SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________
FORM 10-Q
Quarterly Report Pursuant to section 13 or 15(d) of
the Securities and Exchange Act of 1934
____________________
For the Quarter ended Commission File Number
June 30, 1996 0-14903
Baldwin Piano & Organ Company
(Exact name of registrant as specified in its charter)
Delaware 31-1091812
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
422 Wards Corner Road
Loveland, Ohio 45140-8390
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (513) 576-4500
Indicate by check mark whether the registrant (1) has filed
all documents and 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 .
--- ---
The number of shares of the Common Stock outstanding of
Baldwin Piano & Organ Company ("Company"), as of August 1, 1996 is
3,422,196.
<PAGE>
BALDWIN PIANO & ORGAN COMPANY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Earnings
for the three months and six months ended
June 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows
for the six months ended
June 30, 1996 and 1995
Notes to Condensed Consolidated Financial
Statements, June 30, 1996
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote
of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
______________
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
(in thousands of dollars)
June 30, December 31,
ASSETS 1996 1995
------------ ------------
Current assets:
Cash ................................. $ 549 $ 429
Receivables, net ..................... 14,929 14,338
Inventories .......................... 60,885 46,039
Other current assets ................. 6,362 8,791
-------- --------
Total current assets ........... 82,725 69,597
-------- --------
Installment receivables,
less current portion ................. 12,335 11,215
Property, plant and equipment, net ...... 16,005 14,934
Other assets ............................ 5,316 5,683
-------- --------
Total assets ................... $116,381 $101,429
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .... $ 33,685 $ 17,646
Accounts payable ..................... 7,158 10,227
Income taxes payable ................. 1,113 622
Accrued liabilities .................. 7,888 6,399
-------- -------
Total current liabilities ...... 49,844 34,894
-------- -------
Long-term debt, less current portion .... 3,800 4,250
Other liabilities ....................... 7,122 8,171
-------- -------
Total liabilities .............. 60,766 47,315
-------- -------
Shareholders' equity:
Common stock ......................... 42 42
Additional paid-in capital ........... 12,068 12,001
Retained earnings .................... 49,712 48,278
-------- -------
61,822 60,321
Less cost of treasury shares ......... (6,207) (6,207)
-------- -------
Total shareholders' equity ..... 55,615 54,114
________ _______
Total liabilities and
shareholders' equity ........... $116,381 $101,429
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
______________
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars, except net earnings per share)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
------- -------- ------- -------
Net sales ...................... $26,139 $30,688 $53,286 $60,448
Cost of goods sold ............. 20,219 23,852 42,091 47,168
------- ------- ------- -------
Gross profit .......... 5,920 6,836 11,195 13,280
Income on the sale of
installment receivables ..... 1,474 1,187 2,934 2,376
Interest income on
installment receivables ..... 341 201 649 407
Other operating income, net .... 947 859 1,806 1,772
------- ------- ------- -------
8,682 9,083 16,584 17,835
Operating expenses:
Selling, general
and administrative ....... 6,483 6,978 12,572 13,685
Provision for
doubtful accounts ........ 343 244 580 497
------- ------- ------- -------
Operating profit ...... 1,856 1,861 3,432 3,653
Interest expense ............... 657 503 1,182 1,025
------- ------- ------- -------
Earnings before
income taxes ............. 1,199 1,358 2,250 2,628
Income taxes 449 527 816 982
------- ------- ------- -------
Net earnings .......... $ 750 $ 831 $ 1,434 $ 1,646
======= ======= ======= =======
Net earnings per share ......... $.22 $.24 $.42 $.48
==== ==== ==== ====
Average number of common
shares outstanding .......... 3,419 3,415 3,417 3,415
===== ===== ===== =====
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
______________
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
June 30, 1996 and 1995
(in thousands of dollars)
INCREASE (DECREASE) IN CASH 1996 1995
- --------------------------- -------- --------
Net cash used in operating activities ..... $(11,377) $ (594)
Net cash used in investing activities ..... (1,876) (1,567)
Cash flows from financing activities:
Installment contract
receivables written ................. (32,935) (28,694)
Installment receivables liquidated ..... 4,215 2,897
Proceeds from sale of
installment receivables ............. 26,436 24,653
Borrowing under long-term debt ......... 15,590 3,535
Other .................................. 67 --
-------- --------
Net cash provided by
financing activities ........... 13,373 2,391
-------- --------
Net increase in cash ...................... 120 230
Cash at beginning of period ............... 429 344
-------- --------
Cash at end of period ..................... $ 549 $ 574
======== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
------------------------
Cash paid during the period for:
Interest ............................... $ 1,156 $ 1,095
======== ========
Income taxes ........................... $ 355 $ 1,101
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
______________
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(in thousands of dollars)
(1) BASIS OF REPORTING FOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements included
herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain informa-
tion and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's Annual Report and Form 10-K for the year ended December 31,
1995.
The financial statements presented herewith reflect all adjustments
(consisting of normal and recurring accruals) which, in the opinion of
management, are necessary to fairly state the results of operations for
the three month and six month periods ended June 30, 1996 and 1995.
Certain prior year amounts have been reclassified to conform with current
year financial statement presentation. Results of operations for interim
periods are not necessarily indicative of results to be expected for an
entire year.
(2) INVENTORIES
Inventories consist of the following:
June 30, December 31,
1996 1995
-------- --------
FIFO cost:
Raw material ......................... $ 19,135 $ 14,875
Work-in-process ...................... 9,045 7,490
Finished goods ....................... 45,191 35,611
-------- --------
73,371 57,976
Excess of FIFO cost
over LIFO inventory value ............ (12,486) (11,937)
-------- --------
Net inventories ................. $ 60,885 $ 46,039
======== ========
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
1996 COMPARED TO 1995
Second quarter 1996 net sales decreased 15% to $26.1 million from
$30.7 million in 1995. Two-thirds of the sales decline resulted from
reductions in contract furniture and contract music as the Company
executed its plan to shift focus away from these non-strategic businesses.
As expected, unit sales in the acoustic piano category also declined
during the second quarter reflecting the impact of the consolidation of
the Baldwin and Wurlitzer dealer networks.
Net earnings for the three months ended June 30, 1996, were $.7
million ($.22 per share) as compared to $.8 million ($.24 per share) in
1996. Earnings for the second quarter were affected by lower gross profit
which was offset by a strong performance in the Consumer Finance segment
and lower selling, general and administrative expense. Interest expense
was higher in the 1996 quarter as a result of higher inventory levels in
anticipation of second half sales.
Net earnings for the first six months of 1996 decreased 13% to $1.4
million ($.42 per share) from $1.6 million ($.48 per share) in 1995. Net
sales for the first six months of 1996 decreased 12% to $53.2 million from
$60.4 million in 1995.
Gross profit for both the three months and six months ended June 30,
1996, declined from the comparable periods for 1995 due to the decrease in
music product sales and lower margins on contract electronic business.
The Company values a substantial portion of its inventory on the
last-in, first-out (LIFO) method. The gross profit for the three months
and six months ended June 30, 1996 was $.2 million and $.5 million less
than the amounts that would have been presented had the first-in, first-
out (FIFO) method been used.
