<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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: 0-21448
NATIONAL HOME CENTERS, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 71-0403343
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
HIGHWAY 265 NORTH
SPRINGDALE, ARKANSAS 72765
(Address of principal executive offices, including zip code)
(501) 756-1700
(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 report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
------ ------
As of June 12, 1998 National Home Centers, Inc. had 7,142,251 shares of
$0.01 par value Common Stock outstanding.
- --------------------------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
==================================================================================================
APRIL 30, JANUARY 31,
1998 1998
ASSETS (Unaudited) (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash $ 98,295 111,543
Accounts Receivable 10,131,915 9,970,843
Income Tax Refunds Receivable 517,118 517,118
Inventories 17,332,997 19,173,468
Other 549,451 593,901
- --------------------------------------------------------------------------------------------------
Total Current Assets 28,629,776 30,366,873
- --------------------------------------------------------------------------------------------------
Property, Plant and Equipment 39,011,813 42,030,892
Less Accumulated Depreciation 13,121,461 12,745,131
- --------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 25,890,352 29,285,761
- --------------------------------------------------------------------------------------------------
Other Assets, Net of Amortization 2,465,506 2,137,770
- --------------------------------------------------------------------------------------------------
$ 56,985,634 61,790,404
==================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------
Current Liabilities:
Current Installments of Long-Term Debt $ 8,075,993 9,113,391
Trade Accounts Payable 12,966,948 13,200,065
Accrued Expenses and Other 3,928,087 4,003,643
- --------------------------------------------------------------------------------------------------
Total Current Liabilities 24,971,028 26,317,099
- --------------------------------------------------------------------------------------------------
Long-Term Debt, Excluding Current Installments 21,507,879 23,323,447
Stockholders' Equity 10,506,727 12,149,858
- --------------------------------------------------------------------------------------------------
$ 56,985,634 61,790,404
==================================================================================================
</TABLE>
(1) January 31, 1998 balances are condensed from the audited consolidated
balance sheet.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
================================================================================
THREE MONTHS ENDED
APRIL 30,
----------------------------------
(Unaudited) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 29,185,813 36,215,726
COST OF SALES 23,001,645 27,661,937
- ------------------------------------------------------------------------------
GROSS PROFIT 6,184,168 8,553,789
- ------------------------------------------------------------------------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Salaries and Benefits 4,494,024 5,532,153
Rent 437,178 580,157
Depreciation and Amortization 543,142 818,449
Other 1,576,046 1,549,625
- ------------------------------------------------------------------------------
TOTAL SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 7,050,390 8,480,384
- ------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (866,222) 73,405
Interest Expense 776,909 896,337
- ------------------------------------------------------------------------------
Loss Before Income Taxes (1,643,131) (822,932)
Income Taxes 0 (279,798)
- ------------------------------------------------------------------------------
NET LOSS $ (1,643,131) (543,134)
================================================================================
LOSS PER SHARE $ (0.23) (0.08)
================================================================================
Weighted Average Number of
Common Shares Outstanding 7,142,251 7,142,251
================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
APRIL 30,
-----------------------------------------
(Unaudited) 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,643,131) (543,134)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 543,142 818,449
Loss (Gain) on Disposal of Property, Plant and 144,363 (34,536)
Equipment
Increase in Cash Surrender Value of Life Insurance (77,960) (12,000)
Deferred Income Tax Benefit 0 (22,028)
Changes in Assets and Liabilities:
Accounts Receivable (161,072) (1,717,915)
Inventories 1,840,471 (891,327)
Other Current Assets 44,450 (361,734)
Accounts Payable (233,117) 3,090,997
Other Current Liabilities (75,556) (285,670)
- -------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 381,590 41,102
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant and Equipment (21,216) (111,691)
Proceeds from Sale of Property, Plant and Equipment 2,771,961 62,314
Increase in Other Assets (292,617) (279,346)
- -------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing 2,458,128 (328,723)
Activities
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Long-Term Debt 1,126,961 2,668,755
Repayments of Long-Term Debt (3,979,927) (2,384,908)
- -------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing (2,852,966) 283,847
Activities
- -------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (13,248) (3,774)
Cash at Beginning of Period 111,543 134,086
- -------------------------------------------------------------------------------------------------------
Cash at End of Period $ 98,295 130,312
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Interest Paid $ 771,250 904,856
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
APRIL 30, 1998
1. Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, the financial statements do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Results of operations for the three
months ended April 30, 1998, are not necessarily indicative of the results
to be expected for the fiscal year ending January 31, 1999. For further
information, refer to the consolidated financial statements and related
notes thereto included in the Company's Annual Report on Form 10-K filed
--------------------------
with the Commission on April 30, 1998, as amended on May 28, 1998.
