UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 26, 1996
[ ] 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: 0-24466
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0945858
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Industrial Boulevard NE
Minneapolis, MN 55413
(Address of principal executive offices)
(612) 331-8500
(Registrant's telephone number, including area code)
Check whether the registrant: (1) 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____
On February 7, 1997, the registrant had 2,571,454 outstanding shares of
common stock, $.10 par value.
Exhibit Index Located on Page 9.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------- --------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings for the Quarter
Ended December 26, 1996 and December 28, 1995
Condensed Consolidated Statements of Financial Position at
December 26, 1996 and September 26, 1996
Condensed Consolidated Statements of Cash Flows for the
Quarter Ended December 26, 1996 and December 28, 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 11 Statement re: computation of earnings per share
Exhibit 10.1 Term Loan and Credit Agreement between The Barbers,
Hairstyling for Men & Women, Inc. and Norwest Bank Minnesota, N.A.
dated January 22, 1997.
Exhibit 10.2 Revolving Note between The Barbers, Hairstyling for Men &
Women, Inc. and Norwest Bank Minnesota, N.A. dated January 22,
1997.
Exhibit 10.3 Term Note A between The Barbers, Hairstyling for Men & Women,
Inc. and Norwest Bank Minnesota, N.A. dated January 22, 1997.
Exhibit 10.4 Term Note B between The Barbers, Hairstyling for Men & Women,
Inc. and Norwest Bank Minnesota, N.A. dated January 22, 1997.
Exhibit 10.5 Arbitration Agreement between The Barbers, Hairstyling for Men
& Women, Inc. and Norwest Bank Minnesota, N.A. dated January 22,
1997.
Exhibit 27 Financial Data Schedule - For SEC use only
<TABLE>
<CAPTION>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FIRST QUARTER F1997
(UNAUDITED)
Three Months Ended
December 26, December 28,
1996 1995
------------ ------------
<S> <C> <C>
REVENUES
Franchise Royalties $ 1,497,065 $ 1,416,834
Franchise Fees 231,118 393,050
Company-Owned Salons 1,082,049 520,611
Beauty Products & Equipment 1,845,292 2,028,671
Other 187,529 128,436
----------- -----------
Total Revenues 4,843,053 4,487,602
COSTS & EXPENSES
Franchise Operations
Salaries & Benefits 450,085 457,141
General & Administrative 302,903 300,013
----------- -----------
Total 752,988 757,154
----------- -----------
Company-Owned Salons
Salaries & Benefits 581,208 301,385
General & Administrative 318,282 158,966
Cost of Products & Services 160,896 85,887
----------- -----------
Total 1,060,386 546,238
----------- -----------
Distribution & General Administration
Salaries & Benefits 660,009 635,701
General & Administrative 604,197 640,750
Cost of Products & Equipment 1,412,890 1,612,916
----------- -----------
Total 2,677,096 2,889,367
----------- -----------
OPERATING INCOME 352,583 294,843
OTHER INCOME (EXPENSE)
Interest Income 29,838 30,595
Interest Expense (5,698) (5,871)
Net Gain on Disposal of Assets 590 31,017
----------- -----------
INCOME BEFORE INCOME TAXES 377,313 350,584
INCOME TAX EXPENSE 158,000 147,000
----------- -----------
NET INCOME $ 219,313 $ 203,584
=========== ===========
NET INCOME PER SHARE $ 0.08 $ 0.07
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 2,805,833 2,715,962
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 28, September 26,
1996 1996
------------ -------------
ASSETS (Unaudited) (Note 1)
<S> <C> <C>
Current assets:
Cash $1,038,224 $1,317,448
Trade receivable, less allowance for doubtful
accounts of $350,000 in December 1996 and
$315,000 in September 1996 2,435,302 2,163,968
Notes receivable 449,614 235,206
Inventories held for resale 1,323,794 1,199,939
Prepaid expenses 106,413 74,372
Deferred income taxes 287,000 287,000
---------- ----------
Total current assets 5,640,347 5,277,933
Notes receivable, less current portion and allowance for
doubtful notes of $100,000 in December 1996 and
$100,000 in September 1996 657,968 733,924
Property, equipment and leasehold impovements, at cost:
Equipment 1,971,434 1,918,682
Leasehold improvements 852,109 852,109
---------- ----------
2,823,543 2,770,791
Less accumulated depreciation 1,886,516 1,816,151
---------- ----------
Net property, equipment and leasehold improvements 937,027 954,640
Investment in franchise contracts, less accumulated
amortization of $238,077 in December 1996 and
$221,805 in September 1996 733,282 733,419
Deferred income taxes 338,000 338,000
Other assets 228,887 210,287
---------- ----------
Total assets $8,535,511 $8,248,203
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital
lease obligations $ 83,123 $ 86,675
Accounts payable 388,185 481,897
Deferred franchise fees 177,250 113,750
Committed advertising 483,276 521,208
Accrued compensation and related payroll taxes 633,074 741,704
Other accrued expenses 465,051 287,011
Income taxes payable 138,609 82,943
---------- ----------
Total current liabilities 2,368,568 2,315,188
Long term debt and capital lease obligations 37,500 56,250
Deferred franchise fees 226,000 226,000
Deferred compensation 218,563 204,278
Shareholders' equity:
Common stock 257,145 256,827
Additional paid in capital 394,495 375,733
Retained earnings 5,033,240 4,813,927
---------- ----------
Total shareholder's equity 5,684,880 5,446,487
---------- ----------
Total liabilities and shareholders' equity $8,535,511 $8,248,203
========== ==========
</TABLE>
Note 1: The balance sheet at September 26, 1996 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Certain fiscal 1996 items have been
reclassified to conform with the fiscal 1997 presentation.
See notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
December 26, December 28,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 219,313 $ 203,584
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 95,124 79,765
Provision for losses on accounts and notes receivable 34,618 66,394
Gain on sales of property and equipment (590) (31,017)
Stock compensation 19,080 12,150
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts and notes receivable (444,404) (844,900)
Inventories held for resale (123,855) (148,018)
Prepaid expenses (32,041) (71,150)
Other assets (18,600) 13,133
(Decrease) increase in:
Payables and accrued expenses (47,949) (285,831)
Deferred franchise fees 63,500 (47,000)
Income taxes payable 55,666 45,448
----------- -----------
Net cash used in operating activities (180,138) (1,007,442)
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 590 35,805
Capital expenditures (61,239) (104,729)
Investment in franchise contracts (16,135) (14,746)
----------- -----------
Net cash used in investing activities (76,784) (83,670)
FINANCING ACTIVITIES
Principle payments on long-term debt (18,750) (18,750)
Principle payments on capital lease obligations (3,552) (8,288)
----------- -----------
Net cash used in financing activities (22,302) (27,038)
----------- -----------
Net decrease in cash and cash equivalents (279,224) (1,118,150)
Cash and cash equivalents at beginning of period 1,317,448 2,121,310
----------- -----------
Cash and cash equivalents at end of period $ 1,038,224 $ 1,003,160
=========== ===========
CASH PAID DURING PERIOD FOR:
Interest $ 5,698 $ 5,871
Taxes $ 102,334 $ 101,552
</TABLE>
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - 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. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring accruals) considered necessary for a fair
presentation of results have been included. Operating results for the three
months ended December 26, 1996, are not necessarily indicative of the results
that may be expected for the year ended September 25, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report for the fiscal year ended
September 26, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is in the business of franchising two different hair care
salon concepts that provide hair care products for men, women, and children.
Most franchises do business under the names "Cost Cutters Family Hair Care(R)"
("Cost Cutters") or "City Looks Salons International(R)" ("City Looks"). The
Company also has a limited number of franchises operating under the names "The
Barbers, Hairstyling for Men & Women(R)", "Family Haircut Stores" and "The Hair
Performers". The Company currently sells only franchises in Cost Cutters and
City Looks.
The Company had 801 franchised and Company-owned salons in operation as
of December 26, 1996, compared to 721 at December 28, 1995. The Company
primarily earns revenue through its franchise operations from initial franchise
fees, franchise royalties, and sales of beauty products and equipment to the
franchisees.
The Company operates on a 52/53 week year basis. The fiscal years 1997
and 1996 include 52 weeks of operations.
RESULTS OF OPERATIONS
REVENUES: The Company's total revenues were $4,843,053 for the first quarter of
fiscal 1997, an increase of $355,451 or 7.9% over the first quarter of the
previous year. Franchise royalties totaled $1,497,065 for the first quarter of
fiscal 1997 which is an increase of 5.7% over the comparable period for the
previous year. This increase was due to an increase in per store sales by
franchised salons as well as an increase in the number of salons in operation in
fiscal 1997 as compared to fiscal 1996. Franchise fee revenue (initial franchise
fees) decreased $161,932 or 41.2% to $231,118 for the first quarter of fiscal
1997. The decrease in franchise fee revenue was due to a decrease in the number
of salons opened during the comparable periods. A total of nineteen new salons
opened in the first quarter of fiscal 1997 versus thirty-three new salons in the
first quarter of the previous year. Revenue from Company-owned salons was
$1,082,049 for the first quarter, an increase of 107.8% over the first quarter
of the previous year. The increase in revenue from Company-owned salons are due
primarily to the addition of fifteen new Company-owned salons; thirteen during
the later half of fiscal 1996 and two during the first quarter of fiscal 1997.
During the first quarter of fiscal 1996, the Company operated nine Company-owned
salons. Beauty product and equipment sales for the first quarter of fiscal 1997
were $1,845,292, a decrease of $183,379 or 9.0% from the first quarter of the
previous year. The decrease in beauty product and equipment sales was
attributable to a decrease in the total number of new salons opened during the
first quarter of fiscal 1997 compared to the same period for the previous year.
COSTS & EXPENSES - FRANCHISE OPERATIONS: Total franchise operations expenses
were $752,988 for the first quarter of fiscal 1997. This was a decrease of 0.6%
from the first quarter of fiscal 1996. The operating expenses of the first
quarter of fiscal 1996 include the travel and meeting costs for a franchisee
convention held at a remote location. The franchisee convention was held locally
during the first quarter of fiscal 1997.
COSTS & EXPENSES - COMPANY-OWNED SALONS: The Company presently owns and operates
twenty-four salons: twenty-three operate as Cost Cutters salons and one operates
as a City Looks. Thirteen of the Cost Cutters salons were opened in the later
half of fiscal 1996 and two were opened in the first quarter of fiscal 1997.
Twenty-one of the Cost Cutters operate inside Wal-Mart Supercenters. First
quarter operating costs for the Company-owned salons were $1,060,386 as compared
to $546,238 for the first quarter of the previous year, an increase of 94.1%.
This increase was primarily due to the costs associated with opening and
operating the new Cost Cutters salons.
COSTS & EXPENSES - DISTRIBUTION AND GENERAL ADMINISTRATION: Total operating
expenses for distribution and general administration for the first quarter of
fiscal 1997 were $2,677,096 which is a decrease of $212,271 or 7.3% from the
first quarter of the prior year. Most of this decrease was due to decreased cost
of products and equipment sold, which corresponds to the decrease in sales of
products and equipment. The first quarter cost of products and equipment sold
was $1,412,890 versus a prior year cost of $1,612,916, a decrease of 12.4%.
Margins on the sale of products and equipment were 23.4% versus 20.5% the
previous year. Salaries and benefits were $660,009 for the first quarter of
fiscal 1997 versus $635,701 for the first quarter of fiscal 1996, an increase of
3.8%. This increase was due to increases in staff size and an average increase
in salaries of 4.0%. General and administrative expenses for the first quarter
decreased by $36,553 or 5.7% from the previous year to $604,197. The majority of
the decreases were in the areas of reserves for bad debts and travel expenses.
OPERATING INCOME: Operating income was $352,583 for the first quarter of fiscal
1997 as compared to $294,843 for the comparable period of the prior year, an
increase of 19.6%. Operating income as a percent of revenue was 7.3% for the
first quarter of fiscal 1997 versus 6.6% for the comparable period of the
previous fiscal year.
