<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended March 1, 1997
Commission File Number: 0-19269
SUN TELEVISION AND APPLIANCES, INC.
(Exact name of Registrant as specified in its charter)
OHIO NO. 31-1178151
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6600 PORT ROAD
GROVEPORT, OHIO 43125
(Address of principal executive offices, including zip code)
(614) 492-5600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $.01 par value
The Registrant 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 has been subject to the filing requirements for at least the
past 90 days.
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. [ ]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant was approximately $35,696,000 on May 20, 1997.
There were 17,439,202 shares of the Registrant's Common Stock
outstanding on May 20, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1997 Annual
Meeting of Shareholders are incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Sun Television and Appliances, Inc. (the "Company") is a specialty
retailer of consumer electronics and home appliances. Since 1986, the Company
has expanded from its base in Central Ohio to become a major regional chain,
operating a total of 41 stores in Ohio, Pennsylvania, West Virginia and
Kentucky. The Company's expansion strategy has been to open superstores,
averaging 40,000 to 60,000 square feet, in those markets where the Company
believed it could become the dominant retailer of its products. In larger
markets, the Company clusters its stores to benefit from the economies of scale
associated with operating multiple units in a single market. In small
communities, the Company seeks to achieve market dominance by opening a single
store which draws from a larger trading area. The close geographic proximity of
the Company's current markets provides the Company with significant operating
efficiencies.
During the fiscal year ended March 1, 1997 ("fiscal 1997"), the
Company opened seven new stores, one each in Beavercreek, North Randall,
Newark, and Chillicothe, Ohio and Beckley, Charleston, and Huntington, West
Virginia. The North Randall, Newark, and Chillicothe locations replaced older,
smaller stores. The Company closed three stores in Dayton and one store in
Springfield, Ohio and three stores in Buffalo and two stores in Rochester, New
York thereby exiting these markets. The closing of these nine stores was part
of a restructuring of the Company, including a re-engineering of job
responsibilities that resulted in the elimination of more than 1,000 full-time
positions. Also, the Company closed its Pittsburgh (August 1995) and Cleveland
(May 1996) distribution facilities as it believes it can serve all of its
stores more economically from the new Columbus warehouse and distribution
complex referred to below.
The Company commenced operation in its new 600,000 square foot
warehouse and distribution complex and moved into the 200,000 square foot
service and general office portion of the complex in 1995. Two leased warehouse
locations in Columbus were closed in April 1995, and the Company's older, owned
warehouse, distribution and office facility was sold in December 1996.
The Company plans to open two new stores during the fiscal year ending
February 28, 1998 ("fiscal 1998"), in Canton and Findlay, Ohio, and to close
the existing stores in both these areas as they will be better served by the
new stores.
In June 1996, the Company announced the resignation of Robert E.
Oyster as Chairman of the Board and Chief Executive Officer. In February 1997,
the Company retained Price Waterhouse Business Turnaround Services ("BTS") in
response to continuing difficulties in the consumer electronics retailing
industry. As part of the Company's agreement with BTS, R. Carter Pate, a
managing partner with BTS, joined the Company as Chairman of the Board. In May
1997, the Company announced the resignations of James R. Copitzky as President
and Chief Executive Officer and Steven A. Martin as Executive Vice President,
Treasurer and Chief Financial Officer. Additionally, in May 1997, the Company
announced the appointment of Mr. Pate as Chief Executive Officer on an interim
basis, named John J. Lynch, the Company's Controller, as interim Chief
Financial Officer until a successor for Mr. Martin is found, and named Dennis
L. May, the Company's Vice President of Sales and Marketing as Executive Vice
President and Chief Operating Officer.
The Company is currently in the process of implementing a new business
strategy aimed at boosting sales, maintaining market share and reinforcing its
role as a leading consumer electronics and appliances retailer in its markets.
Significant elements of this strategy, many of which are being test marketed in
Cincinnati, include an aggressive new marketing and promotional plan that
reinforces the Company's identity as the low-price retailer of consumer
electronics and appliances providing superior value to its customers;
institution of significant changes in customer service in the areas of employee
training and development, in-store sales and service, home delivery and repair;
revamping and re-laying existing stores to create a compelling shopping
environment; and improvement of operational efficiencies through new
point-of-sale information systems, improved inventory controls, and continued
re-engineering of corporate and administrative functions.
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This strategy is designed to build and improve upon the existing
knowledgeable, well-trained sales force, the established service department
offering in-home and carry-in repair services at all locations, the Company
operated home delivery, and other customer services such as the optional
extended warranty contracts, extensive product instruction and various sales
financing programs.
Additionally, the Company is currently test marketing, in Cincinnati,
an automatic price protection program (the "Price Protection Program"). The
Company's pricing policy has been supported by a "price guarantee" whereby the
Company will match a competitor's lower price or, for customers who have
purchased a product from the Company which is offered by a competitor at a
lower price, refund the difference between a competitor's lower price and the
Company's price upon request by the customer or give the customer a full refund
if the customer elects to return the goods. The Price Protection Program
supplements the "price guarantee," and is not intended to be a replacement.
Under the Price Protection Program, if a national competitor advertises a
product offered by the Company at a lower price than the price paid by a
customer of the Company within 30 days of the competitor's advertisement, the
Company will automatically refund the difference between the competitor's
advertised price and the price paid by the customer.
The Company's business was founded in 1949 by Macy T. Block and his
brother. In 1986, the Company was incorporated in Delaware in connection with
the acquisition of the business by Mr. Block and ZS Sun L.P. The Company
conducted its operations through a wholly owned subsidiary, Sun T.V., Inc. (the
"Subsidiary") until July 1994, at which time the Company was reincorporated in
Ohio and was merged with the Subsidiary.
EXPANSION STRATEGY
The Company's plans for expansion in the future will depend upon market
conditions, the extent and nature of competition in target markets, and the
Company's financial condition and the availability of capital. In selecting
which markets to enter, if any, in the future, the Company would expect to
evaluate a number of criteria, including proximity to existing operations as
well as the size, strength and merchandising philosophy of potential
competitors. In choosing specific sites within a market, the Company would
expect to apply site selection criteria which take into account numerous factors
including local demographics, traffic patterns and overall retail activity.
MERCHANDISING
Pricing
The Company's policy is to offer its products at the lowest prices in
each of its markets. The Company monitors pricing at competing stores on a
daily basis through extensive pricing surveys and adjusts its prices as
necessary to adhere to this policy and to ensure competitive positioning. The
Company does not engage in promotional advertising that emphasizes "sale"
pricing, but rather emphasizes its policy of consistent everyday low price
leadership. All pricing decisions are made centrally by the Company's buyers.
The Company's automatic Price Protection Program currently being test marketed
and its "price guarantee" are described above.
Products
The Company offers its customers the convenience of one-stop shopping
through a comprehensive selection of high quality, brand name consumer
electronic, home appliance and home office products. The Company offers
customers a wide range of price points within each product category, with the
greatest depth in moderately priced items. The Company believes that its
merchandising strategy, with its emphasis on products which the Company
believes represent the best value to its customers, appeals to a wide range of
customers and promotes customer loyalty and repeat business.
The store layout has been reexamined by the Company and a program to
attain consistent layouts at all stores has been instituted, which includes
better merchandise adjacencies providing for improved customer service and
convenience. Large, highly visible signage and floor displays highlight each
area and create an environment in which it is easy to shop.
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The following table, which is derived from the Company's internal
sales records, indicates the percentage of sales in each major product group
for the Company's last three fiscal years. Historical percentages may not be
indicative of the Company's future product mix.
PERCENTAGE OF NET SALES AND SERVICE REVENUES
<TABLE>
<CAPTION>
Fiscal
--------------------------------------
Product Category 1997 1996 1995
- ---------------- ---- ---- ----
<S> <C> <C> <C>
Television............................ 21.4% 22.1% 23.5%
Video(1).............................. 11.3 11.1 12.8
Appliances(2)......................... 17.5 18.7 19.0
Audio(3).............................. 14.4 9.1 12.2
Personal convenience(4)............... 7.1 9.8 8.9
Home office(5)........................ 21.7 22.6 17.0
Extended service contracts, service
revenues and other income(6)........ 6.6 6.6 6.6
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
- -------------------
(1) Includes video recorders and players, camcorders, television/video
combination recorders and associated video accessories.
(2) Includes refrigerators, ranges, freezers, dishwashers, microwave ovens,
washing machines and dryers, air-conditioners, dehumidifiers, humidifiers
and disposals.
(3) Includes rack audio systems, receivers, cassette decks, compact disc
players, turntables, amplifiers, tuners, equalizers, speakers, headphones,
car stereo components, portable radio/cassette and microcassette
recorders, personal headphone stereo, clock radios and related
accessories.
(4) Includes prerecorded video and audio tapes and compact discs, electronic
musical keyboards, telephones, answering devices, cellular phones, fans,
other miscellaneous portable electronics, vacuum cleaners, gas grills,
housewares and home furnishings.
(5) Includes computers, computer accessories, software, fax machines, copiers,
electronic typewriters and word processors and calculators.
(6) Includes extended service policies, service repair revenues, parts and
warranty billings to manufacturers and miscellaneous income.
Purchasing
The Company purchases most of its merchandise directly from the
manufacturers. The Company has a staff of four buyers reporting to the
Executive Vice President and Chief Operating Officer. Each buyer has
responsibility for specified product categories and is supported by one or more
assistant buyers and an inventory control manager. For fiscal 1997, the
Company's largest supplier accounted for less than 10.0% of sales. The Company
typically does not maintain long-term purchase contracts with suppliers and
operates principally on a purchase order basis.
MARKETING
The Company's marketing programs are designed to create an awareness
of the Company's comprehensive selection of high quality, brand name
merchandise and its lowest price policy. The Company's primary advertising
vehicle in each of its markets is local newspaper advertising, supplemented
with radio and cable and broadcast television spots. The Company's newspaper
advertising program currently consists of full-color multiple page inserts and
periodic full-page advertisements. To reinforce the Company's policy of
offering its products at the lowest prices, the Company advertises a low price
guarantee in all of its markets and is test marketing the Price Protection
Program described above.
All print advertisements and media buying are handled internally by
the Company's advertising department.
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CUSTOMER SERVICE
Sales Associates
The Company strives to develop the technical and interpersonal skills
of its sales associates to ensure that customers consistently receive
knowledgeable and courteous assistance. In this regard, the Company has
embarked upon a Company-wide retraining of all its sales associates with
specific emphasis on determining customer wants and needs and understanding how
to best meet these needs. On an ongoing basis, all sales associates attend
frequent in-house training sessions conducted by experienced employees or
manufacturers' representatives and receive sales, product and other information
in daily manager meetings. Certain sales associates specialize in a particular
product category to provide customers with an increased level of technical
assistance. These specialized associates are an important part of the
Company's "team" selling approach.
The Company's sales associates are paid on a commission basis, with
commissions determined on the basis of profitability, inventory management and
other considerations. The Company also motivates its sales associates by
providing opportunities for advancement within the Company.
Services
The Company supports its merchandise sales by providing a number of
important customer services, including an established service department
offering in-home and carry-in repair services at all store locations, home
delivery, optional extended warranty contracts, extensive product instruction
and various sales financing programs.
Virtually all merchandise purchased from the Company may be returned
to any of the Company's stores for repair, whether the product is under the
manufacturer's warranty, an extended service protection contract or out of
warranty. The Company's service facility, located at its distribution center in
Columbus, Ohio, is one of the largest service centers in Ohio and has been
designated as an authorized service center by most of the Company's suppliers.
The Company operates a fleet of trucks, which enables it to provide in-home
repair and service for major appliances and televisions. Currently, in the
Northern and Southern Ohio market areas, merchandise generally is repaired and
serviced by independent contractors approved by the Company.
At the time of purchase, each customer may elect to purchase an
extended service plan contract which provides warranty coverage beyond the
duration of the manufacturer's warranty. Generally, these plans provide one to
five years of extended warranty coverage which helps ensure post-sale customer
satisfaction.
The Company periodically conducts free in-store classes to demonstrate
the use and operation of selected merchandise. These classes are particularly
useful to customers for newly introduced products and for those products which
require some skill in operation, such as video camcorders and personal
computers.
The Company accepts most major credit cards and introduced its own
private label credit card in Fall 1990. The Company has transferred credit risk
on its private label credit card to a third party. Purchases under installment
sales contracts may be arranged by the Company through independent financing
companies without recourse to the Company.
In the Fall of 1996, the Company contracted for the administration and
operation of its private label credit card with a new third party and embarked
on an extensive promotion of the new card.
STORE OPERATIONS
Stores
All of the Company's stores are located in high visibility, high
traffic commercial areas, including strip shopping centers and free-standing
sites in major regional shopping areas. Each store has large, readily
identifiable signage, easy access from major roads and adequate customer
parking.
The stores range in size from approximately 19,000 to 73,000 square
feet and have an average of 25,000 square feet of selling space. The stores are
open seven days and six nights per week, including most holidays.
The following table indicates the number of stores opened and closed
over the past three fiscal years. The stores closed in 1997 included three
stores in Buffalo and two stores in Rochester, New York, and three stores in
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Dayton and one store in Springfield, Ohio and were the markets exited by the
Company this year. Stores in North Randall, Newark and Chillicothe were
replaced by new superstores which the Company believes are at better locations.
The stores closed in fiscal 1996 and 1995 were in Columbus market areas which
are serviced by new superstores which the Company believes are at better
locations.
<TABLE>
<CAPTION>
Fiscal
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Number of stores open at beginning of period ......... 46 43 38
Number of stores opened during period................. 7 5 6
Number of stores closed during period 12 2 1
-- -- --
Number of stores open at end of period................ 41 46 43
== == ==
</TABLE>
The Company attains store operating efficiencies through comprehensive
merchandise, personnel and information controls. Changes in store operating
procedures and pricing policies are established by senior management at its
headquarters and are disseminated to each store through daily electronic mail
messages and weekly manager meetings. The Company's store level management
structure consists of a full-time manager, an operations manager, and two or
more department managers. Store operations also are supervised by three
district managers who report to the Company's Vice President of Field
Operations.
Distribution
The Company moved into its new, owned 800,000 square foot facility in
Columbus in Spring 1995. Approximately 600,000 square feet are devoted to
warehousing and distribution. The Company distributes products to all of its
stores from this facility. All of the Company's stores are located within
approximately 350 miles of this facility. The close proximity of the
distribution center to the stores allows the Company to make relatively
frequent deliveries to each store, enabling the Company to minimize in-store
out-of-stocks. Deliveries to stores in Central Ohio are made by the Company's
fleet of trucks, while deliveries to stores elsewhere are made by contract
carriers. The Company believes that its distribution center provides it with
significant labor, merchandise and freight savings by consolidating receiving
and handling functions and by enabling the Company to purchase in full
truckloads from suppliers.
The Company closed its Pittsburgh distribution facility in 1995 and
its Cleveland distribution facility in 1996 as it believes the new Columbus
facility will provide a cost-efficient means of supplying the Northern Ohio and
Pennsylvania stores as well as capacity for further expansion.
Management Information Systems
The Company has implemented an integrated retail management
information system. This system provides management with the information
necessary to manage inventory by providing current inventory, price and volume
information by stock keeping unit ("SKU"). The system also provides vendor
analysis, monitors sales and store activity on a daily basis, captures
marketing and customer information, tracks productivity by sales associate and
controls the Company's accounting operations.
The host computer is integrated with the Company's PC-based
point-of-sale system which serves as the collection mechanism for all sales
activity. The combined system provides for next-day review of inventory levels
and sales by store and by SKU and enables management to track merchandise from
receipt at the distribution center until time of sale. This capability allows
the merchandise staff to confirm delivery of products, to monitor future
delivery dates and to improve merchandise selection and product pricing.
The Company's PC-based point of sale system and software are being
replaced to provide for efficient and controlled integration into the
management information system.
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SEASONALITY
The Company's business is seasonal. As is the case with many other
retailers, the Company's net sales and service revenues and income from
operations are greater during the Christmas season than during other periods of
the year. The Company's February/March fiscal year end, however, mitigates
broad revenue swings in quarterly reporting. Future quarterly results for the
Company may not necessarily follow this pattern due to the timing and number of
new store openings and general economic conditions.
COMPETITION
The Company's business is intensely competitive in all product
categories. Competition is based primarily on price, although store location,
product selection and service are also significant factors. In general, the
Company's competitors include other specialty stores, independent electronics
and appliance stores, department stores, warehouse clubs, mass merchandisers,
discount stores and catalog showrooms, many of which are national in scope and
have significantly greater resources than the Company. In particular, the
Company believes that it competes in its current markets most directly with
Circuit City, Best Buy and Sears. In the future, there can be no assurance that
the Company will not face additional competition in its markets from new or
existing competitors.
EMPLOYEES
As of March 1, 1997, the Company employed approximately 3,400 persons,
2,500 of whom were full-time employees. As of April 1, 1997, the Company
employed approximately 2,500 persons, 1,800 of whom were full time employees.
The decrease in employees is primarily attributable to the nine store closings
and corporate restructuring previously mentioned. The Company is not a party to
any collective bargaining agreement and is not aware of any efforts to unionize
its employees. The Company considers its relations with employees to be good.
SERVICE MARKS
The Company has developed common law rights in its service marks. The
Company owns federal registrations for the marks SUN TELEVISION & APPLIANCES,
INC., SUN TELEVISION & APPLIANCES WHERE YOU KNOW YOU PAY LESS and Design, SUN
$UPER $AVINGS CENTERS and Design, QUICK WIZ and Design, and CRUISE LINE TRAVEL
THE WORLD and Design. SUN TELEVISION & APPLIANCES, INC., SUN SAVINGS CENTERS
and SUN SUPER SAVINGS CENTER are registered in the State of Ohio. SUN
TELEVISION & APPLIANCES and SUN SUPER SAVING CENTERS and Design are registered
in the Commonwealth of Pennsylvania.
BUSINESS RISKS
The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. In addition to the
other information in this report, readers should carefully consider the
following important factors, which, among others, in some cases have affected,
and in the future could affect, the Company's actual results and could cause
the Company's actual consolidated results of operations for fiscal 1998 and
beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.
Future Capital Needs; Uncertainty of Additional Financing. The Company
currently anticipates that its available cash resources combined with its
borrowing capability and funds from operations will be sufficient to meet its
presently anticipated working capital and capital expenditure requirements both
for the short-term and through at least the end of fiscal 1998. The Company may
need to raise additional funds through public or private debt or equity
financings in order to respond to competitive pressures. The issuance of equity
securities is not likely to be possible unless the Company's profitability and
market conditions in the Company's industry improve significantly. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of the then current stockholders of the Company may be
reduced and such equity securities may have rights, preferences or privileges
senior to those of the holders of the Company's common stock. There can be no
assurance that additional financing will be available on terms favorable to the
Company, or at all. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
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Competition. The Company's business is highly competitive. Some of the
Company's competitors have significantly greater resources than the Company. In
addition, the Company may face additional competition in its markets from new
or existing competitors. See "Business -- Competition."
Dependence on Suppliers. The success of the Company's business depends
upon its ability to select and purchase quality merchandise on favorable terms.
The Company has no continuing contracts with its suppliers for the purchase of
merchandise. The Company relies on favorable terms from its suppliers to obtain
merchandise. There can be no assurances that the Company will be able to
continue to obtain merchandise on terms favorable to the Company.
Product Demand. The Company's performance depends upon the demand for
its products, which in turn is dependent upon various factors, such as the
introduction and acceptance of new products and new product features and the
continued popularity of existing products. The timing of the announcement and
the introduction of new technology and new products similar to products offered
by the Company can have a material adverse affect on the Company's ability to
market products currently available from manufacturers and offered by the
Company. Sales of merchandise such as that offered by the Company are likely to
be affected by adverse trends in the general and regional economies, as well as
the availability of consumer credit. In most of the Company's product
categories, prices for comparable units have declined each year, a trend which
the Company expects to continue.
Quarterly Fluctuations and Seasonality. Similar to most retailers, the
Company's business is seasonal, with revenues and earnings being generally
lower during the first half of each fiscal year and greater during the second
half of the fiscal year, which includes the year-end holiday season. In
addition, the Company's working capital needs are seasonal, with the Company's
greatest working capital requirements occurring during the second half of each
fiscal year. Accordingly, the Company's operating results may be affected by
holiday spending patterns, as well as the timing of new store openings and
general economic conditions.
Volatility of Stock Price. The market price of the Company's common
stock is subject to significant fluctuations in response to variations in
quarterly operating results and other factors. In addition, the stock market in
recent years has experienced extreme price and volume fluctuations that often
have been unrelated or disproportionate to the operating performance of
companies. These broad fluctuations may affect adversely the market price of
the Company's common stock.
ITEM 2. PROPERTIES.
