<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 3, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
------------ ------------
Commission file number 0-19994
------------------------
SOLO SERVE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 74 - 2048057
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1610 Cornerway Blvd., San Antonio, Texas 78219
----------------------------------------------
(Address of principal executive offices)
(210) 662-6262
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 2, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of the issuer's Common Stock, par value $.01 per share,
and Preferred Stock, par value $.01 per share, outstanding as of April 30,
1997, were 2,856,126 and 1,388,889 shares, respectively. Affiliates of the
registrant held 1,307,500 shares of the Common Stock, and all of the Preferred
Stock, outstanding on April 30, 1997.
<PAGE> 2
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ITEM 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 3
Balance Sheets, May 4, 1996 (unaudited),
February 1, 1997 and May 3, 1997 (unaudited) . . . . . . . . . . . . . 3
Statements of Operations, thirteen weeks ended
May 4, 1996 (unaudited) and May 3, 1997 (unaudited) . . . . . . . . . 4
Statements of Cash Flows, thirteen weeks ended
May 4, 1996 (unaudited) and May 3, 1997 (unaudited) . . . . . . . . . 5
Notes to Financial Statements
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 6. Exhibits and Reports on Form 8 - K . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
2
<PAGE> 3
PART I
ITEM I. Financial Statements
SOLO SERVE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 4, FEBRUARY 1, MAY 3,
ASSETS 1996 1997 1997
------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 1,344,773 $ 1,065,564 $ 1,570,864
Inventory 15,459,253 11,107,938 14,852,823
Other current assets 2,255,850 988,469 1,371,216
------------ ------------ ------------
Total current assets 19,059,876 13,161,971 17,794,903
Property and equipment, net 15,071,813 12,935,322 12,640,949
Goodwill and service marks, net 380,000 290,000 260,000
------------ ------------ ------------
TOTAL ASSETS $ 34,511,689 $ 26,387,293 $ 30,695,852
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 696,141 $ 770,602 $ 785,096
Accounts payable 4,334,776 3,983,898 6,429,645
Accrued expenses 3,816,412 2,339,615 3,492,518
------------ ------------ ------------
Total current liabilities 8,847,329 7,094,115 10,707,259
Long-term debt 16,259,862 14,960,600 18,286,915
Postretirement benefit obligation 560,200 -- --
------------ ------------ ------------
TOTAL LIABILITIES 25,667,391 22,054,715 28,994,174
------------ ------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock 13,889 13,889 13,889
Common stock 28,562 28,562 28,562
Capital in excess of par value 24,410,290 24,410,290 24,410,290
Retained deficit (15,608,443) (20,120,163) (22,751,063)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 8,844,298 4,332,578 1,701,678
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,511,689 $ 26,387,293 $ 30,695,852
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
SOLO SERVE CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------
MAY 4, MAY 3,
1996 1997
------------ ------------
<S> <C> <C>
Net Revenues $ 22,259,970 $ 19,602,971
Cost of goods sold (including buying and distribution, excluding 15,744,332 13,986,059
depreciation shown below ------------ ------------
Gross Profit 6,515,638 5,616,912
Selling, general, and administrative expenses 6,476,008 6,742,845
Store closing expense -- 607,000
Depreciation and amortization expenses 643,895 510,324
------------ ------------
Operating loss (604,265) (2,243,257)
Interest expense 368,562 389,926
------------ ------------
Loss before taxes (972,827) (2,633,183)
------------ ------------
Income tax expense (benefit)
Current 0 0
Deferred 0 0
------------ ------------
0 0
------------ ------------
Net loss $ (972,827) $ (2,633,183)
============ ============
Loss per common share $ (.34) $ (.92)
============ ============
Weighted average common shares outstanding 2,856,126 2,856,126
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SOLO SERVE CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------
MAY 4, 1996 MAY 3, 1997
------------ ------------
<S> <C> <C>
NET LOSS $ (972,827) $ (2,633,183)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH FROM OPERATIONS:
Depreciation and Amortization 643,895 510,324
Loss on retirement of property -- 1,141
Changes in Assets and Liabilities:
(Increase) decrease in Inventory (1,249,073) (3,744,885)
(Increase) decrease in Other Current Assets 17,780 (382,746)
Increase (decrease) in Accounts Payable 907,955 2,445,747
Increase (decrease) in Accrued Expenses 606,402 1,152,901
Increase (decrease) in Non Current Liabilities (5,000) --
------------ ------------
Total adjustments 921,959 (17,518)
------------ ------------
Net cash used by operations before reorganization items (50,868) (2,650,701)
OPERATING CASH FLOW FROM REORGANIZATION ITEMS:
Provision for other reorganization expenses (460,612) --
------------ ------------
Net cash used by operations: (511,480) (2,650,701)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property & equipment (51,442) (184,808)
------------ ------------
CASH USED IN INVESTING ACTIVITIES (51,442) (184,808)
------------ ------------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Borrowings under line of credit agreement 24,887,129 23,711,531
Payments under line of credit agreement (23,577,129) (20,181,531)
Payments on long-term debt (173,832) (189,191)
------------ ------------
Net cash provided (used) by financing activities 1,136,168 3,340,809
------------ ------------
NET INCREASE (DECREASE) IN CASH 573,246 505,300
CASH AT BEGINNING OF YEAR 771,527 1,065,564
------------ ------------
CASH AT END OF PERIOD $ 1,344,773 $ 1,570,864
============ ============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 360,735 $ 389,926
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SOLO SERVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1:
The financial statements as of May 4, 1996 and May 3, 1997, and for the
thirteen week periods ended May 4, 1996 and May 3, 1997 are unaudited and
reflect all adjustments which are, in the opinion of management, necessary for
a fair presentation of the financial position of Solo Serve Corporation (the
"Company") as of May 3, 1997, and the results of operations and cash flows for
the periods presented. Such adjustments are of a normal and recurring nature.
The results of operations for the thirteen week period are not necessarily
indicative of the operating results for a full year or of future operations.
These unaudited financial statements should be read in conjunction with
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended February 1, 1997.
With respect to the unaudited financial information of the Company as of May 4,
1996 and May 3, 1997 and for the thirteen weeks ended May 4, 1996 and May 3,
1997, Price Waterhouse LLP has made a review (based on procedures adopted by
the American Institute of Certified Public Accountants) and not an audit, as
set forth in their separate report appearing as Exhibit 99.
NOTE 2:
The Company has continued to experience lower than anticipated sales and
continuing operating losses. The Company's business has been affected by a
number of factors, including increased competition in its principal markets,
weakness in the apparel industry, unfavorable economic conditions in certain
markets and other factors, many of which are not within the Company's control.
The Company continues to experience increased competitive pressure on both
price points and market share. Increased competitive pricing and promotional
strategies have put significant downward pressure on price points, and
competitors have opened additional store locations in the Company's principal
markets.
During the second quarter of Fiscal 1996, the Company experienced a number of
executive management changes. The new management group has implemented a
strategy designed to (i) achieve a higher gross margin percentage at reduced
sales levels, (ii) reduce administrative costs to levels consistent with
planned operating levels, (iii) improve the brand quality of the inventory mix
and (iv) reduce inventory levels. While management plans to continue the
implementation of its new strategy, no assurance can be given that the Company
will be successful in its efforts to improve sales and operations and reverse
operating trends.
If current sales trends continue and other initiatives are not successful in
improving overall financial performance and meeting liquidity requirements, the
Company would consider other alternatives, including additional reductions in
the Company's scale of operations and implementation of additional measures
designed to reduce expenses.
NOTE 3:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MAY 4, FEBRUARY 1, MAY 3,
1996 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Notes payable to bank, interest at prime plus 1/2%
(9.25% at May 3, 1997) secured by properties $ 5,361,302 $ 5,131,406 $ 5,048,064
Note payable to insurance company, interest at 8%; secured by
equipment and properties 921,297 654,132 $ 561,467
Mortgage notes payable to insurance companies, interest at
9.5% secured by the distribution center 5,798,404 5,760,664 $ 5,747,480
Congress Loan Agreement, interest at prime plus 1%
(9.5% at May 3, 1997); secured primarily by inventory 4,875,000 4,185,000 $ 7,715,000
------------ ------------ ------------
16,956,003 15,731,202 19,072,011
Less current portion 696,141 770,602 785,096
------------ ------------ ------------
Long-term portion $ 16,259,862 $ 14,960,600 $ 18,286,915
============ ============ ============
</TABLE>
6
<PAGE> 7
The Company has a $5.8 million mortgage note, secured by the Company's
corporate office and distribution center in San Antonio, Texas. The mortgage
note carries an interest rate of 9.5% per annum and requires monthly payments
of principal and interest of $49,773 until December 2002, when the balance is
due. The Company also has a note payable to MetLife Capital Corporation
("MetLife"), which is secured by various equipment and fixtures located at the
corporate office and certain stores. The MetLife note carries an interest rate
of 8.0% and requires equal monthly payments, including principal and interest,
of $35,044 until September 1998, when the balance is due. The Company also has
a term note payable to TCB which carries an interest rate of prime plus
one-half percent and is due in equal monthly installments of principal and
interest of $64,117 until January 1999, when the balance is due.
The Company entered into a loan agreement with Congress Financial Corporation
(Southwest) ("Congress") on June 20, 1995. In May, 1997, the Company and
Congress amended certain financial covenants in the loan agreement. Effective
for the remaining term of the note the Company shall maintain minimum working
capital of $3.25 million, minimum net worth of $800 thousand, and shall limit
capital expenditures, net of insurance or other proceeds resulting from the
disposal or sale of fixed assets, to $2.5 million for any fiscal year period.
Under the terms of the loan agreement, which is in effect until July 1999, the
Company may borrow up to its borrowing base as calculated pursuant to the loan
agreement, which may not exceed $15.0 million. The proceeds of the loan may be
used for letters of credit, working capital, and general corporate purposes.
The loan as amended is a revolving loan with a borrowing base formula which
limits the amount of available credit to 60% of the Company's eligible
inventory during the period of March 1st through May 15th and September 1st
through November 30th of each year and to 55% of the Company's eligible
inventory during any other period less (i) a percentage of undrawn amounts on
letters of credit and (ii) availability reserves established from time to time
by the lender. In June, 1997 the Company and Congress amended the loan
agreement and entered into a Standby Guarantee and Indemnification Agreement to
facilitate supplemental borrowings in an amount equal to 3% of the Company's
eligible inventory (not to exceed $350,000) from June 10, 1997 through December
10, 1997.The loan bears interest at prime plus 1%. In addition, the Company
pays a commitment fee equal to 1/2% per annum of the amount of the unused
facility. The loan is secured by substantially all the assets of the Company
other than those subject to other existing liens.
Under the loan agreement, as amended, Congress may establish and revise
availability reserves in its sole discretion to cover risks or events it
perceives may affect its security under the loan or the business or prospects
of the Company. The current availability reserve under the loan agreement
approximates $560,000. As a result of the formula by which the borrowing base
is calculated, an increase in availability reserves restricts the Company's
access to borrowings under the credit facility. At May 3, 1997, the Company
had approximately $1.3 million available to borrow on the line.
NOTE 4:
During the first quarter of fiscal 1997, the Company accrued $607,000 in store
closing expense for the estimated future occupancy expenses related to three
stores to be closed or operated in some reduced capacity in the second quarter
of the fiscal year. This represents management's best estimate of the future
rents due after the second quarter ($550,000), vacation pay, and miscellaneous
travel and transportation costs associated with the closing/reductions.
7
<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NUMBER OF STORES
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997
----------- -----------
<S> <C> <C>
Beginning of year 29 28
----------- -----------
END OF FIRST QUARTER 29 28
=========== ===========
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data of the Company expressed
as a percentage of net sales for the thirteen weeks (first quarter) ended
May 4, 1996 and May 3, 1997.
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------
MAY 4, MAY 3,
1996 1997
--------------------
<S> <C> <C>
Net Revenues 100.0% 100.0%
Cost of goods sold, including buying and distribution 70.7 71.3
----- -----
costs
Gross Margin 29.3 28.7
Selling, general and administrative expenses 29.1 34.4
Store closing expense -- 3.1
Depreciation and amortization 2.9 2.6
----- -----
Operating Income (Loss) (2.7) (11.4)
Interest expense 1.7 2.0
----- -----
(Loss) before provision for taxes (4.4) (13.4)
Provision for income taxes -- --
----- -----
Net (Loss) (4.4) (13.4)
===== =====
</TABLE>
8
<PAGE> 9
THIRTEEN WEEKS (FIRST QUARTER) ENDED MAY 4, 1996 VERSUS
THIRTEEN WEEKS ENDED MAY 3, 1997
Recent Developments
On May 29, 1997, the Company signed a lease for a new store in San Angelo,
Texas, which it plans to open in late July. This will be a new and smaller
market area than those served by the Company's existing stores, and will be a
test of the Company's ability to operate a smaller store in a smaller market
than it has historically, and to design a store to match a specific market.
The store will be in a market with less direct competition from other, larger
off-price retailers. The Company anticipates that such a store can be
successful and provide a positive contribution to the Company's operating
results.
In June, 1997 the Company and Congress entered into certain agreements to
facilitate supplemental borrowings in an amount equal to 3% of the Company's
eligible inventory (not to exceed $350,000) from June 10, 1997 through December
10, 1997. See Footnote 3 of Notes to Financial Statements.
Results of Operations
The Company's net revenues for the first quarter ended May 3, 1997 were $19.6
million as compared to $22.3 million during the first quarter of fiscal 1996.
The majority of the sales decrease is attributable to a decline in comparable
store sales of 11.5%. Management attributes the comparable store sales decrease
principally to increased competitive pressures in its market areas, a poor
Easter season, and an unseasonably cold April in south and south-central Texas
where 20 of the Company's 28 stores are located.
Gross profit for the first quarter was $5.6 million in fiscal 1997 and $6.5
million for the same period in fiscal 1996, a decrease of $899,000. Of the
decrease, $401,000 is attributable to the write down of merchandise associated
with a store the Company will be closing and two stores the Company will either
close or operate in a reduced capacity. The remaining decrease is primarily
attributable to decreased sales. Gross profit as a percent of net revenues
before the aforementioned write down was 1.4 percentage points higher than the
prior year.
For the first quarter of fiscal 1997, selling, general and administrative
expenses increased $267,000 to $6.7 million from $6.5 million in fiscal 1996.
This is principally a result of increases in promotional and advertising
expenses of $444,000, offset by a decrease in human resource costs of $184,000.
Selling, general and administrative expenses as a percentage of revenues
increased to 34.4% from 29.1% for the comparable period of the prior year. Due
to the fixed nature of some of these expenses, SG&A as a percent of sales
increases as sales decline.
During the first quarter of fiscal 1997, the Company accrued $607,000 in store
closing expense for the estimated future occupancy expenses related to three
stores to be closed or operated in some reduced capacity in the second quarter
of the fiscal year.