Income on the sale of installment receivables generated by the
Company's financing operation increased $.3 million and $.6 million for
the three months and six months ended June 30, 1996, respectively, from
the comparable periods in 1995. This increase was primarily the result of
growth in the dollar value of contracts sold and stable interest rates.
Selling, general and administrative expenses decreased $.5 million
and $1.1 million for the three months and six months ended June 30, 1996,
respectively, from the comparable periods in 1995. The decreases were
primarily due to the Baldwin and Wurlitzer dealer network consolidation.
Interest expense increased $.2 million for the three months and six
months ended June 30, 1996, from the comparable periods in 1995. This
increase was due to higher inventory levels in anticipation of second half
sales.
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-----------------------------------------------------------
INFLATION, OPERATIONS AND INTEREST RATES
The impact of inflation on manufacturing and operating costs can
affect the Company's results. However, the Company has generally been
able to offset the effects of inflation by price increases and operating
efficiencies.
The operations of the Company and its predecessors are subject to
federal, state and local laws regulating the discharge of materials into
the environment. Although on several occasions the Company has been the
subject of inquiries from government agencies and/or persons who may be
held responsible for environmental liabilities relating to the sites in
question, the Company has been made a party to actual proceedings on only
one occasion to date. The Company's actual liability in such matter was
not material. The Company does not anticipate that any environmental
matters currently known to the Company will result in additional
proceedings against the Company or in any material liability.
The Company and its subsidiaries' operating results are sensitive to
changes in interest rates primarily because of fixed interest rates on
installment receivables and floating interest rates on a substantial
portion of indebtedness. Additionally, the buyer of the installment
receivables earns interest on the outstanding principal balance of the
contracts based upon a floating interest rate provision.
The Company can partially offset the effect of interest rate changes
by adjusting display fees on its consigned inventory and interest rates on
its new installment receivable contracts. In November 1995 and December
1994, the Company entered into two year interest rate cap agreements in
order to reduce the potential impact of increases in interest rates on
$20.0 million and $40.0 million, respectively, of floating-rate long-term
debt. The agreements entitle the Company to receive from the counter-
party, on a monthly basis, interest income to the extent the one-month
commercial paper rate exceeds 12%. The Company is exposed to credit
losses in the event of non-performance by the counterparty to its interest
rate caps, but has no off-balance sheet credit risk of accounting loss.
The Company anticipates, however, that the counterparty will be able to
fully satisfy its obligations under the contracts. The Company does not
obtain collateral or other security to support financial instruments
subject to credit risk but monitors the credit standing of the counter-
party.
The annual rate of interest under the revolving line of credit
(Revolver) is 150 basis points plus the greater of the LIBOR on three
month deposits or the rate on 60 day high grade commercial paper. As of
June 30, 1996, the interest rate was 7.09%.
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-----------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Company and its wholly-owned finance subsidiary (Finance) require
significant working capital to support their operations. Working capital
requirements fluctuate throughout the year.
The Company ships musical instruments to its Baldwin dealer network
on a consignment basis. Dealers are able to display a larger and more
comprehensive product line than they may otherwise be able to without the
Company's financial support. Because the Company finances inventory on
consignment to its dealers, the Company's borrowing is higher than
comparable companies not operating on the consignment basis. Management
believes the advantages of the consignment program are greater than the
risks associated with the higher leverage.
The Company has a revolving line of credit (Revolver) of $40 million
with an initial due date of February 15, 1999. The revolver is renewable
for three consecutive one-year periods beyond February 15, 1999. Amounts
outstanding under the Revolver are due one year after demand. However,
the lender retains absolute discretion regarding further advances, even if
no event of default then exists.
Under the Revolver, the lender will make available a line of credit
based upon certain percentages of the value of the Company's inventories
and trade accounts receivable. At June 30, 1996, the Company had
approximately $7.2 million of additional borrowing available under this
line of credit.
The Company's debt agreements contain covenants that restrict, among
other things, the payment of dividends, the repurchase of the Company's
common stock and the Company's ability to incur new indebtedness and to
enter new businesses. Such agreements permit the payment of dividends or
repurchase of the Company's common stock equal to the lesser of (i) 50% of
the Company's cumulative net earnings since January 1, 1986 or (ii) the
amount of unused borrowing available under the Company's Revolver, reduced
by the unpaid portion of the term loan. Accordingly, at June 30, 1996,
approximately $2.5 million is available for the payment of dividends or
the repurchase of the Company's common stock. The Company's debt
agreements contain provisions by which a default under one agreement
constitutes a default under the other agreements. The Company is in
compliance with these covenants.
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-----------------------------------------------------------
In 1995, Finance amended its agreements with an independent entity to
sell substantially all of its installment receivable contracts up to a
maximum outstanding principal amount of $86 million. Certain installment
receivables are not eligible for sale and are retained by Finance.
Finance continues to service all installment receivables sold.
At the time of each installment receivable sale, Finance receives
cash equal to the unpaid principal balance of the contracts, less a
holdback of 10% of the principal balance of the contracts sold.
The buyer of the installment receivables earns interest on the
outstanding principal balance of the contracts based upon a floating
interest rate provision. Over the lives of the contracts, the difference
between the actual yield on the installment contracts sold, using the
interest method, and the amount retained by the buyer under the floating
interest rate provision, is remitted to Finance as a service fee. In
February 1994, Finance entered into a five year interest rate swap
agreement in order to reduce the potential impact of increases in interest
rates on $20.0 million of installment contracts. The agreement entitles
Finance to receive from the counterparty, on a monthly basis, interest
income to the extent the floating rate retained by the buyer exceeds 6% or
requires Finance to pay interest expense to the extent the floating rate
is less than 6%. Finance is exposed to credit losses in the event of non-
performance by the counterparty to its interest rate swap, but has no off-
balance sheet credit risk of accounting loss. Finance anticipates,
however, that the counterparty will be able to fully satisfy its
obligations under the contract. Finance does not obtain collateral or
other security to support financial instruments subject to credit risk but
monitors the credit standing of the counterparty.
Proceeds from sale of installment receivables amounted to $26.4
million for the first six months of 1996 compared to $24.7 million for the
same period of 1995.
Under the sale agreements, Finance is required to repurchase accounts
that become more than 120 days past due or accounts that are deemed
uncollectible. The repurchase price is equal to the remaining unpaid
principal balance of the contract on the date repurchased, less the
related 10% holdback. Finance is responsible for all credit losses
associated with the sold receivables. Finance remains contingently liable
on approximately $74.4 million of installment receivables as of June 30,
1996. Management believes an adequate allowance has been provided for any
uncollectible receivables.
<PAGE>
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-----------------------------------------------------------
Certain former Wurlitzer dealers finance their inventory with floor
plan loans from an independent bank. These former dealers are required to
pay the bank monthly interest payments and pay principal balance after
inventory is sold or held longer than twelve months. The bank may request
Wurlitzer to repurchase notes due from delinquent dealers. If Wurlitzer
does not repurchase such notes, the bank can terminate the floor plan
agreement with the dealers and require Wurlitzer to repurchase up to $1.4
million of the outstanding dealer notes. The Company believes the
financial statements contain adequate provisions for any loss that may be
incurred as a result of this commitment.