The Company's original store opened in Columbus in 1949 and was closed
in 1980 when the real estate was sold. The following table sets forth data
regarding the Company's current store locations:
<TABLE>
<CAPTION>
Gross Approximate Lease
Year Square Selling Expiration
Opened Footage Space(1) Date(2)
------ ------- -------- -------
<S> <C> <C> <C> <C>
Columbus Area Locations:
Alum Creek Drive 6/1995 50,100 39,630 6/2025
Morse Road 10/1993 65,000 53,426 Owned
West Broad Street 1973 19,393 10,808 Owned
Sawmill Road 11/1994 60,000 47,463 10/2030
Brice Road 11/1991 30,000 22,290 11/2016
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Northern Ohio Locations:
Warren 9/1991 26,550 15,019 Owned
Mentor 10/1991 34,950 23,334 10/2011
North Olmsted 10/1991 40,952 27,967 10/2011
Chapel Hill 11/1991 25,000 15,393 11/2011
Parma 11/1991 26,810 14,492 9/2011
North Randall 10/1996 73,128 49,929 9/2026
Elyria 7/1992 22,282 15,344 7/2012
Mayfield Heights 10/1992 19,450 13,144 7/2007
Rosemont 11/1992 25,500 20,410 11/2012
Boardman 11/1992 30,080 20,896 Owned
Cincinnati/Dayton Locations:
Colerain 11/1994 56,920 46,463 Owned
Florence, Kentucky 11/1994 56,920 46,863 10/2030
Eastgate 9/1995 48,820 37,872 Owned
Other Ohio Locations:
Newark/Heath 10/1996 30,400 23,707 10/2026
Zanesville 10/1986 25,600 19,132 6/2015
Mansfield/Ontario 11/1986 35,878 24,055 Owned
Chillicothe 10/1996 30,400 23,707 9/2021
Findlay 10/1987 24,300 11,940 10/1997
Canton 11/1989 25,650 14,088 Owned
Steubenville 2/1991 25,035 13,206 2/2011
Lima 10/1994 43,100 28,590 10/2030
St. Clairsville 9/1995 43,000 27,089 Owned
Lancaster 11/1995 40,950 33,552 11/2020
Pittsburgh Area Locations:
Mars Cranberry 10/1988 23,000 12,114 10/2004
West Mifflin Century 7/1989 45,210 31,400 7/2016
Monroeville 11/1989 33,547 22,787 11/2009
McKnight Road 6/1990 26,820 16,282 6/2010
Scott Township 7/1990 20,374 11,997 6/1999
Robinson Township 12/1992 22,220 16,742 12/2012
Other Pennsylvania Locations:
Erie 12/1992 36,960 25,388 Owned
Washington 12/1992 21,000 13,812 10/2007(3)
Johnstown 9/1993 30,281 23,384 9/2018
West Virginia Locations:
Beckley 9/1996 59,267 38,744 9/2019
Charleston 6/1996 45,000 34,929 6/2026
Parkersburg 3/1993 34,580 22,431 2/2003
Huntington 11/1996 30,403 23,937 11/2031
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Closed Store Locations:
Salem Mall (Ohio) 12/1994 40,710 -- 12/2009(4)
Dayton Mall (Ohio) 12/1994 50,000 -- 12/2014(4)
Springfield (Ohio) 10/1995 42,821 -- Owned
Beavercreek (Ohio) 3/1996 49,776 -- 3/2011(4)
Henrietta (New York) 9/1993 40,672 -- 9/2008(4)
Greece (New York) 10/1993 50,000 -- 10/2008(4)
Walden (New York) 11/1993 40,000 -- 11/2008(4)
Amherst (New York) 12/1993 40,011 -- 12/2008(4)
McKinley (New York) 12/1993 40,000 -- 12/2008(4)
</TABLE>
- ---------------------------
(1) Selling space is total square footage less the Company's estimate of space
per store not used for selling merchandise.
(2) Includes all renewal options, unless otherwise indicated.
(3) Although this lease has a 15-year term, the lease provides for a buyout
which can be exercised by the landlord at any time after September 1998 if
the adjacent tenant desires to acquire additional space.
(4) Lease expiration date is for original lease term.
In addition to the properties listed above, the Company owns a site in
Cuyahoga Falls, Ohio, and has signed leases for replacement stores in Canton
and Findlay, Ohio. The Company also owns sites in North Randall and
Springfield, Ohio for which alternatives for disposition or leasing are being
explored. Also, the Company still has leases for eight of the closed stores.
The landlords of six stores filed suits against the Company alleging the
Company breached its leases. The Company is currently negotiating with the
landlords to terminate these leases.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings that are
incidental to the conduct of its business. Although the ultimate resolution of
pending proceedings cannot be determined, in the opinion of management, subject
to the possible effect of the suits described below, the resolution of such
proceedings in the aggregate will not have a material adverse effect on the
Company's financial position or results of operations.
On April 30, 1997, the landlords of the three stores in Buffalo and the
two stores in Rochester, New York that the Company closed as part of
restructuring instituted a lawsuit against the Company. The lawsuit was filed in
the State of New York Supreme Court and alleges that the Company breached the
leases for each of the closed stores. The total amount claimed by the landlords
in the lawsuit is approximately $47.5 million. On May 16, 1997, the landlord of
the store in Beavercreek, Ohio that the Company closed as part of restructuring
instituted a lawsuit against the Company. The lawsuit was filed in the Court of
Common Pleas for Greene County, Ohio and alleges that the Company breached the
lease for the Beavercreek store, seeks restitution of the property, real estate
taxes, insurance and overdue rent totalling $0.1 million and seeks an additional
amount, unspecified, for damage to the premises and rent, common area
maintenance and interest for the remainder of the lease term. However, based on
discussions with counsel, the efforts of the Company to sublet the premises,
reserves recorded for store closings and other factors, the Company believes
that it has adequately provided for potential liabilities relating to these
cases.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET PRICES
The Company's common stock is traded on the over-the-counter market.
The following table sets forth the high and low sales prices of the common
stock as well as the dividends per share for the periods indicated.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
----------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter $5.1875 $3.3125 $9.3750 $7.7500
2nd Quarter 5.2500 3.1875 8.3750 6.3750
3rd Quarter 3.5000 2.3750 7.5000 4.8750
4th Quarter 4.8750 1.9688 5.8750 3.6250
</TABLE>
On May 20, 1997 the last reported sale price for the Company's common
stock on the NASDAQ National Market was $2.3125 per share. As of May 20, 1997
there were approximately 861 holders of record of the Company's common stock.
STOCK LISTING
Traded: NASDAQ-NM
Symbol: SNTV
DIVIDENDS
The Company has not paid a dividend since August 1996. The Company paid
a quarterly dividend of $.00875 in May and August 1996 and in each quarter of
fiscal 1996 and 1995. The Company is currently restricted on the payment of
dividends to a maximum of $750,000 per year.
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA.
YEARS ENDED MARCH 1, 1997, MARCH 2, 1996, FEBRUARY 28, 1995,
1994 AND 1993 (Amounts in thousands, except number of
stores and per share data)
<TABLE>
<CAPTION>
1997 1996(1) 1995 1994 1993
------------ ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales and
Service Revenues............... $ 683,386 $ 806,179 $ 751,883 $ 575,893 $ 398,642
Gross Profit........................ 149,714 200,156 191,933 151,188 108,140
(Loss) Income from Operations....... (46,608) 14,306 30,749 27,935 19,544
Interest Expense.................... 5,537 4,675 2,316 440 626
Net (Loss) Income Before
Extraordinary Loss............. (43,722) 6,591 17,531 16,965 --
Extraordinary Loss.................. (1,619) -- -- -- --
Net (Loss) Income................... (45,341) 6,591 17,351 16,965 11,598
Net (Loss) Income Before
Extraordinary Loss per Primary
and Fully Diluted Shares(2).... (2.51) 0.38 1.00 0.96 0.78(3)
Extraordinary Loss.................. (0.9) -- -- -- --
Net (Loss) Income................... (2.60) 0.38 1.00 0.96 0.78
Working Capital..................... 63,535 95,768 97,937 90,100 73,877
Total Assets........................ 257,713 285,342 280,005 218,613 175,644
Long-Term Debt...................... 41,007 30,000 30,000 -- --
Capital Lease Obligations........... 14,358 14,651 13,070 9,959 968
Stockholders' Equity................ 108,083 153,516 147,232 130,264 112,651
Book Value per Common Share(2)...... 6.20 8.84 8.52 7.54 6.57
Cash Dividends per
Common Share(2)................ .0175 .035 .035 .035 .0275
Return on Average
Stockholder's Equity........... NA 4.4% 12.6% 14.0% 14.0%
Number of Common Shares
Outstanding at Year End(2)..... 17,439 17,364 17,278 17,267 17,151
Weighted Average Shares(2)
Primary........................ 17,407 17,430 17,536 17,669 14,921
Fully Diluted.................. 17,407 17,430 17,541 17,674 15,039
Number of Stores at Year End........ 41(4) 46 43 38 31
</TABLE>
(1) Beginning March 1, 1995 each fiscal year ends on the Saturday closest to
February month end. See Note 1 of "Notes to Financial Statements."
(2) Adjusted to reflect 2-for-1 stock split, effective July 22, 1993.
(3) The net income for primary and fully diluted shares was $0.78 and $0.77,
respectively.
(4) Reflects the closing of nine stores previously announced and which were
closed the first week of March 1997.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's financial condition has been impacted by the consumer
electronics industry slowdown and the increased competition in the Company's
markets which led to the decision to exit the Buffalo and Rochester, New York
and Dayton and Springfield, Ohio markets. This resulted in the closing of nine
stores and a restructuring charge of $14.7 million in the fourth quarter of
this year, which combined, with an earlier restructuring charge of $2.0
million, primarily for severance costs, resulted in a total charge of $16.7
million for the year. The Company recorded a net loss of $(45,341,000) or
$(2.60) per share for the fiscal year ended March 1, 1997 as compared to net
income of $6,591,000 or $0.38 per share and $17,531,000 or $1.00 per share for
the fiscal years ended March 2, 1996 and February 28, 1995, respectively. The
following table sets forth the percentage relationship to net sales and service
revenues of certain income and expense items:
<TABLE>
<CAPTION>
Fiscal
----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales and service
revenues................. 100.0% 100.0% 100.0%
Cost of sales.................... 78.1 75.2 74.5
------ ------ ------
Gross profit..................... 21.9 24.8 25.5
Selling, general and
administrative expenses.. 26.2 23.0 21.3
Restructuring charge............. 2.4 -- --
Amortization of
intangibles.............. .1 .1 .1
------ ------ ------
(Loss) income from operations.... (6.8) 1.7 4.1
Interest income.................. .1 .1 .1
Interest expense................. (.8) (.6) (.3)
Other ........................... (.2) .1 --
------ ------ ------
(Loss) income before
income taxes......... (7.7) 1.3 3.9
Income tax (benefit) expense..... (1.3) .5 1.6
------ ------ ------
Net (loss) income before
extraordinary loss... (6.4%) 0.8% 2.3%
Extraordinary (Loss)............. (.2) -- --
------ ------ ------
Net (Loss) income........ 6.6% 0.8% 2.3%
====== ====== ======
</TABLE>
NET SALES AND SERVICE REVENUES
Net sales and service revenues for fiscal 1997 were $683.4 million, a
decrease of $122.8 million (15.2%) from $806.2 million for fiscal 1996. The
decrease is attributable to a comparable store decrease of $168.7 million
(22.4%) offset by the opening of seven new stores (including three replacement
stores) and a full year's contribution to revenues of the five new stores
(including one replacement store) opened in fiscal 1996. The decline in
comparable store sales is attributable to the continuing soft sales environment
impacting the consumer electronics industry plus the increased competition from
national competitors in all our major markets. In addition, the Company
announced the closing of nine stores in Buffalo and Rochester, New York and
Dayton and Springfield, Ohio in January 1997. The inventory at these stores was
liquidated during the last two months of the year. All major product categories
contributed to the decline in sales with computers and computer accessories and
color televisions reflecting the largest dollar declines. Seven new stores
opened in fiscal 1997; one each in Beavercreek, Chillicothe, Newark and North
Randall, Ohio and Beckley, Charleston and Huntington, West Virginia. The
Chillicothe, Newark and North Randall stores were replacement stores for older
smaller locations and the Beavercreek store was closed as part of the Dayton
market withdrawal.
During fiscal 1995, the Company commenced selling third party extended
service policies in addition to its own extended service policies. In the
fourth quarter of fiscal 1994, the Company entered into an agreement whereby
13
<PAGE> 14
certain extended service policies purchased by customers of the Company are
assumed by a third party. The amount of revenues recognized during fiscal 1997
from these third party service policies was approximately 2.5% of Net Sales and
Service Revenues versus 2.8% for fiscal 1996 and 2.5% for fiscal 1995. The
number of third party policies sold and Company policies assumed during fiscal
1997 was 29.9% and for fiscal 1996 was 26.1% of all policies sold by the
Company in the respective years.
Net sales and service revenues for fiscal 1996 were $806.2 million, an
increase of $54.3 million (7.2%) from the $751.9 million for fiscal 1995. The
increase was attributable to the opening of five new stores in fiscal 1996
(including one replacement store), a full year's contribution to revenues of
the six new stores (including one replacement store) opened in fiscal 1995
offset by a comparable store sales decrease of $46.1 million (6.3%), and the
closing of a small store in Columbus. While declines were seen in all major
merchandise categories, sales showed some improvements in the home office
category, which continued its growth with the sales of computers and related
accessories being the most significant contributors to the category growth.
GROSS PROFIT
Gross profit for fiscal 1997 was $149.7 million, a decrease of $50.5
million (25.2%) from the $200.2 million in fiscal 1996. As a percentage of
sales, gross profit for fiscal 1997 was 21.9% as compared to 24.8% for fiscal
1996. The decline in gross profit percentage was attributable to the nine store
closings where the inventory was sold at slightly less than cost plus a higher
cost of merchandise due to the Company not being able to take advantage of
better discounts since the volume of purchases did not meet certain vendor
criteria. These factors combined with the increasingly competitive environment
and the soft consumer electronics industry sales trend resulted in the 2.9%
percentage point decrease in gross profit this year versus last year. Gross
profit represents total revenues less the cost of merchandise sold, the cost of
parts related to service contracts retained by the Company, and the fees due to
third parties related to sales of third party service contracts and Company
contracts assumed by a third party. The gross profit rate related to service
revenues is substantially higher than the gross profit rate applicable to
merchandise sales.
Gross profit for fiscal 1996 was $200.2 million, an increase of $8.3
million (4.3%) from the $191.9 million in fiscal 1995. As a percentage of
sales, gross profit for fiscal 1996 was 24.8% as compared to 25.5% for fiscal
1995. The decline in gross profit as a percentage of sales was primarily
attributable to the significantly intensified competitive environment that
exists within most of our markets. This combined with the growth in sales of
computers and accessories, which have a lower than average gross profit rate,
accounted for the decrease.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company's selling, general and administrative expenses decreased by
$6.3 million (3.4%) to $179.1 million during fiscal 1997 from $185.4 million
during fiscal 1996. The decrease is mostly attributable to payroll costs,
primarily selling, partially offset by higher occupancy costs, higher third
party service repair costs and higher equipment rental costs for computer and
point of sale equipment. The payroll cost decline was largely due to the sales
decrease this year as most sales associates are commission based. Occupancy
costs increased due to the opening of new stores while the higher third party
service repair costs were more than offset by payroll reductions in the service
area.
Selling, general and administrative expense for fiscal 1996 was $185.4
million, an increase of $24.7 million (15.4%) from the $160.7 million for
fiscal 1995. The increase reflects increases in payroll and related benefits,
advertising and occupancy expenses. Also, higher equipment rental costs were
incurred for the installation of new point of sale and mainframe equipment for
a new point of sale software system and major systems conversion. The major
systems conversion occurred in August 1996 and the point of sale conversion has
been delayed until the summer of 1997.
14
<PAGE> 15
RESTRUCTURING CHARGE
During fiscal 1997, the Company provided for two restructuring charges
totalling $16.7 million. The Company recorded a charge for $2.0 million during
the first quarter for severance pay relating to the change of executive
management and the restructuring of the buying, logistics, store and field
operations in an effort to clarify accountability, streamline responsibilities
and improve operations with the goal of better satisfying customer needs and
demands. In the fourth quarter of fiscal 1997, the Company recorded a $14.7
million restructuring charge primarily relating to the closing of nine stores
in the Buffalo and Rochester, New York and Dayton and Springfield, Ohio
markets. Of this amount, $12.3 million was for the write-down of property and
equipment, settlement of lease obligations and legal and real estate
commissions, $2.0 million was for professional and consulting fees and
termination of an outside home delivery contract and $.4 million was for
severance costs. In fiscal 1997, the nine closed stores had sales of $108.3
million versus $124.1 million for the prior year.
OTHER INCOME/EXPENSE
Interest expense increased $0.8 million in fiscal 1997 to $5.5 million
from $4.7 million in 1996. The increase is attributable to an increase in the
average amount borrowed during the year as well as an increase in the interest
rate charged on the borrowings.
Interest expense increased $2.4 million in fiscal 1996 to $4.7 million
from $2.3 million in 1995. The increase is attributable to the full year's
expense of the private placement of $30 million of 8.18% Senior Notes in
September 1994 versus fiscal 1995 including only five months expense. Also,
there were short-term borrowings during fiscal 1996 which increased interest
expense.
Interest income decreased $0.7 million in fiscal 1996 from $1.2 million
in 1995 as the Company only had excess funds to invest in Treasury Bills during
the first quarter of fiscal 1996.
Other for fiscal 1997 represents the loss on the sale of certain
property and equipment as well as the write-down of a property to be disposed of
to its estimated realizable value. Other income in fiscal 1996 represents the
gain on sale of a replaced store and disposal of replaced Point of Sale
equipment.
EXTRAORDINARY LOSS
In the fourth quarter of this year, the Company signed a new three year
revolving credit agreement that provides for variable interest rate options of
LIBOR +3% and prime rate plus .50%. Proceeds from the new credit agreement were
used to repay the Senior Note holders and the outstanding balance to the banks
under the Reducing Revolving Loan. In connection with the repayments the
Company incurred certain prepayment costs on the Senior Notes as well as legal
and other fees which are reflected as an extraordinary loss.
INCOME TAXES
The Company's effective income tax rate was 16.6% for fiscal 1997 and
40.5% for fiscal 1996 and 40.8% for fiscal 1995. The rate for 1997 reflects the
estimated Federal income tax receivable applicable to the loss incurred this
year less the write-off or reserve recorded against the deferred tax assets
which are estimated to not be recoverable until the Company returns to
profitability.
The slight decrease in effective tax rate from 1995 to 1996 is
primarily attributable to the decrease in the state tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The consumer electronics industry slowdown, increased competition in
the Company's markets and restructuring charges, resulting in a net loss of
$45.3 million, as discussed previously, have had an impact on the Company's
financial condition. Cash and cash equivalents were reduced to $1.8 million
this year from $13.6 million last year and the current ratio was 1.83 as
compared to 2.46 for fiscal 1996. Net cash used in operating activities was
15
<PAGE> 16
$10.1 million in fiscal 1997, compared to $11.1 million provided by operating
activities in fiscal 1996 and $3.8 million used in fiscal 1995. The decrease in
cash provided by operating activities is primarily attributable to the net loss
for the year plus the related increase in income tax receivable offset
partially by the decline in inventory and increases in trade accounts payable
and accrued liabilities.
The Company funded capital expenditures of $17.6 million this year
through the reduction of cash and cash equivalents and proceeds from the
disposal of property and equipment. The capital expenditures were primarily for
the seven new stores (three replacement stores) opened during the year. Capital
expenditures of $26.8 million in fiscal 1996 were for the completion of the new
general office, warehouse/distribution complex and the five new stores (one
replacement store) opened during the year and were funded by cash provided by
operating activities and proceeds from the sale/leaseback of three stores and
the disposal of property and equipment. Capital expenditures of $45.6 million
in fiscal 1995 were primarily for the new general office warehouse/distribution
complex and the six new stores (one replacement stare) opened during the year
and were funded through the issuance of $30.0 million of 8.18% Senior Notes due
in 2004 and a reduction in cash and cash equivalents.
Total assets at March 1,1997 were $257.7 million, a decrease of $27.6
million (9.7%) from March 2, 1996. Decreases of $17.4 million in inventory,
$11.8 million in cash and cash equivalents, $7.0 million in accounts receivable
and $6.2 million in deferred taxes were partially offset by the increase of
$14.6 million in income taxes receivable. The decrease in inventory reflects
the closing of nine stores as well as the better management of inventory; the
decrease in cash reflects the use of funds towards the net loss; the decrease
in receivables reflects the increased emphasis on the Company revolving charge
card where funds are collected faster versus the installment finance contracts;
and the decrease in deferred taxes reflects the Company writing-off/reserving
for deferred tax assets that are not/may not be utilizable due to the Company's
loss. These decreases were partially offset by the income tax receivable
increase of $14.6 million attributable to the Company's loss.
Stockholders' equity decreased 29.6% in fiscal 1997 from 1996
reflecting the net loss for the year. The return on average stockholders'
equity was negative in fiscal 1997, 4.4% in fiscal 1996 and 12.6% in 1995. This
decreasing trend from 1995 to 1996 and negative return in 1997 reflects the
continued softness in the consumer electronics industry and the continued
intensified competition in the Company's markets. This has affected sales,
gross margin and expense rates and brought about the need for the store
closings in New York and Ohio and the restructuring charge and ultimately has
negatively affected results from operations.
During the fourth quarter of fiscal 1997, the Company negotiated a new,
collateralized $100 million revolving credit agreement with CIT Group/Business
Credit, Inc. The new credit facility is for a term of three years, provides
variable interest rate options of LIBOR + 3% and prime rate plus .50% and is
collateralized by inventory and receivables. Proceeds from the new facility
were used to repay the Senior Note holders and the revolving bank loans. In
connection with repaying the Senior Note holders and the bank loans the Company
incurred professional fees and repayment penalties totalling $1.6 million net of
income tax benefit which the Company expensed this year as an extraordinary
loss. In connection with this refinancing, the Company's reducing revolving
credit agreement with its banks, which was increased in fiscal 1996 from $27.8
million to $50.0 million, was terminated. Also, the $30.0 million 8.18% Senior
Notes due 2004 were repaid and cancelled at the same time.
The Company's primary capital requirements this past year have been for
the seven new stores opened during the year. At the end of fiscal 1997, the
Company owns a site for future development in Cuyahoga Falls, Ohio and has
signed leases for replacement stores in Canton and Findlay, Ohio. The Company
estimates that capital expenditures for the two new replacement stores and the
remodel of three existing stores will be approximately $2.5 million. The
Company anticipates funding these expenditures through its existing credit
agreement. In addition, the Company is exploring additional financing
arrangements to assist in implementing its new business strategy and provide
capital for more remodels of existing stores and allow for the opening of new
stores.
