<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22702
ROBERDS, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-0801335
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1100 East Central Avenue
Dayton, Ohio 45449-1888
(Address of principal executive offices)
(937) 859-5127
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. On October 23, 1998, 6,107,605
common shares, without par value, were outstanding.
Page 1 of 24
<PAGE> 2
ROBERDS, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
PART 1. FINANCIAL INFORMATION:
<S> <C>
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of
Operations-Three and Nine Months Ended
September 30, 1998 and 1997 4
Condensed Consolidated Statements of
Cash Flows-Nine Months Ended
September 30, 1998 and 1997 5
Notes to Condensed Consolidated
Financial Statements 6
ITEM 2. Management's Discussion
and Analysis of Financial
Condition and Results
of Operations 8
ITEM 3. Quantitative and Qualitative
Disclosures About Market Risk 14
PART II. OTHER INFORMATION
ITEMS 1-5. Inapplicable 15
ITEM 6. Exhibits and Reports
on Form 8-K 15
</TABLE>
Page 2 of 24
<PAGE> 3
ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1998 1997
ASSETS
- ------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,161 $ 2,494
Receivables:
Customers 1,069 1,311
Vendors and other 2,078 2,693
Merchandise inventories 43,615 51,173
Refundable income taxes 2,371 2,025
Prepaid expenses and other 2,292 1,792
Deferred tax assets 2,939 3,375
-------- --------
Total current assets 55,525 64,863
Property and equipment, net 93,959 99,364
Deferred tax assets 4,502 4,381
Certificates of deposit, restricted 2,322 2,541
Other assets 1,581 1,542
-------- --------
$157,889 $172,691
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,797 $ 16,871
Accrued expenses 8,435 8,885
Customer deposits 11,267 11,686
Litigation 2,478 2,992
Current maturities of long-term debt 2,890 2,731
-------- --------
Total current liabilities 38,867 43,165
Long-term debt including capital leases 69,522 73,309
Deferred warranty revenue and other 7,820 10,448
SHAREHOLDERS' EQUITY:
Common stock 611 601
Additional paid-in capital 32,332 32,091
Retained earnings 8,737 13,077
-------- --------
Total shareholders' equity 41,680 45,769
======== ========
$157,889 $172,691
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 3 of 24
<PAGE> 4
ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET SALES AND SERVICE REVENUES $ 78,696 $ 83,928 $ 231,102 $ 247,315
COST OF SALES 53,236 56,184 157,865 166,324
--------------- --------------- --------------- ---------------
Gross profit 25,460 27,744 73,237 80,991
SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES 27,096 27,518 79,562 82,306
INTEREST EXPENSE, NET 1,794 1,860 5,278 5,694
FINANCE PARTICIPATION INCOME (816) (932) (2,359) (2,312)
OTHER INCOME, NET (884) (806) (2,634) (2,563)
--------------- --------------- --------------- ---------------
EARNINGS (LOSS) BEFORE TAXES (BENEFIT) (1,730) 104 (6,610) (2,134)
INCOME TAXES (BENEFIT) (580) 45 (2,270) (735)
--------------- --------------- --------------- ---------------
NET EARNINGS (LOSS) ($ 1,150) $ 59 ($ 4,340) ($ 1,399)
=============== =============== =============== ===============
BASIC AND DILUTED NET EARNINGS (LOSS)
PER COMMON SHARE ($ 0.19) $ 0.01 ($ 0.72) ($ 0.23)
=============== =============== =============== ===============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 6,076 5,985 6,050 5,970
=============== =============== =============== ===============
DILUTED 6,076 5,992 6,050 5,970
=============== =============== =============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
Page 4 of 24
<PAGE> 5
ROBERDS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS SEPTEMBER 30
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ($ 4,340) ($ 1,399)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and amortization 6,607 6,802
(Gain) loss on sales of fixed assets (19) 18
Changes in assets and liabilities, net 886 7,388
-------- --------
Net cash provided by operating activities 3,134 12,809
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,145) (3,123)
Proceeds from sales of fixed assets 47 50
Other 126 (237)
-------- --------
Net cash used in investing activities (972) (3,310)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (4,828) (17,294)
Proceeds from long-term debt 1,200 8,080
Net proceeds from issuance of common shares 164 220
Debt issuance costs (31) (166)
-------- --------
Net cash used in financing activities (3,495) (9,160)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,333) 339
CASH AND CASH EQUIVALENTS - Beginning of period 2,494 2,794
-------- --------
CASH AND CASH EQUIVALENTS - End of period $ 1,161 $ 3,133
======== ========
CASH PAID (REFUNDED) FOR:
Interest, net of $38 capitalized in 1997 $ 5,265 $ 5,812
======== ========
Income taxes $ (2,239) $ 867
======== ========
NON-CASH TRANSACTION:
Issuance of common shares to the Roberds Inc. Employee
Profit Sharing and Retirement Savings Plan $ 87 $ 80
======== ========
</TABLE>
See notes to the condensed consolidated financial statements
Page 5 of 24
<PAGE> 6
ROBERDS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE DATA)
A. BASIS OF PRESENTATION
The consolidated balance sheet at December 31, 1997 is condensed from the
audited financial statements. The accompanying unaudited condensed consolidated
balance sheet at September 30, 1998, the condensed consolidated statements of
operations for the three and nine months ended September 30, 1998 and 1997, and
the condensed consolidated statements of cash flows for the nine months ended
September 30, 1998 and 1997, have been prepared by the Company in accordance
with generally accepted accounting principles and in the opinion of management
include all adjustments (which consist only of normal recurring adjustments)
necessary for a fair presentation of results of operations for the periods
presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted or condensed. These financial statements should be read in
conjunction with the financial statements and the notes thereto for the year
ended December 31, 1997 included in Form 10-K. The results of operations for the
nine months ended September 30, 1998 may not be indicative of the results for
the year ending December 31, 1998.
B. DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1998 1997
<S> <C> <C>
Mortgage notes payable $44,694 $46,308
Revolving line of credit 16,200 15,000
Term loan agreement 2,800
Capital lease obligations 11,518 11,932
----------- -----------
72,412 76,040
Less current maturities 2,890 2,731
----------- -----------
$69,522 $73,309
=========== ===========
</TABLE>
In February 1998, the Company utilized the revolving line of credit to repay the
balance outstanding under the term loan prior to its maturity.
