SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-13710
AID AUTO STORES, INC.
------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2254654
------------------- --------------------------------
(State of Incorporation) (IRS Employer Identification Number)
275 Grand Boulevard, Westbury, New York 11590
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (516) 338-7889
Indicate by check mark if 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
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practical date.
Common Stock (par value $.001 per share) 3,957,596 shares outstanding as of
August 1, 1997.
<PAGE>
AID AUTO STORES, INC.
CONTENTS
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PART I FINANCIAL INFORMATION PAGE
Item 1 Consolidated Condensed Financial Statements:
- ------- -------------------------------------------
Balance Sheets as of June 30, 1997 and
December 31, 1996 .................................. 3 - 4
Statements of Operations for the Six Months Ended
June 30, 1997 and 1996 ........................... 5
Statements of Operations for the Three Months Ended
June 30, 1997 and 1996 ........................... 6
Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996 ............................ 7 - 8
Notes to Financial Statements ..................... 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 10 - 14
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K ................. 15
SIGNATURES ..................................................... 16
<PAGE>
Aid Auto Stores, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION> June 30, 1997 Dec. 31, 1996
ASSETS (unaudited) (audited)
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................ $ 518,343 $ 331,019
Accounts receivable - trade, net of
allowances for doubtful accounts of
$440,798 at June 30, 1997 and
December 31, 1996 ...................... 1 ,292,468 1,755,904
Notes receivable, net of allowances for
doubtful accounts of $190,000 at
June 30, 1997 and December 31, 1996 .... 327,176 305,424
Inventories .............................. 12,880,915 13,348,534
Prepaid expenses and other current assets 2,944,155 1,971,150
Deferred income taxes .................... 275,000 275,000
------------ ------------
Total current assets 18,238,057 17,987,031
FIXED ASSETS -AT COST, net .............. 3,283,212 3,266,855
COSTS IN EXCESS OF NET ASSETS ACQUIRED,
net .................................. 3,553,309 3,690,214
DEFERRED INCOME TAXES .................. 175,000 175,000
OTHER ASSETS ........................... 396,073 406,028
------------ ------------
$ 25,645,651 $ 25,525,128
============ ============
See Notes to Consolidated Condensed Financial Statements
<PAGE>
Aid Auto Stores, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY June 30, 1997 Dec. 31, 1996
(unaudited) (audited)
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Revolving credit line ............... $ 7,954,369 $ 7,649,951
Accounts payable ..................... 3,666,653 3,599,561
Accrued expenses ..................... 351,593 448,331
Current portion of long-term debt .... 434,630 428,647
Note payable - officer ............... 1,093,750 781,250
------------- -------------
Total current liabilities 13,500,995 12,907,740
LONG-TERM DEBT ...................... 1,662,981 1,899,445
DEFERRED OCCUPANCY COSTS ............ 308,532 242,628
NOTE PAYABLE - OFFICER .............. 1,093,750 1,406,250
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value;
authorized, 2,000,000 shares;
none issued
Common stock, $.001 par value;
authorized, 15,000,000 shares;
3,957,596 shares issued
and outstanding ................. 3,958 3,958
Additional paid-in capital ......... 9,006,809 9,006,809
Retained earnings .................. 68,626 58,298
------------ ------------
9,079,393 9,069,065
------------ ------------
$ 25,645,651 $ 25,525,128
============ ============
See Notes to Consolidated Condensed Financial Statements
<PAGE>
Aid Auto Stores, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Six Months Ended June 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenues
Net sales ............................. $ 12,313,990 $ 13,609,681
Costs and expenses
Cost of sales ........................ 6,854,435 8,093,152
Selling and shipping .................. 3,754,401 3,758,235
General and administrative ............ 1,156,936 1,413,179
------------ ------------
$ 11,765,772 $ 13,264,566
------------ ------------
Income from operations 548,218 345,115
Interest expense ..................... (551,622) (395,946)
Interest and other income ............ 13,733 175,033
----------- -----------
Income from continuing operations
before income taxes 10,329 124,202
Provision for income taxes 31,615
