<PAGE>
As filed with the Securities and Exchange Commission on October 11, 1996
_____________________________________________________________________________
UNITED STATES
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 period ended August 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-24904
STROUDS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4107241
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
780 SOUTH NOGALES STREET
CITY OF INDUSTRY, CA 91748
(Address of principle executive offices)
(818) 912-2866
(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
---- ----
Number of shares of common stock outstanding at October 8, 1996: 8,522,817
<PAGE>
STROUDS, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Balance Sheets as of August 31, 1996
(Unaudited) and March 2, 1996 3
Condensed Statements of Income for the Thirteen
and Twenty-Six Weeks Ended August 31, 1996
and August 26, 1995 (Unaudited) 4
Condensed Statements of Cash Flows for the
Twenty-Six Weeks Ended August 31, 1996 and
August 26, 1995 (Unaudited) 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
- ---------------------------------
ITEM 1. FINANCIAL STATEMENTS
STROUDS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, March 2,
(in thousands, except share data) 1996 1996
- --------------------------------- -------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,141 $ 210
Accounts receivable, less allowance for doubtful
accounts of $25 and $25, respectively 2,843 1,835
Merchandise inventory 62,605 60,167
Other 3,356 4,245
-------- --------
Total current assets 69,945 66,457
Property and equipment - at cost, net of accumulated
depreciation and amortization 22,822 18,206
Excess of cost over net assets acquired, net of
accumulated amortization 7,918 8,047
Other assets 865 1,297
-------- --------
Total assets $101,550 $ 94,007
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 599 $ 237
Accounts payable 15,785 14,367
Accrued expenses 10,556 8,974
-------- --------
Total current liabilities 26,940 23,578
Long-term debt 17,530 12,446
Other noncurrent liabilities 2,590 2,514
-------- --------
Total liabilities 47,060 38,538
Stockholders' equity:
Preferred stock, $0.0001 par value; authorized
750,000 shares; no shares issued or outstanding -- --
Preferred stock, Series B, $0.0001 par value;
authorized 250,000 shares; no shares issued or
outstanding -- --
Common stock, $0.0001 par value; authorized 25,000,000
shares; issued and outstanding August 31, 1996,
8,522,817 shares; and March 2, 1996, 8,512,059
shares 1 1
Additional paid-in capital 38,982 38,946
Retained earnings 15,507 16,522
-------- --------
Total stockholders' equity 54,490 55,469
-------- --------
Total liabilities and stockholders' equity $101,550 $ 94,007
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
STROUDS, INC.
CONDENSED STATEMENTS OF INCOME
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
---------------------- ----------------------
August 31, August 26, August 31, August 26,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 49,516 $ 42,889 $ 95,952 $ 85,862
Costs and expenses:
Cost of sales, buying and occupancy 35,411 29,931 68,171 59,435
Selling and administrative expenses 14,076 12,491 28,825 25,297
Amortization of excess of cost over
net assets acquired 64 64 129 129
--------- --------- --------- ---------
49,551 42,486 97,125 84,861
--------- --------- --------- ---------
Operating income (loss) (35) 403 (1,173) 1,001
Other income 172 18 265 77
Interest expense, net (353) (153) (629) (343)
--------- --------- --------- ---------
Income (loss) before income taxes (216) 268 (1,537) 735
Income tax (expense) benefit (121) (107) 522 (299)
--------- --------- --------- ---------
Net income (loss) $ (337) $ 161 $ (1,015) $ 436
========= ========= ========= =========
Net income (loss) per share $ (0.04) $ 0.02 $ (0.12) $ 0.05
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding 8,519 8,577 8,516 8,559
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
STROUDS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
26 WEEKS ENDED
----------------------
August 31, August 26,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,015) $ 436
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 2,074 1,968
Loss on abandonment of leasehold improvements -- 50
Amortization of excess of cost over net
assets acquired 129 129
(Increase) decrease in:
Accounts receivable (1,008) (101)
Merchandise inventory (2,439) 68
Increase (decrease) in accounts payable and
accrued expenses 4,551 (2,252)
Other 1,398 805
--------- ---------
Net cash provided by operating
activities 3,690 1,103
--------- ---------
Cash flows from investing activities:
Proceeds from sale of marketable securities -- 471
Capital expenditures (6,690) (3,384)
--------- ---------
Net cash used in investing activities (6,690) (2,913)
--------- ---------
Cash flows from financing activities:
Borrowings under long-term debt 22,900 10,826
Repayment of long-term debt (17,300) (8,615)
Principal payments under capital lease obligations (154) (257)
Decrease in overdraft (1,552) (187)
Other equity transactions 37 339
--------- ---------
Net cash provided by financing activities 3,931 2,106
--------- ---------
Net increase in cash 931 296
Cash at beginning of period 210 179
--------- ---------
Cash at end of period $ 1,141 $ 475
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 570 $ 308
Income taxes 195 --
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
STROUDS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) INTERIM FINANCIAL STATEMENTS
The accompanying Condensed Balance Sheet as of August 31, 1996 and the related
Condensed Statements of Income for the 13 and 26 weeks ended August 31, 1996
and August 26, 1995 and Condensed Statements of Cash Flows for the 26 weeks
ended August 31, 1996 and August 26, 1995 are unaudited. The unaudited
operating results reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
periods. Information pertaining to the year ended March 2, 1996 is derived
from the audited financial statements included in the Company's 1995 Annual
Report on Form 10-K. This information should be read in conjunction with the
consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's 1995 Annual Report filed with the
Securities and Exchange Commission on Form 10-K. The results of operations
for the 13 and 26 weeks ended August 31, 1996 may not be indicative of the
results to be expected for the entire fiscal year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes
Income tax (expense) benefit is based upon the estimated effective tax rate
for the entire fiscal year. The Company revised its effective tax rate for
the quarter ending August 31, 1996 due to changing conditions in the Company's
business. The cumulative tax effect of the change was reflected in the
quarter ending August 31, 1996. The effective rate is subject to ongoing
review and evaluation by management.
Net Income (Loss) per Share
Net income (loss) per share is based on the weighted average number of common
and common equivalent shares outstanding. Common stock equivalents, as
determined by the treasury stock method, represent shares which would be
issued assuming the exercise of common stock options and warrants reduced by
the number of shares which could be purchased with the proceeds from the
exercise of those options and warrants. Common stock equivalents are not
included in the calculation of net income per share if their inclusion would
be anti-dilutive.
Fully diluted net income per share is not presented since the amounts do not
differ significantly from the primary net income per share presented.
Reclassifications
Certain reclassifications have been made to the August 26, 1995 amounts to
conform to the August 31, 1996 presentation.
6
<PAGE>
STROUDS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(3) PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
August 31, March 2,
(in thousands) 1996 1996
- -------------- --------- ---------
<S> <C> <C>
Furniture, fixtures and equipment $ 35,823 $ 30,915
Equipment held under capital leases 2,111 2,596
Leasehold improvements 7,468 5,687
--------- ---------
45,402 39,198
Less accumulated depreciation and amortization (22,580) (20,992)
--------- ---------
$ 22,822 $ 18,206
========= =========
</TABLE>
(4) LONG-TERM DEBT
At August 31, 1996, the Company had outstanding borrowings of $15,000,000
under its $30,000,000 revolving credit facility. Included in the revolving
credit facility is a $7,000,000 letter of credit sub-facility. As of August
31, 1996, the Company had outstanding letters of credit amounting to
$1,575,000 for purchase commitments to foreign suppliers under this sub-
facility.
Effective June 1, 1996, the Company and its bank amended certain terms and
conditions of its $30 million Revolving Credit Facility. As part of such
amendment, the Revolving Credit Facility has been extended to August 31, 1998
and the financial covenants were modified to provide for a lower initial debt
coverage ratio subject to quarterly increases thereafter and a minimum
inventory turnover ratio during the term of the agreement. In addition,
interest is payable at the provider's prime rate or LIBOR plus a spread
ranging from 1.25% to 2.00%. The applicable LIBOR interest spread is based on
the debt coverage ratio achieved and determined on a quarterly basis.
In the event that the Company achieves certain specified debt coverage and
inventory turnover ratios, the borrowing availability under the Revolving
Credit Facility will increase, on a graduated basis, by up to an additional
$10 million. The Company has not to date achieved such ratios, and no
assurance can be given that the Company will in the future achieve such
ratios.
In July 1996, the Company signed a $3,000,000 promissory note payable to a
financial institution, secured by equipment, fixtures and leasehold
improvements at two store locations. Interest is payable at the rate of 9.58%
per annum. The note is for five years, payable in monthly installments
beginning September 1, 1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The following sets forth certain factors that management believes have
affected the Company's results of operations in recent periods, and that may
continue to affect the Company in the future.
NEW MARKETS. The Company's expansion strategy has focused principally on the
development of the greater Chicago and Minneapolis markets (the "Midwest").
The Company has opened 10 superstores in the Midwest and believes it has
achieved the critical mass necessary for advertising in these new markets. To
date, sales volumes have been below expectations resulting in higher store
occupancy, operating, administrative and advertising costs as a percent of
sales than experienced in its California markets. Though the Company believes
it has made progress in building sales volume over the past six months, it has
not yet achieved per store sales volumes comparable to its California markets.
The Company anticipates increasing its advertising expenditures for the
remainder fiscal 1996 in order to further its effort to improve consumer
recognition and sales performance. The Company anticipates continued downward
pressure on earnings for the remainder of the year due to lower sales volume
and increased advertising support in its Midwest markets. The rate at which
the Company is able to improve sales in these markets will be a primary factor
affecting the Company's ability to be profitable in fiscal 1996.
13 WEEKS ENDED AUGUST 31, 1996 COMPARED TO THE 13 WEEKS ENDED AUGUST 26, 1995
- -----------------------------------------------------------------------------
Net sales for the 13 weeks ended August 31, 1996 increased $6.6 million, or
15.5%, to $49.5 million versus $42.9 million in the same period last year.
Comparable store sales increased $1.4 million, or 3.4%, for the period. Sales
from new stores and expanded or replacement stores increased by $5.2 million.
Management believes the increase in comparable store sales is attributable to
increased customer traffic and to a lesser extent, a smaller negative impact
related to competitive openings for the second quarter of 1996 versus the same
period a year ago. Approximately 14% of the comparable stores were affected
by new competitive openings for the second quarter of fiscal 1996 compared to
approximately 30% for the same period last year.