Baldwin's Stock Repurchase Plan permits the Company to purchase an
amount of the Company's common stock not to exceed the lesser of 1,033,000
shares or $12.4 million in dollar value. From the date the plan was
adopted in November 1987 through August 1, 1996, the Company has
repurchased 701,300 shares of its common stock at an aggregate purchase
price of $5.7 million under the plan.
Capital expenditures amounted to $1.9 million in the first six months
of 1996 and $1.6 million in the comparable period of 1995. At June 30,
1996, the Company had no material outstanding capital commitments.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation arising in its normal course of
business. The Company does not believe that any existing claim or suit
will have a material adverse effect on the business or financial condition
of the Company.
ITEM 2. CHANGES IN SECURITIES
No changes have been made to the instruments defining the right of
the holders of the Company's common stock or to the rights of such
shareholders.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company is not in default nor has it defaulted on any indebted-
ness. The Company is not obligated to pay any dividends or other payment
to any of its shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders during
the second quarter of 1996, other than matters arising in connection with
the annual meeting of the Company's shareholders held on May 14, 1996. At
that meeting, the only matter submitted to a vote of the shareholders was
the election of directors. All of the Company's existing directors were
elected to serve as directors until the 1997 annual shareholders meeting
by the following vote of the Company's shareholders:
Votes
For Withheld
--------- --------
George E. Castrucci 2,818,914 507
William B. Connell 2,818,914 507
R. S. Harrison 2,818,914 507
Joseph H. Head, Jr. 2,818,814 607
Karen L. Hendricks 2,818,914 507
Roger L. Howe 2,818,914 507
ITEM 5. OTHER INFORMATION
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10.1 Change in Control Agreement between Baldwin
Piano & Organ Company and Karen L. Hendricks
dated June 26, 1996.
10.2 Change in Control Agreement between Baldwin
Piano & Organ Company and Steve Brock dated
June 11, 1996. (1)
19.1 1996 Second Quarter Report to Shareholders of
the Company.
99.1 Press Release dated July 24, 1996.
27.1 Financial Data Schedule.
------------------------------
(1) Substantially identical documents were entered into by
Baldwin Piano & Organ Company with George Huebner and
Larry Thompson dated June 18, 1996 and June 27, 1996,
respectively.
Index to Exhibits appears on sequentially numbered page 15.
(b) Reports on Form 8-K
-------------------
The Company filed no reports on Form 8-K during the second
quarter of 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BALDWIN PIANO & ORGAN COMPANY
DATE: August 2, 1996 BY: KAREN L. HENDRICKS
------------------------ ------------------------------
Karen L. Hendricks, Chief
Executive Officer (Principal
Executive Officer) and
President
DATE: August 2, 1996 BY: CHARLES R. JUENGLING
------------------------ ------------------------------
Charles R. Juengling, Vice
President/Controller/Secretary
(Principal Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- -------
10.1 Change in Control Agreement
between Baldwin Piano & Organ
Company and Karen L. Hendricks
dated June 26, 1996.
10.2 Change in Control Agreement
between Baldwin Piano & Organ
Company and Steve Brock dated
June 11, 1996.(1)
19.1 1996 Second Quarter Report to
Shareholders of the Company.
99.1 Press Release dated
July 24, 1996.
27.1 Financial Data Schedule.
------------------------------
(1) Substantially identical documents were entered into by Baldwin Piano
& Organ Company with George Huebner and Larry Thompson dated June 18,
1996 and June 27, 1996, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 549,205
<SECURITIES> 0
<RECEIVABLES> 10,677,878
<ALLOWANCES> 3,672,841
<INVENTORY> 60,885,118
<CURRENT-ASSETS> 82,725,192
<PP&E> 31,044,534
<DEPRECIATION> 15,039,349
<TOTAL-ASSETS> 116,380,954
<CURRENT-LIABILITIES> 49,843,851
<BONDS> 4,700,000
0
0
<COMMON> 41,719
<OTHER-SE> 55,573,462
<TOTAL-LIABILITY-AND-EQUITY> 116,380,954
<SALES> 53,286,256
<TOTAL-REVENUES> 58,675,596
<CGS> 42,091,608
<TOTAL-COSTS> 42,091,608
<OTHER-EXPENSES> 12,571,716
<LOSS-PROVISION> 580,123
<INTEREST-EXPENSE> 1,181,713
<INCOME-PRETAX> 2,250,436
<INCOME-TAX> 816,000
<INCOME-CONTINUING> 1,434,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,434,436
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
BALDWIN
SECOND QUARTER REPORT 1996
TO OUR SHAREHOLDERS
August 1, 1996
Second quarter sales decreased 15% to $26.1 million from $30.7 million in
1995. Two-thirds of the sales decline resulted from reductions in contract
furniture and contract music as the Company executed its plan to shift
focus away from these non-strategic businesses. As expected, unit sales
in the acoustic piano category also declined reflecting the final impact
of the consolidation of the Baldwin and Wurlitzer dealer networks.
Second quarter net earnings were $.7 million ($.22 per share) as compared
to $.8 million ($.24 per share) in 1995. The Company's operating profit
for the second quarter was unchanged compared to the same period in 1995.
Lower gross profit was offset by a strong performance in the Consumer
Finance segment and lower selling, general and administrative expense,
primarily related to the Baldwin and Wurlitzer dealer network
consolidation. Interest expense was higher in the 1996 quarter as a
result of higher inventory levels in anticipation of second half sales.
The net effect is that net earnings were 10% lower than those reported
in the second quarter of 1995.
Net earnings for the first six months of 1996 decreased 13% to $1.4
million ($.42 per share) from $1.6 million ($.48 per share) in 1995. Net
sales for the first six months of 1996 decreased 12% to $53.2 million from
$60.4 million in 1995.