----------- ----------
NET INCOME $ 10,329 $ 92,587
----------- ----------
Income per common share
Income from continuing operations $ - $ .03
==== ===
Net Income per common share $ - $ .02
==== ===
Weighted average common shares outstanding 3,957,596 3,957,596
========= =========
See Notes to Consolidated Condensed Financial Statements
<PAGE>
Aid Auto Stores, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended June 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenues
Net sales ............................ $ 6,221,392 $ 7,035,644
Costs and expenses
Cost of sales ...................... 3,311,616 4,082,676
Selling and shipping ................ 1,985,662 2,071,545
General and administrative .......... 580,834 731,124
----------- -----------
$ 5,878,112 $ 6,885,345
----------- -----------
Income from operations 343,280 150,299
Interest expense ................... (282,214) (199,679)
Interest and other income .......... 7,249 123,364
----------- -----------
Income from continuing operations
before income taxes 68,315 73,984
Provision for income taxes 23,000
----------- ----------
NET INCOME $ 68,315 $ 50,984
----------- ----------
Income per common share
Income from operations $.02 $.02
=== ===
Net Income per common share $.02 $.02
=== ===
Weighted average common shares outstanding 3,957,596 3,957,596
========= =========
See Notes to Consolidated Condensed Financial Statements
<PAGE>
Aid Auto Stores, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 10,329 $ 92,587
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation and amortization 651,276 336,283
Provision for losses on
accounts receivable 58,000
Deferred occupancy costs 65,904 (21,220)
(Increase) decrease in operating assets
Accounts receivable 463,436 995,797
Notes receivable 20,441 33,804
Inventories 467,619 (2,618,130)
Prepaid expenses and other
current assets (1,147,817) (94,102)
Other assets (25,968)
Security deposits (6,270) (14,932)
Increase(decrease) in operating
liabilities
Accounts payable 67,092 (58,333)
Accrued expenses (96,738) (109,017)
----------- -----------
Net cash provided by (used in)
operating activities 469,304 (1,399,263)
----------- -----------
Cash flows from investing activities
Purchases of fixed assets (355,917) (1,037,970)
----------- -----------
Net cash used in investing activities (355,917) (1,037,970)
----------- -----------
<PAGE>
Aid Auto Stores, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<CAPTION>
Six Months Ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from financing activities
Net borrowings under revolving credit line $ 304,418 $ 74,330
Principal repayment of long-term debt (230,481) (1,787,485)
Repayment of officers' loans (156,250)
----------- -----------
Net cash provided by (used in)
financing activities 73,937 (1,869,405)
----------- -----------
Net increase (decrease) in cash
and cash equivalents 187,324 (4,306,638)
Cash and cash equivalents, at beginning of year 331,019 4,766,893
--------- ----------
Cash and cash equivalents, at end of period $ 518,343 $ 460,255
========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 517,455 $ 378,100
Income taxes 119,228
</TABLE>
<PAGE>
AID AUTO STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
A. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated balance sheet as of June 30, 1997, the consolidated
statement of operations for the three and six month periods ended June 30,
1997 and the consolidated statement of cash flows for the six month period
ended June 30, 1997 have been prepared by the company without audit. In
the opinion of management, all adjustments (which include only recurring
adjustments) necessary to present fairly the financial position at
June 30, 1997, and the result of operations and cash flows for the periods
presented, have been made. Results of operations for the three and six
month periods ended June 30, 1997 are not necessarily indicative of the
operating results to be expected for the full year.
For information concerning the Company's significant accounting policies,
reference is made to the Company's audited financial statements for the
year ended December 31, 1996 contained in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission. While the
Company believes that the disclosures presented are adequate to make the
information contained herein not misleading, it is suggested that these
statements be read in conjunction with the consolidated financial
statements and the notes included in the Form 10-K.
B. INVENTORIES
Inventories consists primarily of merchandise purchased for resale.
C. RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 presentation to
conform to the 1997 presentation.