Cost of sales, buying and occupancy for the 13 weeks ended August 31, 1996 was
$35.4 million versus $29.9 million for the same period a year ago, a $5.5
million increase. This dollar increase was attributable, primarily, to new
stores and expanded stores. As a percent of sales, cost of sales, buying and
occupancy increased to 71.5% from 69.8% for the same period a year ago. The
increase in cost of sales, buying and occupancy percentage was due to a higher
level of markdown volume versus a year ago and higher occupancy costs
associated with new and expanded stores, where average store sales were lower.
Selling and administrative expenses for the 13 weeks ended August 31, 1996
increased $1.6 million, as a result of new and expanded stores, to $14.1
million versus $12.5 million for the same period in fiscal 1995 and decreased
8
<PAGE>
as a percentage of net sales from 29.1% to 28.4%. The decrease as a percent
of sales was primarily due to lower advertising costs as scheduled events were
shifted into the first quarter this year versus the second quarter last year.
General and administrative expense as a percent of sales was 6.2% versus 6.3%
a year ago. The slight decline as a percent of sales was the result of the
sales increase over the same period a year ago.
Operating loss for the 13 weeks ended August 31, 1996 was $35,000 versus
operating income of $0.4 million for the same period a year ago, a $0.4
million decrease. The operating loss resulted in a margin deficit of 0.1% for
the 13 weeks ended August 31, 1996 versus an operating income margin of 0.9%
for the same period a year ago. Operating income margin declined due to the
reasons discussed above.
Interest expense net, increased $0.2 million to $0.4 million for the 13 weeks
ended August 31, 1996 versus $0.2 million for the same period in fiscal 1995.
Interest expense grew as a result of increased borrowings to finance the
development of new stores and store remodels.
Income tax expense for the 13 week period ended August 31, 1996 and August 26,
1995 was $0.1 million. The Company's effective tax rate increased as a result
of certain non-deductible expenses for tax purposes becoming more significant
in relation to the Company's pretax earnings and a result of reflecting the
cumulative effect of a revision in the Company's effective tax rate in the 13
week period ended August 31, 1996. The estimated effective tax rate is
subject to continuing evaluation and modification by management.
26 WEEKS ENDED AUGUST 31, 1996 COMPARED TO THE 26 WEEKS ENDED AUGUST 26, 1995
- -----------------------------------------------------------------------------
Net sales for the 26 weeks ended August 31, 1996 increased $10.1 million, or
11.8%, to $96.0 million versus $85.9 million in the same period last year.
Comparable store sales increased $1.6 million, or 2.0%, for the period. Sales
from new stores and expanded or replacement stores increased by $8.5 million.
Management believes the increase in comparable store sales is primarily
attributable to increased customer traffic and a smaller negative impact
related to competitive openings for the first half of 1996 versus the same
period a year ago. Comparable store sales were positively impacted due to an
increase in advertising frequency versus a year ago. Approximately 12% of the
comparable stores were affected by new competitive openings for the first half
of 1996 compared to approximately 30% for the same period last year.
Cost of sales, buying and occupancy for the 26 weeks ended August 31, 1996 was
$68.2 million versus $59.4 million for the same period a year ago, a $8.8
million increase. This dollar increase was attributable, primarily, to new
stores and expanded stores. As a percent of sales, cost of sales, buying and
occupancy increased to 71.0% from 69.2% for the same period a year ago. The
increase in cost of sales, buying and occupancy percentage was primarily due
to higher occupancy costs associated with new and expanded stores where
average store sales were lower. Additionally, merchandise margins eroded
somewhat due to higher distribution costs.
Selling and administrative expenses for the 26 weeks ended August 31, 1996
increased $3.5 million to $28.8 million versus $25.3 million for the same
period in fiscal 1995 and increased as a percentage of net sales from 29.5% to
9
<PAGE>
30.0%. The dollar increase was principally due to new and expanded stores,
increased adverting expenditures to further develop the Company's Midwest
markets, increased operating expenditures related to the comparable stores
sales growth and additional general and administrative expense to support the
growth in the number of stores. The increase as a percent of sales was
primarily due to higher advertising costs to further develop the Company's
presence in its new Midwest markets. General and administrative expense as a
percent of sales was 6.4% versus 6.5% a year ago. The slight decline as a
percent of sales was the result of the sales increase over the same period a
year ago.
Operating loss for the 26 weeks ended August 31, 1996 was $1.2 million versus
operating income of $1.0 million for the same period a year ago, a $2.2
million decrease. The operating loss resulted in a margin deficit of 1.2% for
the 26 weeks ended August 31, 1996 versus an operating income margin of 1.2%
for the same period a year ago. Operating income margin declined due to the
reasons discussed above.
Interest expense net, increased $0.3 million to $0.6 million for the 26 weeks
ended August 31, 1996 versus $0.3 million for the same period in fiscal 1995.
Interest expense grew as a result of increased borrowings to finance the
development of new stores and store remodels.
The net loss for the 26 week period ended August 31, 1996 resulted in a tax
benefit of $0.5 million versus income tax expense of $0.3 million on net
earnings for the same 26 week period a year ago. The Company's effective tax
rate decreased as a result of certain non-deductible expenses for tax purposes
becoming less significant in relation to the Company's pretax loss. The
estimated effective tax rate is subject to continuing evaluation and
modification by management.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs are primarily to support its inventory requirements
and for store expansion. The Company has historically financed its operations
primarily with internally generated funds and its credit facilities. At
August 31, 1996 the Company's working capital was $43.0 million, while
advances from its revolving credit facility were $15.0 million. At August 31,
1996 the Company had $11.3 million available for borrowings under its credit
facility as determined by the Company's eligible "borrowing base."
Effective June 1, 1996, the Company and its bank amended certain terms and
conditions of its $30 million Revolving Credit Facility. As part of such
amendment, the Revolving Credit Facility has been extended to August 31, 1998
and the financial covenants were modified to provide for a lower initial debt
coverage ratio subject to quarterly increases thereafter and a minimum
inventory turnover ratio during the term of the agreement. In addition,
interest is payable at the provider's prime rate or LIBOR plus a spread
ranging from 1.25% to 2.00%. The applicable LIBOR interest spread is based on
the debt coverage ratio achieved and determined on a quarterly basis.
In the event that the Company achieves certain specified debt coverage and
inventory turnover ratios, the borrowing availability under the Revolving
Credit Facility will increase, on a graduated basis, by up to an additional
$10 million. The Company has not to date achieved such ratios, and no
assurance can be given that the Company will in the future achieve such
ratios.
10
<PAGE>
In July 1996, the Company signed a $3,000,000 promissory note payable to a
financial institution, secured by equipment, fixtures and leasehold
improvements at two store locations. Interest is payable at the rate of 9.58%
per annum. The note is for five years, payable in monthly installments
beginning September 1, 1996.
Cash provided by operating activities for the 26 weeks ended August 31, 1996
and August 26, 1995 was $3.7 million and $1.1 million, respectively. During
the 26 week period ended August 31, 1996, inventory increased $2.4 million and
accounts payable and accrued expenses increased $4.6 million as a result of
the Company's expansion program.
Net cash used in investing activities for the 26 weeks ended August 31, 1996
and August 26, 1995 was $6.7 million and $2.9 million, respectively. These
funds were used for capital expenditures supporting the Company's store
expansion program. In the first half of fiscal 1996, the Company opened three
new superstores and expanded one superstore.
Cash provided by financing activities for the 26 weeks ended August 31, 1996
and August 26, 1995 was $3.9 million and $2.1 million, respectively. The
Company had net borrowings of $5.6 million primarily to fund expansion and to
meet working capital needs for the 26 weeks ended August 31, 1996.
Currently, the Company has committed to open a total of six new superstores,
of which four to five are expected to open during the remainder of fiscal
1996. The Company anticipates capital expenditures of approximately $9.0
million (not including the cost of inventory, estimated to be an additional
$8.5 million) in order to fulfill the Company's current commitments for new
store development, as well as conversion of original format stores to
superstores and continued improvement in the Company's management information
systems. The Company believes it can meet its committed capital expenditure
needs and working capital requirements over the next 12 months through cash
flow from operations, borrowings under its Revolving Credit Facility and use
of trade credit.
SEASONALITY AND QUARTERLY RESULTS
The Company's business is subject to seasonal and quarterly fluctuations.
Historically, the Company has realized a higher portion of its net sales and
an even greater proportion of its profits in the months of November, December
and January. Additionally, the timing of promotional events may affect the
Company's results in different fiscal quarters from period to period.
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations that are not related to
historical results are forward looking statements. Actual results may differ
materially from those projected or implied in the forward looking statements.
Further, certain forward looking statements are based upon assumptions of
future events which may not prove to be accurate. These forward looking
statements involve risks and uncertainties which are more fully described in
Item 1, Part I of the Company's Annual Report on Form 10-K for the Fiscal Year
Ended March 2, 1996.
11
<PAGE>
PART II. OTHER INFORMATION
- -----------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on July 2, 1996, the
following individuals were elected to the Board of Directors:
<TABLE>
<CAPTION>
Votes For Votes Against
--------- -------------
<S> <C> <C>
Wilfred C. Stroud 7,780,795 547,929
Wayne P. Selness 7,782,895 545,829
Noel E. Urben 7,782,502 546,222
Raymond L. Klauer 7,782,502 546,222
Martin M. Jelenko 7,782,602 546,122
George L. Jones 7,782,602 546,122
</TABLE>
The following proposal was approved at the Company's Annual Meeting:
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstain
--------- ------------- -------------
<S> <C> <C> <C>
Ratify the appointment of KPMG
Peat Marwick LLP as the Company's
independent public accountants
for the fiscal year ending on
March 1, 1997. 8,321,010 3,100 4,614
</TABLE>
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
The exhibits on the accompanying Index to Exhibits are filed as part of,
or incorporated by reference into, this report.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Form of Restated Certificate of Incorporation of the
Company.
Incorporated herein by reference to Amendment No. 1 to
the Company's Form S-1, Registration No. 33-82090, as
filed with the Commission on September 13, 1994.
3.2 Restated By-laws of the Company.
Incorporated herein by reference to Amendment No. 1 to
the Company's Form S-1, Registration No. 33-82090, as
filed with the Commission on September 13, 1994.
4 Rights Agreement, dated as of November 17, 1995, between
Strouds, Inc. and American Stock Transfer & Trust Company.
Incorporated herein by reference to the Company's Form
8-K, as filed with the Commission on December 1, 1995.
10.1 Stock Option Plan for Executive and Key Employees of the
Company, including the form of the individual option
agreement thereunder.
