventory Collateral. Borrower will not sell,
lease, exchange, or otherwise dispose of any of the Inventory Collateral
without the prior written consent of Lender, except in the ordinary course of
Borrower's business for cash, by credit card, on open account or on terms of
payment ordinarily extended to its customers. Upon the sale, exchange or other
disposition of the Inventory Collateral, the security interest and lien created
and provided for herein, without break in continuity and without further
formality or act, shall continue in and attach to any Inventory Collateral
Proceeds and Documents and in the event of any unauthorized sale, shall
continue in the Inventory Collateral itself.
5.2 Insurance. Borrower agrees that it will obtain and
maintain insurance on the Inventory Collateral with such companies, in such
amounts and against such risks as Lender may reasonably request, with loss
payable to Lender as its interests may appear. Such insurance shall not be
cancelable by Borrower, unless with the prior written consent of Lender, or by
Borrower's insurer, unless with at least thirty (30) days advance written
notice to Lender.
5.3 Good Title; No Existing Encumbrances. Borrower owns
the Inventory Collateral free and clear of any prior security
-21-
<PAGE> 28
interest, lien or encumbrance other than Permitted Encumbrances and no
financing statements or other evidences of the grant of a security interest
respecting the Inventory Collateral exist on the public records as of the date
hereof other than any evidencing any Permitted Encumbrances.
5.4 Right to Grant Security Interest: No Further
Encumbrances. Borrower has the right to grant a security interest in the
Inventory Collateral. Borrower will pay all sales and other charges against the
Inventory Collateral, and Borrower will not use the Inventory Collateral
illegally or allow the Inventory Collateral to be encumbered except for the
security interest in favor of Lender granted herein and except for any
Permitted Encumbrances.
5.5 Location of Inventory Collateral. Borrower hereby
represents and warrants to Lender that, as of the date hereof, the Inventory
Collateral of Borrower is situated only at one or more of the Collateral
Locations and Borrower covenants with Lender not to locate the Inventory
Collateral at any location other than a Collateral Location without at least 30
days prior written notice to Lender; provided, however, that nothing contained
herein shall be deemed to prohibit Borrower, without notice to or the consent
of Lender, from transferring temporarily (for periods not to exceed 3 months in
any event) Inventory Collateral from a Collateral Location to another location
at any time or from time to time hereafter for the limited purpose of having
work performed on such Inventory Collateral if done in the ordinary course of
Borrower's business. In addition, to the extent Borrower should warehouse any
of the Inventory Collateral at any time hereafter with any third party,
Borrower acknowledges and agrees that such warehousing may be done only after
prior written notification to Lender thereof and shall be conducted only by
warehousemen who shall issue nonnegotiable warehouse receipts in Lender's name
to evidence any such warehousing of goods constituting Inventory Collateral.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO
BALANCES COLLATERAL. With respect to the Balances Collateral, Borrower hereby
represents, warrants and covenants to Lender as set forth in Sections 6.1
through 6.3, inclusive.
6.1 Ownership. Borrower owns the Balances Collateral free
and clear of any lien, mortgage, security interest or encumbrance thereon other
than Permitted Encumbrances.
6.2 Remedies. In addition to such other rights and
remedies with respect to the Balances Collateral as may exist from time to time
hereafter in favor of Lender, whether by way of set-off, banker's lien,
consensual security interest or otherwise, upon or after the occurrence of any
Event of Default hereunder, Lender
-22-
<PAGE> 29
may charge any part or all of the obligations of Lender to Borrower represented
by items constituting the Balances Collateral in the possession and control of
Lender against the Obligations, without prior notice to or demand upon
Borrower.
6.3 Liens. Hereafter, Borrower will not incur, create or
suffer to exist any lien, security interest or encumbrance upon the Balances
Collateral, except for the security interest granted herein and except for any
Permitted Encumbrances, or sell, convey, hypothecate, pledge or assign its
right, title or interest therein, without the prior written consent of Lender
thereto.
7. GENERAL REPRESENTATIONS AND WARRANTIES. In order to
induce Lender to enter into this Agreement, Borrower hereby represents and
warrants to Lender (which representations and warranties, together with the
representations and warranties of Borrower contained in Sections 5 and 6, shall
be deemed to be renewed as of the date of each Revolver Loan) as set forth in
Sections 7.1 through 7.17, inclusive.
7.1 Corporate Existence and Qualification. Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation with its principal place of business,
chief executive office and office where it keeps all of its books and records
being located at the Executive Office and is duly qualified as a foreign
corporation in good standing in any other state wherein the conduct of its
business or the ownership of its property requires such qualification. Borrower
has as its corporate name, as registered with the secretary of state of the
state of its incorporation, the words first inscribed hereinabove as its name,
and has not done business under any other name (including, without limitation,
any tradename) for at least the past seven (7) years except under the
tradenames "Fowler's Furniture Center," "Marks-Fitzgerald," "Rhodes Furniture,"
"Crossroads," "Furniture Warehouse and Showrooms Company," "Rhodes," "Crossroads
Furniture Warehouse and Showrooms Co.," and "Rhodes Furniture Company
(TN-Rhodes, Inc.)."
7.2 Corporate Authority: Validity and Binding Effect.
Borrower has the power to make, deliver and perform under the Loan Documents,
and to borrow hereunder, and has taken all necessary and appropriate corporate
action to authorize the execution, delivery and performance of the Loan
Documents. This Agreement constitutes, and the remainder of the Loan Documents,
when executed and delivered for value received, will constitute, the valid
obligations of Borrower, legally binding upon it and enforceable against it in
accordance with their respective terms. The undersigned officers of Borrower
are duly authorized and empowered to execute, attest and deliver this Agreement
and the remainder of
-23-
<PAGE> 30
the Loan Documents for and on behalf of Borrower, and to bind Borrower
accordingly thereby.
7.3 No Material Litigation. Except as set forth on
Exhibit "J" attached hereto and made a part hereof, there are no proceedings
pending or, so far as Borrower or any of its officers know, threatened, before
any court or administrative agency and no action, suit, proceeding or
investigation shown on Exhibit "J" might materially adversely affect the
financial condition or operations of Borrower.
7.4 Taxes. Borrower has filed or caused to be filed all
tax returns required to be filed by it and has paid all taxes shown to be due
and payable by it on said returns or on any assessments made against it.
7.5 Capital Stock. All capital stock, debentures, bonds,
notes and all other securities of Borrower presently issued and outstanding are
validly and properly issued in accordance with all applicable laws, including,
but not limited to, the "blue sky" laws of all applicable states and the
federal securities laws.
7.6 Corporate Organization. The articles of incorporation
of and by-laws of Borrower are in full force and effect under the laws of the
state of its incorporation and all amendments to said articles of incorporation
and by-laws have been duly and properly made under and in accordance with all
applicable laws.
7.7 Insolvency. After giving effect to the execution and
delivery of the Loan Documents and the making of any disbursements under the
Master Note, Borrower will not be "insolvent", within the meaning of such term
as defined in Section 101(29) of the Bankruptcy Code (or any successor
provision), or be unable to pay its debts generally as such debts become due,
or have an unreasonably small capital.
7.8 Title. Borrower has good and marketable title to all
of its properties subject to no material lien of any kind except as otherwise
disclosed in writing to Lender and as to the Collateral, except for the
Permitted Encumbrances.
7.9 Margin Stock. Borrower is not engaged principally, or
as one of its important activities, in the business of purchasing or carrying
any "margin stock", as that term is defined in Section 221.3(v) of Regulation U
of the Board of Governors of the Federal Reserve System, and no part of the
proceeds of any borrowing made pursuant hereto will be used to purchase or
carry any such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock, or be used for any
-24-
<PAGE> 31
purpose which violates, or which is inconsistent with, the provisions of
Regulation X of said Board of Governors. In connection herewith, if requested
by Lender, Borrower will furnish to Lender a statement ln conformity with the
requirements of Federal Reserve Form F.R. U-1 referred to in said Regulation U
to the foregoing effect.
7.10 No Violations. The execution, delivery and
performance by Borrower of this Agreement and the Master Note have been duly
authorized by all necessary corporate action and do not and will not require
any consent or approval of the shareholders of Borrower, violate any provision
of any law, rule, regulation (including, without limitation, Regulation X of
the Board of Governors of the Federal Reserve System), order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to Borrower or of the charter or by-laws of Borrower, or result
in a breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which Borrower is a
party or by which it or its properties may be bound or affected; and Borrower
is not in default under any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or any such indenture, agreement,
lease or instrument.
7.11 ERISA. (i) Borrower is in full compliance with the
requirements of ERISA; (ii) no fact, including, but not limited to, any
Reportable Event exists in connection with any Plan which might constitute
grounds for the termination of any such Plan by the PBGC or for the appointment
by the appropriate United States district court of a trustee to administer any
such Plan; (iii) Borrower maintains no Plan which has an "accumulated funding
deficiency" (as defined in Section 412 of the Internal Revenue Code), and has
no material liability to the PBGC, (iv) Borrower has no Plan with an actuarial
present value of accrued plan benefits which exceeds the net assets available
for such benefits determined as of said Plan's most recent actuarial valuation
within the last twelve (12) months by more than $1,000,000, either individually
or in the aggregate; (v) Borrower is not required pursuant to the terms of any
applicable collective bargaining agreement to pay or accrue any contributions
with respect to any Plan which is a Multiemployer Plan and there has been no
complete or partial withdrawal by Borrower from any such Multiemployer Plan
within the contemplation of MPPAA; and (vi) neither Borrower nor any fiduciary
designated by Borrower has engaged in a "prohibited transaction" within the
meaning of Section 4975 of the Internal Revenue Code or Section 406 of ERISA
with respect to any "employee benefit plan", as defined in Section 3 of ERISA.
7.12 Financial Statements. The audited Consolidated
financial statements of Borrower and its Consolidated Subsidiaries
-25-
<PAGE> 32
for its most recent fiscal year, copies of which have heretofore been furnished
to Lender, are complete and accurately and fairly represent the financial
condition of Borrower and its Consolidated Subsidiaries, the results of its
operations and the transactions in its equity accounts as of the dates and for
the periods referred to therein, and have been prepared in accordance with GAAP
throughout the period involved. There are no material liabilities, direct or
indirect, fixed or contingent, of Borrower or its Consolidated Subsidiaries
(which were Consolidated Subsidiaries on the date of determination) as of the
date of such financial statements which are not reflected therein or in the
notes thereto. There has been no material adverse change in the financial
conditions or operations of Borrower or its Consolidated Subsidiaries (which
were Consolidated Subsidiaries on the date of determination) taken as a whole,
since the date of the balance sheet contained in such financial statements or
since the date of the unaudited Consolidated financial statements of Borrower
and its Consolidated Subsidiaries for the nine months ending November 30, 1993.