INTEREST INCOME AND EXPENSE: Interest income was $29,838 for the first quarter
of fiscal 1997, which is a decrease of $757 or 2.5% from the interest income of
the first quarter of fiscal 1996. Interest expense was $5,698 for the first
quarter of fiscal 1997 compared to $5,871 for the comparable period of fiscal
1996. This decrease in interest expense was due to decreases in long term debt.
NET GAIN ON DISPOSAL OF ASSETS: During the first quarter of fiscal 1997 the
Company sold miscellaneous assets. The Company recorded a net gain on disposal
of these assets of $590. During the comparable period of the previous year, the
$31,017 gain on the disposal of assets was due to the sale of one Company-owned
salon, one rental property, and miscellaneous assets.
INCOME TAXES: The Company's effective tax rates for the first quarter of fiscal
1997 and fiscal 1996 were 41.9%. The Company anticipates that the rate for the
balance of fiscal 1997 will be approximately 42%.
NET INCOME: The Company's net income for the first quarter of 1997 was $219,313
or $.08 per share. This was an increase of $15,729 or 7.7% over the first
quarter of fiscal 1996 net income and an increase of $.01 per share.
LIQUIDITY AND CAPITAL RESOURCES: The Company has generally been able to produce
sufficient cash from operations to support the routine expansion of its
business, and expects to continue to do the same in fiscal 1997. The Company
expects capital expenditures during fiscal 1997 to be approximately $400,000,
primarily due to the addition of several new Company-owned salons and routine
replacement of office equipment.
The Company as of December 26, 1996, had a line of credit in the amount of
$1,000,000 which carried an interest rate of .50% over the bank's prime rate
which expires April 30, 1997. In addition, the Company also had a term loan with
this same lender. The interest rate on this loan was .75% over the bank's prime
rate. The balance on the loan as of the end of the first quarter of fiscal 1997
was $112,500. All other long term debt represents capital leases. See Item 5 for
information regarding new debt.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company announced on December 26, 1996, that it had entered into a
preliminary agreement to acquire the trademark and franchise agreements of We
Care Hair Development, Inc., a Chicago-based chain of value-priced hair care
salons. This acquisition was completed on January 24, 1997. The purchase price
was $2 million plus a percentage of future royalties. We Care Hair(R) has
approximately 140 franchised salons operating throughout the United States and
Mexico with a concentration in Illinois, Indiana, and Ohio. Details of this
acquisition are included in the Company's form 8-K which was filed February 6,
1997. The Company negotiated term loans totaling $2.5 million from Norwest Bank
Minnesota, N.A. to finance this acquisition. In addition, Norwest Bank
Minnesota, N.A. agreed to increase the Company's line of credit to $1.5 million.
Details of these loan agreements are included in the exhibits to this document.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Exhibit
Number Description
- ------ -----------
11 Statement re: computation of earnings per share
10.1 Term Loan and Credit Agreement between The Barbers, Hairstyling
for Men & Women, Inc. and Norwest Bank Minnesota, N.A. dated
January 22, 1997.
10.2 Revolving Note between The Barbers, Hairstyling for Men & Women,
Inc. and Norwest Bank Minnesota, N.A. dated January 22, 1997.
10.3 Term Note A between The Barbers, Hairstyling for Men & Women, Inc.
and Norwest Bank Minnesota, N.A. dated January 22, 1997.
10.4 Term Note B between The Barbers, Hairstyling for Men & Women, Inc.
and Norwest Bank Minnesota, N.A. dated January 22, 1997.
10.5 Arbitration Agreement between The Barbers, Hairstyling for Men &
Women, Inc. and Norwest Bank Minnesota, N.A. dated January 22,
1997.
27 Financial Data Schedule - For SEC use only
(b) The Company did not file any reports on Form 8-K during the three
months ended December 26, 1996.
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.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
(Registrant)
Date: February 7, 1997 By: /s/ J. Brent Hanson
-------------------
J. Brent Hanson
Vice President
By: /s/ J. Brent Hanson
-------------------
J. Brent Hanson
Chief Financial Officer
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
Three Months Ended
December 26, December 28,
1996 1995
------------ ------------
EARNINGS PER SHARE:
Average shares outstanding 2,569,069 2,539,467
Net effect of dilutive stock options
and warrants -- based on the treasury
stock method using average market
price 236,764 176,495
---------- ----------
Total 2,805,833 2,715,962
========== ==========
Net income $ 219,313 $ 203,584
========== ==========
Net income per share of Common
Stock $ 0.08 $ 0.07
========== ==========
Exhibit 10.1
[GRAPHIC OMITTED] NORWEST BANK MINNESOTA, TERM LOAN AND
NATIONAL ASSOCIATION CREDIT AGREEMENT
================================================================================
This Term Loan and Credit Agreement (the "Agreement") dated as of January 22,
1997 (the "Effective Date") is between Norwest Bank Minnesota, National
Association (the "Bank") and The Barbers, Hairstyling for Men & Women, Inc. (the
"Borrower").
BACKGROUND
The Borrower has asked the Bank to renew and increase its existing conditional
revolving line of credit in the amount of $1,500,000.00, which it uses for the
purpose of financing accounts receivable. Borrowings under the revolving line of
credit are currently evidenced by a revolving note dated February 14, 1996 (the
"1996 Revolving Note").
The Borrower has also asked the Bank to provide it with a $1,500,000.00 and a
$1,000,000.00 term loan, both to be used for the purpose of purchasing 120
franchise agreements of We Care Hair Development, Inc.
The Revolving Note, Term Note A and Term Note B (all as defined below) will
collectively be referred to as the "Notes". The Notes, this Agreement, and all
"Security Documents" described in Exhibit B may collectively be referred to as
the "Documents."
In consideration of the above premises, the Borrower and the Bank agree as
follows:
1. LINE OF CREDIT
1.1 LINE OF CREDIT AMOUNT. During the Line Availability Period defined
below, the Bank agrees to provide a conditional revolving line of
credit (the "Line") to the Borrower. Outstanding amounts under the Line
will not, at any one time, exceed One Million Five Hundred Thousand and
00/100 Dollars ($1,500,000.00). THIS IS A CONDITIONAL REVOLVING LINE OF
CREDIT AND EACH ADVANCE UNDER THE LINE, IF MADE, WILL BE AT THE SOLE
DISCRETION OF THE BANK.