Incorporated herein by reference to the Company's Form
S-1, Registration No. 33-82090, as filed with the
Commission on July 29, 1994.
10.2 Form of Amendment to Stock Option Plan for Executive and Key
Employees of the Company, including the form of the
amendment to the individual option agreement thereunder.
Incorporated herein by reference to Amendment No. 1 to
the Company's Form S-1, Registration No. 33-82090, as
filed with the Commission on September 13, 1994.
10.3 Amended and Restated 1994 Equity Participation Plan of the
Company, including the forms of the individual option
agreements thereunder.
Incorporated herein by reference to Amendment No. 1 to
the Company's Form S-1, Registration No. 33-82090, as
filed with the Commission on September 13, 1994.
10.4 Form of the Company's Employee Qualified Stock Purchase Plan.
Incorporated herein by reference to Amendment No. 1 to
the Company's Form S-1, Registration No. 33-82090, as
filed with the Commission on September 13, 1994.
10.5 Amendment to the Strouds, Inc. Employee Qualified Stock
Purchase Plan, January 5, 1995.
Incorporated herein by reference to the Company's Form
10-K for the fiscal year ended February 25, 1995, as
filed with the Commission on May 25, 1995.
10.6 Warrant Agreement (Warrant 1), dated as of November 20, 1992,
between the Company and BT Capital.
Incorporated herein by reference to the Company's Form
S-1, as filed with the Commission on July 29, 1994.
13
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.7 Warrant Agreement (Warrant 2), dated as of November 20, 1992,
between the Company and BT Capital.
Incorporated herein by reference to the Company's Form
S-1, Registration No. 33-82090, as filed with the
Commission on July 29, 1994.
10.8 Credit Agreement between Bank of America National Trust and
Savings Association and Strouds, Inc., dated September 22,
1995.
Incorporated herein by reference to the Company's Form
10-Q for the period ended August 22, 1995, as filed
with the Commission on September 26, 1995.
10.9 International Swap Dealers Association, Inc. Master Agreement
between Bank of America National Trust and Savings
Association and Strouds, Inc., dated March 6, 1996.
Incorporated herein by reference to the Company's Form
10-K for the period ended March 2, 1996, as filed
with the Commission on May 24, 1996.
10.10 Registration Rights Agreement dated as of January 2, 1996 by
and between the Company and BT Capital.
Incorporated herein by reference to the Company's Form
10-K for the period ended March 2, 1996, as filed
with the Commission on May 24, 1996.
* 10.11 First Amendment to Credit Agreement between Bank of America
National Trust and Savings Association and Strouds, Inc.,
dated March 5, 1996.
* 10.12 Second Amendment to Credit Agreement between Bank of America
National Trust and Savings Association and Strouds, Inc.,
dated June 1, 1996.
* 10.13 Security Agreement between Lyon Credit Corporation and
Strouds, Inc., dated July, 1996.
* 11 Statement re: Computation of Per Share Earnings.
* 27 Financial Data Schedule
__________________________________
* Filed herewith electronically
b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter ended
August 31, 1996.
14
<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 thereunto duly authorized.
Dated: October 8, 1996
STROUDS, INC.
(Registrant)
/s/ Wayne P. Selness
--------------------
Wayne P. Selness
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jonathan W. Spatz
---------------------
Jonathan W. Spatz
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
15
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Form of Restated Certificate of Incorporation of the
Company.
Incorporated herein by reference to Amendment No. 1 to
the Company's Form S-1, Registration No. 33-82090, as
filed with the Commission on September 13, 1994.
3.2 Restated By-laws of the Company.
Incorporated herein by reference to Amendment No. 1 to
the Company's Form S-1, Registration No. 33-82090, as
filed with the Commission on September 13, 1994.
4 Rights Agreement, dated as of November 17, 1995, between
Strouds, Inc. and American Stock Transfer & Trust Company.
Incorporated herein by reference to the Company's Form
8-K, as filed with the Commission on December 1, 1995.
10.1 Stock Option Plan for Executive and Key Employees of the
Company, including the form of the individual option
agreement thereunder.
Incorporated herein by reference to the Company's Form
S-1, Registration No. 33-82090, as filed with the
Commission on July 29, 1994.
10.2 Form of Amendment to Stock Option Plan for Executive and Key
Employees of the Company, including the form of the
amendment to the individual option agreement thereunder.
Incorporated herein by reference to Amendment No. 1 to
the Company's Form S-1, Registration No. 33-82090, as
filed with the Commission on September 13, 1994.
10.3 Amended and Restated 1994 Equity Participation Plan of the
Company, including the forms of the individual option
agreements thereunder.
Incorporated herein by reference to Amendment No. 1 to
the Company's Form S-1, Registration No. 33-82090, as
filed with the Commission on September 13, 1994.
10.4 Form of the Company's Employee Qualified Stock Purchase Plan.
Incorporated herein by reference to Amendment No. 1 to
the Company's Form S-1, Registration No. 33-82090, as
filed with the Commission on September 13, 1994.
10.5 Amendment to the Strouds, Inc. Employee Qualified Stock
Purchase Plan, January 5, 1995.
Incorporated herein by reference to the Company's Form
10-K for the fiscal year ended February 25, 1995, as
filed with the Commission on May 25, 1995.
10.6 Warrant Agreement (Warrant 1), dated as of November 20, 1992,
between the Company and BT Capital.
Incorporated herein by reference to the Company's Form
S-1, as filed with the Commission on July 29, 1994.
10.7 Warrant Agreement (Warrant 2), dated as of November 20, 1992,
between the Company and BT Capital.
Incorporated herein by reference to the Company's Form
S-1, Registration No. 33-82090, as filed with the
Commission on July 29, 1994.
10.8 Credit Agreement between Bank of America National Trust and
Savings Association and Strouds, Inc., dated September 22,
1995.
Incorporated herein by reference to the Company's Form
10-Q for the period ended August 22, 1995, as filed
with the Commission on September 26, 1995.
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.9 International Swap Dealers Association, Inc. Master Agreement
between Bank of America National Trust and Savings
Association and Strouds, Inc., dated March 6, 1996.
Incorporated herein by reference to the Company's Form
10-K for the period ended March 2, 1996, as filed
with the Commission on May 24, 1996.
10.10 Registration Rights Agreement dated as of January 2, 1996 by
and between the Company and BT Capital.
Incorporated herein by reference to the Company's Form
10-K for the period ended March 2, 1996, as filed
with the Commission on May 24, 1996.
* 10.11 First Amendment to Credit Agreement between Bank of America
National Trust and Savings Association and Strouds, Inc.,
dated March 5, 1996.
* 10.12 Second Amendment to Credit Agreement between Bank of America
National Trust and Savings Association and Strouds, Inc.,
dated June 1, 1996.
* 10.13 Security Agreement between Lyon Credit Corporation and
Strouds, Inc., dated July, 1996.
* 11 Statement re: Computation of Per Share Earnings.
* 27 Financial Data Schedule
__________________________________
* Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AND STATEMENTS OF INCOME FOUND ON PAGES 3 AND 4 OF
THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-01-1997
<PERIOD-START> MAR-03-1996
<PERIOD-END> AUG-31-1996
<CASH> 1,141
<SECURITIES> 0
<RECEIVABLES> 2,868
<ALLOWANCES> 25
<INVENTORY> 62,605
<CURRENT-ASSETS> 69,945
<PP&E> 45,402
<DEPRECIATION> 22,580
<TOTAL-ASSETS> 101,550
<CURRENT-LIABILITIES> 26,940
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 54,489
<TOTAL-LIABILITY-AND-EQUITY> 101,550
<SALES> 95,952
<TOTAL-REVENUES> 95,952
<CGS> 68,171
<TOTAL-COSTS> 68,171
<OTHER-EXPENSES> 28,954
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 629
<INCOME-PRETAX> (1,537)
<INCOME-TAX> (522)
<INCOME-CONTINUING> (1,015)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,015)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
<PAGE>
EXHIBIT 11
STROUDS, INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
---------------------- ----------------------
August 31, August 26, August 31, August 26,
1996 1995 1996 1995
(in thousands, except share data) --------- --------- --------- ---------
- ---------------------------------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 8,519 8,364 8,516 8,346
Common Stock equivalents:
Shares applicable to Warrants based
on average market for period -- 213 -- 213
--------- --------- --------- ---------
Weighted average number of common
and common equivalent shares
outstanding, assuming full dilution 8,519 8,577 8,516 8,559
========= ========= ========= =========
Net income (loss) $ (337) $ 161 $ (1,015) $ 436
========= ========= ========= =========
Net income (loss) per common and
common equivalent shares $ (0.04) $ 0.02 $ (0.12) $ 0.05
========= ========= ========= =========
</TABLE>
Fully diluted net income (loss) per share is not presented since the amounts do
not differ significantly from the primary net income per share presented.
<PAGE>
EXHIBIT 10.11
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (this "Amendment") is entered
into as of March 5, 1996, between Bank of America National Trust and Savings
Association ("Bank") and Strouds, Inc. ("Borrower"), with reference to the
following:
RECITALS
--------
A. Bank and Borrower are parties to that certain Credit Agreement dated
as of September 22, 1995 (the "Credit Agreement").
B. The parties hereto now desire to further amend the Credit Agreement
on the terms and conditions set forth below.
AGREEMENT
---------
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meanings ascribed to them in the Credit Agreement.
2. AMENDMENTS. The Credit Agreement shall be amended as follows:
(a) In Paragraph 2.3(c) of the Credit Agreement is amended in full
to read as follows:
"(c) Advances under the Revolving Facility shall bear interest
at a rate per annum equal to the Reference Rate. Borrower shall pay interest
monthly on the dates set forth on Schedule A attached hereto until the last
day of the Availability Period, on which date all accrued and unpaid interest
shall be due and payable."
(b) In Paragraph 2.3(d)(3) of the Credit Agreement is amended in
full to read as follows:
"(3) Borrower shall pay interest on each Fixed Rate Portion on
the last day of the Fixed Rate Interest Period for the portion and, if the
interest period for the portion is longer than thirty (30) days, on those
dates set forth on Schedule A attached hereto which fall within the Fixed Rate
Interest Period for such portion."
(b) In Paragraph 2.3(e)(3) of the Credit Agreement is amended in
full to read as follows:
(4047051)wsd2/22/96 -1-
<PAGE>
"(3) Borrower shall pay interest on each Offshore Rate Portion
on the last day of the Offshore Rate Interest Period for the portion and, if
the interest period for the portion is longer than thirty (30) days, on those
dates set forth on Schedule A attached hereto which fall within the Offshore
Rate Interest Period for such portion."