2. Income Taxes
------------
As a result of the uncertainty associated with the future realization of
deferred tax assets, which include the tax effects of net operating loss
(NOL) and other tax carryforwards, no income tax benefit has been recorded
for the three months ended April 30, 1998.
ITEM 2
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
----------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
GENERAL
-------
National Home Centers, Inc. ("the Company") is a full line retailer of home
improvement products and building materials, with nine locations in Arkansas.
The Company serves retail consumers and professional contractors primarily in
Arkansas, Oklahoma, Missouri and Kansas.
Over the last year, the Company has experienced increased competition in its
markets from other national and/or regional chains which are seeking to gain or
retain market share by reducing prices. This has continued to place pressure on
all of the Company's stores and their respective sales, gross margins and
operating income. During 1997, the Company announced plans to restructure its
operations which included closing several stores. During 1997, the Company
closed stores in Conway and Rogers. During the first quarter of 1998, the
Company closed two additional stores in Little Rock and Fayetteville. In
addition, management has announced plans to reduce the home center portion of
the Russellville store and plans to sell the West Rogers store. Closing these
stores will eliminate the continued losses which these stores have incurred and
will provide cash as a result of selling the related assets, including real
estate.
5
<PAGE>
RESULTS OF OPERATIONS
---------------------
Three Months Ended April 30, 1998 and 1997
- ------------------------------------------
Net sales for the first quarter of fiscal 1998 were down 19% to $29.2 million,
compared to $36.2 million for the first quarter of fiscal 1997. Comparable store
sales in the first quarter of fiscal 1998 were down 10% over the same period of
fiscal 1997. Net loss for the first quarter of fiscal 1998 was $1,643,000 or
$0.23 per share, compared with a net loss for the first quarter of fiscal 1997
of $543,000 or $0.08 per share. The decrease in sales was primarily due to
increased competition and the closing of the four stores discussed above.
Gross profit as a percentage of net sales for the first quarter of fiscal 1998
decreased to 21.2% from 23.6% for the same period last year. Increased
competition and promotional pricing led to the decrease in gross margin .
Selling, general and administrative expenses increased to 24.2% of net sales for
the first quarter of fiscal 1998 compared to 23.4% of net sales for the same
period last year. The increase in expenses as a percent of sales is primarily
due to the lower sales volume.
Net interest expense as a percentage of net sales was 2.7% for the quarter ended
April 30, 1998, compared to 2.5% for the same period last year, primarily due to
increased interest rates.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's working capital at April 30, 1998 decreased to $3.7 million from
$4.0 million at January 31, 1998, due to a decrease in inventories. Accounts
payable have also decreased as a result of the lower inventory purchases and
current installments of long-term debt have decreased due to early retirement of
debt.
The Company's primary capital needs are to finance operations. During the three
months ended April 30, 1998, operating activities provided net cash of $0.4
million. Primary sources of cash from operating activities included
approximately $1.8 million from decreases in inventories. The net loss for the
period, adjusted for depreciation and amortization, used approximately $1.1
million in cash.
Net cash provided by investing activities for the first three months of fiscal
1998 was approximately $2.5 million, principally due to proceeds from the sale
of equipment at the closed stores and sales of real estate. Net cash used in
financing activities during the first three months of fiscal 1998 totaled
approximately $2.9 million, primarily from repayments of long-term borrowings
with the proceeds from the equipment and real estate sales.
At April 30, 1998, the Company owed a bank $15.0 million under its revolving
credit agreement, which expires in December, 1999. Borrowings under the
agreement are based on the bank's Reference Rate, which reflects the bank's
prime rate, plus 1.5%. The facility limits availability to a borrowing base of
85% and 60% of eligible accounts receivable and inventory, respectively, with
inventories capped at $14 million. As of April 30, 1998, the Company had
approximately $1.9 million of additional available borrowing capacity under the
revolving credit agreement.
6
<PAGE>
Borrowings under the revolving credit agreement are collateralized by the
Company's accounts receivable and inventory. In addition, the agreement requires
the Company to comply with the following financial covenants: (i) minimum
interest coverage ratio, (ii) minimum adjusted tangible net worth, and (iii)
debt-to-adjusted tangible net worth ratio. The Company was in default with
respect to each of these covenants at January 31, 1998; however, the bank has
agreed to permanently waive compliance with respect to such defaults and to
amend the covenants. As of April 1, 1998, the financial covenants were amended
requiring: (i) minimum earnings before interest, income taxes, depreciation and
amortization (EBITDA), (ii) minimum adjusted tangible net worth, and (iii)
minimum availability. On June 11, 1998, the Company signed a commitment letter
with a new lender for a four year, $20 million revolving line of credit. This
transaction is expected to close prior to July 15, 1998.
