1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended August 2, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _____________ to_______________
Commission file number 0-19994
SOLO SERVE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74 - 2048057
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1610 Cornerway Blvd., San Antonio, Texas 78219
(Address of principal executive offices)
(210) 662-6262
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 2, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
YES NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of the issuer's Common Stock, par value $.01 per share,
and Preferred Stock, par value $.01 per share, outstanding as of September 10,
1997, were 2,856,126 and 1,388,889 shares, respectively. Affiliates of the
registrant held 1,307,500 shares of the Common Stock, and all of the Preferred
Stock, outstanding on September 10, 1997.
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INDEX
PART I - FINANCIAL INFORMATION
PAGE
ITEM 1. Financial Statements ...............................................3
Balance Sheets, August 3, 1996 (unaudited),
February 1, 1997 and August 2, 1997 (unaudited).....................3
Statements of Operations, thirteen and twenty-six weeks
ended August 3, 1996 (unaudited) and August 2, 1997 (unaudited).....4
Statements of Cash Flows, twenty-six weeks
ended August 3, 1996 (unaudited) and August 2, 1997 (unaudited).....5
Notes to Financial Statements
(unaudited).........................................................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................9
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings..................................................14
ITEM 6. Exhibits and Reports on Form 8 - K.................................14
Signatures.........................................................17
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PART I
ITEM I. Financial Statements
SOLO SERVE CORPORATION
BALANCE SHEETS
AUGUST 3, FEBRUARY 1, AUGUST 2,
1996 1997 1997
------------ ------------ ------------
ASSETS (unaudited) (unaudited)
CURRENT ASSETS:
Cash $ 1,716,647 $ 1,065,564 $ 1,795,409
Inventory 15,001,347 11,107,938 13,661,082
Other current assets 2,950,302 988,469 1,697,564
------------ ------------ ------------
Total current assets 19,668,296 13,161,971 17,154,055
Property and equipment, net 14,600,115 12,935,322 12,354,342
Goodwill and service marks, net 350,000 290,000 230,000
------------ ------------ ------------
TOTAL ASSETS $ 34,618,411 $ 26,387,293 $ 29,738,397
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 711,836 $ 770,602 $ 790,259
Accounts payable 4,853,592 3,983,898 7,245,054
Accrued expenses 4,105,127 2,339,615 2,973,629
------------ ------------ ------------
Total current liabilities 9,670,555 7,094,115 11,008,942
Long-term debt 16,769,629 14,960,600 17,501,487
Postretirement benefit obligation 555,200 -- --
------------ ------------ ------------
Total Liabilities 26,995,384 22,054,715 28,510,429
============ ============ ============
STOCKHOLDERS' EQUITY:
Preferred stock 13,889 13,889 13,889
Common stock 28,562 28,562 28,562
Capital in excess of par value 24,410,290 24,410,290 24,410,290
Retained deficit (16,829,714) (20,120,163) (23,224,773)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,623,027 4,332,578 1,227,968
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,618,411 $ 26,387,293 $ 29,738,397
============ ============ ============
The accompanying notes are an integral part of these financial statements.
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SOLO SERVE CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------------------- --------------------------------
AUGUST 3, AUGUST 2, AUGUST 3, AUGUST 2,
1996 1997 1996 1997
------------ ------------ ------------ ------------
Net Revenues $ 26,069,877 $ 21,365,340 $ 48,329,847 $ 40,968,311
Cost of goods sold (including buying and
distribution, excluding depreciation
shown below) 18,501,996 15,099,928 34,246,327 29,085,986
------------ ------------ ------------ ------------
Gross Profit 7,567,881 6,265,412 14,083,520 11,882,325
Selling, general, and administrative
expense 7,764,277 5,991,440 14,240,293 12,733,145
Store Closures -- (208,000) -- 399,000
Depreciation and amortization expenses 624,964 491,953 1,268,859 1,002,277
------------ ------------ ------------ ------------
Operating loss (821,360) (9,981) (1,425,632) (2,252,097)
Interest expense 399,788 463,731 768,350 853,657
------------ ------------ ------------ ------------
Net income (loss) $ (1,221,148) $ (473,712) $ (2,193,982) $ (3,105,754)
============ ============ ============ ============
Loss per Common Share $ (.43) $ (.17) $ (.77) $ (1.09)
============ ============ ============ ============
Weighted average common shares
outstanding 2,856,126 2,856,126 2,856,126 2,856,126
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
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SOLO SERVE CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
TWENTY-SIX WEEKS ENDED
AUGUST 3, 1996 AUGUST 2, 1997
-------------- --------------
NET LOSS $ (2,193,982) $ (3,105,754)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH FROM OPERATIONS:
Depreciation and Amortization 1,268,860 1,002,277
Loss on retirement of property -- 1,141
Changes in Assets and Liabilities:
(Increase) decrease in Inventory (791,167) (2,553,144)
(Increase) decrease in Other Current Assets (676,672) (709,094)
Increase (decrease) in Accounts Payable 1,426,655 3,261,155
Increase (decrease) in Accrued Expenses 895,117 634,013
Increase (decrease) in Non Current Liabilities (10,000) --
------------ ------------
Total adjustments 2,112,793 1,636,348
------------ ------------
Net cash used in operations before reorganization items (81,189) (1,469,406)
OPERATING CASH FLOW FROM REORGANIZATION ITEMS:
Payment on allowed claims (460,612) --
------------ ------------
Net cash used in operations: (541,801) (1,469,406)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property & equipment (174,709) (361,293)
------------ ------------
CASH USED IN INVESTING ACTIVITIES (174,709) (361,293)
------------ ------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Borrowings under line of credit agreement 52,798,998 44,866,660
Payments under line of credit agreement (50,788,998) (41,931,660)
Payments on long-term debt (348,370) (374,456)
------------ ------------
Net cash provided by financing activities 1,661,630 2,560,544
------------ ------------
NET INCREASE (DECREASE) IN CASH 945,120 729,845
CASH AT BEGINNING OF YEAR 771,527 1,065,564
------------ ------------
CASH AT END OF PERIOD $ 1,716,647 $ 1,795,409
============ ============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 752,696 $ 815,796
The accompanying notes are an integral part of these financial statements.
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SOLO SERVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1:
The financial statements as of August 3, 1996 and August 2, 1997, and for the
thirteen and twenty-six week periods ended August 3, 1996 and August 2, 1997,
are unaudited and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position of Solo
Serve Corporation (the "Company") as of August 2, 1997, and the results of
operations and cash flows for the periods presented. Such adjustments are of a
normal and recurring nature. The results of operations for the thirteen-week
period and the twenty-six week period may not necessarily be indicative of the
operating results for a full year or of future operations. These unaudited
financial statements should be read in conjunction with consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended February 1, 1997.