The revolving bank line of credit, which was amended as of June 30, 1998,
expires in January 2000. The amount available under the line is limited to the
lesser of: (a) $30,000 or (b) an amount based upon a percentage of eligible
accounts receivable and inventory less excess customer deposits. At September
30, 1998, $25,041 was available under the line of which $16,200 was outstanding.
The line of credit bears interest at the prime rate plus 1% (9.25% at September
30, 1998).
The line of credit includes certain restrictive covenants including, among
others, limitations on capital expenditures and the payment of dividends,
maintenance of minimum current, fixed-charge-coverage, funded-debt-to-earnings,
and debt-to-tangible-net-worth ratios. Certain of the covenants contained in the
revolving credit agreement become increasingly restrictive over time.
Page 6 of 24
<PAGE> 7
C. INCOME TAXES
Income tax benefit consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1998 1997
Currently payable (refundable):
<S> <C> <C>
Federal $(2,489) $(734)
State and local (96) 73
--------- -------
(2,585) (661)
Deferred 315 (74)
--------- -------
($2,270) ($735)
========= =======
</TABLE>
The disproportionate provision for income taxes reflects minimum taxes imposed
by certain jurisdictions, and a valuation reserve for certain state operating
loss carryforwards for which the Company has determined that it is more likely
than not will not yield a benefit in the future. Included in long term deferred
tax assets is estimated benefit ($606) to be received from certain net operating
loss carryforwards.
D. LITIGATION
During 1994, the Ohio Bureau of Workers' Compensation ("Bureau") completed an
examination of the Company's 1992 and 1993 Ohio workers' compensation tax
returns. As a result of that audit, the Bureau issued an assessment against the
Company for approximately $1,000. As a result of the Company's appeals and an
adjustment received in 1995, the assessment was reduced to $871. The assessment
was based on the Bureau's reclassification of the majority of the Company's Ohio
employees into higher rate classifications. In January 1997, the Company lost
its appeal of the assessment in the Ohio Court of Appeals. The Company has filed
another appeal of right with the Ohio Supreme Court. If the Company is
unsuccessful in this final appeal, the Company would likely be liable not only
for the $871 assessment but also for a similar adjustment for the years
subsequent to 1993.
In May 1998, the Bureau declared a one-time refund of premiums to all
participants in the workers' compensation fund. As part of the refund process,
any outstanding balances due to the Bureau were set off against the refund,
including the $871 assessment against the Company. As a result, the amount
accrued by the Company for the 1992-1993 assessment has been paid. The Company
continues to accrue the estimated amount of additional taxes that would be
caused by a reclassification of employees for the periods subsequent to 1993.
Page 7 of 24
<PAGE> 8
ROBERDS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
RESULTS OF OPERATIONS
The first nine months of 1998 resulted in a net loss of $(4,340), compared to a
net loss of $(1,399) for the first nine months of 1997. Sales for the three
months ended September 1998 declined to $78,696 from $83,928 for the three
months ended September 1997, a 6.2 percent decrease. Sales for the first nine
months of 1998 declined to $231,102 from $247,315 for the first nine months of
1997, a 6.6 percent decrease. The decline in total sales includes the effect of
closing the Decatur, Georgia store in December 1997 and, to a much lesser
extent, the withdrawal from the personal computer business in Dayton and
Cincinnati. These factors will continue to have an unfavorable effect on total
store sales throughout 1998.
Comparable store sales decreased 4.2 percent for the three months ended
September 1998, and decreased 4.6 percent for the first nine months of 1998. The
percentage increases (decreases) in sales by market area were as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
TOTAL COMPARABLE TOTAL COMPARABLE
STORES STORES STORES STORES
<S> <C> <C> <C> <C>
Dayton (3)% (3)% (2)% (2)%
Cincinnati (16) (16) (16) (16)
Atlanta (4) 3 (4) 3
Tampa (4) (4) (7) (7)
</TABLE>
Overall, the Company believes that a highly competitive retail environment for
big ticket goods, combined with an industry wide softness in consumer
electronics and high consumer debt, contributed to the decrease in comparable
store sales.
Sales by major product category as a percentage of total sales follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Furniture 39% 36% 40% 37%
Bedding 14 13 14 13
Major Appliances 25 28 25 26
Consumer Electronics 17 17 16 18
Extended Warranty Contracts and Other 5 6 5 6
========== ========== ========== ==========
100% 100% 100% 100%
========== ========== ========== ==========
</TABLE>
In late March 1997, the Company entered into an agreement to sell third-party
extended warranty contracts. Revenues and the related costs of the contracts
entered into after the effective date of the agreement are being recognized at
the time the third-party
Page 8 of 24
<PAGE> 9
contracts are sold. Revenues and selling costs related to contracts sold prior
to the effective date of the agreement will be recognized over the remaining
lives of the contracts, and the expenses related to service costs will be
recognized as incurred. Total sales were positively affected by this agreement
by approximately 0.7 percent during the first nine months of 1998. Sales of
third-party warranty contracts became comparable in the second quarter of 1998.
For the three months ended September 1998, gross profit was $25,460, or 32.4
percent of sales, as compared to $27,744, or 33.1 percent of sales, for the
three months ended September 1997. Gross profit for the nine months ended
September 1998 was $73,237, or 31.7 percent of sales, as compared to $80,991, or
32.8 percent of sales, for the nine months ended September 1997. The majority of
the decline in gross profit margin percentage in 1998 reflects the liquidation
at reduced selling prices of certain aged inventories and inventories from
certain vendors that are being de-emphasized or discontinued. Partially
offsetting the decline in gross margin percentage were the above-mentioned sales
of third-party extended warranty contracts, which favorably affected gross
margins as a percentage of sales by approximately 0.3 percent in the first nine
months of 1998. The effect of the sale of third-party warranty contracts on
gross margin as a percentage of sales became comparable in the second quarter of
1998.
Gross margin percentages for the first nine months of 1998 by category were
approximately 36 percent for furniture, 45 percent for bedding, 21 percent for
major appliances and 17 percent for consumer electronics. The gross margin
percentages for the first nine months of 1998, as compared to 1997, remained
steady for bedding, while furniture, major appliances and consumer electronics
gross margins declined. Contributing to the decline in gross margin percentage
for furniture and consumer electronics was the above mentioned liquidation of
certain aged and de-emphasized merchandise. The bulk of this liquidation is now
complete; however, the Company will be eliminating some remaining pockets of
unproductive inventory in the fourth quarter of 1998 at below-normal margins.