<PAGE>
AID AUTO STORES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Aid Auto Stores, Inc. (the "Company"), formed in 1953, is a retailer,
wholesaler and franchiser of automotive parts and accessories. As of June 30,
1997, the Company supplied products to 53 Aid Auto Stores, including 21
Company-owned stores and 32 franchised stores, and, through its wholly-owned
subsidiary, Ames Automotive Warehouse, Inc. ("Ames"), to hundreds of
non-automotive chain stores and independent jobbers and installers in New York,
New Jersey and Connecticut. The Aid Auto Stores sell an extensive variety of
name-brand automotive parts, accessories and chemicals, as well as an assortment
of products marketed under the "Aid" and "Perfect Choice" brands, to both do-it-
yourself and commercial customers. Pursuant to a growth strategy initiated in
1995, the Company commenced the opening of Company-owned Superstores, and
de-emphasized its franchise operations. As of June 30, 1997, the Company opened
seven new Superstores and had acquired (in December 1995) ten franchised Aid
Auto Stores in Long Island, New York, of which five of these stores had been
converted and reopened as Superstores and four of the five remaining stores
will be converted to Superstores. Through termination and non-renewal of
franchise agreements, the number of franchised stores has decreased since the
end of the second quarter of 1996 from 41 to 32. The Company intends to open
additional Superstores, which may be accomplished in part by acquisition. The
number of stores to be opened is subject to substantial variation depending
upon, among other factors, the availability of adequate financing to fund the
cost of adding the additional stores, the level of success of the initial
Superstores, the availability of suitable store sites or acquisition candidates,
and the timely development and construction of new stores. The anticipated
favorable financial performance of the Company is tied, to a large extent,
to the transition of the Company to the Superstore program and the strong
future potential of that program. The Company's operating expenses are expected
to increase significantly in connection with the Superstore growth program and,
accordingly, the Company's future profitability will depend upon corresponding
increases in revenue from Superstore operations, of which there can be no
assurance.
<PAGE>
Results of Operations
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996.
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996.
The Company's operating revenues are primarily derived from net sales
consisting of both retail and wholesale sales. Retail sales are made from the
Company-owned Aid Auto Stores of which 21 existed at June 30, 1997 and 18 at
June 30, 1996. Wholesale sales include sales to the Company's franchised Aid
Auto Stores, of which 32 existed at June 30, 1997 and 41 at June 30, 1996, and
through Ames, to hundreds of other customers. Consistent with the de-emphasis
of its wholesale business, the Company reduced its Ames Division wholesale
customer base by approximately 30%. Revenues decreased by $1,295,691 (or 9.5%)
from $13,609,681 for the six months ended June 30, 1996 to $12,313,990 for the
six months ended June 30, 1997 and by $ 814,252 (or 11.6%) from $7,035,644 for
the three months ended June 30, 1996 to $6,221,392 for the three months ended
June 30, 1997. The decrease in revenues in 1997 was due primarily to the
decrease of $2,139,475 in wholesale sales to franchisees and through Ames from
$5,831,656 to $3,692,181 for the six months ended June 30, 1996 and 1997,
respectively, and $2,659,561 from $4,172,273 to $1,512,712 for the three months
ended June 30, 1996 and 1997 respectively. This decrease was partially offset
by an increase in retail sales of $853,784 (or 11.0%) from $7,778,025 to
$8,631,809 for the six months ended June 30, 1996 and 1997, respectively and
$4,376,083 to $4,579,886 for the three months ended June 30, 1996 and 1997
respectively. The exceptionally mild, auto-friendly winter weather
in the first quarter of 1997 resulted in a decrease in the sale of certain items
(e.g., antifreeze and other winter chemicals) and the decreased need for other
winter maintenance items (especially when compared to the seasonally cold and
wet winter of 1995-1996 which resulted in an increase in the sale of winter
items). In addition, the unseasonably cool spring in the second quarter of 1997
resulted in the reduced sale of car care and car maintenance products. Retail
revenue increases were offset by a decrease in sales to franchisees, reflecting
the Company's decision consistent with its Superstore growth strategy to
generally not grant new franchises (which results in a loss of sales to new
franchisees). Furthermore, ten franchised stores were terminated by the Company
in 1996, and an additional eight franchised stores were terminated in the first
six months of 1997. For the six months ended June 30, 1997, retail sales
represented 70.1% of total net sales as compared to 57.2% for the comparable
prior year period.