Forward-looking statements in this Form 10-Q are made pursuant to the safe
harbor provision of the Private Securities Litigation Reform Act of 1995. There
are various factors that could cause results to differ materially from those
anticipated by some statements made in this Form 10-Q. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. The Company
does not undertake to publicly update or revise its forward-looking statements
even if experience or future changes make it clear that any projected results
expressed or implied therein will not be realized. Factors that could cause
actual results to differ materially include, but are not limited to the
following: the strength and extent of new and existing competition; the
Company's ability to maintain competitive pricing in its markets; the Company's
ability to consummate pending real estate transactions; the implementation of
the results of the previously disclosed Arthur Andersen engagement; the Co
mpany's ability to maintain adequate levels of vendor support; the ability of
the Company to increase sales; the Company's ability to attract, train and
retain experienced, quality employees; the Company's ability to dispose of
excess real estate and other assets; general economic conditions; housing
turnover; interest rates; weather; and other factors described from time to time
in the Company's Securities and Exchange Commission filings.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8K.
(a) Exhibits Description of Exhibit Sequentially Numbered
Exhibits No. ---------------------- ---------------------
------------ Page
----
10.1 Commitment letter from NationsCredit 10 - 14
Commercial Funding
27.1 Financial Data Schedule 15 - 16
(b) Reports on Form 8-K.
Not applicable.
8
<PAGE>
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 thereto duly authorized.
NATIONAL HOME CENTERS, INC.
Date: June 12, 1998 /s/ Dwain A. Newman
--------------------------------
Dwain A. Newman
Chief Executive Officer and
Chairman
Date: June 12, 1998 /s/ Brent A. Hanby
--------------------------------
Brent A. Hanby
Executive Vice President and
Chief Financial Officer
9
<PAGE>
EXHIBIT 10.1
[LETTERHEAD OF NATIONSCREDIT APPEARS HERE]
May 20, 1998
Mr. Dwain Newman
Chairman
National Home Centers, Inc.
Highway 265 North
Springdale, Arkansas 72765
Phone No.: (501) 756-1700
Dear Mr. Newman:
We are pleased to confirm our willingness to extend secured financing to
National Home Centers, Inc., along the parameters outlined below:
1. Purpose: To repay existing bank debt and for
general working capital.
2. Borrower(s): National Home Centers, Inc.
3. Maximum Facility Amount: $20,000,000 with all advances subject to
advance rates on revolving loans and
term loans.
4. Loan Sublimit(s): Within the Maximum Facility Amount the
following loan sublimits shall apply:
A. Inventory: $10,000,000
B. Accounts: $10,000,000
C. Letters of Credit: $ 1,000,000
5. Guaranties: The loans shall be guarantied by Mr. Dwain Newman. The guaranty
is limited to $1,000,000. The guarantor to execute an agreement providing
he will assist NationsCredit in the disposition of NationsCredit's
collateral, in the event of a liquidation. Should the average net loan
balance fall below $11,000,000, NationsCredit will release (except for a
Chapter 11 condition as described below) the limited guaranty (but not the
liquidation assistance agreement) of Mr. Dwain Newman, provided that there
are no events of default under the Loan and Security Agreement or a
cumulative $3,000,000 pretax loss from the date of funding. If the Borrower
becomes a debtor in a Chapter 11 bankruptcy proceeding without a financing
order with us under terms and conditions similar to those contained herein,
Mr. Newman shall guaranty the loan in the amount of $1,000,000.
10
<PAGE>
National Home Centers
May 20, 1998
Page 2
6. Revolving Loans Based Upon the Following Advance Rates:
A. Accounts Advance Rate - 85% of Borrower's acceptable and eligible
accounts receivable and provided that the dilution percentage does not
exceed 6%. In the event dilution exceeds 6%, NationsCredit may, at its
option, (i) reduce the advance rate or (ii) implement a reserve, each
in the amount of such excess percentage.
B. Inventory Advance Rate(s) - 65% against Borrower's acceptable and
eligible raw materials and finished goods inventory, valued at the
lower of cost or market. In the event Borrower generates a pretax loss
greater than $3,000,000 from the period beginning at closing through
the end of the initial contract term, the inventory advance rate will
be decreased to 60%.