KAREN L. HENDRICKS
Karen L. Hendricks
Chief Executive Officer and President
<PAGE>
CONSOLIDATED SUMMARY OF EARNINGS (unaudited)
(in thousands, except earnings per share)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
------------------ ------------------
Net sales $ 26,139 $ 30,688 $ 53,286 $ 60,448
Cost of goods sold 20,219 23,852 42,091 47,168
------------------ ------------------
Gross profit 5,920 6,836 11,195 13,280
Income on the sale of installment
receivables 1,474 1,187 2,934 2,376
Interest income on installment
receivables 341 201 649 407
Other operating income 947 859 1,806 1,772
Selling, general and
administrative expenses (6,826) (7,222) (13,152) (14,182)
Interest expense (657) (503) (1,182) (1,025)
------------------ ------------------
Earnings before income taxes 1,199 1,358 2,250 2,628
Income taxes 449 527 816 982
------------------ ------------------
Net earnings $ 750 $ 831 $ 1,434 $ 1,646
================== ==================
Net earnings per share $ .22 $ .24 $ .42 $ .48
================== ==================
Average number of shares
outstanding 3,419 3,415 3,417 3,415
================== ==================
<PAGE>
CONSOLIDATED SUMMARY BALANCE SHEETS (unaudited)
(in thousands)
June 30,
------------------
1996 1995
------------------
Assets
Receivables, net $ 14,929 $ 14,901
Inventories 60,885 47,084
Other current assets 6,911 7,131
------------------
Total current assets 82,725 69,116
Installment receivables, less current portion 12,335 9,580
Property, plant and equipment, net 16,005 14,314
Other assets 5,316 7,215
------------------
Total assets $116,381 $100,225
==================
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 33,685 $ 20,581
Other current liabilities 16,159 13,738
------------------
Total current liabilities 49,844 34,319
Long-term debt, less current portion 3,800 4,700
Other liabilities 7,122 9,406
Shareholders' equity 55,615 51,800
------------------
Total liabilities and shareholders' equity $116,381 $100,225
==================
<PAGE>
BUSINESSES
- ----------
MANUFACTURING
Acoustic pianos and electronic keyboards
Actions, cabinets, pinblocks, bridges, cables, keys, etc. for piano industry
Printed circuit boards and electro-mechanical assemblies for manufacturers
outside music industry
Variety of wood products
RETAILING
Company owned outlets in Atlanta, Georgia; Cincinnati, Ohio; Indianapolis,
Indiana; Lexington and Louisville, Kentucky
Independent keyboard dealers (450)
FINANCING
Consumer installment financing and dealer consignment
HOME OFFICE
422 Wards Corner Road, Loveland, OH 45140,
(513)576-4500
MANUFACTURING LOCATIONS
Conway, Fayetteville and Trumann, Arkansas;
Greenwood, Mississippi; Juarez, Mexico
REGISTRAR AND TRANSFER AGENT
The Provident Bank, One East Fourth Street, Cincinnati, OH 45202
Baldwin Piano & Organ Company common stock is traded on The Nasdaq
National Market;
Symbol: BPAO
Caption for photo
Baldwin Acrosonic Piano
BALDWIN
Baldwin Piano & Organ Company
422 Wards Corner Road
Loveland, Ohio 45140-8390
(513) 576-4500
FOR IMMEDIATE RELEASE
- ---------------------
LOVELAND, OHIO, JULY 24, 1996 - Baldwin Piano & Organ Company reports net
earnings of $.7 million ($.22 per share) in the second quarter of 1996, as
compared to $.8 million ($.24 per share) in 1995. Net sales were 15% lower
compared to last year, $26.1 million versus $30.7 million.
Two-thirds of the sales decline resulted from reductions in contract
furniture and contract music as Baldwin executed its plan to shift focus away
from these non-strategic businesses. As expected, unit sales in the acoustic
piano category also declined during the second quarter reflecting the final
impact of the consolidation of the Baldwin and Wurlitzer dealer networks.
The Company's operating profit was $1.9 million for the second quarter,
unchanged compared to the same period in 1995. Lower gross profit was offset
by a strong performance in the Consumer Finance segment and lower selling,
general and administrative expense, primarily related to the Baldwin and
Wurlitzer dealer network consolidation. Interest expense was higher in the
1996 quarter as a result of higher inventory levels in anticipation of second
half sales. The net effect is that net earnings were 10% lower than those
reported in the second quarter of 1995.
For reasons similar to those describing the second quarter, net earnings for
the first six months of 1996 decreased 13% to $1.4 million ($.42 per share)
from $1.6 million ($.48 per share) in 1995. Net sales for the first six
months of 1996 decreased 12% to $53.2 million from $60.4 million in 1995.
<PAGE>
Three Months Ended Six Months Ended
(in thousands, except June 30, June 30,
net earnings per share) 1996 1995 1996 1995
---- ---- ---- ----
Net sales $26,139 $30,688 $53,286 $60,448
Cost of goods sold 20,219 23,852 42,091 47,168
------- ------- ------- -------
Gross profit 5,920 6,836 11,195 13,280
Income on the sale of
installment receivables 1,474 1,187 2,934 2,376
Interest income on
installment receivables 341 201 649 407
Other operating income 947 859 1,806 1,772
Selling, general and
administrative expenses (6,826) (7,222) (13,152) (14,182)
Interest expense (657) (503) (1,182) (1,025)
------- ------- ------- -------
Earnings before
income taxes 1,199 1,358 2,250 2,628
Income taxes 449 527 816 982
------- ------- ------- -------
Net earnings $ 750 $ 831 $ 1,434 $ 1,646
======= ======= ======= =======
Net earnings per share $.22 $.24 $.42 $.48
==== ==== ==== ====
Average number of
shares outstanding 3,419 3,415 3,417 3,415
===== ===== ===== =====
Baldwin Piano & Organ Company has manufactured and marketed keyboard musical
products over 130 years. The market leader of acoustic pianos in the United
States, Baldwin also manufactures electronic and electro-mechanical
components for Original Equipment Manufacturers.
###
CONTACT: Charles Juengling (513) 576-4522
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT (this "Agreement"), dated
this 26th day of June, 1996, by and between Baldwin Piano
& Organ Company, a Delaware corporation (the "Company"), and Karen
L. Hendricks (the "Executive").
WITNESSETH:
----------
WHEREAS, the Company wishes to assure itself and its key
employees of continuity of management and objective judgment in the
event of any actual or contemplated Change in Control of the
Company, and the Executive is a key employee of the Company and is
an integral part of management of the Company; and
WHEREAS, this Agreement is not intended to materially alter
the compensation and benefits that the Executive could reasonably
expect to receive in the absence of a Change in Control of the
Company, and this Agreement accordingly will be operative only upon
circumstances relating to an actual or anticipated change in
control of the Company.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants herein contained, the parties hereby agree as
follows:
I. OPERATION OF AGREEMENT
This Agreement shall be effective immediately upon its
execution by the parties hereto, but anything in this Agreement to
the contrary notwithstanding, neither the Agreement nor any
provision hereof shall be operative unless, during the term of this
Agreement, there has been a Change in Control of the Company, as
defined in Article III below. Upon such a Change in Control of the
Company during the term of this Agreement, all of the provisions
hereof shall become operative immediately.
II. TERM OF AGREEMENT
The term of this Agreement shall commence on the date hereof
and continue for a period of five years.
III. DEFINITIONS
1. "Average Annual Compensation" - the average of the
Executive's annual salary plus the average of the Executive's
annual bonus and/or incentive compensation, both for the five-year
period (or such shorter period as the Executive shall have been
employed by the Company if the Executive shall have been employed
for less than five years) immediately preceding the Executive's
termination.
<PAGE>
2. "Board" or "Board of Directors" - the Board of Directors
of the Company.
3. "Change in Control" - either
(i) a change in control of the direction and
administration of the Company's business of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "1934 Act"), as in effect on the date hereof
and any successor provision of the regulations under the 1934 Act,
whether or not the Company is then subject to such reporting
requirements; or
(ii) any person (as such term is used in 13(d) and
14(d)(2) of the 1934 Act but excluding any employee benefit plan
of the Company) is or becomes the "beneficial owners" (as defined
in Rule 13d-3 under the 1934 Act), directly or indirectly, of
securities of the Company representing more than one half of the
combined voting power of the Company's outstanding securities then
entitled to vote for the election of directors; or
(iii) the Company shall sell all or substantially all of
the assets of the Company; or
(iv) unless initiated or recommended by the Board, the
Company shall sell or transfer all or substantially all of the
assets or operations of any one of its three businesses: music,
contract electronics or finance; or
(v) the members of the Board at the beginning of any
one-year period cease for any reason to constitute at least a
majority of the Board at the end of such period; or
(vi) the Company shall participate in a merger,
reorganization, consolidation or similar business combination that
constitutes a change in control as defined in the Baldwin Piano &
Organ Company 1994 Incentive Stock Option Plan and/or results in
the occurrence of any event described in this paragraph 3.