1.2 LINE AVAILABILITY PERIOD. The "Line Availability Period" will mean the
period of time from the Effective Date or the date on which all
conditions precedent described in this Agreement have been met,
whichever is later, to June 30, 1998 (the "Line Expiration Date").
1.3 ADVANCES. The Borrower's obligation to repay advances made under the
Line will be evidenced by a single promissory note (the "Revolving
Note") dated as of the Effective Date and in form and content
acceptable to the Bank. The Revolving Note shall replace, but shall not
be deemed to satisfy, the 1996 Revolving Note. Reference is made to the
Revolving Note for interest rate and repayment terms.
2. TERM LOAN A
2.1 TERM LOAN A AMOUNT. The Bank agrees to provide a term loan to the
Borrower in the amount of One Million Five Hundred Thousand and 00/100
Dollars ($1,500,000.00) ("Term Loan A"). The Borrower's obligation to
repay outstandings under Term Loan A will be evidenced by a promissory
note ("Term Note A") dated as of the Effective Date, and in form and
content acceptable to the Bank. Reference is made to Term Note A for
terms relating to interest rate, repayment and other conditions
governing Term Loan A.
2.2 TERM LOAN A AVAILABILITY PERIOD. Term Loan A is available in one
disbursement on the Effective Date.
3. TERM LOAN B
3.1 TERM LOAN B AMOUNT. The Bank agrees to provide a term loan to the
Borrower in the amount of One Million and 00/100 Dollars
($1,000,000.00) ("Term Loan B"). The Borrower's obligation to repay
outstandings under Term Loan B will be evidenced by a promissory note
("Term Note B") dated as of the Effective Date, and in form and content
acceptable to the Bank. Reference is made to Term Note B for terms
relating to interest rate, repayment and other conditions governing
Term Loan B.
3.2 TERM LOAN B AVAILABILITY PERIOD. Term Loan B is available in one
disbursement on the Effective Date.
4. EXPENSES
4.1 DOCUMENTATION EXPENSE. The Borrower agrees to reimburse the Bank for
its reasonable expenses relating to the preparation of the Documents
and any possible future amendments to the Documents, which
reimbursement may include, but shall not be limited to, reimbursement
of reasonable attorneys' fees, including the allocated costs of the
Bank's in-house counsel. Despite such reimbursement the Borrower
acknowledges that the Bank's counsel is engaged solely to represent the
Bank and does not represent the Borrower.
4.2 COLLECTION EXPENSES. In the event the Borrower fails to pay the Bank
any amounts due under this Agreement or under the Documents, the
Borrower will pay all costs of collection, including reasonable
attorneys' fees and legal expenses incurred by the Bank.
4.3 MISCELLANEOUS EXPENSE. The Borrower agrees to reimburse the Bank for
all expenses paid to third parties relating to the perfection of its
security interest in collateral pledged to the Bank.
5. ADVANCES AND PAYMENTS
5.1 REQUESTS FOR ADVANCES. Any Line advance permitted under this Agreement
must be requested by telephone or in a writing delivered to the Bank
(or transmitted via facsimile) by any person reasonably believed by the
Bank to be an authorized officer of the Borrower. The Bank will not
consider any such request if there is an event which is, or with notice
or the lapse of time would be, an event of default under this
Agreement. Proceeds will be deposited into the Borrower's account at
the Bank or disbursed in such other manner as the parties agree.
5.2 PAYMENTS. All principal, interest and fees due under the Documents
shall be paid in immediately available funds as contracted in this
Agreement and no later than the payment due date set forth in the
statement mailed to the Borrower by the Bank. Should a payment come due
on a day other than a day on which the Bank is open for substantially
all of its business (a "Banking Day"), then the payment shall be made
no later than the next Banking Day and interest shall continue to
accrue during the extended period.
6. SECURITY
All amounts due under this Agreement and the Documents will be secured
as provided in Exhibit A. The Borrower also hereby grants the Bank a
security interest (independent of the Bank's right of set-off) in its
deposit accounts at the Bank and in any other debt obligations of the
Bank to the Borrower.
7. CONDITIONS PRECEDENT
The Borrower must deliver to the Bank the documents described in
Exhibit A, properly executed and in form and content acceptable to the
Bank, prior to the Bank's initial advance under this Agreement.
8. REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, the Borrower, to the
best of its knowledge and upon due inquiry, makes the representations
and warranties contained in Exhibit B. Each request for an advance
under this Agreement constitutes a reaffirmation of these
representations and warranties.
9. COVENANTS
During the time period that credit is available under this Agreement,
and thereafter until all amounts due under the Documents are paid in
full, unless the Bank shall otherwise agree in writing, the Borrower
agrees to:
9.1 FINANCIAL INFORMATION
(a) Annual Financial Statements. Provide the Bank within 120 days of the
Borrower's fiscal year end, the Borrower's annual financial statements.
The statements must be audited with an unqualified opinion by a
certified public accountant acceptable to the Bank, and must be
accompanied by a certificate of such accountants stating whether, in
conducting their audit, they have become aware of any event of default
under this Agreement, or of any event which might become such an event
of default after the lapse of time or the giving of notice and the
lapse of time, which has occurred and is continuing and specifying the
nature and time period of its existence.
(b) Interim Financial Statements. Provide the Bank within 45 days of each
fiscal quarter end, the Borrower's interim financial statements
certified as correct by an officer of the Borrower and in form
acceptable to the Bank.
(c) Insurance Certificates. Provide the Bank upon request, insurance
certificates in form and content acceptable to the Bank, indicating the
Borrower's compliance with the covenants set forth in Section 9.3(c)
hereof.
(d) Notices. Provide the Bank prompt written notice of: 1) any event which
has or might after the passage of time or the giving of notice, or
both, constitute an event of default under the Documents, or 2) any
event that would cause the representations and warranties contained in
this Agreement to be untrue.
(e) Additional Information. Provide the Bank with such other information as
it may reasonably request, and permit the Bank to visit and inspect its
properties and examine its books and records.