Depreciation and amortization in the first quarter of fiscal 1997 decreased 21%
to $510,000 from $644,000 in 1996 due to certain assets becoming fully
depreciated during 1996, operating one less store in the first quarter of
fiscal 1997 and the write down in fiscal 1996 of the property and equipment
related to three stores to be closed or operated in some reduced capacity in
the second quarter of the current fiscal year.
The Company incurred an operating loss of $2.2 million during the first quarter
of fiscal 1997 as compared to an operating loss of $604,000 in fiscal 1996.
The Company recorded net interest expense for the first quarter of fiscal 1997
of $390,000 as compared to $369,000 during the first quarter of fiscal 1996.
This was principally the result of increased borrowing on the Company's line of
credit.
9
<PAGE> 10
Liquidity and Capital Resources
Cash used by operating activities before reorganization items in the first
quarter of fiscal 1997 was $2.7 million. This was primarily the result of the
net loss ($2.6 million), increases in inventories ($3.7 million) and other
current assets ($383,000), net of increases in accounts payable ($2.4 million)
and accrued expenses ($1.2 million). The increase in accrued expenses was
primarily the result of the reserve for store closing expense of $607,000.
Capital expenditures were $185,000, consisting primarily of replenishment and
refurbishment of existing equipment and facilities.
The Company has a $5.8 million mortgage note, secured by the Company's
corporate office and distribution center in San Antonio, Texas. The mortgage
note carries an interest rate of 9.5% per annum and requires monthly payments
of principal and interest of $49,773 until December 2002, when the balance of
$5.4 million is due. The Company also has a note payable to MetLife Capital
Corporation ("MetLife"), which is secured by various equipment and fixtures
located at the corporate office and certain stores. The MetLife note carries
an interest rate of 8.0% and requires equal monthly payments, including
principal and interest, of $35,044 until September 1998, when the balance of
$35,000 is due. The Company also has a term note payable to TCB which carries
an interest rate of prime plus one-half percent and is due in equal monthly
installments of principal and interest of $64,117 until January 1999, when the
balance of $4.5 million is due. The TCB note is secured by the Company's
three owned store locations.
The Company entered into a loan agreement with Congress Financial Corporation
(Southwest) ("Congress") on June 20, 1995. In May, 1997, the Company and
Congress amended certain financial covenants in the loan agreement. Effective
for the remaining term of the note the Company shall maintain minimum working
capital of $3.25 million, minimum net worth of $800 thousand, and shall limit
capital expenditures, net of insurance or other proceeds resulting from the
disposal or sale of fixed assets, to $2.5 million for any fiscal year period.
Under the terms of the loan agreement, which is in effect until July 1999, the
Company may borrow up to its borrowing base as calculated pursuant to the loan
agreement, which may not exceed $15.0 million. The proceeds of the loan may be
used for letters of credit, working capital, and general corporate purposes.
The loan as amended is a revolving loan with a borrowing base formula which
limits the amount of available credit to 60% of the Company's eligible
inventory during the period of March 1st through May 15th and September 1st
through November 30th of each year and to 55% of the Company's eligible
inventory during any other period less (i) a percentage of undrawn amounts on
letters of credit and (ii) availability reserves established from time to time
by the lender. In June, 1997 the Company and Congress amended the loan
agreement and entered into a Standby Guarantee and Indemnification Agreement to
facilitate supplemental borrowings in an amount equal to 3% of the Company's
eligible inventory,(not to exceed $350,000) from June 10, 1997 through December
10, 1997. The loan bears interest at prime plus 1%. In addition, the Company
pays a commitment fee equal to 1/2% per annum of the amount of the unused
facility. The loan is secured by substantially all the assets of the Company
other than those subject to other existing liens.
Under the loan agreement, as amended, Congress may establish and revise
availability reserves in its sole discretion to cover risks or events it
perceives may affect its security under the loan or the business or prospects
of the Company. The current availability reserve under the loan agreement
approximates $560,000. As a result of the formula by which the borrowing base
is calculated, an increase in availability reserves restricts the Company's
access to borrowings under the credit facility. In addition to the Congress
credit facility, the Company is dependent upon short term trade credit as a
source of inventory financing. Short term trade credit arises from the
willingness of the Company's vendors to grant payment terms for inventory
purchases and is either financed by the vendor or a third party factoring
institution. The Company's inventories were $600,000 less at May 3, 1997 than
the comparable period of fiscal 1996, and accounts payable increased $1.9
million. The $885,000 reduction in other current assets was primarily the
result of eliminating advance payments to third-party factoring institutions.
During the first quarter of fiscal 1997, the Company's sales have continued to
be adversely affected by a number of factors, including increased competition
in its principal markets, weakness in the apparel industry, unfavorable
economic conditions in certain markets and other factors, many of which are not
within the Company's control. Increased competitive pricing and promotional
strategies have put significant downward pressure on price points, and
competitors have opened additional store locations in the Company's principal
markets. While the Company has maintained inventory at planned levels, the
Company has experienced some reduction in the availability of trade credit, and
continuing unfavorable business conditions and financial performance could
heighten vendor and factor concern regarding the Company's creditworthiness,
which could adversely affect the Company's ability to receive sufficient trade
credit support to acquire adequate levels of inventory in the future. No
assurance can be given that the Company will be successful in its efforts to
improve sales and operations and reverse operating trends. Because of these
uncertainties, any investment in the Company's common stock should be
considered speculative.
10
<PAGE> 11
The Company owns the real estate and improvements on which three of its Solo
Serve stores in San Antonio, Texas are located and leases the remainder of its
stores. During 1996, the Company listed all of its owned properties for sale,
including the distribution center. The Company has entered into an earnest
money contract providing for the sale and leaseback of one of its owned store
locations, which contract is subject to a number of conditions. No assurances
can be made that the transaction will close. The Company has received and is
evaluating proposals on all of its remaining owned real estate. These
proposals generally contemplate the sale/leaseback of the properties in
question, although the Company may also consider outright sale of the
properties under certain circumstances, including availability of suitable
alternate locations. No assurance can be given that the pending proposals will
result in definitive agreements relating to any of the remaining properties,
and all of the properties are pledged to secure certain indebtedness of the
Company. However, disposition of the Company's owned real estate on terms
proposed by the Company would enhance the Company's liquidity and provide
additional cash for operations.
In order to reduce chain-wide inventories, reduce debt and enhance its cash
position, the Company will close one store in the second quarter of fiscal
1997. For the same reasons, the Company intends to close or operate in some
reduced capacity, two additional stores, subject to satisfactory arrangements
with landlords.
If current sales trends continue and other initiatives are not successful in
improving overall financial performance and meeting liquidity requirements, the
Company would consider other alternatives, including additional reductions in
the Company's scale of operations and implementation of additional measures
designed to reduce expenses.
11
<PAGE> 12
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. In the opinion
of management, the outcome of this litigation will not have a material effect
on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following Exhibits are incorporated by reference to the filing indicated or
are included following the Index to Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
2.1 First Amended Plan of Reorganization of Solo Serve Corporation dated May
17, 1995 (6)
2.2 Non-material Modifications to First Amended Plan of Reorganization of
Solo Serve Corporation, entered July 6, 1995 (6)
3.1 Restated Certificate of Incorporation of the Company (7)
3.2 Certificate of Designation of Rights and Preferences of Preferred Stock
(7)
3.3 Bylaws of the Company, as amended and restated (14)
4.1 Specimen Certificate for Common Stock of the Registrant (representing
shares of common stock of the Company after giving effect to the
previously reported 2-for-1 reverse split effected July 18, 1995) (9)
10.1 Registration Rights Agreement among General Atlantic Corporation, Robert
J. Grimm and the Company (1)
10.2 Agreement Regarding Tax Consequences of Deconsolidation between the
Company and General Atlantic Corporation (1)
10.3 Tax Allocation Agreement between the Company and General Atlantic
Corporation (1)
10.4 Form of Indemnity Agreement between Directors, Executive Officers and
the Company (1)
10.5 Associate Stock Purchase Plan of the Company (2)
10.6 Retirement Savings Plan and Trust of the Company (2)
10.7 Mortgage Note A, dated November 20, 1992, in principal amount of
$4,940,000, with the Company as Maker and Nationwide Life Insurance
Company as Holder (2)
10.8 Mortgage Note B, dated November 20, 1992, in principal amount of
$1,000,000, with the Company as Maker and Employers Life Insurance
Company of Wausau as Holder (2)
10.9 Asset Purchase Agreement between the Company and Ross Stores, Inc. (3)
10.10 Employment Agreement between the Company and David P. Dash (4)+
10.11 Employment Agreement between the Company and Robert J. Grimm, as amended
(5)+
10.12 Subscription Agreement between the Company and General Atlantic
Corporation (7)
10.13 Solo Serve Corporation 1995 Stock Incentive Plan (8) +
10.14 Solo Serve Corporation Director Stock Option Plan (8) +
10.15 Escrow Agreement, dated July 18, 1995, by and between Texas Commerce
Bank, National Association, Borrower, General Atlantic Corporation and
the Official Committee of Unsecured Creditors of Solo Serve Corporation
(7)
10.16 Loan and Security Agreement, dated as of June 20, 1995, by and between
Solo Serve Corporation and Congress Financial Corporation (Southwest)
(7)
10.17 Amended Loan and Security Agreement, dated July 18, 1995, by and between
Solo Serve Corporation and MetLife Capital Corporation (8)
10.18 Loan Modification Agreement, dated July 18, 1995, by and among Solo
Serve Corporation, Nationwide Life Insurance Company, and Employers Life
Insurance Company (8)
10.19 Promissory Note, dated July 31, 1995, in principal amount of $5,565,000,
with the Company as Maker, and Texas Commerce Bank National Association
as Holder (8)
10.20 Loan Modification Agreement, dated October 27, 1995, by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest) (9)
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
10.21 Employment Agreement between the Company and Timothy L. Grady (9) +
10.22 Employment Agreement between the Company and Janet Pollock (9) +
10.23 Consulting Services Agreement between the Company and Robert J. Grimm
(10) +
10.24 Second Amendment to Loan and Security Agreement, dated January 31, 1996,
by and between Solo Serve Corporation and Congress Financial Corporation
(Southwest) (11)
10.25 Letter Agreement dated January 23, 1996 by and between the Company and
MetLife Capital Corporation modifying the Loan and Security Agreement
between the Company and MetLife Capital Corporation, as amended on July
18, 1995 (11)
10.26 Amendment No. 3 to Loan and Security Agreement by and between Solo Serve
Corporation and Congress Financial Corporation (Southwest) dated June
26, 1996 (12)
10.27 Letter of Credit and Security Agreement between Solo Serve Corporation
and General Atlantic Corporation dated as of June 26, 1996 (12)
10.28 Intercreditor and Subordination Agreement between Congress Financial
Corporation (Southwest) and General Atlantic Corporation dated as of
June 26, 1996, as acknowledged and agreed to by Solo Serve Corporation
(12)
10.29 Consulting Agreement between the Company and Charles Siegel (13) +
10.30 Employment Agreement between the Company and Charles Siegel (13) +
10.31 Amendment No. 4 to Loan and Security Agreement by and between Solo Serve
Corporation and Congress Financial Corporation (Southwest) dated as of
September 1, 1996 (13)
10.32 Amendment No. 5 to Loan and Security Agreement by and between Solo Serve
Corporation and Congress Financial Corporation (Southwest) dated as of
March 31, 1997 (14)
10.33 Letter Agreement dated March 28, 1997 by and between the Company and
MetLife Capital Corporation modifying the Loan and Security Agreement
between the Company and MetLife Capital Corporation, as amended on July
18, 1995 (14)
10.34 Letter Agreement dated July 8, 1996 by and between the Company and Ross
E. Bacon.(14) +
10.35 Amendment No. 6 to Loan and Security Agreement by and between Solo Serve
Corporation and Congress Financial Corporation (Southwest) dated as of
May 19, 1997 (14)
10.36 Agency Agreement by and between Solo Serve Corporation and Hilco/Great
American Group dated May 7, 1997, as amended together with related
agreements *
10.37 Amendment No. 7 to Loan and Security Agreement by and between Solo Serve
Corporation and Congress Financial Corporation (Southwest) dated June
16, 1997 *
10.38 Standby Guarantee and Indemnification Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest) dated
June 16, 1997 *
15 Independent Accountant's Awareness Letter *
27 Financial Data Schedule *
99 Review Report of Price Waterhouse *
</TABLE>
- --------------
* Filed herewith.
+ Management Compensatory Plan or Arrangement
(1) Incorporated by reference to the Exhibits to the Company's
Registration Statement on Form S-1 (No. 33-46324), as filed
on March 11, 1992, and amended by Amendment No. 1, filed on
March 26, 1992, Amendment No. 2, filed on April 20, 1992, and
Amendment No. 3, filed on April 24, 1992.
(2) Incorporated by reference to the Exhibits to the Company's
Annual Report on Form 10-K for the Fiscal year ended January
30, 1993.
(3) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
July 30, 1994.
(4) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
January 28, 1995.
(5) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
April 29, 1995.
(6) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for July 6, 1995.
(7) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for July 18, 1995.
13
<PAGE> 14
(8) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
July 29, 1995.
(9) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
October 28, 1995.
(10) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
February 3, 1996.
(11) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for February 8, 1996.
(12) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for July 2, 1996.
(13) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
August 3, 1996.