16
<PAGE> 17
YEAR 2000
During fiscal 1997 the Company installed an integrated retail
management system which the Company believes is year 2000 compliant. In
addition, most of the Company's financial operating software has been supplied
by outside vendors and it is believed that such software is year 2000
compliant. Certain peripheral support software will need to be modified, but
the Company believes that the expenditures necessary to be year 2000 compliant
in the software will not be material to its financial condition or results of
operation in any given year.
FUTURE COMPETITION
Fiscal 1997 brought with it increased intensification of the
competition in the Company's major markets. This, combined with the slowdown in
the consumer electronics industry, has impacted sales volume, gross profit
rates and expense rates during the past year and has continued into the first
part of the new year. The Company is currently testing a new business and
marketing strategy in Cincinnati, Ohio as well as exploring further expense
savings programs to ensure that it will remain highly competitive in existing
markets.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The Company cautions that any forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) contained
in this report or made by management of the Company involve risks and
uncertainties, and are subject to change based on various important factors.
The following factors, among others, in some cases have affected and in the
future could affect the Company's financial performance and actual results and
could cause actual results for fiscal 1998 and beyond to differ materially from
those expressed or implied in any such forward-looking statements: changes in
consumer spending patterns, consumer preferences and overall economic
conditions; technological changes; future capital needs; uncertainty of
additional financing; competition; dependence on suppliers, product demand,
quarterly fluctuations and seasonality; and volatility of stock price. See
Business -- Business Risks.
17
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------------
March 1, March 2, February 28,
1997 1996 (Note 1) 1995
-------- ------------- ------------
<S> <C> <C> <C>
Net sales and service revenues..................... $ 683,386 $ 806,179 $ 751,883
Cost of sales...................................... 533,672 606,023 559,950
----------- ----------- -----------
Gross profit.............................. 149,714 200,156 191,933
Selling, general and administrative expense........ 179,106 185,356 160,690
Restructuring charge............................... 16,723 -- --
Amortization of intangibles (Note 1) 493 494 494
----------- ----------- -----------
(Loss) income from operations (46,608) 14,306 30,749
----------- ----------- -----------
Other income (expense):
Interest income.............................. 460 549 1,201
Interest expense............................. (5,537) (4,675) (2,316)
Other........................................ (709) 895 --
----------- ----------- -----------
(5,786) (3,231) (1,115)
----------- ----------- -----------
(Loss) income before income taxes
and extraordinary loss................ (52,394) 11,075 29,634
Income tax (benefit) expense (Notes 1 and 6)....... (8,672) 4,484 12,103
----------- ----------- -----------
Net (loss) income before extraordinary
loss................................. (43,722) 6,591 17,531
Extraordinary loss related to early
extinguishment of debt, Net of income
tax benefit................................. (1,619) -- --
----------- ----------- -----------
Net (loss) income................................. $ (45,341) $ 6,591 $ 17,531
=========== =========== ===========
Primary and Fully diluted per share amounts (Note 1):
(Loss) income before extraordinary loss..... $ (2.51) $ 0.38 $ 1.00
Extraordinary loss.......................... (.09) -- --
----------- ----------- -----------
Net (loss) income........................... $ (2.60) $ 0.38 $ 1.00
=========== =========== ===========
Weighted average shares outstanding (Note 1):
Primary..................................... 17,407 17,430 17,536
=========== =========== ===========
Fully diluted............................... 17,407 17,430 17,541
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE> 19
BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS March 1, March 2,
1997 1996 (Note 1)
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1)............................ $ 1,828 $ 13,583
Trade accounts receivable, net of allowance
for doubtful accounts of $475 and $400.................... 11,597 18,943
Income taxes refundable....................................... 14,619 --
Merchandise inventory (Note 1)................................ 97,368 114,777
Prepaid expenses and other.................................... 7,143 5,903
Deferred income taxes (Notes 1 and 6)......................... 7,224 8,116
---------- ----------
Total current assets...................................... 139,779 161,322
---------- ----------
Property and equipment, net (Note 2).............................. 100,267 100,563
Deferred income taxes (Notes 1 and 6)............................. 3,114 8,410
Intangible assets (Note 1)........................................ 14,553 15,047
---------- ----------
Total assets......................................... $ 257,713 $ 285,342
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable........................................ $ 28,607 $ 20,100
Accrued liabilities (Note 9).................................. 31,604 23,431
Income taxes payable.......................................... -- 3,934
Current portion of deferred revenue (Note 1) 16,033 18,089
---------- ----------
Total current liabilities................................. 76,244 65,554
---------- ----------
Capital lease obligations (Note 5)................................ 14,358 14,651
Deferred revenue, noncurrent (Note 1)............................. 18,021 21,621
Long-term debt (Note 4)........................................... 41,007 30,000
Commitments and contingencies (Notes 5 and 11) Stockholders' equity
(Notes 1 and 7):
Preferred stock, $.01 par value, 500 shares
authorized, none issued................................... -- --
Common stock, $.01 par value, 30,000 shares
authorized, 17,439 and 17,364 shares issued
and outstanding........................................... 174 174
Additional paid-in capital.................................... 88,480 88,268
Retained earnings............................................. 19,429 65,074
---------- ----------
Total stockholders' equity................................ 108,083 153,516
---------- ----------
Total liabilities and stockholders' equity $ 257,713 $ 285,342
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE> 20
STATEMENT OF STOCKHOLDERS' EQUITY FOR
THE YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 28, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Additional Total
Number Paid-In Retained Stockholders'
of Shares Amount Capital Earnings Equity
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, February 28, 1994 17,267 $ 173 $ 87,930 $ 42,161 $ 130,264
Shares issued under stock
options...................... 11 - 41 - 41
Net income....................... - - - 17,531 17,531
Cash dividends
($0.035 per share)............ - - - (604) (604)
------- ------- -------- -------- ---------
Balance, February 28, 1995 17,278 173 87,971 59,088 147,232
Shares issued under stock
options and restricted stock 86 1 297 - 298
Net income....................... - - - 6,591 6,591
Cash dividends
($0.035 per share) - - - (605) (605)
------- ------- -------- -------- ---------
Balance, March 2, 1996.............. 17,364 174 88,268 65,074 153,516
Shares issued under stock
options and restricted stock 75 - 212 - 212
Net loss......................... - - - (45,341) (45,341)
Cash dividends
($0.0175 per share) - - - (304) (304)
------- ------- -------- -------- ---------
Balance, March 1, 1997.............. 17,439 $ 174 $ 88,480 $ 19,429 $ 108,083
======= ======= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE> 21
STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------------------------------------
March 1, March 2, February 28,
1997 1996 (Note 1) 1995
--------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(45,341) $6,591 $17,531
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization.................. 9,567 8,059 6,035
Deferred revenue............................... (5,656) (1,138) 708
Deferred income taxes.......................... 6,188 (625) (1,986)
(Gain) loss on sale of property and equipment.. 109 (894) -
Restructuring charge........................... 16,723
Impairment of long-lived assets (note 1)........ 600
Changes in items affecting operations:
Trade accounts receivable...................... 6,992 776 (8,218)
Merchandise inventory.......................... 17,409 1,404 (26,968)
Prepaid expenses and other..................... (1,478) (1,639) (1,466)
Trade accounts payable......................... 8,506 (1,203) 3,642
Accrued liabilities............................ (5,144) 2,347 6,731
Income taxes (refundable) payable.............. (18,554) (2,534) 232
-------- ------- --------
7,731 (849) (26,047)
------- ------- --------
Net cash (used in) provided by
operating activities........................ (10,079) 11,144 (3,759)
------- ------- --------
Cash flows from financing activities:
Borrowings under revolving credit
agreement.................................... 41,007 23,000 -
Repayment of short-term bank credit line
borrowing.................................... - (23,000) -
Issuance of long-term debt..................... - - 30,000
Repayment of long-term debt.................. (30,000) - -
Reduction of capital lease obligations......... (293) (423) (314)
Issuance of common stock under stock
options and restricted stock................. 212 298 41
Cash dividends on common stock................. (304) (605) (604)
-------- ------- --------
Net cash provided by (used in) financing
activities............................... 10,622 (730) 29,123
-------- ------- --------
Cash flows from investing activities:
Additions to property and equipment............ (17,599) (26,797) (45,616)
Proceeds from sales/leaseback.................. - 10,446 -
Proceeds from disposal of property and
equipment.................................. . 5,301 2,784 -
------- -------- --------
Net cash (used in) investing activities.... (12,298) (13,567) (45,616)
------- -------- --------
Decrease in cash and cash equivalents...... (11,755) (3,153) (20,252)
Cash and cash equivalents, beginning of year........... 13,583 16,736 36,988
------- ------- -------
Cash and cash equivalents, end of year................. $ 1,828 $13,583 $16,736
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................... $3,825 $2,783 $1,132
Income taxes............................... 3,130 9,148 14,714
Supplemental schedule of noncash investing and
financing activities:
Capital lease obligations...................... - $2,004 $3,425
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE> 22
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
Pursuant to shareholder approval in July 1994, Sun Television and Appliances,
Inc. (the "Company") was reincorporated in the state of Ohio. Subsequently, the
Board of Directors of the Company approved the merger of the wholly-owned
subsidiary into the Company.
The financial statements include the accounts of Sun Television and Appliances,
Inc., and its wholly-owned subsidiary through the date of the merger and the
accounts of the Company since that date. The company is a specialty retailer of
consumer electronics and home appliances.
CHANGE IN FISCAL YEAR:
Effective with the beginning of fiscal 1996, the Company changed its fiscal
year end to the Saturday closest to February 28 from a calendar month-end of
February. The twelve months ended March 2, 1996 Contained 368 days.
REVENUE RECOGNITION:
Revenues from the sale of merchandise are recognized at the time that the
customer accepts physical possession of the merchandise.
The Company sells service contracts which extend beyond the manufacturers'
warranty period, usually with terms of coverage (including the manufacturers'
warranty period) between 12 and 60 months. Revenues from the sale of service
contracts, net of direct selling expenses, are deferred at the time of sale and
amortized on a straight-line basis over the lives of the contracts.
In fiscal 1994, the Company entered into an agreement with a subsidiary of an
insurance company under which the insurance company subsidiary assumes, for a
specified fee, certain extended service contracts purchased by customers of the
company. The agreement specifies the types of merchandise covered, the terms of
the contract and the geographical markets within which the policies may be
sold. In addition, the Company sells third party extended service policies.
The Company recognizes the revenues from the sale of these third party
contracts and assumed contracts, along with the related fees and any other
related costs, at the time of sale.
ADVERTISING EXPENSE:
The advertising expenses for March 1, 1997, March 2, 1996 and February 28, 1995
were $31,216,000, $31,239,000, and $28,035,000, respectively. Advertising
expenses incurred during the year are expensed at the time the promotion first
appears in the media or in the stores.
MERCHANDISE INVENTORY:
Inventory is valued at the lower of most recent cost or market at the balance
sheet date which approximates cost using the first-in, first-out (FIFO) method.
PREOPENING EXPENSES:
Costs of opening new stores are capitalized and amortized on a straight-line
basis over the twelve-month period following the store opening.
IMPAIRMENT OF LONG-LIVED ASSETS:
For the first quarter of fiscal 1997 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and of Long-Lived Assets to be Disposed of." SFAS No. 121
requires impairment recognition in the event that fact and circumstances
indicate that the carrying amount may not be recoverable. The Company records
the impairment if the estimate of future undiscounted cash flows in less than
the carrying value amount. The affect of adopting this statement was not
material.
22
<PAGE> 23
INTANGIBLE ASSETS:
In accordance with purchase accounting, the Company recorded certain intangible
assets as a result of an acquisition in 1986 including excess purchase price
over fair value of assets acquired of $19,734,000. Management periodically
considers whether there has been impairment in the value of goodwill by
evaluating various factors, including current and projected operating results
and undiscounted cash flows. The Company does not believe there has been any
material impairment in the carrying value of its goodwill.
The excess purchase price is being amortized over 40 years on a straight-line
basis. Total accumulated amortization of intangible assets was $5,181,000 at
March 1, 1997 and $4,687,000, at March 2, 1996.
CASH EQUIVALENTS:
The Company includes all highly liquid debt instruments purchased with an
original maturity of three months or less as cash equivalents.
INCOME TAXES:
Income taxes are accounted for under the asset and liability method. Deferred
income taxes are recognized for all temporary differences between the financial
reporting and tax basis of assets and liabilities based upon enacted tax laws
and statutory tax rates applicable to the periods in which the temporary
differences are expected to be recovered or settled.
EARNINGS PER SHARE:
Net income (loss) per common share is computed using the weighted average
number of common and common equivalent shares (stock options) outstanding
during the period. Shares issuable upon the exercise of stock options have not
been included in the earnings per share computation for fiscal 1997 because
the effect of such would be anti-dilutive.
FINANCIAL INSTRUMENTS:
Cash and cash equivalents, trade accounts receivable, trade accounts payable
and accrued liabilities are financial instruments for which the carrying amount
approximates fair value because of the short maturity of these instruments.
The fair value of the Company's long-term debt is estimated based on the
current rates offered to the Company for debt of the same remaining maturities.
The estimated fair value of the Company's long-term debt is as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revolving Credit Agreement,
(8.75% at March 1, 1997), due February 28, 2000
Carrying amount $41,007 --
======= =======
8.18% Senior Notes, due
August 31, 2004
Carrying amount -- $30,000
======= =======
Fair Value $41,007 $28,000
======= =======
</TABLE>
NEW FINANCIAL ACCOUNTING STANDARDS:
SFAS 128, "Earnings Per Share", was issued in February 1997 and effective for
financial statements issued for periods after December 15, 1997. The statement
specifies the computation, presentation and disclosure requirements for
23
<PAGE> 24
earnings per share for entities with publicly held common stock. The impact of
the statement on earnings per share is not expected to be material.
RISKS AND UNCERTAINTY:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
24
<PAGE> 25
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---------- -------
<S> <C> <C>
Land ...................................... $ 15,032 $ 15,406
Buildings...................................... 46,592 52,995
Leasehold improvements......................... 16,877 8,054
Furniture, fixtures and equipment.............. 31,647 30,021
Vehicles....................................... 1,442 1,510
Capital lease-buildings........................ 15,754 15,754
---------- ---------
127,344 123,740
Less accumulated depreciation and
amortization......................... 27,077 23,177
---------- ---------
$ 100,267 $ 100,563
========= =========
</TABLE>
Depreciation and amortization, which includes the amortization of capital
leases, is recognized on the straight-line method in amounts adequate to
allocate costs over the following estimated useful lives: Buildings, 30 to 39
years; capital leases, 15 to 20 years; leasehold improvements, 5 to 20 years;
furniture, fixtures and equipment, 3 to 7 years; and vehicles, 3 years.
Accumulated amortization related to the capital leases was $2,972 and $1,987 at
March 1, 1997 and March 2, 1996, respectively.
Expenditures for maintenance, repairs and minor renewals are charged to
operating expenses as incurred; major renewals and betterments are capitalized.
Disposals are removed from the asset and accumulated depreciation or
amortization accounts, and any profit or loss from disposition is included in
operations.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the fourth quarter of fiscal 1994, the Company entered into an agreement
with a wholly-owned subsidiary of a publicly held corporation pursuant to which
the wholly-owned subsidiary assumed, for a specified fee ($3,238,000 in fiscal
1997, $4,442,000 in fiscal 1996 and $4,375,000 in fiscal 1995), certain
extended service contracts purchased by customers of the Company. Certain
directors of the Company have a financial interest in the publicly held
corporation. The Company paid a management fee of $60,148 in fiscal 1995 to an
affiliate of a partnership which owned 11.4% of the Company's Common Stock at
February 28, 1994.
25
<PAGE> 26
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revolving credit agreement, variable rate (8.75% at
March 1, 1997) due February 28, 2000.............. $41,007 -
Reducing revolving credit notes, variable rate
maturing to August 31, 2000....................... - -
8.18% Senior Notes, due August 31, 2004.............. - $30,000
------- -------
Total long-term debt $41,007 $30,000
======= =======
</TABLE>
In the fourth quarter of Fiscal 1997, the Company retired the reducing revolving
credit notes and the senior notes, replacing both credit facilities with one
collateralized revolving credit agreement. The new revolving agreement has a
term of three years, is due February 28, 2000, and is collateralized by
inventory and receivables. The Company may borrow up to a maximum of
$100,000,000, depending primarily on inventory levels. Interest on borrowings
will either be at prime rate + .50% or LIBOR + 3.00%, depending on how the
Company chooses to borrow funds. The daily cash receipts of the Company will pay
down the line of credit. The most restrictive covenant details the granting of
liens on most of the Company's current assets. In addition, the Company is
currently restricted on the payment of dividends to a maximum of $750,000 per
year. The Company is in compliance with the covenants of the debt agreement.
26
<PAGE> 27
NOTE 5 - LEASES
The Company leases store and distribution sites and equipment under various
capital and operating leases.
The Company's required payments for the next five years and in the aggregate on
capital lease obligations outstanding at March 1, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
-----------
<S> <C>
1998 $ 1,945
1999 2,005
2000 2,082
2001 2,116
2002 2,133
Thereafter 18,567
----------
Net minimum lease payments under capital leases 28,848
Less amount representing interest 14,126
----------
Present value of net minimum lease payments
under capital leases 14,722
Less current portion 364
---------
Total long-term capital lease obligations $ 14,358
=========
</TABLE>
The Company leases store and distribution sites and equipment under various
leases classified as operating leases. The store leases expire from October
1997 to October 2016. The equipment leases expire on various dates through
February 2002. Certain leases contain renewal options for periods from five to
fifteen years. Rent expense was $13,217,000, $10,485,000, and $8,704,000 for
the years ended March 1, 1997, March 2, 1996, and February 28, 1995,
respectively.
At March 1, 1997, future minimum lease payments for all noncancelable leases
and lease commitments with terms in excess of one year are as follows (in
thousands):
<TABLE>
<CAPTION>
Property Equipment
Year Ending Leases Leases Total
----------- -------- --------- -----
<S> <C> <C> <C>
1998 $ 9,963 $1,981 $ 11,944
1999 9,917 1,025 10,942
2000 9,822 648 10,470
2001 9,268 271 9,539
2002 8,089 47 8,136
Thereafter 56,069 -- 56,069
-------- ------ --------
$103,128 $3,972 $107,100
======== ====== ========
</TABLE>
27
<PAGE> 28
NOTE 6 - INCOME TAXES
The (benefit) provisions for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- --------
<S> <C> <C> <C>
Current taxes:
Federal.......................... $ (14,860) $ 4,323 $ 11,506
State and local.................. -- 786 2,583
--------- ----------- ---------
Total........................ (14,860) 5,109 14,089
Deferred taxes........................ 6,188 (625) (1,986)
--------- ------------ ----------
$ (8,672) $ 4,484 $ 12,103
========= ========== =========
</TABLE>
The (benefit) provisions for income taxes as reported are different from the tax
provisions computed by applying the statutory federal income tax rate. The
differences are reconciled as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- --------
<S> <C> <C> <C>
Federal income tax at
statutory rate............... (35.0%) 35.0% 35.0%
Goodwill amortization
not deductible for
tax purposes................. 0.2 1.0 0.4
State and local taxes,
net of federal income
tax benefit.................. 0.0 4.4 4.8
Deferred tax valuation allowance...... 14.3 - -
Write-off of deferred tax............. 2.7 - -
Other, net ........................... 1.2 0.1 0.6
------ ---- ----
(16.6%) 40.5% 40.8%
====== ==== ====
</TABLE>
Deferred taxes result from temporary differences between the financial
statement and tax basis of assets and liabilities. Significant components of
the Company's deferred tax assets (liabilities) as of March 1, 1997 and March
2, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Deferred tax assets:
Deferred revenue on service contracts........... $12,284 $15,963
Restructuring accruals.......................... 5,730 --
Excess of tax over book inventory valuation..... 484 270
Other .......................................... 1,202 1,791
------- -------
Subtotal............................................. 19,700 18,024
Valuation allowance.................................. (7,865) --
------- -------
Total gross deferred tax assets................. 11,835 18,024
------- -------
Deferred tax liabilities:
Accelerated depreciation........................ (1,374) (1,498)
Other........................................... (123) -
-------- ----
Total gross deferred tax liabilities........ (1,497) (1,498)
------- -------
Net deferred tax asset...................... $10,338 $16,526
======= =======
</TABLE>
28
<PAGE> 29
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company has
established a valuation allowance of $7,865,000 as of March 1, 1997 for the
amount of the deferred tax asset that is not expected to be recoverable through
available tax carrybacks or the reversal of existing taxable temporary
differences.
In addition, net deferred tax assets of approximately $1,500,000 for New York
and Ohio have been written off since the Company has ceased operations in the
state of New York and it is considered remote that the Company will be a net
income taxpayer in the immediate future in Ohio.
29
<PAGE> 30
NOTE 7 - STOCKHOLDERS' EQUITY
During the year ending February 28, 1995, the Board of Directors and
Shareholders approved an amendment to the 1991 Stock Option Plan under which
the Company may grant options to key employees for the purchase of up to
2,500,000 shares of common stock. The following is a summary of stock option
activity for the last three fiscal years:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at February 28, 1994...................... 906,218 $ 9.66
Granted............................................... 645,000 9.43
Exercised............................................. (10,934) 3.00
Cancelled............................................. (469,167) 14.57
---------- ---------
Outstanding at February 28, 1995...................... 1,071,117 7.45
Granted............................................... 848,000 4.47
Exercised............................................. (36,376) 1.60
Cancelled............................................. (132,668) 8.24
---------- ---------
Outstanding at March 2, 1996.......................... 1,750,073 6.07
Granted............................................... 907,500 2.97
Exercised............................................. (75,316) 1.60
Cancelled............................................. (891,751) 6.60
---------- ---------
Outstanding at March 1, 1997.......................... 1,690,506 $ 4.32
========= =========
</TABLE>
For the options granted at $1.60 per share, compensation expense, representing
the difference between the option price and the fair value at the date of
grant, was accrued over the three year vesting period. All subsequent option
grants were at fair market value. Options are generally exercisable over a
period of from one to ten years from the date of grant. As of March 1, 1997,
options for 498,194 shares were exercisable and 1,690,506 shares of common
stock were reserved for outstanding options. The Company had 220,334 shares
available for grant at March 1, 1997 and 236,083 and 951,415, at March 2, 1996
and February 28, 1995, respectively.