7.13 Delivery of Certain Collateral. Borrower has
delivered all agreements, letters of credit, promissory notes, certificates of
deposit, chattel paper or anything else the physical possession of which is
necessary in order for Lender to perfect or preserve the priority of its
security interest therein.
7.14 Purchase of Collateral. Borrower has not purchased
any of the Collateral in a bulk transfer or in a transaction which was outside
the ordinary course of the business of Borrower's seller.
7.15 Pollution and Environmental Control. Each of Borrower
and its Subsidiaries (which were Subsidiaries on the date of determination) has
obtained all permits, licenses and other authorizations which are required
under, and is in material compliance with, all Environmental Laws and any other
state or local law or regulation relating to pollution, reclamation, or
protection of the environment, including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants, or
hazardous or toxic materials or wastes into air, water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants or hazardous or
toxic materials or wastes.
7.16 Possession of Franchises, Licenses, Etc. Borrower and
its Subsidiaries (which were Subsidiaries on the date of determination) possess
all franchises, certificates, licenses, permits and other authorizations from
governmental political subdivisions or regulatory authorities, and all patents,
trademarks, service marks, trade names, copyrights, licenses and
-26-
<PAGE> 33
other rights, free from burdensome restrictions, that are necessary for the
ownership, maintenance and operation of any of their respective material
properties and assets, and neither Borrower nor any of its Subsidiaries (which
were Subsidiaries on the date of determination) is in violation of any thereof.
7.17 Disclosure. To the best of Borrower's knowledge,
neither this Agreement nor any other document, certificate or statement
furnished to Lender by or on behalf of Borrower in connection herewith contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein and therein not
misleading. To the best of Borrower's knowledge, there is no fact peculiar to
the Borrower or any of its Subsidiaries (which were Subsidiaries on the date of
determination) which materially adversely affects or in the future may (so far
as the Borrower can now foresee) materially adversely affect the business,
property or assets, or financial condition of Borrower or any of its
Subsidiaries (which were Subsidiaries on the date of determination) which has
not been set forth in this Agreement or in the other documents, certificates
and statements furnished to Lender by or on behalf of the Borrower prior to the
date hereof in connection with the transactions contemplated hereby.
7.18 Rental Payments. Borrower is current in its payment
of any and all rents owing by Borrower with respect to any leased location of
Borrower, and Borrower has not failed to pay any rent or other charges when due
under any lease.
8. GENERAL AFFIRMATIVE COVENANTS. Borrower covenants to Lender
that from and after the date hereof, and until such time as Lender shall have
terminated this Agreement in writing, it will comply with the covenants set
forth in Sections 8.1 through 8.24, inclusive.
8.1 Records Respecting Collateral. All records of
Borrower with respect to the Collateral shall be kept at its Executive Office
(as it may be changed pursuant to Section 8.12) and will not be removed from
such address without the prior written consent of Lender.
8.2 Further Assurances. Borrower shall duly execute and
deliver (or cause to be duly executed and delivered) to Lender any instrument,
invoice, document, document of title, dock warrant, dock receipt, warehouse
receipt, bill of lading, order, financing statement, assignment, waiver,
consent or other writing which may be reasonably necessary to Lender to carry
out the terms of this Agreement and any of the other Loan Documents and to
perfect its security interest in and facilitate the collection of the
Collateral, the proceeds thereof, and any other property at any
-27-
<PAGE> 34
time constituting security to Lender. Borrower shall perform or cause to be
performed such acts as Lender may request to establish and maintain for Lender
a valid and perfected security interest in and security title to the
Collateral, free and clear of any liens, encumbrances or security interest
other than in favor of Lender and other than the Permitted Encumbrances.
8.3 Right to Inspect. Lender (or any Person or Persons
designated by it, including, without limitation, any representative of
Participant) shall, in its sole discretion, have the right to call at any place
of business of Borrower at any reasonable time and without hindrance or delay,
inspect the Collateral inspect and audit, check and make extracts from
Borrower's books, records, journals, orders, receipts and any correspondence
and other data relating to the Collateral, to Borrower's business or to any
other transactions between the parties hereto.
8.4 Reports. Borrower shall, as soon as practicable, but
in any event on or before twenty (20) days after the end of each fiscal month,
furnish or cause to be furnished to Lender a status report, certified by a
Senior Officer, of the type, dollar value and location of the Inventory
Collateral as at the end of the preceding fiscal month, valued at the lower of
cost or market value. Additionally, Lender may, at any time in its sole
discretion, require Borrower to permit Lender to verify under the letterhead of
a certified public accountant the individual account balances of the individual
Account Debtors immediately upon its request therefor. In any event, upon
request from Lender, made at any time hereafter, Borrower shall furnish Lender
with a then current Account Debtor address list. In addition, upon Lender's
request, Borrower shall furnish Lender with a status report, certified by a
Senior Officer, of the aggregate dollar value of the items comprising the
accounts payable of Borrower and the age of each individual item thereof as of
the last day of the preceding fiscal month (segregating such items in such
manner and to such degree as Lender may request).
8.5 Settlement Sheets. On the Closing Date and at the end
of each fiscal week and month of Borrower thereafter, Borrower shall prepare
and deliver to Lender a settlement report evidencing satisfaction of the Margin
Requirement as of the date of report submission and certifying that all rents
and other charges currently owing by Borrower with respect to any leased
location have been paid. Each settlement report shall be in such form as Lender
may deliver for such purpose to Borrower from time to time hereafter, the
statements in which, in each instance, shall be certified as to truth and
accuracy by a duly authorized officer of Borrower.
-28-
<PAGE> 35
8.6 Periodic Financial Statements. Borrower shall, as
soon as practicable, and in any event within forty (40) days after the end of
each month, furnish to Lender, unaudited financial statements of Borrower and
its Consolidated Subsidiaries, including balance sheet and income statement,
for the immediately preceding month, and for the fiscal year to date, certified
as to truth and accuracy by a duly authorized Senior Officer of Borrower.
8.7 Annual Financial Statements. Borrower shall, as soon
as practicable, and in any event within ninety-five (95) days after the end of
each fiscal year, furnish to Lender the annual audited report of Borrower and
its Consolidated Subsidiaries, certified without material qualification (and
Lender reserves the exclusive right to determine whether qualifications arising
out of uncertainty or due to an accounting change are material for purposes of
this covenant) by independent certified public accountants selected by Borrower
and acceptable to Lender, and prepared in accordance with GAAP applied on a
basis consistently maintained throughout the period involved, together with
relevant financial statements of Borrower for the fiscal year then ended, on a
consolidating and a consolidated basis, if applicable. Borrower shall cause
said accountants to furnish Lender with a statement that in making their
examination of such financial statements, they obtained no knowledge of any
Event of Default or Default Condition which pertains to accounting matters
relating to this Agreement or the Master Note, or, in lieu thereof, a statement
specifying the nature and period of existence of any such Event of Default or
Default Condition disclosed by their examination. Such statements shall also be
prepared on an unaudited consolidating basis for such Consolidated Subsidiaries
which accounted for more than ten percent (10%) of the gross revenues of
Borrower for that year. Such consolidating statements shall be certified by a
duly authorized officer of Borrower to fairly present the financial position
and the results of operations of the Borrower for the period involved.
8.8 Payment of Taxes. Borrower shall pay and discharge
all taxes, assessments and governmental charges upon it, its income and its
properties prior to the date on which penalties attach thereto, unless and to
the extent only that (x) such taxes, assessments and governmental charges are
being actively contested in good faith and by appropriate proceedings by
Borrower and prompt written notice of such contest is given by Borrower to
Lender, (y) Borrower maintains reasonable reserves on its books therefor in
accordance with GAAP and (z) the nonpayment of such taxes during the period of
such contest does not result in a lien upon any of the Collateral other than a
Permitted Encumbrance.
8.9 Maintenance of Insurance. In addition to and
cumulative with any other requirements herein imposed on Borrower with respect
to insurance, Borrower shall maintain insurance with
-29-
<PAGE> 36
responsible insurance companies on such of its properties, in such amounts and
against such risks as is customarily maintained by similar businesses operating
in the same vicinity, but in any event to include loss, damage, flood,
windstorm, fire, theft, extended coverage and product liability insurance in
amounts satisfactory to Lender, which such insurance shall not be cancelable by
Borrower unless with the prior written consent of Lender, or by Borrower's
insurer, unless with at least ten (10) days prior written notice to Lender
thereof. Borrower shall deliver to Lender the originals of such policies with
satisfactory lender's loss payable endorsements naming Lender as loss payee.
Within thirty (30) days after notice in writing from Lender, Borrower shall
obtain such additional insurance as Lender may reasonably request.
8.10 Maintenance of Property and Management. Borrower
shall maintain its property in good working condition and its management
satisfactory to Lender in keeping with its by-laws.
8.11 Certificate of No Event of Default. Borrower shall,
on a quarterly basis not later than forty-five (45) days after the close of
each of its first three fiscal quarters and not later than ninety (90) days
after the close of its fiscal year, certify to Lender, in a statement executed
by a duly authorized Senior Officer of Borrower in the form of Exhibit "E"
attached hereto, that no Event of Default and no Default Condition exists or
has occurred, or, if an Event of Default or Default Condition exists,
specifying the nature and period of existence thereof. Such certificate shall
also set forth, in reasonable detail, compliance with Sections 8.19 through
8.21, inclusive, by Borrower for the immediately preceding fiscal quarter.
8.12 Change of Principal Place of Business. Borrower
understands and agrees that if, at any time hereafter, Borrower elects to move
its Executive Office, or if Borrower elects to change its name, or identify its
structure as other than a corporate structure, Borrower shall notify Lender in
writing at least thirty (30) days prior thereto.
8.13 Waivers. With respect to each of the Collateral
Locations, Borrower shall obtain such waivers of lien, estoppel certificates or
subordination agreements as Lender may reasonably require from time to time to
insure the priority of Lender's security interest in any of the Collateral
situated at such locations.
8.14 Preservation of Corporate Existence. Borrower shall
preserve and maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable
-30-
<PAGE> 37
in view of its business and operations or the ownership of its properties.
8.15 Compliance With Laws. Borrower shall comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, non-compliance with which would materially adversely
affect its business or credit, including, without limitation, all Environmental
Laws.