9.2 FINANCIAL COVENANTS
(a) Tangible Net Worth. Maintain a minimum Tangible Net Worth of at least
$3,200,000.00 as of September 30, 1997.
"Tangible Net Worth" means total assets less total liabilities and less
the following types of assets: (1) leasehold improvements; (2)
receivables and other investments in or amounts due from any
shareholder, director, officer, employee or other person or entity
related to or affiliated with the Borrower; (3) goodwill, patents,
copyrights, mailing lists, trade names, trademarks, servicing rights,
organizational and franchise costs, bond underwriting costs and other
like assets properly classified as intangible.
(b) Total Liabilities to Tangible Net Worth Ratio. Maintain a ratio of
total liabilities to Tangible Net Worth of less than 2.0 to 1.0 as of
September 30, 1997.
(c) Net Profit. Obtain a minimum after-tax net profit of $500,000.00 as of
September 30, 1997.
9.3 OTHER COVENANTS
(a) Other Liens. Refrain from allowing any security interest or lien on
property it owns now or in the future, except:
(i) Liens in favor of the Bank.
(ii) Liens for taxes not delinquent or which the Borrower
is contesting in good faith.
(b) Dividends. Refrain from: 1) declaring or paying any dividends on any of
its capital stock, or 2) purchasing, redeeming or otherwise acquiring
any of its capital stock.
(c) Insurance. Cause its properties to be adequately insured by a reputable
insurance company against loss or damage and to carry such other
insurance (including business interruption insurance) as is usually
carried by persons engaged in the same or similar business. Such
insurance must include a lender's loss payable endorsement in favor of
the Bank in form acceptable to the Bank.
(d) Nature of Business. Refrain from engaging in any line of business
materially different from that presently engaged in by the Borrower.
(e) Deposit Accounts. Maintain its principal deposit accounts with the
Bank.
(f) Form of Organization and Merger. Refrain from changing its legal form
of organization or consolidating , merging, pooling, syndicating or
otherwise combining with any other entity. The purchase by the Borrower
of the trademark and franchise agreements of We Care Hair Development,
Inc. has been agreed to by the Bank and shall not be deemed a default
by the Borrower under this paragraph (f).
(g) Maintenance of Properties. Make all repairs, renewals or replacements
necessary to keep its plant, properties and equipment in good working
condition.
(h) Books and Records. Maintain adequate books and records and refrain from
making any material changes in its accounting procedures whether for
tax purposes or otherwise.
(i) Compliance with Laws. Comply in all material respects with all laws
applicable to its business and the ownership of its property.
(j) Preservation of Rights. Maintain and preserve all rights, privileges,
charters and franchises it now has.
These covenants were negotiated by the Bank and Borrower based on
information provided to the Bank by the Borrower. A breach of a
covenant is an indication that the risk of the transaction has
increased. As consideration for any waiver or modification of these
covenants, the Bank may require: additional collateral, guaranties or
other credit support; higher fees or interest rates; and possible
modifications to the Documents and the monitoring of the Agreement. The
waiver or modification of any covenant that has been violated by the
Borrower will be made in the sole discretion of the Bank. These options
do not limit the Bank's right to exercise its rights under Section 9 of
this Agreement.
10. EVENTS OF DEFAULT AND REMEDIES
10.1 DEFAULT
Upon the occurrence of any one or more of the following events of
default, or at any time afterward unless the default has been cured,
the Bank may declare the Line to be terminated and in its discretion
accelerate and declare the unpaid principal, accrued interest and all
other amounts payable under the Notes to be immediately due and
payable:
(a) Default by the Borrower in the payment when due of any principal or
interest due under any of the Notes and continuance for 10 days.
(b) Default by the Borrower in the observance or performance of any
covenant or agreement contained in this Agreement, and continuance for
more than 15 days.
(c) Default by the Borrower in the observance or performance of any
covenant or agreement contained in the Documents, or any of them,
excluding this Agreement, after giving effect to any applicable grace
period.
(d) Default by the Borrower in any agreement with the Bank or any other
lender that relates to indebtedness or contingent liabilities which
would allow the maturity of such indebtedness to be accelerated.
(e) Any representation or warranty made by the Borrower to the Bank is
untrue in any material respect.
(f) Any litigation or governmental proceeding against the Borrower seeking
an amount in excess of $100,000.00 which is not insured or subject to
indemnity by a solvent third party either 1) results in a judgment
equal to or in excess of that amount against the Borrower or 2) remains
unresolved on the 270th day following its filing.
(g) A garnishment, levy or writ of attachment, or any local, state, or
federal notice of tax lien or levy is served upon the Bank for the
attachment of property of the Borrower in the Bank's possession or
indebtedness owed to the Borrower by the Bank.
(h) A material adverse change occurs in the Borrower's financial condition
or ability to repay its obligations to the Bank.
10.2 IMMEDIATE DEFAULT
If, with or without the Borrower's consent, a custodian, trustee or
receiver is appointed for any of the Borrower's properties, or if a
petition is filed by or against the Borrower under the United States
Bankruptcy Code, then the Line shall immediately terminate and the
unpaid principal, accrued interest and all other amounts payable under
the Notes and the Documents will become immediately due and payable
without notice or demand.
10.3 SUPPLEMENTARY CROSS DEFAULT OF OTHER PROMISSORY NOTES
The Borrower agrees that each promissory note evidencing indebtedness
of the Borrower to the Bank which is not included in the definition of
"Notes" stated on the first page of this Agreement or which is not
otherwise documented in this Agreement, and regardless of whether
delivered before or after the Effective Date, including, without
limitation, the Borrower's promissory note dated June 30, 1993 in the
original principal amount of $188,000.00, shall hereby be amended on a
supplementary basis to provide that each such promissory note may be
accelerated by the Bank in its discretion following the occurrence of
any event of default agreed to in Section 10.1, or shall be accelerated
and become immediately due and payable without notice by the Bank
following the occurrence of any event of default agreed to in Section
10.2, which events of default and rights of acceleration are in
addition to, and not exclusive of, any events of default and rights of
acceleration agreed to in the promissory note itself.
11. MISCELLANEOUS.
(a) 360 Day Year. All interest and fees due under this Agreement will be
calculated on the basis of actual days elapsed in a 360 day year.
