U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10 - QSB
(MARK ONE)
X Quarterly Report pursuant to Section 13 or 15(d) of the
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Securities Exchange Act of 1934
For the Quarterly Period Ended February 29, 2000 or
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Transition Report pursuant to Section 13 or 15(d) of the
- ----
Securities Exchange Act of 1934
For the Transition Period From to
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COMMISSION FILE NUMBER 0-18091
RSI HOLDINGS, INC.
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(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-1200363
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
28 East Court Street, P. O. Box 6847
Greenville, South Carolina 29606
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(Address of principal executive offices)
(864) 271-7171
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(Issuer's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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No
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.01 Par Value - 7,907,488 shares outstanding as of April 7, 2000
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
INDEX
RSI HOLDINGS, INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
<S> <C>
Condensed consolidated statement of net assets in liquidation
-- February 29, 2000 1
Condensed consolidated statement of changes in net assets in liquidation -
Period from February 1, 2000 through February 29, 2000 2
Condensed consolidated statement of operations - Two and Five months ended
January 31, 2000 and Three and Six Months ended February 28, 1999 3
Condensed consolidated statement of cash flows - Five Months ended January 31,
2000 and Six Months ended February 28, 1999 4
Notes to condensed consolidated financial statements --
February 29, 2000 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION 10
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Default 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
<PAGE>
RSI Holdings, Inc.
Condensed Consolidated Statement of Net Assets in Liquidation (Unaudited)
February 29, 2000
Assets
Cash $ 51,000
Certificate of deposit 250,000
Mortgage notes receivable 47,000
Property and equipment 48,000
Other assets 8,000
-----------
$ 404,000
===========
Liabilities
Trade accounts payable $ 75,000
Accrued expenses 81,000
Note payable - bank 305,000
Notes payable to shareholder 250,000
Convertible debt payable to shareholder 400,000
Estimated costs during the remaining period of liquidation 463,000
-----------
1,574,000
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Net assets (liabilities) in liquidation $(1,170,000)
===========
See accompanying notes.
1
<PAGE>
RSI Holdings, Inc.
Condensed Consolidated Statement of Changes in Net Assets in Liquidation
(Unaudited)
Period from February 1, 2000 through February 29, 2000
Shareholders' deficit at February 1, 2000 $ (448,000)
Accruals and costs during period of liquidation:
Adjustment of property and equipment to estimated net
realizable value 172,000
Compensation and related expenses 146,000
Interest expense 68,000
Professional fees 42,000
Rent 214,000
Other 80,000
-----------
Total accruals and costs during period of liquidation (722,000)
-----------
Net assets (liabilities) in liquidation at February 29, 2000 $(1,170,000)
===========
See accompanying notes.
2
<PAGE>
RSI Holdings, Inc.
Condensed Consolidated Statement of Operations (Unaudited)
Two and Five Months ended January 31, 2000
and Three and Six Months ended February 28, 1999
<TABLE>
<CAPTION>
Two Three Five Six
Months Months Months Months
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Origination fees $ 246,000 $ 205,000 $648,000 $ 443,000
Gain on sale of loans 25,000 17,000 105,000 89,000
---------- --------- --------- ---------
Total revenues 271,000 222,000 753,000 532,000
Expenses:
Selling, general and
administrative 428,000 516,000 1,187,000 997,000
--------- --------- --------- ---------
Loss from operations (157,000) (294,000) (434,000) (465,000)
Other income (expense):
Interest income 39,000 23,000 91,000 52,000
Gain on sale of real estate 0 0 0 71,000
Interest expense (18,000) (14,000) (51,000) (25,000)
--------- --------- --------- ---------
Total other income (expense) 21,000 9,000 40,000 98,000
--------- --------- --------- ---------
Net loss $(136,000) $(285,000) $(394,000) $(367,000)
========= ========= ========= =========
Net loss per share - basic
and diluted $ (.02) $ (.04) $ (.05) $ (.05)
========= ======== ========= =========
Weighted average number
of shares outstanding 7,907,488 7,903,322 7,905,914 7,903,115
========= ========= ========= =========
</TABLE>
The Company changed its accounting presentation to the liquidation basis of
accounting from the going concern basis of accounting effective January 31,
2000. Fiscal Year 2000 amounts above include operations through January 31,
2000, the date of change to liquidation basis of accounting from going concern
basis.