Cost of sales decreased by $1,238,717 (15.3%) and $771,060 (18.9%), from
$8,093,152 to $6,854,435 for the six months ended June 30, 1996 and 1997,
respectively, and from $4,082,676 to $3,311,616 for the three months ended
June 30, 1996 and 1997, respectively. As a percentage of net sales, cost of
sales decreased from 59.5% and 58.0% for the six and three month periods ended
June 30, 1996, respectively, to 55.7% and 53.2% for the comparable periods in
1997, reflecting the significantly higher margins on retail sales (as compared
to wholesale sales).
Selling and shipping expenses decreased by $3,834 (or 0.1%) from $3,758,235
(27.6% of net sales) for the six months ended June 30, 1996 to $3,754,401 (30.5%
of net sales) for the six months ended June 30, 1997. Selling and shipping
expenses decreased by $85,883 (or 4.2%) from $2,071,545 (29.4% of net sales)
for the three months ended June 30, 1996 to $1,985,662 (31.9% of net sales) for
the three months ended June 30, 1997. Selling and shipping expense as a
percentage of sales increased in the 1997 periods as such expenses are higher
for a retail operation than for a wholesale operation, reflecting the nature
of these operations.
General and administrative expenses decreased by $256,243 (or 18.1%) from
$1,413,179 (10.4% of net sales) for the six months ended June 30, 1996 to
$1,156,936 (9.4% of net sales) for the six months ended June 30, 1997. General
and administrative expenses decreased by $150,290 (or 20.6%) from $731,124
(10.4% of net sales) for the three months ended June 30, 1996 to $580,834
(9.3% of net sales) for the three months ended June 30, 1997. The decrease
in absolute dollars and as a percentage of net sales for the three and six
month periods was due to the Company's concentration on controlling costs.
Interest expense increased $155,676 from $395,946 for the six months ended
June 30, 1996 to $551,622 for the six months ended June 30, 1997. Interest
expense increased $82,535 from $199,679 for the three months ended June 30, 1996
to $282,214 for the three months ended June 30, 1997. These increases were due
to an increase in the average outstanding bank debt balance during the first six
months of 1997 as compared to the same period in the prior year.
For the foregoing reasons, the net income for six and three month period
ending June 30, 1997 was approximately $10,329 and $68,315, respectively, as
compared to a net income of approximately $92,587 and $50,984 for the six and
three month period ended June 30, 1996, respectively.
Liquidity and Capital Resources
The Company had working capital of $4,737,062 at June 30, 1997, as compared
to $5,079,291 at December 31, 1996. The decrease of $342,229 was primarily
caused by an increase in the revolving credit line and note payable to officer,
and was partially offset by decreases in accounts receivable-trade and
inventory. Through June 30, 1997, the Company had financed its capital
requirements predominantly through a revolving loan and credit facility,
currently with General Electric Capital Corp.("GE Capital") and through the
Company's Initial Public Offering, the net proceeds of which were approximately
$7,300,000.
Net cash used in operating activities was $1,399,263 for the six months
ended June 30, 1996 as compared to net cash provided by operating activities
of $469,304 for the six months ended June 30, 1997. The increase in 1997 was
attributable primarily to an increase in other current assets offset in part
by decreases in accounts receivable and inventory compared to the prior
comparable period. Net cash utilized in investing activities was $1,037,970 and
$355,917 for the six month period ending June 30, 1996 and 1997, respectively.
The decrease reflects decreases in capital expenditures in connection with the
Superstore expansion program. Net cash used by financing activities was
$1,869,405 for the six months of 1996 compared to net cash provided by financing
activities was $73,937 for the six months ended June 30, 1997. The difference
was primarily attributed to the repayment in the first quarter of 1996 of debt
in connection with the acquisition of the ten franchised Aid Auto Stores
locations.
The Company receives volume purchasing discounts and cooperative
advertising and development funds from certain of its suppliers. The amounts
of these incentives generally range from 5% to 10% of the listed purchase
prices.