(d) Paragraph 2.3(f)(3) of the Credit Agreement is amended in full
to read as follows:
"(3) Borrower shall pay interest on each LIBOR Rate Portion on
the last day of the LIBOR Rate Interest Period for the portion and, if the
interest period for the portion is longer than thirty (30) days, on those
dates set forth on Schedule A attached hereto which fall within the LIBOR Rate
Interest Period for such portion."
(e) Schedule A attached hereto is added to the Credit Agreement as
Schedule A thereto.
(f) Except as hereby amended, all of the terms and conditions of the
Credit Agreement shall remain in full force and effect.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Bank that: (i) no Event of Default under Credit Agreement and no event which,
with notice or lapse of time or both, would become an Event of Default has
occurred and is continuing; (ii) Borrower's representations and warranties
made under the Credit Agreement are true as of the date hereof; (iii) the
making and performance by Borrower of this Amendment has been duly authorized
by all necessary corporate action; (iv) no consent, approval, authorization,
permit, or license is required in connection with the making or performance of
this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
BANK OF AMERICA NATIONAL STROUDS, INC.
TRUST AND SAVINGS ASSOCIATION
By: /S/MARK J. GLASKY By: /S/JONATHAN W. SPATZ
-------------- --------------------
Title: Vice President Title: SENIOR VICE PRESIDENT
---------------------
(4047051)wsd2/22/96 -2-
<PAGE>
SCHEDULE A
TO CREDIT AGREEMENT
The dates on which interest shall be paid are as follows"
On the first day of each month through March 1, 1996
April 5, 1996
May 3, 1996
May 31, 1996
July 5, 1996
August 2, 1996
August 30, 1996
October 4, 1996
November 1, 1996
November 29, 1996
January 3, 1997
January 31, 1997
February 28, 1997
April 4, 1997
May 2, 1997
May 30, 1997
July 3, 1997
August 1, 1997
and on the first day of each month thereafter
(4047045)wsd2/22/96
<PAGE>
EXHIBIT 10.12
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (this "Amendment") is entered
into as of June 1, 1996, between Bank of America National Trust and Savings
Association ("Bank") and Strouds, Inc. ("Borrower"), with reference to the
following:
RECITALS
--------
A. Bank and Borrower are parties to that certain Credit Agreement dated
as of September 22, 1995, as modified by an amendment dated as of March 5,
1996 (as amended, the "Credit Agreement").
B. The parties hereto now desire to further amend the Credit Agreement
on the terms and conditions set forth below.
AGREEMENT
---------
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meanings ascribed to them in the Credit Agreement.
2. AMENDMENTS. The Credit Agreement shall be amended as follows:
(a) In Paragraph 1.1 of the Credit Agreement, the definition
"Availability Period" is amended in full to read as follows:
"'Availability Period' means the period commencing on the date of the
Agreement and ending on August 31, 1998."
(b) In Paragraph 1.1 of the Credit Agreement, the definition "Credit
Limit" is amended in full to read as follows:
"'Credit Limit' means Thirty Million Dollars ($30,000,000); provided,
however, that the Credit Limit shall increase to the amounts set forth below
if (i) Borrower's Debt Coverage Ratio is not less than the ratio set forth
below, and (ii) Inventory Days do not exceed the number of days set forth
below, on each respective date set forth below; provided, further, that the
calculation of the Credit Limit shall differ if and when Borrower incurs the
Term Debt, all as further set forth below:
(4051168.04)wsd8/6/96 -1-
<PAGE>
<TABLE>
<CAPTION>
CREDIT LIMIT DEBT COVERAGE RATIO INVENTORY
WITHOUT TERM DEBT 8/96 11/96 2/97 5/97 & THEREAFTER DAYS
- ----------------- ---------------------------------------- ---------
<S> <C> <C> <C> <C> <C>
$32,500,000 1.45 1.35 1.30 1.30 200
$35,000,000 1.50 1.40 1.40 1.40 200
$40,000,000 N/A 1.50 1.50 1.50 200
</TABLE>
<TABLE>
<CAPTION>
CREDIT LIMIT WITH DEBT COVERAGE RATIO INVENTORY
TERM DEBT 8/96 11/96 2/97 5/97 & THEREAFTER DAYS
- ----------------- ---------------------------------------- ---------
<S> <C> <C> <C> <C> <C>
$32,500,000 1.35 1.25 1.20 1.20 200
$35,000,000 1.40 1.30 1.30 1.30 200
$40,000,000 N/A 1.40 1.40 1.40 200
</TABLE>
(c) Paragraph 1.1 of the Credit Agreement is amended to add the
definition "Debt Coverage Ratio" in alphabetical order as follows:
"'Debt Coverage Ratio' means the ratio calculated pursuant to
Paragraph 8.5 below."
(d) Paragraph 1.1 of the Credit Agreement is amended to add the
definition "Inventory Days" in alphabetical order as follows:
"'Inventory Days' means the product of the aggregate value of the
average value of Inventory (net of goods in transit) as set forth on
Borrower's balance sheet for each of the twelve (12) months immediately
preceding and including the last day of each quarterly accounting period,
DIVIDED BY the cost of sales (excluding occupancy expense) for the twelve (12)
months immediately preceding and including the last day of such quarterly
accounting period MULTIPLIED BY 365 days."
(e) Paragraph 1.1 of the Credit Agreement is amended to add the
definition "Term Debt" in alphabetical order as follows:
"'Term Debt' means additional term indebtedness from Lyon Credit
Corporation in an amount not to exceed Four Million Dollars ($4,000,000)."
(f) The first paragraph of subparagraph 2.3(e) of the Credit
Agreement is amended in full to read as follows:
"(e) In lieu of the interest rate related to the Reference Rate,
Borrower may elect to have all or portions of advances under the Revolving
Facility bear interest during each calendar quarter at the Offshore Rate plus
the percentage points set forth below corresponding to Borrower's Debt
Coverage Ratio as of the end of the immediately preceding quarterly accounting
period; and further subject to the following requirements:
(4051168.04)wsd8/6/96 -2-
<PAGE>
<TABLE>
<CAPTION>
DEBT COVERAGE RATIO DEBT COVERAGE RATIO PERCENTAGE POINTS
WITH TERM DEBT WITHOUT TERM DEBT
- ------------------- ------------------- -----------------
<S> <C> <C>
>1.60 >1.60 1.25
>1.30 </equal 1.60 >1.40 </equal 1.60 1.50
>1.10 </equal 1.30 >1.20 </equal 1.40 1.75
</equal 1.10 </equal 1.20 2.00"
</TABLE>
(g) The first paragraph of subparagraph 2.3(f) of the Credit
Agreement is amended in full to read as follows:
"(f) In lieu of the interest rate related to the Reference Rate,
Borrower may elect to have all or portions of advances under the Revolving
Facility bear interest during each calendar quarter at the LIBOR Rate plus the
percentage points set forth below corresponding to Borrower's Debt Coverage
Ratio as of the end of the immediately preceding quarterly accounting period;
and further subject to the following requirements:
<TABLE>
<CAPTION>
DEBT COVERAGE RATIO DEBT COVERAGE RATIO PERCENTAGE POINTS
WITH TERM DEBT WITHOUT TERM DEBT
- ------------------- ------------------- -----------------
<S> <C> <C>
>1.60 >1.60 1.25
>1.30 </equal 1.60 >1.40 </equal 1.60 1.50
>1.10 </equal 1.30 >1.20 </equal 1.40 1.75
</equal 1.10 </equal 1.20 2.00"
</TABLE>
(h) Paragraph 3.1 of the Credit Agreement is amended in full to read
as follows:
"3.1 UNUSED COMMITMENT FEE. Borrower shall pay Bank a fee on any
difference between the Credit Limit and the amount of credit Borrower actually
uses, determined by the weighted average of the unused portion of credit
provided under this Agreement during the period from the date on which the
conditions in Paragraph 6.1(g) have been satisfied to the last day of the
Availability Period. This fee is due on the last day of each quarter during
such period. The fee will be calculated at the rate per annum set forth below
corresponding to Borrower's Debt Coverage Ratio calculated as of the end of
the immediately preceding quarterly accounting period:
(4051168.04)wsd8/6/96 -3-
<PAGE>
<TABLE>
<CAPTION>
DEBT COVERAGE RATIO DEBT COVERAGE RATIO PERCENTAGE POINTS
WITH TERM DEBT WITHOUT TERM DEBT
- ------------------- ------------------- -----------------
<S> <C> <C>
>1.60 >1.60 .25%
>1.30 </equal 1.60 >1.40 </equal 1.60 .25%
>1.10 </equal 1.30 >1.20 </equal 1.40 .375%
</equal 1.10 </equal 1.20 .50%"
</TABLE>
(i) Paragraph 8.5 of the Credit Agreement is amended in full to read
as follows:
"8.5 DEBT COVERAGE RATIO. Achieve Income Available for Debt Service
at least equal to the ratios set forth below for the periods set forth below
TIMES the sum of interest expense, the current portion of long term debt, the
current portion of capital leases, and Three Million Five Hundred Thousand
Dollars ($3,500,000). This ratio shall be calculated (i) quarterly using the
results of the then most recently concluded quarterly accounting period and
each of the three (3) immediately preceding quarterly accounting periods, and
(ii) monthly using the results of the then most recently concluded month and
each of the eleven (11) immediately preceding months ONLY until such time as
Borrower achieves a Debt Coverage Ratio not less than 1.60; from which time
this ratio shall thereafter only be calculated quarterly, as follows:
<TABLE>
<CAPTION>
(A) For Quarterly Quarterly Monthly Ratio Monthly
Quarters, 12 Ratio Without Ratio With Without Term Ratio With
Months Ending Term Debt Term Debt Debt Term Debt
on, and (B)
for Months, 12
Months Ending
on or Before
and Not After:
- -------------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
06/01/96 1.30 1.15 1.20 1.05
08/31/96 1.30 1.15 1.20 1.05
11/30/96 1.20 1.10 1.10 1.00
02/29/97 1.20 1.10 1.10 1.00
05/31/97 1.20 1.10 1.10 1.00
08/31/97 1.30 1.20 1.20 1.10
11/30/97 1.40 1.30 1.30 1.20
02/28/98 1.60 1.50 1.50 1.40
</TABLE>
For purposes of this Agreement, "Income Available for Debt Service"
means net income from operations and investments, after taxes, PLUS interest
expense PLUS non-cash depreciation expense and non-cash amortization expense
LESS treasury stock purchased LESS dividends paid;"
(4051168.04)wsd8/6/96 -4-
<PAGE>
(j) Paragraph 8.6 of the Credit Agreement is amended by addition of
the following subparagraph (g):
"(g) the Term Debt;"
(k) Paragraph 8.7 of the Credit Agreement is amended by addition of
the following subparagraph (i):
"(i) liens, security interests and encumbrances to secure the Term
Debt; provided, however, no such lien, security interest or encumbrance shall
lien, pledge or encumber the Collateral;"
(l) Paragraph 8.8 of the Credit Agreement is amended in full to read
as follows:
"8.8 CAPITAL ASSETS. Not expend or incur obligations (including
obligations incurred under any capital leases) for the acquisition of fixed or
capital assets of more than the following amounts in the fiscal years
indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------
<S> <C>
Fiscal year ended 1996 $11,000,000
Fiscal year ended 1997 $17,000,000
Fiscal year ended 1998 $14,000,000;
</TABLE>
provided, however, that the amount set forth above for the fiscal year ended
1998 shall be increased by the amount of the difference, if any, between
$17,000,000 and the aggregate amount expended plus obligations incurred
(including obligations incurred under any capital leases) for the acquisition
of fixed or capital assets in Borrower's fiscal year ended 1997;"
(m) The chart in Paragraph 8.11 of the Credit Agreement is amended
in full to read as follows:
<TABLE>
<CAPTION>
"FISCAL YEAR AMOUNT
----------- ------
<S> <C>
Fiscal year ended 1996 $15,000,000
Fiscal year ended 1997 $17,500,000
Fiscal year ended 1998 $22,000,000"
</TABLE>
(n) The following paragraph is added as Paragraph 8.22 of the Credit
Agreement:
(4051168.04)wsd8/6/96 -5-
<PAGE>
"8.22 INVENTORY DAYS. Not own and hold Inventory in excess of 220
Inventory Days; provided, however, that Borrower may hold Inventory not to
exceed 230 days when calculated for the quarterly accounting period ending
November 30."