See accompanying notes.
3
<PAGE>
RSI Holdings, Inc.
Condensed Consolidated Statement of Cash Flows (Unaudited)
Five Months ended January 31, 2000 and Six Months ended February 28, 1999
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Cash provided by (used in) operating activities $1,045,000 $ (664,000)
Investing activities
Proceeds from sale of property 0 85,000
Reduction of certificate of deposit 250,000 0
Purchase of equipment (40,000) (32,000)
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Net cash provided by investing activities 210,000 53,000
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Financing activities
Advances under bank lines of credit 6,308,000 5,708,000
Payments on bank line of credit (7,319,000) (5,347,000)
Borrowings under long-term debt arrangements 0 250,000
Payment of deferred compensation (25,000) (29,000)
Other 1,000 1,000
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Net cash (used in) provided by financing activities (1,035,000) 583,000
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Increase (decrease) in cash and cash equivalents 220,000 (28,000)
Cash and cash equivalents at beginning of year
23,000 93,000
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Cash and cash equivalents at end of period $ 243,000 $ 65,000
========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
RSI Holdings, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note A - Basis of Presentation
As of January 31, 2000, RSI Holdings, Inc. (the "Company") adopted the
liquidation basis of accounting. The Company's wholly-owned subsidiary, HomeAdd
Financial Corporation ("HomeAdd") had sold more than 90% of its loans to a
single federal bank in California during the months from January 1999 through
August 1999. During fiscal year 2000 this bank reduced the number of loans that
it would buy, which caused increased difficulties for HomeAdd in selling its
loans. Although HomeAdd sought to replace the bank in California with other
purchasers of mortgages and to operate profitably, it was unable to do so.
The Company had experienced significant recurring losses and had working capital
deficiencies. Because of the increased difficulties of HomeAdd in selling its
loans as described above, the Company decided to cease all of HomeAdd's business
operations effective January 31, 2000. The Company anticipates that no material
assets of the Company will remain after payment of the Company's existing and
contingent liabilities. Although the Company intends to look for other business
opportunities, it cannot determine at this time what, if any, future business
activities it may engage in.
As a result of the decision to cease all of HomeAdd's business operation, the
Company changed its basis of accounting for its financial statements as of
January 31, 2000 from the going concern basis of accounting to the liquidation
basis of accounting in accordance with generally accepted accounting principles.
Consequently, assets have been valued at estimated net realizable value and
liabilities are presented at their estimated settlement amounts, including costs
associated with carrying out the liquidation. The actual realization of assets
and settlement of liabilities could be higher or lower than amounts indicated
and are based upon management's estimates as of February 29, 2000.
The accompanying unaudited condensed consolidated financial statements at
February 29, 2000 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments including normal recurring accruals considered
necessary for a fair presentation have been included. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-KSB for the year ended August 31, 1999.
Note B - Convertible Note Payable
On February 16, 2000, a shareholder of the Company loaned the Company $400,000
in the form of a convertible note payable bearing interest at 8% per year and
due on February 16, 2005. All principal and unpaid interest are convertible into
the Company's common stock at the conversion rate of $.075 per share at the
option of the Company or the holder of the convertible note.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
Special Cautionary Notice Regarding Forward-Looking Statements.
This Report on Form 10-QSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act and 21E of the Exchange Act.
Forward-looking statements are indicated by such terms as "expects", "plans",
"anticipates", and words to similar effect. Such forward-looking statements are
subject to known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements. Important factors ("Cautionary
Statements") that could cause the actual results, performance or achievements of
the Company to differ materially from the Company's expectations are disclosed
in this Report on Form 10-QSB. All written or oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by the
Cautionary Statements.