Product prices and margins in consumer electronics and appliances continued to
be under pressure during the first nine months of 1998, as a result of
competitive conditions in these categories.
For the three months ended September 1998, selling, delivery, and administrative
expenses, which include occupancy costs, were $27,096, or 34.4 percent of sales,
as compared to $27,518, or 32.8 percent of sales in 1997. Selling, delivery, and
administrative expenses for the nine months ended September 1998 were $79,562,
or 34.4 percent of sales, as compared to $82,306, or 33.3 percent of sales in
1997. The increase in expenses as a percentage of sales for the three months
ended September 30 1998, as compared to 1997, was primarily due to increases in
selling and warehouse expenses to support the clearance of aged and discontinued
merchandise. Selling, delivery and administrative expenses for the three months
ended September 1998 reflect reduced net advertising and the use of different
media mixes; reduced property taxes due to a reduction in the assessed value of
certain properties; a reduction in worker's compensation expense as a result of
a change to insured programs in Georgia and Florida; and a reduction in property
insurance expenses due to a change in insurance carriers. These decreases were
offset in part by increases in selling and warehouse expenses to support the
clearance of aged and discontinued merchandise and an increase in workers'
compensation costs in the Ohio market. Selling, delivery and administrative
expenses for the nine months ended September 1998 increased as a percentage of
sales due to the above mentioned selling and warehousing expenses. These
increases were offset in part by a one-time refund of premiums of $1,053 and a
75 percent rate reduction for the first half of 1998 to all participants in the
State of Ohio workers' compensation fund and a decrease in advertising and
promotion expenses.
Interest expense, net of interest income, decreased to $1,794, or 2.3 percent of
sales, for the three months ended September 1998 compared to $1,860, or 2.2
percent of sales, for the comparable period in 1997. For the nine months ended
September 1998 and 1997, net interest expense was $5,278, or 2.3 percent of
sales, and $5,694 or 2.3 percent of sales. The decrease in interest expense in
1998 resulted primarily from a reduction in merchandise inventories, which
resulted in a decrease in the related indebtedness incurred to carry such
inventories. This decrease in interest expense as a result of the reduced
borrowings will be partially offset in the future by an increase in the interest
rate on the borrowings under the line of credit. The interest rate increased
from the lower of (a) the prime rate or (b) various LIBOR rates plus 1.55
percent, to prime plus 1% (9.25% at September 30, 1998).
Finance participation income, which consists of income from participation in the
Company's private label credit card program, was $816, or 1.0 percent of sales,
for the three months ended September 1998, as compared to $932, or 1.1 percent
of sales, for the comparable period in 1997, and was $2,359, or 1.0 percent of
sales, for the nine months ended September 1998, as compared to $2,312, or 0.9
percent of sales, for the comparable period in 1997. Finance participation
during the three and nine months ended September 1998 fluctuated from 1997 as a
result of ongoing changes in the relative mix of income-generating finance
programs compared to longer-term, same-as-cash programs that generate financing
expense. Such shifts may occur again in the future, thereby affecting the
Company's finance participation income.
Page 9 of 24
<PAGE> 10
Other income increased to $884, or 1.1 percent of sales, for the three months
ended September 1998 as compared to $806, or 1.0 percent of sales, for the
comparable period in 1997. For the nine months ended September 1998, other
income increased to $2,634, or 1.1 percent of sales, as compared to $2,563, or
1.0 percent of sales, for the comparable period in 1997. The majority of other
income consists of cash discounts and rental income from tenants. The increase
in other income for the three and nine months ended September 1998 is a result
of the Company taking advantage of various cash discounts offered by its
vendors.
Income tax benefit for the nine months ended September 1998 was $2,270, or
approximately 34% of the loss before taxes, as compared to $735, or 34% of the
loss before taxes, in 1997. The disproportionate provision for income taxes
reflects minimum taxes imposed by certain jurisdictions and a valuation reserve
for certain state operating loss carryforwards for which the Company has
determined that it is more likely than not will not yield a benefit in the
future.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $3,134 of cash from operating activities during the first
nine months of 1998. Cash of $7,558 was provided from a reduction in merchandise
inventories as the Company continued to review its assortment and stocking
requirements in an effort to better match consumer demand and increase inventory
turns. Funds generated from the reduction of merchandise inventories were
utilized in part by declines of $2,987 in accounts payable and $2,711 in the
balance of deferred warranty revenue. The Company's accounts payable balance has
declined as the result of reduced levels of purchasing and as the Company has
taken advantage of various cash discounts offered by its vendors. As a result of
the Company's ability to generate cash flow from operating activities for the
first nine months of 1998, the Company was able to reduce its indebtedness by
$3,628.
During the first nine months of 1998, capital expenditures totaled $1,145. These
expenditures primarily represented normal replacement and upgrade projects. The
Company has no significant expansion or capital expenditure plans for the
balance of 1998 and for 1999 other than normal replacement, repair, and upgrade
projects, and existing store refurbishment.
In order to extend the maturity and to reduce the rate of interest, the Company
refinanced the mortgage on its Vandalia, Ohio store in February 1998. The
refinanced amount requires monthly principal and interest payments of $29 over a
15 year period, and bears interest at 7.64%.
The revolving bank line of credit agreement, which was amended as of June 30,
1998, expires in January 2000. The amount available under the line is limited to
the lesser of: (a) $30,000, or (b) an amount based upon a percentage of eligible
accounts receivable and inventory less excess customer deposits. At September
30, 1998, $25,041 was available under the line of which $16,200 was outstanding.
The amendments to the bank line of credit relaxed certain covenants in order for
the Company to remain in compliance with those covenants. At the Company's
request, the maximum amount of the line was reduced from $35,000 to $30,000,
because the additional capacity was no longer needed in light of the Company's
reduced capital expenditures and it reduced the Company's fees on the unused
portion of the line. The Company believes that the amounts that will be
available under the line during the fourth quarter of 1998 will be sufficient to
finance its seasonal buying requirements.