With respect to the unaudited financial information of the Company as of August
3, 1996 and August 2, 1997 and for the thirteen and twenty-six weeks ended
August 3, 1996 and August 2, 1997, Price Waterhouse LLP has made a review
(based on procedures adopted by the American Institute of Certified Public
Accountants) and not an audit, as set forth in their separate report appearing
as Exhibit 99.
NOTE 2:
The Company has continued to experience operating losses and lower than
anticipated sales during the second quarter. The Company's business has been
affected by a number of factors, including less promotional activities than in
the comparable period of fiscal 1996; the effect of credit concerns on the
Company's ability to acquire certain types of inventory; reduction or
elimination of certain merchandise categories, including shoes and jewelry; and
increased competition as competitors have opened additional stores in certain
of the market areas served by the Company's stores. Many of these factors are
not within the Company's control.
In response to these conditions, management has formulated a plan which
includes restructuring its lending arrangements and completing other
transactions (see Note 5) and is exploring the opportunities associated with
opening stores in markets smaller than it has traditionally served. If current
plans to improve overall financial performance and meet liquidity requirements
are not successful, the Company would consider other alternatives designed to
enhance liquidity, including additional debt or equity financings, or other
strategic alternatives. There are no assurances that the Company will be
successful in its efforts to improve operations and return the Company to
profitability.
NOTE 3:
Long-term debt consists of the following:
AUGUST 3, 1996 FEBRUARY 1, 1997 AUGUST 2, 1997
-------------- ---------------- --------------
Notes payable to bank, interest at prime plus 1/2%
(9.25% at August 2, 1997) secured by properties $ 5,286,335 $ 5,131,406 $ 4,970,827
Note payable to insurance company, interest at 8%; secured by
equipment and properties 834,013 654,132 $ 466,937
Mortgage notes payable to insurance companies, interest at 9.5%;
secured by the distribution center 5,786,117 5,760,664 $ 5,733,982
Congress Loan Agreement, interest at prime plus 1%
(9.5% at August 2, 1997); secured primarily by inventory 5,575,000 4,185,000 $ 7,120,000
----------- ----------- -----------
17,481,465 15,731,202 18,291,746
Less current portion 711,836 770,602 790,259
----------- ----------- -----------
Long-term portion $16,769,629 $14,960,600 $17,501,487
=========== =========== ===========
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The Company has a $5.8 million mortgage note, secured by its corporate office
and distribution center in San Antonio, Texas. The mortgage note carries an
interest rate of 9.5% per annum and requires monthly payments of principal and
interest of $49,773 until December 2002, when the remaining principal balance
of $5.4 million is due. The Company also has a note payable to MetLife Capital
Corporation ("MetLife"), which is secured by various equipment and fixtures
located at the corporate office and certain stores. The MetLife note carries an
interest rate of 8.0% and requires equal monthly payments, including principal
and interest, of $35,044 until September 1998, when the remaining principal
balance of $35,000 is due. The Company also has a term note payable to Texas
Commerce Bank ("TCB") which carries an interest rate of prime plus one-half
percent and is due in equal monthly installments of principal and interest of
$64,117 until January 1999, when the remaining principal balance of $4.5
million is due. The TCB note is secured by the Company's three owned store
locations.
The Company entered into a loan agreement with Congress Financial Corporation
(Southwest) ("Congress") on June 20, 1995 which has been amended several times.
In May 1997, the Company and Congress amended certain financial covenants in
the loan agreement. As amended, effective for the remaining term of the note
the Company is obligated to maintain minimum working capital of $3.25 million,
minimum net worth of $800 thousand, and to limit capital expenditures, net of
insurance or other proceeds resulting from the disposal or sale of fixed
assets, to $2.5 million for any fiscal year period. Under the terms of the loan
agreement, which is in effect until July 1999, the Company may borrow up to its
borrowing base as calculated pursuant to the loan agreement, which may not
exceed $15.0 million. The proceeds of the loan may be used for letters of
credit, working capital, and general corporate purposes. The loan as amended is
a revolving loan with a borrowing base formula which limits the amount of
available credit to 60% of the Company's eligible inventory during the period
of March 1st through May 15th and September 1st through November 30th of each
year and to 55% of the Company's eligible inventory during any other period
less (i) a percentage of undrawn amounts on letters of credit and (ii)
availability reserves established from time to time by the lender. In June,
1997 the Company and Congress again amended the loan agreement and entered into
a Standby Guarantee and Indemnification Agreement to facilitate supplemental
borrowings in an amount equal to 3% of the Company's eligible inventory, (not
to exceed $350,000) from June 10, 1997 through December 10, 1997. The loan
bears interest at prime plus 1%. In addition, the Company pays a commitment fee
equal to 1/2% per annum of the unused principal balance of the loan less than
$10,000,000. The loan is secured by substantially all the assets of the Company
other than those subject to other existing liens.
Under the loan agreement, as amended, Congress may establish and revise
availability reserves in its sole discretion to cover risks or events it
perceives may affect its security under the loan or the business or prospects
of the Company. The current availability reserve under the loan agreement
approximates $650,000. As a result of the formula by which the borrowing base
is calculated, an increase in availability reserves restricts the Company's
access to borrowings under the credit facility. In addition to the Congress
credit facility, the Company is dependent upon short-term trade credit as a
source of inventory financing. Short term trade credit arises from the
willingness of the Company's vendors to grant payment terms for inventory
purchases and is either financed by the vendor or a third party factoring
institution. The Company's inventories were $1.3 million less at August 2, 1997
than at the end of the comparable period of fiscal 1996, and accounts payable
increased $2.3 million. The $1.3 million reduction in other current assets was
primarily the result of eliminating advance payments to third-party factoring
institutions.
See Note 5.
NOTE 4:
During the first quarter of fiscal 1997, the Company accrued $607,000 in store
closing expense for the estimated future occupancy costs related to three
stores to be closed or in which operations were to be significantly reduced in
the second quarter of the fiscal year. These amounts represented management's
best estimates of the future rents due after the second quarter ($550,000),
vacation pay, and miscellaneous travel and transportation costs associated with
the closings. During the second quarter of fiscal 1997, the Company decided to
continue operations at one of the stores (Baton Rouge) in a reduced capacity as
a clearance outlet. Accordingly, the accrued store closing expense related to
this store ($208,000) was reversed and ongoing operating expenses will be
expensed as incurred in the store operations.
NOTE 5:
On September 8, 1997, the Company entered into a binding commitment letter with
Sanwa Business Credit Corporation ("Sanwa") pursuant to which Sanwa has agreed
to provide the Company up to $12 million in a revolving credit facility to
replace the Congress credit facility described above. The loan will bear
interest at Sanwa's prime rate plus 1% floating, unless the Company defaults
under the loan, in which case the default rate under the loan is prime plus 3%
(as reported in the Wall Street Journal). The loan will mature three (3) years
after the closing date. Principal will be due at maturity and interest only
shall be due and payable in monthly installments. The loan facility may be
prepaid in full (but not in part) upon thirty (30) days prior written notice.