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Bank that: (i) no Event of Default under Credit Agreement and no event which,
with notice or lapse of time or both, would become an Event of Default has
occurred and is continuing; (ii) Borrower's representations and warranties
made under the Credit Agreement are true as of the date hereof; (iii) the
making and performance by Borrower of this Amendment has been duly authorized
by all necessary corporate action; (iv) no consent, approval, authorization,
permit, or license is required in connection with the making or performance of
this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
BANK OF AMERICA NATIONAL STROUDS, INC.
TRUST AND SAVINGS ASSOCIATION
By: /S/DENNIS FORS By: /S/JONATHAN W. SPATZ
-------------- --------------------
Title: Vice President Title: SENIOR VICE PRESIDENT
---------------------
(4051168.04)wsd8/6/96 -6-
<PAGE>
EXHIBIT 10.13
SECURITY AGREEMENT
Security Agreement No. 30-00018
THIS SECURITY AGREEMENT (the "Security Agreement"), dated as of July,
1996 made by and between LYON CREDIT CORPORATION, a corporation organized and
existing under the laws of the State of Delaware, with an office address at
1266 East Main Street, Stamford, Connecticut 06902-3546 (together with its
successors and assigns, if any, "Secured Party") and Strouds, Inc., a
organized and existing under the laws of the State of DELAWARE with its
residence, mailing address and principal place of business at 780 South
Nogales Street, City of Industry, CA 91748 ("Borrower");
WITNESSETH:
1. GRANT OF SECURITY INTEREST: To secure payment on each Note made by
Borrower in the form attached hereto as Exhibit "A" together with any
extensions or renewals thereof, and any amendments or modifications thereto
(each, a "Note", and collectively, the "Notes"), and also to secure any other
indebtedness, obligation, or liability of the Borrower to the Secured Party,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising and no matter how acquired by Secured Party,
including, but not limited to, all future advances or loans which may be made
at the option of the Secured Party to or on behalf of Borrower (all the
foregoing hereinafter called the "Indebtedness"), Borrower hereby grants and
conveys to the Secured Party a first security interest in, and mortgages to
the Secured Party, each unit of property (such unit, an "Item") described in a
Schedule in the form attached hereto as Exhibit "B" (a "Schedule") and
accepted by Borrower in any Delivery and Acceptance Certificate in the form
attached to such Schedule (a "Certificate"), all products and proceeds
thereof, if any, all additions, attachments, accessories and accessions
thereto and any and all substitutions, replacements or exchanges thereto, and
any and all insurance and/or other proceeds thereof, including, but not
limited to, every permitted lease or sublease, howsoever designated, covering
all on any part thereof (all or any of the foregoing hereinafter collectively
called the "Collateral").
TO HAVE AND TO HOLD the Collateral with the power and authority and
subject to the terms and conditions set forth in this Security Agreement.
2. REPAYMENT: Borrower will duly and punctually pay the Indebtedness secured
by this Security Agreement in accordance with the terms of the Notes and this
Security Agreement. Payments of Indebtedness shall be made to Secured Party
at its office address stated above, except as otherwise directed by Secured
Party, and shall not be prorated for any cause or reason except as herein may
be specifically provided. In no event shall any payments be refunded to
Borrower. Payments shall be due periodically as specified in the applicable
Note, except that in the event any month in which a payment is due does not
contain a numbered day equal to such payment day specified, payment shall be
made on the last day of such month. If any payment is not made within ten
(10) days after due date, Borrower agrees to pay a late charge of five cents
(5 cents) per dollar on, and in addition to, the amount of such payment, but
not exceeding the lawful maximum, if any.
3. OBLIGATIONS ABSOLUTE: The obligations of Borrower under this Security
Agreement shall be absolute and unconditional under all circumstances
Page 1 of 11
<PAGE>
whatsoever, including, but not limited to, the existence of any claim, set-
off, defense, counterclaim or recoupment to any present or future claim of
Borrower against Secured Party under this Security Agreement or otherwise,
against the manufacturer or seller of any of the Collateral or against any
other person or entity for whatever reason. This Security Agreement shall not
terminate, nor shall the obligations of Borrower be affected, by reason of any
defect in title to, damage to or any loss or destruction of, the Collateral
from whatsoever cause, or the interference with the use thereof by any person
or entity, or the invalidity or unenforceability or lack of due authorization
in respect of this Security Agreement or any lack of right, power or authority
of the Secured Party to enter into this Security Agreement, or any failure of
Secured Party to perform any obligation of Secured Party or Borrower of any
other person or entity under this Security Agreement or any instrument or
document executed in connection herewith, or for any other cause, whether
similar or dissimilar to the foregoing, any present or future law or
regulation to the contrary notwithstanding, it being the express intention of
Secured Party and Borrower that all payments by Borrower shall be, and
continue to be, payable in all events unless the obligation to pay the same
shall be terminated pursuant to the express provisions of this Security
Agreement.
4. REPRESENTATIONS AND WARRANTIES: Borrower represents and warrants as of the
date of this Security Agreement that:
a) Borrower is a corporation duly organized and validly existing in good
standing under the laws of its state of organization and has the corporate
power to enter into and perform its obligations under this Security Agreement,
b) this Security Agreement has been duly authorized, executed and
delivered by Borrower and, assuming due authorization, execution and delivery
by Secured Party, is a legal, valid and binding obligation of Borrower,
enforceable in accordance with its terms except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the rights of creditors generally, and general principles of
equity, regardless of whether such enforceability is considered in proceeding
in equity or at law,
c) the execution and delivery by Borrower of this Security Agreement is
not, and the performance by it of its obligations hereunder will not be,
inconsistent with Borrower's articles or certificate of incorporation or by-
laws, do not and will not contravene any law, governmental rule or regulation,
judgment or order applicable to Borrower, and do not and will not contravene
any provision of, or constitute a default under, any indenture, mortgage,
contract or other instrument to which Borrower is a party or by which it is
bound,
d) no consent or approval of, giving of notice to, registration with, or
taking of any other action in respect to or by, any federal, state or local
governmental authority or agency or other entity is required with respect to
the execution, delivery and performance by Borrower of this Security
Agreement, or if any such approval, notice, registration or action is
required, it has been duly given or obtained,
e) there are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or
affecting Borrower, which will have a material adverse effect on the ability
of Borrower to fulfill its obligations under this Security Agreement,
f) each financial statement and other related information furnished to
Secured Party by Borrower has been prepared in accordance with generally
accepted accounting principles and, since the date of the most recent
financial statement so delivered, there has been no material adverse change
(as that term is defined in paragraph 12 (j) below),
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g) this Security Agreement shall be effective against all creditors of
Borrower under applicable law, including, without limitations, fraudulent
conveyance and bulk transfer laws, and
h) the Collateral will at all times be used solely in the conduct of the
business of Borrower and be and remain in the possession and control of
Borrower.
5. LIENS: Borrower is the lawful owner of the Collateral. Borrower shall
keep the Collateral free and clear from all liens, charges, encumbrances and
security interests of any kind ("Liens"), except for
(i) the Lien of Secured Party, as provided in this Security Agreement,
(ii) Liens for taxes either not yet due or being contested by Borrower in
good faith with due diligence and by appropriate proceedings, so long as such
proceedings do not, in the opinion of Secured Party, involve any material
danger of sale, forfeiture or loss of Collateral or any part thereof or title
thereto or interest therein,
(iii)inchoate materialmen's, mechanic's, workmen's, repairmen's,
employees', carriers', warehousemen's or other like Liens arising in the
ordinary course of business of Borrower and not delinquent and Borrower shall
be maintaining adequate reserves therefor. Secured Party shall, at its own
cost and expense, promptly take such action as may be necessary to discharge
duly all Secured Party's Liens upon full payment and satisfaction of all
Indebtedness.
6. USE AND OPERATION:
(a) Borrower shall not assign, sublet, mortgage, hypothecate or alter
any of the Collateral or any interest in this Security Agreement, nor shall
Borrower remove any of the Collateral, unless replaced by Collateral of equal
or greater value, from the specified place of Collateral location, without the
prior written consent of Secured Party, and any attempt so to assign, sublet,
mortgage, hypothecate, alter or remove any of the Collateral without the prior
written consent of the Secured Party shall be void and without effect.