The line includes certain restrictive covenants including, among others,
limitations on capital expenditures and the payment of dividends, maintenance of
minimum current, fixed-charge-coverage, funded-debt-to-earnings, and
debt-to-tangible-net-worth ratios. Certain of the covenants become increasingly
restrictive over time. In order to remain in compliance with the covenants at
December 31, 1998, the Company's operations will need to be similar to those
experienced in the fourth quarter of 1997. The Company expects to sustain a loss
in the fourth quarter of 1998 as the Company makes adjustments to the business
and liquidates the remaining pockets of unproductive inventory. As a result, it
is likely that the Company will need to seek amended covenants in order to
remain in compliance. The Company has no assurance that such approvals, if
necessary, will be granted. If such approvals are not obtained, the Company will
seek alternative financing sources. While the Company believes that such
financing can be obtained, there can be no assurance that it can be obtained at
all, or that it can be obtained on terms or at rates comparable to those in the
existing agreement or acceptable to the Company.
Page 10 of 24
<PAGE> 11
SEASONALITY
The Company typically experiences an increase in overall sales in the fourth
quarter. This increase is driven by an increase in the sales of consumer
electronics and furniture products associated with the holiday season. At the
same time, major appliance sales typically decline in the fourth quarter. The
Company's operating results for the full year are highly dependent upon the
success of the Company's operations in the fourth quarter.
STRUCTURE OF THE BUSINESS
In October 1998, the Company announced a new management structure. Under the new
structure, the Company has been divided into two parts. The merchandising,
stores and marketing functions report to Mr. Melvin H. Baskin, the Company's
Chief Executive Officer. The support functions, which include accounting and
control, treasury, information systems, warehousing and distribution, and human
resources, report to Robert M. Wilson as the newly named President of the
Company.
OUTLOOK
The Company engaged one of the national management consulting firms to review
its operations and identify opportunities for performance improvement, and the
firm delivered its report in November 1997. Since then, the Company has devoted
considerable time and attention to the implementation of many of the
recommendations put forth in the report. A number of the initiatives have been
completed; however, the Company is still actively assessing many of the
recommendations and actively implementing many others. These efforts are
expected to continue into 1999.
Since there are no expansion plans for the balance of 1998 and 1999, the Company
will continue to focus on improving business operations and customer service.
Areas of focus include improving the management of inventory, improving
warehouse operations and reducing expenses, improving asset utilization,
reducing store operating expenses, and turning around comparable store sales.
Many of these efforts have required operating expenditures that adversely
affected the Company's financial results for the first nine months of 1998 and
will continue to affect them through the first half of 1999. The Company
believes these initiatives will eventually yield significant improvement in the
Company's operations and profitability and expects improvement in its operating
results as it moves into 1999. They will, however, take time to implement and
may require capital and operating expenditures to implement.
The Company's financial performance is influenced by consumer confidence,
interest rates, consumer debt, the general level of housing activity, and the
general level of economic activity in the United States. It is not clear how the
growing economic problems outside the United States will affect the economy and
consumer confidence. Although the Company has seen a modest reduction in
competitors' use of same-as-cash promotions, consumers continue to respond best
to deep-discount price and finance promotions. This competitive situation is
expected to continue to put pressure on comparable store sales, gross margins,
promotional finance expenses, and operating results. If the economy slows, the
competition can be expected to be even more aggressive.
There are a number of changes occurring in the competitive situation in the
Company's market areas. A national retailer of furniture has completed its
withdrawal from the Cincinnati and Atlanta markets, and is withdrawing from the
Tampa market. A regional furniture retailer has announced its expansion in the
Cincinnati market and entry into the Dayton market during the fourth quarter of
1998. These expansions will likely continue to put pressure on sales and gross
margins.
Page 11 of 24
<PAGE> 12
YEAR 2000 ISSUE
The Company has reviewed its primary and secondary information systems for Year
2000 issues. The Company's primary management information and credit-card
processing systems are provided by third-party vendors that have assured the
Company that their systems will be Year 2000 compliant by the end of 1998. The
Company believes that the costs related to the conversion of the credit-card
processing system will be insignificant. The Company expects the costs to
upgrade the software and hardware for its primary management information system
to be less than $200,000. The majority of the expenditures will be for hardware
upgrades to accommodate new software. No expenditures have occurred to date. The
Company expects to make all of the expenditures by the end of the first quarter
of 1999.
The Company has identified several secondary information systems, such as
payroll, delivery, telephone, personal computer, and service department systems,
that will require software and hardware upgrades and conversions to be Year 2000
compliant. The Company expects these costs to be less than $400,000. The
majority of the costs are expected to be incurred on software to incorporate the
Company's service departments into the primary management information system.
Only a minor portion of these expenditures has occurred to date. The Company
expects to make all such expenditures by mid-1999.
Because the Company is engaged in the sale of consumer products, it does not
believe that it has any material risk with respect to Year 2000 issues for its
customers. The Company has not assessed the impact of Year 2000 issues on its
merchandise suppliers; however, the Company is not aware of any material Year
2000 risks with respect to them. The Company does not rely on electronic data
interchange ("EDI") systems to deal with its suppliers. Because no single
merchandise supplier represents more than approximately nine percent of the
Company's purchases, the Company does not believe that there is any material
Year 2000 risk with respect to its suppliers, but is assessing its suppliers'
compliance activities.
The capital expenditures described above will be funded from the Company's
on-going maintenance and replacements budget, and are not expected to result in
the deferral of any planned expenditures. Based on its assessment of the Year
2000 issue to date, the Company has not developed any contingency plans for the
failure of major or secondary information systems. In the event one or more
merchandise suppliers are not Year 2000 compliant, the Company would shift its
purchasing to those suppliers that are compliant.
FORWARD LOOKING STATEMENTS
In the interest of providing the Company's shareholders and potential investors
with information concerning management's assessment of the outlook for the
Company, this report contains certain "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Readers should bear in
mind that statements relating to the Company's business prospects, as distinct
from historical facts, are forward-looking statements which, by their very
nature, involve numerous risks and uncertainties. Factors that could cause the
Company's actual results to differ materially from management's expectations
include, but are not limited to:
A. Changes in economic conditions in the United States, including but not
limited to the general level of economic activity, levels of housing activity,
interest rates, the availability of consumer credit, consumer confidence, and
inflation.
B. Changes in the economic conditions in the market areas in which the Company
operates, such as a strike or shutdown of a major employer or industry.
