-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JfgrtATVxs737BoDNfhNOjNBBBuJzmsF5ZcCdCCezxZBAjzHlQQa346uKUT6g568 ztH9WIIbPL8+tuS+1uVwqw== 0000950123-96-001739.txt : 19960418 0000950123-96-001739.hdr.sgml : 19960418 ACCESSION NUMBER: 0000950123-96-001739 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950525 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960417 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANOVER DIRECT INC CENTRAL INDEX KEY: 0000320333 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 138053260 STATE OF INCORPORATION: NV FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08056 FILM NUMBER: 96547826 BUSINESS ADDRESS: STREET 1: 1500 HARBOR BLVD CITY: WEEHAWKEN STATE: NJ ZIP: 07087 BUSINESS PHONE: 2018653800 MAIL ADDRESS: STREET 1: 1500 HARBOR BLVD CITY: WEEHAWKEN STATE: NJ ZIP: 07087 FORMER COMPANY: FORMER CONFORMED NAME: HORN & HARDART CO /NV/ DATE OF NAME CHANGE: 19920703 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A1 (Amendment No. 1) CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) May 25, 1995 HANOVER DIRECT, INC. (Exact name of registrant as specified in its charter) 1-12082 (Commission File Number) DELAWARE 13-085326 (State or other jurisdiction (I.R.S. Employer of incorporation Identification Number) 1500 HARBOR BOULEVARD WEEHAWKEN, NEW JERSEY (Address of principal 07087 executive offices) (Zip Code) Registrant's telephone number, including area code (201) 863-7300 ---------------------------------------------------------------- (Former name or former address, if changed since last report) 2 EXPLANATORY NOTE Item 7(a)(i) is being amended to reflect the fact that the attached financial statements are now being reported upon by Arthur Andersen LLP. Item 7. Financial Statements and Exhibits (a) Financial Statements of Businesses Acquired: (i) The Austad Company -- Financial Statements for the years ended December 31, 1994 and 1993 Report of Arthur Andersen LLP Balance Sheets as of December 31, 1994 and 1993 Statements of Operations for the years ended December 31, 1994 and 1993 Statements of Changes in Shareholders' Equity for the years ended December 31, 1994 and 1993 Statements of Cash Flows for the years ended December 31, 1994 and 1993 Notes to Financial Statements (c) Exhibits: (1) Consent of Arthur Andersen LLP -2- 3 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 hereunto duly authorized. HANOVER DIRECT, INC. -------------------------- (Registrant) April 16, 1996 By: /s/Wayne P. Garten --------------------------- Name: Wayne P. Garten Title: Executive Vice President & Chief Financial Officer -3- 4 THE AUSTAD COMPANY Financial Statements as of December 31, 1994 and 1993 Together With Report of Independent Public Accountants 5 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Austad Company: We have audited the accompanying balance sheets of The Austad Company as of December 31, 1994 and 1993, and the related statements of operations, changes in shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Austad Company as of December 31, 1994 and 1993, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Minneapolis, Minnesota, February 23, 1996 6 THE AUSTAD COMPANY Balance Sheets As of December 31 (In Thousands)
ASSETS 1994 1993 ------- ------- CURRENT ASSETS: Cash and cash equivalents $ 106 $ 271 Accounts receivable, net 634 943 Inventories 9,470 12,893 Prepaid catalog costs 511 770 Deferred taxes and other current assets 50 566 ------- ------- Total current assets 10,771 15,443 PROPERTY AND EQUIPMENT, net 3,708 3,658 INTANGIBLES, net 33 60 ------- ------- $14,512 $19,161 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term obligations $ 333 $ 242 Revolving credit borrowings 5,070 7,050 Accounts payable 3,184 3,767 Customer returns 737 887 Accrued expenses 1,098 1,311 ------- ------- Total current liabilities 10,422 13,257 LONG-TERM OBLIGATIONS 3,069 3,096 NOTES PAYABLE TO SHAREHOLDERS 768 768 ------- ------- COMMITMENTS AND CONTINGENCIES (Note 7) SHAREHOLDERS' EQUITY (Note 6): Series A preferred stock 1,142 1,142 Series B preferred stock 550 550 Series C preferred stock 1 1 Common stock 29 29 Additional paid-in capital 4 4 (Accumulated deficit) retained earnings (1,473) 314 ------- ------- Total shareholders' equity 253 2,040 ------- ------- $14,512 $19,161 ======= =======