4. "Code" - the Internal Revenue Code of 1986, as amended.
5. "Excess Severance Payment" - the term "Excess Severance
Payment" shall have the same meaning as the term "excess parachute
payment" defined in Section 280G(b)(1) of the Code.
6. "Present Value" - the term "Present Value" shall have the
same meaning as provided in Section 280G(d)(4) of the Code.
7. "Reasonable Compensation" - the term "Reasonable
Compensation" shall have the same meaning as provided in Section
280G(b)(4) of the Code.
8. "Severance Payment" - the term "Severance Payment" shall
have the same meaning as the term "parachute payment" defined in
Section 280G(b)(2) of the Code.
<PAGE>
IV. BENEFITS UPON TERMINATION FOLLOWING A CHANGE IN CONTROL
1. Termination - The Executive shall be entitled to, and the
Company shall pay or provide to the Executive, the benefits
described in Section 2 below if (a) a Change in Control occurs
during the term of this Agreement, and (b) the Executive's
employment is terminated within three (3) years following the
Change in Control either (i) by the Company, with or without cause,
or (ii) by the Executive, with or without cause, except in either
case due to the Executive's death, disability, or retirement at or
after the normal retirement date.
2. Benefits to be Provided - If the Executive becomes
eligible for benefits under Section 1 above, the Company shall pay
or provide to the Executive the benefits set forth in this Section
2.
(a) Compensation - The Executive will receive the
Executive's Average Annual Compensation multiplied by 2.99 in equal
installments for a period of thirty-six (36) months from the
Executive's date of termination in the same manner as the
Executive's salary and bonus and/or incentive compensation was
being paid as of the date of termination, subject to withholding of
all applicable taxes and any amounts referred to in Section 2(b)
below; provided, however, that, at the option of Executive, the
-------- -------
payments provided for hereunder shall be paid in a single lump sum
payment, to be paid not later than thirty (30) days after the
Executive's termination of employment, provided further, that the
-------- -------
amount of such lump sum payment shall be determined by taking the
compensation payments to be made and discounting them to their
Present Value.
(b) Health and Life Insurance Coverage - The health and
life insurance benefits coverage provided to the Executive at the
Executive's date of termination shall be continued at the same
level and in the same manner as if the Executive's employment had
not terminated (subject to the customary changes in such coverages
if the Executive retires, reaches age 65 or similar events),
beginning on the date of such termination and ending on the earlier
of (i) the date thirty-six (36) months from the date of such
termination and (ii) the date that the Executive becomes employed
by any other employer. Any additional coverages the Executive had
at termination, including dependent coverage, will also be
continued for such period at the same level and on the same terms
as provided to the Executive immediately prior to the Executive's
termination, to the extent permitted by the applicable policies or
contracts. Any costs Executive was paying for such coverages at
the time of termination shall be paid by the Executive by separate
check payable to the Company each month in advance. If the terms
of any benefit plan referred to in this Section do not permit
continued participation by the Executive, then the Company will
arrange for other coverage at its expense providing substantially
similar benefits as it can find for other officers in similar
positions.
<PAGE>
(c) Employee Retirement Plans - To the extent permitted
by the applicable plan, the Executive will be fully vested in and
will be entitled to continue to participate, consistent with past
practices, in all employee retirement plans maintained by the
Company in effect as of the Executive's date of termination. The
Executive's participation in such retirement plans shall continue
for a period beginning on the date of the Executive's termination
and ending on the earlier of (i) the date thirty-six (36) months
from the date of such termination and (ii) the date that the
Executive becomes employed by any other employer (at which point
the Executive will be considered to have terminated employment
within the meaning of the plans) and the compensation payable to
the Executive under paragraph (a) above shall be treated (unless
otherwise excluded) as compensation under the plan. If full
vesting and continued participation in any plan is not permitted,
the Company shall pay to the Executive and, if applicable, the
Executive's beneficiary, a supplemental benefit equal to the
Present Value on the date of termination of employment of the
excess (i) the benefit the Executive would have been paid under
such plan if the Executive had been fully vested and had continued
to be covered for the 36-month period as if the Executive had
earned compensation described under paragraph (a) above and had
made contributions sufficient to earn the maximum matching
contribution, if any, under such plan (less any amounts the
Executive would have been required to contribute), over (ii) the
benefit actually payable to or on behalf of the Executive under
such plan. For purposes of determining the benefit under (i) in
the preceding sentence, contributions deemed to be made under a
defined contribution plan will be deemed to be invested in the same
manner as the Executive's account under such plan at the time of
termination of employment. The Company shall pay such supplemental
benefits (if any) in a lump sum.
(d) Accelerated Vesting Schedules - All stock options
granted to the Executive shall immediately vest in full. Moreover,
the Executive shall be entitled to receive immediately upon such
termination the cash value of any long term incentives payable to
the Executive under any long term incentive compensation plans,
including but not limited, to the Company's 1994 Long Term
Incentive Plan, in which the Employee is then participating
calculated as of the date of the Executive's termination regardless
of any provisions in such plans requiring continued employment with
the Company. If the Executive informs the Company that the
Executive desires to exercise any or all of the stock options
granted which have vested (including such options which have vested
pursuant to this paragraph (d)) immediately prior to the
Executive's termination of employment, then the Company in its sole
discretion shall either (a) register the underlying shares of the
Company's common stock for sale to the public pursuant to a
registration statement filed by the Company with the Securities and
Exchange Commission within 180 days of the termination of the
Executive's employment, or (b) purchase from the Executive the
stock options which the Executive desires to exercise. If the
Company elects to purchase the stock options, the purchase price to
be paid by the Company for each such option being purchased shall
be the difference between the last sale price of the Company's
common stock on the Nasdaq National Market on the day prior to the
date of termination and the exercise price of the option.
<PAGE>
(e) Effect of Lump Sum Payment - The lump sum payment
under paragraph (a) above shall not alter the amounts the Executive
is entitled to receive under the benefit plans described in
paragraphs (b) and (c) above. To the extent permitted by the
applicable plans and subject to paragraphs (g) and (h) below,
benefits under such plans shall be determined as if the Executive
had remained employed and received such payments over a period of
thirty-six (36) months.
(f) Effect of Death or Retirement - Any vested benefits
payable or to be provided under this Agreement shall continue in
the event of the Executive's death and shall be payable to the
Executive's estate or named beneficiary. Any vested benefits
payable or to be provided under this Agreement shall cease in the
event of the Executive's election to commence retirement benefits
under the Company's retirement plan.
(g) Limitation on Amount - Notwithstanding anything in
this Agreement to the contrary, any benefits payable or to be
provided to the Executive by the Company or its affiliates, whether
pursuant to this Agreement or otherwise, which are treated as
Severance Payments shall be modified or reduced in the manner
provided in paragraph (h) below to the extent necessary so that the
benefits payable or to be provided to the Executive under this
Agreement that are treated as Severance Payments, as well as any
payments or benefits provided outside of this Agreement that are so
treated, shall not cause the Company to have paid an Excess
Severance Payment. In computing such amount, the parties shall
take into account all provisions of Section 280G of the Code,
including making appropriate adjustments to such calculation for
amounts established to be Reasonable Compensation.