(b) Borrower will not, without prior written consent of Secured Party,
affix or install any accessory, equipment, or device on any Collateral if such
addition will impair the originally intended function or use of any such
Collateral or its value in place. Borrower agrees that each Item of
Collateral, except for leasehold improvements, shall prior to its installation
be personal property under applicable law. Borrower agrees to take such
action as shall be required by Secured Party from time to time to protect the
rights and interests of Secured Party in each such Item. Borrower will not,
without the prior written consent of Secured Party and subject to such
conditions as Secured Party may impose for its protection, affix or install
any Collateral to or in any other personal property. Secured Party and
Borrower agree that each Item of Collateral (other than leasehold
improvements) and every part thereof is severed from any real property and,
even if physically attached to any real property, it is the intention of
Secured Party and Borrower that such Item
(i) shall retain the character of personal property,
(ii) shall be removable,
(iii) shall be treated as personal property with respect to the
rights of all persons and entities,
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(iv) shall not become part of any real property, and
(v) by virtue of its nature as personal property, shall not be
affected in any way by any instrument dealing with any real property.
Borrower represents that is has not entered into, and agrees that it will not
enter into, any agreement or other arrangement which prohibits or restricts in
any manner the right of Secured Party or Borrower to sever Items of Collateral
from the real property on which they are located, to sever Items of Collateral
from any other equipment or personal property to which such Items are attached
or to remove Items of Collateral from the place where they are then located.
7. MAINTENANCE AND SERVICE:
(a) Items of Collateral shall be used only in the manner for which they were
designed and intended and Borrower will at its sole expense at all times
maintain Collateral in good operating order, repair, condition and appearance
and keep Collateral protected from the elements, ordinary wear and tear
excepted. Borrower will, at all times, operate and maintain each Item of
Collateral in accordance with
(i) the standards applied by Borrower with respect to similar equipment
owned or leased by it and
(ii) prudent operating and maintenance standards and manufacturer's
requirements. Borrower will not use or operate any Item of Collateral in
violation of application laws and regulations (including all applicable
environmental and occupational safety laws).
(b) Any alterations or modifications with respect to Collateral that may at
any time prior to full repayment of the Indebtedness secured hereby be
required to comply with any applicable law or any governmental rule or
regulation shall be made by Borrower as required and at the sole expense of
Borrower.
8. REPORTS:
(i) Borrower agrees that Secured Party shall not be responsible for any
loss or damage to Borrower, its customers or any other third parties caused by
the Collateral, any failure thereof or defect therein, or otherwise.
Nevertheless, Borrower will immediately notify Secured Party of each accident
arising out of any alleged or apparent improper manufacturing, functioning or
operation of any Collateral, the time, place and nature of the accident and
damage, the names and addresses of parties involved, persons injured,
witnesses and owners of property damaged, and such other information as may be
known, and promptly advise Secured Party of all correspondence, papers,
notices and documents whatsoever received by Borrower in connection with any
claim or demand involving or relating to improper manufacturing, operation or
functioning of any Collateral or charging Secured Party with liability;
(ii) Borrower will notify Secured Party in writing within thirty (30)
days after any day in which any Lien shall attach to any Collateral not
expressly permitted hereby of the full particulars thereof and of the then
location of such Collateral on such day;
(iii) Borrower will notify Secured Party forthwith in writing of the
location of any Collateral moved by Borrower from the place where delivered to
Borrower or from the location specified in this Security Agreement or any
subsequent agreement executed by the parties and Borrower will not change or
discontinue its place or places of business and/or residence and/or name;
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(iv) Borrower will within ninety (90) days of the close of each of its
fiscal years deliver to Secured Party Borrower's balance sheet and profit and
loss statement prepared in accordance with generally accepted accounting
principles and, to the extent available, certified to by a recognized firm of
certified public accountants. Borrower will deliver to Secured Party, within
sixty (60) days of the close of each of its fiscal quarters, Borrower's
quarterly financial report (which shall be in reasonable detail) prepared in
accordance with generally accepted accounting principles and certified to by
the chief financial officer or V.P. Finance of Borrower; and
(v) Borrower will permit Secured Party to inspect and examine
Collateral at such times and from time to time during normal business hours as
Secured Party may wish (and at such other times as may be mutually agreeable)
and without any requirement for advance notice, provided that such examination
and inspection shall not unreasonably interfere with Borrower's normal
business operations.
9. RISK OF LOSS:
a) Borrower is solely responsible for the entire risk of use and operation,
and for each and every cause or hazard, and all loss and damage to any and all
Collateral whether arising through operation or otherwise. In the event of
damage to any Item of Collateral, Borrower, at its cost and expense, shall
promptly repair the Item, restoring it to its previous condition or the
condition in which it was required to be assuming Borrower had met all its
obligations for maintenance of the Collateral. Upon the occurrence of an
Event of Loss (defined below) with respect to any Item, Borrower shall replace
and/or repair, within a reasonable period of time, the affected Collateral to
its previous condition or better. In the event the Borrower elects not to
replace and/or repair the Collateral to a condition suitable to the Secured
Party, Borrower shall prepay to Secured Party from the proceeds of insurance
an amount of Indebtedness under the Note relating to the Schedule hereto in
which such Item is described equal to the sum of
(i) all interest theretofore accruing, and unpaid thereon, with respect
to such Item, plus
(ii) the unpaid principal balance of the Note with respect such Item.
Provided Borrower is not in breach or default of this Security Agreement, any
proceeds of insurance received by Secured Party with respect to any such loss
shall be paid to Borrower to the extent necessary to reimburse Borrower costs
incurred and paid by Borrower in repairing damaged Equipment or as a credit
against total amount payable by Borrower with respect to the Collateral
involved, as the case may be, all as provided in this Security Agreement.
b) For the Purpose hereof "Event of Loss" shall mean, with respect to any
Item of Collateral, if such Item is
(i) destroyed, condemned, irreparably damaged or damaged beyond
economic repair,
(ii) requisitioned for use by a governmental entity for an indefinite
period or stated period extending beyond a period in excess of ninety (90)
consecutive days or the final installment payment date stated on the
applicable Note, whichever is earlier,
(iii) the subject of an insurance settlement with respect to such Item of
Collateral on the basis of a constructive total loss,
(iv) stolen and not recovered within thirty (30) days,
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(v) the subject of a condemnation or requisition of title by a
governmental entity, or
(vi) prohibited by applicable law from being used by Borrower for a
period of ninety (90) consecutive days or the final installment payment date
on the applicable Note, whichever is earlier.
10. INSURANCE:
(a) Borrower, at its own cost and expense shall obtain, maintain and
shall keep the Collateral insured against all risks of loss or damage from
every cause whatsoever in an amount not less than the greater of actual cash
value or the aggregate amount of all unpaid Indebtedness as at any time,
without deductible and without co-insurance (except as Secured Party may
approve in writing). Borrower shall also obtain and maintain, until repayment
in full of the Indebtedness public liability insurance covering liability for
bodily injury, including death, and property damage resulting from the
purchase, ownership, leasing, maintenance, use or operation of the Collateral
in an amount of at least $1,000,000 (WITH RESPECT TO EACH SEPARATE SCHEDULE
HERETO), or in such greater amounts as Secured Party may from time to time
require. Secured Party shall be the sole named loss-payee with respect to
damage or loss to the Collateral and shall be a named additional insured on
the public liability insurance. All insurance shall be with insurers and in
form satisfactory to Secured Party; shall provide for at least thirty (30)
days advance written notice to Secured Party before any cancellation or
material modification thereof; shall waive any claim for premium against
Secured Party; and shall not be invalidated or the insurer's liability to or
for or on behalf of Secured Party be diminished or affected by any breach of
warranty or representation or other act or omission of the Borrower. Borrower
shall deliver to Secured Party the original policy or policies of insurance,
certificates of insurance or other evidence satisfactory to Secured Party
evidencing the insurance required hereby along with proof satisfactory to
Secured Party of the payment of the premium therefor.
(b) Secured Party is authorized, but under no duty, to obtain such
insurance upon failure of the Borrower to do so. Borrower shall give
immediate written notice to the Secured Party and to insurers of loss or
damage to the Collateral and shall promptly file proofs of loss with insurers.
Borrower hereby irrevocably appoints the Secured Party as attorney-in-fact,
coupled with an interest, for the Borrower in obtaining, adjusting and
canceling any such insurance and endorsing settlement drafts and hereby
assigns to the Secured Party all sums which may become payable under such
insurance, including return premiums and dividends, as additional security for
the Indebtedness.
11. INDEMNIFICATION: Borrower hereby agrees to indemnify, save and keep
harmless Secured Party, its agents, employees, successors and assigns, from
and against any and all losses, damages (including indirect, special or
consequential), penalties, injuries, claims, actions and suits including,
without limitation, legal expenses, of whatsoever kind and nature (including,
without limitation, costs and expenses incurred by Secured Party in defending
claims or suits brought against it by Borrower in violation of or contrary to
the provisions of this Security Agreement), in contract or tort, including,
but in no way limited to, Secured Party's strict liability in tort, unless and
except to the extent Secured Party's gross negligence or willful misconduct is
the proximate cause of any such loss, damage, penalty, injury claim, action,
or suit, and Borrower shall at its own expense defend any and all such
actions, arising out of the selection, modification, purchase, ownership,
acceptance or rejection of any Item of Collateral and the delivery,
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<PAGE>
possession, maintenance, use, condition (including, without limitation, latent
and other defects, whether or not discoverable by Secured Party or Borrower,
and any claim for patent, trademark or copyright infringement), or operation
of any Item of Collateral by whomsoever used or operated or arising out of or
resulting from the condition of any Item of Collateral sold or disposed of
after use by Borrower, any lessee, sublessee or employees of Borrower. The
indemnities and assumptions of liability herein provided for shall continue in
full force and effect notwithstanding the termination of this Security
Agreement whether by expiration of time, operation or law or otherwise.
BORROWER AGREES THAT SECURED PARTY SHALL NOT BE LIABLE TO BORROWER FOR ANY
CLAIM CAUSED DIRECTLY OR INDIRECTLY BY THE INADEQUACY OF ANY ITEM OF
COLLATERAL FOR ANY PURPOSE OR ANY DEFICIENCY OR DEFECT THEREIN OR THE USE OR
MAINTENANCE THEREOF OR ANY REPAIRS, SERVICING OR ADJUSTMENTS THERETO OR ANY
DELAY IN PROVIDING OR FAILURE TO PROVIDE ANY THEREOF OR ANY INTERRUPTION OR
LOSS OF SERVICE OR USE THEREOF OR ANY LOSS OF BUSINESS, ALL OF WHICH SHALL BE
THE SOLE RISK AND RESPONSIBILITY OF BORROWER.