The accompanying notes are an integral part of these balance sheets 7 THE AUSTAD COMPANY Statements of Operations For the Years Ended December 31 (In Thousands)
1994 1993 ------- ------- NET SALES $39,198 $42,882 COST OF SALES 24,689 28,050 ------- ------- Gross profit 14,509 14,832 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 14,365 14,239 DEPRECIATION AND AMORTIZATION EXPENSE 815 680 ------- ------- Operating loss (671) (87) OTHER EXPENSE: Amortization of loan origination costs (61) (105) Interest (1,048) (816) Other, net (7) (18) ------- ------- Net loss $(1,787) $(1,026) ======= =======
The accompanying notes are an integral part of these financial statements. 8 THE AUSTAD COMPANY Statements of Changes in Shareholders' Equity For the Years Ended December 31 (In Thousands)
Preferred Stock ------------------------------------------------------- $4.46 Cumulative $4.46 Cumulative Redeemable Redeemable Convertible Series A Series B Series C Common Stock ---------------- ---------------- --------------- --------------- Shares Amount Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ ------ ------ BALANCE, December 31, 1992 - $ - - $ - - $- 45 $45 Series A preferred stock issued in exchange for common stock 10 1,142 - - - - (10) (10) Series B preferred stock issued in exchange for common stock - - 5 550 - - (5) (5) Series C preferred stock issued in exchange for common stock - - - - 1 1 (1) (1) Net loss - - - - - - - - -- ------ - ---- - -- --- --- BALANCE, December 31, 1993 10 1,142 5 550 1 1 29 29 Net loss - - - - - - - - -- ------ - ---- - -- --- --- BALANCE, December 31, 1994 10 $1,142 5 $550 1 $1 29 $29 == ====== = ==== = == === ===
Retained Additional Earnings Total Paid-In (Accumulated Shareholders' Capital Deficit) Equity ---------- ------------ ------------- BALANCE, December 31, 1992 $4 $ 3,017 $ 3,066 Series A preferred stock issued in exchange for common stock - (1,132) - Series B preferred stock issued in exchange for common stock - (545) - Series C preferred stock issued in exchange for common stock - - - Net loss - (1,026) (1,026) -- ------- ------- BALANCE, December 31, 1993 4 314 2,040 Net loss - (1,787) (1,787) -- ------- ------- BALANCE, December 31, 1994 $4 $(1,473) $ 253 == ======= =======
The accompanying notes are an integral part of these financial statements. 9 THE AUSTAD COMPANY Statements of Cash Flows For the Years Ended December 31 (In Thousands)
1994 1993 ------- ------- OPERATING ACTIVITIES: Net loss $(1,787) $(1,026) Adjustments to reconcile net loss to net cash from operating activities- Depreciation and amortization 876 785 Other (8) 3 Change in operating assets and liabilities: Accounts receivable 309 (214) Inventories 3,423 (2,599) Prepaid catalog costs 259 16 Deferred taxes and other current assets 516 (446) Accounts payable (809) 44 Customer returns (150) (110) Accrued expenses (213) 257 ------- ------- Net cash provided by (used in) operating activities 2,416 (3,290) ------- ------- INVESTING ACTIVITIES: Purchases of property and equipment, net (477) (483) ------- ------- FINANCING ACTIVITIES: Proceeds from issuance of long-term obligations 5,070 9,323 Payments on long-term obligations (7,400) (7,092) Increase in cash overdraft 226 422 ------- ------- Net cash (used in) provided by financing activities (2,104) 2,653 ------- ------- DECREASE IN CASH AND CASH EQUIVALENTS (165) (1,120) CASH AND CASH EQUIVALENTS: Beginning of year 271 1,391 ------- ------- End of year $ 106 $ 271 ======= =======
The accompanying notes are an integral part of these financial statements. 10 THE AUSTAD COMPANY Notes to Financial Statements December 31, 1994 and 1993 1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING PRINCIPLES: BUSINESS DESCRIPTION The operations of The Austad Company (the Company) consist principally of the worldwide mail order distribution of sports and leisure equipment, and related apparel and accessories, specializing in golf. In addition, the Company maintains retail stores in Blaine and Edina, Minnesota; Oak Brook, Illinois; and Sioux Falls, South Dakota. Sales to customers are primarily by cash, credit card or credit terms that the Company establishes for individual customers. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. ACCOUNTS RECEIVABLE Accounts receivable is comprised primarily of amounts due from worldwide distributors of the Company's products and amounts due from lessees of the Company's mailing lists, net of an allowance for doubtful accounts of $31,000 and $42,000 in 1994 and 1993, respectively. Four distributors and one lessee comprised approximately 47% of the December 31, 1994 accounts receivable balance, approximately one-half of which was comprised of foreign distributors. Four distributors and one lessee comprised approximately 61% of the December 31, 1993 accounts receivable balance, approximately one-third of which was comprised of foreign distributors. The Company performs ongoing credit evaluations of its customers, generally does not require collateral and maintains an allowance for potential credit losses. INVENTORIES Inventories are stated at the lower of cost or market with cost determined on the weighted average method. PROPERTY AND EQUIPMENT Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are computed on the straight-line method over estimated useful asset lives (shorter of asset life or lease term for leasehold improvements). Expenditures for maintenance and repairs and minor renewals and betterments which do not improve or extend the lives or the respective assets are expensed. All other expenditures for 11 -2- renewals and betterments are capitalized. The assets and related depreciation accounts are adjusted for property retirements and disposals with the resulting gain or loss included in operations. REVENUE RECOGNITION AND MERCHANDISE RETURNS The Company recognizes revenue upon shipment of inventory. Prepaid customer orders are recorded as a liability until the goods are shipped. The Company accepts returns of merchandise throughout the product's life with normal use and will accept trade-in of used golf clubs for in-store credit. The Company records a liability in connection with sales activity for projected merchandise returns based on historical return experience. PREPAID CATALOG COSTS The Company defers catalog preparation and distribution costs and amortizes such costs over the projected sales demand of the catalogs, which is primarily three to six months from the date catalogs are mailed. INCOME TAXES Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate results could differ from those estimates. 12 -3- 2. OTHER FINANCIAL STATEMENT DATA: The following provides additional information concerning selected balance sheet accounts at December 31 (in thousands):
1994 1993 ------- ------- Property and equipment: Land $ 42 $ 42 Buildings and improvements 2,205 2,161 Equipment, furniture and leasehold improvements 4,385 4,509 Capitalized lease property 1,556 1,176 ------- ------- 8,188 7,888 Less- Accumulated depreciation and amortization, including $257 in 1994 and $44 in 1993 related to capitalized lease property (4,480) (4,230) ------- ------- $ 3,708 $ 3,658 ======= ======= Accrued expenses: Payroll and accrued vacation $ 326 $ 442 Payroll, property and sales taxes 161 157 Advance payments on orders 437 388 Accrued promotions 15 164 Accrued commissions 71 63 Other 88 97 ------- ------- $ 1,098 $ 1,311 ======= =======
Accounts payable included a cash overdraft of $648,000 and $422,000 at December 31, 1994 and 1993, respectively, in connection with the Company's controlled disbursements account. Selling, general and administrative expenses are net of revenues from shipping and handling, list rentals, package inserts and fulfillment of $3,808,000 and $4,403,000 for the years ended December 31, 1994 and 1993, respectively. The following provides supplemental disclosures of cash flow activity for the years ended December 31 (in thousands):
1994 1993 ------ ------ Cash paid (received) during the year for: Interest $1,033 $ 809 Income taxes (427) 429 Noncash investing and financing activities: Property and equipment acquired through capital lease obligations 380 1,176
13 -4- 3. FINANCING ARRANGEMENTS: The Company's short-term and long-term debt consists of the following at December 31 (in thousands):