C. Unusual weather patterns, such as unusually hot or cool summers, which can
affect the sale of refrigeration products, or unusually cold winters, which can
affect consumers' desire and ability to shop for the Company's products. Acts of
God, such as floods, hurricanes, or tornadoes, that interrupt the Company's
ability to sell or deliver merchandise, interrupt consumers' ability to shop, or
destroy a major Company facility, in particular a warehouse or computer
facility.
D. Changes in the competitive environment in the Company's market areas,
including the bankruptcy or liquidation of existing competitors.
Page 12 of 24
<PAGE> 13
E. The entry into the Company's lines of business and market areas by new,
larger, well-financed competitors, which may have the ability to withstand
intense price competition over extended periods of time.
F. The availability and cost of adequate, appropriate newspaper, television, and
pre-printed advertising. A strike or work stoppage affecting the Company's media
outlets.
G. Adverse results in litigation matters.
H. Difficulties in hiring, training, and retaining a capable work force at
reasonable levels of compensation, in both existing market areas and in
expansion locations. Difficulties in hiring and retaining an effective senior
management group, particularly as the Company expands. An attempt to organize a
significant portion of the Company's work force.
I. The availability of appropriate sites for expansion, on favorable terms, and
the long-term receptivity of consumers to new store formats and locations.
J. Access to bank lines of credit and real estate mortgage financing sources at
favorable rates of interest, terms, and conditions.
K. Access to additional equity capital to fund the Company's long-term
expansion.
L. Access to extended-payment financing sources (e.g., "twelve months same as
cash") at a favorable cost to the Company and with favorable rates of approval
by the financing source. Access to private-label financing sources (e.g.,
"Roberds charge card") that provide favorable rates of interest to the customer,
favorable rates of return to the Company, and favorable rates of approval by the
financing source.
M. Rapid changes in products, particularly electronics products, such that the
Company bears the risk of obsolescence or the consumer withdraws from the market
until such time as the product category has stabilized.
N. Shifts in the mix of the Company's sales between its higher-margin products
(bedding and furniture) and its lower-margin products (electronics and
appliances), which may result from changes in consumer priorities, competitive
factors, or other factors.
O. The absence of new products in the Company's product categories that would
drive additional consumer interest and purchases.
P. Adverse changes in the cost or availability of the products the Company
sells. Rapid increases in the price of the Company's products, which cannot be
passed on to consumers as the result of competitive pressures.
Q. The loss, or significant reduction in the availability, of certain key
name-brand products. Decisions by vendors to curtail the availability of certain
product presently sold by the Company, or to make products that are presently
sold by the Company available to certain competitors that do not presently have
access to such products. Changes in import duties or restrictions affecting the
Company's ability to import certain products.
R. Changes in income tax rates or structures that may affect the Company's tax
burden or consumers' ability to purchase or finance big-ticket goods or new
housing. Significant increases in real estate tax rates affecting the Company's
properties.
S. Changes in government regulations affecting the Company, its products, its
advertising, or its work force, including changes in the minimum wage. Changes
in government regulations affecting the Company's employee benefit plans or
workers' compensation arrangements.
T. New competition from alternative sales media and channels of distribution,
such as catalog mail order, telemarketing, television shopping services, and
online media.
Page 13 of 24
<PAGE> 14
U. Changes in highway or street configurations such that the Company's stores
become less accessible to consumers. Changes in consumer use or ownership of
"second homes," particularly in the Tampa, Florida market.
V. Changes in the cost or availability of liability, property, and health
insurance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not
applicable.
Page 14 of 24
<PAGE> 15
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See exhibit index
(b) There were no reports filed by the Company on Form 8-K during the
quarter ended September 30, 1998.
Page 15 of 24
<PAGE> 16
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.
Roberds, Inc.
(Registrant)
Date October 23, 1998 /s/ Robert M. Wilson
---------------- ----------------------------
Robert M. Wilson
President
Chief Financial Officer
Date October 23, 1998 /s/ Michael A. Bruns
---------------- ------------------------
Michael A. Bruns
Vice President
Controller
Chief Accounting Officer
Page 16 of 24
<PAGE> 17
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.1 Employment Agreement, dated July 6, 1998, between the
Registrant and Melvin H. Baskin, Chief Executive
Officer
27.1 Financial data schedule
Page 17 of 24
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and effective as of July 6, 1998
("Effective Date"), by and between Melvin H. Baskin ("Employee"), residing at
7690 SW 154th Street, Miami, Florida 33157, and ROBERDS, INC., an Ohio
corporation ("Employer"), with its principal place of business at 1100 East
Central Avenue, Dayton, Ohio 45449-1888.
WHEREAS, Employee possesses certain unique skills and experience which Employer
deems desirable in its business; and
WHEREAS, Employer believes that the employment of Employee is important to its
success; and
WHEREAS, Employee wishes to join Employer as its Chief Executive Officer and
President.
NOW, THEREFORE, in consideration of the mutual covenants and promises of the
parties hereto, and for good and valuable consideration, the sufficiency of
which is hereby acknowledged, Employer and Employee agree as follows:
SECTION I. EMPLOYMENT. A. Upon approval of its Board of Directors, Employer
hereby agrees to employ Employee as its Chief Executive Officer and President,
as described in Employer's Amended and Restated Code of Regulations, as in
effect on the Effective Date, and in such other duties, capacities, and
responsibilities as the Board of Directors may, from time to time, assign to
Employee, and Employee accepts such employment with Employer, subject to the
terms and conditions set forth in this Agreement; provided, however, that all
such duties and responsibilities assigned by the Board to Employee shall be
consistent with the offices of Chief Executive Officer and President, or a
higher level office or offices, unless Employee shall consent to duties and
responsibilities at a lower level. Employee is expected to be elected an
"executive officer" of Employer by the Board of Directors of Employer, and to
remain so during the term of his employment.
B. Employee will report directly to Employer's Board of Directors. Employee will
have all of the duties and responsibilities set forth for the offices of Chief
Executive Officer and President under law, Article III of Employer's Amended and
Restated Code of Regulations, this Agreement, and other duties and
responsibilities as determined from time to time by Employer's Board of
Directors. It is expressly acknowledged by the parties hereto that Article III,
Section 2 of Employer's Amended and Restated Code of Regulations provides, in
part, that the Chairman of the Board of Directors, "shall advise and direct the
Chief Executive Officer, the President, and other officers of the Corporation on
matters of general policy . . ." This Agreement contemplates that, during its
term, Employee shall have full responsibility for all matters affecting all
other employees of Employer, including the other officers, without interference
by the Chairman, and that while the Chairman may "advise" Employee on matters
related to Employer's business, Employee shall take "direction" from, and report
to, the full Board of Directors.