The following table summarizes stock options outstanding and exercisable at
March 1, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life (in Yrs.) Price Exercisable Price
-------- ----------- -------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.60 36,752 3.8 $1.60 36,752 $1.60
$2.59-$3.67 674,250 9.6 $2.62 -- $ --
$4.00-$4.94 679,000 9.0 $4.42 197,784 $4.42
$6.19 101,004 4.8 $6.19 101,004 $6.19
$8.25-$10.25 199,500 7.4 $9.29 162,654 $9.10
---------- --------- --- ----- ------- -----
1,690,506 9.0 $4.32 498,194 $6.10
</TABLE>
The Company makes no recognition of the options in the financial statements
until they are exercised. Pro forma disclosures are provided for fiscal 1997
and 1996 as if the Company adopted the cost recognition requirements under
Statement of Financial Accounting Standard 123 (SFAS 123) - "Accounting for
Stock-Based Compensation."
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net (loss) income - pro forma (in thousands) $(45,841) $6,416
Net (loss) income per common share - pro forma $ (2.63) $ .37
Weighted average fair value of options granted $ 1.36 $ 2.07
</TABLE>
The weighted average fair value of options granted in fiscal 1997 and 1996,
indicated above, was determined using the Black-Scholes option-pricing model
using the following assumptions:
30
<PAGE> 31
<TABLE>
<CAPTION>
Assumptions 1997 1996
- ----------- ---- ----
<S> <C> <C>
Annualized dividend yield 0% 0%
Common stock price volatility 48.7% 48.7%
Weighted average risk-free interest rate 6.28% 5.45%
Expected option term (in years) 5 5
</TABLE>
In February 1997, the Company retained Business Turnaround Services (BTS), a
subsidiary of Price Waterhouse, Inc. to assist the Company in its turnaround
efforts. As part of this agreement, the Company granted to BTS a stock option
for 500,000 shares of common stock at an option price of $2.1875, the fair
market value at date of grant. This has been treated as a non-employee stock
option and the Company recognized $8,000 of expense in 1997. In determining the
expense recorded for 1997, the Company used the Black-Scholes option pricing
model with the following assumptions: (1) annualized dividend yield of 0%; (2)
common stock price volatility of 48.7%; (3) risk-free interest rate of 6.14%;
and (4) an expected term of 4.5 years. The fair value of the options granted
was $1.04 per option.
During the years ended March 1, 1997 and March 2, 1996, respectively, the Board
of Directors granted 16,667 and 49,776 shares of restricted stock to two
executives at no cost. The restrictive covenants on the stock lapse at the time
of vesting, which occurs over the next two to four years. Compensation expense,
representing the difference between the grant price and the fair value at the
date of grant is being accrued over the period in which the shares vest. As of
March 1, 1997 and March 2, 1996, respectively, a total of 46,097 and 6,802
shares vested.
NOTE 8 - EMPLOYEE RETIREMENT PLAN
The Company has a defined contribution 401(k) plan which covers substantially
all of the employees of the Company. Contributions and costs are generally
determined as a percentage of the covered employee's annual salary. The Company
may, at its discretion, make matching contributions to the plan. Expense for
the plan totaled $134,000, $150,000, and $175,000 for the years ended March 1,
1997, March 2, 1996, and February 28, 1995, respectively.
NOTE 9 -ACCRUED LIABILITIES
Accrued Liabilities consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Third party service fee $ 8,763 $ 8,532
Restructuring charge 10,580 --
Payroll and payroll taxes 3,490 3,191
Sales tax payable 2,459 4,041
Other 6,312 7,667
------- -------
Accrued Liabilities $31,604 $23,431
======= =======
</TABLE>
NOTE 10 - RESTRUCTURING CHARGE
During fiscal 1997, the Company recorded restructuring charges totaling $16.7
million ($10.9 million after tax or $0.62 per share) to provide for the closing
of nine stores and the restructuring of management, buying, logistics, store
and field operations. This restructuring charge includes $12.3 million for the
write-down of property and equipment, settlement of lease obligations, legal
fees and real estate commissions relating primarily to the closing of nine
stores, $2.4 million for severance and benefit costs of approximately 1,000
full time personnel and $2.0 million for professional and consulting fees. The
closed stores were in Buffalo (3) and Rochester (2), New York and Dayton (3)
and Springfield
31
<PAGE> 32
(1), Ohio, markets from which the Company decided to withdraw. In fiscal 1997,
the nine stores had sales of $108.3 million versus $124.1 million for the prior
year.
The balance of $10.6 million at March 1, 1997, which is included in Accrued
Liabilities on the balance sheet, is expected to be settled during fiscal 1998.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings that are incidental to the
conduct of its business. Management believes that any resulting liability will
not have a material adverse effect on the Company's financial position or
results of operations.
On April 30, 1997, the landlords of the three stores in Buffalo and the two
stores in Rochester, New York that the Company closed as part of restructuring
instituted a lawsuit against the Company. The lawsuit was filed in the State of
New York Supreme Court and alleges that the Company breached the leases for each
of the closed stores. The total amount claimed by the landlords in the lawsuit
is approximately $47.5 million. It is too early to predict the resolution of
this case. However, based on discussions with counsel, the efforts of the
Company to sublet the premises, reserves recorded for store closings and other
factors, the Company believes that it has adequately provided for potential
liabilities relating to this case.
32
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Sun Television and Appliances, Inc.
We have audited the accompanying balance sheets of Sun Television and
Appliances, Inc. as of March 1, 1997 and March 2, 1996 and the related
statements of operation, stockholders' equity, and cash flows for the years
ended March 1, 1997, March 2, 1996 and February 28, 1995. 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 Sun Television and Appliances,
Inc. as of March 1, 1997 and March 2, 1996, and the results of its operations
and cash flows for each of the years ended March 1, 1997, March 2, 1996 and
February 28, 1995 in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Columbus, Ohio
May 5, 1997
33
<PAGE> 34
QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's business is seasonal. As is the case with many other retailers,
the Company's net sales and service revenues and income from operations are
greater during the Christmas season than during other periods of the year. The
Company's February fiscal year end, however, mitigates broad revenue swings
in quarterly reporting. Future quarterly results for the Company may not
necessarily follow this pattern due to the timing and number of new store
openings and general economic conditions. The following table sets forth
summarized quarterly financial results for fiscal 1997 and 1996 (in thousands,
except per share data):
<TABLE>
<CAPTION>
FISCAL 1997
THREE MONTHS ENDED
-------------------------------------------------------
June 1, August 31, November 30, March 1,
1996 1996 1996 1997
-------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Net sales and service revenues........................... $153,659 $150,389 $181,949 $197,389
Gross profit............................................. 37,157 38,952 42,107 31,498
(Loss) from operations before extraordinary loss......... (6,791) (3,221) (5,351) (28,359)
Extraordinary loss related to early extinguishment
of debt net of income tax benefit..................... -- -- -- (1,619)
Net (loss)............................................... (4,588) (2,561) (4,068) (34,124)
Net (loss) per share before extraordinary loss.......... -- -- -- $ (1.87)
Net (loss) per share..................................... $ (.26) $ (.15) $ (.23) $ (1.96)
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
THREE MONTHS ENDED
-------------------------------------------------------
May 27, August 26, November 25, March 2,
1995 1995 1995 1996
-------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Net sales and service revenues........................... $164,480 $183,234 $202,632 $255,834
Gross profit............................................. 41,639 47,612 50,420 60,485
Income from operations................................... 1,081 4,006 3,360 5,860
Net income............................................... 211 2,256 1,367 2,758
Net income per share..................................... $ .01 $ .13 $ .08 $ .16
</TABLE>
34
<PAGE> 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is included under the captions
"ELECTION OF DIRECTORS," "Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement (the "Proxy
Statement") relating to the Company's Annual Meeting of Shareholders to be held
in July 1996, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included under the captions
"Information Concerning the Board of Directors" and "Executive Compensation" in
the Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included under the captions
"Ownership of Common Stock by Directors and Executive Officers" and "Ownership
of Common Stock by Principal Shareholders" in the Proxy Statement and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included under the captions
"Transactions with Principal Shareholders, Directors and Executive Officers"
and "Compensation Committee Interlocks and Insider Participation" in the Proxy
Statement and is incorporated herein by reference.
35
<PAGE> 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Form 10-K
Page
---------
<S> <C>
Schedule II -- Valuation and Qualifying Accounts.................
Report of Independent Accountants on
Financial Statement Schedule.................................
</TABLE>
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the required information is
included in the financial statements or the notes thereto.
36
<PAGE> 37
(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT EXHIBIT INDEX
NUMBER DESCRIPTION PAGE NUMBER
<S> <C> <C>
3(a) Second Amended and Restated Articles of Incorporation of the
Registrant. (Reference is made to Exhibit 4(b) to the Registrant's
Post-Effective Amendment No. 2 to Registration Statement on Form
S-8 (Registration No. 33-44932), and incorporated herein by
reference.)
3(b) Code of Regulations of the Registrant. (Reference is made to
Exhibit 4(a) to the Registrant's Post-Effective Amendment No. 2 to
Registration Statement on Form S-8 (Registration No. 33-44932),
and incorporated herein by reference.)
4 Article FOURTH of the Registrant's Second Amended and Restated
Articles of Incorporation (contained in the Registrant's Second
Amended and Restated Articles of Incorporation filed as Exhibit
3(a)).
10(a) Employment Agreement, dated as of April 1, 1995, between the
Registrant and Robert E. Oyster. (Reference is made to Exhibit
10(a) to the Registrant's Annual Report on Form 10-K for the year
ended February 28, 1995, and incorporated herein by reference.)
10(b) Employment Agreement, dated as of January 18, 1996, between the
Registrant and James R. Copitzky. (Reference is made to Exhibit
10(b) to the Registrant's Annual Report on Form 10-K for the year
ended March 1, 1996, and incorporated herein by reference.)
10(c) Credit Agreement, dated as of September 13, 1994, among the
Registrant, National City Bank, Columbus, The Huntington National
Bank, and National City Bank, Columbus, as Agent. (Reference is
made to Exhibit 10(b) to the Registrant's Annual Report on Form
10-K for the year ended February 28, 1995, and incorporated
herein by reference.)
10(d) Purchase Agreement dated as of September 15, 1994, among the
Registrant and the Purchasers named in Schedule 1 thereto with
respect to $30,000,000 principal amount of 8.18% Senior Notes due
August 31, 2004. (Reference is made to Exhibit 10(c) to the
Registrant's Annual Report on Form 10-K for the year ended
February 28, 1995, and incorporated herein by reference.)
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C> <C>
10(e) Indemnification Agreement, dated as of July 18, 1994, between the
Registrant and Thomas Epstein. (Reference is made to Exhibit 10(d)
to the Registrant's Annual Report on Form 10-K for the year ended
February 28, 1995, and incorporated herein by reference.)
10(f) Information concerning Indemnification Agreements substantially
similar to Exhibit 10(d). (Reference is made to Exhibit 10(e) to the
Registrant's Annual Report on Form 10-K for the year ended
February 28, 1995, and incorporated herein by reference.)
10(g) 1991 Stock Option Plan. (Reference is made to Exhibit 4(a) to the
Registrant's Post-Effective Amendment No. 2 to Registration
Statement on Form S-8 (Registration No. 33-44932), and
incorporated herein by reference.)
10(h) First Amendment to Purchase Agreement dated as of May 31, 1996,
among the Registrant and Teachers Insurance and Annuity
Association of America with respect to $30,000,000 principal amount
of 8.18% Senior Notes due August 31, 2004. (Reference is made to
Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 1, 1996, and incorporated herein by
reference.)
10(i) Third Modification of Credit Agreement, dated as of May 31, 1996,
among the Registrant, National City Bank of Columbus, The
Huntington National Bank, and National City Bank of Columbus, as
Agent. (Reference is made to Exhibit 10(b) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 1, 1996,
and incorporated herein by reference.)
10(j) Employment Agreement, dated as of May 22, 1996, between the
Registrant and Steven A. Martin. (Reference is made to Exhibit
10(q) of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended August 31, 1996, and incorporated herein by
reference.)
10(k) Revolving Credit Agreement, dated as of December 19, 1996, among
the Registrant, various lenders participating thereto, The CIT
Group/Business Credit, Inc., as Agent, and National City Commercial
Finance, Inc., as Co-Agent. (Reference is made to Exhibit 10 of the
Registrant's Quarterly Report on Form 10-Q for the Quarter ended
November 30, 1996, and incorporated herein by reference.)
10(l)* Resignation and Release, dated as of May 7, 1997, between the
Registrant and James R. Copitzky.
10(m)* Resignation and Release, dated as of April 21, 1997, between the
Registrant and Steven A. Martin.
10(n)* Letter Agreement, dated as of February 11, 1997, between the
Registrant and BTS LLC, a subsidiary of Price Waterhouse LLP.
</TABLE>
38
<PAGE> 39
<TABLE>
<S> <C> <C>
10(o)* Mortgage Deed, Security Agreement, and Assignment of Leases and
Rents, dated as of April 2, 1997, between the Registrant and The CIT
Group/Business Credit, Inc., as agent.
10(p)* Severance Agreement, dated as of June 10, 1996, between the
Registrant and Robert E. Oyster. (Reference is made to Exhibit 10(a)
to the Current Report on Form 8-K, dated June 11, 1996, and
incorporated herein by reference.)
11* Statement re: Computation of Net Income Per Common Share.
23* Consent of Coopers & Lybrand L.L.P.
24* Powers of Attorney.
27* Financial Data Schedule.
</TABLE>
* Filed with this Report.
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
The exhibits to this report begin on page __.
(d) FINANCIAL STATEMENT SCHEDULES
The financial statement schedule and the independent accountant's report
thereon are included on the following pages.
39
<PAGE> 40
Schedule II
SUN TELEVISION AND APPLIANCES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 28, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to
Description Beginning Costs and Balance at
Year Ended of Year Expenses Deductions End of Year
---------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts(1):
March 1, 1997...................... $400 $2,363 $2,288 $ 475
March 2, 1996...................... 325 2,022 1,947 400
February 28, 1995.................. 250 1,588 1,513 325
Deferred Income Tax Asset
Valuation Allowance(2):
March 1, 1997...................... $ -- $7,865 $ -- $7,865
</TABLE>
- -------------
(1) Offset against trade accounts receivable. Deductions represent
write-offs, net of recoveries.
(2) Offset against current deferred income taxes ($5,101) and non-current
deferred income taxes ($2,764).
40
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the financial statements of Sun Television and Appliances, Inc.
is included in this Form 10-K on page 33. In connection with our audits of
such financial statements, we have also audited the related financial statement
schedule on page 40 on this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole
presents fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
Columbus, Ohio
May 5, 1997
41
<PAGE> 42
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.
SUN TELEVISION AND APPLIANCES, INC.
Date: May 29, 1997 By: /s/ R. CARTER PATE
-------------------------------
R. Carter Pate, Chairman of the
Board and CEO
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 indicated on the 29th day of May, 1997.
Signature Title
--------- -----
/s/ R. CARTER PATE Chairman of the Board and
- ------------------------------- Chief Executive Officer
R. Carter Pate
/s/ JOHN J. LYNCH Chief Financial Officer, Treasurer
- ------------------------------- and Controller
John J. Lynch (Principal Accounting Officer
and Principal Financial Officer)
Macy T. Block* Director
- -------------------------------
Macy T. Block
Ned L. Sherwood* Director
- -------------------------------
Ned L. Sherwood
Thomas Epstein* Director
- -------------------------------
Thomas Epstein
Paul D. Bauer* Director
- -------------------------------
Paul D. Bauer
Brady J. Churches* Director
- -------------------------------
Brady J. Churches
*By: /s/ JOHN J. LYNCH
-------------------------------
John J. Lynch, Attorney-in-fact
42
<PAGE> 1
Exhibit 10(l)
Resignation and Release
-----------------------
This Agreement is entered into as of May 7, 1997, between James
R. Copitzky ("Executive") and Sun Television and Appliances, Inc. (the
"Company").
Executive and the Company mutually desire to resolve all matters
based upon, relating to or arising from the creation, existence or termination
of the employment relationship between them, and to terminate herewith all
provisions (including, but not limited to, restrictive covenants) of that
certain "Employment Agreement" between the Executive and the Company dated as
of January 18, 1996.
1. RESIGNATION AS OFFICER AND DIRECTOR.
(a) Executive hereby confirms his resignation, effective as of
the close of business on May 7, 1997, from any and all positions that he holds
as an officer and employee of the Company (including but not limited to the
offices of President, Chief Executive Officer and Director). The Company hereby
confirms its acceptance of such resignation.
(b) The Company and the Executive agree to work together in the
preparation of an appropriate press release to announce Executive's
resignation, with such press release being reasonably satisfactory to each of
the Company and the Executive.
2. TERMINATION OF EMPLOYMENT.
(a) Unless Executive resigns his employment on an earlier date,
Executive will continue as an employee of the Company until the close of
business on May 7, 1997 (at which time such employment shall automatically
terminate). The date on which Executive's employment terminates is referred to
herein as the "Termination Date."
(b) Through May 7, 1997, Executive will be entitled to receive
salary payments at his current annual rate in accordance with the Company's
normal payroll policies and applicable law, and to participate in any of the
Company's benefit plans.
(c) On or before May 7, 1997, the Company will pay to the
Executive the sum of $341,250 (in addition to any other regular salary to which
the Executive is entitled, pursuant to paragraph 2(b) above, and the bonus and
unpaid wages to which the Executive is entitled, pursuant to paragraph 2(e)
below), as a severance payment.
(d) The Company agrees to pay the Executive's reasonable legal
fees and expenses associated with the negotiation of this Agreement and
directly ancillary matters.
(e) On or before May 7, 1997, the Company will pay to the
Executive the sum of $109,000 as a bonus for the Company's fiscal year ended
February 28, 1997, and wages
1
<PAGE> 2
in the amount of $22,000 for calendar year 1996 that were not paid during or
for such calendar year.
3. POST-EMPLOYMENT BENEFITS.
(a) Executive will be entitled to continue to receive his
current medical, dental, disability, and life insurance coverage, and coverage
under similar employee welfare and fringe benefit plans, at the Company's
expense, until the earlier of (i) the expiration of 18 months following the
Termination Date, or (ii) the date on which Executive is employed on a
permanent, full-time basis by some other person or entity that provides such
coverage. Executive shall be permitted to participate in such plans beyond such
18-month period at his own expense, to the extent required by law.
(b) The Company shall continue to provide during the term of the
current lease thereof the use and the cost of operation and maintenance of the
Lexus automobile at present leased for the Executive.
(c) In the event that Executive determines to move from
Columbus, Ohio and the expenses for such move are not substantially paid by
another person or entity, the Company agrees to permit the Executive to take
advantage of the Company's negotiated arrangements with moving and relocation
companies, with Executive bearing all the costs and expenses of such move.
(d) The Company agrees to provide outplacement services to
Executive substantially similar to those services that are customarily provided
by the Company to other senior executives.
4. STOCK OPTIONS AND RESTRICTED STOCK.
(a) Executive and the Company agree that all of the vested and
unexercised stock options previously granted to Executive shall remain
outstanding and shall continue to be exercisable, pursuant to their terms,
after the Termination Date for a period of thirty days. An amount equal to 1/2
of all, unvested options shall immediately be deemed to be vested as of the
Termination Date and shall be exercisable, pursuant to their terms, after the
Termination Date for a period of thirty days. All other options shall be
surrendered by the Executive.
(b) Executive and the Company agree that Executive is the vested
owner of 49,776 shares of the Company's stock, which shares shall be free of
any and all restrictions by the Company as of the Termination Date.
5. CONFIDENTIAL INFORMATION. Executive acknowledges that his
employment as chief executive officer of the Company has placed him in
possession of confidential and proprietary information that relates to the
business, products, customers, services and trade secrets of the Company,
Executive agrees that, prior to the termination of his
2
<PAGE> 3
employment, he will turn over to the Company all files, documents, notes and
other materials evidencing such confidential information that are in his
possession and that, without the prior written consent of the Company, he will
not in any manner use or disclose any such confidential information at any
time, either during or after the term of his employment by the Company, except
as required by law. The Company agrees that the foregoing shall not be
construed to prevent the Executive from using his general business knowledge
and skill after termination of his employment by the Company.
6. NO MALICIOUS DISPARAGEMENTS. Executive agrees that he will
not engage in any libel, slander or other intentional or malicious
disparagement of the Company or any affiliate thereof. The Company agrees that
it will not engage in any libel, slander or other intentional or malicious
disparagement of Executive.
7. RELEASE.
(a) As consideration for the Company's agreements contained
herein, Executive irrevocably and unconditionally releases and discharges the
Company, its officers, directors, shareholders, agents, employees, affiliates,
related companies or entities, successors and assigns (separately and
collectively "Released Parties"), jointly and individually, from any and all
claims, obligations, demands, damages, and causes of action of any nature or
kind whatsoever, known or unknown, which Executive, his heirs, successors or
assigns have or may have against the Released Parties based upon, relating to,
or arising from the creation, existence or termination of the employment
relationship, including but not limited to claims of discrimination under any
federal state or local law, rule or regulation,, whether those claims are past
or present, whether they arise from equity, common law, or statute, whether
they arise from labor laws or discrimination laws, such as the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as
amended, or any other law, rule or regulation (but excluding claims or demands
for the provision of benefits, payments or commitments under this Agreement).