(14) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
February 1, 1997.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the period covered by this report.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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:
SOLO SERVE CORPORATION
By: /s/Charles Siegel
-----------------------------------
Charles Siegel,
President and Chief Executive Officer
By: /s/Ross E. Bacon
-----------------------------------
Ross E. Bacon,
Executive Vice President and
Chief Operating and Financial Officer
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
2.1 First Amended Plan of Reorganization of Solo Serve Corporation dated May
17, 1995 (6)
2.2 Non-material Modifications to First Amended Plan of Reorganization of
Solo Serve Corporation, entered July 6, 1995 (6)
3.1 Restated Certificate of Incorporation of the Company (7)
3.2 Certificate of Designation of Rights and Preferences of Preferred Stock
(7)
3.3 Bylaws of the Company, as amended and restated (14)
4.1 Specimen Certificate for Common Stock of the Registrant (representing
shares of common stock of the Company after giving effect to the
previously reported 2-for-1 reverse split effected July 18, 1995) (9)
10.1 Registration Rights Agreement among General Atlantic Corporation, Robert
J. Grimm and the Company (1)
10.2 Agreement Regarding Tax Consequences of Deconsolidation between the
Company and General Atlantic Corporation (1)
10.3 Tax Allocation Agreement between the Company and General Atlantic
Corporation (1)
10.4 Form of Indemnity Agreement between Directors, Executive Officers and
the Company (1)
10.5 Associate Stock Purchase Plan of the Company (2)
10.6 Retirement Savings Plan and Trust of the Company (2)
10.7 Mortgage Note A, dated November 20, 1992, in principal amount of
$4,940,000, with the Company as Maker and Nationwide Life Insurance
Company as Holder (2)
10.8 Mortgage Note B, dated November 20, 1992, in principal amount of
$1,000,000, with the Company as Maker and Employers Life Insurance
Company of Wausau as Holder (2)
10.9 Asset Purchase Agreement between the Company and Ross Stores, Inc. (3)
10.10 Employment Agreement between the Company and David P. Dash (4)+
10.11 Employment Agreement between the Company and Robert J. Grimm, as amended
(5)+
10.12 Subscription Agreement between the Company and General Atlantic
Corporation (7)
10.13 Solo Serve Corporation 1995 Stock Incentive Plan (8) +
10.14 Solo Serve Corporation Director Stock Option Plan (8) +
10.15 Escrow Agreement, dated July 18, 1995, by and between Texas Commerce
Bank, National Association, Borrower, General Atlantic Corporation and
the Official Committee of Unsecured Creditors of Solo Serve Corporation
(7)
10.16 Loan and Security Agreement, dated as of June 20, 1995, by and between
Solo Serve Corporation and Congress Financial Corporation (Southwest)
(7)
10.17 Amended Loan and Security Agreement, dated July 18, 1995, by and between
Solo Serve Corporation and MetLife Capital Corporation (8)
10.18 Loan Modification Agreement, dated July 18, 1995, by and among Solo
Serve Corporation, Nationwide Life Insurance Company, and Employers Life
Insurance Company (8)
10.19 Promissory Note, dated July 31, 1995, in principal amount of $5,565,000,
with the Company as Maker, and Texas Commerce Bank National Association
as Holder (8)
10.20 Loan Modification Agreement, dated October 27, 1995, by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest) (9)
</TABLE>
<PAGE> 17
<TABLE>
<S> <C>
10.21 Employment Agreement between the Company and Timothy L. Grady (9) +
10.22 Employment Agreement between the Company and Janet Pollock (9) +
10.23 Consulting Services Agreement between the Company and Robert J. Grimm
(10) +
10.24 Second Amendment to Loan and Security Agreement, dated January 31, 1996,
by and between Solo Serve Corporation and Congress Financial Corporation
(Southwest) (11)
10.25 Letter Agreement dated January 23, 1996 by and between the Company and
MetLife Capital Corporation modifying the Loan and Security Agreement
between the Company and MetLife Capital Corporation, as amended on July
18, 1995 (11)
10.26 Amendment No. 3 to Loan and Security Agreement by and between Solo Serve
Corporation and Congress Financial Corporation (Southwest) dated June
26, 1996 (12)
10.27 Letter of Credit and Security Agreement between Solo Serve Corporation
and General Atlantic Corporation dated as of June 26, 1996 (12)
10.28 Intercreditor and Subordination Agreement between Congress Financial
Corporation (Southwest) and General Atlantic Corporation dated as of
June 26, 1996, as acknowledged and agreed to by Solo Serve Corporation
(12)
10.29 Consulting Agreement between the Company and Charles Siegel (13) +
10.30 Employment Agreement between the Company and Charles Siegel (13) +
10.31 Amendment No. 4 to Loan and Security Agreement by and between Solo Serve
Corporation and Congress Financial Corporation (Southwest) dated as of
September 1, 1996 (13)
10.32 Amendment No. 5 to Loan and Security Agreement by and between Solo Serve
Corporation and Congress Financial Corporation (Southwest) dated as of
March 31, 1997 (14)
10.33 Letter Agreement dated March 28, 1997 by and between the Company and
MetLife Capital Corporation modifying the Loan and Security Agreement
between the Company and MetLife Capital Corporation, as amended on July
18, 1995 (14)
10.34 Letter Agreement dated July 8, 1996 by and between the Company and Ross
E. Bacon.(14) +
10.35 Amendment No. 6 to Loan and Security Agreement by and between Solo Serve
Corporation and Congress Financial Corporation (Southwest) dated as of
May 19, 1997 (14)
10.36 Agency Agreement by and between Solo Serve Corporation and Hilco/Great
American Group dated May 7, 1997, as amended together with related
agreements *
10.37 Amendment No. 7 to Loan and Security Agreement by and between Solo Serve
Corporation and Congress Financial Corporation (Southwest) dated June
16, 1997 *
10.38 Standby Guarantee and Indemnification Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest) dated
June 16, 1997 *
15 Independent Accountant's Awareness Letter *
27 Financial Data Schedule *
99 Review Report of Price Waterhouse *
</TABLE>
- --------------
* Filed herewith.
+ Management Compensatory Plan or Arrangement
(1) Incorporated by reference to the Exhibits to the Company's
Registration Statement on Form S-1 (No. 33-46324), as filed
on March 11, 1992, and amended by Amendment No. 1, filed on
March 26, 1992, Amendment No. 2, filed on April 20, 1992, and
Amendment No. 3, filed on April 24, 1992.
(2) Incorporated by reference to the Exhibits to the Company's
Annual Report on Form 10-K for the Fiscal year ended January
30, 1993.
(3) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
July 30, 1994.
(4) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
January 28, 1995.
(5) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
April 29, 1995.
(6) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for July 6, 1995.
(7) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for July 18, 1995.
<PAGE> 18
(8) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
July 29, 1995.
(9) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
October 28, 1995.
(10) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
February 3, 1996.
(11) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for February 8, 1996.
(12) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for July 2, 1996.
(13) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
August 3, 1996.
(14) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
February 1, 1997.
<PAGE> 1
EXHIBIT 10.36
AGENCY AGREEMENT
This Agency Agreement is made as of this 6th day of May, 1997, by and
between HILCO/GREAT AMERICIAN GROUP, a joint venture comprised of Hilco Trading
Company, an Illinois corporation, with its principal place of business at 5
Revere Drive, Suite 206, Northbrook, Illinois 60062, and Garcel, Inc., a
California corporation, with a principal place of business at 6338 Variel
Avenue, Woodland Hills, California 91367, and doing business as Great American
Asset Management ("Agent") and Solo Serve Corporation, a Texas corporation,
with a principal place of business at 1610 Cornerway Blvd., San Antonio, Texas
78219 ("Merchant").
RECITALS
WHEREAS, Merchant desires that Agent act as Merchant's exclusive agent
for the limited purpose of selling all of the Merchandise (as hereinafter
defined) located in Merchant's 3 retail store location(s) listed on Exhibit 1
attached hereto (each individually a "Store," and collectively the "Stores") by
means of a Store Closing, Chainwide Inventory Liquidation Sale, or similar
theme sale (as further described below, the "Sale").
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Agent and Merchant hereby
agree as follows:
Section 1. Defined Terms. The terms set forth below are defined in the
Sections referenced of this Agreement:
<TABLE>
<CAPTION>
Defined Term Section Reference
- ------------ -----------------
<S> <C>
Additional Merchandise Section 11.1(m)
Agency Accounts Section 7.2
Agency Documents Section 11.1(b)
Agent Preamble
Agent Claim Section 12.5
Agent Indemnified Parties Section 13.1
Agent's Fee Section 3.2
Agent's Goods Section 16
Central Administrative Expenses Section 4.1
Defective Merchandise Section 5.2(b)
Excluded Benefits Section 4.1
Expenses Section 4.1
FF&E Section 5.2(a)
Guaranteed Amount Section 3.1(a)
Inventory Date Section 5.1
Inventory Taking Section 5.1
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Layaway Merchandise Section 5.2(b)
Merchandise Section 5.2(a)
Merchant Preamble
Occupancy Agreements Section 8.7
Occupancy Expenses Section 4.1
Proceeds Section 7.1
Recovery Amount Section 3.1(a)
Retail Price Section 5.3
Retained Employee Section 9.1
Retention Bonus Section 9.4
Sale Recitals
Sale Commencement Date Section 6.1
Sale Term Section 6.1
Sale Termination Date Section 6.1
Sales Taxes Section 8.3
Store(s) Recitals
WARN Act Section 9.1
</TABLE>
Section 2. Appointment of Agent. Merchant hereby irrevocably
appoints Agent, and Agent hereby agrees to serve, as Merchant's exclusive agent
for the limited purpose of conducting the Sale in accordance with the terms and
conditions of this Agreement.
Section 3. Payments to Merchant and Agent.
3.1 Payments to Merchant.
(a) (i) As a guaranty of Agent's performance hereunder,
Merchant shall receive from Agent the sum of 45.5% of the aggregate Retail
Price of the Merchandise ("Guaranteed Amount").
(ii) To the extent that Proceeds exceeds 58.50% of
the aggregate Retail Price of the Merchandise, Merchant shall receive from
Agent 50% of such excess Proceeds ("Recovery Amount").
(iv) Agent shall pay to Merchant the Guaranteed
Amount and the Recovery Amount, if any, in the manner and at the times
specified in Section 3.3 below.
3.2 Payments to Agent. Agent shall receive as its compensation for
services rendered to Merchant all remaining Proceeds of the Sale after payment
of the Guaranteed Amount, the Recovery Amount and all Expenses. Subject to
Merchants rights with respect to the Recovery Amount, all Merchandise
remaining, if any, at the Sale Termination Date shall become the property of
Agent, free and clear of all liens, claims and encumbrances, provided however,
that Agent shall use its best efforts to
2
<PAGE> 3
sell all of the Merchandise during the Sale and provided further that any
proceeds received from the sale of any Merchandise which becomes the property
of Agent pursuant to this paragraph at the conclusion of the Sale shall be
deemed Proceeds under this Agreement.
3.3 Time of Payments. Agent shall pay the Guaranteed Amount, with
respect to the Merchandise located in the Stores as of the Inventory Date, to
Merchant within one (1) business day of the issuance of the final audited
report of the Merchandise by the inventory taking service.
Agent shall pay the Guaranteed Amount with respect to the Additional
Merchandise, within, one (1) business day of completion and verification of the
quantity and Retail Price of such Merchandise by Merchant and Agent.
Within thirty (30) days after the end of the Sale Term Agent shall
prepare and deliver to Merchant a final reconciliation of the Sale including,
without limitation, a summary of Proceeds. Within ten (10) days of delivery of
such statement, Agent shall pay to Merchant the Recovery Amount due hereunder,
if any. All payments by Merchant to Agent hereunder shall be by bank wire
transfer of immediately available funds.
Agent shall be entitled to a reduction in the Guaranteed Amount for
any amounts overpaid as a result of the markdowns referred to in Section
11.1(g) hereof having not been reflected on any Merchandise at the time the
Guaranteed Amount for such Merchandise is calculated.
Section 4. Expenses of the Sale.
4.1 Expenses. Agent shall be responsible for all Expenses incurred
in conducting the Sale. As used herein, "Expenses" shall mean all Store-level
operating expenses of the Sale which arise during the Sale Term at the Stores,
limited to the following: (a) base payroll for Retained Employees for actual
days/hours worked in the conduct of the Sale; (b) amounts actually payable in
respect of payroll taxes, worker's compensation and benefits of Retained
Employees (other than Excluded Benefits), with such taxes, worker's
compensation and benefits being limited to no more than 17% of base payroll for
each Retained Employee; (c) 50% of the fees and costs of the inventory taking
service to conduct the Inventory Taking; (d) on-site supervision; (e)
advertising and signage (at Merchant's contract rates, if available); (f) long
distance telephone expenses incurred in the conduct of the Sale; (g) credit
card and bank card fees, chargebacks and discounts and check cashing fees; (h)
costs of security personnel; (i) a pro-rata portion of Merchant's casualty
insurance premiums attributable to the Merchandise; (j) costs of transfers of
Merchandise between the Stores during the Sale Term; (k) Retention Bonuses as
described in Section 9.4 below; and (l) (the costs and expenses of providing
such additional goods and services which Agent in its sole discretion deems
appropriate.
3
<PAGE> 4
"Expenses" shall not include: (i) Occupancy Expenses; (ii) Excluded
Benefits; (iii) any rent or occupancy expenses related to the Stores other than
the Occupancy Expenses; (iv) Central Service Expenses; (v) the cost of
transferring Additional Merchandise to the Stores; and (vi) any other costs,
expenses or liabilities payable by Merchant, all of which shall be paid by
Merchant promptly when due for and during the Sale Term.
As used herein, the following terms have the following respective
meanings:
"Central Service Expenses" means costs and expenses for Merchant's
central administrative services necessary for the Sale, including, but not
limited to, MIS services, payroll processing, inventory processing and handling
and data processing and reporting.
"Excluded Benefits" means vacation days or vacation pay, sick days or
sick leave, maternity leave or other leaves of absence, termination or
severance pay, pension benefits, ERISA coverage and similar contributions, and
payroll taxes, worker's compensation and benefits in excess of the percentage
limitation provided in Section 4.1(b) above.
"Occupancy Expenses" means base rent, percentage rent, HVAC,
utilities, base telephone charges, trash and snow removal, CAM, real estate and
use taxes, Merchant's association dues and expenses, Merchant's liability
insurance, cash register maintenance, building maintenance, landscaping and
structural repair, building insurance relating to the Stores, building alarm
service and alarm service maintenance, and rental for furniture, fixtures and
equipment.
4.2 Payment of Expenses. All Expenses shall be paid by Agent to or
on behalf of Merchant by each Wednesday for the prior week's (i.e. Sunday
through Saturday) Expenses.
Section 5. Inventory Valuation; Merchandise.
5.1 Inventory Taking. Merchant and Agent shall cause to be taken a
Retail Price physical inventory of the Merchandise located in the Stores on the
Inventory Date (the "Inventory Taking") commencing at the close of business at
each of the Stores on a date mutually agreed upon by Agent and Merchant, but in
no event later than May 8, 1997 (the date of the Inventory Taking at each Store
being the "Inventory Date" for such Store). Merchant and Agent shall jointly
employ RGIS to conduct the Inventory Taking. Agent shall be responsible for 50%
of the costs and fees of the inventory taking service as an Expense hereunder,
and the balance of such fees and expenses shall be paid by Merchant. Except as
provided in the immediately preceding sentence, Merchant and Agent shall each
bear their respective costs and expenses relative to the Inventory Taking.
Merchant and Agent shall each have representatives present during
4
<PAGE> 5
the Inventory Taking, and shall each have the right to review and verify the
listing and tabulation of the inventory taking service. Merchant agrees that
during the conduct of the Inventory Taking at each Store such Store shall be
closed to the public and no sales or other transactions shall be conducted.
Within twenty-four hours of the delivery of Additional Merchandise to
the Stores, Merchant and Agent shall, pursuant to mutually acceptable
procedures, jointly count and verify the Retail Price of such Additional
Merchandise for purposes of calculating the Guaranteed Amount with respect to
such Additional Merchandise.