Results of Operations
As described in Note A to its unaudited Condensed Consolidated Financial
Statements included above, the Company changed its basis of accounting for its
financial statements at January 31, 2000 from the going concern basis of
accounting to the liquidation basis of accounting in accordance with generally
accepted accounting principles. Consequently, assets have been valued at
estimated net realizable value and liabilities are presented at their estimated
settlement amounts, including costs associated with carrying out the
liquidation. The Company anticipates that no material assets of the Company will
remain after payment of the Company's existing and contingent liabilities.
Although the Company intends to look for other business opportunities, it cannot
determine at this time what, if any, future business activities it may engage
in.
The Company currently estimates that the liquidation of HomeAdd's assets
will be completed by December 31, 2000, and the estimated costs during the
remaining period of liquidation is included in the accompanying condensed
consolidated statement of net assets in liquidation. These estimated costs
during the liquidation period include the rent obligation of approximately
$6,000 per month during the remaining period of the lease through August 2002.
The Company also recorded a reduction of the value of its equipment in the
amount of $172,000 to reduce the equipment to its estimated net realizable value
of approximately $48,000. The actual realization of assets and settlement of
liabilities could be higher or lower than amounts indicated and are based upon
management's estimates as of February 29, 2000.
As discussed below in "Liquidity and Capital Resources - Debt
Arrangements", Minor H. Mickel (the mother of Buck A. Mickel, the President and
Chief Executive Officer of the Company) loaned the Company $400,000 during
February 2000 under the terms of a convertible debt arrangement. Also the Estate
of Buck Mickel, the former Chairman and Chief Executive Officer of the Company
(and Buck A. Mickel's father), loaned the Company $250,000 during the 1999
fiscal year. In addition, a corporation owned by Buck A. Mickel and his two
adult siblings and their mother, Minor H. Mickel, has pledged securities to a
third bank in connection with a revolving loan facility of $500,000. As
discussed below, the $500,000 credit facility requires that the Company maintain
a tangible net worth of at least $1,000 (which was not true at February 29, 2000
and is not currently true), and the facility is payable on demand. Accordingly,
there is no assurance that the $500,000 credit facility will be available or
that there will be sufficient cash available to pay the liabilities of the
Company. At February 29, 2000 the outstanding balance payable under this
$500,000 credit facility was $305,000.
6
<PAGE>
The Company conducted its consumer loan business through HomeAdd. The
Company had no other business operations. The following discussion of the
results of operations during the two and five months ended January 31, 2000 as
compared to the three and six months ended February 28, 1999 primarily relates
to the consumer loan business. This business was commenced during December of
1996 and was discontinued on January 31, 2000. The goal of the Company was to
increase the loan volume of business in the United States to a profitable level.
The Company was not successful in increasing its loan volume to meet its
profitability goals and decided to discontinue its business as described above.
Revenues were $271,000 and $753,000 during the two and five months ended
January 31, 2000 as compared to $222,000 and $532,000 during the three and six
months ended February 28, 1999. Revenues consisted primarily of loan origination
fees and gain from the sale of the loans made. Revenues during the fiscal 2000
periods were earned during the two and five months ended January 31, 2000 prior
to discontinuing the business of HomeAdd. The increase in quarterly revenues
during fiscal 2000 as compared to fiscal 1999 is the result of the increase in
loans originated. The Company experienced a decrease in rates of origination
fees as well as the rate of gain from the sale of loans made during the two and
five months ended January 31, 2000 as compared to the comparable three and six
months of the preceding year.
Selling, general and administrative expenses were $428,000 and $759,000
during the two and five months ended January 31, 2000 as compared to $516,000
and $1,187,000 during the three and six months ended February 28, 1999. These
expenses include expenses incurred by HomeAdd of $386,000 and $1,057,000 during
the two and five months ended January 31, 2000 as compared to $401,000 and
$795,000, respectively, during the three and six months ended February 28, 1999.
HomeAdd expenses during the fiscal 2000 periods were incurred during the two and
five months ended January 31, 2000 prior to discontinuing the business of
HomeAdd. The HomeAdd expenses primarily related to advertising, salaries, and
various administrative expenses of HomeAdd. The remaining general and
administrative expenses primarily consisted of salaries, legal, audit and other
administrative expenses incurred by the Company. The monthly increase in
expenses of fiscal 2000 as compared to fiscal 1999 was primarily the result of
HomeAdd's attempt to increase the volume of its loan originations by increasing
the volume of its advertising and the additional personnel and various other
related administrative expenses.