(b) As consideration for the Executive's agreements contained
herein, including the cancellation of the Employment Agreement dated as of
January 18, 1996, the Company (including its officers and directors), and its
successors and assigns, hereby releases the Executive from any and all claims,
obligations, demands, damages, and causes of action of any nature or kind
whatsoever, known or unknown, which the Company (including its officers and
directors), and its successors and assigns, have or may have against the
Executive arising out of his officer and director relationship with the Company
(and agrees to hold Executive harmless from any claims from third parties
arising out of such relationship).
(c) This release is for any relief, no matter how called,
including but not limited to wages, backpay, frontpay, compensatory damages,
punitive damages or damages for pain or suffering, or attorney fees.
3
<PAGE> 4
8. SETTLEMENT OF CLAIMS. The Company and Executive agree that
the execution of this Agreement is in compromise and final settlement among the
parties of all disputed matters, constitutes full satisfaction of all claims
made or which could be made based upon, relating to or arising from the
creation, existence or termination of the officer and director relationship,
and does not in any way admit liability or wrongdoing by any party.
9. UNDERSTANDING OF AGREEMENT. Executive acknowledges that he
has carefully read and fully understands this Agreement, including the release
included herein, that he has had the opportunity to have an attorney explain to
him the terms of the foregoing, and that he knows and understands the contents
of the foregoing, that he executes this Agreement knowingly and voluntarily as
his own free act and deed and that this Agreement was freely negotiated and
entered into without fraud, duress or coercion and with full knowledge of its
significance, effects and consequences.
10. ENTIRE AGREEMENT. This document is the complete agreement
between the parties, and there are no written or oral understandings, promises
or agreements directly or indirectly related to this Agreement that are not
incorporated herein in full.
11. INTERPRETATION. Section headings used in this Agreement
are for ease of reference only and are not intended as substantive terms
hereof. This Agreement shall be governed by and interpreted under the laws of
the State of Ohio without giving effect to the conflict of laws provisions
thereof.
In witness whereof, the parties have executed and delivered this
Agreement on and as of the date first written above.
/s/ James R. Copitzky
----------------------------------
James R. Copitzky
Sun Television and Appliances, Inc.
By: R. Carter Pate
-------------------------------
R. Carter Pate
Its: Chairman of the Board
4
<PAGE> 1
Exhibit 10(m)
Resignation and Release
------------------------
This Agreement is entered into as of April 21, 1997, between
Steven A. Martin ("Executive") and Sun Television and Appliances, Inc. (the
"Company").
Executive and the Company mutually desire to resolve all matters
based upon, relating to or arising from the creation, existence or termination
of the employment relationship between them, and to terminate herewith all
provisions of that certain "Employment Agreement" between the Executive and the
Company dated as of May 22, 1996.
1. RESIGNATION AS OFFICER AND DIRECTOR. Executive hereby
confirms his resignation, effective as of the close of business on May 2, 1997,
from any and all positions that he holds as an officer of the Company
(including but not limited to the offices of Executive Vice President and Chief
Financial Officer). The Company hereby confirms its acceptance of such
resignation.
2. TERMINATION OF EMPLOYMENT
(a) Unless Executive resigns his employment on an earlier date,
Executive will continue as an employee of the Company until the close of
business on May 2, 1997 (at which time such employment shall automatically
terminate). The date on which Executive's employment terminates is referred to
herein as the "Termination Date."
(b) Through April 18, 1997, Executive will be entitled to
receive salary payments at his current annual rate in accordance with the
Company's normal payroll policies and to participate in any of the Company's
benefit plans. Salary from the period of April 19, 1997 through the Termination
Date, during which the Executive will be on vacation, will be paid pursuant to
paragraph 2.c. below.
(c) On or before April 21, 1997, the Company will pay to the
Executive the sum of $48,000 (in addition to any other regular salary to which
the Executive is entitled for services rendered through that date), as a
payment to the Executive of salary through May 2, 1997 and as a severance
payment.
3. POST-EMPLOYMENT BENEFITS. Executive will be entitled to
participate in the Company's medical, dental, disability insurance and similar
employee welfare benefit plans, at the Company's expense, for a period of three
months following the Termination Date. Executive shall be permitted to
participate in such plans beyond such three-month period at his own expense, as
required by law.
4. STOCK OPTIONS AND RESTRICTED STOCK.
(a) Executive and the Company agree that all of the vested and
unexercised stock options previously granted to Executive shall remain
outstanding and
1
<PAGE> 2
shall continue to be exercisable, pursuant to their terms, after the
Termination Date for a period of four years. All unvested options shall be
surrendered by the Executive.
(b) Executive and the Company agree that Executive is the vested
owner of 3,820 shares of the Company's stock. The Company agrees to purchase
such shares from the Executive as of April 21, 1997 at a price equal to such
shares' fair market value (mean of the high and low) as of April 18, 1997.
5. CONFIDENTIAL INFORMATION. Executive acknowledges that his
employment as chief financial officer of the Company has placed him in
possession of confidential and proprietary information that relates to the
business, products, customers, services and trade secrets of the Company.
Executive agrees that, prior to the termination of his employment, he will turn
over to the Company all files, documents, notes and other materials evidencing
such confidential information that are in his possession and that, without the
prior written consent of the Company, he will not in any manner use or disclose
any such confidential information at any time, either during or after the term
of his employment by the Company. The Company agrees that the foregoing shall
not be construed to prevent the Executive from using his general business
knowledge and skill after termination of his employment by the Company.
6. RELEASE.
(a) As consideration for the Company's agreements contained
herein, Executive irrevocably and unconditionally releases and discharges the
Company, its officers, directors, shareholders, agents, employees, affiliates,
related companies or entities, successors and assigns (separately and
collectively "Released Parties"), jointly and individually, from any and all
claims, obligations, demands, damages, and causes of action of any nature or
kind whatsoever, known or unknown, which Executive, his heirs, successors or
assigns have or may have against the Released Parties based upon, relating
to, or arising from the creation, existence or termination of the employment
relationship, including but not limited to claims of discrimination under any
federal state or local law, rule or regulation, whether those claims are past
or present, whether they arise from equity, common law, or statute, whether
they arise from labor laws or discrimination laws, such as the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964,
as amended, or any other law, rule or regulation.
(b) As consideration for the Executive's agreements contained
herein, including the cancellation of the Employment Agreement dated as of May
22, 1996, the Company (including its officers and directors), and its
successors and assigns, hereby releases the Executive from any and all claims,
obligations, demands, damages, and causes of action of any nature or kind
whatsoever, known or unknown, which the Company (including its officers and
directors), and its successors and assigns, have or may have against the
Executive arising out of his employment relationship with the Company (and
agrees to hold Executive harmless from any claims from third parties arising
out of such relationship).
2
<PAGE> 3
(c) This release is for any relief, no matter how called,
including but not limited to wages, backpay, frontpay, compensatory damages,
punitive damages or damages for pain or suffering, or attorney fees.
7. SETTLEMENT OF CLAIMS. The Company and Executive agree that
the execution of this Agreement is in compromise and final settlement among the
parties of all disputed matters, constitutes full satisfaction of all claims
made or which could be made based upon, relating to or arising from the
creation, existence or termination of the employment relationship, and does not
in any way admit liability or wrongdoing by any party.
8. UNDERSTANDING OF AGREEMENT. Executive acknowledges that he
has carefully read and fully understands this Agreement, including the release
included herein, that he has had the opportunity to have an attorney explain to
him the terms of the foregoing, and that he knows and understands the contents
of the foregoing, that he executes this Agreement knowingly and voluntarily as
his own free act and deed and that this Agreement was freely negotiated and
entered into without fraud, duress or coercion and with full knowledge of its
significance, effects and consequences.
9. ENTIRE AGREEMEMT. This document is the complete agreement
between the parties, and there are no written or oral understandings, promises
or agreements directly or indirectly related to this Agreement that are not
incorporated herein in full.
10. INTERPRETATION. Section headings used in this Agreement are
for ease of reference only and are not intended as substantive terms hereof.
This Agreement shall be governed by and interpreted under the laws of the State
of Ohio without giving effect to the conflict of laws provisions thereof.
In witness whereof, the parties have executed and delivered this
Agreement on and as of the date first written above.
/s/ Steven A. Martin
-------------------------------
Steven A. Martin
Sun Television and Appliances, Inc.
By: /s/ R. Carter Pate
---------------------------
Its: Chairman
---------------------------
3
<PAGE> 1
Exhibit 10(n)
February 11, 1997
Sun Television and Appliances, Inc.
c/o Mr. Ned Sherwood
Zaleski & Sherwood
120 West 45th Street, Suite 2600
New York, NY 10036
To the Members of the Board of Directors:
This letter agreement (the "Agreement") will confirm and set forth the
terms of the engagement by Sun Television and Appliances, Inc. ("SNTV" or the
"Company") of BTS LLC ("BTS"), a subsidiary of Price Waterhouse LLP ("PW"), to
develop and submit its business turnaround plan and recommendation (the "Plan")
to the Board of Directors of SNTV.
I. The Company shall be responsible for the accuracy and completeness of
all information provided to BTS. All information delivered by the
Company directly or indirectly through BTS to any third party will be
the express and sole responsibility of the Company and not BTS. The
Company agrees that it will advise in writing any third parties of its
responsibility under this section and agrees that BTS is authorized to
do the same as it deems appropriate.
II. While BTS's work may include an analysis of financial and accounting
data, this engagement will not include an audit, compilation or review
of any kind of the Company's financial statements or information.
Company management will be solely responsible for any and all financial
information prepared during the course of this engagement, and neither
BTS nor PW will examine, review or compile any such financial
information. Accordingly, as part of this engagement, neither BTS nor
PW will express any opinion on the financial statements or other
financial information of the Company.
III. The schedules, workpapers and internal memoranda, and other material
assembled or prepared by BTS during the engagement will be the property
of BTS. Any such materials furnished to the Board may be retained by
the Company as part of the permanent corporate records. Any records of
the Company obtained by BTS will be returned to the Company at the
conclusion of this engagement. Anything herein to the contrary
notwithstanding, information made available by the Company to BTS
concerning its business, financial condition, operations, assets and
liabilities
<PAGE> 2
Sun Television and Appliances, Inc.
Page 2
February 11, 1997
("Company Information"), and all analyses, compilations, studies or
other documents prepared by BTS based, in whole or in part, upon
Company Information, shall be used solely for the purpose of effecting
the corporate revitalization and preparation of the business turnaround
plan and recommendation referred to above, and will be kept
confidential and will be disclosed only to employees of BTS and PW who
need to know such information for the purposes set forth in this
Agreement, and who agree to keep such information confidential.
IV. The Company shall not disclose any work or analysis of BTS to any third
party other than the Company's lenders, attorneys and advisors or as
otherwise required by law, without BTS's prior written consent, which
shall not be unreasonably withheld.
V. BTS is a subsidiary of PW, a firm which includes many offices through
the United States. PW is engaged by major clients every day and cannot
assure that, during or following this engagement period by you, an
engagement will not be accepted by PW or BTS for a client engaged in
the same business as the Company, in competition with the Company, or
doing business with the Company. Notwithstanding the foregoing, PW and
BTS will use their best efforts to ensure that, during the term of this
engagement and for six months thereafter, PW and BTS will not accept
any engagement involving BTS or PW personnel at a manager level or
higher utilized in performing duties hereunder, in any matter adverse
to the interests of the Company as contemplated by this engagement. In
the event it is determined that BTS or PW personnel are so engaged, the
Company reserves the right to terminate this agreement.
VI. The Company will pay BTS for time expended by BTS employees (other than
R. Carter Pate) and outside consultants engaged by BTS in the
preparation and submission to the Board of the Plan at standard hourly
rates for those persons so engaged, in an aggregate amount not to
exceed $100,000, plus their reasonable out-of-pocket (including
out-of-town living) expenses.
VII. As compensation for its services, BTS will receive from the Company
options to purchase 500,000 shares of common stock of the Company
pursuant to the Stock Option Agreement dated February 11, 1997 between
BTS and SNTV and incorporated herein by reference.
VIII. The options are exercisable with respect to 166,666 shares at the end
of the first year following the date of this Agreement and 166,667
shares at the end of each of the second and third years following the
date of this Agreement (such amounts to
<PAGE> 3
Sun Television and Appliances, Inc.
Page 3
February 11, 1997
be cumulative). Notwithstanding the foregoing schedule, the options
shall be exercisable: (a) as to 250,000 shares whenever the price per
share shall reach $4.50 and stay at or above that level for sixty (60)
or more consecutive days; (b) as to all 500,000 shares whenever the
price per share shall reach $7.00 and stay at or above that level for
sixty (60) or more consecutive days; or (c) as to all 500,000 shares
upon Mr. Carter Pate's termination as a member of the Board of
Directors after six months from the date of this agreement for any
reason other than for his intentional and willful disregard of his
duties.
IX. To the extent not exercised, the options will terminate upon (a) Mr.
Pate's resignation as Chairman of the Board of Directors within two
months of the date of this Agreement; (b) failure of Mr. Pate, upon
request by the Board of Directors, to continue as Chairman of the Board
at compensation of an hourly rate of $350, not to exceed two days per
week, for an additional four months following the date of this
agreement; (c) resignation from the Board of Directors by Mr. Pate
within three years from the date of this agreement; (d) resignation of
Mr. Pate from the Board of Directors within one year from the date the
option is fully vested, if the option vests within two years from the
date of this agreement (e) the termination of Mr. Pate as a member of
the Board of Directors for intentional and willful disregard of his
duties; or (f) the fifth anniversary of the date of this Agreement.
X. The Company agrees that it will use its best efforts to promptly
register the shares covered by the options granted to BTS with the
Securities and Exchange Commission. It is expected that the
registration of those shares will be declared effective by the SEC no
later than June 30, 1997. In the event that the shares are not or for
whatever reason cannot be registered or are not available when the
options become exercisable pursuant to Paragraph VIII, the Company and
BTS agree that alternative arrangements will be entered into which
result in the same economic benefit to BTS as if the shares had been
registered.
XI. The Company agrees to release, indemnify and hold BTS, its members,
officers, directors, employees and agents, and PW, its partners,
principals, employees and agents, harmless from any and all liabilities
(including incidental or consequential damages), costs and expenses
(including reasonable attorney's fees) incurred by reason of any action
taken or omitted to be taken by any BTS or PW personnel performing
services for the Company, unless it is determined that such personnel
acted in intentional or willful disregard for their duties. The
indemnification shall survive any termination of this engagement for
any reason.
XII. If any BTS personnel is required to give testimony or attend hearings,
sessions or
<PAGE> 4
Sun Television and Appliances, Inc.
Page 4
February 11, 1997
meetings in connection with any actual or threatened claims or
litigation proceedings (including without limitation arbitration,
mediation or alternative dispute resolution relating to any aspect of
extraordinary matters (e.g., shareholder suits, government or
regulatory investigations, unsolicited takeover attempts or proxy
fights, etc.)), all time expended in preparing for or giving such
testimony or attending such hearings or meetings, shall be charged at
standard hourly rates and, in addition, all reasonable expenses
incurred in connection therewith shall be reimbursed by the Company.
Once the engagement has terminated for any reason, all time expended by
BTS personnel in connection with any actual or threatened claims or
litigation proceedings relating in any way to BTS's duties pursuant to
this Agreement or in connection with this engagement shall be charged
to the Company at the standard hourly rates.
In addition to the fees described above, the Company will reimburse BTS
for actual out-of-pocket expenses incurred, such as photocopying,
travel, hotel, meals or apartment living. If during the term of this
Agreement, BTS deems it necessary to seek the advice of separate legal
counsel of its choice to advise them regarding matters related to this
engagement then, following notice to the Board and an opportunity to
discuss the matter with them, the reasonable fees and expenses of such
separate legal counsel will be reimbursed by the Company.
Invoices will be submitted on the second and last Tuesday of each month
to be paid within seven (7) days, with balances outstanding for more
than thirty days subject to a two percent (2%) per month interest
charge. Payment is to be made to:
BTS, LLC
c/o R. Carter Pate
2001 Ross Avenue
Suite 1800
Dallas, TX 75201
XIII. This agreement will terminate (subject to a separate agreement by the
parties with respect to further services to be performed hereunder by
BTS and compensation therefor) upon termination of, or resignation by,
Mr. Pate as a member of the Board of Directors.
If you agree to the terms and conditions set forth above, please indicate your
acceptance and approval by signing this letter in the space provided below and
on the duplicate copy attached.
<PAGE> 5
Sun Television and Appliances, Inc.
Page 5
February 11, 1997
We look forward to serving you in this important matter.
Sincerely,
BTS, LLC
a Subsidiary of
Price Waterhouse LLP
By: /s/ R. Carter Pate
--------------------------------
R. Carter Pate (not individually)
SUN TELEVISION AND APPLIANCES, INC.
By: /s/ James R. Copitzky
--------------------------------
Its: President
-------------------------------
Date: 2/11/97
------------------------------
<PAGE> 6
SUN TELEVISION AND APPLIANCES, INC.
STOCK OPTION AGREEMENT
Sun Television and Appliances, Inc. (the "Company") hereby grants,
effective this 11th day of February, 1997 (the "effective date") to BTS, LLC
(the "Optionee") an option to purchase 500,000 shares of its common stock, $.01
par value (the "Option Shares"), at a price of $2.1875 per share (the "Option").
1. RELATIONSHIP TO THE AGREEMENT. This Option is granted pursuant to
the Agreement dated as of February 11, 1997 (the "Agreement") between the
Company and the Optionee with respect to services to be rendered by Optionee to
the Company. Capitalized terms used herein without definition are used as
defined in the Agreement. The Option shall be exercisable and shall terminate as
provided in Paragraphs VIII and IX of the Agreement.
2. METHOD OF EXERCISE. This Option shall be exercisable by delivery to
the Company of written notice of exercise specifying the number of shares to be
purchased. Upon receipt of payment for the shares to be purchased pursuant to
the Option, the Company will deliver or cause to be delivered to the Optionee a
certificate or certificates for the number of shares with respect to which this
Option is being exercised, registered in the name of the Optionee; provided,
however, that if any law or regulation or order of the Securities and Exchange
Commission or other body having jurisdiction in the premises shall require the
Company or Optionee to take any action in connection with the shares then being
purchased, the delivery of the certificate or certificates for such shares may
be delayed for the period necessary to take and complete such action.
3. REGISTRATION OF OPTION SHARES. The Company undertakes to file with
the Securities and Exchange Commission ("SEC") an appropriate registration
statement for the registration of the Option Shares pursuant to the Securities
Act of 1933, as amended (the "Act") and to use its best efforts to cause the
same to become and remain effective to permit the sale of the Option Shares
without violation of the Act. If the registration of the Option Shares is not
effected by June 30, 1997, the Company agrees that it will provide to the
Optionee a compensation arrangement based upon the price of the Company's common
stock as nearly as possible equivalent to, based upon the same number of shares,
and having the same base and acceleration prices and exercise and termination
provisions as the Option.
4. GENERAL. This Agreement shall be construed as a contract under the
laws of the State of Ohio. It may be executed in several counterparts, all of
which shall constitute one Agreement. It shall bind and benefit the parties and
their respective successors and assigns.
<PAGE> 7
IN WITNESS WHEREOF, the Company and the Optionee have caused this
Agreement to be executed as of the date first above written.
SUN TELEVISION AND APPLIANCES, INC.
By: James R. Copitzky
---------------------------------------
Its: President
--------------------------------------
OPTIONEE:
BTS, LLC
By: /s/ R. Carter Pate
----------------------------------------
- 2 -
<PAGE> 1
Exhibit 10(o)
MORTGAGE DEED, SECURITY AGREEMENT, AND
ASSIGNMENT OF LEASES AND RENTS
OPEN-END MORTGAGE OHIO-INCOME PROPERTY
--------------------------------------------------------------------------
SUN TELEVISION AND APPLIANCES, INC.
an Ohio Corporation
Mortgagor
-----------
to
THE CIT GROUP/BUSINESS CREDIT, INC., AS AGENT
Mortgagor
-----------
---------------------------
DATED: As of April 2, 1997
---------------------------
Premises Located at:
6600 Port Road
Groveport, Ohio
Record and Return to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Attn: Ellen R. Joseph, Esq.