7. Credit Accommodations (including letters of credit and banker's
acceptances): As part of the Maximum Facility Amount, Lender shall, subject
to the availability criteria set forth above, provide letters of credit,
bankers acceptances and other credit accommodations for the account of
Borrower either by issuing them, or by causing other financial institutions
to issue them supported by Lender's guaranty or indemnification. When
providing Letters of Credit ("LC's") for the purchase of eligible
inventory, we shall require a margin of 35% of the cost of the inventory,
plus duty and freight, which margin shall be implemented by reserving
against availability under the Maximum Facility Amount. Standby LC's for
purposes approved by us will require a 100% margin implemented in the same
manner. All applicable bank and opening charges shall be in addition to our
fee and charged to your loan account.
8. Interest Rate:
The revolving loans and term loans shall bear interest at 1/2% per annum
plus the Prime Rate. For this purpose, the Prime Rate is defined as the
"prime rate" as quoted in The Wall Street Journal as the base rate on
corporate loans posted by at least 75% of the nation's 30 largest banks:
The Prime Rate is not necessarily the lowest rate charged by major banks.
Collections shall be credited 1 business day after Lender has received
advice of such collections at its account designated in the Loan Agreement.
9. Fees: NationsCredit shall receive the following fees, in addition to
interest, for making the credit facility available to the Borrower(s):
A. A Closing Fee of 3/4% of the Maximum Facility Amount. $40,000 of the
Closing Fee shall be fully earned and payable upon issuance of this
letter as a commitment letter fee. In the event you are unable to
close by July 15, 1998 due to your inability to meet the conditions of
this letter, you will pay us an additional $30,000. In the event you
elect not to close you will owe us an additional $60,000 above the
previous mentioned $40,000.
B. An Unused Line Fee of 1/4% per annum of the excess of the Maximum
Facility Amount over the average monthly balance of loans outstanding,
payable monthly.
C. An Early Termination Fee if the credit facility is terminated prior to
the end of the term, of 3% of the Maximum Facility Amount during the
first year of the term, 2% of the
11
<PAGE>
National Home Centers
May 20, 1998
Page 3
Maximum Facility Amount during the second year of the term, 1% of the
Maximum Facility Amount during the third year of the term, and 0% of
the Maximum Facility Amount thereafter. If another lending unit of
NationsBank repay NationsCredit before the end of the contract, there
shall be no Early Termination Fee. If the company is sold after
the first year anniversary, the early termination fee shall not exceed
$50,000. If the company is sold during the first year of this
agreement, the early termination fee shall be only $150,000.
D. Letter of Credit fee of .50% per annum of the face amount of any
outstanding Letters of Credit, payable monthly on the first day of
each month, plus all other fees and costs charged by the issuer
thereof.
10. Collateral: All obligations under this facility will be secured by:
A. A first and only security interest in all of Borrower's tangible and
intangible personal property, including, without limitation all now
owned or hereafter acquired accounts, chattel paper, instruments,
documents, inventory, and other goods, investment property and general
intangibles (including trademarks, tradenames, patents, copyrights,
goodwill and customer lists), all proceeds and products of all of the
foregoing, and all books and records relating to all of the foregoing.
B. A first priority perfected mortgage and/or trust deed on Borrower's
real property located in Branson, Missouri. If sold, the proceeds can
be used by the Borrower unless the Borrower is in default or has a
cumulative $3,000,000 pretax loss from the date of funding.
11. Term: 4 years.
12. Other Terms and Conditions: The credit facility will be subject to the
following additional terms and conditions:
A. Execution and delivery to NationsCredit of legal documentation
prepared by our counsel, including but not limited to a loan and
security agreement having representations, warranties, and defaults
acceptable to NationsCredit (the "Loan Agreement") and such financing
statements, mortgages, trust deeds, guaranties, landlord waivers,
mortgaged waivers, warehouse agreements, intercreditor and
subordination agreements, if any, third party consents, evidence of
adequate insurance properly endorsed, title insurance, opinions of
counsel and other documentation satisfactory in form and substance to
NationsCredit and its counsel. Borrower agrees that this agreement and
other agreements with NationsCredit shall be governed by New York law.
If requested, Borrower shall open an operating account in New York and
comply with any other requests of NationsCredit or its counsel
concerning application of New York law.
B. No material adverse change in Borrower's or any Guarantor's business,
operations or prospects, financial or otherwise, or in the condition
of the collateral, shall have occurred from the date of the most
recent financial statements submitted to NationsCredit or the field
examinations to be conducted by NationsCredit to the closing date.