5.2 Merchandise Subject to this Agreement.
(a) For purposes of this Agreement, "Merchandise" shall mean: (i)
all finished goods inventory owned by Merchant and located at the Stores as of
the Sale Commencement Date, including: (A) Defective Merchandise; (B) Layaway
Merchandise; and (C) Additional Merchandise. Notwithstanding the foregoing,
"Merchandise" shall not include: (1) goods in Merchant's leased fragrance
department; (2) goods which belong to sublesees, licensees or concessionaires
of Merchant; (3) goods held by Merchant on memo, on consignment, or as bailee;
(4) defective goods for which Merchant and Agent cannot agree upon a Retail
Price; and (5) furnishings, trade fixtures and improvements to real property
which are located in the Stores (collectively, "FF&E");
(b) As used in this Agreement, the following terms have the
respective meanings set forth below:
"Defective Merchandise" means any item of Merchandise agreed upon and
identified by Agent and Merchant during the Inventory Taking as defective or
otherwise not salable in the ordinary course because it or its packaging is,
damaged, worn, scratched, broken, or affected by other similar defects
rendering it not first quality, and as to which Agent and Merchant mutually
agree on its value to define its Retail Price. Sample Merchandise, irregular
Merchandise clearly marked and sold by Merchant in the ordinary course of
business and Merchandise on display shall not per se be deemed to be Defective
Merchandise so long as the original packaging for such Merchandise is intact
and available if needed to make the item salable in the ordinary course.
"Layaway Merchandise" means all items of Merchandise held at the
Stores on layaway, in each case pursuant to binding agreements, invoices or
other legal documentation, where (A) the documentation is clear as to the name,
address, telephone number, date of last payment and balance due from the
customer, and (B) the goods subject to layaway are fully described in the
documentation.
5
<PAGE> 6
5.3 Valuation. For purposes of this Agreement, "Retail Price"
shall mean, with respect to each item of Merchandise, the lowest ticketed
retail price for each item of Merchandise after the discounts referred to in
Section 11.1(g) hereof, except for:
(i) Defective Merchandise, where "Retail Price" shall mean such
value as to which Agent and Merchant shall agree.
The Retail Price of any item of Merchandise shall exclude all Sales
Taxes, and Merchant represents that the ticketed prices of items of Merchandise
at the Stores do not and shall not include any Sales Taxes. If an item of
Merchandise has more than one ticketed price, or if multiple items of the same
SKU are marked at different prices, the lowest ticketed price on any such item
shall prevail for such item or for all such items within the same SKU, as the
case may be, unless it is clear that the lowest ticket price was mismarked and
infrequent.
5.4 Excluded Goods. Merchant shall retain all responsibility for
any goods not included as "Merchandise" hereunder.
Section 6. Sale Term.
6.1 Term. Subject to satisfaction of the conditions precedent set
forth in Section 10 hereof, the Sale shall commence at each Store no later than
May 8, 1997 ("Sale Commencement Date"). Agent shall complete the Sale on
approximately July 31, 1997, unless the Sale is extended by mutual written
agreement of Agent and Merchant (the "Sale Termination Date"; the period from
the Sale Commencement date to the Sale Termination Date as to each Store being
the "Sale Term"). Agent may, in its discretion, terminate the Sale at any Store
at any time within the Sale Term (i) upon the occurrence of an Event of Default
by Merchant, or (ii) upon not less than five (5) days' prior written notice to
Merchant.
6.2 Vacating the Stores. Agent shall vacate the Stores on or
before the Sale Termination Date, at which time Agent shall surrender and
deliver the Store promises and Store keys to Merchant. Agent agrees to leave
the Stores in "broom clean" condition, ordinary wear and tear excepted. All
assets of Merchant used by Agent in the conduct of the Sale (e.g. FF&E,
supplies, etc.) shall be returned by Agent to Merchant at the end of the Sale
Term to the extent the same have not been used in the conduct of the Sale or
have not been otherwise disposed of through no fault of Agent.
Section 7. Sale Proceeds.
7.1 Proceeds. For purposes of this Agreement, "Proceeds" shall
mean the aggregate of: (a) the total amount (in U.S. dollars) of all sales of
Merchandise made under this Agreement, exclusive of (i) Sales Taxes, (ii)
credit card and bankcard fees and bankcard fees and chargebacks, and (iii)
returns, allowances and customer credits;
6
<PAGE> 7
and (b) all proceeds of Merchant's insurance for loss or damage to Merchandise
or loss of cash arising from events occurring during the Sale Term.
7.2 Deposit of Proceeds. All cash Proceeds shall be deposited by
Agent in Agency Accounts established by Agent ("Agency Accounts"). Agent may in
its discretion designate new or existing accounts of Agent or Merchant as the
Agency Accounts, provided that such accounts are dedicated solely to the
deposit of Proceeds and the disbursement of Expenses and amounts payable to
Merchant pursuant to Section 3 hereof. Agent shall exercise sole signatory
authority and control with respect to the Agency Accounts. Merchant shall
promptly upon Agent's request execute and deliver all necessary documents to
open and maintain the Agency Accounts.
7.3 Credit Card Proceeds. Agent shall have the right (but not the
obligation) to use Merchant's credit card facilities (including Merchant's
credit card terminals and processor(s), credit card processor coding, merchant
identification numbers and existing bank accounts) for credit card Proceeds. In
the event that Agent elects so to use Merchant's credit card facilities,
Merchant shall process credit card transactions on behalf of Agent, applying
customary practices and procedures. Without limiting the foregoing, Merchant
shall cooperate with Agent to down-load data from all credit card terminals
each day during the Sale Term and to effect settlement with Merchant's credit
card processor(s), and shall take such other actions necessary to process
credit card transactions under Merchant's merchant identification numbers. All
credit card Proceeds will constitute the property of Agent and shall be held by
Merchant, In Trust, for Agent, free and clear of all liens, claims or
encumbrances of Merchant or its creditors. Merchant shall deposit all credit
card Proceeds into a segregated designated account and shall transfer such
Proceeds to Agent daily (on the date received by Merchant if received prior to
12:00 noon, or otherwise within one (1) business day) by wire transfer of
immediately available funds. At Agent's request, Merchant shall cooperate with
Agent to establish merchant identification numbers under Agent's name and to
process all credit card Proceeds for Agent's account. Merchant shall not be
responsible for and Agent shall pay as an Expense hereunder, all credit card
fees, charges, and chargebacks related to the Sale, whether received during or
after the Sale Term.
Section 8. Conduct of the Sale.
8.1 Rights of Agent. Agent shall be permitted to, in its sole
discretion, conduct the Sale (a) in the Store located in Shreveport, Louisiana
as a "store closing", or similar sale throughout the Sale Term, (b) in the
Stores located in Baton Rouge, Louisiana and Mobile, Alabama as a "chainwide
inventory liquidation" or similar theme sale. With the consent of Merchant,
Agent may conduct and advertise the Sale under any other sale theme at any time
during the Sale Term. Agent shall conduct the Sale in the name of and on behalf
of Merchant in a commercially reasonable manner and in compliance with the
terms of this Agreement. In addition to any other rights granted to Agent
hereunder, in conducting the Sale Agent, in the exercise of its sole
discretion, shall have the right:
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(a) to establish and implement advertising and promotion programs
consistent with the Sale themes described above provided, however, that Agent
shall deliver copies of all advertising materials for the Sale to Merchant,
Attn: Chuck Siegel, who shall have the right, within twenty-four hours of such
delivery, to approve such materials (which approval shall not be unreasonably
withhold or delayed); and provided further that the failure of such designee to
reasonably respond to any request for approval within twenty-four (24) hours
shall be deemed to be approval of the subject materials;
(b) to establish Sale prices and Store hours which are consistent
with the terms of applicable leases;
(c) to use without charge during the Sale Term all FF&E,
advertising materials, bank accounts, Store-level customer lists and mailing
lists, computer hardware and software, existing supplies located at the Stores,
intangible assets (including Merchant's name, logo and tax identification
numbers), Store keys, case keys, security codes, and safe and lock combinations
required to gain access to and operate the Stores, and any other assets of
Merchant located at the Stores (whether owned, leased, or licensed);
(d) to transfer Merchandise between Stores;
(e) to use without charge (i) Merchant's central office
facilities, central administrative services and personnel to process payroll,
perform MIS and provide other central office services necessary for the Sale,
and (ii) one (1) office located at Merchant's central office facility.
8.2 Terms of Sales to Customers. All sales of Merchandise will be
"final sales" and "as is", and all advertisements and sales receipts will
reflect the same. Agent shall not warrant the Merchandise in any manner, but
will, to the extent legally permissible, pass on all manufacturer's warranties
to customers. All sales will be made only for cash and by nationally recognized
bank credit cards. Agent will not accept Merchant's gift certificates, Store
credits, due bills and rain checks issued by Merchant prior to the Sale
Commencement Date.
8.3 Sales Taxes. During the Sale Term, all sales, excise, gross
receipts and other taxes attributable to sales of Merchandise (other than taxes
on income) payable to any taxing authority having jurisdiction (collectively,
"Sales Taxes") shall be added to the sales price of Merchandise and collected
by Agent at the time of sale. Agent shall draw checks on the Agency Accounts
payable to the applicable taxing authorities in the amount so collected, which
shall be delivered together with accompanying schedules to Merchant, In Trust,
on a timely basis for payment of Sales Taxes when due. Merchant
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shall promptly pay all Sales Taxes and file all applicable reports and
documents required by the applicable taxing authorities. Merchant will be given
access to the compilation of gross receipts for verification of all such tax
collections.
8.4 Supplies. Agent shall have the right to use all existing
supplies (e.g. boxes, bags, twine) located at the Stores at no charge to Agent.
In the event that additional supplies are required in any of the Stores during
the Sale, Merchant agrees to promptly provide the same to Agent, if available,
for which Agent shall reimburse Merchant at Merchant's cost therefor. Supplies
have not been since April 1, 1997, and shall not be prior to the Sale
Commencement Date, transferred by Merchant between or from the Stores so as to
alter the mix or quantity of supplies at the Stores from that existing on such
date, other than in the ordinary course of business.
8.5 Return of Merchandise. During the Sale Term Agent shall accept
returns of Merchandise sold by Merchant from the Stores prior to the Sale
Commencement Date ("Returned Merchandise"), provided such Merchandise is
accompanied by the original Store receipt and such return is otherwise in
accordance with the applicable return policy for such Store in effect prior to
the Sale Commencement Date. Merchant shall reimburse Agent in cash within five
(5) days after Agent's request for the amount of any Store credit or refund
given to any customer in respect of Returned Merchandise. To the extent that
Returned Merchandise is salable as first-quality merchandise, it shall be
included in Merchandise and valued at the Retail Price applicable to such item
multiplied by the compliment of the prevailing Sale discount at the time of the
return. If the Returned Merchandise constitutes Defective Merchandise it shall
be included in Merchandise and assigned a Retail Price in accordance with the
applicable provisions of Section 5.3 above. Subject to Merchant's reimbursement
to Agent of the amount of any Store credit or refund granted for any Returned
Merchandise, the aggregate Retail Price of the Merchandise shall be increased
by the Retail Price of any Returned Merchandise included in Merchandise
(determined in accordance with this Section 8.5), and the Guaranteed Amount
shall be adjusted accordingly. Any Returned Merchandise which is not included
in Merchandise shall be disposed of by Agent in accordance with instructions
received from Merchant or, in the absence of such instructions, returned to
Merchant at the end of the Sale Term. Any increases in the Guaranteed Amount
and any reimbursements due to Agent as a result of Returned Merchandise shall
be accounted for an paid by Agent and/or Merchant, as applicable, on a weekly
basis.
8.6 Layaway Merchandise. Promptly after the execution of this
Agreement, Merchant shall notify each customer for which Merchant holds Layaway
Merchandise of the Sale and request such customers to pick up and pay for the
applicable item(s) within such period as designated by the applicable layaway
agreement with the customer. Subject to applicable law, any Layaway,
Merchandise unclaimed by customers by such date shall be returned to the
Store's sale floor as Merchandise for sale by Agent, and the Guaranteed Amount
shall be adjusted to account for such items in the manner prescribed for
Returned Merchandise in Section 8.5 above. Agent shall
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administer all Layaway Merchandise in accordance with the documents and
agreements relating thereto, provisions of applicable law, and Merchant's
historic policies provided to Agent. In the event that Agent is required to
issue refunds to customers in respect of Layaway Merchandise, Merchant shall
reimburse Agent in cash within five (5) days after Agent's request for all such
amounts. At the end of the Sale Term, Agent shall transfer responsibility for
remaining items of Layaway Merchandise back to Merchant after appropriate and
legally required communications to customers and reconciliation between Agent
and Merchant.
8.7 Force Majeure. If any casualty or act of God prevents or
substantially inhibits the conduct of business in the ordinary course at any
Store, such Store and the Merchandise located at such Store shall be eliminated
from the Sale and considered to be deleted from this Agreement as of the date
of such event, and Agent and Merchant shall have no further rights or
obligations hereunder with respect thereto; provided, however, that (i) the
proceeds of any insurance attributable to such Merchandise or business
interruption shall constitute Proceeds hereunder, and (ii) the Guaranteed
Amount shall be reduced to account for any Merchandise eliminated from the Sale
which is not the subject of insurance proceeds, and Merchant shall reimburse
Agent for the amount the Guaranteed Amount is so reduced prior to the end of
the Sale Term.
Section 9. Employee Matters.
9.1 Merchant's Employees. Agent may use Merchant's employees in
the conduct of the Sale to the extent Agent in its sole discretion deems
expedient, and Agent may select and schedule the number and type of Merchant's
employees required for the Sale. Agent shall identify any such employees to be
used in connection with the Sale (each such employee, a "Retained Employee")
prior to the Sale Commencement Date. Retained Employees shall at all times
remain employees of Merchant, and shall not be considered or deemed to be
employees of Agent. Merchant and Agent agree that, except to the extent that
wages and benefits of Retained Employees constitute Expenses hereunder, nothing
contained in this Agreement and none of Agent's actions taken in respect of the
Sale shall be deemed to constitute an assumption by Agent of any of Merchant's
obligations relating to any of Merchant's employees including, without
limitation, Excluded Benefits, Worker Adjustment Retraining Notification Act
("WARN Act") claims and other termination type claims and obligations, or any
other amounts required to be paid by statute or law; nor shall Agent become
liable under any collective bargaining or employment agreement or be deemed a
joint or successor employer with respect to such employees. Merchant shall
not, without Agent's prior written consent, raise the salary or wages or
increase the benefits for, or pay any bonuses or make any other extraordinary
payments to, any of its employees in anticipation of the Sale or prior to the
Sale Termination Date. Merchant has not terminated and shall not during the
Sale Term terminate any employee benefits or benefit programs.
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9.2 Termination of Employees. Agent may in its discretion stop
using any Retained Employee at any time during the Sale. In the event of
termination of any Retained Employee, Agent will use all reasonable efforts to
notify Merchant at least five (5) days prior thereto, except for termination
"for cause" (such as dishonesty, fraud or breach of employee duties), in which
event no prior notice to Merchant shall be required, provided Agent shall
notify Merchant as soon as practicable after such termination. From and after
the date of this Agreement and until the Sale Termination Date, Merchant shall
not transfer or dismiss employees of the Stores except "for cause" without
Agent's prior consent.