---------------------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Payment of Indebtedness and Performance of Covenants and Agreements .....................................4
2. Title to Property .......................................................................................4
3. Representations of Mortgagor ............................................................................4
4. Future Advances .........................................................................................4
5. Insurance ...............................................................................................5
6. Impositions .............................................................................................7
7. Deposits for Impositions and Insurance ..................................................................7
8. Maintenance and Alterations .............................................................................8
9. Leasing .................................................................................................8
10. Recording, Filing and Other Fees ........................................................................9
11. Taxes Imposed on Mortgagee and the Lenders ..............................................................9
12. Compliance with Laws, etc. ..............................................................................9
13. Inspection .............................................................................................10
14. Certificate of Mortgagor ...............................................................................10
15. Condemnation ...........................................................................................10
16. Restoration ............................................................................................11
17. Mortgagee's Right to Perform Mortgagor's Covenants .....................................................11
18. Due on Sale ............................................................................................12
19. Default ................................................................................................12
20. Appointment of Receiver ................................................................................12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
21. [Intentionally Omitted] ................................................................................13
22. Judicial Foreclosure ...................................................................................13
23. Sale in Parcels ........................................................................................13
24. Notice Upon Acceleration ...............................................................................14
25. Possession of Premises .................................................................................14
26. Expenses of Mortgagee and/or the Lenders ...............................................................14
27. Mortgagor's Waivers ....................................................................................14
28. Partial Foreclosure ....................................................................................15
29. No Waiver ..............................................................................................15
30. Attorneys' Fees ........................................................................................15
31. Rights Cumulative ......................................................................................15
32. Interest After Maturity ................................................................................15
33. No Credit for Taxes ....................................................................................15
34. Liens ..................................................................................................16
35. Change in Taxation .....................................................................................16
36. Assignment of Leases and Rents .........................................................................17
37. Security Agreement .....................................................................................18
38. No Release .............................................................................................18
39. Corporate Authority ....................................................................................19
40. Notices ................................................................................................19
41. Severability ...........................................................................................19
42. No Usury ...............................................................................................19
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
43. No Representation by Mortgagee and/or any Lender .......................................................19
44. Consents ...............................................................................................19
45. Indemnification Against Liabilities ....................................................................20
46. No Oral Changes ........................................................................................20
47. Governing Law ..........................................................................................20
48. Construction ...........................................................................................20
49. Gender .................................................................................................21
50. Captions ...............................................................................................21
51. After Acquired Property ................................................................................21
52. Further Assurances .....................................................................................21
53. Certain Definitions ....................................................................................21
54. Successors and Assigns .................................................................................21
55. Environmental Laws .....................................................................................21
56. Credit Agreement .......................................................................................21
</TABLE>
Schedule A - Description of the Land
Schedule B - Prior Liens
Schedule C - Leases
iii
<PAGE> 5
OPEN-END MORTGAGE OHIO-INCOME PROPERTY
MORTGAGE DEED, SECURITY AGREEMENT, AND
ASSIGNMENT OF LEASES AND RENTS
THIS MORTGAGE DEED, SECURITY AGREEMENT, AND ASSIGNMENT OF LEASES AND
RENTS ("Mortgage") made as of this 2nd day of April, 1997 by SUN TELEVISION AND
APPLIANCES, INC., an Ohio corporation having an office at 6600 Port Road,
Groveport, Ohio 43125 ("Mortgagor"), to THE CIT GROUP/BUSINESS CREDIT, INC., a
New York corporation having an office at 1211 Avenue of the Americas, New York,
New York 10036, as Agent (such term and all other capitalized terms used but
not defined herein shall have the meanings assigned thereto in the Credit
Agreement referred to below) for itself and the other Lenders ("Mortgagee").
WITNESSETH:
WHEREAS, Mortgagor, Mortgagee, National City Commercial Finance, Inc.
as Co-Agent and the Lenders entered into a Revolving Credit Agreement dated as
of December 19, 1996 (the "Original Credit Agreement") pursuant to which
Mortgagee and the Lenders agreed to make loans ("Loans") to Mortgagor on a
revolving basis whereby sums will be advanced, repaid, and readvanced, in an
aggregate outstanding principal amount equal to the lesser of One Hundred
Million Dollars ($100,000,000) (the "Maximum Principal Amount") or the
Borrowing Base; and
WHEREAS, the obligation of Mortgagor to repay the unpaid principal
amount of the Loans made to it by each Lender and to pay interest thereon was
evidenced by a Note to each Lender dated as of December 19, 1996 (collectively,
as the same may be amended, replaced, extended, supplemented, substituted,
severed, consolidated, increased, restated or modified from time to time, the
"Notes"); and
WHEREAS, Mortgagor has requested an increase of Five Million Dollars
($5,000,000) in the current Borrowing Base as a bridge facility (as defined in
the Credit Agreement, the "Bridge Facility"), which Bridge Facility shall not
increase the Maximum Principal Amount, and Mortgagee and the Lenders are
willing to accommodate such request upon the terms and conditions set forth in
an amendment to the Original Credit Agreement; and
WHEREAS, Mortgagor, Mortgagee, the Co-Agent and the Lenders have
entered into a Third Amendment Agreement (the "Amendment") dated as of the date
hereof to provide for the Bridge Facility, the terms and conditions therefore
and certain other modifications to the Original Credit Agreement (the Original
Credit Agreement and the Amendment, collectively, as the same may be amended,
replaced, extended, supplemented, substituted, severed, consolidated,
increased, restated or modified from time to time, the "Credit Agreement"); and
<PAGE> 6
WHEREAS, in order to induce Mortgagee and the Lenders to make the
financial accommodations provided for in the Credit Agreement, including,
without limitation, the Bridge Facility, Mortgagor has agreed to execute and
deliver to Mortgagee this Mortgage; and
WHEREAS, the Credit Agreement, all Loans thereunder, including,
without limitation, the Bridge Facility, and all of the Notes evidencing the
same, and all sums, amounts, and expenses paid by Mortgagee and/or the Lenders
hereunder, thereunder or under any of the other Loan Documents, and all other
Obligations, together with all interest thereon, and all other fees,
obligations, liabilities, covenants, sums, amounts and expenses due Mortgagee
and the Lenders under the Credit Agreement, this Mortgage or any other Loan
Documents (all of the aforesaid, including but not limited to the aggregate
maximum principal amount of ONE HUNDRED MILLION DOLLARS ($100,000,000),
collectively being hereinafter referred to as the "Indebtedness") are secured
by, among other things, this Mortgage, and the terms, covenants and conditions
of the Credit Agreement and the Notes are incorporated herein and are hereby
made a part hereof.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS that in order to secure
the Indebtedness and in consideration of the foregoing premises including,
without limitation, the Bridge Facility in the sum of FIVE MILLION DOLLARS
($5,000,000) in hand well and truly paid by Mortgagee, the receipt of which is
hereby acknowledged, Mortgagor by these presents does mortgage, warrant, grant,
bargain, sell, convey, alien, release, transfer and confirm unto Mortgagee, and
to its successors and assigns forever, the following (collectively, the
"Property"):
A. All that certain land located in Groveport, Ohio, and more
particularly described in Schedule A annexed hereto and made a part hereof (the
"Land").
B. All the buildings, structures and improvements, now or at any time
hereafter erected on the Land or any part thereof (collectively, the
"Buildings").
C. All machinery, apparatus, equipment, personal property and fixtures
of every kind and nature whatsoever now or hereafter located in, on or about
the Buildings or upon the Land, or attached to or used or usable in connection
with the operation or maintenance of the Land or the Buildings, or any part
thereof, and now owned or hereafter acquired (collectively, the "Building
Equipment"; and the Land, the Buildings and the Building Equipment being
hereafter sometimes collectively referred to as the "Premises").
D. All right, title and interest of Mortgagor, whether now owned or
hereafter acquired, in and to any opened or proposed avenues, streets, roads,
public places, sidewalks, alleys, strips or gores of land, in front of or
adjoining the Land or the Buildings, and all easements, tenements,
hereditaments, appurtenances, rights and rights of way, public or private,
pertaining or belonging to the Land or the Buildings.
E. Subject to the terms and provisions of the Credit Agreement, all
insurance proceeds and all awards and payments, including interest thereon, and
the right to receive the same, which
2
<PAGE> 7
may be made in respect of all or any part of the Premises or any estate or
interest therein or appurtenant thereto, as a result of damage to or
destruction of all or any part of the Premises, the exercise of the right of
condemnation or eminent domain, the closing of, or the alteration of the grade
of, any street on or adjoining the Land, or any other injury to or decrease in
the value of all or any part of the Premises.
F. All right, title and interest of Mortgagor in and to any and all
present and future Leases (as defined in Paragraph 53) of all or any part of
the Premises, and in and to the rents, issues and profits payable thereunder
and cash or securities deposited thereunder as lessees' security deposits.
G. All franchises, permits, licenses and rights therein respecting the
use, occupation and operation of the Premises or the activities conducted
thereon or therein.
H. All right, title and interest of Mortgagor in and to any minerals,
oil or gas located on, under or appurtenant to the Land.
I. All right, title and interest of Mortgagor in and to any tax
refunds with respect to the Premises.
J. The rents, royalties, revenue, income, issues and profits of any of
the foregoing.
TO HAVE AND TO HOLD the Property unto Mortgagee, its successors, heirs and
assigns, forever.
In addition to any other debt or obligation which this Mortgage may
secure, this Mortgage shall secure unpaid balances of advances made with
respect to the Premises, after this Mortgage is delivered to the Recorder for
record, pursuant to the provisions of Ohio Revised Code Section 5301.233, for
the payment of taxes, assessments, insurance premiums, or costs incurred for
the protection of the Premises.
This Mortgage shall secure unpaid balances of revolving loan advances
or future advances made by Mortgagee at the request of Mortgagor pursuant to
the terms of the Credit Agreement after this Mortgage is delivered to the
Recorder for recording pursuant to the provisions of Ohio Revised Code Section
5301.232, to the extent that such unpaid balances or future advances in the
aggregate and exclusive of interest accrued thereon, do not exceed the maximum
amount of One Hundred Million Dollars ($100,000,000) at any time.
Provided, that if Mortgagor shall pay the Bridge Facility in full at the time
and in the manner provided in the Credit Agreement, and there shall then exist
no Event of Default under the Credit Agreement, Mortgagee shall promptly
deliver to Mortgagor a satisfaction of this Mortgage in proper and recordable
form.
3
<PAGE> 8
AND MORTGAGOR COVENANTS, REPRESENTS AND WARRANTS TO AND WITH MORTGAGEE
AS FOLLOWS:
1. Payment of Indebtedness and Performance of Covenants and
Agreements. Mortgagor shall pay the Indebtedness when due in accordance with
the provisions of the Notes, the Credit Agreement, this Mortgage and the other
Loan Documents, and perform the covenants and agreements of Mortgagor set forth
in the Loan Documents.
2. Title to Property. Mortgagor represents and warrants that (a) it
owns good and marketable fee simple title to the Premises, (b) it has the good
and unrestricted right, full power and lawful authority to mortgage the
Property in accordance with the terms hereof, (c) Mortgagor has obtained any
and all consents and approvals necessary or required for the making of this
Mortgage, and the making of this Mortgage will not violate any contract or
agreement to which Mortgagor is a party or by which the Property is bound, and
(d) the Property is free of all liens, encumbrances, adverse claims and other
defects of title whatsoever except those items (the "Prior Liens") listed on
Schedule B annexed hereto and made a part hereof. Mortgagor does hereby and
shall forever warrant and defend its title to and interest in the Property and
the validity and priority of the lien of this Mortgage, to Mortgagee, its
successors and assigns, against all claims and demands whatsoever of any Person
or Persons. There are no defenses or offsets to this Mortgage or to the
Indebtedness.
3. Representations of Mortgagor. Mortgagor covenants, represents and
warrants to Mortgagee and the Lenders that (a) the Buildings currently erected
on the Land and the use thereof comply in all material respects with applicable
zoning and building codes, ordinances and regulations, and such compliance is
based solely upon Mortgagor's owning the Property and not upon title to or
interest in any other property, and all material permits, approvals and
certificates have been obtained and are in full force and effect, (b) any
building hereafter constructed on the Land shall comply in all material
respects with applicable zoning and building codes, ordinances and regulations
and shall lie wholly within the boundaries of the Land, (c) the Buildings shall
at all times be independent and self-contained operating units, and (d) the
Land shall at all times be a separate tax lot.
4. Future Advances. Without limiting the generality of any other
provision hereof, the Indebtedness shall include: (a) all existing indebtedness
of Mortgagor to Mortgagee and/or the Lenders evidenced by any of the Loan
Documents; (b) all future advances that may subsequently be made by Mortgagee
and/or the Lenders as provided by any of the Loan Documents; and (c) all other
indebtedness, if any, of Mortgagor to Mortgagee and/or the Lenders now due or
to become due or hereafter contracted pursuant to any of the Loan Documents.
5. Insurance.
(a) Mortgagor shall keep the Buildings and the Building
Equipment insured for the benefit of Mortgagee against loss or damage by fire,
casualty and such other hazards in accordance with Sections 6.21 and 7.07 of
the Credit Agreement and as Mortgagee shall reasonably
4
<PAGE> 9
require from time to time, and Mortgagor shall maintain such other insurance as
Mortgagee shall reasonably require from time to time, including, without
limitation, (1) insurance against loss of rents and/or other business
interruption insurance, (2) insurance against loss customarily included under
standard "all-risk" policies including flood, earthquake, vandalism and
malicious mischief, and other insurable hazards as, under good insurance
practices, are insured against for other properties similar in location, use,
height, type of construction, fixtures, furnishings and equipment, (3)
comprehensive boiler and machinery insurance covering all mechanical and
electrical equipment against physical damage, rent loss and improvements loss
on a replacement cost basis, (4) general public liability insurance, including,
without limitation, commercial general liability insurance and umbrella
liability coverage for personal injury, bodily injury, death, accident and
property damage, (5) workers' compensation and disability insurance as required
by law for all employees at the Premises and (6) such other types of insurance
with respect to the Premises and the operation thereof which are fixtures,
furnishings and equipment, all in such amounts and for such periods as
Mortgagee shall reasonably require, in accordance with the Credit Agreement.
The policies of insurance required by this Paragraph 5(a) shall be with
companies and in forms reasonably approved by Mortgagee in accordance with
Sections 6.21 and 7.07 of the Credit Agreement or as otherwise approved by
Mortgagee, and proceeds thereunder shall be payable and applied in accordance
with Section 7.07 of the Credit Agreement and Section 5(c) hereof. The original
or duplicate original policies (or if the same shall be unattainable, memoranda
or certificates of insurance of the issuer of such policies) and, at least 30
days prior to the expiration thereof, binders evidencing the renewals thereof
accompanied by proof of payment shall be delivered to and held by Mortgagee,
and on demand of Mortgagee, Mortgagor shall assign to Mortgagee said policies
of insurance as additional security for the payment of the Indebtedness. Any
insurance required by this Mortgage may be part of a blanket policy maintained
by Mortgagor, provided that such blanket policy provides for an allocation of
the coverage amount thereunder to the Buildings and the Building Equipment in
amounts required by the provisions of this Paragraph, that any such blanket
policy otherwise complies with the provisions of this Paragraph, and that the
protection afforded thereunder shall not be less than that which would have
been afforded under a separate policy with respect to the same insured risks.
All insurance policies required to be effected by this Mortgage shall (1)
include effective waivers by the insurer of all rights of subrogation against
any named insured, the Indebtedness secured by this Mortgage and the Property
and all claims for insurance premiums against Mortgagee and the Lenders, (2)
provide that no cancellation, reduction in amount or substantial modification
in coverage thereof shall be effective until at least thirty (30) days after
receipt by Mortgagee of written notice thereof, (3) include "replacement cost
endorsements" if available, and (4) be reasonably satisfactory in all other
respects to Mortgagee. If Mortgagor fails to insure the Buildings or the
Building Equipment, or both, or to deliver or assign the policies, as required
by the provisions of this Paragraph, Mortgagee may, at its option, effect such
insurance, pay the premiums therefor and notify Mortgagor thereof, and the
amounts paid by Mortgagee, with interest from the time of payment by Mortgagee,
at the Applicable Rate (as defined in Paragraph 53), shall, on demand, be
immediately due from Mortgagor to Mortgagee and shall be added to and included
in the Indebtedness and shall be secured by this Mortgage.
5
<PAGE> 10
(b) Subject to the terms and provisions of the Credit
Agreement, Mortgagee shall have the right but not the obligation, on behalf of
Mortgagor, to adjust and compromise any claims under such insurance, collect
and receive the proceeds thereof and execute and deliver all proofs of loss,
receipts, vouchers and releases in connection with such claims. Subject to the
terms and provision of the Credit Agreement, Mortgagor shall not adjust or
compromise any claims under such insurance, without the prior written consent
of Mortgagee, which consent shall not be unreasonably withheld. Mortgagee is
hereby irrevocably appointed attorney-in-fact for Mortgagor for such purposes,
and Mortgagor shall, upon request of Mortgagee, execute any proofs of loss,
receipts, vouchers and releases in connection with such claims.
(c) Subject to the terms and provisions of the Credit
Agreement, Mortgagee may deduct from the proceeds of the insurance required to
be obtained by Mortgagor pursuant to Paragraph 5(a), any expenses, including,
without limitation, attorneys' fees and disbursements (to the extent permitted
by law). The net proceeds, at Mortgagee's option, shall be applied toward
payment of the Indebtedness (whether or not due and payable) or shall be paid
over in whole or in part to pay or reimburse Mortgagor for the cost of
restoring or reconstructing the Building and the Building Equipment in a manner
and on conditions reasonably satisfactory to Mortgagee. Any application of such
insurance proceeds toward payment of the Indebtedness shall not be deemed a
waiver by Mortgagee or the Lenders of their respective rights to receive
payment of the balance of the Indebtedness in accordance with the provisions of
this Mortgage.
(d) In the event of a foreclosure of this Mortgage or other
action or proceeding taken by Mortgagee pursuant to this Mortgage, the
purchaser of the Premises shall succeed to all of the rights of Mortgagor,
including any right to unearned premiums, in and to all policies of insurance
which Mortgagor is required to maintain under Paragraph 5(a) and to all
proceeds of such insurance.
(e) Mortgagor shall not obtain or permit to be obtained
separate insurance concurrent in form or contributing in the event of loss with
the insurance Mortgagor is required to maintain under the provisions of
Paragraph 5(a) unless such insurance is in accordance with all of the
provisions of Paragraph 5(a) and unless Mortgagor gives Mortgagee notice of
such separate insurance at least 30 days prior to the effective date of the
policy or policies. Mortgagor shall, upon each and every request of Mortgagee,
furnish Mortgagee with an appraisal of the replacement value and the insurable
value of the Buildings and Building Equipment by an appraiser satisfactory to
Mortgagee.
(f) If the Land is located in an area which has been
identified by the Secretary of Housing and Urban Development as a flood hazard
area and in which flood insurance has been made available under the National
Flood Insurance Act of 1968, Mortgagor will keep the Buildings and Building
Equipment covered by flood insurance up to the maximum limit of coverage
available under said Act but not in excess of the amount of the replacement
cost of the Buildings.
6
<PAGE> 11
6. Impositions.
(a) Mortgagor shall pay, not later than the date on which
such amounts would be delinquent, all real estate taxes, personal property
taxes, assessments, water rates and sewer rents, license fees, all charges
which may be imposed for the use of vaults, chutes, areas and other space
beyond the lot line and abutting the public sidewalks in front of or adjoining
the Land, and any other amounts which could be or become a lien upon or against
the Property or any part thereof (collectively, the "Impositions"). Mortgagor
shall deliver to Mortgagee, within 20 days after the delinquency date of each
payment of any Imposition or Assessment, receipts evidencing such payment or
other proof of payment satisfactory to Mortgagee.
(b) Notwithstanding the provisions of Paragraph 6(a),
Mortgagor shall have the right in good faith, to contest by appropriate legal
proceedings, after notice to, but without cost or expense to, Mortgagee, the
amount or validity of any of the Impositions and to postpone the payment of
same, provided that: (i) such contest shall operate to prevent the collection
thereof or other realization thereon, the sale of the lien thereof, and the
sale or forfeiture of the Property or any part thereof, (ii) such contest shall
be promptly and diligently prosecuted by and at the expense of Mortgagor; (iii)
Mortgagee shall not thereby suffer any civil, or be subjected to any criminal,
penalties or sanctions; (iv) Mortgagor shall promptly, and in any event on
demand, pay such contested Imposition if at any time all or any part of the
Property shall be in danger of being foreclosed, sold, forfeited, or otherwise
lost or if such contest shall be discontinued; (v) Mortgagor shall properly
protect and hold harmless Mortgagee against any liability and claims arising
out of the postponement of the payment of such Imposition; and (vi) Mortgagor
shall deposit with Mortgagee, prior to commencing any such proceedings,
security reasonably satisfactory to Mortgagee, in an amount not less than the
amount of the Impositions to be contested and of any interest and additional
charges to be incurred as a result of such contest.
7. Deposits for Impositions and Insurance. After the occurrence of one
or more Defaults, then upon notice from Mortgagee, Mortgagor shall deposit with
Mortgagee on the first day of each month an amount equal to 1/12th of the
aggregate annual payments for (i) the Impositions, and (ii) the insurance
premiums on the policies of insurance required to be obtained and kept in force
by Mortgagor under this Mortgage. If the amounts of any Impositions are not
ascertainable at the time any deposit is required to be made, the deposit shall
be made on the basis of the amounts of the Impositions for the prior tax year
and, upon the amounts of the Impositions being fixed for the then current year,
Mortgagor shall, upon notice from Mortgagee, deposit any deficiency with
Mortgagee or if there is an overpayment, Mortgagee shall remit to Mortgagor
such amount. If the amounts of any insurance premiums are not ascertainable at
the time any deposit is required to be made, the deposit shall be made on the
basis of the amount of the insurance premiums for the prior year of the policy
or policies, and upon the amount of the insurance premiums being fixed for the
then current year of the policy or policies, Mortgagor shall, upon notice from
Mortgagee, deposit any deficiency with Mortgagee. If, on a date 30 days prior
to the delinquency date, there shall be insufficient funds on deposit with
Mortgagee for the payment of any of the Impositions or the insurance premiums,
Mortgagor shall, upon demand of Mortgagee, forthwith deposit the amount of such
deficiency with
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Mortgagee or if there is an overpayment, Mortgagee shall remit to Mortgagor
such amount. The funds deposited with Mortgagee shall constitute additional
collateral for the Indebtedness, shall be held by it without interest, and,
unless prohibited by law, may be commingled with other funds of Mortgagee, and
shall be applied in payment of the Impositions and insurance premiums when due
to the extent that Mortgagor shall have deposited funds with Mortgagee for such
purpose. In the event of any Default the funds deposited with Mortgagee may, at
the option of Mortgagee, be retained and applied toward the payment of any or
all of the Indebtedness, in such order of priority as is provided in the
Security Documents, but no such application shall be deemed to have been made
by operation of law or otherwise until actually made by Mortgagee. Mortgagor
shall furnish Mortgagee with a bill for each of the Impositions and insurance
premiums and/or such other documents necessary for its payment, if available,
at least 30 days prior to the date it first becomes due. Upon an assignment of
this Mortgage, Mortgagee shall have the right to pay over the balance of such
deposits in its possession to the assignee, and upon the making of such payment
Mortgagee and each Lender shall be completely released from all liability with
respect to such deposits and, provided such assignee has fully assumed all of
Mortgagee's liabilities, Mortgagor shall look solely to the assignee with
respect thereto. The provisions of the preceding sentence shall apply to each
and every assignment or transfer of such deposits to a new assignee.