During the two and five months ended January 31, 2000 and February 28,
1999, net deferred tax benefits were not recorded relating to temporary
differences since the Company is not assured that the resulting additional
deferred tax assets will be realized.
7
<PAGE>
HomeAdd offered high loan-to-value debt consolidation and home improvement
loans ("HLTV Loans") to certain qualified borrowers that permit the loan
proceeds to be used for debt consolidation and home improvements. Under the
terms of these HLTV loans, HomeAdd made loans secured by second mortgages in
which the total loans outstanding on the property could be up to 125% of the
estimated fair value of the real property. A qualified borrower was required to
be a homeowner with acceptable levels of income and have an acceptable credit
history. Substantially all of the loan volume during the two and five months
ended January 31, 2000 consisted of HLTV Loans.
HomeAdd was authorized to operate under the laws of South Carolina, North
Carolina, Georgia, Kentucky, Connecticut, Delaware, Maryland, Massachusetts,
Tennessee, Minnesota, Missouri, Oregon, Utah, Wisconsin and Florida. HomeAdd is
now attempting to withdraw from all of those states other than South Carolina.
The Company sold substantially all of the loans it originated on a
non-recourse basis in the secondary market. The non-recourse basis means that
the Company represents that loans were properly documented and made in
accordance with applicable lending criteria, but that the purchaser of the loans
assumes the full credit risk. During the five months ended January 31, 2000,
the Company made loans aggregating $9,302,000 as compared to loans aggregating
$5,729,000 during the six months ended February 28, 1999. The mortgage loans
held for sale at February 29, 2000 were subsequently sold.
Liquidity and Capital Resources
Anticipated Liquidity Requirements
Certain of the Company's shareholders have advanced funds and guaranteed
debt under the debt arrangements as discussed below under "Cash and Cash
Equivalents" and "Debt Arrangements". At February 29, 2000, the Company's
liabilities, including estimated costs during the remaining period of
liquidation, exceeded the net realizable value of its assets by $1,170,000. The
Company has no assurance that its debt arrangements and the arrangements with
certain of its shareholders will be available to allow it to pay its liabilities
during its liquidation period.
Cash and Cash Equivalents
The Company had cash and cash equivalents in the amount of $51,000 as of
February 29, 2000.
Certificate of Deposit
As described in the Company's Form 10-KSB as of August 31, 1999, the bank
that provided the Company's $1,500,000 warehouse line of credit required that
HomeAdd's tangible net worth include certain specified assets with a maturity of
five years or less in the amount of $250,000. In compliance with this
requirement the Company pledged a certificate of deposit with a face value of
$250,000 to the bank. This warehouse line of credit was satisfied from the
proceeds from the sale of HomeAdd's loans and during February 2000 the note was
satisfied and the collateral in the form of the $250,000 certificate of deposit
was released.
8
<PAGE>
Debt Arrangements
HomeAdd financed loans to its customers with borrowings from a warehouse
line of credit with a bank in the amount of $1,500,000. This warehouse line of
credit was satisfied prior to February 29, 2000.
The Company has the following debt arrangements. None of the Company's
assets have been pledged under these debt arrangements.
During February 2000, Minor H. Mickel, the mother of Buck A. Mickel,
President and Chief Executive Officer of the Company, loaned the Company
$400,000 under the terms of an 8% convertible note payable on February 16, 2005.
All principal and unpaid interest is convertible into the Company's common stock
at the conversion rate of $.075 per share at the option of either the Company or
the holder of the convertible note.
The Company used the proceeds of the $400,000 convertible note in part to
pay off the Company's working capital line of credit with a bank in the amount
of $150,000 and its $75,000 working capital line of credit with another bank.