On October 22, 1996, the Company entered into a revolving credit facility
with GE Capital providing for maximum borrowings of $10,000,000. This
facility replaced the existing bank facility which provided for maximum
borrowings of $6,000,000. This new facility allows the Company to borrow at
the index rate plus 3% (the index rate is the latest rate for 30-day
dealer placed commercial paper published in the "Money Rates" section of the
Wall Street Journal). At June 30, 1997 the index rate was 5.60%. Maximum
borrowings under the revolving credit facility are based upon the sum of 65%
of eligible inventory and 70% of eligible accounts receivable.
Substantially all of the Company's assets are pledged under this new
facility as collateral, and the Company is prohibited from granting a security
interest to any party other than GE Capital, which could limit the Company's
ability to obtain debt financing to implement its proposed expansion. In
addition, the Company's agreement with GE Capital limits or prohibits the
Company, subject to certain exceptions, from merging or consolidating with
another corporation or selling all or substantially all of its assets. Pursuant
to a Second Amendment and Forbarance Agreement, dated June 19, 1997, GE Capital
has agreed to forbear until August 31, 1997 from exercising its rights under its
loan agreement with the Company as a result of a claimed event of default. This
date may be extended to September 30, 1997 if prior to August 31, 1997 the
Company pays GE Capital a non-refundable extension fee of $5,000. The Company
has received a commitment letter from another lending institution indicating
an intention by that institution to provide the Company with a credit facility
sufficient to refinance all of the obligations owed by the Company to GE
Capital. While the Company believes that it will be able to complete a loan
agreement with such institution prior to September 30, 1997, there can be
assurance in that regard. In that event such an agreement is not timely
concluded, and GE Capital claims a default upon the expiration of the Second
Amendment and Forebearance Agreement, GE Capital can, at its option, increase
the interest rate by 2%, suspend its obligation to make further revolving credit
advances or call its loan. In the event GE Capital calls its loan, the Company
would be materially adversely affected.
At June 30, 1997, the Company was indebted to the Chief Executive Officer,
President and majority shareholder in the aggregate amount of $2,187,500. The
$2,187,500 loan was evidenced by two promissory notes. In connection with the
new facility with GE Capital, these notes were consolidated into one promissory
note. The new note bears interest monthly at the same rate as the revolving
credit facility with principal payable in quarterly installments through
February 1, 2000. The new revolving credit facility allows the Company to make
quarterly principal payments and scheduled monthly interest payments so long as
prior to and after giving affect to such payments no default has occurred and is
continuing or would occur on the GE Capital indebtedness as a result thereof.
The note provides for immediate payment thereof upon, among other things, a
change in a majority of the continuing directors of the Company (as defined
in the note) or a demand by GE Capital of payment in full of outstanding GE
Capital indebtedness.
At June 30, 1997, the Company had deferred tax assets of $450,000. The
Company, after considering its previous pattern of profitability and its
anticipated future taxable income, believes that it is more likely than not
that the deferred tax assets will be realized. In this respect, the Company
estimates that $1,100,000 of future taxable income will be required to realize
the deferred tax assets, with the majority of such assets anticipated to be
recovered over the next five years.
As of the date hereof, other than in connection with the implementation
of the Superstore growth program, the Company has no material commitments for
capital expenditures.
The Company has used a substantial portion of the net proceeds of the
Initial Public Offering to implement its proposed Superstore growth program.
The Company will need to seek additional debt or equity financing, as the
Company does not anticipate that its current resources and cash flow from
operations are likely to be sufficient to fund the continuing cost of its
growth program. To the extent that the Company seeks financing through the
issuance of equity securities, any such issuance of equity securities would
result in dilution to the interests of the Company's stockholders. Additionally,
to the extent that the Company incurs indebtedness to fund increased levels of
inventory or to finance the acquisition of capital equipment or issues debt
securities to fund the Superstore growth program, the Company will be subject
to risks associated with incurring substantial indebtedness, including the
risks that interest rates may fluctuate and cash flow may be insufficient to
pay principal and interest on any such indebtedness. Other than the Company's
existing line of credit with GE Capital, the Company has no current arrangements
with respect to, or sources of, additional financing and it is not anticipated
that the existing majority stockholder will provide any portion of the Company's
future financing requirements or additional personal guarantees. There can be no
assurance that additional financing will be available to the Company on
acceptable terms, or at all.
