<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 AUGUST 1, 1998
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
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SOLO SERVE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74 - 2048057
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(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
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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 September 10, 1998,
were 3,565,812 and 679,203 shares, respectively. Affiliates of the registrant
held 2,038,595 shares of the Common Stock, and all of the shares of Preferred
Stock, outstanding on September 10, 1998.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
PAGE
<S> <C> <C>
ITEM 1. Condensed Financial Statements ................................................ 3
Balance Sheets, August 2, 1997 (unaudited),
January 31, 1998 and August 1, 1998 (unaudited)................................ 3
Statements of Operations, thirteen and twenty-six weeks ended
August 2, 1997 (unaudited) and August 1, 1998 (unaudited)...................... 4
Statements of Cash Flows, twenty-six weeks ended
August 2, 1997 (unaudited) and August 1, 1998 (unaudited)...................... 5
Notes to Condensed Financial Statements
(unaudited).................................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 9
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................................. 14
ITEM 6. Exhibits and Reports on Form 8 - K............................................. 14
Signatures..................................................................... 18
</TABLE>
2
<PAGE> 3
PART I
ITEM I. Financial Statements
SOLO SERVE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 2, JANUARY 31, AUGUST 1,
ASSETS 1997 1998 1998
------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 1,795,409 $ 1,042,357 $ 1,592,635
Inventory 13,661,082 12,030,628 13,848,344
Other current assets 1,697,564 1,412,914 1,784,394
------------ ------------ ------------
Total current assets 17,154,055 14,485,899 17,225,373
Property and equipment, net 12,354,342 11,897,807 5,379,303
Goodwill, net 230,000 -- --
------------ ------------ ------------
TOTAL ASSETS $ 29,738,397 $ 26,383,706 $ 22,604,676
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 790,259 $ 5,140,895 $ 4,705,478
Accounts payable 7,245,054 7,295,493 8,495,312
Accrued expenses 2,973,629 2,329,506 1,674,775
Current portion of capital lease obligation -- -- 293,321
------------ ------------ ------------
Total current liabilities 11,008,942 14,765,894 15,168,886
Long-term debt 17,501,487 13,340,959 10,700,000
Note payable to stockholder -- 500,000 500,000
Long term capital lease obligation, net of current portion -- -- 244,809
Deferred gain, net -- -- 107,004
Commitments and contingencies -- -- --
------------ ------------ ------------
TOTAL LIABILITIES 28,510,429 28,606,853 26,720,699
------------ ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
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
Accumulated deficit (23,224,773) (26,675,888) (28,568,764)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 1,227,968 (2,223,147) (4,116,023)
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 29,738,397 $ 26,383,706 $ 22,604,676
============ ============ ============
</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 TWENTY-SIX WEEKS ENDED
------------------------------------------------------------------
AUGUST 2, AUGUST 1, AUGUST 2, AUGUST 1,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Revenues $ 21,365,340 $ 18,503,219 $ 40,968,311 $ 35,013,126
Cost of goods sold (including buying and
distribution, excluding depreciation
shown below) 15,099,928 12,881,516 29,085,986 23,874,269
------------ ------------ ------------ ------------
Gross Profit 6,265,412 5,621,703 11,882,325 11,138,857
Selling, general, and administrative expense 5,991,440 6,470,274 12,733,145 11,585,748
Store closure expense (208,000) 62,086 399,000 18,239
Depreciation expense 461,953 250,242 942,277 580,790
Amortization expense 30,000 -- 60,000 --
------------ ------------ ------------ ------------
Operating loss (9,981) (1,160,899) (2,252,097) (1,045,920)
Interest expense 463,731 418,369 853,657 846,956
------------ ------------ ------------ ------------
Net income (loss) $ (473,712) $ (1,579,268) $ (3,105,754) $ (1,892,876)
============ ============ ============ ============
Loss per Common Share, basic and diluted $ (.17) $ (.44) $ (1.09) $ (.56)
============ ============ ============ ============
Weighted average common shares outstanding 2,856,126 3,565,812 2,856,126 3,390,340
============ ============ ============ ============
</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>
TWENTY-SIX WEEKS
ENDED
AUGUST 2, 1997 AUGUST 1, 1998
--------------------------------
<S> <C> <C>
NET LOSS $ (3,105,754) $ (1,892,876)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH FROM OPERATIONS:
Depreciation 942,277 580,790
Amortization of intangibles 60,000 --
Loss on retirement of property 1,141 15,648
Accretion of deferred gain -- (3,689)
Changes in assets and liabilities:
(Increase) decrease in inventory (2,553,144) (1,817,716)
(Increase) decrease in other current assets (709,094) (371,480)
Increase (decrease) in accounts payable 3,261,155 1,199,819
Increase (decrease) in accrued expenses 634,013 (654,731)
------------ ------------
Total adjustments 1,636,348 (1,051,359)
------------ ------------
Net cash provided by (used in ) operations (1,469,406) (2,944,235)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property & equipment (361,293) (614,003)
------------ ------------
Net cash provided by (used in ) investing activities (361,293) (1,238,600)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long term debt 44,866,660 40,572,489
Payments under long term debt (42,306,116) (37,952,474)
Payments under capital lease -- 86,467
Proceeds from sale of Distribution and Corporate Offices -- 1,574,968
------------ ------------
Net cash provided by (used in) financing activities 2,560,544 4,733,113
------------ ------------
NET INCREASE (DECREASE) IN CASH 729,845 550,278
CASH AT BEGINNING OF YEAR 1,065,564 1,042,357
------------ ------------
CASH AT END OF PERIOD $ 1,795,409 $ 1,592,635
============ ============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 815,796 $ 752,926
SUPPLEMENTARY NON-CASH FINANCING ACTIVITIES:
Buyer's assumption of mortgage notes $ -- $ 5,696,391
Deferred gain $ -- $ 110,693
Incurrance of capital lease $ -- $ 624,597
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SOLO SERVE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1:
The financial statements as of August 2, 1997 and August 1, 1998, and for the
thirteen and twenty-six week periods ended August 2, 1997 and August 1, 1998 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 August 1, 1998, 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 and twenty-six week
periods are not necessarily indicative of the operating results for a full year
or of future operations. These unaudited condensed financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998.
NOTE 2:
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. Promotional activities by
other retailers as well as the opening of additional store locations in the
Company's principal markets have resulted in significant sales decreases. The
Company has maintained inventory at planned levels; however, the Company has
experienced and continues to experience an unstable credit environment,
principally with third party factors, which has resulted in constraints on the
Company's ability to receive certain merchandise at optimum times and in optimum
quantities and in management's opinion has contributed to the Company's sales
declines. 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.
In response to these conditions, management restructured its lending
arrangements, opened stores in markets smaller than it has traditionally served,
and sold and leased back its distribution center and corporate offices and three
store locations. The Company is considering other alternatives designed to
enhance liquidity, including additional debt or equity financings, and other
strategic alternatives.
NOTE 3:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AUGUST 2, JANUARY 31, AUGUST 1,
1998 1997 1998
-------------------------------------------
<S> <C> <C> <C>
Notes payable to bank, interest at prime plus 1/2%
(9.0% at August 1, 1998) secured by properties $ 4,970,827 $ 4,808,716 $ 4,636,084
Note payable to insurance company, interest at 8%; secured
by equipment and properties 466,937 272,127 69,394
Mortgage notes payable to insurance companies, interest at
9.5%; secured by the distribution center 5,733,982 5,706,011 --
Revolving credit facility, interest at prime plus 1%
(9.5% at August 1, 1998); secured primarily by inventory 7,120,000 7,695,000 10,700,000
----------- ----------- -----------
18,291,746 18,481,854 15,405,478
Less current portion 790,259 5,140,895 4,705,478
----------- ----------- -----------
Long-term portion $17,501,487 $13,340,959 $10,700,000
=========== =========== ===========
</TABLE>
6
<PAGE> 7
The Company had a term note payable to Chase Bank - Texas ("Chase") due in equal
monthly payments of principal and interest of $64,117 until January 1999, when
the remaining principal balance of $4.5 million was due. The Chase note was
secured by the Company's three owned store locations. These properties were sold
on August 28, 1998 and each property was leased back for a primary term of ten
years. The Company was released from any future liability on this indebtedness
and netted $1.2 million after selling costs. The transaction resulted in a gain
of approximately $3.2 million, which has been deferred and will be amortized
over the term of the leases.
The Company also has a note payable to MetLife Capital Corporation (the "MetLife
Note"), which is secured by various equipment and fixtures located at the
corporate office and certain stores. The MetLife Note requires equal monthly
payments, including principal and interest, of $35,044 until September 1998.
The Company also had two mortgage notes payable, with identical terms (the
"Mortgage Notes"), each of which was secured by the Company's corporate office
and distribution center in San Antonio, Texas. The Mortgage Notes required
aggregate monthly payments of principal and interest of $49,773 until December
2002, when the remaining aggregate principal balance of $5.4 million was due. On
April 6, 1998, the Company sold and leased back the distribution center and
corporate office. The buyer, in turn, assumed the outstanding Mortgage Notes,
which released the Company from any future liability on this indebtedness. The
transaction resulted in a gain of $110,693, which has been deferred and will be
amortized over the term of the lease.
The Company has a $12 million revolving credit facility with Sanwa Business
Credit Corporation ("Sanwa"). The loan matures October 2, 2000. Principal will
be due at maturity and interest only is due and payable in monthly installments.
Under the loan agreement, the advance rate under the Sanwa credit facility is in
an amount equal to 70% of the Company's eligible inventory during the period May
1 through December 10 of each year and 65% of eligible inventory at all other
times. In addition to advances made based upon the percentage of eligible
inventory, Sanwa made available an additional $750 thousand upon receipt of a
letter of credit in such amount from General Atlantic Corporation ("GAC"), one
of the Company's principal stockholders. In consideration for GAC's providing
the $750 thousand standby letter of credit to Sanwa, the Company granted GAC a
second lien security interest (subordinated to Sanwa) on the assets of the
Company pledged to Sanwa. Covenants under the loan agreement require the Company
to maintain certain financial ratios.
On March 17, 1998, the Company amended its loan agreement with Sanwa. The
amendment waives compliance with the financial covenants at January 31, 1998,
eliminates the Company's minimum net worth covenant entirely, and revises the
interest coverage ratios for 1998. If the Company fails to meet the revised
interest coverage ratio, the entire balance due under the loan agreement would
be reclassified as a current liability. The amendment also increases the advance
rate on the Company's eligible inventory from 65% to 70% from the date of the
amendment through December 10, 1998 and provides an additional $600 thousand
available to borrow based upon a new $600 thousand letter of credit in favor of
Sanwa provided by GAC. The new $600 thousand letter of credit, which is due to
expire on November 30, 1998, is in addition to the previously discussed $750
thousand letter of credit provided by GAC, which is anticipated to terminate
December 31, 1998. The letters of credit are secured by a second lien on
substantially all of the assets of the Company other than real estate.
On July 14, 1998, the Company further amended its loan agreement with Sanwa. The
amendment waives compliance with the financial covenants until the end of fiscal
1998 (January 1999) and revises the interest coverage ratios for 1998 and 1999.
NOTE 4:
Capital lease obligation:
The Company has noncancelable lease agreements involving equipment with total
costs of approximately $639,000. This lease has been classified as a capital
lease, and the equipment under the capital lease is amortized over the life of
the asset. Amortization of the equipment is included in depreciation expense.