In addition, the Company has a $500,000 loan agreement with a bank. This
credit facility bears interest at the prime rate of the bank. The loan is
payable on demand of the bank or in any event on June 15, 2000. A corporation
that is owned by the President and Chief Executive Officer, his mother and his
two adult siblings has guaranteed payment of the loan and has pledged certain
securities as collateral to the loan. Under the terms of the agreement, RSI
Holdings, Inc. is required to maintain tangible net worth of at least $1,000.
The Company does not have any tangible net worth. The bank has waived this
violation of its loan agreement at February 29, 2000.
During the year ended August 31, 1999, the Estate of Buck Mickel, the
former Chairman of the Board and Chief Executive Officer of the Company, loaned
the Company $250,000 bearing interest at 8.5% per year payable quarterly.
Proceeds from the loan were used for working capital and the principal is
payable ten years from the date of the loan.
As previously discussed, the Company plans to liquidate the assets of
HomeAdd and use the proceeds to pay the liabilities of HomeAdd. The remaining
cash, if any, will be used to pay liabilities of the Company, although there is
no assurance that these proceeds will be sufficient to pay HomeAdd's or the
Company's liabilities.
9
<PAGE>
PART II. Other information
ITEM 1. LEGAL PROCEEDINGS*
ITEM 2. CHANGES IN SECURITIES*
ITEM 3. DEFAULTS UPON SENIOR SECURITIES*
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following summarizes the votes at the Annual Meeting of the Company's
shareholders held on January 27, 2000.
Broker
Matter For Against Withheld Abstentions Nonvotes
------ --- ------- --------- ----------- --------
Election of
Directors
Buck A. Mickel 6,460,344 N/A 12,675 N/A 0
C. C. Guy 6,460,344 N/A 12,675 N/A 0
Charles M. Bolt 6,460,344 N/A 12,675 N/A 0
(Two additional nominees, Charles C. Mickel and Joe F. Ogburn, declined to serve
as directors of the Company.)
Ratification of
proposal to amend
stock option plan
from 1,250,000 to
1,750,000 shares 5,006,537 27,923 N/A 117,715 1,320,844
Ratification of
Appointment of
Elliott, Davis &
Company L.L.P.
for fiscal 2000 6,370,183 1,821 N/A 101,015 0
10
<PAGE>
ITEM 5. OTHER INFORMATION*
*Items 1, 2, 3, and 5 are not presented as they are not applicable or the
information required thereunder is substantially the same as information
previously reported.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
3.1 Articles of Incorporation of RSI Holdings, Inc., as amended:
Incorporated by reference to Exhibit 3.2 and 3.2.2 to the Registration
Statement on Form S-4 of RSI Corporation and Porter Brothers, Inc.,
File No. 33-30247 (the "Form S-4").
3.1.1 Articles of Amendment and Certificate of Reduction of Capital of
Porter Brothers, Inc.: Incorporated by reference to Exhibit 4.1 to the
Form 8-K of the Registrant filed with the Securities and Exchange
Commission on November 28, 1989, File No. 0-7067.
3.2.1 By-laws of RSI Holdings, Inc., as amended: Incorporated by reference
to Exhibit 3.1.1 to the Form S-4.
3.2.2 Amendments to By-laws: Incorporated by reference to Exhibit 3.2.2 to
the Form 10-KSB of the Registrant filed with the Securities and
Exchange Commission for the fiscal year ended August 31, 1996, File
No. 0-18091.
4.1 See Exhibits 3.1, 3.1.1, 3.2.1 and 3.2.2.
4.1.1 Specimen of Certificate for RSI Holdings, Inc., common stock:
Incorporated by reference to Exhibit 4.1.2 to the Form S-4.
10.1 Convertible note issued by the Company payable to Minor H. Mickel.
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
Registrant filed a Current Report on Form 8-K, Dated February 7, 2000, with
respect to decision by the Company to cease all of HomeAdd's business operations
as soon as possible.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RSI HOLDINGS, INC.