1994 1993 ------- ------- Revolving loan $ 5,070 $ 7,050 Mortgage loan 2,189 2,241 ------- ------- Total short- and long-term debt 7,259 9,291 Less- Current portion (5,121) (7,098) ------- ------- Long-term portion $ 2,138 $ 2,193 ======= =======
During 1993, the Company entered into a revolving loan agreement with a bank which allowed for borrowings of up to $8,500,000 as of December 31, 1993 at an interest rate equal to the prime rate plus 2%. The prime rate at December 31, 1994 and 1993, was 8.5% and 6%, respectively. In January 1994, the revolving loan agreement commitment was increased to allow borrowings of up to $9,500,000, less outstanding letters of credit, based on adequacy of underlying collateral, and effective June 1, 1994, had been amended to extend through December 21, 1994. At December 21, 1994, the revolving credit agreement was decreased to $6,500,000 and was amended to extend through March 31, 1995. At March 31, 1995, the revolving loan agreement was amended to extend through May 31, 1995 (see Note 8). The loan is collateralized by accounts receivable, inventories, property and equipment, and intangible assets of the Company. The president of the Company has signed as a guarantor. In addition, the agreement contains provisions for the bank to provide letters of credit to the Company. As of December 31, 1994, the Company had outstanding letters of credit totaling $13,000. As of December 31, 1993, the Company did not have any outstanding letters of credit. The Company was required to maintain a specified tangible net worth ratio, but did not meet this covenant in 1993 and through June 1, 1994. Under the June 1, 1994 amended agreement, this covenant was deleted. Under the June 1, 1994 amended agreement, the Company was required to attain prescribed minimum year-to-date net profits before taxes, but did not meet this covenant in 1994. Under the December 21, 1994 amended agreement, the Company was required to attain prescribed pretax net profits as of January 31, 1995, February 28, 1995 and March 31, 1995, which it also did not meet. In addition, the revolving loan agreement contains covenants including limitations on incurrence of debt, granting of liens, payment of dividends, investments, capital expenditures, merger or consolidation, loans or advances to related parties, and capital stock transactions. During 1993, the Company entered into a mortgage loan agreement with the bank for $2,273,000, which bears interest at a rate of 8.75%. Monthly principal and interest payments are $20,000 with a final payment of $1,600,000 due in March 2003. 14 -5- Aggregate maturities of bank debt are as follows (in thousands): 1995 $5,121 1996 58 1997 64 1998 70 1999 76 Thereafter 1,870 ------ $7,259 ======
The Company has notes payable to shareholders of $768,000 as of December 31, 1994 and 1993. Interest expense paid to shareholders was $69,000 and $80,000 in 1994 and 1993, respectively. The notes are payable at the Company's option, accrue interest at 9%, payable quarterly, and are subordinated to the bank debt discussed above. 4. INCOME TAXES: In years prior to 1993, the shareholders of the Company had elected to be taxed as an S corporation under the Internal Revenue Code. In March 1993, the shareholders terminated the Company's S corporation election, effective January 1, 1993. Effective January 1, 1993, the Company adopted the provisions of SFAS No. 109, Accounting for Income Taxes." This change in accounting for income taxes had no effect on the Company's financial position, results of operations and cash flows. As of December 31, 1994 and 1993, the Company has net deferred income tax assets of approximately $2,488,000 and $889,000, respectively, which are offset by a valuation allowance based on the uncertainty associated with ultimate realization of these deferred income tax assets. The principal sources of temporary differences include net operating loss (NOL) carryforwards, allowance for sales returns, deferred catalog costs, allowance for inventory write-downs, and other accrued expenses such as accrued vacation and accrued gift certificates. As of December 31, 1994, the net deferred income tax asset includes asset amounts arising from NOL carryforwards of approximately $1,586,000, $157,000 and $125,000 available for federal, Minnesota and Illinois income tax purposes, respectively. These carryforwards expire in 2008 and 2009. Under the Internal Revenue Code, certain corporate stock transactions which the Company has entered into limit the amount of NOL carryforwards which may be utilized and the timing of the NOL utilization. Ultimate realization of the NOL carryforwards has been limited because of the changes in control which have occurred (see Note 8). 