If prepaid on or before the first anniversary, there is a three percent (3%)
pre-payment penalty and a one percent (1%) prepayment penalty thereafter.
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The advance rate under the Sanwa credit facility would be in an amount equal to
70% of the Company's eligible inventory during the period May 1 through
December 10 of each year and 65% of eligible inventory at all other times.
Within the loan facility, the Company may obtain up to $2 million of letters of
credit. If this letter of credit facility is utilized, Sanwa will charge two
percent (2%) per annum on the undrawn face amount of letters of credit.
Outstanding letters of credit reduce the loan availability under the revolving
loan dollar for dollar. In addition to advances made based upon the percentage
of eligible inventory, Sanwa will make available an additional $750,000 upon
receipt of a letter of credit in such amount from General Atlantic, which
General Atlantic has agreed to issue, subject to appropriate documentation, for
a term extending through December 31, 1998. In consideration for General
Atlantic's agreement to provide the $750,000 standby letter of credit to Sanwa,
the Company would grant to General Atlantic a second lien security interest
(subordinated to Sanwa) on the assets of the Company pledged to Sanwa.
A fee of $192,000 is payable to Sanwa at the closing. A non-refundable
commitment fee of $25,000 was paid in connection with the acceptance of the
commitment. The commitment fee will be credited against the closing fee. A
cancellation fee of $150,000 is payable if the loan does not close for any
reason other than a default by Sanwa and the Company obtains financing from a
party other than Sanwa under terms and conditions pursuant to which Sanwa is
willing to make the loan. A servicing fee of $2,000 per month is payable
monthly in advance while the loan is in effect and an unused line fee is
payable monthly in arrears equal to one-half of 1% per annum based on the
average daily unused principal balance of the revolving loan less than
$10 million. All out-of-pocket expenses incurred by Sanwa are to be fully paid
by the Company whether or not the loan closes. The loan will be secured by a
first perfected security interest in all of the Company's accounts receivable,
inventory and personal property, except for the property subject to liens in
favor of MetLife Capital Corporation.
The proposed credit facility is subject to customary conditions, including
negotiation and execution of final documents. Management expects the proposed
new credit facility to be consummated before the end of September 1997. The
commitment letter expires October 9, 1997. The final loan documents are
expected to contain customary affirmative covenants, negative covenants, events
of default and other similar terms for asset-based loans of this type,
including a lock box/blocked account agreement with all of the Company's banks.
The loan documents will contain financial covenants tested quarterly beginning
January 31, 1998 requiring the Company to maintain specified Interest Coverage
Ratios for various periods and specified minimum Net Worth on designated dates
through the maturity of the loan. For the 3 month fiscal period ending on or
about January 31, 1998, and for the 6 month fiscal period ending on or about
April 30, 1998, the Interest Coverage Ratio, as defined in the commitment
letter, is required to be 2.40 : 1.0 and 1.15 : 1.0, respectively. The Company
is required to maintain minimum Net Worth of $1,200,000 and $550,000,
respectively, at January 31, 1998 and April 30, 1998. The Sanwa commitment
defines "Net Worth" as assets less liabilities, plus the amount of the Siegel
loan described below. For quarterly periods after April 30, 1998, the
designated Interest Coverage Ratio and Net Worth requirements increase in
accordance with the schedule set forth in the commitment letter.
In a related transaction, Charles M. Siegel, President and Chief Executive
Officer of the Company, and a related family trust have agreed to loan the
Company an aggregate amount of $500,000 in addition to the Sanwa credit
facility, which loan would be subordinated to the Sanwa Credit Facility (the
"Siegel loan"). The loan would bear interest at a rate of prime plus 1%, and
would require monthly payments of interest only for a period of five years, at
which time the principal would become due. The Company may not repay any
principal without Sanwa's prior consent and may make interest payments to Mr.
Siegel only if there is no existing default by the Company under the Sanwa
credit facility. Consummation of the Siegel loan is a condition of Sanwa's
obligation to make the Sanwa credit facility available to the Company.
Additionally, the Company has been advised that General Atlantic Corporation
has agreed to sell to Charles M. Siegel the Common Stock of the Company it
currently owns. Upon consummation of this transaction, Mr. Siegel will own
1,255,000 shares of the Company's common stock, or approximately 30% of the
aggregate voting stock of the Company. General Atlantic Corporation will
continue to own 1,388,889 shares of the Company's Preferred Stock, which
represents approximately 33% of the aggregate voting stock of the Company. In
both cases, the percentages of voting shares reported are exclusive of options
outstanding.
Contemporaneously with the proposed transactions described above, the Company
intends to enter into a modified employment agreement with Mr. Siegel pursuant
to which Mr. Siegel would continue to serve as President and Chief Executive
Officer of the Company for a period of five years at an initial base salary of
$312,000 per year, subject to a 4% per annum increase each September during the
employment term. The agreement also would provide for a bonus of $30,000
payable in April 1998 and in April 1999 and deferred compensation in an
aggregate amount up to twice Siegel's base salary under his current employment
agreement, vesting 15%, 30%, 45%, 60%, and 100%, respectively, over the five
year term of the proposed Agreement. The amended employment agreement would
also provide for severance pay of up to two years base salary as severance if
he is terminated by the Company without Cause, as that term is defined in the
Agreement.
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NUMBER OF STORES
FISCAL 1996 FISCAL 1997
----------- -----------
Beginning of year 29 28
Closed -- (2)
Opened -- 1
----- -----
END OF SECOND QUARTER 29 27
===== =====
RESULTS OF OPERATIONS
The following table sets forth certain financial data of the Company expressed
as a percentage of net sales for the thirteen weeks and twenty-six weeks ended
August 3, 1996 and August 2, 1997.
PERCENTAGE OF NET SALES
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
AUGUST 3, 1996 AUGUST 2, 1997 AUGUST 3, 1996 AUGUST 2, 1997
-------------- -------------- -------------- --------------
Net Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, including buying and
distribution costs 71.0 70.7 70.9 71.0
------- ------- ------- -------
Gross Profit 29.0 29.3 29.1 29.0
Selling, general and administrative expenses 29.8 28.0 29.5 31.0
Store closing expense -- (1.0) -- 1.0
Depreciation and amortization 2.4 2.3 2.5 2.5
------- ------- ------- -------
Operating Income (Loss) (3.2) (0.0) (2.9) (5.5)
Interest expense 1.5 2.2 1.6 2.1
------- ------- ------- -------
Net Income (Loss) (4.7)% (2.2)% (4.5)% (7.6)%
======= ======= ======= =======
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THIRTEEN WEEKS (SECOND QUARTER) AND TWENTY-SIX WEEKS (YEAR-TO-DATE) ENDED
AUGUST 2, 1997 VERSUS THIRTEEN WEEKS AND TWENTY-SIX WEEKS ENDED AUGUST 3, 1996
Recent Developments
During the second quarter, the Company opened a new store in San Angelo, Texas,
and management is pleased with its early results. Management believes that
there may be opportunities for the Company in markets smaller than those
historically served by the Company, where the Company expects to face less
direct competition from larger off-price retailers and can operate under a
lower expense structure than that generally required by the Company's stores
located in metropolitan areas. On August 21, 1997, the Company entered into a
lease for a new store in Brownwood, Texas, which it plans to open in late
October. Management believes that Brownwood is a market similar to San Angelo
and consistent with the Company's plan to explore opportunities in smaller
markets.