7
<PAGE> 8
The future minimum lease commitments as of August 1, 1998 are as follows:
Year ending:
January 30, 1999 $ 172,934
January 29, 2000 345,868
January 28, 2001 86,467
-----------
Total minimum lease payments 605,269
Less amount representing interest 67,139
-----------
538,130
Less current portion capital lease
obligation 293,321
-----------
Long term capital lease obligation $ 244,809
===========
8
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NUMBER OF STORES
FISCAL 1997 FISCAL 1998
----------- -----------
<S> <C> <C>
Beginning of year 28 27
Closed in second quarter (3) (1)
Opened in second quarter 1 2
=========== ===========
END OF SECOND QUARTER 26 28
=========== ===========
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data of the Company expressed
as a percentage of net revenues for the thirteen and twenty-six weeks ended
August 2, 1997 and August 1, 1998.
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
AUGUST 2, 1997 AUGUST 1, 1998 AUGUST 2, 1997 AUGUST 1, 1998
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, including buying and
distribution costs 70.7 69.6 71.0 68.2
----- ----- ----- -----
Gross Profit 29.3 30.4 29.0 31.8
Selling, general and administrative expense 28.0 35.0 31.0 33.1
Store closure expense (1.0) 0.3 1.0 --
Depreciation expense 2.2 1.4 2.3 1.7
Amortization expense 0.2 -- 0.2 --
----- ----- ----- -----
Operating income (loss) (0.0) (6.3) (5.5) (3.0)
Interest expense 2.2 2.2 2.1 2.4
===== ===== ===== =====
Net income (loss) (2.2)% (8.5) (7.6)% (5.4)%
===== ===== ===== =====
</TABLE>
9
<PAGE> 10
THIRTEEN WEEKS (SECOND QUARTER) AND TWENTY-SIX WEEKS (YEAR-TO-DATE) ENDED
AUGUST 1, 1998 VERSUS THIRTEEN WEEKS AND TWENTY-SIX WEEKS ENDED AUGUST 2, 1997
Recent Developments
In June 1998, the Company signed a lease for a new store in Del Rio, Texas,
which it opened in early August 1998 and in August 1998 signed a lease for a new
store in Athens, Texas, which it plans to open in October 1998. Early results of
the Del Rio store are encouraging. The Company's Del Rio store suffered no
material damage or interruption in business due to the August floods along the
Rio Grande river. These new stores continue the Company's expansion into smaller
markets, where the Company faces less direct competition from larger off-price
retailers, traditional department and specialty stores and can operate under a
lower occupancy expense structure than that generally experienced in stores
located in metropolitan areas.
During 1997 the Company had piloted a new point of sale ("POS") cash register
system at three stores. In July 1998, the Company signed a lease for the new POS
cash registers, which it is installing in all of its remaining stores. (See Note
4 to Financial Statements.) The new system speeds customer check-out, improves
customer service, enhances reporting capabilities, and is certified by
manufacturers to be Year 2000 compliant.
The Company's three owned store locations were sold on August 28, 1998 and each
property was leased back for a primary term of ten years. The Company was
released from any future liability on this indebtedness and netted $1.2 million
after selling costs. The transaction resulted in a gain of $3.2 million, which
has been deferred and will be amortized over the term of the leases.
Results of Operations
The Company's net revenues for the second quarter and year-to-date period ended
August 1, 1998 were $18.5 million and $35.0 million, respectively, as compared
to $21.4 million and $41.0 million in the prior year. The majority of the sales
decrease is attributable to the loss of sales from stores closed during 1997 not
being fully offset by the sales generated at new stores. Revenue decreased due
to closed stores by $3.0 million and $4.9 million for the second quarter and
year to date period ended August 1, 1998, respectively. Closed stores sales in
1997 were above normal level due to liquidation efforts. Revenues from new
stores were $1.4 million and $2.0 million for the same periods, resulting in net
decreases of $1.6 million and $2.9 million, respectively. Comparable store sales
decreased in the second quarter and year-to-date by 6.5% and 8.1%, respectively.
Gross profit rates increased by 1.1 percentage points (a 3.8% increase) for the
second quarter as compared to 1997, and by 1.8 percentage points (a 6.2%
increase) for the year to date as compared to 1997. Gross profit for the second
quarter of 1998 decreased by $700,000 to $5.6 million from $6.3 million in the
second quarter of the prior year. Gross profit for the first half of 1998
decreased $800,000 to $11.1 million from $11.9 million during the comparable
period of the prior year. The decreased gross profit during the first half of
1997 resulted principally from the decline in sales during the period not being
fully offset by the increase in gross profit rates. Management continues to
emphasize better margins, while seeking to reduce the sales declines.
For the second quarter of fiscal 1998, selling, general and administrative
expenses increased $500,000 to $6.5 million from $6.0 million in 1997. For the
first half of fiscal 1998, selling, general and administrative expenses
decreased $1.1 million to $11.6 million from $12.7 million in 1996. These
reductions in expenses are due primarily to a decrease in store rent expense
because of lower rent at new stores than at closed stores, decrease in
advertising and promotional expense, and a decrease in human resource expenses
as a result of reductions in staff levels from fiscal 1997.
Depreciation and amortization in the second quarter of 1998 decreased 49% to
$250,000 from $492,000 for the same period in 1997. Depreciation and
amortization for the twenty-six weeks ended August 1, 1998 decreased 42% to
$580,000 from $1.0 million during the comparable period in 1997. This is
primarily due to certain assets becoming fully depreciated in 1997, the write
off of good will in 1997, and the sale/lease back of the Distribution Center and
Corporate Headquarters in 1998.
The Company recorded net interest expense for the second quarter of 1998 of
approximately $418,000 as compared to $464,000 during the second quarter of
1997. The decrease was primarily the result of the payoff of the loan and
infusion of cash that resulted from the sale/lease back of the Distribution
Center and Corporate Headquarters.
10
<PAGE> 11
The Company recorded net losses of $1.6 million and $1.9 million for the
thirteen and twenty-six weeks ended August 1, 1998, respectively. This is
compared to net losses of $474,000 and $3.1 million for the thirteen and
twenty-six weeks ended August 2, 1997. The improvement in year to date net loss
is primarily due to improved gross margins, and reductions in expenses as
discussed above.
Impact of Year 2000
An issue affecting most businesses today, including the Company, is whether
computer systems and applications will properly function from and after the year
2000 (the "Year 2000 Issue"). The Year 2000 Issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any information system that uses dates to function may
recognize a date using "00" as the year 1900 rather than the year 2000 or may
otherwise fail to process information accurately due to the Year 2000 Issue,
which could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions or engage in normal business activities. The Company is in the
process of reviewing potential system problems related to the Year 2000 Issue,
and management believes that the Company will modify or replace significant
portions of its hardware and software to address the Year 2000 Issue. Management
believes the recent lease/purchase of new cash registers for all of the stores
(see Note 4 to financial statements) is a significant step in addressing some of
the Company's potential Year 2000 problems, and is probably the most costly part
of its plan. The Company is not yet able to estimate the additional cost of its
compliance efforts with respect to the Year 2000 Issue. Although no assurances
can be made, management presently does not expect such costs to have a material
adverse effect on the future results of operations of the Company.
The Company is contacting its significant suppliers to determine the extent to
which the Company's interface systems are vulnerable to those third parties'
failure to remediate their own Year 2000 Issues. However, there can be no
guarantee that the systems of the other companies on which the Company's systems
rely will be timely converted, or that the failure of such third party systems
to adequately address the Year 2000 Issue would not have an adverse effect on
the Company's ability to do business.
The Company will utilize both internal and external resources to reprogram,
upgrade and test its information systems Year 2000 Issue modifications. The
Company currently anticipates completing the Year 2000 Issue project not later
than February 28, 1999, which is prior to any anticipated impact on its
operating systems.
Management presently believes that with modifications to and replacement of
existing software and hardware, the Year 2000 Issue will not pose significant
operational problems for its information systems. If remediation efforts are not
timely made, if appropriate modifications are not made by the Company's
suppliers on a timely basis, or if the actual costs of the remediation efforts
exceed management's expectations, the Year 2000 Issue could have a material
adverse impact on the operations and financial results of the Company.
11
<PAGE> 12
Liquidity and Capital Resources
Cash used by operating activities in the first half of fiscal 1998 was $2.9
million. This was primarily the result of the net loss ($1.9 million), increases
in inventories ($1.8 million) and other current assets ($371 thousand), and a
decrease in accrued expense ($655 thousand), net of an increase in accounts
payable ($1.2 million). Capital expenditures were $1.2 million, consisting
primarily of setting up new stores and the capital lease/purchase of a new POS
cash register system ($625 thousand).
On April 6, 1998, the Company sold and leased back its distribution center and
corporate offices. Net proceeds from the sale were approximately $1 million, and
the buyer assumed the mortgage note (approximately $5.7 million), relieving the
Company of that indebtedness.
The Company had a term note payable to Chase Bank -Texas ("Chase") due in equal
monthly payments of principal and interest of $64,117 until January 1999, when
the remaining principal balance of $4.5 million was due. The Chase note was
secured by the Company's three owned store locations. These properties were sold
on August 28, 1998 and each property was leased back for a primary term of ten
years. The Company was released from any future liability on this indebtedness
and netted $1.2 million after selling costs. The transaction resulted in a gain
of $3.2 million, which has been deferred and will be amortized over the term of
the leases.
The Company also has a note payable to MetLife Capital Corporation (the "MetLife
Note"), which is secured by various equipment and fixtures located at the
corporate office and certain stores. The MetLife Note requires equal monthly
payments, including principal and interest, of $35,044 until September 1998.
The Company has a $12 million revolving credit facility with Sanwa Business
Credit Corporation ("Sanwa"). The loan matures October 2, 2000. Principal will
be due at maturity and interest only is due and payable in monthly installments.
Under the loan agreement, the advance rate under the Sanwa credit facility is in
an amount equal to 70% of the Company's eligible inventory during the period May
1 through December 10 of each year and 65% of eligible inventory at all other
times. In addition to advances made based upon the percentage of eligible
inventory, Sanwa made available an additional $750 thousand upon receipt of a
letter of credit in such amount from General Atlantic Corporation ("GAC"), one
of the Company's principal stockholders. In consideration for GAC's providing
the $750 thousand standby letter of credit to Sanwa, the Company granted GAC a
second lien security interest (subordinated to Sanwa) on the assets of the
Company pledged to Sanwa. Covenants under the loan agreement require the Company
to maintain certain financial ratios.
On March 17, 1998, the Company amended its loan agreement with Sanwa. The
amendment waives compliance with the financial covenants at January 31, 1998,
eliminates the Company's minimum net worth covenant entirely, and revises the
interest coverage ratios for 1998. If the Company fails to meet the revised
interest coverage ratio, the entire balance due under the loan agreement would
be reclassified as a current liability. The amendment also increases the advance
rate on the Company's eligible inventory from 65% to 70% from the date of the
amendment through December 10, 1998 and provides an additional $600 thousand
available to borrow based upon a new $600 thousand letter of credit in favor of
Sanwa provided by GAC. The new $600 thousand letter of credit, which is due to
expire November 30, 1998, is in addition to the previously discussed $750
thousand letter of credit provided by GAC, which is anticipated to terminate
December 31, 1998. The letters of credit are secured by a second lien on
substantially all of the assets of the Company other than real estate.
On July 14, 1998, the Company further amended its loan agreement with Sanwa. The
amendment waives compliance with the financial covenants until the end of fiscal
1998 (January 1999) and revises the interest coverage ratios for 1998 and 1999.
During the second quarter of 1998, 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.
Promotional activities by other retailers as well as the opening of additional
store locations in the Company's principal markets have resulted in significant
sales decreases. The Company has maintained inventory at planned levels;
however, the Company has experienced and continues to experience an unstable
credit environment, principally with third party factors, which, in management's
opinion, has resulted in constraints on the Company's ability to receive certain
merchandise at optimum times and in optimum quantities and contributed to the
Company's sales declines. 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
12
<PAGE> 13
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.