SECTION II. TERM OF EMPLOYMENT. A. This Agreement, and the employment under it,
shall commence on the day and date first written above and continue for three
years thereafter, unless earlier terminated under the provisions set forth
herein.
B. 1. Following an initial term of three years ("Initial Term"), upon
the third anniversary of the Effective Date and each anniversary
thereafter, this Agreement shall be automatically renewed for
successive one-year terms. After the Initial Term, either party may
give 60 days advance written notice to the other party of its intent to
permit this Agreement to expire at its next anniversary date. If such
notice is given by Employee, then the provisions of Sec-
Page 18 of 24
<PAGE> 2
tions X, XI, and XII shall continue in full force and effect. If such
notice is given by Employer, then the provisions of Section X shall
expire upon the expiration of the Agreement, and shall be of no further
force or effect.
2. If Employer terminates Employee during the Initial Term, for any
reason, then Employer shall be required to pay to Employee any amounts
due under this Agreement through its Initial Term; provided, however,
that no payments under this paragraph shall be required if the
termination of Employee is for Cause (as defined hereinafter), and that
additional payments may be due to Employee pursuant to section II.B.3.
below.
3. If Employee is terminated by Employer during the Initial Term, for
any reason other than Cause or other than as the direct or indirect
result of a Business Combination, then Employer shall be required to
pay to Employee any amounts due under this Agreement for the greater
of: (i) the balance of its Initial Term, or (ii) 18 months following
Employee's termination, even if such 18-month period extends beyond the
Initial Term of this Agreement. If Employee is terminated during the
Initial Term of this Agreement as the direct or indirect result of a
business combination ("Business Combination"), as defined in Employer's
Amended and Restated Articles of Incorporation, Article 11.A.1., then
Employer shall be required to pay to Employee any amounts due under
this Agreement for the greater of: (i) the balance of its Initial Term,
or (ii) 24 months following Employee's termination, even if such
24-month period extends beyond the Initial Term of this Agreement. If
Employee is terminated for Cause, the provisions of Section IX shall
govern his compensation.
4. This Agreement may be voluntarily terminated at any time by
Employee, including at an anniversary date pursuant to section II.B.1.;
provided, however, that without regard to any other provision of this
Agreement, no further amounts or benefits are accrued or earned under
this Agreement after such voluntary termination. Any amounts or
benefits that are accrued and unpaid at the date of such voluntary
termination, whether pursuant to this Agreement or under Employer's
policies and practices applicable to corporate officers generally,
shall be paid to Employee as soon as practicable following such
termination. In the event Employee terminates under this Section
II.B.4., the provisions of Sections X, XI, and XII shall continue in
full force and effect following such termination.
SECTION III. DUTIES OF EMPLOYEE. Employee will serve Employer faithfully and to
the best of his ability, under the direction of the Board of Directors of
Employer. Employee will devote all of his time, energy, and skill during regular
business hours to such employment. Employee shall perform such services and act
in such executive capacity as the Board of Directors shall direct.
SECTION IV. COMPENSATION. A. Employee's salary shall be paid at an annual rate
of not less than $400,000, from the day and date first written above, and shall
not be reduced below such rate during the term of this Agreement.
B. Employer shall pay Employee's salary in accordance with the pay practices of
Employer, as applied to all corporate officers, subject to all applicable
statutory and elective withholding taxes and deductions.
C. Employee shall participate in the Roberds, Inc. Executive Compensation Plan,
as amended from time to time, and any other compensation plans or arrangements
provided to Employer's corporate officers.
D. Within two weeks following the execution of this Agreement by both parties,
Employer shall pay to Employee a $25,000 "signing bonus."
SECTION V. FAILURE TO PAY EMPLOYEE. The failure of Employer to pay Employee's
compensation as provided in Section IV may be deemed a breach of this Agreement,
and unless such breach is cured within ten days after written notice to
Employer, Employee may, in his sole discretion, terminate this Agreement,
including the provisions of Sections X, XI, and XII, by giving written notice to
Employer under the provisions set forth herein.
Page 19 of 24
<PAGE> 3
SECTION VI. STOCK OPTIONS. Employer shall grant to Employee stock options to
purchase a total of 200,000 shares of the common stock of Employer, in
accordance with the terms of the Roberds, Inc. 1993 Stock Incentive Plan, as
amended ("Plan"). Such options shall be granted at the rate of 50,000 as soon as
possible after the Effective Date, and 50,000 each on the first anniversary,
second anniversary, and third anniversary of this Agreement, until a total of
200,000 options have been granted; provided, however, that no grants shall be
made under this Section VI following a termination of this Agreement, regardless
of whether such termination is with or without Cause, and provided further that
any grants made prior to such termination shall remain in place subject to the
provisions of the Plan. Each grant of options shall be at the then-current price
of Employer's stock at the date of grant, as calculated under the terms of the
Plan.
In the event a Business Combination occurs and this Agreement is in full force
and effect and has not been terminated by either party, then, on the date of
such Business Combination, Employer shall grant to Employee any of the 200,000
stock options that have not yet been granted pursuant to the schedule set forth
in the second sentence of this section. For example, if such Business
Combination occurred 18 months after the Effective Date, options on 100,000
shares would have been granted to Employee pursuant to the preceding paragraph,
and the remaining 100,000 options would be delivered pursuant to this paragraph.
The parties acknowledge that the Plan provides for vesting of stock option
grants, and for accelerated vesting upon a change in control, as defined in the
Plan, and that such provisions will govern grants made under this Section VI.
SECTION VII. REIMBURSEMENT OF EXPENSES. Employer shall reimburse Employee for
reasonable out-of-pocket expenses which Employee may incur in connection with
his services for Employer rendered under this Agreement, upon presentation by
Employee of appropriate vouchers to Employer, in accordance with Employer's
travel and reimbursement policies applicable to its corporate officers.
SECTION VIII. RULES AND REGULATIONS OF EMPLOYER. Employee hereby agrees to abide
by, and observe, the written policies, rules, regulations, and restrictions
imposed on employees and corporate officers of Employer, as amended from time to
time, and as provided to Employee, as well as those set forth in this Agreement.