8.16 ERISA. Borrower and each of its Subsidiaries shall:
(i) make prompt payments of contributions required to meet the minimum funding
standards set forth under ERISA with respect to each and every Plan and,
promptly after the filing thereof, furnish to Lender copies of each annual
report required to be filed under ERISA in connection with each and every Plan
for each and every Plan year; (ii) notify Lender immediately of any fact,
including, but not limited to, any Reportable Event, arising in connection with
any Plan which might constitute grounds for the termination thereof by the PBGC
or for the appointment by the appropriate United States district court of a
trustee to administer the Plan; (iii) promptly after the issuance thereof,
furnish to Lender a copy of any notice of any Reportable Event given to the
PBGC with respect to any Plan; (iv) promptly after receipt thereof, furnish to
Lender a copy of any notice received by the Borrower or any of its subsidiaries
from the PBGC relating to the intention of the PBGC to terminate any Plan or to
appoint a trustee to administer any Plan; and (v) furnish to Lender, promptly
upon its request therefor, such additional information concerning each and
every Plan as may be reasonably requested.
8.17 [Intentionally Omitted]
8.18 Certain Required Notices. Promptly, upon its receipt
of notice or knowledge thereof, Borrower shall report to Lender: (i) any
lawsuit or administrative proceeding in which Borrower is a defendant wherein
the amount of damages claimed against Borrower exceeds $500,000; (ii) the
execution by Borrower of any agreement for a private label credit card program
for Borrower's customers; (iii) the termination or material modification of the
Beneficial Agreement; (iv) the assertion by any Noteholders that Borrower has
defaulted in the performance of any of its obligations under the Note Purchase
Documents; or (v) the existence and nature of any Default Condition or Event of
Default.
8.19 Consolidated Fixed Charge Coverage Ratio. Borrower
shall at all times maintain a Consolidated Fixed Charge Coverage Ratio of at
least the ratios shown below for the period corresponding thereto, calculated
quarterly based upon the immediately preceding four (4) fiscal quarters:
-31-
<PAGE> 38
Period Ratio
------ -----
Closing Date through 1.20 to 1
February 27, 1995
February 28, 1995 through 1.30 to 1
February 27, 1996
February 28, 1996 and 1.50 to 1
thereafter
8.20 Minimum Consolidated Net Worth. Borrower shall at all
times maintain a Consolidated Net Worth of at least the amount shown below for
the period corresponding thereto:
Period Ratio
------ -----
Closing Date through $48,000,000
May 30, 1994
May 31, 1994 through $50,000,000
February 27, 1995
February 28, 1995 through $55,000,000
February 27, 1996
February 28, 1996 and $60,000,000
thereafter
8.21 Consolidated Leverage Ratio. Borrower shall at all
times maintain a Consolidated Leverage Ratio that does not exceed the ratios
shown below for the periods corresponding thereto:
Period Ratio
------ -----
Closing Date through 2.85 to 1
February 27, 1994
February 28, 1994 through 2.60 to 1
February 27, 1995
February 28, 1995 through 2.25 to 1
February 28, 1996
February 28, 1996 and 2.00 to 1
thereafter
8.22 Banking Relationship. Borrower shall maintain its
primary banking relationship with Lender and, to that end, will concentrate all
of its funds in accounts maintained with Lender.
-32-
<PAGE> 39
8.23 Business Plan and Financial Projections. Borrower shall
deliver to Lender, within thirty (30) days after the commencement of each
fiscal year, Borrower's Projections for such fiscal year and Borrower's annual
business plan.
8.24 SEC Filings; Shareholder Reports. Borrower shall,
promptly upon the filing or sending thereof, deliver to Lender copies of all
reports or filings made by Borrower with the Securities Exchange Commission and
all information distributed to Borrower's shareholders from time to time.
9. NEGATIVE COVENANTS. Borrower covenants to Lender that from and
after the date hereof and until such time as Lender shall have terminated this
Agreement in writing, it will not, without the prior written consent of Lender,
do any of the things or acts set forth in Sections 9.1 through 9.14, inclusive.
9.1 No Encumbrances. Borrower shall not create, assume, or
suffer to exist any mortgage, deed of trust, pledge, assignment, lien, charge,
encumbrance on, or security interest or security title of any kind in any of
its real or personal property except for: (i) liens, security interests and
encumbrances in favor of Lender; and (ii) any Permitted Encumbrances.
9.2 Indebtedness for Borrowed Funds. Borrower shall not
incur, assume, or suffer to exist any indebtedness for borrowed funds except
for: (i) indebtedness for borrowed funds existing on the date of this
Agreement; (ii) indebtedness for borrowed funds incurred pursuant to financial
contractual agreements made and entered into, and disclosed in writing to
Lender, prior to the date of this Agreement, including, without limitation,
indebtedness to the Noteholders under the Master Note Purchase Documents; (iii)
indebtedness for borrowed funds owing to Lender; (iv) indebtedness for borrowed
funds subordinated in the manner described in Section 9.18; and (v) purchase
money indebtedness that does not exceed in the aggregate on any date
$1,000,000. In no event shall Borrower be permitted to prepay any indebtedness
for borrowed funds, including, without limitation, any indebtedness owing under
the Senior Notes, other than money borrowed from Security Pacific or from Green
Capital that is outstanding on the date hereof and the payment of which, in the
case of Security Pacific, is to be satisfied in full.
9.3 Capital Expenditures and Leases. Borrower shall not
make capital expenditures (including, without limitation, by way of capital
leases) which in the aggregate, as to Borrower and its Subsidiaries, exceed
$10,000,000 in any fiscal year of Borrower.
9.4 Contingent Liabilities. Borrower shall not guarantee,
endorse, become surety with respect to or otherwise
-33-
<PAGE> 40
become directly or contingently liable for or in connection with the
obligations of any other Person, except endorsements of negotiable instruments
for collection in the ordinary course of business.
9.5 Distributions. Borrower will not make any
Distributions; provided, however, that Borrower may make Distributions to its
shareholders each fiscal quarter, in an amount not to exceed thirty-five
percent (35%) of Consolidated Net Income for such fiscal quarter, but only if
(i) Consolidated Net Worth is at least $70,000,000 and (ii) no Default
Condition or Event of Default exists at the time of or would result from the
making of any such Distribution.
9.6 Restricted Investments and Acquisitions. Borrower shall
not make or have, or permit any Subsidiary to make or have, any Restricted
Investment other than any Acquisition the purchase price of which to be paid in
connection therewith (whether in cash, notes or other property) is less than,
in the case of a single Acquisition, $3,000,000; provided, however, in no event
shall the aggregate amount of all Acquisitions made in any period of four (4)
consecutive quarters, exceed $5,000,000.
9.7 Merger; Business Changes. Borrower shall not dissolve
or otherwise terminate its corporate status or enter into any merger,
reorganization or consolidation or make any substantial change in the basic
type of business conducted by Borrower as of the date hereof.
9.8 Business Locations. Borrower shall not transfer its
principal place of business or chief executive office, or open new store
locations or warehouses, or transfer existing store locations or warehouses or
maintain records with respect to accounts or Inventory Collateral, to or at any
locations other than those at which the same are presently kept or maintained,
as set forth on Exhibit A hereto, except upon at least sixty (60) days prior
written notice to Lender and after the delivery to Lender of financing
statements, if required by Lender, in form satisfactory to Lender to perfect or
continue the perfection of Lender's lien and security interest hereunder.
9.9 ERISA. Borrower shall not permit unfunded vested
liabilities under any Plan administered by Borrower or any of its subsidiaries
or by any administrator designated by Borrower or any of its subsidiaries to
exceed the aggregate sum of $1,000,000.
9.10 Loans. Borrower shall not make any loans or other
advances of money to any Person (including, without limitation, any Subsidiary)
except (a) advances for salary, travel advances, advances against commissions
and other similar advances, to the
-34-
<PAGE> 41
extent made in the ordinary course of business, and (b) loans to Green Capital,
not to exceed $5,000,000 in principal amount outstanding at any time, but only
if Lender is given at least five (5) days' prior written notice thereof, the
terms of the loan (including terms of repayment) are evidenced in writing and
Green Capital in writing agrees with Borrower and Lender that Green Capital
will repay all such loans prior to making any distributions to any of its
partners and will maintain partnership capital of at least $100,000,000 at all
times that any loans to it from Borrower are outstanding.
9.11 Affiliate Transactions. Borrower shall not enter into,
or be a party to, or permit any Subsidiary to enter into or be a party to, any
transaction with any Affiliate or stockholder, except in the ordinary course of
and pursuant to the reasonable requirements of Borrower's or such Subsidiary's
business and upon fair and reasonable terms which are fully disclosed to Lender
and are no less favorable to Borrower than would obtain in a comparable arm's
length transaction with a Person not an Affiliate or stockholder of Borrower or
such Subsidiary.
9.12 Subsidiaries. Borrower shall not hereafter create any
Subsidiary or divest itself of any material assets by transferring them to any
Subsidiary.
9.13 Fiscal Year. Borrower shall not change, or permit any
Subsidiary to change, its fiscal year, or permit any Subsidiary to have a
fiscal year different from that of Borrower.
9.14 Disposition of Assets. Borrower shall not sell, lease
or otherwise dispose of any of its properties, including any disposition of
property as part of a sale and leaseback transaction, to or in favor of any
Person, except (i) sales of Inventory Collateral in the ordinary course of
Borrower's business for so long as no Event of Default exists hereunder or (ii)
dispositions expressly authorized by this Agreement.
10. EVENTS OF DEFAULT. The occurrence of any events or conditions
described in Sections 10.1 through 10.14 shall constitute an Event of Default
hereunder, provided that any requirement for the giving of notice or the lapse
of time, or both, has been satisfied.
10.1 Master Note. Borrower shall fail to make any payments
of principal of or interest on any Master Note, when due.
10.2 Obligations. Borrower shall fail to make any payments
of principal of or interest on any of its Obligations (other than the Master
Note) to Lender, when due (after satisfaction of any requirement for the giving
of notice or the
-35-
<PAGE> 42
lapse of time, or both, contained in the applicable agreement pertaining to
such Obligations).
10.3 Misrepresentations. Borrower or any Guarantor shall
make any representation or warranty in any of the Loan Documents or in any
Guaranty or in any certificate or statement furnished at any time hereunder or
in connection with any of the Loan Documents or any Guaranty which proves to
have been untrue or misleading in any material respect when made or furnished.
10.4 Covenants. Borrower shall fail or neglect to perform,
keep or observe (i) any covenant contained in Article 9 or Sections 8.2, 8.3,
8.9, 8.19, 8.20 or 8.21 of this Agreement or (ii) any other covenant contained
in this Agreement (except a covenant a default in the performance or observance
of which is dealt with specifically elsewhere in this Section 10) and the
breach of such other covenant is not cured to Lender's satisfaction within
fifteen (15) days after the sooner to occur of Borrower's receipt of notice of
such breach from Lender or the date on which such failure or neglect first
becomes known to any Senior Officer of Borrower.