In response to these conditions, management restructured its lending
arrangements, opened stores in markets smaller than it has traditionally served,
sold and leased back its distribution center and corporate offices and three
store locations. The Company is considering other alternatives designed to
enhance liquidity, including additional debt or equity financings, and other
strategic alternatives.
13
<PAGE> 14
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:
Exhibit
Number Description of Exhibit
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 1-for-2 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 Subscription Agreement between the Company and General Atlantic
Corporation (7)
10.10 Solo Serve Corporation 1995 Stock Incentive Plan (8) +
10.11 Solo Serve Corporation Director Stock Option Plan (8) +
10.12 First Amendment to Solo Serve Corporation Director Stock Option Plan
(20)+
10.13 Loan and Security Agreement, dated as of June 20, 1995, by and
between Solo Serve Corporation and Congress Financial Corporation
(Southwest) (7)
10.14 Amended Loan and Security Agreement, dated July 18, 1995, by and
between Solo Serve Corporation and MetLife Capital Corporation (8)
10.15 Loan Modification Agreement, dated July 18, 1995, by and among Solo
Serve Corporation, Nationwide Life Insurance Company, and Employers
Life Insurance Company (8)
10.16 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)
10.17 Loan Modification Agreement, dated October 27, 1995, by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) (9)
10.18 Consulting Services Agreement between the Company and Robert J.
Grimm (10) +
10.19 Second Amendment to Loan and Security Agreement, dated January 31,
1996, by and between Solo Serve Corporation and Congress Financial
Corporation (Southwest) (11)
10.20 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)
10.21 Amendment No. 3 to Loan and Security Agreement by and between Solo
Serve Corporation
14
<PAGE> 15
and Congress Financial Corporation (Southwest) dated June 26, 1996
(12)
10.22 Letter of Credit and Security Agreement between Solo Serve
Corporation and General Atlantic Corporation dated as of June 26,
1996 (12)
10.23 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)
10.24 Consulting Agreement between the Company and Charles Siegel (13) +
10.25 Employment Agreement between the Company and Charles Siegel (13) +
10.26 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)
10.27 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)
10.28 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)
10.29 Letter Agreement dated July 8, 1996 by and between the Company and
Ross E. Bacon (14)+
10.30 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)
10.31 Agency Agreement by and between Solo Serve Corporation and
Hilco/Great American Group dated May 7, 1997, as amended together
with related agreements (15)
10.32 Amendment No. 7 to Loan and Security Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated June 16, 1997 (15)
10.33 Standby Guarantee and Indemnification Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated June 16, 1997 (15)
10.34 Commitment Letter of Sanwa Business Credit Corporation dated
September 5, 1997 (16)
10.35 Letter of Price Waterhouse LLP dated September 18, 1997 (17)
10.36 Loan and Security Agreement by and between the Company and Sanwa
Business Credit Corporation (18)
10.37 Employment Agreement by and between the Company and Charles M.
Siegel (18)+
10.38 Subordinated Promissory Note of the Company to Charles Siegel in
Principal Amount of $400,000 (18)
10.39 Subordinated Promissory Note of the Company to The Siegel Family
Trust in Principal Amount of $100,000 (18)
10.40 Letter of Credit and Security Agreement by and between the Company
and General Atlantic Corporation (18)
10.41 Subordination and Intercreditor Agreement by and among the Company,
Sanwa Business Credit Corporation, and General Atlantic Corporation
(18)
10.42 Subordination and Intercreditor Agreement by and among the Company,
Sanwa Business Credit Corporation, Charles M. Siegel, and The Siegel
Family Trust (18)
10.43 First Amendment to Loan and Security Agreement by and between the
Company and Sanwa Business Credit Corporation (19)
10.44 Amended and Restated Letter of Credit and Security Agreement by and
between the Company and General Atlantic Corporation (19)
10.45 Stockholder Agreement (19)
10.46 Employment Agreement between the Company and Ross Bacon (19)+
10.47 Employment Agreement between the Company and Mark Blankenship (19)+
10.48 Employment Agreement between the Company and Terry Lalosh (19)+
10.49 Lease Agreement between the Company and Koontz/McCombs 1, Ltd.(20)
10.50 Earnest Money Contract between the Company and Koontz/McCombs, LLC,
as amended (21)
10.51 Escrow and Security Agreement by and among the Company, Nationwide
Life Insurance Company, Employers Life Insurance Company of Wasuau,
Koontz/McCombs 1, Ltd. and Holliday Fenoglio Fowler, L.P. (20)
10.52 Assumption Agreement by and among the Company, Nationwide Life
Insurance Company, Employers Life Insurance Company of Wasuau,
Koontz/McCombs 1, Ltd., Koontz/McCombs, LLC and Bart C. Koontz (20)
15
<PAGE> 16
10.53 Second Amendment to Solo Serve Corporation Director Stock Option
Plan (21)+
10.54 Contract for Purchase and Sale by and between the Company and
Goldstar Investments, Ltd., as amended *
10.55 Second Amendment to Loan and Security Agreement by and between the
Company and Sanwa Business Credit Corporation *
27 Financial Data Schedule *
- --------------
* 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.
(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.
(15) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
May 3, 1997.
(16) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
August 2, 1997.
(17) Incorporated by reference to the Exhibits filed on the
Company's Current Report on Form 8-K for September 18, 1997.
(18) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for October 2, 1997.
(19) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for March 17, 1998.
(20) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
January 31, 1998.
(21) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
May 2, 1998.
16
<PAGE> 17
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
period covered by this report.
17
<PAGE> 18
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
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
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 1-for-2 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 Subscription Agreement between the Company and General Atlantic
Corporation (7)
10.10 Solo Serve Corporation 1995 Stock Incentive Plan (8) +
10.11 Solo Serve Corporation Director Stock Option Plan (8) +
10.12 First Amendment to Solo Serve Corporation Director Stock Option Plan
(20)+
10.13 Loan and Security Agreement, dated as of June 20, 1995, by and
between Solo Serve Corporation and Congress Financial Corporation
(Southwest) (7)
10.14 Amended Loan and Security Agreement, dated July 18, 1995, by and
between Solo Serve Corporation and MetLife Capital Corporation (8)
10.15 Loan Modification Agreement, dated July 18, 1995, by and among Solo
Serve Corporation, Nationwide Life Insurance Company, and Employers
Life Insurance Company (8)
10.16 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)
10.17 Loan Modification Agreement, dated October 27, 1995, by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) (9)
10.18 Consulting Services Agreement between the Company and Robert J.
Grimm (10) +
10.19 Second Amendment to Loan and Security Agreement, dated January 31,
1996, by and between Solo Serve Corporation and Congress Financial
Corporation (Southwest) (11)
10.20 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)
10.21 Amendment No. 3 to Loan and Security Agreement by and between Solo
Serve Corporation
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
and Congress Financial Corporation (Southwest) dated June 26, 1996
(12)
10.22 Letter of Credit and Security Agreement between Solo Serve
Corporation and General Atlantic Corporation dated as of June 26,
1996 (12)
10.23 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)
10.24 Consulting Agreement between the Company and Charles Siegel (13) +
10.25 Employment Agreement between the Company and Charles Siegel (13) +
10.26 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)
10.27 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)
10.28 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)
10.29 Letter Agreement dated July 8, 1996 by and between the Company and
Ross E. Bacon (14)+
10.30 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)
10.31 Agency Agreement by and between Solo Serve Corporation and
Hilco/Great American Group dated May 7, 1997, as amended together
with related agreements (15)
10.32 Amendment No. 7 to Loan and Security Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated June 16, 1997 (15)
10.33 Standby Guarantee and Indemnification Agreement by and between Solo
Serve Corporation and Congress Financial Corporation (Southwest)
dated June 16, 1997 (15)
10.34 Commitment Letter of Sanwa Business Credit Corporation dated
September 5, 1997 (16)
10.35 Letter of Price Waterhouse LLP dated September 18, 1997 (17)
10.36 Loan and Security Agreement by and between the Company and Sanwa
Business Credit Corporation (18)
10.37 Employment Agreement by and between the Company and Charles M.
Siegel (18)+
10.38 Subordinated Promissory Note of the Company to Charles Siegel in
Principal Amount of $400,000 (18)
10.39 Subordinated Promissory Note of the Company to The Siegel Family
Trust in Principal Amount of $100,000 (18)
10.40 Letter of Credit and Security Agreement by and between the Company
and General Atlantic Corporation (18)
10.41 Subordination and Intercreditor Agreement by and among the Company,
Sanwa Business Credit Corporation, and General Atlantic Corporation
(18)
10.42 Subordination and Intercreditor Agreement by and among the Company,
Sanwa Business Credit Corporation, Charles M. Siegel, and The Siegel
Family Trust (18)
10.43 First Amendment to Loan and Security Agreement by and between the
Company and Sanwa Business Credit Corporation (19)
10.44 Amended and Restated Letter of Credit and Security Agreement by and
between the Company and General Atlantic Corporation (19)
10.45 Stockholder Agreement (19)
10.46 Employment Agreement between the Company and Ross Bacon (19)+
10.47 Employment Agreement between the Company and Mark Blankenship (19)+
10.48 Employment Agreement between the Company and Terry Lalosh (19)+
10.49 Lease Agreement between the Company and Koontz/McCombs 1, Ltd.(20)
10.50 Earnest Money Contract between the Company and Koontz/McCombs, LLC,
as amended (21)
10.51 Escrow and Security Agreement by and among the Company, Nationwide
Life Insurance Company, Employers Life Insurance Company of Wasuau,
Koontz/McCombs 1, Ltd. and Holliday Fenoglio Fowler, L.P. (20)
10.52 Assumption Agreement by and among the Company, Nationwide Life
Insurance Company, Employers Life Insurance Company of Wasuau,
Koontz/McCombs 1, Ltd., Koontz/McCombs, LLC and Bart C. Koontz (20)
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
10.53 Second Amendment to Solo Serve Corporation Director Stock Option
Plan (21)+
10.54 Contract for Purchase and Sale by and between the Company and
Goldstar Investments, Ltd.; as amended *
10.55 Second Amendment to Loan and Security Agreement by and between the
Company and Sanwa Business Credit Corporation *
27 Financial Data Schedule *
</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.
(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.
(15) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
May 3, 1997.
(16) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
August 2, 1997.
(17) Incorporated by reference to the Exhibits filed on the
Company's Current Report on Form 8-K for September 18, 1997.
(18) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for October 2, 1997.
(19) Incorporated by reference to the Exhibits filed to the
Company's Current Report on Form 8-K for March 17, 1998.
(20) Incorporated by reference to the Exhibits filed to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
January 31, 1998.
(21) Incorporated by reference to the Exhibits filed to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
May 2, 1998.
<PAGE> 1
CONTRACT FOR PURCHASE AND SALE
THIS CONTRACT FOR PURCHASE AND SALE (the "Contract") is made and
entered into by and between SOLO SERVE CORPORATION, a Delaware corporation (the
"Seller") and GOLDSTAR INVESTMENTS, LTD., a Texas limited partnership (the
"Purchaser").