(h) Modification of Amount - In the event that the
amount of any Severance Payments that would be payable to or for
the benefit of the Executive under this Agreement must be modified
or reduced to comply with this Section 2, the Executive shall
direct which Severance Payments are to be modified or reduced;
provided, however, that no increase in the amount of any payment or
- -------- -------
change in the timing of the payment shall be made without the
consent of the Company.
(i) Avoidance of Penalty Taxes - This Section 2 shall be
interpreted so as to avoid the imposition of excise taxes on the
Executive under Section 4999 of the Code or the disallowance of a
deduction to the Company pursuant to Section 280G(a) of the Code
with respect to amounts payable under this Agreement or otherwise.
(j) Additional Limitation - In addition to the limits
otherwise provided in this Section 2, to the extent permitted by
law, the Executive may in the Executive's sole discretion elect to
reduce any payments the Executive may be eligible to receive under
this Agreement to prevent the imposition of excise taxes on the
Executive under Section 4999 of the Code.
<PAGE>
(k) No Obligation to Fund - The agreement of the Company
(or its successor) to make payments to the Executive hereunder
shall represent solely the unsecured obligation of the Company (and
its successor), except to the extent the Company (or its
successors) in its sole discretion elects in whole or in part to
fund its obligations under this Agreement pursuant to a trust
arrangement or otherwise.
3. Covenant Not to Compete. Notwithstanding the foregoing,
any agreement of Executive not to compete with the Company shall
remain in effect following the termination of the Executive's
employment with the Company.
V. MISCELLANEOUS
1. Contract Non-Assignable. The parties acknowledge that
this Agreement has been entered into due to, among other things,
the special skills of the Executive, and agree that this Agreement
may not be assigned or transferred by the Executive, in whole or in
part, without the prior written consent of the Company. Any
business entity succeeding to all or substantially all of the
business of the Company by purchase, merge, consolidation, sale of
assets or otherwise, shall be bound by this Agreement.
2. Other Agents. Nothing in this Agreement is to be
interpreted as limiting the Company from employing other personnel
on such terms and conditions as may be satisfactory to the Company.
3. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing
and shall be deemed to have been duly given if delivered or seven
days after mailing if mailed, first class, certified mail, postage
prepaid:
To the Company: Baldwin Piano & Organ Company
422 Wards Corner Road
Loveland, Ohio 45140-8390
To the Executive: Karen L. Hendricks
11449 Grandstone Lane
Cincinnati, Ohio 45249
Any party may change the address to which notices, requests,
demands and other communications shall be delivered or mailed by
giving notice thereof to the other party in the same manner
provided herein.
4. Provisions Severable. If any provision or covenant, or
any part thereof, of this Agreement should be held by any court to
be invalid, illegal or unenforceable, either in whole or in part,
such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of the remaining
provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
<PAGE>
5. Waiver. Failure of either party to insist, in one or
more instances, on performance by the other in strict accordance
with the terms and conditions of this Agreement shall not be deemed
a waiver or relinquishment of any right granted in this Agreement
or of the future performance of any such term or condition or of
any other term or condition of this Agreement, unless such waiver
is contained in a writing signed by the party making the waiver.
6. Amendments and Modifications. This Agreement may be
amended or modified only by a writing signed by both parties
hereto, which makes specific reference to this Agreement.
7. Governing Law. The validity and effect of this Agreement
shall be governed by and construed and enforced in accordance with
the laws of the State of Ohio.
8. Arbitration of Disputes; Expenses. The parties agree
that all disputes that may arise between them relating to the
interpretation or performance of this Agreement, including matters
relating to any funding arrangements for the benefits provided
under this Agreement, shall be determined by binding arbitration
through an arbitrator approved by the American Arbitration
Association or other arbitrator mutually acceptable to the parties.
The award of the arbitrator shall be final and binding upon the
parties and judgment upon the award rendered may be entered in any
court having jurisdiction. In the event the Executive incurs legal
fees and other expenses in seeking to obtain or to enforce any
rights or benefits provided by this Agreement and is successful in
obtaining or enforcing any such rights or benefits through
settlement, arbitration or otherwise, the Company shall promptly
pay the Executive's reasonable legal fees and expenses incurred in
enforcing this Agreement. Except to the extent provided in the
preceding sentence, each party shall pay its own legal fees and
other expenses associated with the arbitration, provided that the
fee for the arbitrator shall be shared equally.
9. Indemnity. The Executive shall be entitled to the
benefits of the indemnity currently applicable to the Executive, if
any, as provided by the Company's Certificate of Incorporation or
Bylaws. Any changes to the Certificate of Incorporation or Bylaws
reducing the indemnity granted to officers shall not affect the
rights granted hereunder. The Company may not reduce these
indemnity benefits confirmed to the Executive hereunder without the
written consent of the Executive.
10. Consideration for Payments. The Executive's benefits
hereunder shall be payable to the Executive as severance pay in
consideration for the Executive's past service and the Executive's
continued service from the date hereof. The Executive shall have
no duty to mitigate the Executive's damages by seeking other
employment.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed on its behalf by its duly authorized officers and the
Executive has hereunto set the Executive's hand, as of the date and
year first above written.
BALDWIN PIANO & ORGAN COMPANY
By: R.S. HARRISON
-------------
R.S. Harrison
Title: Chairman of the Board
Attest: C.R. JUENGLING
Title: Secretary
(CORPORATE SEAL)
EXECUTIVE
KAREN L. HENDRICKS
------------------
Karen L. Hendricks
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT (this "Agreement"), dated
this 11th day of June, 1996, by and between Baldwin Piano & Organ
Company, a Delaware corporation (the "Company"), and Steve Brock
(the "Executive").
WITNESSETH:
----------
WHEREAS, the Company wishes to assure itself and its key
employees of continuity of management and objective judgment in the
event of any actual or contemplated Change in Control of the
Company, and the Executive is a key employee of the Company and is
an integral part of management of the Company; and
WHEREAS, this Agreement is not intended to materially alter
the compensation and benefits that the Executive could reasonably
expect to receive in the absence of a Change in Control of the
Company, and this Agreement accordingly will be operative only upon
circumstances relating to an actual or anticipated change in
control of the Company.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants herein contained, the parties hereby agree as
follows:
I. OPERATION OF AGREEMENT
This Agreement shall be effective immediately upon its
execution by the parties hereto, but anything in this Agreement to
the contrary notwithstanding, neither the Agreement nor any
provision hereof shall be operative unless, during the term of this
Agreement, there has been a Change in Control of the Company, as
defined in Article III below. Upon such a Change in Control of the
Company during the term of this Agreement, all of the provisions
hereof shall become operative immediately.
II. TERM OF AGREEMENT
The term of this Agreement shall commence on the date hereof
and continue for a period of five years.
III. DEFINITIONS
1. "Average Annual Compensation" - the average of the
Executive's annual salary plus the average of the Executive's
annual bonus and/or incentive compensation, both for the five-year
period (or such shorter period as the Executive shall have been
employed by the Company if the Executive shall have been employed
for less than five years) immediately preceding the Executive's
termination.