10.5 Default Under Guaranty. Any event of default shall
occur under, or any Guarantor shall default in the performance or observance of
any term, condition or agreement contained in, any Guaranty and such default
shall continue beyond any applicable period of grace.
10.6 Damage, Loss, Theft or Destruction of Collateral. There
shall have occurred material uninsured damage to, or loss, theft or destruction
of, any material part of the Collateral.
10.7 Other Debts. Borrower shall default in connection with
any agreement for borrowed money or other credit (including, without
limitation, obligations to the Noteholders under the Note Purchase Documents
and obligations with respect to leases and credit purchases) with Lender or
with any creditor other than Lender which entitles Lender or said creditor to
accelerate the maturity thereof.
10.8 Voluntary Bankruptcy. Borrower or any Guarantor shall
file a voluntary petition in bankruptcy or a voluntary petition or answer
seeking liquidation, reorganization, arrangement, re-adjustment of its debts,
or for any other relief under the Bankruptcy Code, or under any other act or
law pertaining to insolvency or debtor relief, whether state, federal, or
foreign, now or hereafter existing; Borrower or any Guarantor shall enter into
any agreement indicating its consent to, approval of, or acquiescence in, any
such petition or proceeding; Borrower or any Guarantor shall apply for or
permit the appointment by consent or
-36-
<PAGE> 43
acquiescence of a receiver, custodian or trustee of Borrower or any Guarantor
for all or a substantial part of its property; Borrower or any Guarantor shall
make an assignment for the benefit of creditors; or Borrower or any Guarantor
shall be unable or shall fail to pay its debts generally as such debts become
due, or Borrower or any Guarantor shall admit, in writing, its inability or
failure to pay its debts generally as such debts become due.
10.9 Involuntary Bankruptcy. There shall have been filed
against Borrower or any Guarantor an involuntary petition in bankruptcy or
seeking liquidation, reorganization, arrangement, readjustment of its debts or
for any other relief under the Bankruptcy Code, or under any other act or law
pertaining to insolvency or debtor relief, whether state, federal or foreign,
now or hereafter existing; Borrower or any Guarantor shall suffer or permit the
involuntary appointment of a receiver, custodian or trustee of Borrower or any
Guarantor or for all or a substantial part of its property; or Borrower or any
Guarantor shall suffer or permit the issuance of a warrant of attachment,
execution or similar process against all or any substantial part of the
property of Borrower or any Guarantor.
10.10 Judgments. A final judgment or order for the payment of
money is rendered against Borrower in the amount of $500,000 or more (exclusive
of amounts covered by insurance) and either (x) enforcement proceedings shall
have been commenced by any creditor upon such judgment or order, or (y) a stay
of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect for any period of thirty (30) consecutive
days.
10.11 ERISA. The occurrence of any of the following events: (i)
the happening of a Reportable Event with respect to any Plan of Borrower or any
Affiliate governed by ERISA; (ii) the termination of any such Plan; (iii) the
appointment of a trustee by an appropriate United States district court to
administer any such Plan; (iv) the institution of any proceedings by the PBGC
to terminate any such Plan or to appoint a trustee to administer any such Plan;
(v) the failure of Borrower to furnish to Lender a copy of each report which is
filed by Borrower or any Affiliate with respect to each such Plan promptly
after the filing thereof with the Secretary of Labor or the PBGC; or (vi) the
failure of Borrower to notify Lender promptly upon receipt by Borrower or any
Affiliate of any notice of the institution of any proceeding or other actions
which may result in the termination of any such Plan.
10.12 Bankruptcy of Affiliated Party. Any motion, complaint or
other pleading is filed in any bankruptcy case of any person or entity other
than Borrower and such motion, complaint or pleading seeks the consolidation of
Borrower's assets and
-37-
<PAGE> 44
liabilities with the assets and liabilities of such person or entity.
10.13 Prepayment of Senior Notes. Borrower shall prepay any
principal, interest or other amounts owing under any of the Senior Notes.
10.14 Material Adverse Change. There shall occur any material
adverse change in the financial condition or business prospects of Borrower or
any Guarantor.
10.15 Change of Control. Any Person (other than Green Capital)
or an affiliated group of Persons shall acquire more than fifty percent (50%)
of the issued and outstanding voting stock of Borrower.
11. REMEDIES. Upon or after the occurrence of any Default Condition
or Event of Default, Lender's obligation to extend financing under the Line of
Credit shall immediately cease; provided, however, that if such obligation has
ceased due to the occurrence of a Default Condition, and such Default Condition
does not become an Event of Default due to its having been cured or waived
before it has matured into an Event of Default, then such obligation shall be
reinstated as of the date such Default Condition is cured or waived. Upon the
occurrence of any Event of Default or at any time thereafter, without prejudice
to the rights of Lender to enforce its claims against Borrower for damages for
failure by Borrower to fulfill any of its obligations hereunder or to bring
suit against Borrower for specific performance of this Agreement, subject only
to prior receipt by Lender of payment in full of all Obligations then
outstanding in a form acceptable to Lender, Lender shall have all of the rights
and remedies described in Sections 11.1 through 11.4, inclusive, and it may
exercise any one, more, or all of such remedies, in its sole discretion,
without thereby waiving any of the others.
11.1 Acceleration of the Obligations. Lender, at its option,
may declare all or any part of the Obligations (including, but not limited to,
that portion thereof evidenced by any one or both of the Master Note) to be
immediately due and payable, and in the event a voluntary or involuntary case
is commenced under the Bankruptcy Code by or against Borrower as a debtor, all
Obligations automatically will be due and payable without any notice or
declaration by Lender, whereupon the same shall become immediately due and
payable without presentment, demand, protest, notice of nonpayment or any other
notice required by law relative thereto, all of which are hereby expressly
waived by Borrower, anything contained herein to the contrary notwithstanding
and, in connection therewith, the rate of interest charged on the Master Note
then outstanding shall automatically and without further notice increase to a
rate per annum equal to the Default Rate. However, if any of
-38-
<PAGE> 45
the Obligations, shall be payable on demand, the recitation of the right of
Lender to declare any and all Obligations to be immediately due and payable,
whether such recitation is contained in this Agreement or any other instrument
evidencing any of the Obligations, as well as the recitation of the above
events permitting Lender to declare all Obligations due and payable, shall not
constitute an election by Lender to waive its right to demand payment at any
time and in any event, as Lender in its discretion may deem appropriate.
Thereafter, Lender, at its option, may, but shall not be obligated to, accept
less than the entire amount of Obligations due, if tendered, provided, however,
that unless then agreed to in writing by Lender, no such acceptance shall or
shall be deemed to constitute a waiver of any Event of Default or a
reinstatement of any commitments of Lender hereunder.
11.2 Remedies of a Secured Party. Lender shall thereupon
have the rights and remedies of a secured party under the UCC in effect on date
thereof (regardless of whether the same has been enacted in the jurisdiction
where the rights or remedies are asserted), including, without limitation, the
right to take the Collateral or any portion thereof into its possession, by
such means (without breach of the peace) and through agents or otherwise as it
may elect (and, in connection therewith, demand that Borrower assemble the
Collateral at a place or places and in such manner as Lender shall prescribe),
and sell, lease or otherwise dispose of the Collateral or any portion thereof
in its then condition or following any commercially reasonable preparation or
processing, which disposition may be by public or private proceedings, by one
or more contracts, as a unit or in parcels, at any time and place and on any
terms, so long as the same are commercially reasonable. Lender may apply the
proceeds of any such sale or disposition to any of the Obligations in such
order as Lender, in its sole discretion, may elect. Lender shall give Borrower
written notice of the time and place of any public sale of the Collateral or
the time after which any other intended disposition thereof is to be made,
except where the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market. The requirement
of sending reasonable notice shall be met if such notice is given to Borrower
pursuant to Section 11.9 at least five (5) days before such disposition.
Expenses of retaking, holding, insuring, preserving, protecting, preparing for
sale or selling or the like with respect to the Collateral shall include, in
any event, reasonable attorneys' fees and other legally recoverable collection
expenses, all of which shall constitute Obligations. Lender is hereby granted a
license or other right to use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, tradenames, trademarks
and advertising matter, or any property of a similar nature, as it pertains to
the Collateral, in advertising for sale and selling any Collateral, and
Borrower's rights under all
-39-
<PAGE> 46
licenses and all franchise agreements shall inure to Lender's benefit.
11.3 Set Off. Lender may exercise the remedies provided in
Section 6.2.
11.4 Other Remedies. Unless and except to the extent
expressly provided for to the contrary herein, the rights of Lender specified
herein shall be in addition to, and not in limitation of, Lender's rights under
the UCC, as amended from time to time, or any other statute or rule of law or
equity, or under any other provision of any of the Loan Documents, or under the
provisions of any other document, instrument or other writing executed by
Borrower or any third party in favor of Lender, all of which may be exercised
successively or concurrently.
12. CONDITIONS PRECEDENT. Unless waived in writing by Lender at or
prior to the execution and delivery of this Agreement, the conditions set forth
in Sections 12.1 through 12.12 shall constitute express conditions precedent to
any obligation of Lender hereunder.
12.1 No Default. No Default Condition or Event of Default
shall exist and Borrower shall in all respects be in compliance with all of the
terms of the Loan Documents.
12.2 Board of Resolutions and Incumbency Certificate.
Receipt by Lender of a certificate from the Secretary (or Assistant Secretary)
of Borrower, certifying to Lender that appropriate resolutions have been
entered into by the Board of Directors of Borrower incident hereto and that the
officers of Borrower whose signatures appear hereinbelow, on the other Loan
Documents, and on any and all other documents, instruments and agreements
executed in connection herewith, are duly authorized by the Board of Directors
of Borrower for and on behalf of Borrower to execute and deliver this
Agreement, the other Loan Documents and such other documents, instruments and
agreements, and to bind Borrower accordingly thereby, all in form and substance
substantially similar to those board resolutions set forth and described on
Exhibit "F".
12.3 Certificate of Good Standing. Receipt by Lender of a
certificate of good standing with respect to Borrower from the secretaries of
state of the state of incorporation of Borrower and of any other state in which
a Collateral Location is situated.
12.4 Articles/By-Laws. Receipt by Lender of copies of the
articles of incorporation and by-laws of Borrower as in effect on date hereof,
certified as to truth and accuracy by the corporate secretary of Borrower.
12.5 Loan Documents and any Guaranty. Receipt by Lender of
all the other Loan Documents and any Guaranty, duly executed in form and
substance acceptable to Lender.
-40-
<PAGE> 47
12.6 Hazard Insurance Certificate. Receipt by Lender of a
certificate respecting all hazard insurance required hereunder, in form and
substance acceptable to Lender.