Seasonality
The Company's business is seasonal to some extent primarily as a result of
the impact of weather conditions on store sales. Store sales and profits have
historically been higher in the second and third quarters (April through
September) of each year than in the first and fourth quarters, for which the
Company generally achieves only nominal profits or incurs net losses. Weather
extremes tend to enhance sales by causing a higher incidence of parts failure
and increasing sales of seasonal products. However, extremely severe winter
weather or rainy conditions tend to reduce sales by causing deferral of
elective maintenance.
Impact of Inflation
Inflation has not had a material effect on the Company's operations.
<PAGE>
AID AUTO STORES, INC.
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) The following document is filed as part of this report:
Exhibit 10.1 Second Amendment and Forbearance Agreement
dated June 19, 1997 to the General Electric
Capital Corporation revolving loan and credit
agreement dated as of October 1, 1996.
Reports on Form 8-K
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AID AUTO STORES, INC.
-------------------------------
(Registrant)
August 14, 1997 By: /s/ Philip L. Stephen
---------------------------------
Philip L. Stephen
Chairman, Chief Executive Officer,
And President (Principal Executive Officer)
August 14, 1997 By: /s/ Frank Mangano
---------------------------------
Frank Mangano
Chief Financial Officer,
(Principal Financial and Accounting Officer)
SECOND AMENDMENT AND FOREBEARANCE AGREEMENT
-------------------------------------------
SECOND AMENDMENT AND FORBEARANCE AGREEMENT, dated as of
June 19, 1997 (this "Amendment"), to the Loan Agreement referred to below by
and among AID AUTO STORES, INC., a Delaware corporation ("Borrower"), the
SUBSIDIARY GUARANTORS LISTED ON THE SIGNATURE PAGES HEREOF and GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation ("Lender").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Borrower, Subsidiary Guarantors and Lender are parties to
that certain Loan and Security Agreement, dated as of October 1, 1996 (as
amended, supplemented or otherwise modified from time to time, the ("Loan
Agreement"); and
WHEREAS, Borrower and Lender have agreed to amend the Loan Agreement
in the manner, and on the terms and conditions provided for herein;
NOW THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Loan Agreement.
2. Amendment to the Loan Agreement. The Loan Agreement is hereby
amended as of the Amendment Effective Date as follows:
(a) Recital A of the Loan Agreement is hereby amended to change
the reference to "3.0%" under the caption "Revolving Credit Rate" to read
"3.0% and, if Borrower has not received an Acceptable Refinance Commitment
Letter on or Prior to July 15, 1997, at any time after July 15, 1997, 5.0%."
(b) Section 1.2 (b) of the Loan Agreement is hereby amended to
add a new sentence at the end thereof to read as follows: "Notwithstanding
the foregoing, in the event that on or prior to September 30, 1997,
pursuant to this Section 1.2 (b), Borrower voluntarily terminates
Borrower's right to receive and Lender's obligation to make Revolving
Credit Advances and prepays all of the Obligations, the Prepayment Fee
shall be limited to $175,000."
(c) Section 1.5 (a) of the Loan Agreement is hereby amended to
change the reference to "three percent (3.0%)" to read "three percent
(3.0%)and, if Borrower has not received an Acceptable Refinance Commitment
Letter on or prior to July 15, 1997, at any time after July 15, 1997, five
percent (5.0%)."
(d) Article 3 of the Loan Agreement is amended to add a new
Section 3.29 at the end thereof to read as follows:
"3.29 Consultant. If Borrower has not received an Acceptable
Refinance Commitment Letter on or prior to July 15, 1997, no later than
July 18, 1997 Borrower at Borrower's cost and expense shall engage until
the Termination Date a turnaround management consultant to advise the
Borrower on day-to-day operations, cash flow management, systems
implementation and capital structure, which consultant shall be reasonable
acceptable Lender."