9.3 Payroll Matters. During the Sale Term Merchant shall process
the base payroll for all Retained Employees. Each Wednesday during the Sale
Term Agent shall transfer from the Agency Accounts to Merchant's payroll
accounts an amount equal to the base payroll for Retained Employees plus
related payroll taxes, worker's compensation and benefits for such week which
constitute Expenses hereunder.
9.4 Employee Retention Bonuses. In Agent's sole discretion
Proceeds may be used to pay, as an Expense, retention bonuses ("Retention
Bonuses") (which bonuses shall be inclusive of payroll taxes but as to which no
benefits shall be payable) to Retained Employees who do not voluntarily leave
employment and are not terminated "for cause". Such Retention Bonuses shall be
payable within thirty (30) days after the Sale Termination Date, and shall be
processed through Merchant's payroll system.
Section 10. Conditions Precedent. The willingness of Agent and
Merchant to enter into the transactions contemplated under this Agreement are
directly conditioned upon the satisfaction of the following conditions at the
time or during the time periods indicated, unless specifically waived in
writing by the applicable party:
(a) The Inventory Taking shall have been completed at each of the
Stores on or before May 8, 1997 and the inventory taking service shall have
issued its final audited report of the Merchandise to Merchant and Agent on or
before May 10, 1997.
(b) All representations and warranties of Merchant and Agent
hereunder shall be true and correct in all material respects and no Event of
Default shall have occurred at and as of the date hereof and as of the Sale
Commencement Date.
(c) Merchant shall have provided Agent reasonable access at
Merchant's offices to all pricing and cost files, computer hardware, software
and data filed, inter-Store transfer logs, markdown schedules, invoices, style
runs and all other documents relative to the price, mix and quantities of
inventory located at the Stores.
(d) Agent has had the opportunity to inspect the Stores, and the
inventory on the date immediately preceding the Inventory Date.
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(e) Merchant shall have obtained any necessary landlord consents
and, with the assistance of Agent, shall have obtained all permits and licenses
necessary to conduct the Sale; provided however, that pursuant to Section
11.1(x) hereof, Merchant warrants that no landlord consents are necessary to
conduct the Sale pursuant to the terms of this Agreement.
Section 11. Representations, Warranties and Covenants.
11.1 Merchant's Representations, Warranties and Covenants. Merchant
hereby represents, warrants and covenants in favor of Agent as follows:
(a) Merchant (i) is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation stated
above; (ii) has all requisite corporate power and authority to own, lease and
operate its assets and properties and to carry on its business as presently
conducted; and (iii) is and during the Sale Term will continue to be duly
authorized and qualified as a foreign corporation to do business and in good
standing in each jurisdiction where the nature of its business or properties
requires such qualification, including all jurisdictions in which the Stores
are located.
(b) Merchant has the right, power and authority to execute and
deliver this Agreement and each other document and agreement contemplated
hereby (collectively, together with this Agreement, the "Agency Documents") and
to perform fully its obligations thereunder. Merchant has taken all necessary
actions required to authorize the execution, deliver and performance of the
Agency Documents, and no further consent or approval is required for Merchant
to enter into and deliver the Agency Documents, to perform its obligations
thereunder, and to consummate the Sale. Each of the Agency Documents has been
duly executed and delivered by Merchant and constitutes the legal, valid and
binding obligation of Merchant enforceable in accordance with its terms. No
court order or decree of any federal, state or local governmental authority or
regulatory body is in effect that would prevent or impair, or is required for
Merchant's consummation of, the transactions contemplated by this Agreement,
and no consent of any third party which has not been obtained is required
therefor. No contract or other agreement to which Merchant is a party of by
which the Merchant is otherwise bound will prevent or impair the consummation
of the Sale and the other transactions contemplated by this Agreement.
(c) Since March 1, 1997, Merchant (i) has operated the Stores in
the ordinary course of business consistent with historical operations, and (ii)
has not conducted any promotions or advertised sales at the Stores, except
promotions and sales in the ordinary course of business consistent with
historic promotions and sales for comparable periods last year.
(d) Merchant owns and will own at all times during the Sale Term,
good and marketable title to all of the Merchandise free and clear of all
liens, claims and
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encumbrances of any nature except for the liens of Congress Financial
Corporation which shall be assigned to Agent or released upon payment of the
Guaranteed Amount. Merchant shall not create, incur, assume or suffer to exist
any security interest, lien or other charge or encumbrance upon or with respect
to any of the Merchandise or the Proceeds, except for the lien in favor of the
Agent granted pursuant to Section 15 below.
(e) Merchant has maintained its pricing files in the ordinary
course of business, and prices charged to the public for goods (whether
in-Store, by advertisement or otherwise) are the same in all material respects
set forth in such pricing files for the periods indicated therein, except for
the promotions and sales described in Section 11.1(c). All pricing files and
records since January 1, 1997 relative to the Merchandise have been made
available to Agent. All such pricing files and records are true and accurate in
all material respects as to the actual cost to Merchant for purchasing the
goods referred to therein and as to the selling price to the public for such
goods as of the dates and for the periods indicated therein. There are no
material files, logs, schedules, data or other documents in Merchant's
possession or control relative to the price, mix and quantities of inventory
located at the Stores which have not been or will not be made available to
Agent.
(f) As of the Inventory Date, the levels of goods (as to quantity)
and the mix of goods (as to type, category, style, brand and description) at
the Stores are as heretofore disclosed to Agent.
(g) As of the Inventory Date, all markdowns on ladies goods
located at the Stores will have been taken on a basis consistent with
Merchant's historical practices and policies and pursuant to the markdown
schedule provided by Merchant to Agent. Merchant shall complete and take
markdowns for men's and children's goods and an additional markdown on certain
ladies goods within ten (10) days of the Sale Commencement Date. Such markdowns
shall be consistent with the markdowns at Merchant's remaining store locations
and with the markdown schedule provided to Agent. The Retail Price of the
Additional Merchandise shall reflect all applicable markdowns.
(h) Merchant has not, and shall not up to the Sale Commencement
Date, marked up or raised the price of any items of Merchandise, or removed or
altered any tickets or any indicia of clearance merchandise, except in the
ordinary course of business.
(i) Merchant shall ticket or mark all items of inventory received
at the Stores prior to the Sale Commencement Date in a manner consistent with
similar inventory located at the Stores and in accordance with Merchant's
historic practices and policies relative to pricing and marking inventory.
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(j) All point of sale activity at the Stores has occurred and will
occur up to the Sale Commencement Date in the ordinary course of business and
consistent with promotions described in Section 11.1(c).
(k) Merchant has not and shall not purchase or transfer to or from
the Stores any inventory outside the ordinary course in anticipation of the
Sale or of the Inventory Taking.
(l) As of the Sale Commencement Date, inventory constituting
Merchandise located at the Stores shall be approximately $1,900,000 at the
Retail Price.
(m) Within fifteen (15) days of the Sale Commencement Date,
Merchant will transfer from its remaining store locations or its warehouse, no
more than $2,600,000 of additional merchandise (at Retail Price) to the Stores
to be included in the Sale (the "Additional Merchandise"). The Additional
Merchandise shall be of the same type and quality as currently in the Stores
and the Additional Merchandise shall not alter the mix or balance of the
Merchandise at the Stores.
(n) No action, arbitration, suit, notice, or legal, administrative
or other proceeding before any court or governmental body has been instituted
by or against Merchant, or has been settled or resolved, or to Merchant's
knowledge, is threatened against or affects Merchant, relative to Merchant's
business or properties, or which questions the validity of this Agreement, or
that if adversely determined, would adversely affect the conduct of the Sale.
(o) Merchant covenants to continue to operate the Stores in the
ordinary course of business from the date of this Agreement to the Sale
Commencement Date, (i) selling inventory during such period at customary
prices, (ii) not promoting or advertising any sales or in-Store promotions
(including POS promotions) to the public (iii) not returning inventory to
vendors and not transferring inventory or supplies between or among Stores, and
(iv) not making any management personnel moves or changes at the Stores without
Agent's prior written consent.
(p) To the best of Merchant's knowledge, all Merchandise is in
compliance with all applicable federal, state, or local product safety laws,
rules and standards. Merchant shall provide Agent with its historic policies
and practices regarding product recalls prior to the Inventory taking.
(q) No event of default or event which with the giving of notice,
the passage of time, or both has occurred on the part of Merchant under any
Store lease, reciprocal easement agreement or similar agreement relating to the
occupancy of the Stores. Through the Sale Term, Agent shall have the right to
the uninterrupted use and occupancy of, and peaceful and quiet possession of,
each of the Stores, the assets currently located at the Stores, and the
services provided at the Stores. Merchant shall throughout the Sale Term
maintain in good working order, condition and repair, at its
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sole expense, all cash registers, heating systems, air condition systems,
elevators, escalators, Store alarm systems, and all other mechanical devices
used in the ordinary course of operation of the Stores.
(r) Merchant has paid and will continue to pay throughout the Sale
Term, (i) all self-insured or Merchant funded employee benefit programs for
employees, including health and medical benefits and insurance and all proper
claims made or to be made in accordance with such programs, (ii) all casualty,
liability, workers' compensation and other insurance premiums, (iii) all
utilities provided to the Stores, and (iv) all applicable taxes.
(s) Merchant has not and shall not throughout the Sale Term take
any actions the result of which is to increase the cost of operating the Sale,
including, without limitation, increasing salaries or other amounts payable to
employees.
(t) Merchant is not a party to any collective bargaining
agreements with its employees at the Stores and, to the best of Merchant's
knowledge, no labor unions represent Merchant's employees at the Stores.
(u) As of, the date of this Agreement, Merchant is current in the
payment of all rent, telephone, utilities, taxes, insurance and advertising
liabilities relating to the Stores. Merchant agrees that in the event that
Agent receives notice that any such liability is overdue or unpaid, or Agent is
unable to advertise the Sale with any newspapers, magazines, radio or
television stations or other media providers which target or serve the market
areas of the Stores or is unable to obtain Merchant's contract rate with any
such provider as a result of Merchant's failure to pay any outstanding balances
with such providers, Merchant shall immediately pay such balances in full. In
the event that Merchant shall fail to pay such balances in full within three
business days after notice by Agent, Agent may in its discretion pay any such
balance and offset the amount paid from the Guaranteed Amount, Expenses, the
Recovery Amount, or any other amounts due to Merchant under this Agreement.
(v) All information provided by Merchant to Agent in the course of
Agent's due diligence and preparation and negotiation of this Agreement
(including information as to the Store inventories and operating expenses) is
as of the date hereof and shall remain true and accurate in all material
respects.
(w) Merchant shall cooperate with Agent and not compete with Agent
or the Sale.
(x) No landlord consents are necessary to conduct the Sale at the
Stores pursuant to the terms of this Agreement.
11.2 Agent's Representations and Warranties. Agent hereby
represents, warrants and covenants in favor of Merchant as follows:
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(a) Agent (i) is a joint venture duly and validly existing and in
good standing under the laws of the State of Illinois; (ii) has all requisite
power and authority to consummate the transactions contemplated hereby; and
(iii) is and during the Sale Term will continue to be, duly authorized and
qualified to do business and in good standing in each jurisdiction where the
nature of its business or properties requires such qualification.
(b) Agent has the right, power and authority to execute and
deliver each of the Agency Documents to which it is a party and to perform
fully its obligations thereunder. Agent has taken all necessary actions
required to authorize the execution, delivery and performance of the Agency
Documents, and no further consent or approval is required on the part of Agent
for Agent to enter into and deliver the Agency Documents and to perform its
obligations thereunder. Each of the Agency Documents has been duly executed and
delivered by the Agent and, subject to the issuance of the Order, constitutes
the legal, valid and binding obligation of Agent enforceable in accordance with
its terms. No court order or decree of any federal, state or local governmental
authority or regulatory body is in effect that would prevent or impair or is
required for Agent's consummation of the transactions contemplated by this
Agreement, and no consent of any third party which has not been obtained is
required therefor, except for the Court. No contract or other agreement to
which Agent is a party or by which Agent is otherwise bound will prevent or
impair the consummation of the transactions contemplated by this Agreement.
(c) No action, arbitration, suit, notice, or legal administrative
or other proceeding before any court or governmental body has been instituted
by or against Agent, or has been settled or resolved, or to Agent's knowledge,
has been threatened against or affects Agent, which questions the action taken
or to be taken by Agent in connection with this Agreement, or which if
adversely determined, would have a material adverse effect upon Agent's ability
to perform its obligations under this Agreement.
Section 12. Insurance.
12.1 Merchant's Liability Insurance. Merchant shall continue at its
cost and expense until the Sale Termination Date, in such amounts as it
currently has in effect, all of its liability insurance policies including, but
not limited to, products liability, comprehensive public liability, auto
liability and umbrella liability insurance, covering injuries to persons and
property in, or in connection with Merchant's operation of the Stores, and
shall cause Agent to be named an additional named insured with respect to all
such policies. Prior to the Sale Commencement Date, Merchant shall deliver to
Agent certificates evidencing such insurance setting forth the duration thereof
and naming Agent as an additional named insured, in form reasonably
satisfactory to Agent. All such policies shall require at least thirty (30)
days prior notice to Agent of cancellation, non-renewal or material change. In
the event of a claim under any such
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policies Merchant shall be responsible for the payment of all deductibles,
retention's or self-insured amounts thereunder, unless it is determined that
liability arose by reason of the wrongful acts or omissions or negligence of
Agent, or Agent's employees, independent contractors or agents (other than
Merchant's employees).
12.2 Merchant's Casualty Insurance. Merchant will provide
throughout the Sale Term, at Agent's cost as an Expense hereunder, fire, flood,
theft and extended coverage casualty insurance covering the Merchandise in a
total amount equal to no less than Merchant's cost thereof. From and after the
date of this Agreement until the Sale Termination Date, all such policies will
name Agent as loss payee. In the event of a loss to the Merchandise on or after
the date of this Agreement, the proceeds of such insurance attributable to the
Merchandise plus any self insurance amounts and the amount of any deductible
(which amounts shall be paid by Merchant), shall constitute Proceeds hereunder
and shall be paid to Agent. In the event of such a loss Agent shall have the
sole right to adjust the loss with the insurer. Prior to the Sale Commencement
Date, Merchant shall deliver to Agent certificates evidencing such insurance
setting forth the duration thereof and naming Agent as loss payee, in form and
substance reasonably satisfactory to Agent. All such policies shall require at
least thirty (30) days prior notice to Agent of cancellation, non-renewal or
material change. Merchant shall not make any change in the amount of any
deductibles or self insurance amounts prior to the Sale Termination Date
without Agent's prior written consent.