Results of Operations
The Company's net revenues for the second quarter and year-to-date period ended
August 2, 1997 were $21.4 million and $41.0 million, respectively, as compared
to $26.1 million and $48.3 million in the prior year. The majority of the
second quarter and year-to-date sales decreases are attributable to a greater
than anticipated decline in comparable store sales of 19.2% and 14.7%,
respectively. Management attributes the greater than expected comparable store
sales decreases during the second quarter to a number of factors, including
less promotional activities than in the comparable period of fiscal 1996; the
effect of credit concerns on the Company's ability to acquire certain types of
inventory; reduction or elimination of certain merchandise categories,
including shoes and jewelry; and increased competition as competitors have
opened additional stores in certain of the market areas served by the Company's
stores.
Gross profit for the second quarter of 1997 decreased by $1.3 million to $6.3
million from $7.6 million in the second quarter of the prior year. Gross profit
for the first half of 1997 decreased $2.2 million to $11.9 million from $14.1
million during the comparable period of the prior year. The decreased gross
profit during the first half of 1997 resulted principally from the decline in
sales during the period.
For the second quarter of fiscal 1997, selling, general and administrative
expenses decreased $1.8 million to $6.0 million from $7.8 million in 1996. For
the same period, selling , general and administrative expenses as a percentage
of sales decreased from 29.8% to 28.0% from the comparable period of the prior
year. For the first half of fiscal 1997, selling, general and administrative
expenses decreased $1.5 million to $12.7 million from $14.2 million in 1996.
These reductions in expenses are due primarily to a decrease in professional
and consulting fees and a decrease in human resource expenses as a result of
reductions in staff levels from fiscal 1996. Selling, general and
administrative expenses as a percentage of sales increased to 31.0% from 29.5%
for the comparable twenty-six week period of the prior year, principally due to
the decrease in net sales not being fully offset by decreases in expenses in
the first quarter of 1997.
Depreciation and amortization in the second quarter of 1997 decreased 21% to
$492,000 from $625,000 for the same period in 1996. Depreciation and
amortization for the twenty-six weeks ended August 2, 1997 decreased 23% to
$1.0 million from $1.3 million during the comparable period in 1996. This was
due to certain assets becoming fully depreciated in 1996 and the write-down in
1996 of assets associated with closing stores.
The Company recorded operating losses of $10,000 and $2.3 million for the
thirteen and twenty-six weeks ended August 2, 1997, respectively. This is
compared to operating losses of $821,000 and $1.4 million for the thirteen and
twenty-six weeks ended August 3, 1996. The increased loss for the 1997
year-to-date period over the comparable period of 1996 is partly due to store
closing expense of $399,000 in the current year.
The Company recorded net interest expense for the second quarter of 1997 of
approximately $464,000 as compared to $400,000 during the second quarter of
1996. This was primarily the result of increased borrowing under the Company's
line of credit.
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Liquidity and Capital Resources
Cash used by operating activities before reorganization items in the second
quarter of fiscal 1997 was $1.5 million. This was primarily the result of the
net loss ($3.1 million), increases in inventories ($2.6 million) and other
current assets ($709,000), net of increases in accounts payable ($3.3 million)
and accrued expenses ($634,000). The increase in accrued expenses was primarily
the result of the reserve for store closing expense of $510,000. Capital
expenditures were $360,000, consisting primarily of replenishment and
refurbishment of existing equipment and facilities.
The Company has a $5.8 million mortgage note, secured by its corporate office
and distribution center in San Antonio, Texas. The mortgage note carries an
interest rate of 9.5% per annum and requires monthly payments of principal and
interest of $49,773 until December 2002, when the remaining principal balance
of $5.4 million is due. The Company also has a note payable to MetLife Capital
Corporation ("MetLife"), which is secured by various equipment and fixtures
located at the corporate office and certain stores. The MetLife note carries an
interest rate of 8.0% and requires equal monthly payments, including principal
and interest, of $35,044 until September 1998, when the remaining principal
balance of $35,000 is due. The Company also has a term note payable to Texas
Commerce Bank ("TCB") which carries an interest rate of prime plus one-half
percent and is due in equal monthly installments of principal and interest of
$64,117 until January 1999, when the remaining principal balance of $4.5
million is due. The TCB note is secured by the Company's three owned store
locations.
The Company entered into a loan agreement with Congress Financial Corporation
(Southwest) ("Congress") on June 20, 1995 which has been amended several times.
In May 1997, the Company and Congress amended certain financial covenants in
the loan agreement. As amended, effective for the remaining term of the note
the Company is obligated to maintain minimum working capital of $3.25 million,
minimum net worth of $800 thousand, and to limit capital expenditures, net of
insurance or other proceeds resulting from the disposal or sale of fixed
assets, to $2.5 million for any fiscal year period. Under the terms of the loan
agreement, which is in effect until July 1999, the Company may borrow up to its
borrowing base as calculated pursuant to the loan agreement, which may not
exceed $15.0 million. The proceeds of the loan may be used for letters of
credit, working capital, and general corporate purposes. The loan as amended is
a revolving loan with a borrowing base formula which limits the amount of
available credit to 60% of the Company's eligible inventory during the period
of March 1st through May 15th and September 1st through November 30th of each
year and to 55% of the Company's eligible inventory during any other period
less (i) a percentage of undrawn amounts on letters of credit and (ii)
availability reserves established from time to time by the lender. In June,
1997 the Company and Congress again amended the loan agreement and entered into
a Standby Guarantee and Indemnification Agreement to facilitate supplemental
borrowings in an amount equal to 3% of the Company's eligible inventory, (not
to exceed $350,000) from June 10, 1997 through December 10, 1997. The loan
bears interest at prime plus 1%. In addition, the Company pays a commitment fee
equal to 1/2% per annum of the unused principal balance of the loan less than
$10,000,000. The loan is secured by substantially all the assets of the Company
other than those subject to other existing liens.