12.7 Financing Statements. Copies of all filing receipts or
acknowledgments issued by any governmental authority to evidence each filing or
recordation necessary to perfect or continue the perfection of the liens of
Lender in the Collateral and evidence in a form acceptable to Lender that such
liens constitute valid, first priority security interest and liens.
12.8 Opinion of Counsel. Receipt by Lender of an opinion of
counsel from independent legal counsel to Borrower in substantially the form of
Exhibit "G" attached hereto.
12.9 Landlord Agreements. Landlord or warehouseman
agreements, in form and substance satisfactory to Lender, with respect to each
premises leased by Borrower and which are disclosed in Exhibit "A" attached
hereto (unless otherwise excluded on Exhibit "I" attached hereto).
12.10 Excess Availability. Receipt by Lender of assurances
satisfactory to it that, after giving effect to all Revolver Loans on the
Closing Date necessary to satisfy all indebtedness of Borrower on such date to
Security Pacific, the Margin will exceed the principal amount of such Revolver
Loans by at least $5,000,000.
12.11 Intercreditor Agreement. Receipt by Lender of a duly
executed Intercreditor Agreement between Lender and Noteholders and providing
for, among other things, notice of any default by Borrower under the Note
Purchase Documents and use by Lender of any of Borrower's premises encumbered
by a mortgage in favor of Noteholders in order to dispose of any Collateral
after the occurrence of an Event of Default.
12.12 Miscellaneous. Receipt by Lender of such other documents,
certificates, instruments and agreements as shall be required hereunder or
provided for herein or as Lender or Lender's counsel may require in connection
herewith, including, without limitation, as may be described more particularly
on Exhibit "H" attached hereto.
13. PARTICIPANT IN REVOLVER LOANS. Borrower acknowledges,
understands, consents and agrees that Lender will sell to Participant an
undivided participation interest in all of the Loans, the Collateral and the
Loan Documents. In connection with such participation, Lender shall be
authorized to provide to Participant all information in Lenders' possession
regarding Borrower and the Collateral, including, without limitation,
information required to be disclosed pursuant to Banking Circular 181 (Rev.
August 2, 1984), issued by the Comptroller of the Currency. Borrower consents
and agrees that representatives of
-41-
<PAGE> 48
Participant may accompany representatives of Lender on audits of Borrower's
books and records and inspections of the Collateral and that representatives of
Participant may assume all or any part of the responsibility for conducting any
such audits and any appraisals of any of the Collateral from time to time.
Borrower agrees to reimburse Lender and Participant for all out-of-pocket
expenses incurred by either of them in connection with any such audits,
examinations or appraisals.
14. MISCELLANEOUS.
14.1 Waiver. Each and every right granted to Lender under
this Agreement, or any of the other Loan Documents, or any other document
delivered hereunder or in connection herewith or allowed it by law or in
equity, shall be cumulative and may be exercised from time to time. No failure
on the part of Lender to exercise, and no delay in exercising, any right shall
operate as a waiver thereof, nor shall any single or partial exercise by Lender
of any right preclude any other or future exercise thereof or the exercise of
any other right. Lender may, by written notice to Borrower, at any time and
from time to time, waive any Default Condition or any Event of Default and its
consequences. Any such waivers shall be for such period and subject to such
conditions as shall be specified in any such notice. In the case of any such
waiver, Borrower and Lender shall be restored to their former position and
rights hereunder and under the other Loan Documents and any Default Condition
or Event of Default so waived shall be deemed to be cured and not continuing
during the period. Such waiver shall be effective; but no such waiver shall
extend to any subsequent or other Default Condition or Event of Default, or
impair any right or remedy in consequent thereon.
14.2 Governing Law. This Agreement and the other Loan
Documents, and the rights and obligations of the parties hereunder and
thereunder, shall be governed by, and construed and interpreted in accordance
with, the internal laws of the State of Georgia.
14.3 Survival. All representations, warranties and covenants
made herein shall survive the execution and delivery of all of the Loan
Documents. The terms and provisions of this Agreement shall continue in full
force and effect, notwithstanding the payment of one or more of the Master Note
or the termination of the Line of Credit, until all of the Obligations have
been paid in full and Lender has terminated this Agreement in writing.
14.4 No Assignment by Borrower; Sale of Interest by Lender.
No assignment hereof shall be made by Borrower without the prior written
consent of Lender. Borrower hereby consents to Lender's participation, sale,
assignment, transfer or other disposition, at any time or times hereafter, of
this Agreement, any of the other Loan Documents or any of the Obligations, or
of any portion hereof or thereof, including, without limitation, Lender's
-42-
<PAGE> 49
rights, title, interests, remedies, powers, and duties hereunder or thereunder.
14.5 Counterparts. This Agreement may be executed in two or
more counterparts, each of which when fully executed shall be an original, and
all of said counterparts taken together shall be deemed to constitute one and
the same agreement. In proving this Agreement in any judicial proceeding, it
shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom enforcement is sought.
14.6 Reimbursement. Borrower will reimburse Lender for its
out-of-pocket expenses and pay the fees and disbursements of counsel for Lender
in connection with the negotiation and preparation of the Loan Documents, any
amendments thereto and any and all other documents, notes, and agreements
pursuant hereto, including the furnishing of any opinions which may be
requested of such counsel by the Lender on questions incident to the
transaction. Borrower will pay all expenses incurred by it in the transaction.
If any taxes, fees or other costs shall be payable on account of the execution,
issuance, delivery or recording of any of the Loan Documents, by reason of any
existing or hereafter enacted federal or state statute, Borrower will pay all
such taxes, fees or other costs, including any applicable interest and penalty,
and will indemnify and hold Lender harmless from and against liability in
connection therewith. In any event, should all or any portion of the
Obligations be collected by or through an attorney-at-law, Lender shall be
entitled to collect reasonable attorneys' fees and all costs of collection from
Borrower. In the event Borrower becomes a debtor under the Bankruptcy Code,
Lender's secured claim in such case shall include all fees, costs and charges
provided for herein (including, without limitation, reasonable attorney's
fees).
14.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the successors and permitted assigns of the
parties hereto.
14.8 Severability. If any provision of any of the Loan
Documents or the application thereof to any party thereto or any circumstance
shall be invalid or unenforceable to any extent, the remainder of such Loan
Documents and the application of such provisions to any other party thereto or
circumstance shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
14.9 Notices. All notices, requests and demands to or upon
the respective parties hereto shall be deemed to have been given or made when
personally delivered or deposited in the mail, registered or certified mail,
postage prepaid, addressed as follows
-43-
<PAGE> 50
or to such other address as may be designated hereafter in writing by the
respective parties hereto:
Borrower: The Executive Office
Lender: Wachovia Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Mail Code 212
Atlanta, Georgia 30303
Attention: Commercial Division
except in cases where it is expressly provided herein or by applicable law that
such notice, demand or request is not effective until received by the party to
whom it is addressed. Any notice given in any other manner shall nevertheless
be deemed effective on the date when it is actually received by the noticed
party.
14.10 Entire Agreement - Amendment. This Agreement constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof. Neither this Agreement nor any provision hereof may be changed,
waived, discharged, modified or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement is sought.
14.11 Time of the Essence. Time is of the essence in this
Agreement and the other Loan Documents.
14.12 Interpretation. No provision of this Agreement shall be
construed against or interpreted to the disadvantage of any party hereto by any
court or other governmental or judicial authority by reason of such party
having or being deemed to have structured or dictated such provision.
14.13 Lender Not a Joint Venturer. Neither this Agreement nor
any agreements, instruments, documents or transactions contemplated hereby
(including the Loan Documents) shall in any respect be interpreted, deemed or
construed as making Lender a partner or joint venturer with Borrower or as
creating any similar relationship or entity, and Borrower agrees that it will
not make any contrary assertion, contention, claim or counterclaim in any
action, suit or other legal proceeding involving Lender and Borrower.
14.14 Jurisdiction. Borrower agrees that any legal action or
proceeding with respect to this Agreement may be brought in the courts of the
State of Georgia or the United States District Court for the Northern District
of Georgia, Atlanta Division, or in any jurisdiction in which the Collateral is
located if such action or proceeding is brought to obtain possession of the
Collateral, to foreclose Lender's lien on the Collateral or to obtain equitable
relief, all as Lender may elect. By execution of this Agreement, Borrower
hereby submits to each such jurisdiction, hereby expressly waiving whatever
rights may correspond to it by reason of its
-44-
<PAGE> 51
present or future domicile. Nothing herein shall affect the right of Lender to
commence legal proceedings or otherwise proceed against Borrower in any other
jurisdiction or to serve process in any manner permitted or required by law. In
furtherance of the foregoing, Borrower hereby appoints the Secretary of State
of the State of Georgia as its agent for service of process.
14.15 Acceptance. This Agreement, together with the other Loan
Documents, shall not become effective unless and until delivered to Lender at
its principal office in Atlanta, Georgia and accepted in writing by Lender
thereafter at such office as evidenced by its execution hereof (notice of which
delivery and acceptance is hereby waived by Borrower).
14.16 Waiver of Rights. Borrower hereby waives all rights which
Borrower has or may have under and by virtue of OCGA Ch. 44-14, including,
without limitation, the right of Borrower to notice and to a judicial hearing
prior to seizure of any Collateral by Lender. In addition, Borrower waives any
right which it has or may have under UCC Section 9-404(1) to have Lender file
UCC termination statements with respect to the Collateral, or any part thereof,
and Borrower further agrees that Lender shall not be required to file such UCC
termination statements unless and until all Obligations have been paid in full
and Lender shall have terminated this Agreement in writing.
14.17 Cure of Defaults by Lender. If, hereafter, Borrower
defaults in the performance of any duty or obligation to Lender hereunder,
Lender may, at its option, but without obligation, cure such default and any
costs, fees and expenses incurred by Lender in connection therewith, including,
without limitation, for the purchase of insurance, the payment of taxes and the
removal or settlement of liens and claims, shall be deemed to be advances
against the Master Note, whether or not this creates an over-advance
thereunder, and shall be payable in accordance with its terms.
14.18 Recitals. All recitals contained herein are hereby
incorporated by reference into this Agreement and made a part thereof.
14.19 Attorney-in-Fact. Borrower hereby designates, appoints
and empowers Lender irrevocably as its attorney-in-fact, at Borrower's cost and
expense, to do in the name of Borrower any and all actions which Lender may
deem necessary or advisable to carry out the terms hereof upon the failure,
refusal or inability of Borrower to do so and Borrower hereby agrees to
indemnify and hold Lender harmless from any costs, damages, expenses or
liabilities arising against or incurred by Lender in connection therewith. This
power of attorney, being coupled with an interest, shall be irrevocable, shall
continue until all Obligations have been satisfied in full and this Agreement
has been terminated by
-45-
<PAGE> 52
Lender in writing and shall be in addition to Lender's other rights, powers and
remedies.