<PAGE>
2. "Board" or "Board of Directors" - the Board of Directors
of the Company.
3. "Change in Control" - either
(i) a change in control of the direction and
administration of the Company's business of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "1934 Act"), as in effect on the date hereof
and any successor provision of the regulations under the 1934 Act,
whether or not the Company is then subject to such reporting
requirements; or
(ii) any person (as such term is used in 13(d) and
14(d)(2) of the 1934 Act but excluding any employee benefit plan
of the Company) is or becomes the "beneficial owners" (as defined
in Rule 13d-3 under the 1934 Act), directly or indirectly, of
securities of the Company representing more than one half of the
combined voting power of the Company's outstanding securities then
entitled to vote for the election of directors; or
(iii) the Company shall sell all or substantially all of
the assets of the Company; or
(iv) the members of the Board at the beginning of any
one-year period cease for any reason to constitute at least a
majority of the Board at the end of such period; or
(v) the Company shall participate in a merger,
reorganization, consolidation or similar business combination that
constitutes a change in control as defined in the Baldwin Piano &
Organ Company 1994 Incentive Stock Option Plan and/or results in
the occurrence of any event described in this paragraph 3.
4. "Code" - the Internal Revenue Code of 1986, as amended.
5. "Excess Severance Payment" - the term "Excess Severance
Payment" shall have the same meaning as the term "excess parachute
payment" defined in Section 280G(b)(1) of the Code.
6. "Present Value" - the term "Present Value" shall have the
same meaning as provided in Section 280G(d)(4) of the Code.
7. "Reasonable Compensation" - the term "Reasonable
Compensation" shall have the same meaning as provided in Section
280G(b)(4) of the Code.
8. "Severance Payment" - the term "Severance Payment" shall
have the same meaning as the term "parachute payment" defined in
Section 280G(b)(2) of the Code.
<PAGE>
IV. BENEFITS UPON TERMINATION FOLLOWING A CHANGE IN CONTROL
1. Termination - The Executive shall be entitled to, and the
Company shall pay or provide to the Executive, the benefits
described in Section 2 below if (a) a Change in Control occurs
during the term of this Agreement, and (b) the Company terminates
the Executive's employment, either by actual termination or by
constructive termination, within one (1) year following the Change
in Control. For the purposes of this Agreement, (i) "actual
termination" includes any termination except for the Executive's
death, disability, willful misconduct, or retirement at or after
the normal retirement date, and (ii) "constructive termination"
includes the Company (A) materially changing the Executive's duties
and/or responsibilities, (B) materially reducing the Executive's
salary, (C) materially changing the Executive's assigned site
location, and (D) failing to provide the Executive with
substantially the same level of retirement and welfare benefits and
perquisites that were provided prior to the Change in Control.
2. Benefits to be Provided - If the Executive becomes
eligible for benefits under Section 1 above, the Company shall pay
or provide to the Executive the benefits set forth in this Section
2.
(a) Compensation - The Executive will receive the
Executive's Average Annual Compensation in equal installments for
a period of twelve (12) months from the Executive's date of
termination in the same manner as the Executive's salary and bonus
and/or incentive compensation was being paid as of the date of
termination, subject to withholding of all applicable taxes and any
amounts referred to in Section 2(b) below; provided, however, that,
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at the option of Executive, the payments provided for hereunder
shall be paid in a single lump sum payment, to be paid not later
than thirty (30) days after the Executive's termination of
employment, provided further, that the amount of such lump sum
-------- -------
payment shall be determined by taking the compensation payments to
be made and discounting them to their Present Value.
<PAGE>
(b) Health and Life Insurance Coverage - The health and
life insurance benefits coverage provided to the Executive at the
Executive's date of termination shall be continued at the same
level and in the same manner as if the Executive's employment had
not terminated (subject to the customary changes in such coverages
if the Executive retires, reaches age 65 or similar events),
beginning on the date of such termination and ending on the earlier
of (i) the date twelve (12) months from the date of such
termination and (ii) the date that the Executive becomes employed
by any other employer. Any additional coverages the Executive had
at termination, including dependent coverage, will also be
continued for such period at the same level and on the same terms
as provided to the Executive immediately prior to the Executive's
termination, to the extent permitted by the applicable policies or
contracts. Any costs Executive was paying for such coverages at
the time of termination shall be paid by the Executive by separate
check payable to the Company each month in advance. If the terms
of any benefit plan referred to in this Section do not permit
continued participation by the Executive, then the Company will
arrange for other coverage at its expense providing substantially
similar benefits as it can find for other officers in similar
positions.
(c) Employee Retirement Plans - To the extent permitted
by the applicable plan, the Executive will be fully vested in and
will be entitled to continue to participate, consistent with past
practices, in all employee retirement plans maintained by the
Company in effect as of the Executive's date of termination. The
Executive's participation in such retirement plans shall continue
for a period beginning on the date of the Executive's termination
and ending on the earlier of (i) the date twelve (12) months from
the date of such termination and (ii) the date that the Executive
becomes employed by any other employer (at which point the
Executive will be considered to have terminated employment within
the meaning of the plans) and the compensation payable to the
Executive under paragraph (a) above shall be treated (unless
otherwise excluded) as compensation under the plan. If full
vesting and continued participation in any plan is not permitted,
the Company shall pay to the Executive and, if applicable, the
Executive's beneficiary, a supplemental benefit equal to the
Present Value on the date of termination of employment of the
excess (i) the benefit the Executive would have been paid under
such plan if the Executive had been fully vested and had continued
to be covered for the 12-month period as if the Executive had
earned compensation described under paragraph (a) above and had
made contributions sufficient to earn the maximum matching
contribution, if any, under such plan (less any amounts the
Executive would have been required to contribute), over (ii) the
benefit actually payable to or on behalf of the Executive under
such plan. For purposes of determining the benefit under (i) in
the preceding sentence, contributions deemed to be made under a
defined contribution plan will be deemed to be invested in the same
manner as the Executive's account under such plan at the time of
termination of employment. The Company shall pay such supplemental
benefits (if any) in a lump sum.
<PAGE>
(d) Accelerated Vesting Schedules - All stock options
granted to the Executive shall immediately vest in full. Moreover,
the Executive shall be entitled to receive immediately upon such
termination the cash value of any long term incentives payable to
the Executive under any long term incentive compensation plans,
including but not limited, to the Company's 1994 Long Term
Incentive Plan, in which the Employee is then participating
calculated as of the date of the Executive's termination regardless
of any provisions in such plans requiring continued employment with
the Company. If the Executive informs the Company that the
Executive desires to exercise any or all of the stock options
granted which have vested (including such options which have vested
pursuant to this paragraph (d)) immediately prior to the
Executive's termination of employment, then the Company in its sole
discretion shall either (a) register the underlying shares of the
Company's common stock for sale to the public pursuant to a
registration statement filed by the Company with the Securities and
Exchange Commission within 180 days of the termination of the
Executive's employment, or (b) purchase from the Executive the
stock options which the Executive desires to exercise. If the
Company elects to purchase the stock options, the purchase price to
be paid by the Company for each such option being purchased shall
be the difference between the last sale price of the Company's
common stock on the Nasdaq National Market on the day prior to the
date of termination and the exercise price of the option.