In order to increase loan availability under the Congress loan agreement,
effective June 26, 1996, General Atlantic Corporation ("General Atlantic"), the
Company's principal stockholder, furnished to Congress a letter of credit in
the amount of $1,500,000 (the "GAC L/C") to serve as additional collateral for
the Congress credit facility. As consideration for General Atlantic's agreement
to provide the GAC L/C, the Company agreed to (a) pay General Atlantic the sum
of $100 per year, (b) reimburse General Atlantic for the amount, if any, which
it is required to reimburse to any issuing or confirming bank which honors any
drafts under the GAC L/C, (c) pay General Atlantic interest on any amounts
drawn under the GAC L/C at Chemical Bank's prime rate plus one percent (1%),
and (d) grant General Atlantic a second lien security interest (subordinated to
Congress) on substantially all of the assets of the Company.
Under the loan agreement, as amended, Congress may establish and revise
availability reserves in its sole discretion to cover risks or events it
perceives may affect its security under the loan or the business or prospects
of the Company. The current availability reserve under the loan agreement
approximates $650,000. As a result of the formula by which the borrowing base
is calculated, an increase in availability reserves restricts the Company's
access to borrowings under the credit facility. In addition to the Congress
credit facility, the Company is dependent upon short-term trade credit as a
source of inventory financing. Short term trade credit arises from the
willingness of the Company's vendors to grant payment terms for inventory
purchases and is either financed by the vendor or a third party factoring
institution. The Company's inventories were $1.3 million less at August 2, 1997
than at the end of the comparable period of fiscal 1996, and accounts payable
increased $2.3 million. The $1.3 million reduction in other current assets was
primarily the result of eliminating advance payments to third-party factoring
institutions.
During the second quarter of fiscal 1997, the Company's sales continued to be
adversely affected by a number of factors, many of which are not within the
Company's control. While the Company has maintained inventory at planned
levels, the Company has experienced a reduction in the availability of trade
credit, which has in some instances adversely affected the Company's ability to
acquire and replenish quickly certain types of inventory. Continuing
unfavorable business conditions and financial performance have heightened
vendor and factor concern regarding the Company's creditworthiness. The Sanwa
credit facility and related transactions described below, if consummated, would
enhance the Company's liquidity and provide cash for operations, and management
expects these transactions to mitigate vendor and factor concern regarding the
Company's creditworthiness. Management continues to pursue initiatives designed
to improve the Company's operations and financial performance; however,
11
12
no assurance can be given that the Company will be successful in its efforts to
improve operations and restore the Company to profitability. Because of these
uncertainties, any investment in the Company's common stock should be
considered speculative.
The Company owns the real estate and improvements at which three of its Solo
Serve stores in San Antonio, Texas are located and leases the remainder of its
stores. The Company also owns its corporate headquarters and distribution
center facility. During fiscal 1996, the Company listed all of its owned
properties for sale and leaseback, including the distribution center. During
the first quarter of fiscal 1997, the Company had entered into an earnest money
contract providing for the sale and leaseback of one of its owned store
locations, which contract was subject to a number of conditions. During the
second quarter, that contract was terminated. Currently the Company has a
preliminary understanding with a prospective purchaser, subject to Board
approval and the negotiation and execution of a definitive earnest money
contract and related agreements, pertaining to the sale and leaseback of all of
its owned properties. No assurance can be given that a definitive agreement
regarding the proposed transaction will be concluded or that if concluded, the
contemplated transaction will be consummated. If the transaction is consummated
on the proposed terms, the Company would realize a gain on the sale of
approximately $3.9 million. The proceeds would permit the Company to discharge
all indebtedness associated with the owned real estate and realize
approximately $1,300,000 in cash to enhance liquidity and provide additional
cash for operations.
The Proposed Sanwa Credit Facility and Related Transactions.
On September 8, 1997, the Company entered into a binding commitment letter with
Sanwa Business Credit Corporation ("Sanwa") pursuant to which Sanwa has agreed
to provide the Company up to $12 million in a revolving credit facility to
replace the Congress credit facility described above. The loan will bear
interest at the prime rate plus 1% floating, unless the Company defaults under
the loan, in which case the default rate under the loan is prime plus 3% (as
reported in The Wall Street Journal). The loan will mature three (3) years
after the closing date. Principal will be due at maturity and interest only
shall be due and payable in monthly installments. The loan facility may be
prepaid in full (but not in part) upon thirty (30) days prior written notice.
If prepaid on or before the first anniversary, there is a three percent (3%)
pre-payment penalty and a one percent (1%) prepayment penalty thereafter.
The advance rate under the Sanwa credit facility would be in an amount equal to
70% of the Company's eligible inventory during the period May 1 through
December 10 of each year and 65% of eligible inventory at all other times.
Within the loan facility, the Company may obtain up to $2 million of letters of
credit. If this letter of credit facility is utilized, Sanwa will charge two
percent (2%) per annum on the undrawn face amount of letters of credit.
Outstanding letters of credit reduce the loan availability under the revolving
loan dollar for dollar. In addition to advances made based upon the percentage
of eligible inventory, Sanwa will make available an additional $750,000 upon
receipt of a letter of credit in such amount from General Atlantic, which
General Atlantic has agreed to issue. The General Atlantic letter of credit
furnished to Congress would be terminated if the Sanwa loan is consummated, and
General Atlantic has agreed to issue the $750,000 letter of credit to Sanwa,
subject to appropriate documentation, for a term extending through December 31,
1998. In consideration for General Atlantic's agreement to provide the $750,000
standby letter of credit to Sanwa, the Company would grant to General Atlantic
a second lien security interest (subordinated to Sanwa) on the assets of the
Company pledged to Sanwa.
A fee of $192,000 is payable to Sanwa at the closing. A non-refundable
commitment fee of $25,000 was paid in connection with the acceptance of the
commitment. The commitment fee will be credited against the closing fee. A
cancellation fee of $150,000 is payable if the loan does not close for any
reason other than a default by Sanwa and the Company obtains financing from a
party other than Sanwa under terms and conditions pursuant to which Sanwa is
willing to make the loan. A servicing fee of $2,000 per month is payable
monthly in advance while the loan is in effect and an unused line fee is
payable monthly in arrears equal to one-half of 1% per annum based on the
average daily unused principal balance of the revolving loan less than $10
million. All out-of-pocket expenses incurred by Sanwa are to be fully paid by
the Company whether or not the loan closes. The loan will be secured by a first
perfected security interest in all of the Company's accounts receivable,
inventory and personal property, except for the personal property subject to
liens in favor of MetLife Capital Corporation.
The proposed credit facility is subject to customary conditions, including
negotiation and execution of final documents. Management expects the proposed
new credit facility to be consummated before the end of September 1997. The
commitment letter expires October 9, 1997. The final loan documents are
expected to contain customary affirmative covenants, negative covenants, events
of default and other similar terms for asset-based loans of this type,
including a lock box/blocked account agreement with all of the Company's banks.