14.20 Sole Benefit. The rights and benefits set forth in this
Agreement and in all other Loan Documents are for the sole and exclusive
benefit of the parties thereto and may be relied upon only by them.
14.21 Jury Trial Waiver. Borrower and Lender each hereby waives
the right to trial by jury in any action, suit, proceeding or counterclaim of
any kind arising out of or related to any of the Loan Documents, Obligations or
the Collateral.
IN WITNESS WHEREOF, Borrower and Lender each have set its hand and
seal, on the day and year first above written.
"BORROWER"
RHODES, INC.
By: /s/ Joel H. Dugan
-----------------
Joel H. Dugan
Senior Vice President,
Finance and Administration
Attest: /s/ Barbara W. Snow
-------------------
Barbara W. Snow
Assistant Secretary
[CORPORATE SEAL]
"LENDER"
WACHOVIA BANK OF GEORGIA, N.A.
By: /s/ Ken B. Harrison
-------------------
Title: Assistant Vice President
[BANK SEAL]
-46-
<PAGE> 53
EXHIBIT "A"
COLLATERAL LOCATIONS
2507 Dawson Road
Albany, Georgia 31707
1071 Patton Avenue
Asheville, North Carolina 28806
P.O. Box 6468
Athens, Georgia 30604
119-C N. Cobb Parkway
Marietta, Georgia 30062
369 N. Central Avenue
Hapeville, Georgia 30354
3655 Memorial Drive
Decatur, Georgia 30032
3380 Florence Road
Powder Springs, Georgia 30073
4363 N.E. Exp. Access Road
Doraville, Georgia 30341
6851 Shannon Parkway
Union City, Georgia 30291
5955 Stewart Parkway
Douglasville, Georgia 30135
2338 Henry Clower Boulevard
Snellville, Georgia 30278
1680-J Highway 138
Conyers, Georgia 30208
633 Holcomb Bridge Road
Roswell, Georgia 30076
3360 Wrightsboro Road
Augusta, Georgia 30909
2700 19th Street North
Birmingham, Alabama 35207
1686 Montgomery Highway
Hoover, Alabama 35216
1970 Bessemer Road
Birmingham, Alabama 35208
<PAGE> 54
1632 Center Point Road
Center Point, Alabama 35215
1847 Crestwood Boulevard
Birmingham, Alabama 35210
4836 14th Street West
Bradenton, Florida 34207
1290 Highway 7
Charleston, South Carolina 29407
8570 Rivers Avenue
North Charleston, South Carolina 29418
6191 E. Independence Boulevard
Charlotte, North Carolina 28212
5533 Westpark Drive
Charlotte, North Carolina 28217
4430 Tamiami Trail
Charlotte Harbor, Florida 33950
6933 Lee Highway
Chattanooga, Tennessee 37421
7500 Two Notch Road
Columbia, South Carolina 29204
414 Rivermont Drive
Columbia, South Carolina 29210
3166 Macon Road
Columbus, Georgia 31907
2700 Ross Clark Circle
Dothan, Alabama 36301
4521 Chapel Hill Boulevard
Durham, North Carolina 27707
P.O. Box 35168
Fayetteville, North Carolina 28303
5370 Cleveland Avenue
Ft. Myers, Florida 33907
328 Racetrack Road
Ft. Walton, Florida 32548
2305 N.W. 13th Street
Gainesville, Florida 32601
-2-
<PAGE> 55
3407 Highpoint Road
Greensboro, North Carolina 27417
P.O. Box 6309 Station B
Greenville, South Carolina 29606
429 Pass Road
Gulfport, Mississippi 39507
2501 University Drive, N.W.
Huntsville, Alabama 35816
4290 Lakeland Drive, E.
Jackson, Mississippi 39208
4025 Northview Drive
Jackson, Mississippi 39206
4700 Walgreen Road
Jacksonville, Florida 32209
5960 Beach Boulevard
Jacksonville, Florida 32207
5887 Normandy Boulevard
Jacksonville, Florida 32205
266-25 Blanding Boulevard
Orange Park, Florida 32073
4700 Walgreen Road
Jacksonville, Florida 32209
410 North Peters Road
Knoxville, Tennessee 37922
2601 Nicholasville Road
Lexington, Kentucky 40503
P.O. Box 36126
Louisville, Kentucky 40233
2086 Eisenhower Parkway
Macon, Georgia 31206
7535 W. Fourth Avenue
Hialeah, Florida 33016
3025 N.E. 163rd Street
North Miami Beach, Florida 33160
7685 Pines Boulevard
Pembroke Pines, Florida 33024
-3-
<PAGE> 56
3220 N.W. 110th Street
Miami, Florida 33167
3712 Airport Boulevard
Mobile, Alabama 36608
2525 Eastern Bypass
Montgomery, Alabama 36117
5295 N. Tamiami Trail
Naples, Florida 33940
15115 Old Hickory Boulevard
Nashville, Tennessee 37211
1028 Gallatin Road, S.
Madison, Tennessee 37115
2235 Gallatin Road, N.
Madison, Tennessee 37115
344 White Bridge Road
Nashville, Tennessee 37209
2418 E. Colonial Drive
Orlando, Florida 32803
5510 W. Colonial Drive
Orlando, Florida 32803
420 W. State Road, #436
Altamonte Springs, Florida 32714
901 Landstreet Road
Orlando, Florida 32824
9421 Orange Blossom Trail
Orlando, Florida 32837
298 S. Yonge Street
Ormond Beach, Florida 32174
1318 W. Fifteenth Street
Panama City, Florida 32401
5316 N. Davis Highway
Pensacola, Florida 32503
527 E. Fontaine Street
Pensacola, Florida 32503
5920 Glenwood Avenue
Raleigh, North Carolina 27612
-4-
<PAGE> 57
3501 Spring Forest Road
Raleigh, North Carolina 27604
105 Tibet Avenue
Savannah, Georgia 31406
3762 Bee Ridge Road
Sarasota, Florida 34233
1520 Northgate Boulevard
Sarasota, Florida 34234
300 W. Blackstock Road
Spartanburg, South Carolina 29301
5690 Campus Parkway
Hazelwood, Missouri 63042
3900 Union Road
St. Louis, Missouri 63125
105 Commerce Lane
Fairview Heights, Illinois 62208
411 Midrivers Mall Drive
St. Peters, Missouri 63376
1122 Thomasville Road
Tallahassee, Florida 32303
1266 South 41 By-Pass
Venice, Florida 34292
460 S. College Road
Wilmington, North Carolina 28403
1590 Peters Creek Parkway
Winston-Salem, North Carolina 27103
-5-
<PAGE> 58
EXHIBIT "B"
COUNTY OF FULTON
STATE OF GEORGIA February 24, 1994
MASTER NOTE
1. FOR VALUE RECEIVED, the undersigned, RHODES, INC., a
corporation organized and existing under the laws of the State of Georgia
("Borrower") promises to pay to the order of WACHOVIA BANK OF GEORGIA, N.A.
("Lender"), at the main office of Lender in Atlanta, Georgia, or at such other
place as Lender hereafter may direct in writing, in legal tender of the United
States of America, the principal sum of $30,000,000, or so much thereof as may
be disbursed and remain outstanding from time to time hereafter under that
certain "Line of Credit" opened by Lender in favor of Borrower pursuant to the
terms of that certain Loan and Security Agreement between Lender and Borrower
of even date herewith (hereinafter, as it may be amended or supplemented from
time to time, called the "Loan Agreement"), the terms and provisions of which
are hereby incorporated herein by reference and made a part hereof, on the
"Termination Date," as defined in the Loan Agreement, with interest thereon
(computed on the daily outstanding principal balance, for the actual number of
days outstanding, on the basis of a 360 day year) on each advance made
hereunder from the date of such advance until paid in full at a variable rate
per annum equal to the applicable rate set forth in and effective from time to
time under the Loan Agreement. The principal amount of this Note and all
accrued interest on the unpaid principal balance hereof from time to time
outstanding shall be due and payable as provided in the Loan Agreement.
2. In no contingency or event whatsoever, whether by reason of
advancement of the proceeds hereof or otherwise, shall the amount paid or
agreed to be paid to Lender for the use, forbearance or detention of money
advanced hereunder exceed the highest lawful rate permissible under any law
which a court of competent jurisdiction may deem applicable hereto. In the
event that such a court determines that Lender has charged or received interest
hereunder in excess of the highest applicable rate, such rate shall
automatically be reduced to the maximum rate permitted by applicable law and
Lender shall promptly refund to Borrower any interest received by Lender in
excess of the maximum lawful rate or, if so requested by Borrower, shall apply
such excess to the principal balance of this Master Note. It is the intent
hereof that Borrower not pay or contract to pay, and that Lender not receive or
contract to receive, directly or indirectly in any manner whatsoever, interest
in excess of that which may be paid by Borrower under applicable law.
<PAGE> 59
3. Borrower agrees that the occurrence of an Event of Default
under the Loan Agreement shall constitute an event of default under this Master
Note and shall entitle Lender, at its option, upon or at any time after the
occurrence of any such Event of Default to declare the then outstanding
principal balance and accrued interest hereof to be, and the same shall
thereupon become, immediately due and payable without notice to or demand upon
Borrower, all of which Borrower hereby expressly waives.
4. Borrower agrees, in the event that this Master Note or any
portion hereof is collected by law or through an attorney at law, to pay all
costs of collection, including, without limitation, reasonable attorneys' fees.
5. This Master Note evidences borrowings under, is subject to and
secured by, and shall be paid and enforced in accordance with, the terms of the
Loan Agreement, and is the "Master Note" defined in Section 1.1 thereof.
6. Nothing herein shall limit any right granted to Lender by any
other instrument or by law or equity.
7. Borrower hereby waives demand, protest, notice of demand,
protest and non-payment and any other notice required by law relative hereto,
except to the extent as otherwise may be provided for in the Loan Agreement.
IN WITNESS WHEREOF, Borrower has caused this Master Note to be signed
and sealed on the day and year first above written.
"BORROWER"
RHODES, INC.
By:
-------------------------------
Joel H. Dugan
Senior Vice President,
Finance and Administration
Attest:
---------------------------
Barbara W. Snow
Assistant Secretary
[CORPORATE SEAL]
-2-
<PAGE> 60
EXHIBIT "C"
SCHEDULE OF PERMITTED ENCUMBRANCES
Liens existing on the date hereof in favor of the Noteholders
and covered by the Intercreditor Agreement between the Noteholders and
Lender of even date herewith.