8. Maintenance and Alterations.
(a) Mortgagor shall put, keep and maintain the Premises and
the sidewalks, curbs and alleys adjoining or abutting the same in good and
lawful order, condition and repair, and Mortgagor shall make or cause to be
made, as and when the same shall become necessary, all structural and
nonstructural repairs, whether exterior or interior, ordinary or extraordinary,
foreseen or unforeseen. Mortgagor shall not commit or suffer any waste of the
Premises and shall not demolish, alter, or remove or permit the demolition,
alteration, or removal of the Buildings or the Building Equipment, or any part
thereof, except to the extent and in the manner provided in the Credit
Agreement.
(b) Mortgagor shall not construct additions to all or part of
the Buildings or the Building Equipment or construct any new or additional
buildings on the Land without Mortgagee's prior written consent, which consent
shall not be unreasonably withheld.
9. Leasing. Except as set forth on Schedule C annexed hereto and made
a part hereof, Mortgagor represents that there are no Leases now in effect.
Mortgagor shall not enter into any Lease of all or any part of the Premises or
amend, renew, extend, abridge, cancel, terminate (or commence any summary
proceeding or other action in pursuance thereof), or otherwise modify any
Lease, or accept rent for a period of more than one month in advance, without
in each instance obtaining Mortgagee's prior written consent thereto. Mortgagor
shall deliver to Mortgagee a duplicate original of each Lease promptly after
the execution thereof. At the option of Mortgagee, each Lease, and all
renewals, replacements, extensions, and modifications thereof, and all rights
of the tenant thereunder, shall be subject and subordinate to this Mortgage,
and to each and every advance made or thereafter made hereunder or under the
Notes secured hereby and to all renewals,
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additions, supplements, modifications, consolidations, spreaders, replacements,
and extensions of this Mortgage and all future Leases shall contain provisions
obligating the lessees thereunder to attorn to Mortgagee or any purchaser
therefrom if Mortgagee or such purchaser succeeds to the interest of Mortgagor
under such Lease. Mortgagor shall fully and promptly perform all of the
obligations to be performed by the lessor under any and all Leases. Mortgagor
shall enforce the performance and observance of each and every obligation to be
performed or observed by the lessees under such Leases. Mortgagor shall give
prompt notice to Mortgagee of (a) any notice received by Mortgagor of any
default by the lessor under any Lease, (b) the commencement of any action or
proceeding by any tenant the purpose of which shall be the cancellation of any
Lease or a diminution or abatement of the rent payable thereunder, (c) any
notice of default given by Mortgagor to the tenant under any Lease, or (d) the
interposition by any tenant of any defense or counterclaim in any action or
proceeding brought by Mortgagor against such tenant; and Mortgagor will cause a
copy of any process, pleading or notice received or served by Mortgagor in
reference to any such action, defense or claim to be promptly delivered to
Mortgagee. Mortgagor shall hold in trust all security deposits and advance rent
given on account of any Lease, and deposit such security in a bank or trust
company and shall not mingle such funds with other funds. Mortgagor shall repay
or apply such funds only in accordance with the provisions of the applicable
Leases.
10. Recording, Filing and Other Fees. Mortgagor shall pay all
recording and filing fees, all recording taxes, and all other costs and
expenses in connection with the preparation, execution and recordation and
other manner of perfection of this Mortgage, and any other Loan Documents, and
shall reimburse Mortgagee and each Lender on demand for all reasonable costs
and expenses of any kind incurred by Mortgagee or such Lender in connection
therewith (including, without limitation, reasonable attorneys' fees and
disbursements, to the extent permitted by law). Mortgagor will, at any time on
request of Mortgagee, execute or cause to be executed financing statements,
continuation statements, security agreements, or the like, in respect of any
Building Equipment, and Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact for such purposes. Mortgagor shall pay all filing fees,
including fees for filing continuation statements, in connection with such
financing statements.
11. Taxes Imposed on Mortgagee and the Lenders. Mortgagor shall pay
any taxes (except any income, inheritance and franchise taxes) imposed on
Mortgagee or any Lender by reason of its ownership of this Mortgage, the Notes
or any of the other Loan Documents.
12. Compliance with Laws. etc. Mortgagor shall promptly comply with,
or cause to be complied with, all present and future laws, statutes,
ordinances, rules, regulations and other requirements of all governmental
authorities relating to all or any part of the Property and the sidewalks,
curbs and alleys adjoining the Land, and the condition, repair, maintenance,
use and occupation thereof. Mortgagor shall obtain and keep in full force and
effect all franchises, permits, licenses and other certificates required in
connection with the use, occupation, and operation of the Premises and the
activities conducted thereon or therein. Mortgagor shall not use or permit the
use of the Premises in any manner which would tend to impair the value of the
Premises, violate any legal requirements or increase the risk of fire or other
casualty. Mortgagor shall advise Mortgagee
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promptly in writing of all written complaints and charges made by any
governmental authority affecting the Property or affecting Mortgagor or its
business which may impair the security of Mortgagee or any other Lender.
13. Inspection. Mortgagee and its authorized agents and employees
shall have the right, at Mortgagee's option, to enter the Premises at all
reasonable times and upon reasonable notice for the purpose of inspecting the
same.
14. Certificate of Mortgagor. Mortgagor, upon request of Mortgagee or
any Lender, shall certify to Mortgagee, such Lender or to any proposed assignee
of or participant in this Mortgage, by an instrument in form reasonably
satisfactory to Mortgagee or such Lender, duly acknowledged, the amount of the
Indebtedness then owing, the date to which any interest on the Indebtedness has
been paid and whether any offsets or defenses exist against payment of the
Indebtedness or performance of any of the covenants and agreements of Mortgagor
under the Loan Documents and anything else that Mortgagee or such Lender might
reasonably request, within 10 days if the request is made personally, or within
15 days if the request is made by mail. Mortgagee, each Lender and any actual
or proposed assignee of or participant in this Mortgage shall have the right to
rely on such certification.
15. Condemnation.
(a) Mortgagor shall give notice to Mortgagee upon Mortgagor's learning
of the threatened or actual commencement of any action or proceeding to take
all or any part of the Premises by exercise of the right of condemnation or
eminent domain or of any action or proceeding to close or to alter the grade of
any street on or adjoining the Land. Mortgagee may participate in any such
action or proceeding in the name of Mortgagee or, whenever necessary, in the
name of Mortgagor, and Mortgagor shall deliver to Mortgagee such instruments as
Mortgagee shall request to permit such participation. Mortgagor shall not
settle any such action or proceeding or agree to accept any award or payment
without the prior written consent of Mortgagee, which consent shall not be
unreasonably withheld, and such award or payment and any interest thereon less
the reasonable costs and expenses incurred by Mortgagor to obtain such award or
payment and/or to prevent such taking (hereinafter collectively called the
"Award") shall be paid to Mortgagee and the amount received shall be retained
and applied as provided in Paragraph 15(b).
(b) At Mortgagee's option any Award shall be applied toward payment of
the Indebtedness (whether or not due and payable) or shall be paid over in
whole or in part to pay or reimburse Mortgagor for the cost of restoring or
reconstructing the Building and the Building Equipment in a manner and on
conditions satisfactory to Mortgagee. In no event shall Mortgagee be required
to satisfy this Mortgage until the Indebtedness is fully paid and Mortgagee
shall not be required to release from the lien of this Mortgage any portion of
the Premises so taken until Mortgagee receives the Award for the portion so
taken.
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(c) The application of the Award toward payment of the Indebtedness
shall not be deemed a waiver by Mortgagee of its right to receive payment of
the balance of the Indebtedness in accordance with the provisions of the Loan
Documents. Mortgagee shall have the right, but shall be under no obligation, to
question the amount of the Award, and Mortgagee may accept same without
prejudice to the rights that Mortgagee may have to question such amount. In any
such condemnation or eminent domain action or proceeding Mortgagee may be
represented by attorneys selected by Mortgagee, and all sums reasonably paid by
Mortgagee in connection with such action or proceeding (including, without
limitation, attorneys' fees to the extent permitted by law) shall, on demand,
be immediately due from Mortgagor to Mortgagee and the same shall be secured by
this Mortgage.
(d) Notwithstanding any taking by condemnation or eminent domain,
closing of, or alteration of the grade of, any street or other injury to or
decrease in value of the Premises by any public or quasi-public authority or
corporation, the unpaid principal portion of the Indebtedness shall continue to
bear interest at the rate payable pursuant to the applicable Loan Documents
until the Award shall have been actually received by Mortgagee, and any
reduction in the Indebtedness, resulting from the application by Mortgagee of
the Award shall be deemed to take effect only on the date of such receipt.
16. Restoration. If the Buildings or the Building Equipment shall be
damaged or destroyed, in whole or in part, by fire or other casualty, or by any
taking in condemnation proceedings or the exercise of any right of eminent
domain, Mortgagor shall promptly restore, replace or rebuild the same to as
nearly as possible the value, quality and condition they were in immediately
prior to such fire or other casualty or taking, with such alterations or
changes as may be approved in writing by Mortgagee, which approval shall not be
unreasonably withheld or delayed. Mortgagor shall give prompt notice to
Mortgagee of any damage or destruction to the Buildings or Building Equipment
by fire or other casualty, as well as the initiation of any condemnation or
eminent domain proceeding affecting the same.
17. Mortgagee's Right to Perform Mortgagor's Covenants. If there shall
be a Default hereunder, Mortgagee may, at its option, cure such Default, and
Mortgagee and its representatives shall have the right to enter the Premises to
do so, and the amounts advanced by, and the other costs and expenses of,
Mortgagee in curing such default, with interest from the time of the advances
or payments at the Applicable Rate, shall, on demand, be immediately due from
Mortgagor to Mortgagee and shall be secured by this Mortgage.
18. Due on Sale.
(a) If Mortgagor enters into a contract to sell or sells, conveys,
alienates, assigns, or transfers the Property, or any part thereof or interest
therein in any manner other than as expressly permitted by the Credit
Agreement, whether voluntarily or involuntarily, directly or indirectly, or by
operation of law or otherwise, then Mortgagee shall have the right, at its
option, at any time thereafter to declare the entire principal then outstanding
under the Loan Documents (if not then due
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and payable), and all accrued and unpaid interest thereon, and all other
accrued sums and charges under the Loan Documents immediately due and payable.
No waiver of this right or delay in the exercise thereof shall operate as a
waiver thereof unless Mortgagee shall have executed and delivered to Mortgagor
a written waiver of such right.
(b) Except as otherwise provided in the Credit Agreement, any sale,
assignment, transfer, pledge or other disposition, whether voluntary or
involuntary, by operation of law or otherwise: (i) if Mortgagor or any general
partner of Mortgagor is a partnership, of any interest of any general partner
of Mortgagor or of any general partner of any general partner of Mortgagor, as
the case may be, or (ii) if Mortgagor or any general partner of Mortgagor is a
corporation, of 50% or more, in the aggregate, whether by one or more
transfers, of the outstanding voting stock of Mortgagor or such general
partner, or of any other corporation directly or indirectly owning or
controlling 50% or more of Mortgagor or such general partner, shall be deemed
to be a transfer of the Property for the purposes of this Paragraph 18.
19. Default. The entire principal then outstanding under the Loan
Documents (if not then due and payable), and all accrued and unpaid interest
thereon, and all other accrued sums and charges under the Loan Documents shall
become immediately due and payable at the option of Mortgagee after the
occurrence of one or more of the following events (each a "Default"): (a)upon
the occurrence and continuance of any "Event of Default" (as such term is
defined in the Credit Agreement) under the Credit Agreement; or (b) upon the
failure of Mortgagor to observe or perform any other monetary (other than the
payment of installments of principal and interest) or nonmonetary covenants or
agreements of Mortgagor hereunder, which in the case of such monetary payments
shall be continuing for a period of 14 days after the giving of written notice
to Mortgagor, and which in the case of non-monetary covenants or agreements
shall be continuing for a period of 30 days after the giving of written notice
to Mortgagor, or such longer period, not to exceed 90 days, as shall be
required if such failure cannot with due diligence be cured within such 30
days, provided Mortgagor commences within such 30 days and thereafter proceeds
diligently to cure.
20. Appointment of Receiver. After the occurrence of one or more
Defaults Mortgagee may apply for the appointment of a receiver of the Property,
the Premises and/or the rents, royalties, revenue, income, issues, and profits
of all or any part of the Property from whatever source derived and thereupon
it is hereby expressly covenanted and agreed that the court shall forthwith
appoint such receiver with the usual powers and duties of receivers in like
cases; and, to the extent permitted by law, said appointment shall be made by
the court ex parte as a matter of strict right to Mortgagee, without notice to
or demand upon Mortgagor or any Person claiming through or under Mortgagor, and
Mortgagee shall be entitled to the appointment of such receiver as a matter of
right, to the extent not prohibited by applicable law, without consideration of
the value of the Property as security for the amounts due to Mortgagee or the
Lenders or the solvency of any Person liable for the payment of such amounts.
To the extent permitted by law, Mortgagor hereby specifically waives the right
to object to the appointment of a receiver as aforesaid and hereby expressly
consents that such appointment shall be made ex parte and without notice to
Mortgagor as an admitted equity and as a matter of absolute right to Mortgagee.
In order to maintain and preserve the Property and to
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prevent waste and impairment of its security, Mortgagee may, at its option,
advance monies to the appointed receiver and all such sums advanced shall
become secured obligations and shall bear interest from the date of such
advance at the Applicable Rate.
21. [Intentionally Omitted].
22. Judicial Foreclosure. After the occurrence of one or more
Defaults, Mortgagee may institute an action of mortgage foreclosure, or take
such other action as the law may allow, at law or in equity, for the
enforcement hereof and realization on the Property or any other security which
is herein or elsewhere provided for, and proceed thereon to final judgment and
execution thereon for the entire principal then outstanding under the Loan
Documents at the rate stipulated in the applicable Loan Documents to the date
of default and thereafter at the Applicable Rate together with all other sums
secured by this Mortgage, all costs of suit, including, without limitation, the
expenses which are described in Paragraphs 26 and 30, and interest at the
Applicable Rate on any judgment obtained by Mortgagee from and after the date
of any judicial sale of the Property until actual payment. At any such sale
Mortgagee and the Lenders may bid for and acquire the Property or any part
thereof and in lieu of paying cash therefor may make settlement for the
purchase price by crediting upon the principal then outstanding under the Loan
Documents with interest thereon and other obligations of Mortgagor secured by
this Mortgage the net sales price after deducting therefrom the expenses of the
sale and the costs of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage. To the extent permitted by law, the
proceeds of such sale shall be applied first to the payment of the costs and
charges of such sale, including, without limitation, Mortgagee's reasonable
attorneys' fees (to the extent permitted by law), and second to the payment of
the Obligations as provided for in the Loan Documents. Upon the request of
Mortgagee and to the extent not prohibited by applicable law, Mortgagor shall
execute and file with the clerk of the court a legally sufficient waiver of any
statutory waiting period with respect to the execution of a judgment obtained
by Mortgagee in connection with any foreclosure proceedings. The obligation of
Mortgagor to so execute and file such waiver shall survive the termination of
this Mortgage.
23. Sale in Parcels. In the event of a foreclosure of this Mortgage or
upon any sale under this Mortgage pursuant to judicial proceedings or
otherwise, the Property may be sold in one parcel and as an entirety or in such
parcels, manner or order as Mortgagee in its sole discretion may select.
24. Notice Upon Acceleration. Whenever Mortgagee in this Mortgage is
given the option to accelerate the maturity of all or part of the Indebtedness
and any accrued interest upon the occurrence of one or more Defaults, Mortgagee
may, to the extent permitted by law, do so without prior notice or demand to or
upon Mortgagor except as otherwise specifically provided herein or in the
Credit Agreement.
25. Possession of Premises. To the extent permitted by law, after the
occurrence of a Default, Mortgagee and its agents and any receiver appointed by
a court are authorized to (a) take possession of the Premises, by such legal
action, if any, as shall be required by law; (b) lease the
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Premises or make modifications to or cancel leases; (c) maintain, repair,
alter, and restore the Premises; (d) collect all rents, issues, income and
profits payable under all Leases directly from the lessees thereunder upon
notice to each such lessee that a Default exists under this Mortgage
accompanied by a demand on such lessee for the payment to Mortgagee of all
rents due and to become due under its Lease, and Mortgagor FOR THE BENEFIT OF
MORTGAGEE AND EACH SUCH LESSEE hereby covenants and agrees that the lessee
shall be under no duty to question the accuracy of Mortgagee's statement of
default and shall unequivocally be authorized to pay said rents to Mortgagee
without regard to the truth of Mortgagee's statement of default and
notwithstanding notices from Mortgagor disputing the existence of a Default
such that the payment of rent by the lessee to Mortgagee pursuant to such a
demand shall constitute performance in full of the lessee's obligation under
the Lease for the payment of rents by the lessee to Mortgagor; and (e) after
deducting all costs of collection and administration expense, apply the net
rents and profits to the payment of Impositions, insurance premiums and all
other carrying charges (including, without limitation, agents' compensation and
fees and reasonable costs of counsel, to the extent permitted by law, and
receivers) and to the maintenance, repair or restoration of the Premises, or on
account and in reduction of the Indebtedness in such order and amounts as
Mortgagee in Mortgagee's sole discretion may elect. Mortgagee shall be liable
to account only for rents and profits actually received by Mortgagee.
26. Expenses of Mortgagee and/or the Lenders. All sums (including
attorneys' fees and disbursements, to the extent permitted by law) paid by
Mortgagee or any Lender in connection with any litigation to prosecute or
defend the rights and obligations created by this Mortgage, with interest
thereon at the Applicable Rate from the time of payment by Mortgagee or such
Lender, shall, on demand, be immediately due from Mortgagor to Mortgagee or
such Lender and shall be added to and included in the Indebtedness and shall be
secured by this Mortgage.
27. Mortgagor's Waivers. Mortgagor, for itself and its successors and
assigns, hereby irrevocably waives and releases, to the extent permitted by
law, and whether now or hereafter in force, (a) the benefit of any and all
valuation and appraisement laws, (b) any right of redemption whether statutory
or otherwise, in respect of the Property, (c) any applicable homestead or dower
laws, and (d) all exemption laws whatsoever and all moratoriums, extensions or
stay laws or rules, or orders of court in the nature of any one or more of
them.
28. Partial Foreclosure. Mortgagee may from time to time, if permitted
by law, take action to recover any sums, whether interest, principal or any
other sums, required to be paid under this Mortgage or any other Loan Document
as the same become due, without prejudice to the right of Mortgagee thereafter
to bring an action of foreclosure, or any other action, for a default or
defaults by Mortgagor existing when such earlier action was commenced.
Mortgagee may also foreclose this Mortgage for any sums due under this Mortgage
or any other Loan Document and the lien of this Mortgage shall continue to
secure the balance of the Indebtedness.
29. No Waiver. Any failure by Mortgagee or any Lender to insist upon
the strict performance by Mortgagor of any of the covenants and agreements of
Mortgagor under the Loan
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Documents shall not be deemed to be a waiver of any of such covenants or
agreements, and Mortgagee and each Lender, notwithstanding any such failure,
may thereafter insist upon the strict performance by Mortgagor of any and all
of such covenants or agreements.
30. Attorneys' Fees. If this Mortgage shall be foreclosed, or if any
of the Loan Documents is placed in the hands of an attorney for collection or
is collected through any court, including any bankruptcy court, there shall be
included in the computation of the sums secured hereby, to the extent permitted
by law, the amount of a reasonable fee for the services of the attorney
retained by Mortgagee in the foreclosure action or proceeding, non-judicial
sale and all disbursements, costs, allowances and additional allowances
provided by law.
31. Rights Cumulative. The rights and remedies provided for in this
Mortgage, or which Mortgagee or any Lender may have otherwise, at law or in
equity, shall, to the extent permitted by law, be distinct, separate and
cumulative and shall not be deemed to be inconsistent with each other, and none
of them, whether or not exercised by Mortgagee or any Lender, shall be deemed
to be in exclusion, of any other, and any two or more of all such rights and
remedies may be exercised at the same time, all to the extent permitted by law.
32. Interest After Maturity. The principal amount of the Indebtedness
and any other amounts secured by this Mortgage and, if permitted by law, any
accrued interest thereon, shall bear interest from and after maturity, whether
or not resulting from acceleration, at the Applicable Rate, but this shall not
constitute an extension of time for payment of the Indebtedness.
33. No Credit for Taxes. Mortgagor shall not claim or demand or be
entitled to any credit or credits on account of any of the sums secured hereby
by reason of the Impositions assessed against all or any part of the Property
or for any payments made on account thereof. No deductions shall be made or
claimed from the taxable value of all or any part of the Premises by reason of
this Mortgage.