12.3 Agent's Insurance. Agent shall maintain at Agent's cost and
expense throughout the Sale Term, in such amounts as it currently has in
effect, comprehensive public liability and automobile liability insurance
policies covering injuries to persons and property in or in connection with
Agent's agency at the Stores, and shall cause Merchant to be named an
additional insured with respect to such policies. Prior to the Sale
Commencement Date, Agent shall deliver to Merchant certificates evidencing such
insurance policies setting forth the duration thereof and naming Merchant as an
additional insured, in form and substance reasonably satisfactory to Merchant.
In the event of a claim under any such policies Agent shall be responsible for
the payment of all deductibles, retention's or self-insured amounts thereunder,
unless it is determined that liability arose by reason of the wrongful acts or
omissions or negligence of Merchant or Merchant's employees, independent
contractors or agents (other than Agent or Agent's employees, agents or
independent contractors).
12.4 Worker's Compensation Insurance. Merchant shall at all times
during the Sale Term maintain in full force and effect worker's compensation
insurance (including employer liability insurance) covering all Retained
Employees in compliance with all statutory requirements. Prior to the Sale
Commencement Date, Merchant shall deliver to Agent a certificate of its
insurance broker or carrier evidencing such insurance.
12.5 Risk of Loss. Without limiting any other provision of this
Agreement, Merchant acknowledges that Agent is conducting the Sale on behalf of
Merchant solely in the capacity of an agent, and that in such capacity (i)
Agent shall not be deemed to
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be in possession or control of the Stores or the assets located therein or
associated therewith, or of Merchant's employees located at the Stores, and
(ii) except as expressly provided in this Agreement, Agent does not assume any
of Merchant's obligations or liabilities with respect to any of the foregoing.
Merchant and Agent agree that Merchant shall bear all responsibility for
liability claims of customers, employees and other persons arising from events
occurring at the Stores during and after the Sale Term, except to the extent
any such claim arises directly from the acts or omissions of Agent, or its
supervisors or employees located at the Stores (an "Agent Claim"). In the event
of any such liability claim other than an Agent Claim, Merchant shall
administer such claim and shall present such claim to Merchant's liability
insurance carrier in accordance with Merchant's historic policies and
procedures, and shall provide a copy of the initial documentation relating to
such claim to Agent. To the extent that Merchant and Agent agree that a claim
constitutes an Agent Claim, Agent shall administer such claim and shall present
such claim to its liability insurance carrier, and shall provide a copy of the
initial documentation relating to such claim to Merchant. In the event that
Merchant and Agent cannot agree whether a claim constitutes an Agent Claim,
each party shall present the claim to its own liability insurance carrier, and
a copy of the initial claim documentation shall be delivered to the other
party.
Section 13. Indemnification.
13.1 Merchant Indemnification. Merchant shall indemnify and hold
Agent and its officers, directors, employees, agents and independent
contractors (collectively, "Agent Indemnified Parties") harmless from and
against all claims, demands, penalties, losses, liability or damage, including,
without limitation, reasonable attorneys' fees and expenses, directly or
indirectly asserted against, resulting from, or related to:
(i) Merchant's material breach of or failure to comply with any of
its agreements, covenants, representations or warranties contains in any Agency
Document;
(ii) any failure of Merchant to pay to its employees any wages,
salaries or benefits due to such employees during the Sale Term;
(iii) subject to Agent's compliance with its obligations under
Section 8.3 hereof, any failure by Merchant to pay any Sales Taxes to the
proper taxing authorities or to properly file with any taxing authorities any
reports or documents required by applicable law to be filed in respect thereof;
(iv) any consumer warranty or products liability claims relating to
Merchandise or Merchant Consignment Goods;
(v) any liability or other claims asserted by customers, any of
Merchant's employees, or any other person against any Agent Indemnified Party
(including, without
18
<PAGE> 19
limitation, claims by employees arising under collective bargaining agreements,
worker's compensation or under the WARN Act), except for Agent Claims; and
(vi) the gross negligence or willful misconduct of Merchant or any
of its officers, directors, employees, agents or representatives.
13.2 Agent Indemnification. Agent shall indemnify and hold Merchant
and its officers, directors, employees, agents and representatives harmless
from and against all claims, demands, penalties, losses, liability or damage,
including, without limitation, reasonable attorneys' fees and expenses,
directly or indirectly asserted against, resulting from, or related to:
(i) Agent's material breach of or failure to comply with any of
its agreements, covenants, representations or warranties contained in any
Agency Document;
(ii) any harassment or any other unlawful, tortuous or otherwise
actionable treatment of any employees or agents of Merchant by Agent or any of
its representatives;
(iii) any claims by any party engaged by Agent as an employee or
independent contractor arising out of such employment;
(iv) any Agent Claims; and
(v) the gross negligence or willful misconduct of Agent or any of
its officer, directors, employees, agents or representatives.
Section 14. Defaults. The following shall constitute "Events of
Default" hereunder:
(a) Merchant's or Agent's failure to perform any of their
respective material obligations hereunder, which failure shall continue uncured
seven (7) days after written notice thereof to the defaulting party; or
(b) Any representation or warranty made by Merchant or Agent
proves untrue in any material respect as of the date made; or
(c) The Sale is terminated or materially interrupted or impaired
at a Store for any reason other than (i) an Event of Default by Agent, or (ii)
any other material breach or action by Agent not authorized hereunder.
In the event of an Event of Default, the non-defaulting party, or in
the case of an Event of Default under Section 14(c), the Agent may, in its
discretion, elect to terminate this Agreement upon two (2) business days'
written notice to the other party.
19
<PAGE> 20
Section 15. Security Interest. In consideration of Agent's
payment of the Guaranteed Amount, the Recovery Amount, if any, and the
Expenses, and the provision of services hereunder to Merchant, Merchant hereby
grants to Agent a first priority security interest in and lien upon the
Merchandise and the Proceeds to secure all obligations of Merchant to Agent
hereunder. Merchant shall execute all such documents and take all such other
actions as are reasonably required to perfect and maintain such security
interest as a valid and perfected first priority security interest.
Section 16. Agent's Goods. Agent shall have the right to add
additional goods owned by or cosigned to Agent to the Sale during the Sale Term
("Agent's Goods"). Merchant shall be entitled to and receive a commission equal
to 10% of the Proceeds from the Sale of Agent's Goods at the Stores during the
Sale Term.
Section 17. Sale of FF&E. If requested by Merchant, Agent shall
advertise in the context of advertising for the Sale that FF&E at the Stores
are for sale, and shall contact and solicit known purchasers and dealers of
furniture and fixtures. Merchant shall notify Agent in writing if any such FF&E
are to be excluded from sale and/or if terms and conditions of sale are to be
set or restricted in any manner. In consideration of providing such services,
Agent shall retain 10% of receipts (net of sales taxes) from all sales or other
dispositions of FF&E. Agent shall have no liability to Merchant for its failure
to sell any or all of the FF&E. Agent may, at its option, at any time during
the Sale Term offer to purchase the FF&E.
Section 18. Miscellaneous.
18.1 Notices. All notices and communications provided for
pursuant to this Agreement shall be in writing, and sent by hand, by facsimile,
or a recognized overnight delivery service as follows:
If to the Agent: Hilco/Great American Group
5 Revere Drive, Suite 206
Northbrook, IL 60062
Attn: Harvey M. Yellen
Executive Vice President
Benjamin L. Nortman
Vice President/General Counsel
Telecopy No. (847)509-1150
If to the Merchant: Solo Serve Corporation
1610 Cornerway Blvd.
San Antonio, Texas 78219
Attn: Chuck Siegel
Attn: Ross Bacon
20
<PAGE> 21
18.2 Governing Law; Consent to Jurisdiction. This Agreement shall
be governed and construed in accordance with the laws of the State of Texas
without regard to conflict of laws principles thereof. The parties hereto agree
that any legal action or proceeding arising out of or in connection with this
Agreement shall be adjudicated by the courts of the State of Texas, and by
execution of this Agreement each party hereby irrevocably accepts and submits
to the jurisdiction of such Courts with respect to any such action or
proceeding.
18.3 Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and supersedes and cancels all prior agreements, including, but not limited to,
all proposals, letters of intent or representations, written or oral, with
respect thereto.
18.4 Amendments. This Agreement may not be modified except in a
written instrument executed by each of the parties hereto.
18.5 No Waiver. No consent or waiver by any party, express or
implied, to or of any breach of default by the other in the performance of its
obligations hereunder shall be deemed or construed to be a consent or waiver to
or of any other breach or default in the performance by such other party of the
same or any other obligation of such party. Failure on the part of any party
to complain of any act or failure to act by the other party or to declare the
other party in default, irrespective of how long such failure continues, shall
not constitute a waiver by such party of its rights hereunder.
18.6 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon Agent and Merchant, and their respective
successors and assigns.
18.7 Execution in Counterparts. This Agreement may be executed in
two (2) or more counterparts, each of which shall be deemed an original and all
of which together shall constitute but one agreement. This Agreement may be
executed by facsimile, and such facsimile signature shall be treated as an
original signature hereunder.
18.8 Section Headings. The headings of sections of this Agreement
are inserted for convenience only and shall not be considered for the purpose
of determining the meaning or legal effect of any provisions hereof.
18.9 Survival. All representations, warranties, covenants and
agreements made by the parties hereto shall be continuing, shall be considered
to have been relied upon by the parties and shall survive the execution,
delivery and performance of this Agreement.
21
<PAGE> 22
IN WITNESS WHEREOF, Agent and Merchant hereby execute this Agreement
by their duly authorized representatives as of the day and year first written
above.
HILCO/GREAT AMERICAN GROUP
By: /s/ Harvey M. Yellen
-----------------------------
Harvey M. Yellen
Executive Vice President
SOLO SERVE CORPORATION
By: /s/ Ross E. Bacon
-----------------------------
Ross E. Bacon
Executive Vice President
22
<PAGE> 23
EXHIBIT 1
#10 Bon Marche Mall
7389 Florida Blvd.
Baton Rouge, LA 70806
#12 Springdale Mall
E-27 Springdale
Mobile, AL 36606
#39 9032 Mansfield Road
Shreveport, LA 71118
<PAGE> 24
VIA TELECOPY (847) 509-1150
May 20, 1997
Hilco/Great American Group
5 Revere Drive, Suite 206
Northbrook, Illinois 60062
Attention: Harvey M. Yellen,
Executive Vice President
Benjamin L. Nortman
Vice President/General Counsel
Re: Agency Agreement dated May 6, 1997 by and between
Hilco/Great American Group ("Agent") and Solo Serve
Corporation ("Merchant")
Gentlemen:
Reference is made to the above referenced Agency Agreement (herein so
called). Capitalized terms not otherwise defined herein shall have the same
meanings as in the Agency Agreement. This letter is to confirm our mutual
agreement that the Agency Agreement is amended as follows:
1. With respect to the $646,808 of Additional Merchandise received
at the Stores on or about May 19, 1997, (the "5/19 Additional
Merchandise") Agent shall wire transfer $501,463 on or before May 20,
1997 to an account of Congress Financial Corporation previously
designated to Agent by Merchant, such amount being 95% of the Guaranteed
Amount ($814,468) attributable to such merchandise, less $113,000, being
the credit card sales (subject to final adjustment) for the period May
8, 1997 through and including May 16, 1997 which were deposited in
Merchant's bank accounts rather than the Agency Accounts. All future
credit card sales shall be run through the Agent's credit card accounts
rather than those of Merchant. The remaining five percent (5%) of such
Guaranteed Amount with respect to the 5/19 Additional Merchandise shall
be paid within one (1) business day of completion and verification of
the quantity and Retail Price of such merchandise by Merchant and Agent,
but in no event later than June 23, 1997.
<PAGE> 25
Hilco/Great American Group
May 20, 1997
Page 2
2. With respect to the portion of the Additional Merchandise which
is due to be delivered to the Stores on or about May 23, 1997 (the "5/23
Additional Merchandise") Agent shall pay 95% of the Guaranteed Amount
(less adjustments for mark downs on all Inventory) with respect to the
5/23 Additional Merchandise within one (1) business day of receipt by
Agent of data verifying Merchant's mark downs but in no event later than
May 29, 1997. The remaining five percent (5%) of such Guaranteed Amount
with respect to the 5/23 Additional Merchandise shall be paid within one
(1) business day of completion and verification of the quantity and
Retail Price of such merchandise by Merchant and Agent, but in no event
later than June 23, 1997.
If the foregoing modifications to the Agency Agreement are satisfactory
with Agent, please sign this letter where indicated below and return it at your
earliest convenience.
Very truly yours,
SOLO SERVE CORPORATION
By: /s/ Ross E. Bacon
--------------------------
Ross E. Bacon,
Chief Financial Officer
AGREED:
HILCO/GREAT AMERICAN GROUP
By: /s/ Benjamin L. Nortman
---------------------------------
Its: Vice President/General Counsel
------------------------------
<PAGE> 26
Congress Financial Corporation (Southwest)
1201 Main Street
Dallas, Texas 75250
May 29, 1997
Solo Serve Corporation
1610 Cornerway Boulevard
San Antonio, Texas 78219
Re: Consent to Collateral Sales
Gentlemen:
Congress Financial Corporation (Southwest) ("Lender") and Solo Serve
Corporation ("Borrower") have entered into certain financing arrangements
pursuant to the Loan and Security Agreement, dated June 20, 1995, between
Lender and Borrower, as amended by Amendment No. 1 to Loan and Security
Agreement, dated October 27, 1995, Amendment No. 2 to Loan and Security
Agreement, dated January 31, 1996, Amendment No. 3 to Loan and Security
Agreement, dated June 26, 1996, Amendment No. 4 to Loan and Security Agreement,
dated September 16, 1996, Amendment No. 5 to Loan and Security Agreement, dated
March 31, 1997 and Amendment No. 6 to Loan and Security Agreement, dated the
date hereof (as the same now exist or may hereafter be further amended,
modified, supplemented, extended, renewed, restated or replaced, the "Loan
Agreement", together with all agreements, documents and instruments at any time
executed and/or delivered in connection therewith or related thereto,
collectively, the "Financing Agreements").
Borrower has requested that Lender consent to the liquidation sale of
inventories and other assets located at its store in Shreveport, Louisiana, and
liquidation/stock sales and/or stock reduction sales of inventories and other
assets located at its stores in, Baton Rouge, Louisiana and Mobile, Alabama
(the "Three Stores"), together with certain other inventory to be transported
to such stores from other retail locations of Borrower's, to be conducted by
Hilco/Great American Group, a joint venture, doing business as Great American
Asset Management ("Hilco"), as agent of Borrower, pursuant to the Agency
Agreement, dated as of May 6, 1997, by and between Hilco and Borrower, together
with all schedules and exhibits thereto (the "Agency Agreement"), which sales,
in the absence of this consent, would not be permitted under Section 9.7 of the
Loan Agreement.