<PAGE> 61
EXHIBIT "D"
NOTICE OF BORROWING
Wachovia Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Commercial Division
Ladies and Gentlemen:
Reference is hereby made to that certain Loan and Security Agreement
dated February 24, 1994 (as at any time amended, the "Loan Agreement") between
Rhodes, Inc. ("Borrower") and Wachovia Bank of Georgia, N.A. ("Lender"). Terms
defined in the Loan Agreement have their respective meanings when used herein.
Pursuant to Section 2.2.1 of the Loan Agreement, Borrower hereby
requests that Lender make a [Prime Rate Loan] [Euro-Dollar Rate Loan with an
Interest Period of ______] in an amount equal to $________________________(the
"Loan") to Borrower.
Borrower requests that the Loan requested hereunder be made available
to Borrower on _______________, 19__.
Borrower hereby certifies that: (i) the representations and warranties
of Borrower set forth in the Loan Agreement are, on the date hereof, and will,
on the date of the making of the Loan, be true and correct as if made on and as
of such date, (ii) no Default Condition or Event of Default has occurred and is
or, on the date of the making of the Loan, will be continuing, and (iii) no
material adverse change has occurred in the business, assets, liabilities,
financial condition, results of operation or business prospects of Borrower
since the Closing Date.
RHODES, INC.
By: ________________________________
Title: _________________________
<PAGE> 62
EXHIBIT "E"
COMPLIANCE CERTIFICATE
[LETTERHEAD OF BORROWER]
_________, 19 ___
TO: Wachovia Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Commercial Division
The undersigned, the _________________ of RHODES, INC., a Georgia
corporation ("Borrower"), gives this certificate to WACHOVIA BANK OF
GEORGIA, N.A. ("Bank") in accordance with the requirements of Section 8.11 of
that certain Loan and Security Agreement dated February 24, 1994, between
Borrower and Bank ("Loan Agreement"). Capitalized terms used in this
Certificate, unless otherwise defined herein, shall have the meanings ascribed
to them in the Loan Agreement:
(1) Based upon my review of the balance sheets and statements of
income of Borrower for the [quarter] [fiscal year] ending _____________, 19___,
copies of which are attached hereto, I hereby certify that:
(a) Consolidated Fixed Charge Coverage Ratio is
______________________.
(b) Consolidated Net Worth is _____________________________.
(c) Consolidated Leverage Ratio is ________________________.
(d) Capital Expenditures equal ____________________________.
(2) No Default Condition exists on the date hereof, other than:
___________________ (if none, so state); and
(3) No Event of Default exists on the date hereof, other than:
___________________ (If none, so state).
Very truly yours,
_________________________________
Title: __________________________
<PAGE> 63
EXHIBIT "F"
BOARD RESOLUTIONS/INCUMBENCY CERTIFICATE
I hereby certify that I am the duly elected, qualified and serving
Assistant Secretary of RHODES, INC. ( "Borrower" ); that Borrower is a
corporation organized and existing under the laws of the State of Georgia,
having its chief executive office, principal place of business, registered
office and registered agent at 4370 Peachtree Road, N.E., Atlanta, Georgia
30319; that the following copy is a true and correct copy of resolutions duly
adopted at a meeting of the Board of Directors of Borrower, held on February 4,
1994, at which a quorum was present and acting throughout; that said meeting
was duly authorized by the By-Laws of said corporation; that the actions taken
at such meeting and reflected in said resolutions are now in full force and
effect and have not been modified or amended; that on the date hereof the
office of Senior Vice President, Finance and Administration of said corporation
is held by Joel H. Dugan and the office of Assistant Secretary of said
corporation is held by Barbara W. Snow; and that the following are the genuine
signatures of said officers:
Senior Vice President, _____________________________
Finance and Administration Joel H. Dugan
Assistant Secretary _____________________________
Barbara W. Snow
"RESOLVED that this corporation enter into a certain Loan and Security
Agreement with Wachovia Bank of Georgia, N.A. ("Bank"), providing generally
for the extension of credit in favor of this corporation of up to $30,000,000
outstanding at any time, secured by the grant of a security interest in certain
personal property of this corporation, including, but not limited to, all
inventory, all cash and non-cash proceeds of such inventory, documents of title
relating to such inventory and deposits for purchases of goods;
"RESOLVED FURTHER, that the Senior Vice President, Finance and
Administration of this corporation be and he is hereby authorized to execute
and deliver said agreement and any notes and other agreements which said Bank
may require, and to consent and agree to any and all terms to each and every
one thereof;
"RESOLVED, FURTHER, that the execution and delivery of any writings or
the taking of any other actions in connection with the foregoing by the Senior
Vice President, Finance and Administration or any officer of this corporation
be and the same is hereby ratified as the act and deed of this corporation;
"RESOLVED, FURTHER, that the Secretary or Assistant Secretary of this
corporation be and he is hereby authorized to affix the seal of said
corporation to any writings executed by the Senior Vice President, Finance and
Administration in connection with the
<PAGE> 64
foregoing, and to attest the same, but such attestation is not required to
evidence the same as the act and deed of this corporation."
So certified to this 24th day of February, 1994.
(CORPORATE SEAL) _______________________________
Assistant Secretary
I, Joel H. Dugan, Senior Vice President, Finance and Administration of
RHODES, INC., do certify that Barbara W. Snow is the duly elected and qualified
Assistant Secretary of said corporation as of the date hereof, and the keeper
of the records and minutes of the meetings of the Board of Directors of said
corporation.
This 24th day of February, 1994.
_______________________________
Senior Vice President,
Finance and Administration
-2-
<PAGE> 65
EXHIBIT "G"
OPINION OF COUNSEL
[LETTERHEAD OF BORROWER'S COUNSEL]
February 24, 1994
Wachovia Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Parker, Hudson, Rainer & Dobbs
1500 Marquis Two Tower
285 Peachtree Center Avenue, N.E.
Atlanta, Georgia 30303
Re: $30,000,000 Secured Revolving Credit Facility -- Wachovia Bank
of Georgia, N.A. ("Lender"), Rhodes, Inc. ("Borrower")
Gentlemen:
We have served as counsel to Rhodes, Inc. ("Borrower"), a Georgia
corporation, in connection with certain financial accommodations to be extended
by Lender to Borrower as described in a certain Loan and Security Agreement
("Loan Agreement") between Borrower and Lender, dated February 24, 1994.
Unless otherwise defined herein, capitalized terms used herein shall have the
meanings ascribed to them in the Loan Agreement. We have been requested and
instructed by Borrower to deliver this opinion to you in satisfaction of a
condition precedent in the Loan Agreement. As counsel to the Borrower, we have
examined the following in order to give our opinions to you, as hereafter set
forth, in connection with Lender's Loans to Borrower:
1. The Certificate of Incorporation and By-laws of Borrower and
all amendments to such Articles and By-laws;
2. Outstanding loan agreements and indentures of Borrower for
loans or extensions of credit;
3. The Loan Agreement;
4. The Master Note;
5. Uniform Commercial Code financing statements naming Borrower as
debtor and Lender as secured party (the "Financing
<PAGE> 66
Statements") and filed with the offices appearing on Exhibit A attached hereto;
6. Corporate proceedings of Borrower relating to the execution and
delivery of the Loan Agreement, the Master Note and the Financing Statements in
connection with the Loans to be made to Borrower; and
7. UCC search reports for searches conducted in the jurisdictions
shown on Exhibit A attached hereto ("Search Reports").
In such examination, we have assumed the genuineness of all signatures
(other than those by or on behalf of Borrower), the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such copies.
Based upon such examination and upon our examination of all such other
documents, evidence and statutes as we have deemed pertinent, we advise you
that in our opinion:
1. Borrower is a corporation, duly incorporated, validly existing
and in good standing under the laws of the State of Georgia. Borrower has all
requisite power and authority, corporate or otherwise, to conduct its business,
to own its properties, and to execute and deliver, and to perform all of its
obligations under the Loan Agreement, the Master Note and the Financing
Statements.
2. Neither the nature of Borrower's business nor the location of
any of Borrower's property requires Borrower to be qualified as a foreign
corporation in any jurisdiction other than the States of Alabama, Florida,
Illinois, Kentucky, Mississippi, Missouri, North Carolina, South Carolina and
Tennessee, and Borrower is duly qualified to transact business in such states.
3. Borrower has as its corporate name, as registered with the
Secretary of the State of Georgia, the name "Rhodes, Inc." To the best of our
knowledge, Borrower has not had or used any other name except as disclosed in
the Loan Agreement.
4. Borrower has ______ shares of authorized capital stock, having
a par value of $________ per share, of which ____________ shares are issued and
outstanding as of the date hereof.
5. The execution, delivery and performance by Borrower of the Loan
Agreement, the Master Note and the Financing Statements have been duly
authorized by all necessary corporate action, and do not (i) violate any
provision of the Articles of Incorporation or By-laws of Borrower, (ii) cause
or result in a breach of or
-2-
<PAGE> 67
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which Borrower is a party or by which
Borrower's properties may be bound, (iii) violate any provision of any judicial
or administrative law, rule or regulation or any order, writ, judgment, decree,
determination or award by which Borrower or any of Borrower's property is
bound, or (iv) cause, result in or require the creation or imposition in favor
of anyone other than the Lender of any mortgage, deed of trust, pledge, lien,
security interest or other charge or encumbrance of any nature upon or with
respect to any property now owned or hereafter acquired by Borrower. To our
knowledge, Borrower is not in default under any such law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award or under any
such indenture, agreement, lease or instrument.
6. The Loan Agreement, the Master Note and the Financing
Statements have been duly executed and delivered by Borrower and constitute
legal, valid and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally.
7. None of the provisions of the Loan Agreement or the Master Note
violate any laws of the State of Georgia relating to interest or usury.
8. No taxes shall be payable to the State of Georgia or to any
jurisdiction thereof, on account of the recording of the Financing Statements,
other than nominal filing fees due under the laws of such State.
9. We understand that Lender has filed the Financing Statements,
copies of which have been examined by us, covering, among other things,
Borrower's Inventory Collateral and the proceeds of such items. Assuming that
Lender gives value to Borrower under the Loan Agreement, Lender will thereupon
have a duly perfected security interest in the above-described property and the
proceeds thereof, and such security interest of Lender will have priority over
any other consensual UCC security interests in the same property that are
perfected by the filing of a UCC-1 financing statement in any jurisdiction
covered by the Search Report, except for purchase money security interests.
10. There are no actions, suits, investigations or proceedings
pending or, to the best of our knowledge, threatened against or affecting
Borrower or the property of Borrower before any court or governmental
department, commission, board, bureau, agency or instrumentality which would
materially and adversely affect the property, business, prospects, profits or
condition
-3-
<PAGE> 68
(financial or otherwise) of Borrower, including, without limitation, any
action, suit, investigation or proceeding under any federal, state or local
law, rule, regulation or ordinance relating to pollution, toxic waste or other
environmental matters.