5. RETIREMENT PLANS: The Company has a profit-sharing plan which includes a 401(k) component that covers substantially all employees. Contributions to the profit-sharing component of the plan are at the discretion of the board of directors and the Company matches employee contributions to the 401(k) component of the plan, up to a maximum of $200 per employee. The Company contributed $21,000 and $17,000 to the plan for the years ended December 31, 1994 and 1993, respectively. 15 -6- 6. SHAREHOLDERS' EQUITY: The Company has 250,000 authorized shares of $1 par value common stock of which 29,000 shares were issued and outstanding at December 31, 1994. The Company also has 250,000 authorized $1 par value preferred shares. During 1993, the Company approved agreements with four shareholders for the exchange of 16,000 shares of their common stock for preferred stock. The preferred stock was recorded at its estimated fair value on the effective date of the transaction. The Company issued 10,000 shares of Series A cumulative, redeemable preferred stock and 5,000 shares of Series B cumulative, redeemable preferred stock which accumulate dividends at a rate of $4.46 per share per year, commencing January 1, 1995. The Company also issued 1,000 shares of Series C noncumulative, convertible preferred stock. The Company did not pay or accrue any dividends during 1994 and 1993. The Company is restricted from paying dividends on its common stock if Series A or Series B preferred is outstanding. As of December 31, 1994, the number of preferred shares issued in 1993 as mentioned above represents the total quantities of shares authorized, issued and outstanding. Series A cumulative, redeemable and Series B cumulative, redeemable preferred stock have a liquidation preference over the common stock and the Series C preferred stock equal to $111.56 per share plus unpaid dividends. Payments to Series A and Series B preferred shareholders are to be made on a pro rata basis. Series A and Series B preferred stock are redeemable at the discretion of the board of directors between January 1, 1996 and June 30, 1996, at a value for the Series A preferred stock of $1,142,000 plus cumulative dividends and plus an amount based on 22.83% times the difference, if positive, between (a) five times fiscal 1995 earnings before interest, tax, depreciation, amortization, and extraordinary and nonrecurring amounts less capital expenditures and outstanding debt; and (b) $5,000,000, and at a value of $111.56 per share plus cumulative dividends for the Series B preferred stock. Series C preferred stock has liquidation preference over the common stock equal to $111.56 per share. The Series C preferred stock may be converted to common stock on a share-for-share basis at the shareholder's discretion within 15 days after notice by the Company of its intention to conduct an initial public offering of its common stock, subject to certain limitations. The Company has an agreement with its common stock shareholders that allows the Company to have the first option of purchasing the stock of a selling shareholder. If the Company does not purchase the stock, the other shareholders have the second option to purchase the stock based on their proportionate ownership of stock. The purchase price per share is the lower of the price per share from a bona fide third-party offer or the book value of the shares on the last day of the fiscal year ending on or before the date of the offer to sell. 7. COMMITMENTS AND CONTINGENCIES: OPERATING LEASES The Company is committed under operating lease agreements covering its retail stores. The operating leases expire in varying terms through March 2005, with certain leases including escalation provisions. The Company is generally required to pay additional rent based on a percentage of sales. In addition to rental payments, the Company is required to reimburse the 16 -7- lessors for various operating expenses including a pro rata share of real estate taxes and common area expenses. Total rent expense includes the following (in thousands):