The loan documents will contain financial covenants tested quarterly beginning
January 31, 1998 requiring the Company to maintain specified Interest Coverage
Ratios for various periods and specified minimum Net Worth on designated dates
through the maturity of the loan. For the 3 month fiscal period ending on or
about January 31, 1998, and for the 6 month fiscal period ending on or about
April 30, 1998, the Interest Coverage Ratio, as defined in the commitment
letter, is required to be 2.40 : 1.0 and 1.15 : 1.0, respectively. The Company
is required to maintain minimum Net Worth of $1,200,000 and $550,000,
respectively, at January 31, 1998 and April 30, 1998. The Sanwa commitment
defines "Net Worth" as assets less liabilities, plus the amount of the Siegel
loan described below. For quarterly periods after April 30, 1998, the
designated Interest Coverage Ratio and Net Worth requirements increase in
accordance with the schedule set forth in the commitment letter.
12
13
In a related transaction, Charles M. Siegel, President and Chief Executive
Officer of the Company, and a related family trust have agreed to loan the
Company an aggregate amount of $500,000 in addition to the Sanwa credit
facility, which loan would be subordinated to the Sanwa Credit Facility (the
"Siegel loan"). The loan would bear interest at a rate of prime plus 1%, and
would require monthly payments of interest only for a period of five years, at
which time the principal would become due. The Company may not repay any
principal without Sanwa's prior consent and may make interest payments to Mr.
Siegel only if there is no existing default by the Company under the Sanwa
credit facility. Consummation of the Siegel loan is a condition of Sanwa's
obligation to make the Sanwa credit facility available to the Company.
Additionally, the Company has been advised that General Atlantic Corporation
has agreed to sell to Charles M. Siegel the Common Stock of the Company it
currently owns. Upon consummation of this transaction, Mr. Siegel will own
1,255,000 shares of the Company's common stock, or approximately 30% of the
aggregate voting stock of the Company. General Atlantic Corporation will
continue to own 1,388,889 shares of the Company's Preferred Stock, which
represents approximately 33% of the aggregate voting stock of the Company. In
both cases, the percentages of voting shares reported are exclusive of options
outstanding.
Contemporaneously with the proposed transactions described above, the Company
intends to enter into a modified employment agreement with Mr. Siegel pursuant
to which Mr. Siegel would continue to serve as President and Chief Executive
Officer of the Company for a period of five years at an initial base salary of
$312,000 per year, subject to a 4% per annum increase each September during the
employment term. The agreement also would provide for a bonus of $30,000
payable in April 1998 and in April 1999 and deferred compensation in an
aggregate amount up to twice Siegel's base salary under his current employment
agreement, vesting 15%, 30%, 45%, 60%, and 100%, respectively, over the five
year term of the proposed Agreement. The amended employment agreement would
also provide for severance pay of up to two years base salary as severance if
he is terminated by the Company without Cause, as that term is defined in the
Agreement..
The Sanwa credit facility, the Siegel loan, the Siegel stock purchase, and the
Siegel employment agreement are subject to customary conditions and definitive
documentation. The proposed transactions are each conditioned upon the closing
of the other transactions under the anticipated terms outlined in this report.
Management expects all of the transactions will close contemporaneously before
the end of September 1997. However, no assurances can be given that the
transactions will be consummated on the terms described above, or that the
transactions will be consummated at all. The Sanwa credit facility and related
transactions, if consummated, would enhance the Company's liquidity and provide
additional cash for operations, and management expects these transactions to
mitigate vendor and factor concern regarding the Company's creditworthiness.
Management has explored credit facility alternatives similar to the Sanwa
credit facility with other lenders, and believes that a similar facility would
be available if the Sanwa credit facility is not consummated. The possible sale
of the Company's real estate on the terms described in this report would
further enhance the Company's liquidity position. If the Company continues to
experience operating losses and the contemplated transactions are not
successful in meeting liquidity requirements, the Company would consider other
alternatives designed to enhance liquidity, including additional debt or equity
financings or other strategic alternatives.
Forward-looking Statements
Forward-looking statements in this Report are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made above. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. In addition
to the factors discussed above, among the other factors that could cause actual
results to differ materially are the following: general economic conditions,
consumer demand and preferences, and weather patterns in the Company's markets;
competitive factors, including continuing pressure from pricing and promotional
activities of competitors; impact of excess retail capacity; the availability,
selection and purchasing of attractive merchandise on favorable terms;
availability of financing; and relationships with vendors and factors.
Additional information concerning those and other factors are contained in the
Company's Securities and Exchange Commission filings, copies of which are
available from the Company without charge. The Company does not undertake to
publicly update or revise its forward-looking statements even if experience or
future changes make it clear that any projected results expressed or implied
therein will not be realized.
13
14
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. In the opinion
of management, the outcome of this litigation will not have a material effect
on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following Exhibits are incorporated by reference to the filing indicated or
are included following the Index to Exhibits:
Exhibit
Number Description of Exhibit
------- ----------------------
2.1 First Amended Plan of Reorganization of Solo Serve Corporation
dated May 17, 1995 (6)
2.2 Non-material Modifications to First Amended Plan of
Reorganization of Solo Serve Corporation, entered July 6, 1995
(6)
3.1 Restated Certificate of Incorporation of the Company (7)
3.2 Certificate of Designation of Rights and Preferences of Preferred
Stock (7)
3.3 Bylaws of the Company, as amended and restated (14)
4.1 Specimen Certificate for Common Stock of the Registrant
(representing shares of common stock of the Company after
giving effect to the previously reported 2-for-1 reverse split
effected July 18, 1995) (9)
10.1 Registration Rights Agreement among General Atlantic Corporation,
Robert J. Grimm and the Company (1)
10.2 Agreement Regarding Tax Consequences of Deconsolidation between
the Company and General Atlantic Corporation (1)
10.3 Tax Allocation Agreement between the Company and General Atlantic
Corporation (1)
10.4 Form of Indemnity Agreement between Directors, Executive Officers
and the Company (1)
10.5 Associate Stock Purchase Plan of the Company (2)
10.6 Retirement Savings Plan and Trust of the Company (2)
10.7 Mortgage Note A, dated November 20, 1992, in principal amount of
$4,940,000, with the Company as Maker and Nationwide Life
Insurance Company as Holder (2)
10.8 Mortgage Note B, dated November 20, 1992, in principal amount of
$1,000,000, with the Company as Maker and Employers Life
Insurance Company of Wausau as Holder (2)
10.9 Asset Purchase Agreement between the Company and Ross Stores,
Inc. (3)
10.10 Employment Agreement between the Company and David P. Dash (4)+
10.11 Employment Agreement between the Company and Robert J. Grimm, as
amended (5)+
10.12 Subscription Agreement between the Company and General Atlantic
Corporation (7)
10.13 Solo Serve Corporation 1995 Stock Incentive Plan (8) +
10.14 Solo Serve Corporation Director Stock Option Plan (8) +
10.15 Escrow Agreement, dated July 18, 1995, by and between Texas
Commerce Bank, National Association, Borrower, General
Atlantic Corporation and the Official Committee of Unsecured
Creditors of Solo Serve Corporation (7)
10.16 Loan and Security Agreement, dated as of June 20, 1995, by and
between Solo Serve Corporation and Congress Financial
Corporation (Southwest) (7)
10.17 Amended Loan and Security Agreement, dated July 18, 1995, by and
between Solo Serve Corporation and MetLife Capital Corporation
(8)
10.18 Loan Modification Agreement, dated July 18, 1995, by and among
Solo Serve Corporation, Nationwide Life Insurance Company, and
Employers Life Insurance Company (8)
10.19 Promissory Note, dated July 31, 1995, in principal amount of
$5,565,000, with the Company as Maker, and Texas Commerce Bank
National Association as Holder (8)
10.20 Loan Modification Agreement, dated October 27, 1995, by and
between Solo Serve Corporation and Congress Financial
Corporation (Southwest) (9)