Violation of any such policies, rules, or regulations may be cause for Employer
invoking the provisions of Section IX of this Agreement.
SECTION IX. TERMINATION. A. If Employee shall fail or be unable to perform the
services required by this Agreement because of any physical or mental infirmity,
and such failure or inability shall continue for three consecutive months, or
for six months during any twelve-consecutive-month period, Employer shall have
the right to terminate this Agreement 90 days after delivering written notice of
the termination to Employee; provided, however, that Employee shall continue to
receive his full compensation to the next anniversary of the Effective Date,
notwithstanding any such infirmity. The provisions of Sections X, XI and XII
shall continue in full force and effect notwithstanding the termination of this
Agreement under this section, but if after recovery from such infirmity as
evidenced by a medical certificate from a physician of Employer's choosing,
Employer does not choose to hire Employee in the executive capacity described in
Section I above, the provisions of Sections X, XI and XII, if still in effect,
shall thereupon terminate.
B. The Board of Directors of Employer may terminate Employee, by giving written
notice to Employee of such termination, at any time with or without Cause (as
defined below); provided, however, that if such termination is for any reason
other than for Cause, the provisions of this Agreement, including the
compensation arrangements set forth in Section IV, shall continue as set forth
in Section II. If the Board terminates Employee for any reason other than Cause,
then such termination shall not be effective until the tenth calendar day
following the delivery of written notice of such termination, pursuant to the
notice provisions herein.
C. The Board of Directors of Employer may terminate Employee for "Cause." Cause
is defined as one or more of the following acts or conditions taken by or
created by Employee:
Page 20 of 24
<PAGE> 4
1. Commission by Employee of a felony or any crime involving moral
turpitude; commission by Employee of any act that exposes Employer, or
any of its officers or directors, to any criminal liability for such
act of Employee; or any gross negligence or neglect or willful
misconduct in the performance of Employee's duties that results in any
detriment to Employer or its officers or directors.
2. The death of Employee during the term of this Agreement; provided,
however, that Employer shall pay to Employee's estate any amounts that
are owed to Employee under this Agreement at the date of death, but
Employee's compensation, as set forth in Section IV.A. shall terminate
on his death.
In the event that Employer proposes to invoke the provisions of subsection C.1.
above, the Board of Directors shall provide written notice to Employee setting
forth the specific reasons for the proposed termination, and shall permit
Employee a thirty-day period in which to address and resolve the points raised
in such notice. In the event such points are not resolved to the reasonable
satisfaction of the Board of Directors of Employer, then Employee shall be given
written notice of his termination for Cause and this Agreement shall terminate
as of the date of the written notice of such termination to Employee; provided,
however, that Employer shall be liable to Employee for any amounts owed to
Employee through the date of such termination for Cause, that the provisions of
Sections X through XII shall survive such termination for Cause, and that no
further payments will be made to Employee under Section IV subsequent to
termination for Cause.
SECTION X. NONCOMPETITION AFTER TERMINATION. A. Employee agrees that in addition
to any other limitation, for the longer of: (i) six months after termination of
his employment with Employer, except a termination caused by Employer in
violation of the terms of this Agreement, or (ii) the period of time any
payments are being made under this Agreement, and unless otherwise specified, he
will not directly or indirectly engage in, or in any manner be connected with or
employed by any person, firm, entity, or corporation engaged in the retail sale
of products similar to those sold by Employer within a radius of 50 air miles of
any facility of Employer, its affiliates or subsidiaries, or any facility that
Employer has publicly announced its intention to open.
B. Notwithstanding anything in subparagraph A. above, if Employer terminates
Employee without Cause, the period of Noncompetition, as set forth in
subparagraph A. above, shall be from the date of termination through the earlier
of: (1) the date this Agreement would otherwise expire under the provisions of
Section II, or (2) the date on which the Employer violates any other term of
this Agreement.
SECTION XI. SOLICITATION AFTER Termination. Except as set forth in Section II of
this Agreement, Employee agrees that in addition to any other limitation, for a
period of two years after the termination of his employment with Employer,
except a termination caused by Employer in violation of the terms of this
Agreement, and unless otherwise specified, he will not, on behalf of himself or
on behalf of any other person, firm, entity, or corporation, call on any of the
employees of Employer, or any of its affiliates or subsidiaries, for the purpose
of recruiting such employees to employment with Employee, his then-current
employer, or affiliates of his then-current employer. Further, Employee agrees
that, for such two-year period, if any employee of Employer contacts Employee
about employment with Employee, his then-current employer, or any of its
affiliates or subsidiaries, Employee shall contact Employer prior to employing
the prospective employee, and shall permit Employer to discuss the matter with
the prospective employee.
SECTION XII. USE OF CONFIDENTIAL INFORMATION. Except as set forth in Section II
of this Agreement, Employee agrees that in addition to any other limitation, for
the longer of: (i) six months after termination of his employment with Employer,
except a termination caused by Employer in violation of the terms of this
Agreement, or (ii) the period of time any payments are being made pursuant to
Sections II.B.2. or 3. of this Agreement, he will not communicate, deliver, or
suffer the delivery to any person, firm, entity, or corporation any written or
tangible information or material obtained from Employer, and its subsidiaries
and affiliates, including material in electronic format or media, including but
not limited to: customer lists, retail prices or plans, advertising plans,
vendor product pricing, training or selling manuals or materials, or real estate
leases. For six months following Employee's termination for any reason, Employee
will not communicate, deliver, or suffer the delivery to any
Page 21 of 24
<PAGE> 5
person, firm, entity, or corporation any confidential knowledge or trade secrets
which he might from time to time acquire with respect to the business of the
Employer, or its affiliates or subsidiaries.
Employee acknowledges that Employer has other confidentiality rules set forth in
its employee handbook, and other rules imposed by NATM Buying Corp., which also
apply to Employee. Except as specifically provided elsewhere herein, this
Section XII shall survive the expiration or termination of this Agreement.
SECTION XIII. INJUNCTIVE RELIEF. Employee acknowledges that the services to be
rendered under this Agreement are of a unique, special, and extraordinary
character which would be difficult or impossible for Employer to replace, so
Employee agrees that, in the event of a violation of any of the provisions of
this Agreement, Employer shall, in addition to any other rights and remedies
available under this Agreement, at law or otherwise, be entitled to an
injunction to be issued by any court or courts of competent jurisdiction
enjoining and restraining Employee from committing any violation of this
Agreement.