12. DEFAULT; REMEDIES: If any of the following (herein an "Event of
Default") shall occur:
(a) Borrower shall default in the payment of Indebtedness to Secured
Party or in making any other payment hereunder or under any Note when due, and
such default shall continue for a period of thirty (30) days without its cure
by Borrower, or
(b) Borrower shall default in the payment when due of any obligations of
Borrower, whether or not to Secured Party, arising independently of this
Security Agreement or any Note, and such default shall continue for a period
of thirty (30) days without its cure by Borrower, or
(c) Borrower shall default in the performance of any other covenant
contained herein (including any Schedule hereto), any Certificate in respect
hereof or any Note or any other document entered into in connection with this
Security Agreement and such default shall continue for thirty (30) days after
written notice thereof to Borrower by Secured Party, or
(d) Borrower shall breach any of its insurance obligations under
paragraph 10 hereof,
(e) any representation or warranty made by Borrower in this Security
Agreement or any other documents entered into in connection with this Security
Agreement shall prove to be incorrect in any material respect when any such
representation or warranty was made or given, or
(f) Borrower shall become insolvent or make an assignment for the
benefit of creditors, or
(g) Borrower shall apply for or consent to the appointment of a
receiver, trustee or liquidator for a substantial part of its property or such
receiver, trustee or liquidator is appointed without the application or
consent of Borrower, or
(h) a petition shall be filed by or against Borrower under the Federal
bankruptcy laws (including, without limitation, a petition for reorganization,
arrangement or extension) or under any other insolvency law or law providing
for the relief of debtors, or
(i) there is, without the prior consent of Secured Party, which will not
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<PAGE>
be unreasonably withheld, a change in control (defined to be a change in the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of Borrower, whether through the
ownership of voting securities, by contract or otherwise) that results in an
adverse change in the Borrower's net worth as defined in Item (j) below, or
(j) there is, based on the March 2, 1995 audited financial statements, a
material adverse change (defined to be a decrease of at least one-third (1/3)
of net worth, as determined in accordance with generally accepted accounting
principles) in Borrower's financial condition;
then, to the extent permitted by applicable law, Secured Party shall have the
right to exercise any one or more of the following remedies one or more times:
A) declare this Security Agreement in default, such declaration being
applicable to all Schedules hereunder except as specifically excepted by
Secured Party;
B) declare the entire amount of unpaid total Indebtedness immediately due and
payable;
C) declare due and payable in addition to any unpaid Indebtedness due on or
before Secured Party declares this Security Agreement in default, as
liquidated damages or loss of a bargain and not as a penalty, an amount
calculated in accordance with the provisions of paragraph 9 as though the
Collateral had suffered an Event of Loss, as of the date that Secured Party
declares this Security Agreement in default;
D) declare due and payable the amount of any indemnification hereunder if
then determinable, with interest as provided herein;
E) upon notice to any lessees or sublessees permitted pursuant to paragraph
6(a) to obtain and retain all rentals thereafter due, paid and/or payable;
F) without demand or legal process enter into premises where the Collateral
may be found and take possession of and remove the same, whereupon all rights
of Borrower in the Collateral shall terminate absolutely, and either
(i) retain all prior payments of Indebtedness and sell the Collateral at
public or private sale, with or without notice to Borrower, with or without
having the Collateral at the sale, at which sale Secured Party may purchase
all or any of the Collateral, the proceeds of such sale, less expenses of
retaking, storage, repairing and reselling, and reasonable attorneys' fees
incurred by Secured Party, to be applied to the payment of the unpaid total
Indebtedness, Borrower remaining liable for the balance of said unpaid total
Indebtedness, and any surplus thereafter remaining to be for the account of
Borrower (except as otherwise provided under applicable law) or
(ii) retain the Collateral and all prior payments of Indebtedness, in
satisfaction of the remaining unpaid Indebtedness;
G) pursue any other remedy then available to Secured Party at law or in
equity. Borrower hereby covenants and agrees to notify Secured Party
immediately of the occurrence of any default specified in this paragraph 12.
13. REMEDIES CUMULATIVE: Time of performance of Borrower's obligations
hereunder is of the essence. All remedies of Secured Party hereunder are
cumulative, and may, to the extent permitted by law, be exercised concurrently
or separately, and the exercise of any one remedy shall not be deemed to be an
election of such remedy to the exclusion of any other remedy or to preclude
the exercise of any other remedy at any other time. Failure on the part of
the Secured Party to exercise, or delay in exercising, any right or remedy
hereunder or Secured Party's failure at any time to restrict performance by
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<PAGE>
Borrower of any of the provisions hereof shall not operate as a waiver
thereof; nor shall any single or partial exercise by Secured Party of any
right or remedy hereunder preclude any other further exercise thereof or the
exercise of any other right or remedy.
14. ASSIGNMENT: Borrower acknowledges, and understands that Secured Party
may assign this Security Agreement, any Schedule or Certificate or any Note to
a bank or any other lending institution or any other person, organization or
agency, and Borrower shall
(a) recognize any such assignment,
(b) accept the lawful demands of such assignee,
(c) surrender assigned Collateral only to such assignee,
(d) pay all Indebtedness payable hereunder and to any and all things
required of Borrower hereunder, notwithstanding any default of the Secured
Party or the existence of any claim, defense or offset between Borrower and
Secured Party, and
(e) not require any assignee of the Security Agreement to perform any
duty, covenant or condition required to be performed by Secured Party under
the terms of this Security Agreement provided that Secured Party shall remain
liable for such performance. The obligations of Borrower shall not be
subject, as against any such assignee or transferee, to any defense, set-off
or counterclaim available to Borrower against Secured Party and any such
defense, set-off or counterclaim may be asserted only against Secured Party.
15. FILINGS: Borrower agrees to execute any instrument or instruments
necessary or expedient for filing, recording, perfecting, or notifying of the
interest of Secured Party upon request of, and as determined by, Secured
Party. Borrower hereby specifically authorizes Secured Party to file
financing statements not signed by Borrower or to execute same for and on
behalf of Borrower as Borrower's attorney-in-fact, irrevocably and coupled
with an interest, for such purposes. A carbon, photographic or other
reproduction of the Security Agreement or a financing statement shall be
sufficient as a financing statement for filing purposes.
16. NOTES:
(a) Upon written notice by Secured Party to Borrower that Secured Party
intends to transfer any Note, Borrower shall, in exchange for the Note to be
transferred, promptly execute a new note in the amount of the exchanged Note,
naming the transferee as payee thereunder, and deliver to same to such
transferee.
(b) If any Note shall become mutilated or shall be destroyed, lost or
stolen, Borrower shall, upon the written request of the payee under of such
Note, execute and deliver in replacement thereof, the new Note payable in the
same amount and dated the same date as the Note so mutilated, destroyed, lost
or stolen.
17. MISCELLANEOUS:
(a) In case of failure of Borrower to comply with any provision of this
Security Agreement, Secured Party shall have the right, but shall not be
obligated, to effect such compliance in whole or in part, and all moneys spent
and expenses and obligations incurred or assumed by Secured Party in effecting
such compliance (including but not limited to, attorney's fees and costs
incurred in attempting to effect compliance against Borrower and/or others)
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shall constitute additional Indebtedness hereby secured due to Secured Party
five (5) days after the date Secured Party sends notice to Borrower requesting
payment. Secured Party's effecting such compliance shall not be waiver of
Borrower's default. Interest on any payments made by Secured Party hereunder
on amounts due after Secured Party declares default under paragraph 12 and
interest on any overdue payment under paragraph 11 shall be at the default
rate prescribed in the Note, (or, if there is more than one Note, at the
highest amount the default rates prescribed in such Notes), but not to exceed
the maximum lawful rate. Any provisions in this Security Agreement, any
Schedule hereto or Certificate in respect hereof which are in conflict with
any statute, law or rule applicable shall be deemed omitted, modified or
altered to conform thereto.
(b) If any provision of this Security Agreement shall contravene or be
invalid under applicable law or regulation (including federal law and
regulation), such contravention or invalidity shall not affect the entire
Security Agreement, the provisions held to be invalid to be deemed deleted or
modified and the Security Agreement interpreted and construed as though such
invalid provision or provisions were not part hereof or conformed thereto.
(c) Secured Party may give notice to Borrower or make a request of
Borrower by depositing such notice or request in the U.S. mail, first class
postage prepaid, addressed to the Borrower at its address above, an address
furnished by Borrower to Secured Party, a mailing address of Borrower or a
place of business of Borrower. All notices required to be given by Borrower
hereunder shall be deemed adequately given if sent by registered or certified
mail to Secured Party at the address of Secured Party stated herein, or at
such other place as Secured Party may designate to Borrower in writing.
(d) This Security Agreement, any addendum hereto attached and signed by
Secured Party and Borrower, any Schedule hereto and any Certificate in respect
hereof, constitute the entire agreement of the parties with respect to the
subject matter hereof. THIS SECURITY AGREEMENT, ANY VARIATION OR MODIFICATION
OF THIS SECURITY AGREEMENT, ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS
AND ALL SCHEDULES SHALL NOT BE VALID UNLESS IN WRITING, AND SIGNED BY AN
AUTHORIZED OFFICER OR MANAGER OF SECURED PARTY.
(e) BORROWER WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY LITIGATION
ARISING HEREFROM OR IN RELATION HERETO
(f) THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(g) BORROWER SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY NOTE, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NONEXCLUSIVE GENERAL
JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE CITY OF NEW YORK,
NEW YORK AND APPELLATE COURTS FROM ANY THEREOF; CONSENTS THAT ANY SUCH ACTION
OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT
COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; AND AGREES THAT SERVICE MAY
BE MADE ON BORROWER IN ANY SUCH PROCEEDING BY DELIVERING A COPY OF PROCESS TO
BORROWER AT BORROWER'S ABOVE ADDRESS, SUCH SERVICE TO BE EFFECTIVE UPON
RECEIPT.
(This space left intentionally blank)
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IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement as of the date first above written.