34. Liens.
(a) This Mortgage is and shall be maintained as a valid first
lien on the Property subject only to any encumbrances created pursuant to the
Loan Documents and the Prior Liens, if any. Except as permitted by the Credit
Agreement, Mortgagor shall not, directly or indirectly, create or suffer or
permit to be created, or to stand, against the Property or any portion thereof,
or against the rents, royalties, revenue, income, issues and profits therefrom,
any lien, charge, mortgage, deed of trust, adverse claim or other encumbrance
(herein collectively referred to as a "lien"), whether senior or junior in lien
to this Mortgage, other than the lien of (i) this Mortgage, (ii) the Prior
Liens and (iii) any other liens created pursuant to the Loan Documents;
provided, however, that nothing contained in this Paragraph 34 shall require
Mortgagor to pay any real estate taxes or other Impositions prior to the time
when same are required to be paid under this Mortgage. Except as expressly
permitted by the Credit Agreement, Mortgagor will keep and maintain the
Premises free from all liens of Persons supplying labor or materials relating
to the construction, alteration,
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modification or repair of the Premises. Except as expressly permitted by the
Credit Agreement, if any such lien shall be filed against the Premises,
Mortgagor agrees to discharge the same of record (by payment, bonding, or
otherwise) within 14 days after the filing thereof. Except as expressly
permitted by the Credit Agreement, no financing statement, conditional bill of
sale or chattel mortgage shall be made or filed against the Building Equipment
without the prior consent of Mortgagee and if at any time there should be any
(with or without the consent of Mortgagee), then in the event of any Default,
all right, title and interest of Mortgagor in and to all deposits and payments
made thereon are hereby assigned to Mortgagee.
(b) Notwithstanding the provisions of Paragraph 34(a),
Mortgagor shall have the right in good faith, to contest by appropriate legal
proceedings, after notice to, but without cost or expense to, Mortgagee, the
validity. of any liens arising in connection with the Property and to postpone
the payment of same, provided that: (i) such contest shall operate to prevent
the collection thereof or other realization thereon, the sale of the lien
thereof, and the sale or forfeiture of the Property or any part thereof; (ii)
such contest shall be promptly and diligently prosecuted by and at the expense
of Mortgagor; (iii) neither Mortgagee nor any Lenders shall thereby suffer any
civil, or be subjected to any criminal, penalties or sanctions; (iv) Mortgagor
shall promptly, and in any event on demand, pay such contested lien if at any
time all or any part of the Property shall be in danger of being foreclosed,
sold, forfeited, or otherwise lost or if such contest shall be discontinued;
(v) Mortgagor shall properly protect and hold harmless Mortgagee and the
Lenders against any liability and claims arising out of the postponement of the
payment of such lien; and (vi) Mortgagor shall deposit with Mortgagee, prior to
commencing any such proceedings, security reasonably satisfactory to Mortgagee,
in an amount sufficient to pay or otherwise discharge such contested lien and
of any interest or additional charges incurred as a result of such contest.
35. Change in Taxation. In the event of the enactment of or change in
(including, without limitation, a change in interpretation of) any applicable
law (a) deducting or allowing Mortgagor to deduct from the value of the
Property for the purpose of taxation any lien or security interest thereon, (b)
imposing, modifying or deeming applicable any reserve or special requirement
against deposits in or for the account of, or loans by, or other liabilities
of, or other assets held by Mortgagee or any Lender, or (c) subjecting
Mortgagee or any Lender to any tax or changing the basis of taxation of
mortgages, deeds of trust, or other liens or debts secured thereby, or the
manner of collection of such taxes, in each such case, so as to affect this
Mortgage, the Indebtedness or Mortgagee or any Lender, and the result is to
increase the taxes imposed upon or the cost to Mortgagee or such Lender of
maintaining the Indebtedness or to reduce the amount of any payments receivable
hereunder or under the other Loan Documents, then, and in any such event,
Mortgagor shall, on demand, pay to Mortgagee for the account of Mortgagee or
such Lender such additional amounts as may be required to compensate for such
increased costs or reduced amounts, provided that if any such payment or
reimbursement shall be unlawful or would constitute usury under applicable law,
then Mortgagee may, at its option, declare the Indebtedness due and payable
upon 60 days' notice.
36. Assignment of Leases and Rents. Mortgagor absolutely and
unconditionally assigns to Mortgagee the rents, royalties, revenue, income,
issues and profits of the Premises as further
16
<PAGE> 21
security for the payment of the Indebtedness, and Mortgagor grants to Mortgagee
the right to enter the Premises for the purpose of collecting the same and to
let the Premises, or any part thereof, and to apply said rents, royalties,
revenue, income, issues and profits, after payment of all necessary charges and
expenses, on account of the Indebtedness. This assignment and grant shall
continue in effect for so long as this Mortgage has not been satisfied and
released pursuant to the terms hereof and of the Credit Agreement. Mortgagee
hereby waives the right to enter the Premises for the purpose of collecting
said rents, issues and profits, and Mortgagor shall be entitled to collect,
receive and use said rents, issues and profits, until the occurrence of one or
more Defaults. During the continuance of any Default, the right of Mortgagor to
collect, receive and use said rents, royalties, revenue, income, issues and
profits, shall be revoked forthwith. Mortgagor shall, from time to time after
request by Mortgagee, execute, acknowledge and deliver to Mortgagee, in form
reasonably satisfactory to Mortgagee, separate assignments effectuating the
foregoing. Neither Mortgagee nor any Lender shall be obligated to perform or
discharge any obligation or duty to be performed or discharged by Mortgagor
under any Lease or other agreement affecting all or any part of the Premises,
and Mortgagor hereby agrees to indemnify Mortgagee and each Lender for and hold
it harmless from, any and all liability arising from any such Lease or other
agreement or any assignments thereof, and no assignment of any such Lease or
other agreement shall place the responsibility for the control, care,
management or repair of all or any part of the Premises upon Mortgagee or any
Lender, nor make Mortgagee or any Lender liable for any negligence in the
management, operation, upkeep, repair or control of all or any part of the
Premises resulting in injury, death or property damage; provided, however,
Mortgagor shall have no obligation to indemnify the Mortgagee or any Lender for
its own gross negligence or willful misconduct. In addition, after the
occurrence of a Default and the giving of notice to Mortgagor, Mortgagor will
pay monthly in advance to Mortgagee, or to any receiver appointed to collect
said rents, royalties, revenue, income, issues and profits, the fair and
reasonable rental value for the use and occupancy of the Premises or of such
part thereof as may be in the possession of Mortgagor, and upon default in any
such payment will vacate and surrender the possession thereof to Mortgagee or
to such receiver, and in default thereof may be evicted by summary or other
proceedings. Without limiting the generality of any provision of this Paragraph
36, if a proceeding under Title 11 of the United States Code, as in effect from
time to time (the "Bankruptcy Code"), is commenced by or against Mortgagor,
then, pursuant to Section 552(b)(2) of the Bankruptcy Code, the security
interest granted by this Mortgage shall automatically extend to all rents,
royalties, revenue, income, issues and profits acquired by Mortgagor after the
commencement of the case and such rents, royalties, revenue, income, issues and
profits shall constitute cash collateral under Section 363(a) of the Bankruptcy
Code.
37. Security Agreement. It is the intention of the parties hereto that
this instrument shall constitute a Security Agreement within the meaning of the
Uniform Commercial Code as enacted in the state in which the Land is located
with respect to the personalty and fixtures comprising a part of the Property,
and that a security interest shall attach thereto for the benefit of Mortgagee
to further secure the Indebtedness. Mortgagor hereby authorizes Mortgagee to
file financing and continuation statements with respect to such collateral in
which Mortgagor has a mortgageable interest, without the signature of Mortgagor
whenever lawful, and upon request, Mortgagor shall promptly execute
17
<PAGE> 22
financing and continuation statements in form satisfactory to Mortgagee to
further evidence and secure Mortgagee's interest in such collateral, and shall
pay all filing fees in connection therewith. In the event of the occurrence of
one or more Defaults, Mortgagee, pursuant to the applicable provision of the
Uniform Commercial Code, and to the extent permitted thereby, shall have the
option of proceeding as to both real and personal property in accordance with
its rights and remedies in respect of the real property, in which event the
default provisions of the Uniform Commercial Code shall not apply. The parties
agree that in the event Mortgagee elects to proceed with respect to collateral
constituting personalty or fixtures separately from the real property, the
giving of five days' notice by Mortgagee, sent by an overnight mail service,
postage prepaid, to Mortgagor at its address referred to in Paragraph 40,
designating the place and time of any public sale or the time after which any
private sale or other intended disposition of such collateral is to be made,
shall be deemed to be reasonable notice thereof and Mortgagor waives any other
notice with respect thereto. Notwithstanding anything in Paragraph 56 to the
contrary, in the event of any inconsistency or conflict between the terms and
provisions of any Security Agreement and the terms and provisions of this
Paragraph 37, the terms and provisions of the Security Agreement shall control.
38. No Release. Neither Mortgagor nor any other Person now or
hereafter obligated for the payment of the Indebtedness or the performance of
all or any part of the covenants and agreements of Mortgagor under the Loan
Documents shall be released from paying such Indebtedness and performing such
covenants and agreements and the lien of this Mortgage shall not be affected by
reason of (a) the failure of Mortgagee to comply with any request of Mortgagor,
or of any other Person so obligated, to take action to foreclose this Mortgage
or otherwise enforce any of the provisions of this Mortgage or of any of the
covenants and agreements of Mortgagor under the Loan Documents, (b) the
release, regardless of consideration, of the whole or any part of the security
held for the Indebtedness, (c) the release, regardless of consideration, of the
obligations of any Person or Persons liable for payment of the Indebtedness, or
performance of the covenants and agreements of Mortgagor under the Loan
Documents, or (d) any agreement or stipulation extending the time of payment or
modifying the terms of any of the Loan Documents, and in the event of such
agreement or stipulation, Mortgagor and all such other Persons shall continue
to be liable under the Loan Documents, as amended by such agreement or
stipulation, unless expressly released and discharged in writing by Mortgagee.
39. Corporate Authority. Mortgagor represents and warrants that it has
taken all necessary and proper action, which has not been modified or revoked,
to enter into this Mortgage and that the execution and delivery of this
Mortgage by the individual who has signed this Mortgage on behalf of Mortgagor
has been duly authorized and is sufficient action to constitute this Mortgage
as a valid, binding and enforceable obligation of Mortgagor.
40. Notices. All notices, demands, consents, approvals, requests and
other communications provided for herein shall be in the form and manner as set
forth in Section 10.05 of the Credit Agreement.
18
<PAGE> 23
41. Severability. If any provision of this Mortgage or the application
thereof to any Person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Mortgage, or the application of such
provision to Persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Mortgage shall be valid and enforceable to the fullest extent permitted by
law.
42. No Usury. If any payments required to be made under the Loan
Documents shall be in excess of the amounts allowed by law, the amounts of such
payments shall be reduced to the maximum amounts allowed by law and any
interest paid under or in connection with any of the Loan Documents in excess
of the maximum interest rate permitted by law shall be deemed payment in
reduction of the principal amount of the Indebtedness.
43. No Representation by Mortgagee and/or any Lender. By accepting or
approving anything required to be observed, performed or fulfilled, or to be
given to Mortgagee and/or any Lender pursuant to this Mortgage, including,
without limitation, any officer's certificate, balance sheet, statement of
profit and loss or other financial statement, survey, appraisal, plans for
alterations or restoration, or insurance policy, neither Mortgagee nor any such
Lender shall be deemed to have warranted or represented the sufficiency,
legality, effectiveness or legal effect of the same, or of any term, provision
or condition thereof, and such acceptance or approval thereof shall not be or
constitute any warranty or representation with respect thereto by Mortgagee
and/or any Lender.
44. Consents. If Mortgagor shall request Mortgagee's or any Lender's
approval or consent and Mortgagee or such Lender shall fail or refuse to give
such approval or consent, in respect of any matter where Mortgagee or any
Lender is required herein or under applicable law not to unreasonably withhold
its approval or consent, Mortgagor shall not be entitled to any damages for any
withholding by Mortgagee or any such Lender of its approval or consent, it
being intended that Mortgagor's sole remedy shall be an action for specific
performance or injunction to require such approval or consent.
45. Indemnification Against Liabilities. Mortgagor will protect,
indemnify, hold harmless and defend Mortgagee and each Lender and their
respective officers, directors, agents, servants, and employees from and
against any and all liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses, to the extent permitted by law) imposed upon or
incurred by or asserted against Mortgagee and/or any Lender by reason of (a)
ownership of a mortgagee's or participating lender's interest in the Property,
(b) any accident or injury to or death of Persons or loss of or damage to or
loss of the use of property occurring on or about the Premises or any part
thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any,
streets, alleys or ways, (c) any use, nonuse or condition of the Premises or
any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if
any, streets, alleys or ways, (d) any failure on the part of Mortgagor to
perform or comply with any of the terms of this Mortgage, (e) performance of
any labor or services or the furnishing of any materials or other property in
respect of the Premises or any part thereof made or suffered to be made by or
on behalf of Mortgagor, (f) any negligence or tortious act on the part of
Mortgagor
19
<PAGE> 24
or any of its respective agents, contractors, lessees, licensees or invitees,
or (g) any work in connection with any alterations, changes, new construction
or demolition of the Premises. All amounts payable to Mortgagee and/or any
Lender under this Paragraph 45 shall be payable on demand and shall be deemed
indebtedness secured by this Mortgage and any such amounts which are not paid
within 14 days after demand therefor by Mortgagee and/or such Lender shall bear
interest at the Applicable Rate from the date of such demand. In case any
action, suit or proceeding is brought against Mortgagor, Mortgagee or any
Lender by reason of any such occurrence, Mortgagor, upon request of Mortgagee
and/or any Lender, will, at Mortgagor's expense, resist and defend such action,
suit or proceeding or cause the same to be resisted or defended by counsel
designated by Mortgagor and reasonably approved by Mortgagee. Notwithstanding
the foregoing, Mortgagor shall have no obligation to indemnify Mortgagee or any
Lender for its own gross negligence or willful misconduct.
46. No Oral Changes. This Mortgage and its provisions cannot be
changed, waived, discharged or terminated orally but only by an agreement in
writing, signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
47. Governing Law. This Mortgage and the rights of the parties
hereunder shall be governed by the laws of the state in which the Land is
located without giving effect to conflict of laws principles.
48. Construction. This Mortgage shall be construed without regard to
any presumption or rule requiring construction against the party causing such
instrument or any portion thereof to be drafted.
49. Gender. All terms and words used in this Mortgage, regardless of
the number or gender in which they are used, shall be deemed to include any
other number and any other gender as the context may require.
50. Captions. The headings in this Mortgage and the index at the
beginning of this Mortgage are for convenience of reference only and shall not
limit or otherwise affect any of the terms hereof.
51. After Acquired Property. All property of every kind which is
hereafter acquired by Mortgagor which, by the terms hereof, is required or
intended to be subjected to the lien of this Mortgage shall, immediately upon
the acquisition thereof by Mortgagor, and without any further mortgage,
conveyance, assignment or transfer, become subject to the lien of this
Mortgage.
52. Further Assurances. Mortgagor shall execute, acknowledge and
deliver to Mortgagee any documents and instruments which Mortgagee may
reasonably request from time to time for the better assuring, conveying,
assigning, transferring, confirming or perfecting of Mortgagee's security and
rights under this Mortgage, in form and substance satisfactory to Mortgagee in
its sole and absolute discretion.
20
<PAGE> 25
53. Certain Definitions. The following terms shall, for all purposes
of this Mortgage, have the respective meanings herein specified unless the
context otherwise requires:
(a) The "Applicable Rate" shall mean the highest rate then
payable on any of the Obligations; and
(b) "Lease" shall mean every lease or occupancy agreement for
the use or hire of all or any portion of the Premises which shall be in effect
at the date hereof, or which shall hereafter be entered into by or on behalf of
Mortgagor.
54. Successors and Assigns. The terms, covenants and provisions of
this Mortgage shall apply to and be binding upon Mortgagor and the successors
and assigns of Mortgagor and shall enure to the benefit of Mortgagee, the
Lenders and their respective successors and assigns, but the provisions of this
Paragraph shall not be construed to modify the provisions of Paragraph 18. All
grants, covenants, terms, provisions, and conditions contained herein shall run
with the Land.
55. Environmental Laws. Mortgagor shall comply with or cause to be
complied with all Environmental Laws to the extent and in the same manner set
forth in the Credit Agreement.
56. Credit Agreement. In the event of any inconsistency or conflict
between the terms and provisions of the Credit Agreement and the terms and
provisions of this Mortgage, the terms and provisions of the Credit Agreement
shall control.
IN WITNESS WHEREOF, Mortgagor has hereunto set its hand and seal as of
the day and year first above written:
Mortgagor
Signed and Acknowledged SUN TELEVISION AND APPLIANCES,
INC.
in the Presence of.
/s/ R. Machinski By: /s/ Steven A. Martin
- ---------------------------------- ----------------------------
Print: R. Machinski Name: Steven A. Martin
---------------------------- Title: EVP/CEO
/s/ Beth A. Savage
- ----------------------------------
Print: Beth A. Savage
----------------------------
21
<PAGE> 26
STATE OF OHIO )
) SS:
COUNTY OF Franklin )
--------
BEFORE ME, a Notary Public in and for the aforesaid State and County,
personally appeared the above-named SUN TELEVISION AND APPLIANCES, INC., an Ohio
corporation, by Steven A. Martin, its CEO/EVP, known to me to be the person who
executed this instrument, who acknowledged that he did sign the foregoing
instrument and that the same is his free act and deed individually and the free
act and deed of Sun Television and Appliances, Inc.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal this 2nd day of April, 1997 at Groveport, Ohio.
/s/ Richard Machinski
-----------------------------
Notary Public
This instrument prepared by:
Ellen R. Joseph, Esq.
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
22
<PAGE> 1
Exhibit 11
COMPUTATION OF NET (LOSS) INCOME
PER COMMON SHARE
FOR THE YEARS ENDED MARCH 1, 1997, MARCH 2, 1996
AND FEBRUARY 28, 1995 (AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the
Years Ended
-----------------------------------------------
March 1, March 2, February 28,
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
Net (loss) income $(45,341) $ 6,591 $17,531
========= ======== =======
Common shares outstanding:
Weighted average.......................... 17,407 17,291 17,274
Dilutive effect of stock options.......... -- 139 262
--------- -------- -------
17,407 17,430 17,536
Add net additional dilutive effect of
stock options using period-end
market price ........................... - - 5
--------- -------- -------
Weighted average shares used
to calculate fully diluted (loss)
earnings per share........................ 17,407 17,430 17,541
========= ======== =======
Net (loss) income per share:
Assuming primary ......................... $ (2.60) $ .38 $ 1.00
======= ===== ======
Assuming full dilution.................... $ (2.60) $ .38 $ 1.00
======= ===== ======
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Sun Television and Appliances, Inc. on Form S-8 (File Nos. 33-44932 and
33-82744) of our report dated May 5, 1997 on our audits of the financial
statements of Sun Television and Appliances, Inc. as of March 1, 1997 and March
2, 1996 and for the years ended March 1, 1997, March 2, 1996 and February 28,
1995, which report is included in this Annual Report on Form 10-K.
We also consent to the incorporation by reference in the registration statement
of Sun Television and Appliances, Inc. on Form S-8 (File Nos. 33-44932 and
33-82744) of our report dated May 5, 1997 on our audits of the financial
statement schedule of Sun Television and Appliances, Inc. for the years ended
March 1, 1997, March 2, 1996 and February 28, 1995, which report is included in
this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Columbus, Ohio
May 28, 1997
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
Each of the undersigned officers and directors of SUN TELEVISION AND
APPLIANCES, INC., an Ohio corporation (the "Company"), hereby appoints R.
Carter Pate and John J. Lynch as his true and lawful attorneys-in-fact, or
either of them, with power to act without the other, as his true and lawful
attorney-in-fact, in his name and on his behalf, and in any and all capacities
stated below, to sign and to cause to be filed with the Securities and Exchange
Commission the Company's Annual Report on Form 10-K, for the year ended March
1, 1997, and any and all amendments thereto, hereby granting unto said
attorneys, and to each of them, full power and authority to do and perform in
the name and on behalf of the undersigned, in any and all such capacities,
every act and thing whatsoever necessary to be done in and about the premises
as fully as each of the undersigned could or might do in person, hereby
granting to each such attorney full power of substitution and revocation, and
hereby ratifying all that any such attorney or his substitute may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney in counterparts if necessary, effective as of May 27, 1997.
/s/ R. CARTER PATE /s/ BRADY J. CHURCHES
- ----------------------------- -------------------------------
R. Carter Pate, Chairman of the Board, Brady J. Churches, Director
President, and Chief Executive Officer
(Principal Executive Officer)
/s/ JOHN J. LYNCH /s/ THOMAS EPSTEIN
- ----------------------------- -------------------------------
John J. Lynch, Controller, Treasurer, and Thomas Epstein, Director
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
/s/ PAUL D. BAUER /s/ NED L. SHERWOOD
- ----------------------------- -------------------------------
Paul D. Bauer, Director Ned L. Sherwood, Director
/s/ MACY T. BLOCK
- -----------------------------
Macy T. Block, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SUN
TELEVISION AND APPLIANCES, INC.'S ANNUAL REPORT OF FORM 10-K FOR THE YEAR
ENDED MARCH 1, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-1-1997
<PERIOD-START> MAR-3-1996
<PERIOD-END> MAR-1-1997
<CASH> 1,827
<SECURITIES> 0
<RECEIVABLES> 11,597
<ALLOWANCES> 0
<INVENTORY> 97,368
<CURRENT-ASSETS> 139,779
<PP&E> 100,267
<DEPRECIATION> 0
<TOTAL-ASSETS> 257,713
<CURRENT-LIABILITIES> 76,244
<BONDS> 0
0
0
<COMMON> 174
<OTHER-SE> 107,909
<TOTAL-LIABILITY-AND-EQUITY> 257,713
<SALES> 683,386
<TOTAL-REVENUES> 683,386
<CGS> 533,672
<TOTAL-COSTS> 533,672
<OTHER-EXPENSES> 197,443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,537)
<INCOME-PRETAX> (54,885)
<INCOME-TAX> (9,544)
<INCOME-CONTINUING> (43,722)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,619)
<CHANGES> 0
<NET-INCOME> (45,341)
<EPS-PRIMARY> (2.60)
<EPS-DILUTED> (2.60)
</TABLE>
