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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report
July 2, 1996
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Solo Serve Corporation
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-19994 74-2048057
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(Commission File Number) (I.R.S. Employer Identification Number)
1610 Cornerway Blvd.
San Antonio, Texas 78219
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(210) 662-6262
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Page 1 of 34 Pages
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ITEM 5. OTHER EVENTS.
On June 20, 1995, the Company entered into a Loan and Security Agreement
with Congress Financial Corporation (Southwest) ("Congress") pursuant to which
Congress agreed to provide a revolving credit facility and letter of credit
accommodations in an amount up to the borrowing base as calculated pursuant to
the loan agreement, which may not exceed $15,000,000 (the "Credit Facility").
The Credit Facility is secured by a first lien on substantially all of the
assets of the Company, including inventory and accounts receivable. The
availability of loans under the Credit Facility is determined by an advance
rate formula.
In order to increase loan availability under the Credit Facility, General
Atlantic Corporation ("General Atlantic"), the Company's principal stockholder,
has 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 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 (behind Congress) on substantially all
of the assets of the Company.
In part as a result of General Atlantic's agreement to provide the GAC
L/C, the Company and Congress entered into Amendment No. 3 to the Credit
Facility dated as of June 26, 1996 ("Amendment No. 3"). Amendment No. 3
increased the amount available to the Company under the Credit Facility by
increasing the advance rate under the Credit Facility to sixty percent (60%) of
the value of eligible inventory for any date of determination occurring from
July 1 through December 10 and fifty-five percent (55%) of the value of
eligible inventory for any other date of determination, compared to previous
allowances of fifty-two percent (52%) of the value of eligible inventory for
any date of determination occurring from September 1 through December 10 and
forty-two percent (42%) for any other date of determination.
Amendment No. 3 also amended certain financial covenants in the Credit
Facility to reduce the Company's adjusted net worth requirement from $7,500,000
for the remainder of Fiscal 1996 to $4,250,000 for the remaining term of the
Credit Facility, and increased the termination fee during the last year of the
Credit Facility from $75,000 to $150,000. Amendment No. 3 does not affect
existing covenants under the Credit Facility that require the Company to
maintain minimum working capital of $7.2 million and a $2.5 million limitation
on capital expenditures, net of insurance or other proceeds resulting from the
disposal or sale of fixed assets, for the remainder of Fiscal 1996.
Page 2 of 34 Pages
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Under the Credit Facility, Congress may establish and revise availability
reserves in its sole discretion to cover risks or events it perceives may
affect its security under the Credit Facility or the business or prospects of
the Company. 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. As of the date of this report, the
availability reserve under the Credit Facility was approximately $600,000.
Although no assurances can be provided, the Company believes that the
additional borrowings available as a result of Amendment No. 3 will assist the
Company in responding to vendor and factor concerns regarding its
creditworthiness. The Company continues to evaluate other measures designed to
improve operating results, some of which may also enhance liquidity. However,
the Company has continued to experience operating losses and no assurance can
be given that the Company will be successful in its efforts to improve sales
and operations and reverse recent operating trends.
Page 3 of 34 Pages
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits. The following exhibits are filed as part of this report:
Number Document
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10.1 Amendment No. 3 to Loan and Security Agreement by and between
Solo Serve Corporation and Congress Financial Corporation
(Southwest) dated as of June 26, 1996.
10.2 Letter of Credit and Security Agreement between Solo Serve
Corporation and General Atlantic Corporation dated as of June 26,
1996.
10.3 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.
Page 4 of 34 Pages
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SIGNATURES
Pursuant to the requirement 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/ David P. Dash
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David P. Dash, President
Dated: July 2, 1996
Page 5 of 34 Pages
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EXHIBIT INDEX
Exhibit Sequentially
No. Description Numbered Page
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10.1 Amendment No. 3 to Loan and Security Agreement by and between Solo 7
Serve Corporation and Congress Financial Corporation (Southwest)
dated as of June 26, 1996.
10.2 Letter of Credit and Security Agreement between Solo Serve 15
Corporation and General Atlantic Corporation dated as of June 26,
1996.
10.3 Intercreditor and Subordination Agreement between Congress Financial 21
Corporation (Southwest) and General Atlantic Corporation dated as of
June 26, 1996, as acknowledged and agreed to by Solo Serve
Corporation.
Page 6 of 34 Pages