STROUDS, INC.
as Borrower
By: /S/DOUGLAS C. FELDERMAN
-----------------------
Name: DOUGLAS C. FELDERMAN
--------------------
Title: VICE PRESIDENT, FINANCE
-----------------------
Affix Corporate Seal here
Attest/WITNESS:
By: /S/RAYMOND A. ORPHAN
--------------------
Name: RAYMOND A. ORPHAN
-----------------
Title: ________________________________
LYON CREDIT CORPORATION
as Secured Party
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
C:\DATA\CONTRACT\0018RAYE.SCA05/24/969380018RAYF.SCA 07/24/96 2:48
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PROMISSORY NOTE
Exhibit A to
Security Agreement No.: 30-00018
$3,000,000.00
- -------------
July , 1996
FOR VALUE RECEIVED, the undersigned, hereinafter called "Borrower",
promises to pay to the order of Lyon Credit Corporation, hereinafter called
"Payee", at its office located at 1266 East Main Street, Stamford, Connecticut
06902, or at such other place as Payee may from time to time designate, the
principal sum of THREE MILLION AND NO/100 Dollars($3,000,000.00), together
with interest thereon at the rate of 9.58% per annum, with principal and
interest payable in SIXTY (60) consecutive monthly installments, commencing
SEPTEMBER 1, 1996 and continuing on the same date of each month thereafter
until this Note is fully paid, with SIXTY (60) installments each in the amount
of SIXTY THREE THOUSAND ONE HUNDRED THIRTY NINE AND 73/100 Dollars
($63,139.73).
The interest rate stated above is based on the corresponding term U.S.
Treasury Note Rate as of JULY 23, 1996 (the "Effective Date"). Borrower and
Payee agree that any change in the U.S. Treasury Note, from the Effective Date
to the date of funding of the extension of credit evidenced by this Note, will
result in a corresponding change in the interest rate for this Note.
This Note is referred to in and is entitled to the benefits of that
certain Security Agreement No. 30-00018, dated as of JULY , 1996 (the
"Security Agreement") and Schedule No. 0210-001 thereto, dated as of even date
herewith (the "Schedule") by and between the Borrower and Payee, encumbering
and granting a security interest in certain property and securing the
indebtedness described herein.
All payments received in respect of this Note shall be applied, first, to
accrued interest and then to principal. The acceptance by Payee or any holder
hereof of any payment which is less than the full amount then due and owing
shall not constitute a waiver of Payee's or such holder's right to receive
payment in full at such time or at any prior subsequent time.
Borrower shall, upon the occurrence of an "Event of Loss" (as that term
is defined in the Security Agreement) with respect to any Item of Collateral
described in the Schedule, prepay this Note by that amount and in the manner
provided in the Security Agreement.
Borrower may, on any regular installment payment date, prepay in full,
but not in part, the then entire unpaid principal balance hereof together with
all accrued unpaid interest thereon to the date of such prepayment, provided
that along with and in addition to such prepayment Borrower shall pay (i)
during the first three (3) years of the term, a prepayment premium equal to
two per cent (2%) of the principal balance prepaid for each full or partial
year by which the prepayment date antedates the scheduled date of final
installment of principal hereunder, and (ii) any and all other sums due
hereunder and/or under the Security Agreement.
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<PAGE>
Time is of the essence hereof. If payment of any installment or any
other sum due under this Note or Security Agreement is not paid within ten
(10) days after is due date, Borrower agrees to pay a late charge of five
cents (5 cents) per dollar on, and in addition to, the amount of each such
payment, but not exceeding the lawful maximum rate. In the event Borrower
shall fail to make any payment under this Note within thirty (30) days after
its due date or if any other "Event of Default" (as that term is defined in
the Security Agreement) shall occur, then, the entire unpaid principal balance
hereof with accrued unpaid interest thereon together with all other sums payable
under this Note or the Security Agreement, shall, at the option of Payee and
without notice or demand to Borrower, become immediately due and payable, such
accelerated balance bearing interest until paid at the default rate of fifteen
percent (15%) per annum, or if prohibited by law, at such lesser rate that is
not prohibited by law.
Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause any amount contracted for or charged herein or
collectable hereunder to exceed any applicable lawful maximum rate, then the
interest shall be limited to lawful maximum.
Borrower and all sureties, endorsers, guarantors and any others who may
at any time become liable for the payment hereof consent to any and all
extensions of time, renewals, waivers, and modifications of, and substitutions
or releases of security or of any party primarily or secondarily liable, on,
this Note or the Security Agreement or any of the terms and provisions of
either that may be made, granted or consented to by Payee, and agree that suit
may be brought and maintained against any one or more of them, at the election
of Payee, without joinder of the others as parties thereto, and that Payee
shall not be required to first foreclose, proceed against, or exhaust any
security herefor in order to enforce payment by them, or any one or more of
them, of this note. Borrower and all sureties, endorsers, guarantors or any
others who may at any time become liable for the payment hereof hereby
severally waive: presentment, notice of nonpayment, demand for payment, notice
of dishonor, and all other notices in connection with this Note; filing of
suit; diligence in collecting on this Note or enforcing any of the security
herefor; and all benefits of valuation, appraisement and exemption laws, and
further severally agree to pay, if permitted by law, all expenses incurred in
collection, including, without limitation, reasonable attorney's fees.
If Borrower is a corporation, it and the persons signing on its behalf
represent and warrant that the execution and delivery of this Note has been
authorized by its board of directors and by all other necessary and
appropriate corporate and shareholder action.
This Note is transferable in accordance with the terms of the Security
Agreement.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT. THIS NOTE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE>
IN WITNESS WHEREOF, the Borrower has executed this Note as of the date
first above written.
STROUDS, INC.
As Borrower
By: /S/DOUGLAS C. FELDERMAN
-----------------------
Name: DOUGLAS C. FELDERMAN
--------------------
Title: VICE PRESIDENT, FINANCE
-----------------------
Attest: /S/RAYMOND A. ORPAHN
--------------------
Name: RAYMOND A. ORPHAN
-----------------
Title: _______________________________
(Seal)
C:\DATA\CONTRACT\0018RAYE.FIX05/24/968280018RAYF.FIX 07/24/96 5:40
Page 3 of 3
<PAGE>
SCHEDULE NO. 0210-001 TO SECURITY AGREEMENT
Exhibit B to
Security Agreement No. 30-00018
Schedule No. 0210-001
Description of Collateral: See Schedule "A" attached hereto and made a part
hereof.
Cost of Collateral...................$3,000,000.00
Collateral to be located at: Strouds Store #64- 5250 Meadowood Mall Circle,
Reno, NV 89502
Strouds Store #67- Old Orchard Center, #M16,
Skokie, IL 60076
Reference is made to that certain Security Agreement No. 30-00018, dated July
____, 1996 (as it may be modified or amended, now or hereafter, called the
"Security Agreement") between Lyon Credit Corporation ("Secured Party") and
Strouds, Inc. ("Borrower").
All of the terms and provisions of the Security Agreement are hereby
incorporated by reference into and made part of this Schedule to the same
extent as if fully set forth herein. Borrower and Secured Party hereby agree
to be bound by the terms and provisions, and hereby make, as if made as of the
date hereof, the representations and warranties contained in the Security
Agreement as each related to the Collateral described above.
Borrower and Secured Party hereby agree that upon delivery of the Collateral
described herein, Borrower has caused an authorized representative of Borrower
to inspect the Collateral and the Collateral has been found to be in proper
operating order and appearance conforming with the specifications and
requirements of Borrower and Borrower confirms that such Collateral secures
the Indebtedness by Borrower's acceptance of such Collateral by execution and
delivery of a Delivery and Acceptance Certificate in the form annexed hereto
as Appendix 1.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Schedule as of the
26th day of July, 1996.
STROUDS, INC.
as Borrower
By: /S/DOUGLAS C. FELDERMAN
-----------------------
Name: DOUGLAS C. FELDERMAN
--------------------
Title: VICE PRESIDENT, FINANCE
-----------------------
Attest/WITNESS
By: /S/RAYMOND A. ORPHAN
--------------------
Name: RAYMOND A. ORPHAN
-----------------
Title: _____________________________
(Corporate Seal)
LYON CREDIT CORPORATION,
as Secured Party
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
C:\DATA\CONTRACT\0018RAYE.S2S05/24/966770018RAYF.S2S 07/24/96 3:27
Page 2 of 2
<PAGE>
SCHEDULE "A"
STROUDS, INC.
This Schedule "A" is attached to and made a part of Schedule No. 0210-0001 to
Security Agreement No. 30-00018 between Strouds, Inc. ("Borrower") and Lyon
Credit Corporation ("Secured Party").
All furniture, fixtures, and equipment, now owned by Borrower or hereafter
acquired, located on or used in the operations of two (2) Strouds linen stores
operated by Borrower, including but not limited to, the equipment described in
this Schedule "A" at the following locations, together with all replacements,
additions, substitutions, or proceeds from sale.
Equipment Location #1: Strouds Store #64, 5250 Meadowood Mall Circle, Reno, NV
89502
VENDOR DESCRIPTION
--------------------------------- -----------------------------------
Zephyr Architectural
Lane Stanton Vance Lumber Raw materials for displays
Noble Plastics Sheet hangers, sham trays, sheet
lips, sprocket napkin/ring
dividers, sign holders and other
misc. small fixtures.
Kariastan Bigelow Carpet
Lundia Shelving, kickboards and rails
Professional Builders, Inc. General Contractor work and Asbestos
removal
California Display Shelving, panels, cashwrap station,
display cubes, display bases, tables
and shower curtain and rug displays
CPS Garten Corp. Floor tiles
FPI Installations, Inc. Fixture installation
The Display Guys Decorative fixtures
Port Plastics Display accessories
San Pedro Electric Sign Co. Store interior/exterior signs
Mark A. Frank Store interior/exterior signs
Young Electric Sign Co. Store interior/exterior signs
Alarmex Security alarm
Silvestri Decorative fixtures
C & C Floral, Inc. Decorative accessories
Instore Building & Design Misc. fixture
1
<PAGE>
Equipment Location #2: Store #67, 374 Old Orchard Center, #M16, Skokie, IL
60076
VENDOR DESCRIPTION
--------------------------------- -----------------------------------
Leopardo Construction Inc. TI work, electrical, HVAC etc.
Montgomery Kone Escalators
Arcline Associates Architecture and Design
Checkpoint Alarm system
Karastan Bigelow Carpet
CPS/Garten Tile
Lane Stanton Vance Lumber
Noble Plastics Various fixtures
D.B. Imports, LTD
Lundia Shelving
FPI Installations Fixtures install
California Display Shelving, panels, cashwrap station,
display cubes, display bases,
tables, credenzas, amoires and
shower curtain and rug displays
Excalibur Shelving
Strouds, Inc., Lyon Credit Corporation,
as Borrower as Secured Party
By: /S/DOUGLAS C. FELDERMAN By: ________________________________
-----------------------
2