--------------------------
April 14, 2000 /s/ Joe F. Ogburn
- ------------------------ -----------------------
(Date) Joe F. Ogburn,
Vice President and Treasurer
(Principal Accounting Officer)
12
<PAGE>
INDEX OF EXHIBITS
3.1 Articles of Incorporation of RSI Holdings, Inc., as amended:
Incorporated by reference to Exhibit 3.2 and 3.2.2 to the Registration
Statement on Form S-4 of RSI Corporation and Porter Brothers, Inc.,
File No. 33-30247 (the "Form S-4").
3.1.1 Articles of Amendment and Certificate of Reduction of Capital of
Porter Brothers, Inc.: Incorporated by reference to Exhibit 4.1 to the
Form 8-K of the Registrant filed with the Securities and Exchange
Commission on November 28, 1989, File No. 0-7067.
3.2.1 By-laws of RSI Holdings, Inc., as amended: Incorporated by reference
to Exhibit 3.1.1 to the Form S-4.
3.2.2 Amendments to By-laws: Incorporated by reference to Exhibit 3.2.2 to
the Form 10-KSB of the Registrant filed with the Securities and
Exchange Commission for the fiscal year ended August 31, 1996, File
No. 0-18091.
4.1 See Exhibits 3.1, 3.1.1, 3.2.1 and 3.2.2.
4.1.1 Specimen of Certificate for RSI Holdings, Inc., common stock:
Incorporated by reference to Exhibit 4.1.2 to the Form S-4.
10.1 Convertible Note issued by the Company payable to Minor H. Mickel.
27 Financial Data Schedule (electronic filing only)
13
EXHIBIT 10.1
RSI HOLDINGS, INC.
8.0% Convertible Note due 2005
February 16, 2000 $400,000.00
RSI HOLDINGS, INC., a corporation organized and existing under the laws of
North Carolina (herein called the "Company"), for value received, hereby
promises to pay to MINOR H. MICKEL or her successors or assigns (hereinafter,
the "Holder") the principal sum of Four Hundred Thousand ($400,000) on February
16, 2005 and to pay interest thereon from the date of issuance written above
annually on February 16 in each year, (each an Interest Payment Date), at the
rate of 8.0% per annum, until the principal hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will be paid to the Holder holding this Note on the
Interest Payment Date. Any such interest not so punctually paid or duly provided
for will be paid to such Holder on the next following Interest Payment Date or
be paid at any time in any other lawful manner. All unpaid interest is
convertible, at the option of the Company or the Holder, on the terms provided
herein.
Payment of the principal of and interest on this Note will be made at the
office or agency of the Company in Greenville, South Carolina or such other
office as the Company may in the future designate (the "Company Office"),
provided written notice of such designation is provided to the Holder of this
Note at the time of such designation. Payment of the principal of and interest
on this Note will be made in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that, at the option of the Company payment of
principal and interest may be made by check mailed to the address of the person
entitled thereto as such address shall appear in the security register of the
Company.
The Company may voluntarily prepay any or all of the principal amount
hereof without premium or penalty. Once borrowed and repaid, principal cannot be
re-borrowed.
No provision of this Note shall require the payment or permit the
collection of interest in excess of that permitted by applicable law.
TRANSFER. The transfer of this Note is registrable in the Company's
security register (the "Security Register"), upon surrender of this Note for
registration of transfer at the Company Office, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Company duly
executed by the Holder hereof or her attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
1
<PAGE>
THE SALE OF THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
ANY STATE SECURITIES LAW IN RELIANCE UPON EXEMPTIONS THEREFROM. THE HOLDER MUST
HOLD THIS NOTE UNTIL MATURITY OR CONVERSION UNLESS THE SALE OR OTHER TRANSFER
THEREOF IS SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR EXEMPTIONS FROM SUCH REGISTRATIONS ARE AVAILABLE.
CONVERSION. At any time prior to the maturity date of the Note, the Holder
may opt to convert part or all of this Note into fully-paid and non-assessable
shares of the common stock of the Company (the "Common Stock") at a conversion
price of $0.075 (Seven and One-Half Cents) per share of Common Stock, subject to
adjustment as described herein (the "Conversion Price"). At the option of the
Holder (upon notice), unpaid interest shall be added to the principal amount of
this Note and shall be equally subject to the conversion provisions of this
Note.