1. Borrower hereby represents and warrants that, under the terms of
the Agency Agreement, Hilco is to conduct the sales and collect the proceeds of
such sales at the Three Stores as agent for Borrower, and is required to pay to
Borrower, subject to certain reductions, reconciliations and reimbursements as
provided for in the Agency Agreement, the following:
<PAGE> 27
(a) the Guaranteed Amount (as defined in the Agency
Agreement), constituting forty-five and five-tenths (45.5%) percent (the
"Guaranteed Percentage") of the aggregate Retail Price (as defined in the
Agency Agreement) of the Merchandise (as defined in the Agency Agreement) and
the Additional Merchandise (as defined in the Agency Agreement), the aggregate
Retail Price of which shall not exceed $4,500,000, in the following
installments:
(i) by no later than May 19, 1997, the amount of
$1,023,643 (the "Initial Guaranteed Payment"), constituting one hundred (100%)
percent of the Guaranteed Percentage of the aggregate Retail Price of all
Merchandise located at the Three Stores as of the Inventory Date (as defined in
the Agency Agreement);
(ii) by no later than May 20, 1997, $614,463 (the
"Second Guaranteed Payment"), constituting ninety-five (95%) percent of the
Guaranteed Percentage of the aggregate Retail Price (as determined by Borrower,
and subject to reconciliation as provided for in Section 1(b) hereof) of all
Additional Merchandise delivered to the Three Stores by Borrower after the
Inventory Date but on or prior to May 19, 1997, to be paid to Lender as
follows:
(A) $501,463 of the Second Guaranteed Payment
shall be paid by direct wire transfer by Hilco to Lender
as provided in Section 3(c) hereof; and
(B) $113,000 of the Second Guaranteed Payment
shall be paid by crediting thereto the credit card
proceeds referred to in Section 3(d) hereof, to the extent
actually received by Lender in accordance with such
Section 3(d);
(iii) By no later than May 29, 1997, an amount equal to
ninety-five (95%) percent of the Guaranteed Percentage of the aggregate Retail
Price (as determined by Borrower and subject to reconciliation as provided for
in Section 1(b) hereof) of all Additional Merchandise delivered to the Three
Stores by Borrower after May 19, 1997 but in no event later than May 23, 1997,
minus an amount equal to the aggregate of all markdowns on the Merchandise and
Additional Merchandise taken pursuant to Section 11(g) of the Agency Agreement,
to the extent such markdowns shall not have previously or otherwise been
accounted for in determining Retail Price (the "Third Guaranteed Payment"); and
(iv) By no later than June 23, 1997, the balance of the
Guaranteed Amount, after giving effect to the adjustments thereto provided for
in the Agency Agreement (the "Final Guaranteed Payment"), provided, that, in
the event that no Final Guaranteed Payment is then due under the Agency
Agreement, but, rather, a refund or credit is then due to Hilco for payments
previously made in excess of the Guaranteed Amount as so adjusted, Lender
shall, upon the written request of Borrower,
2
<PAGE> 28
make such refund payment to Hilco as a loan for the account of Borrower under
the Loan Agreement subject to there being sufficient availability therefor at
such time under the lending formulas of the Loan Agreement after giving effect
to all Availability Reserves (as defined in the Loan Agreement) and sublimits
then in effect, as determined by Lender; and
(b) By no later than the fortieth (40th) day following the end
of the Sale Term (as defined in the Agency Agreement), but in no event later
than September 15, 1997, an amount equal to fifty (50%) percent of the amount,
if any, by which the aggregate Proceeds (as defined in the Agency Agreement) of
such liquidation/stock sales exceeds fifty-eight and five-tenths (58.5%)
percent of the aggregate Retail Price of the Merchandise and Additional
Merchandise, (such excess being hereinafter referred to as the "Recovery
Amount"); and
(c) certain additional amounts as provided for in the Agency
Agreement (the "Other Payments").
2. Subject to the conditions set forth below, Lender hereby consents
to the liquidation/stock sales of the Merchandise and the Additional
Merchandise at the Three Stores conducted by Hilco as agent for Borrower
pursuant to the Agency Agreement as in effect on the date hereof.
3. The effectiveness of the foregoing consent is conditioned upon
the satisfaction of each of the following in a manner satisfactory to Lender:
(a) All sales of Merchandise and Additional Merchandise shall
be conducted by Hilco in accordance with the terms of the Agency Agreement as
in effect on the date hereof;
(b) Lender shall have received a true, correct and complete
copy of the Agency Agreement (including all schedules and exhibits thereto)
duly authorized, executed and delivered by all parties thereto;
(c) All payments made or to be made by Hilco to Borrower
pursuant to the Agency Agreement, including, but not limited to, the Initial
Guaranteed Payment, the Second Guaranteed Payment (subject to Section 3(d)
below), the Third Guaranteed Payment, the Final Guaranteed Payment, the
Recovery Amount and the Other Payments, shall be paid when due and payable
under the Agency Agreement as outlined in Section 1 hereof, and shall be paid
by Hilco by direct wire transfer of immediately available funds in accordance
with written wire instructions received from Lender, to be applied by Lender to
the Obligations (as defined in the Loan Agreement) in such order as Lender may
determine in its sole discretion, provided, that, notwithstanding anything to
the contrary contained in this Section 3(c), payments of Sales Taxes (as
defined in the Agency Agreement) under Section 8.3 of the Agency Agreement
shall be paid by Hilco by checks drawn on the Agency Accounts (as defined
3
<PAGE> 29
in the Agency Agreement) made payable to the applicable taxing authorities and
delivered to Borrower as provided for in such Section 8.3;
(d) Notwithstanding anything to the contrary contained in the
Agency Agreement, (i) the proceeds of all credit card transactions executed by
Hilco at the Three Stores from and including May 8, 1997 through and including
May 16, 1997 (which Borrower hereby represents and warrants are in the
approximate aggregate amount of $113,000), to the extent received by Lender,
shall be and be deemed credited to the payment of the Second Guaranteed Payment
as provided for in Section 1(a)(ii)(B) hereof and, as such, applied to the
Obligations by Lender in such order as Lender shall determine in its sole
discretion and shall not be refunded or otherwise paid to Hilco, (ii) after May
16, 1997, Hilco shall no longer use the credit card facilities of the Borrower
for any credit card transactions at the Three Stores or otherwise and (iii) by
its signature below, Hilco hereby confirms the representations and warranties
set forth in Section 1 and Section 3(d)(i) hereof and its acceptance of the
terms set forth in Sections 3(c), 3(d)(i) and 3(d)(ii) hereof;
(e) On and after May 8, 1997, none of the Merchandise or
Additional Merchandise nor any other assets of Borrower located at the Three
Stores, or in transit thereto or therefrom, shall be included as Eligible
Inventory (as defined in the Loan Agreement).
4. The foregoing consent shall apply only to the sales of
Merchandise and Additional Merchandise at the Three Stores pursuant to the
terms of the Agency Agreement as in effect on the date hereof and shall not
apply to any past, present or future sales of the same kind or of any other
nature, or to any other transaction or occurrence, not otherwise permitted
pursuant to the Loan Agreement, including, but not limited to, Section 9.7 of
the Loan Agreement.
5. By its signature below, Borrower represents, warrants and
covenants that the Agency Agreement provided to Lender is true, correct and
complete, and that it has not been, and will not be, amended, supplemented or
modified in any material respect without Lender's prior written consent.
6. Borrower hereby agrees that all representations and warranties
made by Borrower to Lender contained herein are and shall be deemed
representations and warranties made under the Financing Agreements and that
each of the following shall constitute an Event of Default (as defined in the
Loan Agreement) in addition to and not in limitation of any other Event of
Default:
(a) Hilco shall fail to make any payment when due and payable
under the Agency Agreement, as outlined in Section 1 hereof, and in accordance
with the provisions hereof, in any material amount.
4
<PAGE> 30
(b) Either, Agent or Hilco shall materially breach the Agency
Agreement, or there shall otherwise occur any material default thereunder.
(c) For whatever reason, the liquidation/stock reduction sales
at the Three Stores are prevented from occurring and/or being transacted and/or
consummated in accordance with the terms of the Agency Agreement and/or
Borrower or Lender shall become liable to refund or reimburse to Hilco or any
other party any material portion of the amounts paid or to be paid to Borrower
under the Agency Agreement, except to the extent that any such refund or
reimbursement arises from a loss that shall be covered by Borrower's insurance
policies to the full amount of such refund or reimbursement.
Please indicate your acknowledgment and agreement to the foregoing by
signing in the space provided below. The consent of the Lender contained in
this letter is only effective upon the receipt by Lender of an original or
counterpart of this letter executed by Borrower, General Atlantic Corporation
and Hilco.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By: /s/ BENJAMIN L. NORTMAN
----------------------------------
Title: Vice President/General Counsel
------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
5
<PAGE> 31
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ACKNOWLEDGED AND AGREED:
SOLO SERVE CORPORATION
By: /s/ ROSS E. BACON
----------------------------------
Title: Executive Vice President
------------------------------
ACKNOWLEDGED AND CONSENTED TO BY:
GENERAL ATLANTIC CORPORATION
By: /s/ JULIE LEFKOWITZ
----------------------------------
Title: Vice President
------------------------------
ACKNOWLEDGED AND AGREED
with respect to Section 3(d)(iii):
HILCO/GREAT AMERICAN GROUP
By: /s/ Benjamin L. Nortman
-----------------------------------
Title: Vice President/General Counsel
-------------------------------
6
<PAGE> 1
EXHIBIT 10.37
AMENDMENT NO. 7 TO LOAN AND SECURITY AGREEMENT
SOLO SERVE CORPORATION
1610 Cornerway Boulevard
San Antonio, Texas 78219
June 9, 1997
Congress Financial Corporation (Southwest)
1201 Main Street
Dallas, Texas 75250
Gentlemen:
Congress Financial Corporation (Southwest) ("Lender") and Solo Serve
Corporation ("Borrower") have entered into certain financing arrangements
pursuant to the Loan and Security Agreement, dated June 20, 1995, between
Lender and Borrower, as amended by Amendment No. 1 to Loan and Security
Agreement, dated October 27, 1995, Amendment No. 2 to Loan and Security
Agreement, dated January 31, 1996, Amendment No. 3 to Loan and Security
Agreement, dated June 26, 1996, Amendment No. 4 to Loan and Security Agreement,
dated September 16, 1996, Amendment No. 5 to Loan and Security Agreement, dated
March 31, 1997 and Amendment No. 6 to Loan and Security Agreement, dated May
19, 1997 (and as amended hereby and as the same may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, the "Loan
Agreement," together with all agreements, documents and instruments at any time
executed and/or delivered in connection therewith or related thereto,
collectively, the "Financing Agreements").
Borrower has requested that Lender agree to certain amendments to the
Loan Agreement, and Lender is willing to agree to such amendments, subject to
the terms and conditions contained herein. By this Amendment, Lender and
Borrower desire and intend to evidence such amendments.
In consideration of the foregoing and the agreements and covenants
contained herein, the parties hereto agree as follows:
1. Definitions.
(a) Additional Definitions. As used herein, the following
terms shall have the respective meanings given to them below and the Loan
Agreement shall be deemed and is hereby amended to include, in addition and not
in limitation, each of the following definitions:
<PAGE> 2
(i) "Supplemental Loan" shall mean the loans hereafter
made by Lender to or for the benefit of Borrower on a revolving basis
(involving advances, repayments and readvances) as set forth in Section 2
hereof.
(ii) "Supplemental Loan Limit" shall mean, at any time
during the Supplemental Loan Period, the lesser of $350,000 and three (3%)
percent of the Value of Eligible Inventory.
(iii) "Supplemental Loan Period" shall mean the period
from June 9, 1997 through and including December 10, 1997.
(b) Amendments to Definitions. All references to the term
"Loans" in the Loan Agreement shall be deemed and each such reference is hereby
amended to include, in addition and not in limitation, the Supplemental Loans.
(c) Interpretation. For purposes of this Amendment, unless
otherwise defined herein, all terms used herein, including, but not limited to,
those terms used above, shall have the respective meanings assigned to such
terms in the Loan Agreement.
2. Supplemental Loans.
(a) During the Supplemental Loan Period, subject to the terms
and conditions contained herein, in the Loan Agreement and in the other
Financing Agreements, Lender agrees to make Supplemental Loans to Borrower from
time to time in amounts requested by Borrower in excess of and in addition to
the Loans otherwise available to Borrower under the lending formulas set forth
in Section 2.1 of the Loan Agreement (as calculated by Lender, and subject to
the sublimits and Availability Reserves provided for in the Loan Agreement) up
to the amount of the Supplemental Loan Limit as then in effect.
(b) Without limiting any of the rights of Lender pursuant to
Section 2(d) below or otherwise, on each and any date that the outstanding
principal amount of the Supplemental Loans exceeds the Supplemental Loan Limit
as then in effect, Borrower agrees absolutely and unconditionally to
automatically and without demand make a payment to Lender in respect of the
Supplemental Loans in an amount equal to such excess. All interest accrued on
the principal amount of the Supplemental Loans paid pursuant to this Section
2(b) shall be paid, or may be charged by Lender to the loan account(s) of
Borrower, at Lender's option, on the date of such payment.
(c) Except in Lender's discretion, Lender shall not be
required to make at any Supplemental Loans in excess of the Supplemental Loan
Limit as
2
<PAGE> 3
then in effect or at any time on or after December 10, 1997. The Supplemental
Loans shall be secured by all Collateral.
(d) Unless sooner demanded by Lender in accordance with terms
of the Loan Agreement or the other Financing Agreements, or otherwise due as
provided above, all outstanding and unpaid Obligations arising pursuant to the
Supplemental Loans (including, but not limited to, principal, interest, fees,
costs, expenses and other changes in respect thereof payable by Borrower to
Lender) shall automatically, without notice or demand, be absolutely and
unconditionally due and payable, and Borrower shall pay to Lender in cash or
other immediately available funds all such Supplemental Loan Obligations, on
December 10, 1997. Interest shall accrue and be due, until and including the
next business day, if the amount so paid by Borrower to the bank account
designated by Lender for such purpose is received in such bank account after
11:00 a.m. New York City time.
(e) Borrower acknowledges and agrees that, notwithstanding
anything to the contrary contained in the Loan Agreement or the other Financing
Agreements, the failure of Borrower to pay any Obligations arising pursuant to
the Supplemental Loans when due, as provided for in Section 2(b) or 2(d) above,
shall constitute an Event of Default.
3. Representations, Warranties and Covenants. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrower to Lender pursuant to the Financing Agreements, Borrower
hereby represents, warrants and covenants with and to Lender as follows (which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof and shall be incorporated into and made a part of
the Financing Agreements):
(a) No Event of Default exists on the date of this Agreement
(after giving effect to the amendment to the Loan Agreement made by this
Amendment).
(b) This Amendment has been duly executed and delivered by
Borrower and is in full force and effect as of the date hereof, and the
agreements and obligations of Borrower contained herein constitute legal, valid
and binding obligations of Borrower enforceable against Borrower in accordance
with their respective terms.