(e) Schedule A of the Loan Agreement is hereby amended to add in
the appropriate alphabetical order a new definition thereto to read as
follows:
"Acceptable Refinance Commitment Letter" shall mean a written
commitment letter, an executed copy of which has been delivered to Lender
by Borrower, in form and substance acceptable to Lender issued by a
financial inistitution acceptable to Lender and accepted by Borrower
pursuant to which such financial institution has issued its commitment
(which commitment may be subject to additional reasonable due
diligence) to the Borrower to provide to Borrower a credit facility in
an amount sufficient to refinance all of the Obligations on or prior to
September 30, 1997. In the event any such commitment letter is not
acceptable to Lender, Lender shall promptly advise Borrower of the
specific reasons it is not acceptable.
3. Forbearance. Lender hereby agrees as of the Amendment Effective
Date to forbear until August 31, 1997 (which date shall be extended to
September 30, 1997 if prior to August 31, 1997 Borrower shall have given
Lender written notice of such extension and paid to Lender a non-refundable
extension fee of $5,000) (the "Forbearance Period") from exercising any rights
or remedies under Section 8.2 of the Loan Agreement arising solely out of the
Event of Default under Section 8.1 (d) of the Loan Agreement relating to various
Notices of Revolving Credit Advance delivered by Borrower to Lender during the
months of March and April, 1997. Borrower and each Credit Party executing this
Agreement acknowledges and agrees that (i) the Event of Default specified in
the preceding sentence has occurred and is continuing and (ii) upon expiration
of the Forbearance Period the forbearance provided under this Section 3 shall
terminate and Lender shall have the right to exercise any and all rights and
remedies under Section 8.2 of the Loan Agreement arising out of such Event of
Default.
4. Representations and Warranties. To induce Lender to enter into
this Amendment, Borrower and any other Credit Party executing this amendment
hereby represents and warrants that:
(a) The execution, delivery and performance by each Credit Party of
this Amendment are within such Credit Party's corporate power and have
been duly authorized by all necessary corporate shareholder action.
(b) This Amendment has been duly executed and delivered by or on
behalf of each Credit party.
(c) This Amendment constitutes a legal, valid and binding obligation
of each Credit Party enforceable against such Credit Party in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
(d) Other than as described in Section 3 above, no Default has
occurred and is continuing.
5. No Other Amendments; No Waivers. Except as expressly amended
in Section 2 hereof, the Loan Agreement shall be unmodified and shall continue
to be in full force and effect in accordance with its terms. In addition, except
for the forbearance expressly provided in Section 3 hereof, this Amendment shall
not be deemed a waiver of any term or condition of any Loan Document or a
forbearance by Lender with respect to any right or remedy which Lender may
now or in the future have under the Loan Documents, at law or in equity or
otherwise or be deemed to prejudice any rights or remedies which Lender may
now have or may have in the future under or in connection with Loan Document
or under or in connection with any Default under the Loan Documents.
6. Outstanding Indebtedness; Waiver of Claims. Borrower hereby
acknowledges and agrees that as of June 17, 1997 the aggregate outstanding
principal amount of the Revolving Credit Loan is $8,121,166.79 and that such
principal amount is payable pursuant to the Loan Agreement, as amended hereby,
without defense, offset, withholding, counterclaim or deduction of any kind.
Borrower and each other Credit Party executing this Amendment hereby waives,
releases, remises and forever discharges Lender and each other Indemnified
Person from any and all Claims of any kind or character, known, or unknown,
which Borrower or any other Credit Party ever had, now has or might hereafter
have against Lender which relates, directly or indirectly, to any acts or
omissions of Lender or any other Indemnified Person on or prior to the Amendment
Effective Date.
7. Expenses. Borrower hereby reconfirms its obligations pursuant
to Section 10.2 of the Loan Agreement to pay and reimburse Lender for all
reasonable costs and expenses (including, without limitation, reasonable fees
of counsel) incurred in connection with the negotiation, preparation, execution
and delivery of this amendment and all other documents and instruments delivered
in connection herewith.
8. Effectiveness. This Amendment shall become effective as of
June 19, 1997 (the "Amendment Effective Date") only upon satisfaction in full
in the judgment of the Lender of each of the following conditions on or prior
to June 20, 1997:
(a) Documents. Lender shall have received two original copies of
this Amendment duly executed and delivered by Lender, Borrower and the
other Credit parties listed on the signature pages hereof.