(b) GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all calculations for compliance
with financial covenants will be made using generally accepted
accounting principles consistently applied ("GAAP").
(c) No Waiver; Cumulative Remedies. No failure or delay by the Bank in
exercising any rights under this Agreement shall be deemed a waiver of
those rights. The remedies provided for in the Agreement are cumulative
and not exclusive of any remedies provided by law.
(d) Amendments or Modifications. Any amendment or modification of this
Agreement must be in writing and signed by the Bank and Borrower. Any
waiver of any provision in this Agreement must be in writing and signed
by the Bank.
(e) Binding Effect: Assignment. This Agreement and the Documents are
binding on the successors and assigns of the Borrower and Bank. The
Borrower may not assign its rights under this Agreement and the
Documents without the Bank's prior written consent. The Bank may sell
participations in or assign this Agreement and the Documents and
exchange financial information about the Borrower with actual or
potential participants or assignees.
(f) Minnesota Law. This Agreement and the Documents will be governed by the
substantive laws of the State of Minnesota.
(g) Severability of Provisions. If any part of this Agreement or the
Documents are unenforceable, the rest of this Agreement or the
Documents may still be enforced.
(h) Integration. This Agreement and the Documents describe the entire
understanding and agreement of the parties and supersedes all prior
agreements between the Bank and the Borrower relating to each credit
facility subject to this Agreement, whether verbal or in writing.
Address for notices to Bank: Address for notices to Borrower:
Norwest Bank Minnesota, The Barbers, Hairstyling for Men & Women, Inc.
National Association 300 Industrial Blvd. N.E.
55 East Fifth Street Minneapolis, Minnesota 55413
St. Paul, Minnesota 55101
Attention: Brian J. Opp, Attention: J. Brent Hanson,
Vice President Vice President and Chief Financial
Officer
NORWEST BANK MINNESOTA, THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
NATIONAL ASSOCIATION
BY: /s/ BRIAN J. OPP BY: /s/ J. BRENT HANSON
--------------------------- -------------------------------------
BRIAN J. OPP, VICE PRESIDENT J. BRENT HANSON, VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
EXHIBIT A
CONDITIONS PRECEDENT TO INITIAL ADVANCE
NOTES
The Revolving Note, Term Note A and Term Note B
SECURITY DOCUMENTS
Security Agreement. A Security Agreement dated July 8, 1994 signed by the
Borrower granting the Bank a first lien security interest in the Borrower's
accounts, inventory, equipment and general intangibles. The Borrower will also
execute financing statements sufficient to perfect the security interest granted
to the Bank.
AUTHORIZATION
Corporate Certificate of Authority. A certificate of the Borrower's corporate
secretary as to the incumbency and signatures of the officers of the Borrower
signing the Documents and containing a copy of resolutions of the Borrower's
board of directors authorizing execution of the Documents and performance in
accordance with the terms of the Agreement.
ORGANIZATION
Articles of Incorporation And By - Laws. A certified copy of the Borrower's
Articles of Incorporation and By-Laws and any amendments, if applicable.
Certificate of Good Standing. A copy of the Borrower's Certificate of Good
Standing, recently certified by the Minnesota Secretary of State.
OTHER
Arbitration Agreement. The Bank's standard form of Arbitration Agreement signed
by the Bank and Borrower, subjecting to binding arbitration potential
controversies between the Bank and Borrower relating to the Documents and the
Agreement, as more fully described in the Arbitration Agreement.
Evidence of Insurance. Evidence that the insurance required under the Covenant
Section of this Agreement is in force.
EXHIBIT B
REPRESENTATIONS AND WARRANTIES
Organizational Status. The Borrower is a corporation duly formed and in good
standing under the laws of the State of Minnesota.
Authorization. This Agreement, and the execution and delivery of the Documents
required hereunder, is within the Borrower's powers, has been duly authorized
and does not conflict with any of its organizational documents or any other
agreement by which the Borrower is bound, and has been signed by all persons
authorized and required to do so under its organizational documents.
Financial Reports. The Borrower has provided the Bank with its annual audited
financial statement dated September 30, 1996, and this statement fairly
represents the financial condition of the Borrower as of its date and was
prepared in accordance with GAAP.
Litigation. There is no litigation or governmental proceeding pending or
threatened against the Borrower which could have a material adverse effect on
the Borrower's financial condition or business.
Taxes. The Borrower has paid when due all federal, state and local taxes.
No Default. There is no event which is, or with notice or the lapse of time
would be, an event of default under this Agreement.
ERISA. The Borrower is in compliance in all material respects with ERISA and has
received no notice to the contrary from the PBGC or other governmental entity.
Environmental Matters. 1) The Borrower is in compliance in all material respects
with all health and environmental laws applicable to the Borrower and its
operations and knows of no conditions or circumstances that could interfere with
such compliance in the future; 2) the Borrower has obtained all environmental
permits and approvals required by law for the operation of its business; and 3)
the Borrower has not identified any "recognized environmental conditions", as
that term is defined by the American Society for Testing and Materials in its
standards for environmental due diligence, which could subject the Borrower to
enforcement action if brought to the attention of appropriate governmental
authorities.
Exhibit 10.2
[GRAPHIC OMITTED] NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION REVOLVING NOTE
================================================================================
$1,500,000.00 January 22, 1997
FOR VALUE RECEIVED, The Barbers, Hairstyling for Men & Women, Inc. (the
"Borrower") promises to pay to the order of Norwest Bank Minnesota, National
Association (the "Bank"), at its principal office or such other address as the
Bank or holder may designate from time to time, the principal sum of One Million
Five Hundred Thousand and 00/100 Dollars ($1,500,000.00), or the amount shown on
the Bank's records to be outstanding, plus interest (calculated on the basis of
actual days elapsed in a 360-day year) accruing on the unpaid balance at the
annual interest rate defined below. Absent manifest error the Bank's records
will be conclusive evidence of the principal and accrued interest owing
hereunder.