(e) Effect of Lump Sum Payment - The lump sum payment
under paragraph (a) above shall not alter the amounts the Executive
is entitled to receive under the benefit plans described in
paragraphs (b) and (c) above. To the extent permitted by the
applicable plans and subject to paragraphs (g) and (h) below,
benefits under such plans shall be determined as if the Executive
had remained employed and received such payments over a period of
twelve (12) months.
(f) Effect of Death or Retirement - Any vested benefits
payable or to be provided under this Agreement shall continue in
the event of the Executive's death and shall be payable to the
Executive's estate or named beneficiary. Any vested benefits
payable or to be provided under this Agreement shall cease in the
event of the Executive's election to commence retirement benefits
under the Company's retirement plan.
(g) Limitation on Amount - Notwithstanding anything in
this Agreement to the contrary, any benefits payable or to be
provided to the Executive by the Company or its affiliates, whether
pursuant to this Agreement or otherwise, which are treated as
Severance Payments shall be modified or reduced in the manner
provided in paragraph (h) below to the extent necessary so that the
benefits payable or to be provided to the Executive under this
Agreement that are treated as Severance Payments, as well as any
payments or benefits provided outside of this Agreement that are so
treated, shall not cause the Company to have paid an Excess
Severance Payment. In computing such amount, the parties shall
take into account all provisions of Section 280G of the Code,
including making appropriate adjustments to such calculation for
amounts established to be Reasonable Compensation.
<PAGE>
(h) Modification of Amount - In the event that the
amount of any Severance Payments that would be payable to or for
the benefit of the Executive under this Agreement must be modified
or reduced to comply with this Section 2, the Executive shall
direct which Severance Payments are to be modified or reduced;
provided, however, that no increase in the amount of any payment or
- -------- -------
change in the timing of the payment shall be made without the
consent of the Company.
(i) Avoidance of Penalty Taxes - This Section 2 shall be
interpreted so as to avoid the imposition of excise taxes on the
Executive under Section 4999 of the Code or the disallowance of a
deduction to the Company pursuant to Section 280G(a) of the Code
with respect to amounts payable under this Agreement or otherwise.
(j) Additional Limitation - In addition to the limits
otherwise provided in this Section 2, to the extent permitted by
law, the Executive may in the Executive's sole discretion elect to
reduce any payments the Executive may be eligible to receive under
this Agreement to prevent the imposition of excise taxes on the
Executive under Section 4999 of the Code.
(k) No Obligation to Fund - The agreement of the Company
(or its successor) to make payments to the Executive hereunder
shall represent solely the unsecured obligation of the Company (and
its successor), except to the extent the Company (or its
successors) in its sole discretion elects in whole or in part to
fund its obligations under this Agreement pursuant to a trust
arrangement or otherwise.
3. Covenant Not to Compete. Notwithstanding the foregoing,
at all times during the term of this Agreement, and for a period of
one year after the Executive's termination of employment with the
Company, the Executive agrees that the Executive will not directly
or indirectly enter into or in any manner take part in any business
or endeavor, either as an employee, agent, independent contractor,
owner or otherwise, which directly or indirectly competes with the
Company.
V. MISCELLANEOUS
1. Contract Non-Assignable. The parties acknowledge that
this Agreement has been entered into due to, among other things,
the special skills of the Executive, and agree that this Agreement
may not be assigned or transferred by the Executive, in whole or in
part, without the prior written consent of the Company. Any
business entity succeeding to all or substantially all of the
business of the Company by purchase, merge, consolidation, sale of
assets or otherwise, shall be bound by this Agreement.
2. Other Agents. Nothing in this Agreement is to be
interpreted as limiting the Company from employing other personnel
on such terms and conditions as may be satisfactory to the Company.
<PAGE>
3. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing
and shall be deemed to have been duly given if delivered or seven
days after mailing if mailed, first class, certified mail, postage
prepaid:
To the Company: Baldwin Piano & Organ Company
422 Wards Corner Road
Loveland, Ohio 45140-8390
To the Executive: Steve Brock
5672 Oak Vista Drive
Cincinnati, Ohio 45227
Any party may change the address to which notices, requests,
demands and other communications shall be delivered or mailed by
giving notice thereof to the other party in the same manner
provided herein.
4. Provisions Severable. If any provision or covenant, or
any part thereof, of this Agreement should be held by any court to
be invalid, illegal or unenforceable, either in whole or in part,
such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of the remaining
provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
5. Waiver. Failure of either party to insist, in one or
more instances, on performance by the other in strict accordance
with the terms and conditions of this Agreement shall not be deemed
a waiver or relinquishment of any right granted in this Agreement
or of the future performance of any such term or condition or of
any other term or condition of this Agreement, unless such waiver
is contained in a writing signed by the party making the waiver.
6. Amendments and Modifications. This Agreement may be
amended or modified only by a writing signed by both parties
hereto, which makes specific reference to this Agreement.
7. Governing Law. The validity and effect of this Agreement
shall be governed by and construed and enforced in accordance with
the laws of the State of Ohio.
<PAGE>
8. Arbitration of Disputes; Expenses. The parties agree
that all disputes that may arise between them relating to the
interpretation or performance of this Agreement, including matters
relating to any funding arrangements for the benefits provided
under this Agreement, shall be determined by binding arbitration
through an arbitrator approved by the American Arbitration
Association or other arbitrator mutually acceptable to the parties.
The award of the arbitrator shall be final and binding upon the
parties and judgment upon the award rendered may be entered in any
court having jurisdiction. In the event the Executive incurs legal
fees and other expenses in seeking to obtain or to enforce any
rights or benefits provided by this Agreement and is successful in
obtaining or enforcing any such rights or benefits through
settlement, arbitration or otherwise, the Company shall promptly
pay the Executive's reasonable legal fees and expenses incurred in
enforcing this Agreement. Except to the extent provided in the
preceding sentence, each party shall pay its own legal fees and
other expenses associated with the arbitration, provided that the
fee for the arbitrator shall be shared equally.
9. Indemnity. The Executive shall be entitled to the
benefits of the indemnity currently applicable to the Executive, if
any, as provided by the Company's Certificate of Incorporation or
Bylaws. Any changes to the Certificate of Incorporation or Bylaws
reducing the indemnity granted to officers shall not affect the
rights granted hereunder. The Company may not reduce these
indemnity benefits confirmed to the Executive hereunder without the
written consent of the Executive.
10. Consideration for Payments. The Executive's benefits
hereunder shall be payable to the Executive as severance pay in
consideration for the Executive's past service and the Executive's
continued service from the date hereof. The Executive shall have
no duty to mitigate the Executive's damages by seeking other
employment.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed on its behalf by its duly authorized officers and the
Executive has hereunto set the Executive's hand, as of the date and
year first above written.
BALDWIN PIANO & ORGAN COMPANY
By: KAREN L. HENDRICKS
------------------
Karen L. Hendricks
Title: President
Attest: C.R. JUENGLING
--------------
Title: Secretary
(CORPORATE SEAL)
EXECUTIVE
STEVE BROCK
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Steve Brock