(b) Guarantee. Lender shall have received two original copies of an
unconditional guarantee of payment of the Obligations in the form of
Exhibit A attached hereto duly executed and delivered by Philip L. Stephen.
(c) Payment of Amendment Fee. Borrower shall have paid to Lender a
non-refundable amendment fee of $25,000.
(d) Board Resolutions. A certificate of the Secretary of Borrower
certifying the resolutions adopted by the Board of Directors of Borrower
approving this Amendment. Borrower shall provide to Lender no later than
June 27, 1997 certificate of the Secretary of Borrower certifying the
resolutions adopted by the Board of Directors of each Credit Party (other
than Borrower) executing this Amendment approving this Amendment and
failure to comply with the foregoing shall constitute an Event of Default.
(e) Representations and Warranties. All representations and warranties
of or on behalf of the Credit Parties in this amendment and all their other
Loan Documents shall be true and correct in all respects with the same
effect as though such representations and warranties had been made on
and as of the date hereof and on and as of the date that the other
conditions precedent in this Section 8 have been satisfied, except to the
extent that any such representation or warranty expressly relates to an
earlier date or except as expressly identified in Section 3 hereof.
In the event that each of the foregoing conditions precedent has not
been satisfied on or prior to June 20, 1997, this Amendment shall become, upon
written notice by Lender to Borrower, null and void and of no force or effect.
9. GOVERNING LAW. THIS AMENDEMENT SHALL BE GOVERNED BY, AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10. Counterparts. This Amendment may be executed by the parties
hereto on any number of separate counterparts and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
BORROWER:
--------
AID AUTO STORES, INC.
By: /s/ Philip L. Stephen
-----------------------------
Name: Philip L. Stephen
Title: President
LENDER:
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/Steven Sanicola
-----------------------------
Name: Steven Sanicola
Title: Duly Authorized Signatory
SUBSIDIARY GUARANTORS:
AMES AUTOMOTIVE WAREHOUSE
INC.
By: /s/Philip L. Stephen
------------------------------
Name: Philip L. Stephen
Title: President
PERFECT CHOICE AUTOMOTIVE
PRODUCTS, INC.
By: /s/Greg M. Stephen
-----------------------------
Name: Greg M. Stephen
Title: President
AID FLATLANDS AVENUE,INC.
By: /s/Philip L. Stephen
-----------------------------
Name: Philip L. Stephen
Title: President
WHITE PLAINS AID, INC.
By: /s/Philip L. Stephen
-----------------------------
Name: Philip L. Stephen
Title: President
BELLMORE AID, INC.
By: /s/Philip L. Stephen
-----------------------------
Name: Philip L. Stephen
Title: President
BETHPAGE SUPERSTORE AID
AUTO, INC.
By: /s/Philip L. Stephen
----------------------------
Name: Philip L. Stephen
Title: President
NORTH BABYLON SUPERSTORE
AID AUTO, INC.
By: /s/Philip L. Stephen
----------------------------
Name: Philip L. Stephen
Title: President
OCEANSIDE SUPERSTORE AID
AUTO, INC.
By: /s/Philip L. Stephen
----------------------------
Name: Philip L. Stephen
Title: President
JERSEY CITY AID AUTO, INC.
By: /s/Philip L. Stephen
-----------------------------
Name: Philip L. Stephen
Title: President
HILLSIDE AVENUE AID, INC.
By: /s/Philip L. Stephen
-------------------------------
Name: Philip L. Stephen
Title: President
GLEN COVE SUPERSTORE AID
AUTO, INC.
By: /s/Philip L. Stephen
------------------------------
Name: Philip L. Stephen
Title: President
AID 1715 FLATBUSH, INC.
By: /s/Philip L. Stephen
------------------------------
Name: Philip L. Stephen
Title: President
CAMBRIA HEIGHTS AID, INC.
By: /s/Philip L. Stephen
-------------------------------
Name: Philip L. Stephen
Title: President
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 514,343
<SECURITIES> 0
<RECEIVABLES> 1,292,468
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<INVENTORY> 12,880,915
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<PP&E> 3,283,212
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0
0
<COMMON> 3,958
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<SALES> 12,313,990
<TOTAL-REVENUES> 12,313,990
<CGS> 6,854,435
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