ARTICLE 1
Sale and Purchase
Section 1.1 The Project. Subject to the terms and provisions hereof,
the Seller agrees to sell to the Purchaser, and the Purchaser agrees to purchase
from the Seller:
(a) Those three (3) certain tracts of real property more
particularly described on Exhibit "A" attached hereto and made a part
hereof as Tract 1, containing approximately 4.29 acres ("San Pedro
Tract"); Tract 2 containing approximately .783 acres ("River Tract");
and Tract 3, containing approximately 4.153 acres ("S.W. Military
Tract"), (collectively, the "Land") together with (i) all and singular
the rights, easements and appurtenances pertaining thereto, (ii) all
right, title and interest of the Seller in and to any and all roads,
easements, alleys, streets and rights-of-way bounding the Land,
together with all rights of ingress and egress unto the Land, (iii)
strips or gores, if any, between the Land and abutting properties, and
(iv) any and all oil, gas and minerals lying under, in, on or about or
constituting a part of the Land, and regardless of whether or not the
minerals are considered part of the surface estate or part of the
mineral estate;
(b) That certain retail building containing approximately
56,902 gross square feet situated on the San Pedro Tract, that certain
retail building containing approximately 55,701 gross square feet
situated on the River Tract, and that certain retail building
containing approximately 37,500 gross square feet situated on the S.W.
Military Tract, together with all accessions and additions thereto and
including, but not by way of limitation, all other buildings,
structures, fixtures, paving, and other improvements of every kind and
nature presently situated on, in or under or hereafter erected,
installed or used in, on or about the Land (the "Improvements");
(c) All of the fixtures, fittings, apparatus, equipment,
machinery, and other items of tangible and intangible personal property
and replacements thereto, if any, whether affixed or attached or
located within or used in connection with the ownership, operation,
maintenance or management of the Improvements (collectively, "Fixtures
and Operational Equipment"), including, but not limited to, all
mechanical systems, security systems, sprinkler and fire control
systems and HVAC apparatus and equipment, utilities, rights and
permits, water rights, development rights, utility or drainage
capacity, roadway trip capacity, plats, plans and specifications,
expressly excluding, however, Seller's trade fixtures, furniture,
equipment, machinery, point of sales systems, computers, telephone
system, fax machines, inventory, and other tangible and intangible
personal property used by Seller in connection with the operation of
the business in the Improvements.
The Land, Improvements, and Fixtures and Operational Equipment are sometimes
hereinafter referred to collectively as the "Project").
Section 1.2 Effective Date. The "Effective Date" of this Contract shall
be the date the Title Company acknowledges its receipt of a fully executed
version of this Contract and its agreement to be bound by the provisions hereof.
<PAGE> 2
ARTICLE 2
Purchase Price
Section 2.1 Amount. The Purchase Price (herein so called) for the
Project is and shall be the sum of SIX MILLION FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($6,500,000.00) which shall be due and payable by Purchaser to Seller in
cash at the Closing (hereinafter defined).
Section 2.2 Independent Contract Consideration. Contemporaneously with
the execution of this Contract, Purchaser hereby delivers to Seller and Seller
hereby acknowledges the receipt of, a check in the amount of Fifty and No/100
Dollars ($50.00) ("Independent Contract Consideration"), which amount the
parties bargained for and agreed to as consideration for the Seller's grant to
Purchaser of Purchaser's exclusive right to purchase the Project pursuant to the
terms hereof and for Seller's execution, delivery and performance of this
Contract. This Independent Contract Consideration is in addition to and
independent of any other consideration or payment provided in this Contract, is
nonrefundable under any circumstances, and shall be retained by Seller
notwithstanding any other provisions of this Contract.
ARTICLE 3
Earnest Money
Section 3.1 Deposit. Within two (2) business days after the final
execution of this Contract by all parties hereto, the Purchaser shall deliver
its check in the amount of THIRTY THOUSAND AND NO/100 DOLLARS ($30,000.00) (the
"Earnest Money") to Alamo Title Insurance Company at 950 E. Basse Road, San
Antonio, Texas 78209; Attn: David McAllister (the "Title Company"). In the event
this Contract is not closed, then the Title Company shall disburse the Earnest
Money in the manner provided for elsewhere herein. The Title Company shall
invest the Earnest Money in an interest bearing account. All interest or other
earnings on the Earnest Money shall become a part thereof.
Section 3.2 Release of Earnest Money. It is expressly agreed by Seller
and Purchaser that, in the event the Title Company should receive written notice
from Purchaser or Purchaser's agent prior to the expiration of the Inspection
Period (hereinafter defined) stating that Purchaser elects to terminate this
Contract, then, and in such event, Title Company shall be authorized, and is
hereby instructed, to release the Earnest Money to Purchaser without further
inquiry whatsoever. Each of Seller and Purchaser hereby indemnify and hold
harmless Title Company for any loss, damage, claim, cause of action or injury
Title Company may suffer or incur in releasing the Earnest Money pursuant to
this Section 3.2.
Section 3.3 Title Company Bound. The Title Company must sign this
Contract as evidence that the Title Company agrees to be bound by the
obligations contained herein with respect to the Earnest Money.
2
<PAGE> 3
ARTICLE 4
Survey and Title Matters
Section 4.1 Survey. Within fifteen (15) days from the Effective Date,
at the Seller's sole cost and expense, the Seller shall cause an "as-built"
survey (herein the "Survey") to be made of the Project, dated or updated to a
date subsequent to the date hereof, by a licensed surveyor or Registered
Professional Engineer acceptable to Purchaser and the Title Company in each of
their reasonable discretions and shall furnish the Purchaser and Purchaser's
counsel with two (2) copies each of the field notes and survey plat prepared by
such surveyor or engineer. A copy of such field notes and survey plat shall also
be furnished to the Title Company by the Seller. The Survey shall be sufficient
to permit the Title Company to modify the standard printed exception in the
Owner's Policy of Title Insurance pertaining to discrepancies, conflicts,
shortages in area or boundary lines, encroachments, overlapping of improvements
or similar matters (herein called the "Survey Exception"). The Survey shall
contain a surveyor's certification in the form attached hereto as Exhibit "B"
and made a part hereof for all purposes. Without limiting the foregoing, the
survey plats furnished to the Purchaser shall indicate the following:
(a) That the corners of the Land have been properly monumented
and the point of beginning designated;
(b) The perimeter boundaries of the Land;
(c) The location of all improvements located, encroaching or
protruding on the Land, including, without limitation, the
Improvements;
(d) The location of all easements within or traversing the
Land, if any, together with identification thereof by recording
information;
(e) The location of all roadways, traversing, adjoining or
bounding the Land and the owners of all tracts bounding the Land;
(f) That portion of the Land and Improvements, if any,
situated within a flood hazardous or flood prone area as designated by
applicable governing authority; and
(g) The tax parcel identification numbers assigned to the
Land.
Section 4.2 UCC Searches. Within fifteen (15) days from the Effective
Date, the Purchaser, at the Purchaser's sole cost and expense, may elect to
obtain an original UCC search (both county and state) (collectively, the "UCC
Searches") in the name of Seller and copies of all financing statements
indicated by such UCC Searches to the extent relevant to the Project.
Section 4.3 Title Commitment-Review. Within fifteen (15) days from the
Effective Date, the Seller, at the Seller's sole cost and expense, shall furnish
to the Purchaser and Purchaser's counsel a current commitment (hereinafter
called the "Title Commitment") for the issuance of an Owner's Policy of Title
Insurance to the Purchaser from the Title Company, together with good legible
copies of all documents constituting exceptions to Seller's title as reflected
in the Title Commitment. Purchaser shall have a period of fifteen (15) days from
receipt of the last of the UCC Searches, Survey, Title Commitment and the
documents referred to therein as conditions or exceptions to title to the
Project in which to review such items and to deliver to Seller in writing such
objections as Purchaser may have to anything contained or set forth in the UCC
Searches, Title Commitment or Survey. Any items to which Purchaser does not
object within the fifteen (15) day review period shall be deemed to be
"Permitted Exceptions" (herein so called), provided, Purchaser shall not be
required to object to consensual liens against the Project securing indebtedness
of Seller and any such liens shall not be Permitted Exceptions. As to items to
which
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Purchaser makes objection, Seller shall use its reasonable good faith efforts to
effectuate the cure of such objections, provided Seller shall not be required to
incur costs other than (i) its administrative time and expense in effectuating
any such cure, (ii) relatively minor expenses payable to utility companies or
governmental entities pursuant to standard fee schedules for common curative
measures (e.g., easement abandonment, etc.), and (iii) amounts due and owing to
satisfy consensual financial liens or security interests existing against all or
any portion of the Project that secures indebtedness of Seller. In the event
Seller is not able to cure such matters prior to Closing, Purchaser shall have
the right to either (1) terminate this Contract and receive a full refund of the
Earnest Money or (2) waive such title matters and proceed to Closing, whereupon
such waived title matters shall also be deemed "Permitted Exceptions;" provided,
however, in the event that Purchaser fails to terminate this Contract by written
notice to Seller within the Inspection Period, Purchaser shall be deemed to have
waived its objections to such title matters.
Section 4.4 Title Policy. At Closing, the Seller shall furnish the
Purchaser, at the Seller's sole cost and expense, with an Owner's Policy of
Title Insurance issued by the Title Company on the standard form in use in the
State of Texas, on the policy of Chicago Title Insurance Company insuring good
and indefeasible title to the Project in the Purchaser, subject only to the
Permitted Exceptions and the standard printed exceptions, except:
(a) The exception relating to restrictions against the Project
shall be deleted unless restrictive covenants are included in the
Permitted Exceptions;
(b) The exception relating to discrepancies, conflicts or
shortages in area or boundary lines, or any encroachments or
protrusions or any overlapping of improvements shall be modified to
delete such exception, except as to "shortages in area", at the
election and cost of Purchaser;
(c) The exception relating to ad valorem taxes shall except
only to standby fees and taxes for the current and subsequent years and
subsequent assessments for prior years due to change in land usage or
ownership;
(d) There shall be no exception for "easements or rights which
a survey might show" or "lack of a right of access to and from the
land" or similar matters; and
(e) There shall be no exception for "rights of parties in
possession" but rather only an exception for "rights of tenants, as
tenants only, under written but unrecorded leases".
ARTICLE 5
Additional Items to be Furnished
to Purchaser by Seller
Section 5.1 Submission Items. Within twenty (20) days after the
Effective Date, Seller shall furnish to Purchaser or Purchaser shall obtain the
following:
(a) Copies of the tax statements on the Land and the
Improvements for the three (3) calendar years preceding the Effective
Date.
(b) A list of personal property, if any, to be conveyed to
Purchaser at Closing.
(c) The Certificate(s) of Occupancy for the Improvements and
any amendments thereto, and a zoning verification letter issued to
Purchaser from the City of San Antonio.
(d) An ACORD certificate of insurance summarizing the policies
covering or affecting the Project, both casualty and liability.
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(e) A phase I environmental report (the "Environmental
Report") certified to Purchaser evidencing the lack of any Hazardous
Substances (hereinafter defined) on the Project. As used herein,
"Hazardous Substances" shall mean and include, but shall not be limited
to, all substances and materials which are included under or regulated
by any local, state or federal law, rule or regulation, pertaining to
environmental regulation , contamination, clean-up or disclosure
("Applicable Environmental Laws"), including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. ss. 9601 et seq.), the Resource, Conservation and
Recovery Act (42 U.S.C. ss. 6901 et seq.), Superfund Amendments and
Reauthorization Act of 1986 (Pub. L. 99-499 100 Stat. 1613), the Toxic
Substances Control Act (15 U.S.C. ss. 2601 et seq.), the Emergency
Planning and Community Right to Know Act of 1986 (42 U.S.C. ss. 1101 et
seq.) and all amendments of the foregoing, or any state superlien or
environmental clean-up or disclosure statutes. Without limiting the
foregoing, the term Hazardous Substances shall include asbestos,
asbestos containing materials, polychlorinated biphenyls, petroleum
products and raw materials which include hazardous constituents.
(f) A report (the "Pest Report") from a licensed pest control
operator, dated after the date hereof, stating that such operator has
inspected the Project and that it is free and clear of visible evidence
of termites, dry rot, other wood destroying insects, and rodents. If
the Pest Report discloses infestation, Seller agrees to pay all costs
of eliminating such infestation and repairing any damage; provided,
however, that such costs to be paid by Seller shall not include the
costs of work to prevent future infestation.