12
<PAGE>
National Home Centers
May 20, 1998
Page 4
C. Blocked bank account for all collections or proceeds of collateral.
D. Borrower shall have unused loan availability of not less than
$4,000,000 at closing, after the application of the loan proceeds as
proposed, and provided that Borrower, at closing, has no accounts
payable more than 90 days past due and no past due taxes.
E. Delivery of monthly financial statements certified by an officer of
Borrower and annual financial statements prepared in accordance with
generally acceptable accounting principles and certified by Borrower's
independent certified public accountants, acceptable to NationsCredit.
F. Prior to closing, Borrower to have received minimum net proceeds of at
least $4,705,000 from the sale of the following real estate
(Fayetteville Home Center or the West Rogers facility and Cabinet
Craft leasehold improvements, Fort Smith).
G. NationsCredit's receipt of and satisfaction with the credit reference
to be obtained from BankAmerica Business Credit prior to closing.
H. NationsCredit's receipt of and satisfaction with management background
checks to be performed on Dwain A. Newman, Roger Holman, Brent A.
Hanby, Robert H. Storment, Danny Funderburg, Larry C. Chumley and C.
Belle Reed prior to closing.
I. Subordination or intercreditor agreements containing terms and
conditions acceptable to NationsCredit to be obtained from
Transamerica and GE prior to lending against Borrower's floor plan
inventory.
13. Due Diligence: You will provide us and our field examiners with all
financial information projections, budgets, business plans, cash flow(s)
and availability projections and other information that we shall request.
In order to be acceptable to NationsCredit, such information must show the
viability of the Borrower and that the loan facility will be sufficient for
the Borrower's needs. You will make available to our field examiners,
credit analysis and counsel all books and records and other information
requested by them during the course of their due diligence investigation of
Borrower.
14. Expenses: You will reimburse us for all costs and expenses paid or
incurred by us in connection with your account (before and after closing)
including but not limited to legal and closing expenses (including fees and
disbursements of our in-house and outside counsel), filing and search fees,
title insurance, appraisals, fees for any environmental surveys, field
examination expenses and prevailing per diem field examination and credit
analyst charges. We currently charge $650.00 per person per day for our
field examiners and credit analysts in the field and in the office, plus
travel, hotel and all other out-of-pocket expenses. Your reimbursement
obligation under this paragraph shall apply whether or not the proposed
financing is closed. Our legal expense shall be capped at $25,000 assuming
no protracted negotiations with you or with third parties.
15. Deposits: We have incurred, and we are continuing to incur, various
expenses in connection with this transaction, and you agree to reimburse us
for all of such expenses. You have already deposited $25,000 with us
concurrently with our delivery to you of our letter of interest dated
13
<PAGE>
National Home Centers
May 20, 1998
Page 5
April 12, 1998, and we now request that you deposit an additional $25,000
with us. In addition, you agree to make additional deposits with us to the
extent we believe them to be necessary to cover existing and anticipated
expenses. If you fail to comply with the provisions contained in this
letter, or if you elect not to proceed with the financing transaction
described in this letter, (i) we will refund to you the unused balance, if
any, of such expense deposits or (ii) you shall reimburse us for the
amount, if any, by which such expenses exceed such deposits.
If you are in agreement with the terms of this letter, please sign this letter
in the space provided below. Except as provided above in connection with expense
deposits and as provided below, this letter shall be of no force or effect
unless you return to us, on or before June 12, 1998, a copy of this letter
signed by you, together with (i) the additional expense deposit in the amount of
$25,000 referred to above and (ii) the partial payment of the commitment fee of
$40,000 as mentioned in 9(a). In addition, this letter shall be of no further
force or effect if the financing transaction described herein does not close on
or before July 15, 1998. In any event, we shall be entitled to retain the
commitment fee (which is non-refundable) and you shall be liable for all
expenses which we have or will incur in connection with this transaction.
Any deposit retained by us shall be in consideration of our issuance this
letter, to reimburse us for our expenses, to compensate us for our time and
effort (including executive and clerical time) and for our lost opportunity
cost.
This letter supersedes and replaces all letters addressed to you.
This letter is solely for your benefit and is not to be relied upon by any third
parties.
Once again, thank you for your interest in obtaining financing from
NationsCredit. We welcome the opportunity to work with you and your colleagues
on this transaction.
Very truly yours,
NATIONSCREDIT COMMERCIAL CORPORATION
COMMERCIAL FUNDING DIVISION
By: /s/ ROBERT GRANA
---------------------------------
Its: VP
-----------------------------
Agreed to this 11th day of
----
June , 1998
- ------------ ---
NATIONAL HOME CENTERS, INC.
By: Dwain A. Newman
-----------------------------
Its: Chairman & C.E.O.
-----------------------
14