The number of shares of Common Stock into which this Note is convertible
shall be adjusted from time to time as follows:
(1) If the Company shall, at any time or from time to time (A) declare or
pay any dividend on its Common Stock payable in its Common Stock (a "Stock
Dividend"), (B) effect a subdivision of the outstanding shares of its Common
Stock into a greater number of shares of Common Stock, by reclassification or
otherwise than by payment of a dividend in its Common Stock (a "Stock Split") or
(C) combine or consolidate the outstanding shares of its Common Stock into a
lesser number of shares of Common Stock, by reclassification or otherwise (a
"Reverse Stock Split"); then the number of shares of Common Stock into which
this Note is convertible shall be adjusted so that the Holder shall receive,
upon conversion, the same number of shares of Common Stock such Holder would
have received had the Holder converted immediately prior to the Stock Dividend,
Stock Split or Reverse Stock Split and then received the benefits of the Stock
Dividend, Stock Split or Reverse Stock Split. An adjustment made pursuant to
this paragraph (1) shall become effective (A) in the case of any Stock Dividend,
immediately after the close of business on the record date for the determination
of holders of Common Stock entitled to receive such Stock Dividend, (B) in the
case of any such Stock Split, at the close of business on the day immediately
prior to the day upon which such corporate action becomes effective or (C) in
the case of any Reverse Stock Split, at the close of business on the day
immediately prior to the day upon which such corporate action becomes effective.
(2) If the Company shall, at any time or from time to time, declare, order,
pay or make a dividend or other distribution on its Common Stock, (including,
without limitation, any distribution of other or additional securities or
property or rights or warrants to subscribe for, at less than fair market value
as determined in good faith by the Board of Directors, other securities of the
Company or any subsidiary of the Company now existing or hereinafter formed by
way of dividend or spin-off, reclassification, recapitalization or similar
corporate rearrangement) other than a dividend payable in cash or shares of the
Company's Common Stock or rights or warrants to subscribe for shares of the
Company's Common Stock, then, and in each such case (unless the Holder shall
receive any such dividend or other distribution on the same basis as though this
Note had been converted into shares of Common Stock immediately prior to the
close of business on the record date for the determination of holders of Common
Stock entitled to receive such dividend or other distribution), the number of
shares of Common Stock into which this Note is convertible shall be adjusted so
that the Holder of this Note shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by multiplying (A) the
number of shares of Common Stock into which this Note was convertible
immediately prior to the close of business on the record date fixed for the
determination of holders of Common Stock entitled to receive such dividend or
distribution by (B) a fraction, the numerator of which shall be the Fair Market
Value per share of Common Stock on the record date fixed for the determination
of holders of Common Stock entitled to receive such dividend or distribution,
and the denominator of which shall be such Fair Market Value per share of Common
Stock less the fair value of such dividend or distribution (as determined in
good faith by the Board of Directors of the Company) payable in respect of one
share of Common Stock. An adjustment made pursuant to this paragraph (3) shall
be made upon the opening of business on the next business day following the date
on which any such dividend or distribution is made and shall be effective
retroactively immediately after the close of business on the record date fixed
for the determination of holders of Common Stock entitled to receive such
dividend or distribution.
2
<PAGE>
For purposes hereof, Fair Market Value shall be the fair market value of
the Company's common stock, as determined in good faith by the Board of
Directors of the Company.
The Holder may exercise these conversion rights as to a Note or any part
thereof by delivering to the Company during regular business hours at the
Company Office the Note to be converted along with written notice of the amount
to be converted stating that the Holder elects to convert such Note or portion
thereof. Conversion shall be deemed to have been effected on the date when such
delivery is received by the Company at the Company Office, and such date is
referred to herein as the "Conversion Date." As promptly as practicable
thereafter, the Company shall issue and deliver to such Holder, a certificate or
certificates for the number of full shares of Common Stock to which such Holder
is entitled, a check for cash with respect to any fractional interest in a share
of Common Stock, and, in the event of a partial conversion, a replacement Note,
which shall be identical to the original Note except that the replacement shall
be in a different principal amount and shall indicate the date of issuance of
the original Note, the date of issuance of the replacement Note and that the
replacement was issued as a replacement for the original as a result of a
partial conversion. The Holder shall be deemed to have become a shareholder of
record on the applicable Conversion Date unless the transfer books of the
Company are closed on the date, in which event the Holder shall be deemed to
have become a Common Stock shareholder of record on the next succeeding date on
which the transfer books are open, but the Conversion Price shall be that in
effect on the Conversion Date.