(g) An accurate, complete true and correct schedule (herein
"Operating Schedule") reflecting, with respect to the Project for the
prior two years: (i) ad valorem taxes payable for the Project; (ii)
annual insurance premiums for such years for fire, extended coverage,
general liability, and other forms of insurance carried by Seller;
(iii) expenses incurred for such period for water, electricity, natural
gas and other utility charges; (iv) other operating expenses; (v)
expenses incurred for maintenance and repair items and a listing of any
capital improvements made to the Project for such period.
(h) To the extent available to and in the possession of
Seller, a copy of the final sets of plans and specifications for the
Project.
The items described in this Section 5.1 are hereinafter collectively referred to
as the "Submission Items". The Submission Items shall be obtained by Seller at
Seller's sole cost and expense with the exception of the Environmental Report
and Pest Report, which shall be obtained by Purchaser, with the final cost of
said reports being shared equally between Seller and Purchaser. In the event
this Contract is not closed for any reason other than a default by Purchaser,
Seller shall reimburse Purchaser for Purchaser's portion of the cost of the
Environmental Report and Pest Report, and Purchaser shall deliver to Seller such
materials.
Section 5.2 Condition to Closing.
(a) Purchaser's obligation to close the transaction
contemplated by this Contract is further expressly conditioned upon the
certifications called for in Section 5.1 being true and correct when
made.
(b) Seller's Conditions Precedent to Closing: Seller's
obligation to sell the Project to Purchaser is subject to the following
conditions precedent ("Seller's Conditions Precedent"), which shall be
satisfied or waived by written notice to Purchaser within twenty (20)
days from the effective date of this Contract or as otherwise stated
(if written notice is not given, Seller will be deemed to have
satisfied the condition precedent):
(i) Seller obtaining the consent of Sanwa Business Credit
Corporation ("SANWA"), and/or any other lender providing
working capital financing to Seller, to this transaction;
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(ii) Seller obtaining the consent of Texas Commerce
Bank National Association to the prepayment of the
indebtedness owed to it which is secured by the Project;
(iii) Seller obtaining the consent of Met Life
Capital Corporation, who holds the lien on certain of the
furniture, fixtures and equipment located in the Improvements,
to this transaction; and
(iv) Seller obtaining the approval of its Board of
Directors to this transaction and this Contract.
(c) Failure of Seller's Conditions Precedent. If any of the
Seller's Conditions Precedent have not been fulfilled within the
applicable time period, Seller may, as its sole and exclusive remedy:
(i) Waive the condition or disapproval by written
notice and proceed in accordance with this Contract; or
(ii) Terminate this Contract by written notice to
Purchaser and Title Company, and in such event, Purchaser
shall be entitled to the return of the Earnest Money and all
accrued interest thereon.
ARTICLE 6
Lease by Seller
At Closing, Seller shall lease the Project from Purchaser for purposes
of continuing a retail operation in the improvements on each of the three tracts
under the name "Solo Serve". During the Inspection Period, the parties shall in
good faith endeavor to agree upon the form of Lease Agreement (herein so called)
for the Project which will, among other provisions, provide for a ten (10) year
lease term with an increase in the base rental rate at the expiration of the
fifth (5th) year of the term. The Lease Agreement shall also provide that
repairs, replacements and maintenance, whether to the interior or the structure
of the improvements and whether ordinary or capital in nature shall be the sole
responsibility of Seller during the term of the Lease Agreement. The base rent
payable under the Lease shall be calculated based on a twelve percent (12%)
capitalization rate applied to the Purchase Price. In the event a Lease
Agreement acceptable to Seller and Purchaser has not been agreed upon prior to
the expiration of the Inspection Period, either Seller or Purchaser may
terminate this Contract based on such failure to agree at or prior to the
expiration of the Inspection Period. Upon such termination, all Earnest Money
shall be immediately returned to Purchaser.
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ARTICLE 7
Inspection and Audit
Section 7.1 Scope of Inspection. The Seller agrees that prior to
Closing, the Purchaser, personally or through independent contractors or his
authorized agents or representatives, shall be entitled to enter upon the
Project at all reasonable times and to conduct such inspections and audits
thereon as Purchaser may desire, so long as such activities do not unreasonably
interfere with the tenants in possession. Without limiting the foregoing,
Purchaser shall be allowed access to the entire Project, including, at
Purchaser's option, an opportunity to inspect any and all space currently
subject to a tenant lease, subject, however, to Seller's reasonable notice and
timing constraints so as to minimize the interference with tenants. Furthermore,
as a part of Purchaser's inspections, Purchaser shall be entitled to cause such
engineering and environmental inspections or studies to be conducted at the
Project as Purchaser may desire, including, without limitation, inspections or
studies which may require the drilling of holes in the parking lot or
non-structural components of the Improvements, the removal of small soil, carpet
or similar samples, and the conducting of air tests as Purchaser may require.
The Seller agrees to also make available to the Purchaser personally, or to his
duly authorized agents or representatives, all applicable books and records
relating to the Project and the operation and maintenance thereof. Such books
and records may be examined by Purchaser after reasonable notice to Seller at
reasonable times.
Section 7.2 Indemnity. Purchaser hereby indemnifies and holds Seller
harmless from and against any loss, damage, injury, claim or cause of action
Seller may suffer or incur as a result of Purchaser or Purchaser's contractors,
employees or agents causing any personal injuries or property damage in
connection with any of their presence on the Project or permitting or suffering
to exist any mechanic's or materialmen's liens against the Project, or any
portion thereof, by any party claiming to be performing or to have performed an
inspection or audit of, or other work on, the Project on Purchaser's behalf
during the pendency of this Contract.
Section 7.3 Inspection Period. The Purchaser shall have thirty (30)
days from the date of receipt by Purchaser of the last of the Title Commitment,
Survey and Submission Items (the "Inspection Period") within which to review all
of the Submission Items and to make any physical inspections and to conduct any
audits of the Project as may be desired by the Purchaser. IF, WITHIN THE
INSPECTION PERIOD, THE PURCHASER DETERMINES THAT PURCHASER DOES NOT DESIRE TO
CLOSE THIS CONTRACT, PURCHASER SHALL GIVE WRITTEN NOTICE OF SUCH FACT TO THE
SELLER. IN THAT EVENT, THE EARNEST MONEY SHALL BE IMMEDIATELY PAID OVER TO
SELLER BY THE TITLE COMPANY AND THIS CONTRACT SHALL IMMEDIATELY TERMINATE
WITHOUT FURTHER LIABILITY ON THE PART OF THE PURCHASER OR THE SELLER, EXCEPT FOR
ANY LIABILITY EVIDENCED BY THE INDEMNITIES DESCRIBED IN SECTION 7.2 OR SECTION
11.2 HEREOF.
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ARTICLE 8
Casualty or Condemnation Prior to Closing
Section 8.1 Casualty. In the event the Improvements or any of the
items constituting the Personal Property should be damaged by any casualty prior
to Closing, then Purchaser shall have the option to terminate this Contract
whereupon Purchaser shall immediately be provided a full refund of the Earnest
Money and neither party hereto shall owe any further obligations one to the
other hereunder, excepting only the indemnity provisions in Section 7.2 and
Section 11.2 hereof. If the Purchaser does not exercise its option to so
terminate this Contract, then the Closing shall occur as scheduled, and the
Seller shall pay to the Purchaser, at Closing, all insurance proceeds payable
for such damage, together with the amount of any deductible required by Seller's
insurance policy, and shall further assign to Purchaser any and all right of
Seller to insurance proceeds or awards not yet received from such insurance
carriers as a result of such casualty; provided, however, that in no event shall
Seller pay to Purchaser any amount or assign to Purchaser any rights to
insurance proceeds not yet received, that in the aggregate exceed the Purchase
Price. In such event, Seller shall fully cooperate with Purchaser in Purchaser's
efforts to obtain such insurance proceeds after Closing.
Section 8.2 Condemnation. In the event proceedings or actions are
commenced during the term of this Contract for the taking or condemnation of all
of the Project, or any portion of the Project which, in Purchaser's reasonable
opinion, is material to the use of the remainder, Purchaser shall have the
option to terminate this Contract upon written notice to Seller prior to
Closing, in which event the Earnest Money shall be promptly refunded by the
Title Company to Purchaser, and neither Purchaser nor Seller shall have any
further rights or obligations hereunder except with respect to the indemnities
provided in Section 7.2. and Section 11.2. If Purchaser does not exercise its
option to so terminate this Contract, then the Contract shall remain in full
force and effect and Seller shall pay to Purchaser at Closing all condemnation
proceeds then received by Seller and shall further assign to Purchaser all of
Seller's interest in and to any and all condemnation awards or proceeds from any
such proceedings or actions not yet received. In such event, Seller shall fully
cooperate with Purchaser in Purchaser's efforts to obtain such condemnation
proceeds after Closing.
ARTICLE 9
Covenants, Representations and Warranties of Seller
Section 9.1 Representations and Warranties. The Seller represents and
warrants to the Purchaser that:
(a) Seller is a corporation duly organized and in good
standing under the laws of the State of Delaware. The execution and
delivery of this Contract by the signatories hereto on behalf of Seller
and the performance of this Contract by Seller have been duly
authorized by Seller, and this Contract is binding on Seller and
enforceable against Seller in accordance with its terms.
(b) The Seller has good and indefeasible title to the Project,
subject only to matters of record in the real property records of the
county where the Land is located and those three certain sublease
agreements with a jewelry retailer occupying specific space within each
of the buildings comprising the Improvements ("Jewelry Leases").
(c) There are no parties in possession of any portion of the
Project except for Seller or Seller's agents or employees and the
tenants under the Jewelry Leases. There are no adverse parties in
possession of any portion of the Project whatsoever.
(d) There is no suit, action, legal or other proceeding
pending, or to Seller's best knowledge, threatened, which affect the
Project.
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(e) To the best of Seller's knowledge, without any duty of
investigation or inquiry, but specifically excluding the roof on the
S.W. Military Tract Improvements which requires replacement, the
Improvements and all other properties and interests constituting a part
of the Project (including, without limitation, all heating and air
conditioning equipment) are in good working order and there are no
material defects in such Improvements and interests except
inconsequential items calling for repair due to normal wear and tear.
(f) As of the Effective Date, to the best of Seller's
knowledge, without any duty of investigation or inquiry, there are no
mechanic's or materialman's liens against the Project.
(g) Except in accordance with applicable laws, Seller has
never, nor to Seller's best knowledge, without any duty of
investigation or inquiry, has any previous owner of the Project or any
other party ever generated, stored or disposed of any Hazardous
Substances on the Project or from the Project to any other location. To
the best of Seller's knowledge, the Improvements do not contain any
asbestos or asbestos containing materials and there are no underground
storage tanks at the Project.
(h) Seller has received no written notice from any municipal,
state, federal or other governmental authority of zoning, building,
fire, water, use, health, environmental or other statute, ordinance,
code or regulatory violations issued in respect of the Project which
have not been heretofore corrected.
Section 9.2 Covenants. In addition to Seller's other agreements and
undertakings hereunder, Seller hereby covenants and agrees with the Purchaser
that, at its sole cost and expense: Seller will cause the Improvements and
Personal Property to be maintained in a good condition of repair, except for
normal wear and tear, and will not remove any items of Personal Property from
the Project, except such items as are worn out or obsolete and immediately
replaced with new versions of such items to the extent the same are necessary or
desirable for the operation of the Project in the manner presently operated.