11. None of the transactions contemplated by the Loan Agreement,
including, without limitation, the use of the proceeds of any Loans made to
Borrower thereunder, will violate or result in a violation of Section 7 of the
Securities Exchange Act of 1934, as amended, any regulations issued pursuant
thereto, or regulations G, T, U and X of the Board of Governors of the Federal
Reserve System, and to the best of our knowledge no Borrower owns or intends to
purchase or carry any "margin securities" as defined in said regulations.
12. To the best of our knowledge after due inquiry, none of the
employees of Borrower are parties to any collective bargaining agreement with
Borrower and to the best of our knowledge after due inquiry, there are no
grievances, disputes or controversies with any union or other organization of
Borrower's employees or threats of strikes, work stoppages or asserted pending
demands for collective bargaining.
13. No "Reportable Event" (as that term is defined in Section 4043
of ERISA) exists in connection with Borrower and all relevant determination
letters or other approvals with respect to Borrower have been obtained or
sought from the Internal Revenue Service or other appropriate federal agencies.
The Loan Agreement does not constitute, nor do any acts contemplated thereunder
constitute, "Prohibited Transactions" within the meaning of Section 406 of
ERISA. There are no liens on the real or personal property of Borrower pursuant
to Section 4068 of ERISA. As used herein, the term "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended.
14. No authorization, consent, approval, license, exemption of or
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality is necessary to the valid execution,
delivery or performance by Borrower of the Loan Agreement, the Master Note or
the Financing Statements.
This opinion may be relied upon by you and any participant in your
Loans to Borrower, but by no other person or entity.
Very truly yours,
KING & SPALDING
-4-
<PAGE> 69
EXHIBIT "H"
SCHEDULE OF ADDITIONAL REQUIRED DOCUMENTATION
To be Executed and
Description of Document Delivered by Borrower
- - ----------------------- ---------------------
None
<PAGE> 70
EXHIBIT "I"
LEASED LOCATIONS FOR WHICH
LANDLORD WAIVERS ARE NOT REQUIRED
Location Landlord
- - -------- --------
Asheville, NC #66 The Bama Company
P. O. Box 18012
Asheville, NC 28814-0012
Bradenton, FL #139 Orlon Properties
c/o The Fountains
3001 N. Rocky Point Road
Suite 125
Tampa, FL 33607
Birmingham, AL #190 Marks Properties, Inc.
P.O. Box 101568
Birmingham, AL 35210
Chattanooga, TN #78 KMart Corporation
3100 West Big Beaver Road
Troy, MI 48084
Fayetteville, NC #33 Vera Swain
P. O. Box 35125
Fayetteville, NC 28303
Gainesville, FL #80 Steven M. Schwartz & Associates
Two Ravinia Drive
Suite 910
Atlanta, GA 30346
Miami, FL #234 Trammell Crow Company
c/o N. V. Wildlands
6400 Congress Avenue
Suite 2000
Boca Raton, FL 33487
Miami, FL #34 Mary Celantano
987 Hillsboro Mile
Hillsboro Mile, FL 33062
Miami, FL #434 Omnifoam, Inc.
3200 N.W. 110th Street
Miami, FL 33167
Orlando, FL #326 Flany Associates
29 Park Avenue
Suite 204
Manhasset, NY 11030
<PAGE> 71
Orlando, FL #126 Colonial Plaza Shopping Center
2560 E. Colonial Drive
Orlando, FL 32803
Orlando, FL #226 Robert Q. Schlytter
4201 South 27th Street
Milwaukee, WI 53221
Savannah, GA #32 Director Cotency
c/o Toby Director Goldman
3251 Lemons Ridge
Atlanta, GA 30339
Venice, FL #239 CFG Properties
2831 Ringling Blvd.
Suite 203D, Building B
Sarasota, FL 34237
Winston-Salem, NC #149 Three M Rental Properties
2706 Westridge Road
Winston Salem, NC 27103
-2-
<PAGE> 72
EXHIBIT "J"
PENDING LITIGATION
1. Bryan Evans and Dedra Evans vs. Rhodes Furniture; Restonic Corporation,
et al.
This is a product liability suit covered by both our
insurance company and the vendors' Restonic Mattress Co.
Plaintiff contends that her 11 month old son was suffocated
by the plastic cover on a mattress due to Rhodes and/or
Restonic's negligence. This case is totally without merit.
2. Carolyn Tolbert and Maurice J. Tolbert vs. Rhodes, Inc.; Universal
Furniture Industries and Cal-Style Furniture (a subsidiary of Universal
Furniture Industries, Inc.)
A customer claims injuries and damages in excess of $15,000
due to a swivel chair breaking and causing her to fall. This
is being handled by our insurance carrier. We have product
liability from the vendor, but their insurance is fighting
coverage. This suit should only cost legal fees through the
insurance company.
3. Barbara Price vs. Rhodes Furniture (dba Marks-Fitzgerald)
Customer signed for insurance on her credit application in
October 1991. She called Beneficial National Bank in July
1992 and requested the insurance be canceled which was done.
Rhodes shows no correspondence from the customer between
October 1991 and July 1992 nor from July 1992 until the suit
was filed. Our attorneys are contacting her attorneys to find
out the basis of her suit, which was filed on November 4,
1993.
4. Suzanne Coon, Denise A. Evans and Diane McDowell vs. Rhodes, Inc.,
Jerry Lind, Robert Evans and Frank Wentz
EEOC would not review, so suit has been filed for $150,000.
Crum & Forster is defending under reservation of rights.
5. Eaves vs. Rhodes
Eaves thinks his "pre-existing" medical claim should be paid
by the insurance plan. Not material.
<PAGE> 73
6. Sandra Johnson vs. Rhodes
Appealed EEOC by Ms. Johnson after initial decision for
Rhodes. Not material.
7. 11 pending decisions for EEOC, none are material in our opinion.
-2-
<PAGE> 74
COUNTY OF FULTON
STATE OF GEORGIA February 24, 1994
MASTER NOTE
1. FOR VALUE RECEIVED, the undersigned, RHODES, INC., a corporation
organized and existing under the laws of the State of Georgia ("Borrower")
promises to pay to the order of WACHOVIA BANK OF GEORGIA, N.A. ("Lender"), at
the main office of Lender in Atlanta, Georgia, or at such other place as Lender
hereafter may direct in writing, in legal tender of the United States of
America, the principal sum of $30,000,000, or so much thereof as may be
disbursed and remain outstanding from time to time hereafter under that certain
"Line of Credit" opened by Lender in favor of Borrower pursuant to the terms of
that certain Loan and Security Agreement between Lender and Borrower of even
date herewith (hereinafter, as it may be amended or supplemented from time to
time, called the "Loan Agreement"), the terms and provisions of which are
hereby incorporated herein by reference and made a part hereof, on the
"Termination Date" as defined in the Loan Agreement, with interest thereon
(computed on the daily outstanding principal balance, for the actual number of
days outstanding, on the basis of a 360 day year) on each advance made
hereunder from the date of such advance until paid in full at a variable rate
per annum equal to the applicable rate set forth in and effective from time to
time under the Loan Agreement. The principal amount of this Note and all
accrued interest on the unpaid principal balance hereof from time to time
outstanding shall be due and payable as provided in the Loan Agreement.
2. In no contingency or event whatsoever, whether by reason of
advancement of the proceeds hereof or otherwise, shall the amount paid or
agreed to be paid to Lender for the use, forbearance or detention of money
advanced hereunder exceed the highest lawful rate permissible under any law
which a court of competent jurisdiction may deem applicable hereto. In the
event that such a court determines that Lender has charged or received interest
hereunder in excess of the highest applicable rate, such rate shall
automatically be reduced to the maximum rate permitted by applicable law and
Lender shall promptly refund to Borrower any interest received by Lender in
excess of the maximum lawful rate or, if so requested by Borrower, shall apply
such excess to the principal balance of this Master Note. It is the intent
hereof that Borrower not pay or contract to pay, and that Lender not receive or
contract to receive, directly or indirectly in any manner whatsoever, interest
in excess of that which may be paid by Borrower under applicable law.
<PAGE> 75
3. Borrower agrees that the occurrence of an Event of Default under
the Loan Agreement shall constitute an event of default under this Master Note
and shall entitle Lender, at its option, upon or at any time after the
occurrence of any such Event of Default to declare the then outstanding
principal balance and accrued interest hereof to be, and the same shall
thereupon become, immediately due and payable without notice to or demand upon
Borrower, all of which Borrower hereby expressly waives.
4. Borrower agrees, in the event that this Master Note or any portion
hereof is collected by law or through an attorney at law, to pay all costs of
collection, including, without limitation, reasonable attorneys' fees.
5. This Master Note evidences borrowings under, is subject to and
secured by, and shall be paid and enforced in accordance with, the terms of the
Loan Agreement, and is the "Master Note" defined in Section 1.1 thereof.
6. Nothing herein shall limit any right granted to Lender by any other
instrument or by law or equity.
7. Borrower hereby waives demand, protest, notice of demand, protest
and non-payment and any other notice required by law relative hereto, except to
the extent as otherwise may be provided for in the Loan Agreement.
IN WITNESS WHEREOF, Borrower has caused this Master Note to be signed
and sealed on the day and year first above written.
"BORROWER"
RHODES, INC.
By: /s/ Joel H. Dugan
------------------------
Joel H. Dugan
Senior Vice President
Finance and Administration
Attest: /s/ Barbara W. Snow
--------------------
Barbara W. Snow
Assistant Secretary
[CORPORATE SEAL]
-2-
<PAGE> 1
EXHIBIT 11
<PAGE> 2
EXHIBIT 11
RHODES, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 29 OR 28,
-----------------------------------------
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 1,125 1,472 7,145
ADDITIONAL SHARES ASSUMING
EXERCISE OF STOCK OPTIONS
USING TREASURY STOCK METHOD --(1) --(1) 157
------- ------- ------
AVERAGE COMMON SHARES
AS ADJUSTED 1,125 1,472 7,302
======= ======= ======
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM $(9,954) $(9,831) $ 6,047
EXTRAORDINARY ITEM (NET OF TAX) -- -- (2,727)
------- ------- -------
NET INCOME (LOSS) $(9,954) $(9,831) $ 3,320
======= ======= =======
NET INCOME (LOSS) PER COMMON
SHARE:
BEFORE EXTRAORDINARY ITEM $ (8.85) $ (6.68) $ .83
EXTRAORDINARY ITEM -- -- (.38)
------- ------- -------
NET INCOME $ (8.85) $ (6.68) $ .45
======= ======= =======
</TABLE>
(1) No additional shares as effect would be antidilutive.