No fractional shares of Common Stock or scrip shall be issued upon
conversion of the Note. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of the Note, the Company shall pay a
cash adjustment in respect of such fractional interest equal to the value of
such fractional interest as based on the Conversion Price.
The Company shall at all times reserve and keep available, out of its
authorized but unissued Common Stock, solely for the purpose of effecting the
conversion of the Note, the full number of shares of Common Stock deliverable
upon the conversion of all Note from time to time outstanding.
All shares of Common Stock which may be issued upon conversion of the Note
will, upon issuance by the Company, be validly issued, fully paid and
nonassessable.
Upon conversion of the Note, the Holder thereof shall be entitled to
receive any unpaid interest accrued (but not added to the principal of the Note)
through the Conversion Date.
3
<PAGE>
CERTAIN NOTICES. In case at any time the Company shall propose to (1)
declare any cash dividend upon its Common Stock, (2) declare any dividend upon
its Common Stock payable in stock or make any special dividend or other
distribution to the holders of its Common Stock, (3) offer for subscription to
the holders of any of its Common Stock any additional shares of stock in any
class or other rights, (4) reorganize, or reclassify the capital stock of the
Company or consolidate, merge or otherwise combine with, or sell all or
substantially all of its assets to, another corporation, (5) voluntarily or
involuntarily dissolve, liquidate or wind up of the affairs of the Company, or
(6) redeem or purchase any shares of its capital stock or securities convertible
into its capital stock, then the Company shall give to the Holder of this Note,
by certified or registered mail, (i) at least twenty (20) days' prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
GOVERNING LAW. This Note shall be governed by and construed in accordance
with the laws of the State of South Carolina without regard to any conflicts of
laws principals or provisions.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed as of the date first above written.
RSI HOLDINGS, INC.
By: /s/ Buck A. Mickel
------------------------------
Name: Buck A. Mickel
Title: President and CEO
4
<PAGE>
OPTION OF HOLDER TO ELECT CONVERSION
If you want to elect to have this Note converted in its entirety into
Common Stock of the Company as provided above, check the box: ___________
If you want to elect to have only a part of this Note converted into Common
Stock of the Company as provided above, state the amount you wish to convert:
$__________
Dated: Your Signature:
------------------- ----------------------------
(Sign exactly as name appears on the other side
of this Security)
STATE OF )
)
COUNTY OF )
BEFORE ME, the undersigned, on this day personally appeared
____________________________, known to me to be the person, acknowledged to me
that he executed this Option of Holder to Elect Conversion.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this _______ day of
_________________, ________.
Notary Public in and for
--------------
My Commission Expires:
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AND CONDENSED
STATEMENT OF OPERATIONS FOR THE TWO AND FIVE MONTHS ENDED JANUARY 31, 2000 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. THE
AFOREMENTIONED STATEMENT IS UNCLASSIFIED AND STATES THE NET ASSETS IN
LIQUIDATION BUT DOES NOT CONTAIN EQUITY ACCOUNTS.
</LEGEND>
<CIK>0000853697
<NAME>RSI Holdings, Inc.
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 301,000
<SECURITIES> 0
<RECEIVABLES> 47,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 348,000
<PP&E> 48,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 404,000
<CURRENT-LIABILITIES> 1,574,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,170,000)
<TOTAL-LIABILITY-AND-EQUITY> 404,000
<SALES> 0
<TOTAL-REVENUES> 753,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,096,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,000
<INCOME-PRETAX> (394,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (394,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (394,000)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
<FN>
Footnotes:
Other stockholders' equity includes adjustments for accruals and costs expected
to be incurred during period of liquidation in the amount of 722,000.
</FN>
</TABLE>