14
15
10.21 Employment Agreement between the Company and Timothy L. Grady (9)
+
10.22 Employment Agreement between the Company and Janet Pollock (9) +
10.23 Consulting Services Agreement between the Company and Robert J.
Grimm (10) +
10.24 Second Amendment to Loan and Security Agreement, dated January
31, 1996, by and between Solo Serve Corporation and Congress
Financial Corporation (Southwest) (11)
10.25 Letter Agreement dated January 23, 1996 by and between the
Company and MetLife Capital Corporation modifying the Loan and
Security Agreement between the Company and MetLife Capital
Corporation, as amended on July 18, 1995 (11)
10.26 Amendment No. 3 to Loan and Security Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated June 26, 1996 (12)
10.27 Letter of Credit and Security Agreement between Solo Serve
Corporation and General Atlantic Corporation dated as of June
26, 1996 (12)
10.28 Intercreditor and Subordination Agreement between Congress
Financial Corporation (Southwest) and General Atlantic
Corporation dated as of June 26, 1996, as acknowledged and
agreed to by Solo Serve Corporation (12)
10.29 Consulting Agreement between the Company and Charles Siegel (13)
+
10.30 Employment Agreement between the Company and Charles Siegel (13)
+
10.31 Amendment No. 4 to Loan and Security Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated as of September 1, 1996 (13)
10.32 Amendment No. 5 to Loan and Security Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated as of March 31, 1997 (14)
10.33 Letter Agreement dated March 28, 1997 by and between the Company
and MetLife Capital Corporation modifying the Loan and
Security Agreement between the Company and MetLife Capital
Corporation, as amended on July 18, 1995 (14)
10.34 Letter Agreement dated July 8, 1996 by and between the Company
and Ross E. Bacon.(14) +
10.35 Amendment No. 6 to Loan and Security Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated as of May 19, 1997 (14) 10.36 Agency
Agreement by and between Solo Serve Corporation and
Hilco/Great American Group dated May 7, 1997, as amended
together with related agreements (15)
10.37 Amendment No. 7 to Loan and Security Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated June 16, 1997 (15)
10.38 Standby Guarantee and Indemnification Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated June 16, 1997 (15)
10.39 Commitment Letter of Sanwa Business Credit Corporation dated
September 8, 1997 *
15 Independent Accountant's Awareness Letter *
27 Financial Data Schedule *
99 Review Report of Price Waterhouse *
- --------------
* Filed herewith.
+ Management Compensatory Plan or Arrangement
(1) Incorporated by reference to the Exhibits to the Company's
Registration Statement on Form S-1 (No. 33-46324), as filed on
March 11, 1992, and amended by Amendment No. 1, filed on March
26, 1992, Amendment No. 2, filed on April 20, 1992, and Amendment
No. 3, filed on April 24, 1992.
(2) Incorporated by reference to the Exhibits to the Company's Annual
Report on Form 10-K for the Fiscal year ended January 30, 1993.
(3) Incorporated by reference to the Exhibits filed to the Company's
Quarterly Report on Form 10-Q for the Quarter ended July 30,
1994.
(4) Incorporated by reference to the Exhibits filed to the Company's
Annual Report on Form 10-K for the Fiscal Year ended January 28,
1995.
(5) Incorporated by reference to the Exhibits filed to the Company's
Quarterly Report on Form 10-Q for the Quarter ended April 29,
1995.
(6) Incorporated by reference to the Exhibits filed to the Company's
Current Report on Form 8-K for July 6, 1995.
(7) Incorporated by reference to the Exhibits filed to the Company's
Current Report on Form 8-K for July 18, 1995.
15
16
(8) Incorporated by reference to the Exhibits filed to the Company's
Quarterly Report on Form 10-Q for the Quarter ended July 29,
1995.
(9) Incorporated by reference to the Exhibits filed to the Company's
Quarterly Report on Form 10-Q for the Quarter ended October 28,
1995.
(10) Incorporated by reference to the Exhibits filed to the Company's
Annual Report on Form 10-K for the Fiscal Year ended February 3,
1996.
(11) Incorporated by reference to the Exhibits filed to the Company's
Current Report on Form 8-K for February 8, 1996.
(12) Incorporated by reference to the Exhibits filed to the Company's
Current Report on Form 8-K for July 2, 1996.
(13) Incorporated by reference to the Exhibits filed to the Company's
Quarterly Report on Form 10-Q for the Quarter ended August 3,
1996.
(14) Incorporated by reference to the Exhibits filed to the Company's
Annual Report on Form 10-K for the Fiscal Year ended February 1,
1997.
(15) Incorporated by reference to the Exhibits filed to the Company's
Quarterly Report on Form 10-Q for the Quarter ended May 3, 1997
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
period covered by this report.