This Revolving Note is issued pursuant to a Term Loan and Credit Agreement of
even date herewith between the Bank and the Borrower (the "Agreement"). The
Agreement, and any amendments or substitutions thereto, contain additional terms
and conditions including default and acceleration provisions. The terms of the
Agreement are incorporated into this Revolving Note by reference. Capitalized
terms not expressly defined herein shall have the meanings given them in the
Agreement.
INTEREST RATE. The principal balance outstanding under this Revolving Note will
bear interest at an annual rate equal to the Base Rate, floating. The Base Rate
is the "base" or "prime" rate of interest established by the Bank from time to
time at its principal office in Minneapolis, Minnesota.
REPAYMENT TERMS
INTEREST. Interest will be payable on the last day of each month, beginning
January 31, 1997 or on DEMAND.
PRINCIPAL. Principal and any unpaid interest, will be due on DEMAND.
ADDITIONAL TERMS AND CONDITIONS. The Borrower agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses incurred by
the Bank in the event this Revolving Note is not duly paid. Demand, presentment,
protest and notice of nonpayment and dishonor of this Revolving Note are
expressly waived. This Revolving Note will be governed by the substantive laws
of the State of Minnesota.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
BY: /s/ J. BRENT HANSON
------------------------------------------
ITS: VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Exhibit 10.3
[GRAPHIC OMITTED] NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION TERM NOTE A
================================================================================
$1,500,000.00 January 22, 1997
FOR VALUE RECEIVED, The Barbers, Hairstyling for Men & Women, Inc. (the
"Borrower") promises to pay to the order of Norwest Bank Minnesota, National
Association (the "Bank"), at its principal office or such other address as the
Bank or holder may designate from time to time, the principal sum of One Million
Five Hundred Thousand and 00/100 Dollars ($1,500,000.00), or the amount shown on
the Bank's records to be outstanding, plus interest (calculated on the basis of
actual days elapsed in a 360-day year) accruing on the unpaid balance at the
annual rate of interest defined below. Absent manifest error the Bank's records
will be conclusive evidence of the principal and accrued interest owing
hereunder.
INTEREST RATE. The principal balance outstanding under this Term Note A will
bear interest at 8.82% per annum.
REPAYMENT TERMS
PRINCIPAL AND INTEREST. Principal and interest shall be payable in successive
monthly installments of Twenty Three Thousand Nine Hundred Ninety Seven and
00/100 Dollars ($23,997.00), beginning on February 22, 1997. The remaining
principal balance, plus any accrued interest, shall be fully due and payable on
January 22, 2004.
APPLICATION OF PAYMENTS. Each payment shall be applied as scheduled or as the
Bank in its discretion deems appropriate.
PREPAYMENT PENALTY. This Term Note A may be prepaid in whole or in part at any
time, provided that a premium shall be paid with the prepayment equal to the
amount of interest that would have accrued on the principal being prepaid (from
the date of prepayment to its stated maturity or repricing date) computed at an
annual rate equal to (i) the rate then in effect under this Term Note A on the
principal being prepaid, minus (ii) the yield (including both interest and
discount) on a United States Treasury Security of comparable term that could be
purchased on the date of prepayment and maturing on (or about) the due date of
the principal being prepaid; such amount to be discounted to its present value
using the yield on such Treasury Security as the applicable discount factor
discounted monthly, provided that no premium shall be payable (and no credit or
rebate shall be required) if the yield described in clause (ii) above exceeds
the rate described in clause (i). Each prepayment shall be applied against
installments of principal due hereunder in inverse order of their maturities.
For purposes of the foregoing, the term "prepayment" shall include any payment
following acceleration of this Term Note A.
ADDITIONAL TERMS AND CONDITIONS. This Term Note A is issued pursuant to a Term
Loan and Credit Agreement of even date between the Bank and the Borrower (the
"Agreement"). The Agreement, and any amendments or substitutions, contains
additional terms and conditions, including default and acceleration provisions,
which are incorporated into this Term Note A by reference. Capitalized terms not
expressly defined herein shall have the meanings given them in the Agreement.
The Borrower agrees to pay all costs of collection, including reasonable
attorneys' fees and legal expenses incurred by the Bank if this Term Note A is
not paid as provided above. This Term Note A shall be governed by the
substantive laws of the State of Minnesota.
WAIVER OF PRESENTMENT AND NOTICE OF DISHONOR. Borrower and any other person who
signs, guarantees or endorses this Term Note A, to the extent allowed by law,
hereby waives presentment, demand for payment, notice of dishonor, protest, and
any notice relating to the acceleration of the maturity of this Term Note A.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
BY: /s/ J. BRENT HANSON
------------------------------------------
ITS: VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Exhibit 10.4
[GRAPHIC OMITTED] NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION TERM NOTE B
================================================================================
$1,000,000.00 January 22, 1997
FOR VALUE RECEIVED, The Barbers, Hairstyling for Men & Women, Inc. (the
"Borrower") promises to pay to the order of Norwest Bank Minnesota, National
Association (the "Bank"), at its principal office or such other address as the
Bank or holder may designate from time to time, the principal sum of One Million
and 00/100 Dollars ($1,000,000.00), or the amount shown on the Bank's records to
be outstanding, plus interest (calculated on the basis of actual days elapsed in
a 360-day year) accruing on the unpaid balance at the annual rate of interest
defined below. Absent manifest error the Bank's records will be conclusive
evidence of the principal and accrued interest owing hereunder.
INTEREST RATE. The principal balance outstanding under this Term Note B will
bear interest at an annual rate equal to the Base Rate, floating. The Base Rate
is the "base" or "prime" rate of interest established by the Bank from time to
time at its principal office in Minneapolis, Minnesota.
REPAYMENT TERMS
INTEREST. Interest only shall be payable on the 10 day of each month, beginning
February 10, 1997.
PRINCIPAL AND INTEREST. Beginning February 10, 1998, principal only shall be
payable in successive monthly installments of Thirteen Thousand Eight Hundred
Eighty-Eight and 00/100 Dollars ($13,888.00). In addition, interest shall be
payable monthly, beginning February 10, 1998. The remaining principal balance,
plus any accrued interest, shall be fully due and payable on January 10, 2004.