1994 1993 ---- ---- Minimum rent $301 $309 Percentage rent based on sales 65 71 Real estate taxes and other expenses 67 25 ---- ---- $433 $405 ==== ====
FUTURE MINIMUM LEASE PAYMENTS As of December 31, 1994, future minimum lease payments (excluding percentage rents based on sales) due under capital lease and existing noncancelable operating leases with remaining terms of greater than one year are as follows (in thousands):
Capital Operating Leases Leases ------- --------- 1995 $ 395 $ 305 1996 402 292 1997 391 293 1998 284 296 1999 - 263 Thereafter - 613 ------ ------ Total minimum lease payments 1,472 $2,062 ====== Less- Amounts representing interest 259 ------ Capital lease obligations, including current maturities of $282 with interest ranging from 5.35% to 17.4% $1,213 ======
EMPLOYEE AGREEMENTS During 1993, the Company entered into a two-year noncompete agreement with a shareholder and former employee. Under the terms of the agreement, the Company is required to make monthly payments of $6,000 from August 1, 1993 through July 31, 1995, in addition to paying medical and health insurance premiums and certain membership fees. Expenses under this agreement were $79,000 and $36,000 in 1994 and 1993, respectively, and are included in selling, general and administrative expenses. During 1993, the Company entered into a noncompete agreement with another shareholder and former employee. Under the terms of the agreement, the Company made payments of $133,000 during 1993. The agreement was amended effective December 31, 1993, whereby the Company is required to make quarterly payments of $10,000 from March 31, 1994 through 17 -8- December 1998. Expenses under this agreement were $40,000 and $133,000 in 1994 and 1993, respectively, and are included in selling, general and administrative expenses. PHANTOM STOCK PLAN In November 1993, the board of directors approved an unfunded Phantom Stock Plan (the Plan) to provide incentive-deferred compensation for certain key employees of the Company. The value of the incentive-deferred compensation is measured based on performance units awarded to eligible employees by the board. Performance units vest at a rate of 20% per year on the anniversary of the grant date, provided the participant remains an employee of the Company. If a participant is terminated, the participant is entitled to receive his or her vested portion. Payments are to be made either in a lump sum or, at the board's sole discretion, in equal annual installments of principal and interest over five years. Participants become fully vested upon termination of employment with the Company due to death, disability or retirement or upon termination of the Plan. The value of a performance unit is equal to the net book value of an outstanding share of the Company's common stock as of the end of the fiscal year immediately preceding the date of grant. The Plan has not awarded any performance units as of December 31, 1994. 8. SUBSEQUENT EVENTS: SALE OF MAJORITY OWNERSHIP On May 25, 1995, the Company's sole shareholder contributed 100% of the common shares of the Company for a minority interest in Austad Holdings, Inc. (the Parent). The majority shareholder simultaneously provided the Company $2,600,000 in loans. Also simultaneously with the transaction, the Company redeemed all of its outstanding preferred stock for $724,134, redeemed 14,394 shares of common stock for $475,866, declared a dividend on common stock of $600,000 and repaid the $768,000 of notes payable to shareholders. On February 16, 1996, the majority shareholder of the Parent spun off the Company's retail activities to the minority shareholder in exchange for his minority interest in the Parent. 18 EXHIBIT INDEX Exhibit 1 - Consent of Arthur Andersen LLP EX-99.1 2 CONSENT OF ARTHUR ANDERSEN LLP 1 Exhibit (1) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports and to all references to our Firm included in or made a part of this Current Report on Form 8-K. /s/ ARTHUR ANDERSEN LLP Minneapolis, Minnesota, April 16, 1996 -----END PRIVACY-ENHANCED MESSAGE-----