Section 9.3 Closing Condition. The obligation of the Purchaser to
close this transaction is expressly conditioned upon the representations and
warranties contained in Section 9.1 hereof being true and correct on the date of
Closing and the covenants contained in Section 9.2 hereof being fully satisfied
on the date of Closing. At Closing, Seller shall provide to Purchaser a Seller
Closing Certificate (herein so called) which shall certify to Purchaser as of
the date of Closing that the covenants contained in Section 9.2 have been fully
satisfied and that the representations and warranties contained in Section 9.1
continue to be true and correct as of the date of Closing. Each of the
representations and the warranties shall survive the Closing and continue in
full force and effect for a period of one year from the Closing Date. Except for
the specific representations and warranties set forth in this Contract, Seller
makes no representations or warranties, express or implied, other than
warranties of title and Purchaser is acquiring the Project on an AS IS basis.
Purchaser further acknowledges and agrees that having been given the opportunity
to inspect the Project, except for the representations and warranties set forth
in Section 9.1 above and the Submission Items described in Section 5.1(h),
Purchaser further expressly acknowledges and agrees that the same were prepared
by independent third parties and Seller makes no representation or warranty with
respect to the sufficiency or accuracy thereof. It is understood and agreed that
the Purchase Price has been adjusted by prior negotiation to reflect that all of
the Project is sold by Seller and purchased by Purchaser subject to the
foregoing. At the Closing, the Deed shall include the provisions of this Section
9.3.
ARTICLE 10
Closing
Section 10.1 Time and Place. The exchange of documents and funds (the
"Closing") hereinafter described shall take place at the offices of Alamo Title
Insurance Company. The Closing shall occur at 10:00 a.m.
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on the fifteenth (15th) day following the expiration of the Inspection Period
(the "Closing Date"), or on such earlier date as may be mutually agreed upon by
Seller and Purchaser in writing. Purchaser may elect by notifying Seller, to
extend the Closing Date for thirty (30) days, whereupon Purchaser shall deliver
to the Title Company on or before the original Closing Date, the sum of Fifty
Thousand and No/100 Dollars ($50,000.00) which shall constitute additional
Earnest Money under the terms of this Contract and shall apply to the Purchase
Price.
Section 10.2 Seller Delivery. At the Closing, Seller shall deliver or
cause to be delivered to Purchaser, at Seller's sole cost and expense, each of
the following items:
(a) A special warranty deed duly executed and acknowledged by
Seller, and in form for recording, conveying good and indefeasible fee
simple title in the Land and Improvements to Purchaser, subject only to
the Permitted Exceptions.
(b) A Blanket Conveyance, Bill of Sale and Assignment
("Blanket Conveyance") duly executed and acknowledged by Seller,
conveying to Purchaser the Personal Property with covenants of special
warranty, subject only to the Permitted Exceptions, and assigning to
Purchaser all of Seller's rights, title and interest in the
Miscellaneous Contracts. The Blanket Conveyance shall contain, as
exhibits, recertified and updated lists of Miscellaneous Contracts and
inventories of the Personal Property.
(c) An executed Lease Agreement.
(d) The Seller Closing Certificate.
(e) An affidavit in a form acceptable to Purchaser from Seller
and any other parties reasonably requested by Purchaser or required
pursuant to Section 1445 of the Code and/or Regulations relating
thereto stating, under the penalty of perjury (a) that neither Seller
nor any other party so swearing is a foreign person, (b) the Seller's
(and other persons so swearing) name, U. S. taxpayer identification
number and address (home address for individuals, office address for
entities), and (c) such other information as may be required by Section
1445 of the Code or the Regulations thereunder. An executed counterpart
of this affidavit may be furnished to the Internal Revenue Service at
or following Closing.
(f) The Owner Policy in the form specified in Section 4.4
hereof.
(g) An affidavit(s) as to debts, liens and parties in
possession in a form acceptable to the Title Company, addressed to each
of Purchaser and the Title Company, and executed by Seller.
(h) Such evidence or documents as may be reasonably required
by the Purchaser or the Title Company evidencing the status and
capacity of Seller and the authority of the person or persons who are
executing the various documents on behalf of the Seller in connection
with the sale of the Project.
(i) Any other additional documents and instruments as in the
mutual opinion of Purchaser's counsel and Seller's counsel are
reasonably necessary to the proper consummation of this transaction.
Section 10.3 Purchaser Delivery. At the Closing, Purchaser shall
deliver to Seller the following items:
(a) The Purchase Price in the amount specified in Section 2.1
hereof.
(b) An executed Lease Agreement.
(c) Such evidence or documents as may reasonably be required
by the Seller or the Title Company evidencing the capacity of Purchaser
to close the transaction and the authority of the person or
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persons who are executing the various documents on behalf of the
Purchaser in connection with the sale of the Project.
(d) Any other additional documents or instruments as in the
mutual opinion of Purchaser's counsel and Seller's counsel are
reasonably necessary to the proper consummation of this transaction.
Section 10.4 Adjustments and Prorations. At Closing, all adjustments
and prorations between Seller and Purchaser shall be made in accordance with the
Lease Agreement.
Section 10.5 Foreign Person. If Seller is a foreign person within the
meaning of Section 1445 of the Code or the Regulations promulgated thereunder,
Purchaser must and shall at Closing withhold from the Purchase Price to be paid
as set forth hereinabove a sum equal to ten percent (10%) of the total amount
which otherwise would have been realized from this transaction, which sum will
be paid by Purchaser to the Internal Revenue Service pursuant to the
requirements of Section 1445 of the Code and the regulations promulgated
thereunder.
Section 10.6 Possession. Possession of the Project shall be delivered
to Purchaser by Seller at the Closing, subject only to the Permitted Exceptions,
rights of tenants in possession under written lease agreements and such rights
of others as have been expressly disclosed herein.
Section 10.7 Reporting Person. Each of Seller and Purchaser hereby
designate the Title Company as the "Reporting Person" as such term is utilized
in Section 6045 of the Code and regulations thereunder. Seller agrees to provide
the Title Company with such information as may be required for the Title Company
to file a Form 1099 or other required form relative to the Closing with the
Internal Revenue Service. A copy of the filed Form 1099 or other filed form
shall be provided to Seller and Purchaser simultaneously with its being provided
to the Internal Revenue Service.
Section 10.8 Costs and Expenses. All costs and expenses in connection
with the transaction contemplated by this Contract shall, except as otherwise
expressly provided herein, be borne by Seller and Purchaser in the manner in
which such costs and expenses are customarily allocated between the parties at
closings of the purchase or sale of real property similar to the Project in the
San Antonio, Texas area.
Section 10.9 Seller Indemnity. The Seller agrees to indemnify and hold
the Purchaser harmless of and from any and all liabilities, claims, demands and
expenses, of any kind or nature (except those items which by this Contract
specifically become the obligation of the Purchaser), arising or accruing prior
to the date and time of Closing and which are in any way related to the
ownership, construction, occupancy, maintenance or operation of the Project, and
all expenses related thereto, including, without limitation, court costs and
attorneys' fees. The foregoing indemnity applies, without limitation, to any
such claims, demand, causes of action, losses, damages, liabilities, costs or
expenses asserted against or incurred by Purchaser from time to time by reason
of or arising out of the breach of any representation or warranty by Seller set
forth herein; provided, however, this indemnity shall not apply with respect to
matters caused by or arising out of the negligence or willful misconduct of
Purchaser.
Section 10.10 Purchaser Indemnity. The Purchaser agrees to indemnify
and hold the Seller harmless of and from any and all liabilities, claims,
demands and expenses, of any kind or nature (except those items which by this
Contract specifically remain the obligation of the Seller) arising or accruing
subsequent to the date and time of Closing and which are in any way related to
the ownership, construction, maintenance or operation of the Project, and all
expenses related thereto, including, without limitation, court costs and
attorneys' fees; provided, however, this indemnity shall not apply with respect
to matters caused by or arising out of the negligence or willful misconduct of
Seller.
Section 10.11 Indemnity Notice. In the event either party hereto
receives notice of a claim or demand which results or may result in
indemnification pursuant to Section 10.9 or Section 10.10, such party shall
immediately give notice thereof to the other party to this Contract. The party
receiving such notice shall immediately take such measures as may be reasonably
required to properly and effectively defend such claim, and
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such party may defend same with counsel of such party's own choosing. In the
event the party receiving such notice fails to properly and effectively defend
such claim and in the event such party is liable therefor, then the party so
giving such notice may defend such claim at the expense of the party receiving
such notice.
ARTICLE 11
Real Estate Commission
Section 11.1 Commission. Seller and Purchaser covenant and agree one
with the other that no real estate commissions, finders' fees or brokers' fees
have been or will be incurred in connection with the Contract or the sale
contemplated hereby, except for a commission (the "Commission") to Grubb & Ellis
(the "Broker") the terms of which are set forth in a in a separate agreement.
Section 11.2 Indemnity. Each party hereto represents to the other that,
except as set forth above in the immediately preceding Section, such respective
party has not authorized any broker or finder to act on such party's behalf in
connection with the sale and purchase hereunder. Each party hereto agrees to
indemnify and hold harmless the other party from and against any and all claims,
losses, damages, costs or expenses of any kind or character arising out of or
resulting from any agreement, arrangement or understanding (except as set forth
in the immediately preceding Section) alleged to have been made by such party
with any broker or finder in connection with this Contract or the transaction
contemplated hereby. This obligation shall survive the Closing or any earlier
termination of this Contract.
Section 11.3 Title. Purchaser acknowledges that, at the time of
execution of this Contract, the Broker advised Purchaser by this writing that
Purchaser should have the abstract covering the Project examined by an attorney
of Purchaser's own selection or that Purchaser should be furnished with or
obtain a policy of title insurance.
ARTICLE 12
Remedies of Default
Section 12.1 Seller Default. Seller shall be in default hereunder upon
the occurrence of any one or more of the following events:
(i) any of Seller's warranties or representations set forth
herein are untrue or inaccurate in any material respect; or
(ii) Seller shall fail to meet, comply with or perform any
covenant, agreement, or obligation within the time limits and in the
manner required in this Contract.
In the event of a default by Seller hereunder, Purchaser, at Purchaser's sole
option, but as Purchaser's sole and exclusive remedy, shall be entitled to
either:
(i) terminate this Contract by written notice delivered to
Seller at or prior to the Closing in which event the Earnest Money
shall be immediately returned to Purchaser by Title Company without the
necessity of the consent of Seller; or
(ii) enforce specific performance of this Contract against
Seller.
Section 12.2 Purchaser Default. Purchaser shall be in default
hereunder if Purchaser shall fail to deliver at the Closing any of the items
required of Purchaser in Section 10.3 hereof, for any reason other than a
12
<PAGE> 13
default by Seller hereunder. In the event of a default by Purchaser hereunder,
Seller, as Seller's sole and exclusive remedy for such default, shall be
entitled to terminate this Contract by notice to Purchaser and retain the
Earnest Money, it being agreed between Purchaser and Seller that such sum shall
be liquidated damages for a default by Purchaser hereunder because of the
difficulty, inconvenience, and uncertainty of ascertaining actual damages for
such default.
ARTICLE 13
Miscellaneous
Section 13.1 Notices. All notices, demands, or other communications of
any type (herein collectively referred to as "Notices") given by the Seller to
the Purchaser or by the Purchaser to the Seller, whether required by this
Contract or in any way related to the transactions contracted for herein, shall
be void and of no effect unless given in accordance with the provisions of this
Section 13.1. All notices shall be in writing and delivered to the person to
whom the notice is directed, either in person (provided that such delivery is
confirmed by the courier delivery service), or by expedited delivery service
with proof of delivery, or by United States Mail, postage prepaid, as a
Registered or Certified item, Return Receipt Requested. Notices delivered by
personal delivery shall be deemed to have been given at the time of such
delivery and notices delivered by mail shall be effective when deposited in a
Post Office or other depository under the care or custody of the United States
Postal Service, enclosed in a wrapper with proper postage affixed and addressed,
as provided below. Notice may additionally be provided by facsimile transmission
so long as a copy of such notice is substantially contemporaneously forwarded by
one of the other means described above. Facsimile notice shall be effective upon
receipt at the facsimile station indicated below. The proper address and
facsimile number for Purchaser is as follows:
Goldstar Investments, Ltd.