CHANGES IN PAYMENT AMOUNT. Following an increase in the interest rate and upon
at least 15 days advance written notice to the Borrower, the Bank, in its
discretion, may increase the Borrower's monthly payment in an amount sufficient
to insure that this Term Note B will fully amortize over the remainder of the
original 84-month period used to calculate the original amortization of this
Term Note B.
APPLICATION OF PAYMENTS. Each payment shall be applied as scheduled or as the
Bank in its discretion deems appropriate.
PREPAYMENT. The Borrower may prepay this Term Note B in full or in part at any
time. Each prepayment shall be applied as scheduled or as the Bank in its sole
discretion may deem appropriate. Such prepayment shall not excuse the Borrower
from making subsequent payments as scheduled above until the indebtedness is
paid in full.
ADDITIONAL TERMS AND CONDITIONS. This Term Note B is issued pursuant to a Term
Loan and Credit Agreement of even date between the Bank and the Borrower (the
"Agreement"). The Agreement, and any amendments or substitutions, contains
additional terms and conditions, including default and acceleration provisions,
which are incorporated into this Term Note B by reference. Capitalized terms not
expressly defined herein shall have the meanings given them in the Agreement.
The Borrower agrees to pay all costs of collection, including reasonable
attorneys' fees and legal expenses incurred by the Bank if this Term Note B is
not paid as provided above. This Term Note B shall be governed by the
substantive laws of the State of Minnesota.
WAIVER OF PRESENTMENT AND NOTICE OF DISHONOR. Borrower and any other person who
signs, guarantees or endorses this Term Note B, to the extent allowed by law,
hereby waives presentment, demand for payment, notice of dishonor, protest, and
any notice relating to the acceleration of the maturity of this Term Note B.
THE BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC.
BY: /s/ J. BRENT HANSON
------------------------------------------
ITS: VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Exhibit 10.5
[GRAPHIC OMITTED] NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION ARBITRATION AGREEMENT
================================================================================
Norwest Bank Minnesota, The Barbers, Hairstyling for Men & Women, Inc.
National Association 300 Industrial Blvd. N.E.
55 East Fifth Street Minneapolis, Minnesota 55413
St. Paul, Minnesota 55101 (the "Borrower")
(the "Bank")
January 22, 1997
1. AGREEMENT TO ARBITRATE. The Bank and Borrower agree to submit to binding
arbitration all claims, disputes and controversies (whether in tort, contract,
or otherwise, except "core proceedings" under the U.S. Bankruptcy Code) arising
between themselves and their respective employees, officers, directors,
attorneys and other agents, which relate in any way without limitation to
existing and future loans and extensions of credit or requests for additional
credit, including by way of example but not by way of limitation the
negotiation, collateralization, administration, repayment, modification,
default, termination and enforcement of such loans or extensions of credit.
2. RULES GOVERNING ARBITRATION. Arbitration under this Agreement will be
governed by the Federal Arbitration Act and proceed in Minneapolis, Minnesota in
accordance with the American Arbitration Association's commercial arbitration
rules ("AAA Rules").
3. SELECTION OF ARBITRATOR. Arbitration will be conducted before a single
neutral arbitrator selected in accordance with AAA Rules and who shall be an
attorney who has practiced commercial law for at least ten years.
4. STATUTES OF LIMITATION AND PROCEDURAL ISSUES. The arbitrator will determine
whether an issue is arbitratable and will give effect to applicable statutes of
limitation. Judgment upon the arbitrator's award may be entered in any court
having jurisdiction. The arbitrator has the discretion to decide, upon documents
only or with a hearing, any motion to dismiss for failure to state a claim or
any motion for summary judgment.
5. DISCOVERY. Discovery will be governed by the Minnesota Rules of Civil
Procedure. Discovery must be completed at least 20 days before the hearing date
and within 180 days of the commencement of arbitration. Each request for an
extension and all other discovery disputes will be determined by the arbitrator
upon a showing that the request is essential for the party's presentation and
that no alternative means for obtaining information are available during the
initial discovery period.
6. EXCEPTIONS TO ARBITRATION. This Agreement does not limit the right of either
party to a) foreclose against real or personal property collateral; b) exercise
self-help remedies such as setoff or repossession; c) obtain provisional
remedies such as replevin, injunctive relief, attachment or the appointment of a
receiver during the pendency or before or after any arbitration proceeding; or
d) obtain a cognitive judgment, if available. These exceptions do not constitute
a waiver of the right or obligation of either party to submit any dispute to
arbitration, including those arising from the exercise of these remedies.
7. ARBITRATION COSTS AND FEES. The arbitrator will award costs and expenses in
accordance with the provisions of the documents evidencing each loan or
extension of credit.
NORWEST BANK MINNESOTA, THE BARBERS, HAIRSTYLING FOR MEN &
NATIONAL ASSOCIATION WOMEN, INC.
By: /s/ Brian J. Opp By: /s/ J. Brent Hanson
-------------------------------- ----------------------------------
Its: Vice President Its: Vice President and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE FIRST QUARTER OF FISCAL 1997 CONTAINED IN
THE COMPANY'S REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-25-1997
<PERIOD-START> SEP-27-1996
<PERIOD-END> DEC-26-1996
<CASH> 1,038,224
<SECURITIES> 0
<RECEIVABLES> 3,234,916
<ALLOWANCES> 350,000
<INVENTORY> 1,323,794
<CURRENT-ASSETS> 5,640,347
<PP&E> 2,823,543
<DEPRECIATION> 1,886,516
<TOTAL-ASSETS> 8,535,511
<CURRENT-LIABILITIES> 2,368,568
<BONDS> 0
0
0
<COMMON> 257,145
<OTHER-SE> 5,427,735
<TOTAL-LIABILITY-AND-EQUITY> 8,535,511
<SALES> 1,845,292
<TOTAL-REVENUES> 4,843,053
<CGS> 1,412,890
<TOTAL-COSTS> 2,473,276
<OTHER-EXPENSES> 2,017,194
<LOSS-PROVISION> 34,618
<INTEREST-EXPENSE> 5,698
<INCOME-PRETAX> 377,313
<INCOME-TAX> 158,000
<INCOME-CONTINUING> 219,313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 219,313
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