4. Conditions Precedent. The effectiveness of the amendments
contained herein shall be subject to the satisfaction of the following
conditions precedent in a manner satisfactory to Lender and its counsel:
3
<PAGE> 4
(a) The receipt by Lender of an original of this Amendment,
duly authorized, executed and delivered by Borrower.
(b) The receipt by Lender of an original of the Standby
Guarantee and Indemnification Agreement, duly authorized, executed and
delivered by Borrower.
(c) No Event of Default shall have occurred and be continuing
and no event shall have occurred or condition be existing and continuing which,
with notice or passage of time or both, would constitute an Event of Default
(after giving effect to the amendment to the Loan Agreement made by this
Agreement).
5. Effect of this Amendment. Except as modified pursuant hereto, no
other changes or modifications to the Financing Agreements are intended or
implied and in all other respects the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of the
effective date hereof. To the extent of conflict between the terms of this
Amendment and the other Financing Agreements, the terms of this Amendment shall
control. The Loan Agreement and this Amendment shall be read and construed as
one agreement.
6. No Waiver. Lender has not waived and is not by this Amendment
waiving, and has no intention of waiving any Event of Default which may have
occurred on or prior to the date hereof or may be continuing on the date hereof
or may occur after the date hereof, and Lender reserves the right, in its
discretion, to exercise any or all of its rights and remedies arising under the
terms of the Financing Agreements as a result of any such other Event of
Default which may have occurred on or prior to the date hereof or may be
continuing on the date hereof or may occur after the date hereof.
7. Further Assurances. The parties hereto shall execute and deliver
such additional documents and take such additional action as may be necessary
or desirable to effectuate the provisions and purposes of this Amendment.
8. Governing Law. The rights and obligations hereunder of each of
the parties hereto shall be governed by and interpreted and determined in
accordance with the laws of the State of Texas (without giving effect to
principles of conflicts of law).
9. Binding Effect. This Amendment shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors
and assigns.
10. Counterparts. This Amendment may be executed in any number of
counterparts, but all such counterparts shall together constitute but one and
the
4
<PAGE> 5
same agreement. In making proof of this Amendment, it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.
Please sign the enclosed counterpart of this Amendment in the space
provided below, whereupon this Agreement, as so accepted by Lender, shall
become a binding agreement between Borrower and Lender.
Very truly yours,
SOLO SERVE CORPORATION
By: /s/ ROSS E. BACON
-------------------------------
Title: Executive Vice President
--------------------------
AGREED:
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By: /s/ EDWARD FRANCO
------------------------------------
Title: Senior Vice President
--------------------------------
ACKNOWLEDGED AND CONSENTED TO BY:
GENERAL ATLANTIC CORPORATION
By: /s/ JULIE LEFKOWITZ
------------------------------------
Title: Vice President
--------------------------------
5
<PAGE> 1
EXHIBIT 10.38
SOLO SERVE CORPORATION
1619 Cornerway Boulevard
San Antonio, Texas 78219
June 9, 1997
STANDBY GUARANTEE AND
INDEMNIFICATION AGREEMENT
Congress Financial Corporation
(Southwest)
1201 Main Street, Suite 1625
Dallas, Texas 75250
Re: Standby Guarantee of Collection in favor of
Congress Talcott Corporation for the account
of Solo Serve Corporation
Gentlemen:
Congress Financial Corporation (Southwest) ("Lender") and Solo Serve
Corporation ("Borrower") have entered into certain financing arrangements
pursuant to the Loan and Security Agreement, dated June 20, 1995, between
Lender and Borrower, as amended by Amendment No. 1 to Loan and Security
Agreement, dated October 27, 1995, Amendment No. 2 to Loan and Security
Agreement, dated January 31, 1996, Amendment No. 3 to Loan and Security
Agreement, dated June 26, 1996, Amendment No. 4 to Loan and Security Agreement,
dated September 16, 1996, Amendment No. 5 to Loan and Security Agreement, dated
March 31, 1997, Amendment No. 6 to Loan and Security Agreement, dated May 19,
1997 and Amendment No. 7 to Loan and Security Agreement, dated the date hereof
(as so amended and as the same may hereafter be further amended, modified,
supplemented, extended, renewed, restated or replaced, the "Loan Agreement,"
together with all agreements, documents and instruments at any time executed
and/or delivered in connection therewith or related thereto, collectively, the
"Financing Agreements").
Borrower has requested that Lender issue for the account of Borrower a
limited and temporary standby guarantee in favor of the Factor (defined below),
and Lender is willing to issue such guarantee to Factor, subject to the terms
and conditions contained herein.
In consideration of the foregoing and the agreements and covenants
contained herein, the parties hereto agree as follows:
<PAGE> 2
1. Definitions. As used herein, the following terms shall have the
respective meanings given to them below:
(a) "Factor" shall mean Congress Talcott Corporation, and its
successors and assigns.
(b) "Factor Client" shall mean any supplier of raw materials
and/or inventory to Borrower from whom Factor purchases accounts receivables
pursuant to factoring arrangements between such supplier and Factor.
(c) "Factor Guarantee" shall mean the Standby Guarantee of
Collection, dated on or about the date hereof, by Lender in favor of Congress
Talcott Corporation, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
2. Interpretation. For purposes of this Agreement, unless otherwise
defined herein, all terms used herein, including but not limited to those terms
used above, shall have the respective meanings given to such terms in the Loan
Agreement.
3. Factor Guarantee.
(a) Contemporaneously herewith and subject to the terms and
conditions contained herein, Lender agrees to issue to Factor the Factor
Guarantee, containing terms and conditions acceptable to Lender and Factor, to
guarantee to Factor the collection from Borrower of all amounts from time to
time payable by Borrower to Factor under accounts receivables purchased by
Factor from any Factor Client pursuant to factoring arrangements then existing
between Factor and such Factor Client. Any payments made by Lender to Factor
and/or any other Person pursuant to or in connection with the Factor Guarantee
shall constitute additional Revolving Loans to Borrower pursuant to Section 2
of the Loan Agreement. A copy of the executed Factor Guarantee shall be
delivered to Borrower.
(b) The Factor Guarantee is and shall be deemed a Letter of
Credit Accommodation and shall be treated as such for all purposes of the Loan
Agreement, provided, that, notwithstanding the foregoing:
(i) for the purposes of the limitations set forth in
Section 2.1(a) of the Loan Agreement, the Factor Guarantee shall be
deemed a Letter of Credit Accommodation issued for a purpose other than
as set forth in Section 2.1(a)(ii)(A) of the Loan Agreement; and
2
<PAGE> 3
(ii) for the purposes of the letter of credit fee and
the limitations set forth in Sections 2.2(b), 2.2(c) and 2.2(d) of the
Loan Agreement, the Factor Guarantee shall not be deemed a Letter of
Credit Accommodation.
In all other respects, the Factor Guarantee shall be treated as a Letter of
Credit Accommodation subject to all applicable provisions of the Loan
Agreement, including, but not limited to, all other provisions of Sections 2.1
and 2.2.
4. Indemnification. Borrower confirms that Lender is issuing the
Factor Guarantee at Borrower's special request. In consideration of Lender
doing so, Borrower hereby agrees to indemnify Lender and hold Lender harmless
against all claims, actions, demands, loss, damages and expenses (including
attorneys' fees) which may be made against Lender or which Lender may incur in
connection with the Factor Guarantee, and to pay Lender on demand any amount
Lender may pay to Factor or any other person pursuant to the Factor Guarantee.
Lender shall be entitled to make payment to Factor pursuant to the Factor
Guarantee upon Factor's demand, or at any time thereafter, notwithstanding any
judgment Borrower may express to the contrary, and all such payments shall be
conclusive upon Borrower insofar as Lender is concerned, but shall not
prejudice Borrower's rights against Factor should Borrower question the
propriety of any demands made by Factor upon Lender whether on the grounds that
the subject goods are defective or otherwise. This indemnity shall be an
Obligation of Borrower to Lender under the Loan Agreement.
5. Availability Reserve. Notwithstanding anything to the contrary
contained in the Loan Agreement or the other Financing Agreements, Lender may
in its discretion establish and maintain an Availability Reserve, in addition
to and not in limitation of any other Availability Reserve then established or
maintained by Lender, in an amount equal to at any time Lender's contingent and
non-contingent liabilities under and with respect to the Factor Guarantee,
including, without limitation, all direct and indirect liabilities to Factor or
any other person under the Factor Guarantee and all other losses, claims,
damages, liabilities, costs and expenses which Lender may suffer or incur in
connection with the Factor Guarantee.
6. Guarantee Fee. As partial consideration for the issuance of the
Factor Guarantee and this Agreement, Borrower hereby agrees to pay to Lender
and Lender may at its option charge Borrower's account, a guaranty fee in the
amount of $10,000 which fee is fully earned as of the date hereof and shall
constitute part of the Obligations.
7. Representations, Warranties and Covenants. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
3
<PAGE> 4
made by Borrower to Lender pursuant to the Financing Agreements, Borrower
hereby represents, warrants and covenants with and to Lender as follows (which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof and shall be incorporated into and made a part of
the Financing Agreements):
(a) No Event of Default exists on the date of this Agreement
(both before and after giving effect to Amendment No. 7 to the Loan Agreement
made on or about the date hereof by and between Borrower and Lender, the
issuance of the Factor Guarantee and this Agreement).
(b) This Agreement has been duly executed and delivered by
Borrower and is in full force and effect as of the date hereof, and the
agreements and obligations of Borrower contained herein constitute legal, valid
and binding obligations of Borrower enforceable against Borrower in accordance
with their respective terms.
8. Conditions Precedent. The obligations of Lender pursuant hereto
shall be subject to the satisfaction of the following conditions precedent in a
manner satisfactory to Lender and its counsel:
(a) The receipt by Lender of an original of this Agreement,
duly authorized, executed and delivered by Borrower and acknowledged and
consented to by GAC.
(b) The receipt by Lender of an original of Amendment No. 7 to
Loan and Security Agreement, dated the date hereof, by and between Borrower and
Lender, duly authorized, executed and delivered by Borrower and acknowledged
and consented to by GAC.
(c) The receipt by Lender of an original of the Factor
Guarantee, duly authorized, executed and delivered by Factor.
(d) No Event of Default shall have occurred and be continuing
and no event shall have occurred or condition be existing and continuing which,
with notice or passage of time or both, would constitute an Event of Default
(both before and after giving effect to Amendment No. 7 to the Loan Agreement
made by on or about the date hereof by and between Borrower and Lender, the
issuance of the Factor Guarantee and this Agreement).
9. Effect of this Amendment. Except as supplemented hereby, no
changes or modifications to the Financing Agreements are intended or implied
and in all other respects the Financing Agreements are hereby specifically
ratified, restated and confirmed by all parties hereto as of the effective date
4
<PAGE> 5
hereof. To the extent of conflict between the terms of this Agreement and the
other Financing Agreements, the terms of this Agreement shall control.
10. No Waiver. Lender has not waived and is not by this Agreement
waiving, and has no intention of waiving any Event of Default which may have
occurred on or prior to the date hereof or may be continuing on the date hereof
or may occur after the date hereof, and Lender reserves the right, in its
discretion, to exercise any or all of its rights and remedies arising under the
terms of the Financing Agreements as a result of any such other Event of
Default which may have occurred on or prior to the date hereof or may be
continuing on the date hereof or may occur after the date hereof.
11. Further Assurances. The parties hereto shall execute and deliver
such additional documents and take such additional action as may be necessary
or desirable to effectuate the provisions and purposes of this Agreement.
12. Governing Law. The rights and obligations hereunder of each of
the parties hereto shall be governed by and interpreted and determined in
accordance with the laws of the State of Texas (without giving effect to
principles of conflicts of law).
13. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors
and assigns.
14. Counterparts. This Agreement may be executed in any number of
counterparts, but all such counterparts shall together constitute but one and
the same agreement. In making proof of this Agreement, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.
Please sign the enclosed counterpart of this Agreement in the space
provided below, whereupon this Agreement, as so accepted by Lender, shall
become a binding agreement between Borrower and Lender.
Very truly yours,
SOLO SERVE CORPORATION
By: /s/ Ross E. Bacon
--------------------
Title: Executive Vice President, Chief
-------------------------------
Operating Officer and Chief
---------------------------
Financial Officer
-----------------
AGREED:
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By:
-------------------------------
Title:
---------------------------
ACKNOWLEDGED AND CONSENTED TO BY:
GENERAL ATLANTIC CORPORATION
By:
-------------------------------
Title:
---------------------------
5
<PAGE> 1
EXHIBIT 15
INDEPENDENT ACCOUNTANTS' AWARENESS LETTER
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that Solo Serve Corporation has included our report dated June 16,
1997 (issued pursuant to the provisions of Statement on Auditing Standards No.
71) by reference in the prospectus constituting part of its Registration
Statements on Form S-8 (No. 33-55490) filed on November 20, 1995. We are also
aware of our responsibilities under the Securities Act of 1933.
Yours very truly,
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Antonio, Texas
June 16, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE REGISTRANT SET FORTH IN THE REGISTRANT'S QUARTERLY
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED 5-1-97 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-03-1997
<CASH> 1,570,864
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 14,852,823
<CURRENT-ASSETS> 17,794,903
<PP&E> 12,640,949
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,695,852
<CURRENT-LIABILITIES> 10,707,259
<BONDS> 18,286,915
0
13,889
<COMMON> 28,562
<OTHER-SE> 1,659,227
<TOTAL-LIABILITY-AND-EQUITY> 30,695,852
<SALES> 19,602,971
<TOTAL-REVENUES> 19,602,971
<CGS> 13,986,059
<TOTAL-COSTS> 13,986,059
<OTHER-EXPENSES> 7,860,169
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 389,926
<INCOME-PRETAX> (2,633,183)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,633,183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,633,183)
<EPS-PRIMARY> (0.92)
<EPS-DILUTED> (0.92)
</TABLE>
<PAGE> 1
EXHIBIT 99
REPORT ON REVIEW OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Solo Serve Corporation
We have reviewed the interim financial information included in Form 10-Q of
Solo Serve Corporation (the Company) as of May 3, 1997 and May 4, 1996 and for
the thirteen week periods then ended. This financial information is the
responsibility of the management of the Company.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial information for it to be in conformity
with generally accepted accounting principles.
The accompanying financial information has been prepared assuming that the
Company will continue as a going concern. The Company's recurring operating
losses raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to future operations are described in
Note 2. The financial information does not include any adjustments that might
result from the outcome of this uncertainty.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of February 1, 1997, and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows for the year then ended (not presented herein), and in our report
dated May 14, 1997 (which contains an explanatory paragraph with respect to the
substantial doubt of the Company's ability to continue as a going concern) we
expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying balance sheet
information as of February 1, 1997, is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Antonio, Texas
June 16, 1996