3215 Steck Avenue, Suite 101
Austin, Texas 78757
Attn: John E. Simmons
Fax No. 512/469-6419
with copy to: David R. Hewlett
Winstead Sechrest & Minick P.C.
100 Congress, Suite 800
Austin, Texas 78701
Fax No. 512/370-2850
The proper address and facsimile number for Seller is as follows:
Solo Serve Corporation
1610 Cornerway Blvd.
San Antonio, Texas 78209
Fax No. (210) 666-3339
Attn: Ross E. Bacon
with copy to: James M. McDonough
Cox & Smith
112 E. Pecan Street, Suite 1800
San Antonio, Texas 78205
Fax No. (210) 226-8395
Any party hereto may change the address for notice specified above by giving the
other party ten (10) days' advance written notice of such change of address.
13
<PAGE> 14
Section 13.2 Limited Duration of Offer. At Purchaser's option, this
Contract shall be null and void unless two (2) copies hereof, executed by
Seller, have been delivered to the Purchaser on or before February 19, 1998.
Section 13.3 Assignment. This Contract may be assigned by the
Purchaser to any entity which the Purchaser may, at its sole discretion, choose,
so long as such entity is controlled by Purchaser, John E. Simmons, or an entity
controlled by John E. Simmons and such assignment shall be binding upon and
inure to the benefit of the parties hereto. Any other assignment of this
Contract shall require the prior written consent of Seller, which shall not be
unreasonably withheld, conditioned or delayed.
Section 13.4 Governing Law. THIS CONTRACT SHALL BE CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE
OBLIGATIONS OF THE PARTIES HERETO ARE AND SHALL BE PERFORMABLE IN THE COUNTY
WHEREIN THE PROJECT IS LOCATED. BY EXECUTING THIS CONTRACT, EACH PARTY HERETO
EXPRESSLY (a) CONSENTS AND SUBMITS TO PERSONAL JURISDICTION CONSISTENT WITH THE
PREVIOUS SENTENCE, (b) WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM
OR DEFENSE THAT SUCH VENUE IS NOT PROPER OR CONVENIENT, AND (c) CONSENTS TO THE
SERVICE OF PROCESS IN ANY MANNER AUTHORIZED BY TEXAS LAW. ANY FINAL JUDGMENT
ENTERED IN AN ACTION BROUGHT HEREUNDER SHALL BE CONCLUSIVE AND BINDING UPON THE
PARTIES HERETO.
Section 13.5 No Oral Modification. This Contract may not be modified
or amended, except by an agreement in writing signed by both the Seller and the
Purchaser.
Section 13.6 No Oral Waiver. The parties may waive any of the
conditions contained herein or any of the obligations of the other party
hereunder, but any such waiver shall be effective only if in writing and signed
by the party waiving such conditions or obligations.
Section 13.7 Time of Essence. Time is of the essence of this Contract.
Section 13.8 Attorneys' Fees. In the event it becomes necessary for
either party hereto to file a suit to enforce this Contract or any provisions
contained herein, the party prevailing in such action shall be entitled to
recover, in addition to all other remedies or damages, reasonable attorneys'
fees and court costs incurred by such prevailing party in such suit.
Section 13.9 Headings. The descriptive headings of the various
Articles and Sections contained in this Contract are inserted for convenience
only and shall not control or affect the meaning or construction of any of the
provisions hereof.
Section 13.10 Total Agreement. This Contract, including the Exhibits
hereto and the items to be furnished in accordance with Article 5 hereof,
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior and contemporaneous agreements and
understandings of the parties in connection therewith. No representation,
warranty, covenant, agreement or condition not expressed in this Contract shall
be binding upon the parties hereto or shall affect or be effective to interpret,
change or restrict the provisions of this Contract; provided, however, that all
certifications, representations and warranties of Seller contained in the
statements and schedules to be furnished pursuant to Article 5 shall become a
part of the Contract as though set forth herein.
Section 13.11 Partial Invalidity. If any clause or provisions of this
Contract is or should ever be held to be illegal, invalid, or unenforceable
under any present or future law applicable to the terms hereof, then and in the
event, it is the intention of the parties hereto that the remainder of this
Contract shall not be affected thereby, and that in lieu of each such clause or
provision of this Contract that is illegal, invalid, or unenforceable, there be
14
<PAGE> 15
added as a part of this Contract a clause or provision as similar in terms to
such illegal, invalid, or unenforceable clause or provision as may be possible
and be legal, valid, and enforceable.
Section 13.12 Counterpart Execution. To facilitate execution, this
Contract may be executed in as many counterparts as may be convenient or
required. It shall not be necessary that the signature of all persons required
to bind any party, appear on each counterpart. All counterparts shall
collectively constitute a single instrument. It shall not be necessary in making
proof of this Contract to produce or account for more than a single counterpart
containing the respective signatures of, or on behalf of, each of the parties
hereto. Any signature page to any counterpart may be detached from such
counterpart without impairing the legal effect of the signatures thereon and
thereafter attached to another counterpart identical thereto except having
attached to it additional signature pages.
Section 13.13 Holidays. In the event that the date upon which any
duties or obligations hereunder to be performed shall occur upon a Saturday,
Sunday or legal holiday, then, in such event, the due date for performance of
any duty or obligation shall thereupon be automatically extended to the next
succeeding business day.
EXECUTED on this the 16th day of February, 1998 by Purchaser.
GOLDSTAR INVESTMENTS, LTD.,
a Texas limited partnership
By: INSIGHT INVESTMENTS, INC.
a Texas corporation, General Partner
By: /s/ John E. Simmons
-------------------------------------
John E. Simmons, President
EXECUTED on this the 16th day of February, 1998 by Seller.
SOLO SERVE CORPORATION
a Delaware corporation
By:/s/ Ross E. Bacon
-------------------------------------
Ross E. Bacon, Executive
Vice President
15
<PAGE> 16
The Contract has been received by the Title Company this the 17th day
of February, 1998. The undersigned Title Company agrees to be bound by the terms
and provisions of this Contract, including those described in Article 3 hereof.
ALAMO TITLE INSURANCE COMPANY
By:/s/ David A. McAllister
-------------------------------------
Name: David A. McAllister
Title: Vice President
16
<PAGE> 17
FIRST AMENDMENT TO CONTRACT FOR PURCHASE AND SALE
This Second Amendment to Contract for Purchase and Sale (the
"Amendment") is entered into between SOLO SERVE CORPORATION, a Delaware
corporation ("Seller") and GOLDSTAR INVESTMENTS, LTD., a Texas limited
partnership ("Purchaser").
A. Seller and Purchaser are parties to that certain Contract for
Purchase and Sale dated February 17, 1998 (the "Contract"), concerning three (3)
tracts of improved property located in Bexar County, Texas, as more particularly
described in the Contract (the "Project");
B. The parties desire to enter into this Amendment for the purpose of
further extending the expiration of the Inspection Period, and the Closing Date.
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
1. The first sentence of Section 7.3 is restated in its entirety
to read as follows:
The Purchaser shall have until 5:00 p.m. CST on April 9, 1998
("Inspection Period") within which to review all the Submission Items
and make any physical inspections and to conduct any audits of the
Project as may be desired by Purchaser.
2. A telecopied facsimile of a duly executed counterpart of this
Amendment shall be sufficient to evidence the binding agreement of each party to
the terms herein. Except as amended hereby, all terms and conditions of the
Contract are and remain in full force and effect as therein written. Capitalized
term which are used herein but not defined and/or amended shall have the same
meaning given to such terms in the Contract.
EXECUTED effective as of the 25th day of March, 1998.
SELLER:
SOLO SERVE CORPORATION,
a Delaware corporation
By: /s/ Ross E. Bacon
--------------------------------
Ross E. Bacon,
Executive Vice President
<PAGE> 18
PURCHASER:
GOLDSTAR INVESTMENTS, LTD.,
a Texas limited partnership
By: INSIGHT INVESTMENTS, INC.
General Partner
By: /s/ John E. Simmons
--------------------------------
John E. Simmons, President
2
<PAGE> 19
SECOND AMENDMENT TO CONTRACT FOR PURCHASE AND SALE
This Second Amendment to Contract for Purchase and Sale (the
"Amendment") is entered into between SOLO SERVE CORPORATION, a Delaware
corporation ("Seller") and GOLDSTAR INVESTMENTS, LTD., a Texas limited
partnership ("Purchaser").
A. Seller and Purchaser are parties to that certain Contract for
Purchase and Sale dated February 17, 1998 (the "Contract"), as amended by that
certain First Amendment to Contract for Purchase and Sale dated March 25, 1998,
concerning three (3) tracts of improved property located in Bexar County, Texas,
as more particularly described in the Contract (the "Project");
B. The parties desire to enter into this Amendment for the purpose of
further extending the expiration of the Inspection Period, and the Closing Date.
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
1. The first sentence of Section 7.3 is restated in its entirety
to read as follows:
The Purchaser shall have until 5:00 p.m. CST on April 17, 1998
("Inspection Period") within which to review all of the Submission
Items and make any physical inspections and to conduct any audits of
the Project as may be desired by Purchaser.
2. Section 10.1 is restated in its entirety to read as follows:
Time and Place. The exchange of documents and funds (the
"Closing") hereinafter described shall take place at the offices of
Alamo Title Insurance Company. The Closing Date shall occur at 10:00
a.m. on April 30, 1998 (the "Closing Date"), or on such earlier date as
may be mutually agreed upon by Seller and Purchaser in writing.
Purchaser may elect by notifying Seller, to extend the Closing Date for
thirty (30) days, whereupon Purchaser shall deliver to the Title
Company on or before the original Closing Date, the sum of Fifty
Thousand and No/100 Dollars ($50,000.00) which shall constitute
additional Earnest money under the term of this Contract and shall
apply to the Purchase Price.
3. A telecopied facsimile of a duly executed counterpart of this
Amendment shall be sufficient to evidence the binding agreement of each party to
the term herein. Except as amended hereby, all terms and conditions of the
Contract are and remain in full force and effect as therein written. Capitalized
terms which are used herein but not defined and/or amended shall have the same
meaning given to such terms in the Contract.
<PAGE> 20
EXECUTED effective as of the 9th day of April, 1998.
SELLER:
SOLO SERVE CORPORATION,
a Delaware corporation
By: /s/ Ross E. Bacon
--------------------------------
Ross E. Bacon,
Executive Vice President
PURCHASER:
GOLDSTAR INVESTMENTS, LTD.,
a Texas limited partnership
By: INSIGHT INVESTMENTS, INC.
General Partner
By: /s/ John E. Simmons
--------------------------------
John E. Simmons, President
2
<PAGE> 21
THIRD AMENDMENT TO CONTRACT FOR PURCHASE AND SALE
This Third Amendment to Contract for Purchase and Sale (the
"Amendment") is entered into between SOLO SERVE CORPORATION, a Delaware
corporation ("Seller") and GOLDSTAR INVESTMENTS, LTD., a Texas limited
partnership ("Purchaser").