16
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
SOLO SERVE CORPORATION
By: /s/ CHARLES M. SIEGEL
-------------------------------------
Charles M. Siegel,
President and Chief Executive Officer
By: /s/ ROSS E. BACON
-------------------------------------
Ross E. Bacon,
Executive Vice President and Chief
Operating and Financial Officer
17
18
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
------- ----------------------
2.1 First Amended Plan of Reorganization of Solo Serve Corporation
dated May 17, 1995 (6)
2.2 Non-material Modifications to First Amended Plan of
Reorganization of Solo Serve Corporation, entered July 6, 1995
(6)
3.1 Restated Certificate of Incorporation of the Company (7)
3.2 Certificate of Designation of Rights and Preferences of Preferred
Stock (7)
3.3 Bylaws of the Company, as amended and restated (14)
4.1 Specimen Certificate for Common Stock of the Registrant
(representing shares of common stock of the Company after
giving effect to the previously reported 2-for-1 reverse split
effected July 18, 1995) (9)
10.1 Registration Rights Agreement among General Atlantic Corporation,
Robert J. Grimm and the Company (1)
10.2 Agreement Regarding Tax Consequences of Deconsolidation between
the Company and General Atlantic Corporation (1)
10.3 Tax Allocation Agreement between the Company and General Atlantic
Corporation (1)
10.4 Form of Indemnity Agreement between Directors, Executive Officers
and the Company (1)
10.5 Associate Stock Purchase Plan of the Company (2)
10.6 Retirement Savings Plan and Trust of the Company (2)
10.7 Mortgage Note A, dated November 20, 1992, in principal amount of
$4,940,000, with the Company as Maker and Nationwide Life
Insurance Company as Holder (2)
10.8 Mortgage Note B, dated November 20, 1992, in principal amount of
$1,000,000, with the Company as Maker and Employers Life
Insurance Company of Wausau as Holder (2)
10.9 Asset Purchase Agreement between the Company and Ross Stores,
Inc. (3)
10.10 Employment Agreement between the Company and David P. Dash (4)+
10.11 Employment Agreement between the Company and Robert J. Grimm, as
amended (5)+
10.12 Subscription Agreement between the Company and General Atlantic
Corporation (7)
10.13 Solo Serve Corporation 1995 Stock Incentive Plan (8) +
10.14 Solo Serve Corporation Director Stock Option Plan (8) +
10.15 Escrow Agreement, dated July 18, 1995, by and between Texas
Commerce Bank, National Association, Borrower, General
Atlantic Corporation and the Official Committee of Unsecured
Creditors of Solo Serve Corporation (7)
10.16 Loan and Security Agreement, dated as of June 20, 1995, by and
between Solo Serve Corporation and Congress Financial
Corporation (Southwest) (7)
10.17 Amended Loan and Security Agreement, dated July 18, 1995, by and
between Solo Serve Corporation and MetLife Capital Corporation
(8)
10.18 Loan Modification Agreement, dated July 18, 1995, by and among
Solo Serve Corporation, Nationwide Life Insurance Company, and
Employers Life Insurance Company (8)
10.19 Promissory Note, dated July 31, 1995, in principal amount of
$5,565,000, with the Company as Maker, and Texas Commerce Bank
National Association as Holder (8)
10.20 Loan Modification Agreement, dated October 27, 1995, by and
between Solo Serve Corporation and Congress Financial
Corporation (Southwest) (9)
19
10.21 Employment Agreement between the Company and Timothy L. Grady (9)
+
10.22 Employment Agreement between the Company and Janet Pollock (9) +
10.23 Consulting Services Agreement between the Company and Robert J.
Grimm (10) +
10.24 Second Amendment to Loan and Security Agreement, dated January
31, 1996, by and between Solo Serve Corporation and Congress
Financial Corporation (Southwest) (11)
10.25 Letter Agreement dated January 23, 1996 by and between the
Company and MetLife Capital Corporation modifying the Loan and
Security Agreement between the Company and MetLife Capital
Corporation, as amended on July 18, 1995 (11)
10.26 Amendment No. 3 to Loan and Security Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated June 26, 1996 (12)
10.27 Letter of Credit and Security Agreement between Solo Serve
Corporation and General Atlantic Corporation dated as of June
26, 1996 (12)
10.28 Intercreditor and Subordination Agreement between Congress
Financial Corporation (Southwest) and General Atlantic
Corporation dated as of June 26, 1996, as acknowledged and
agreed to by Solo Serve Corporation (12)
10.29 Consulting Agreement between the Company and Charles Siegel (13)
+
10.30 Employment Agreement between the Company and Charles Siegel (13)
+
10.31 Amendment No. 4 to Loan and Security Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated as of September 1, 1996 (13)
10.32 Amendment No. 5 to Loan and Security Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated as of March 31, 1997 (14)
10.33 Letter Agreement dated March 28, 1997 by and between the Company
and MetLife Capital Corporation modifying the Loan and
Security Agreement between the Company and MetLife Capital
Corporation, as amended on July 18, 1995 (14)
10.34 Letter Agreement dated July 8, 1996 by and between the Company
and Ross E. Bacon.(14) +
10.35 Amendment No. 6 to Loan and Security Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated as of May 19, 1997 (14) 10.36 Agency
Agreement by and between Solo Serve Corporation and
Hilco/Great American Group dated May 7, 1997, as amended
together with related agreements (15)
10.37 Amendment No. 7 to Loan and Security Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated June 16, 1997 (15)
10.38 Standby Guarantee and Indemnification Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated June 16, 1997 (15)
10.39 Commitment Letter of Sanwa Business Credit Corporation dated
September 8, 1997 *
15 Independent Accountant's Awareness Letter *
27 Financial Data Schedule *
99 Review Report of Price Waterhouse *
- --------------
* Filed herewith.
+ Management Compensatory Plan or Arrangement
(1) Incorporated by reference to the Exhibits to the Company's
Registration Statement on Form S-1 (No. 33-46324), as filed on
March 11, 1992, and amended by Amendment No. 1, filed on March
26, 1992, Amendment No. 2, filed on April 20, 1992, and Amendment
No. 3, filed on April 24, 1992.
(2) Incorporated by reference to the Exhibits to the Company's Annual
Report on Form 10-K for the Fiscal year ended January 30, 1993.
(3) Incorporated by reference to the Exhibits filed to the Company's
Quarterly Report on Form 10-Q for the Quarter ended July 30,
1994.
(4) Incorporated by reference to the Exhibits filed to the Company's
Annual Report on Form 10-K for the Fiscal Year ended January 28,
1995.
(5) Incorporated by reference to the Exhibits filed to the Company's
Quarterly Report on Form 10-Q for the Quarter ended April 29,
1995.
(6) Incorporated by reference to the Exhibits filed to the Company's
Current Report on Form 8-K for July 6, 1995.
(7) Incorporated by reference to the Exhibits filed to the Company's
Current Report on Form 8-K for July 18, 1995.
20
(8) Incorporated by reference to the Exhibits filed to the Company's
Quarterly Report on Form 10-Q for the Quarter ended July 29,
1995.
(9) Incorporated by reference to the Exhibits filed to the Company's
Quarterly Report on Form 10-Q for the Quarter ended October 28,
1995.
(10) Incorporated by reference to the Exhibits filed to the Company's
Annual Report on Form 10-K for the Fiscal Year ended February 3,
1996.
(11) Incorporated by reference to the Exhibits filed to the Company's
Current Report on Form 8-K for February 8, 1996.
(12) Incorporated by reference to the Exhibits filed to the Company's
Current Report on Form 8-K for July 2, 1996.
(13) Incorporated by reference to the Exhibits filed to the Company's
Quarterly Report on Form 10-Q for the Quarter ended August 3,
1996.
(14) Incorporated by reference to the Exhibits filed to the Company's
Annual Report on Form 10-K for the Fiscal Year ended February 1,
1997.
(15) Incorporated by reference to the Exhibits filed to the Company's
Quarterly Report on Form 10-Q for the Quarter ended May 3, 1997