A. Seller and Purchaser are parties to that certain Contract for
Purchase and Sale dated February 17, 1998 (the "Contract"), as amended by that
certain First Amendment to Contract for Purchase and Sale dated March 25, 1998,
and as further amended by that certain Second Amendment to Contract for Purchase
and Sale dated April 9, 1998, concerning three (3) tracts of improved property
located in Bexar County, Texas, as more particularly described in the Contract
(the "Project");
B. The parties desire to enter into this Amendment for the purpose of
(i) Purchase depositing One Hundred Fifty Thousand and No/100 ($150,000.00)
directly with Seller as additional earnest money, and (ii) further extending the
Closing Date.
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
1. Purchaser and Seller hereby confirm that (i) the Inspection
Period (as defined in the Contract) expired April 17, 1998,
and (ii) Purchaser's right to terminate the Contract and
receive a refund of the Earnest Money (as defined in the
Contract) pursuant to either Article 6 or 7 has likewise
expired and may no longer be exercised by Purchaser.
2. Section 2.1 is restated in its entirety to read as follows:
Amount. The Purchase Price (herein so called) for the
Project is and shall be the sum of SIX MILLION THREE HUNDRED
THOUSAND AND NO/100 DOLLARS ($6,300,000.00) which shall be due
and payable by Purchaser to Seller in cash at the Closing
(hereinafter defined).
3. Section 10.1 is restated in its entirety to read as follows:
Time and Place. The exchange of documents and funds
(the "Closing") hereinafter described shall take place at the
offices of Alamo Title Insurance Company. The Closing Date
shall occur at 10:00 a.m. on September 1, 1998 (the "Closing
Date"), or on such earlier date as may be mutually agreed upon
by Seller and Purchaser in writing. In consideration of the
extension of the Closing from April 30, 1998 to September 1,
1998, Purchaser has agreed to pay to Seller on or before 5:00
p.m. April 30, 1998, as additional nonrefundable Earnest Money
under the Contract, One Hundred Fifty Thousand and No/100
($150,000) in cash or by any other means of immediately
available funds. From and after the date of such
<PAGE> 22
deposit with Seller, such funds shall be deemed to constitute
Earnest Money for all purposes under the Contract, so that
notwithstanding that such deposit is stated to be
nonrefundable, it may be refunded to Purchaser, together with
the initial Earnest Money deposit of Thirty Thousand and
No/100 ($30,000) in accordance with Article 12 upon the
occurrence of an event of a default by Seller, or in
accordance with Article 8 upon the occurrence of a casualty
to, or condemnation, of the Property.
4. A telecopied facsimile of a duly executed counterpart of
this Amendment shall be sufficient to evidence the binding
agreement of each party to the terms herein. Except as amended
hereby, all terms and conditions of the Contract are and
remain in full force and effect as therein written.
Capitalized terms which are used herein but not defined and/or
amended shall have the same meaning given to such terms in the
Contract.
EXECUTED effective as of the 9th day of April, 1998.
SELLER:
SOLO SERVE CORPORATION,
a Delaware corporation
By: /s/ Ross E. Bacon
--------------------------------
Ross E. Bacon
Executive Vice President
PURCHASER:
GOLDSTAR INVESTMENTS, LTD.,
a Texas limited partnership
By: INSIGHT INVESTMENTS, INC.
General Partner
By: /s/ John E. Simmons
--------------------------------
John E. Simmons
President
2
<PAGE> 1
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "AMENDMENT")
is dated for reference purposes only as of July 14, 1998, by and between SANWA
BUSINESS CREDIT CORPORATION, a Delaware corporation ("LENDER"), having an office
at One South Wacker Drive, Chicago, Illinois 60606 ("LENDER") and SOLO SERVE
CORPORATION, a Delaware corporation ("BORROWER"), having its chief executive
office at 1610 Cornerway Boulevard, San Antonio, Texas 78219.
RECITALS:
A. Lender has made financial accommodations to Borrower (the "LOAN")
pursuant to a certain Loan and Security Agreement dated for reference purposes
only as of September 25, 1997, as amended by First Amendment to Loan and
Security Agreement dated as of March 16, 1998 (the "EXISTING AGREEMENT").
B. Borrower and Lender have agreed to amend the terms of the Existing
Agreement to, inter alia, modify certain financial covenants.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and for $10.00 and other good and valuable consideration in hand paid
by each party to the other, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby covenant and agree as follows:
1. Recital Representations. Borrower hereby represents and warrants to
Lender that the foregoing Recitals are (a) true and accurate and (b) an integral
part of this Amendment. Borrower and Lender hereby agree that all of the
Recitals of this Amendment are hereby incorporated into this Amendment and made
a part hereof. Any term not otherwise defined herein shall have the meaning set
forth in the Existing Agreement.
2. Liabilities. All references in the Existing Agreement and the
Ancillary Agreements to Borrower's Liabilities shall refer to and include,
without limitation, all amounts now or hereafter due pursuant to the Existing
Agreement, as amended hereby or otherwise, payment of which amounts, Borrower
hereby expressly acknowledges to be secured by all Collateral pursuant to the
grant of a security interest under the Existing Agreement.
3. Amendment to Existing Agreement. The Existing Agreement is hereby
amended as follows:
<PAGE> 2
3.1. Section 11.1(a) is hereby deleted in its entirety and the
following is substituted therefor:
11.1 FINANCIAL COVENANTS.
(a) BORROWER SHALL MAINTAIN AN INTEREST COVERAGE RATIO, MEASURED
QUARTERLY ON A ROLLING FOUR-QUARTER BASIS (EXCEPT AS NOTED) IN THE
FOLLOWING AMOUNTS AT THE FOLLOWING TIMES:
<TABLE>
<S> <C>
FOR THE 9 FISCAL-MONTH PERIOD
ENDING ON OR ABOUT 07/31/98: WAIVED
FOR THE ROLLING 4-FISCAL QUARTER
PERIOD ENDING ON OR ABOUT
10/31/98: WAIVED
FOR THE ROLLING 4-FISCAL QUARTER 1.25 TO 1.0
ENDING ON OR ABOUT 1/31/99:
FOR THE ROLLING 4-FISCAL QUARTER
PERIOD ENDING ON OR ABOUT
04/30/99 THROUGH 07/31/99: 1.70 TO 1.0
FOR THE ROLLING 4-FISCAL QUARTER
PERIOD ENDING ON OR ABOUT
10/31/99 OR THEREAFTER: 2.00 TO 1.0
</TABLE>
3.2. Exhibits N and O, attached to the Existing Agreement is hereby
deleted in its entirety and Exhibits N and O attached hereto is hereby
substituted therefor.
4. Payment of Expenses. Upon demand by Lender therefor, Borrower shall
reimburse Lender for all costs, fees and expenses incurred by Lender or for
which Lender becomes obligated, in connection with the negotiation, preparation
and conclusion of this Amendment, including without limitation, reasonable
attorneys' fees, costs and expenses, search fees, title insurance policy fees,
costs and expenses, filing and recording fees and all taxes payable in
connection with this Amendment.
5. Waiver of Claims. Borrower hereby acknowledges, agrees and affirms
that it possess no claims, defenses, offsets, recoupment or counterclaims of any
kind or nature against or with respect to the enforcement of the Loan Agreement,
as amended hereby or any Ancillary Agreement, (collectively referred to herein
as the "CLAIMS"), nor does Borrower now have knowledge of any facts that would
or might give rise to any Claims. If facts now exist which would or could give
rise to any Claim against or with
2
<PAGE> 3
respect to the enforcement of the Existing Agreement as amended by this
Amendment, the Note, and/or any Ancillary Agreements, Borrower hereby
unconditionally, irrevocably and unequivocally waives and fully releases any and
all such Claims as if such Claims were the subject of a lawsuit, adjudicated to
final judgment from which no appeal could be taken and therein dismissed with
prejudice.
6. Representations of Borrower. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns. To induce Lender to enter into this Amendment, Borrower hereby
represents and warrants to Lender that, as of the effective date of this
Amendment:
(a) the execution and delivery of this Amendment, and the
performance by Borrower of its obligations under this Amendment, the Existing
Agreement and the Ancillary Agreements, as amended hereby, are within Borrower's
corporate powers, have been duly authorized by all necessary corporate action,
have received all necessary governmental approval (if any shall be required) and
do not and will not contravene or conflict with any provisions of law or the
Articles of Incorporation or By-Laws of Borrower or of any agreement binding
upon Borrower;
(b) this Amendment, and each other instrument executed by Borrower
concurrently herewith, are the legal, valid and binding obligation of Borrower
enforceable against Borrower in accordance with its terms, except as enforcement
thereof may be subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, and to the general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law);
(c) all of the representations and warranties of Borrower made in
the Existing Agreement are true and correct as of the date hereof, except where
such representation or warranty specifically relates to an earlier date; and
(d) no Default or Event of Default under the Existing Agreement
exists.
7. Representation by Counsel. Borrower hereby represents that: (i) it
has been represented by competent counsel of its choice in the negotiation and
execution of this Amendment; (ii) that it has read and fully understood the
terms hereof; (iii) Borrower and its counsel have been afforded an opportunity
to review, negotiate and modify the terms of this Amendment, and (iv) Borrower
intends to be bound hereby. In accordance with the foregoing, the general rule
of construction to the effect that any ambiguities in a contract are to be
resolved against the party drafting the contract shall not be employed in the
construction and interpretation of this Amendment.
8. Amendment Supplementary. This Amendment is supplementary to the Loan
Documents. All of the provisions of the Loan Documents, including without
limitation the right to declare principal and accrued interest due for any cause
specified
3
<PAGE> 4
in the Loan Documents, shall remain in full force and effect except as herein
expressly modified and they are hereby reaffirmed, ratified and confirmed in
their entirety and incorporated by reference as if fully set forth herein. The
Existing Agreement and all rights and powers created thereby and thereunder or
under such other documents are in all respects ratified and confirmed. From and
after the date hereof, the Existing Agreement shall be deemed to be amended and
modified as herein provided, but, except as so amended and modified, the
Existing Agreement shall continue in full force and effect and the Existing
Agreement and this Amendment shall be read, taken and construed as one and the
same instrument. On and after the date hereof, the term "THE LOAN AGREEMENT" as
used in the Note, and all Ancillary Agreements shall mean the Existing Agreement
as amended hereby.
9. SUBMISSION TO JURISDICTION; VENUE. The provisions of Section 14.10
of the Existing Agreement are hereby incorporated herein by reference as if
fully set forth herein.
10. NO JURY TRIAL. BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR
DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS AMENDMENT, THE EXISTING
AGREEMENT, THE ANCILLARY AGREEMENTS, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH OR THEREWITH, OR (II) ARISING FROM ANY DISPUTE OR CONTROVERSY ARISING
IN CONNECTION WITH OR RELATED TO THIS AMENDMENT, THE EXISTING AGREEMENT, THE
ANCILLARY AGREEMENTS, OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT,
AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.
(THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK)
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Loan and Security Agreement dated for reference purposes only as of July 14,
1998.
BORROWER: LENDER:
SOLO SERVE CORPORATION SANWA BUSINESS CREDIT
CORPORATION
By: /s/ Charles M. Siegel By: /s/ Lawrence J. Placek
----------------------------------- ----------------------------------
Charles M. Siegel, Name: Lawrence J. Placek
President and
Chief Executive Officer Title: Vice President
5
<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 8-1-98 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> AUG-01-1998
<CASH> 1,592,635
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 13,848,344
<CURRENT-ASSETS> 17,225,373
<PP&E> 5,379,303
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,604,676
<CURRENT-LIABILITIES> 15,168,886
<BONDS> 11,200,000
0
13,889
<COMMON> 28,562
<OTHER-SE> (4,158,474)
<TOTAL-LIABILITY-AND-EQUITY> 22,604,676
<SALES> 35,013,126
<TOTAL-REVENUES> 35,013,126
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<NET-INCOME> (1,892,876)
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</TABLE>