SECTION XIV. COMMUNICATIONS TO EMPLOYER; CONFLICTS. From the time this Agreement
commences until its termination, Employee shall communicate and channel to
Employer all knowledge, business, and any other matters of information which
could concern or be in any way beneficial to the business of Employer, whether
acquired by Employee before or during the term of this Agreement; provided,
however, that nothing in this Agreement shall be construed as requiring such
communications when the information is lawfully protected from disclosure as a
trade secret of a third party. Any such information communicated to Employer
shall be and remain the property of Employer, notwithstanding the subsequent
termination or expiration of this Agreement. Employee acknowledges and agrees
that Employer has certain policies regarding conflicts of interest, as applied
to corporate officers generally, and hereby agrees to scrupulously follow such
policies.
SECTION XV. TERMINATION BY EMPLOYEE. If Employer shall cease conducting its
business; take any action looking toward its dissolution or liquidation; make an
assignment for the benefit of its creditors; admit in writing its inability to
pay its debts as they become due; file a voluntary, or be the subject of an
involuntary, petition in bankruptcy; or be the subject of any state or federal
insolvency proceeding of any kind, then Employee may, in his sole discretion, by
written notice to Employer, voluntarily terminate his employment, pursuant to
section II.B.4. of this Agreement. If this section XV becomes effective and if
Employer ceases to operate or exist as a result of such event(s), the provisions
of Sections X through XII shall thereupon terminate.
SECTION XVI. BINDING EFFECT; MISCELLANEOUS. A. This Agreement shall be binding
on and shall inure to the benefit of any successor or successors of Employer and
the personal representatives of Employee. This Agreement is personal in nature,
and may not be assigned or transferred by Employee without the prior written
consent of Employer, and any purported assignment or transfer by Employee
without such consent is invalid and is not binding on Employer. This Agreement
may be assigned by Employer to any subsidiary that it directly or indirectly
controls, any affiliated corporation or entity under the direct or indirect
control of Employer, or any parent corporation or entity that directly or
indirectly controls Employer, and to any corporation or entity that may control
Employer as the direct or indirect result of a Business Combination, without the
consent of Employee. Any other assignment or transfer of this Agreement by
Employer shall require the written consent of Employee, and any such purported
transfer or assignment shall be without force or effect and shall not be binding
on Employee unless and until such consent is delivered.
B. This Agreement constitutes the entire Agreement between the parties hereto,
and supersedes all prior discussions, drafts, negotiations, proposals, and
agreements between the parties, whether written or oral. This Agreement may not
be amended except by a written instrument executed by the parties hereto.
C. If any provision of this Agreement is ultimately determined to be invalid or
unenforceable, by a final non-appealable ruling of a court of competent
jurisdiction, the remaining provisions of this Agreement shall not be affected
by such determination, shall remain in full force and effect, and shall be
construed in manner most likely to carry out the original intent of the parties.
Page 22 of 24
<PAGE> 6
D. This Agreement may be executed in any number of counterparts, each of which
shall be an original, and all of which, taken together, constitute one single,
binding, enforceable agreement.
E. Any notice given, or required to be given, under this Agreement, shall be
deemed to have been duly given and deemed received: (1) three business days
after deposit in the United States Mail, by first-class, certified, postage
prepaid, return receipt requested; (2) one business day after delivery to a
nationally recognized courier service; or (3) three hours after delivery by fax
followed by telephone confirmation of receipt. The parties may change their
addresses at any time by giving written notice to the other party to this
Agreement in the manner set forth herein.
F. Employee may engage competent, independent counsel to review this Agreement
on his behalf, and, if he does so, Employer will reimburse the reasonable fees
and expenses of such counsel, up to a maximum of $500.
G. During its term, this Agreement contemplates that Employee will serve as
Chief Executive Officer and President of the Company. As such, it is essential
that he maintain a high level of open, direct communication with the Company's
Board of Directors and vice versa. In the event Employee believes that any
person or entity has interfered with such communication or his relationship with
the Board, or breached the express terms, or the spirit, of this Agreement,
Employee may bring such breach or breaches to the attention of the full Board of
Directors, for review and resolution in accordance with the terms of this
Agreement and good business practice.
SECTION XVII. LAW TO GOVERN CONTRACT; ARBITRATION. This Agreement shall be
governed by the laws of the State of Ohio. In the event of a dispute arising out
of, or relating to, this Agreement, the party raising the dispute shall provide
written notice of such dispute to the other party. If such dispute is not
resolved by the parties within 45 days following such notice, then the parties
hereby agree to submit the dispute to binding arbitration. The parties hereby
agree to abide by, respect, and conduct themselves in accordance with the final
decision of the arbitrators.
Such arbitration shall be conducted by, and under the rules of, the American
Arbitration Association, and shall be governed by the Federal Arbitration Act, 9
U.S.C. Section 1-16, to the exclusion of state laws to the extent inconsistent
therewith, and judgement upon the award may be entered in any court having
jurisdiction to do so. The arbitration shall be conducted by three arbitrators,
one of whom shall be appointed by each of the parties hereto, and the third
shall be appointed by the first two arbitrators. The arbitration shall be
conducted in Montgomery County, Ohio. The arbitrators are not empowered to award
damages beyond compensatory damages. Each of the parties hereto shall bear its
own costs associated with the arbitration, including professional fees and
out-of-pocket expenses, and each shall bear one half of the costs and fees of
the arbitration itself, except that the arbitrators may award or tax the costs
and fees of the arbitration itself as part of their award. THIS SECTION XVII
OVERRIDES THE PARTIES' RIGHT TO A TRIAL AND A JURY TRIAL, AND THERE IS NO RIGHT
TO APPEAL THE DECISION OF THE ARBITRATORS.
SECTION XVIII. RELOCATION. No later than July 31, 1999, Employee shall relocate
his principal residence within Montgomery County, Ohio, or one of its contiguous
counties, and shall maintain his principal residence within such counties for
the term of this Agreement. In order to facilitate such relocation, Employer
will pay or reimburse the following expenses:
A. Reasonable, actual out-of-pocket cost of relocating Employee,
his family, and personal possessions from the greater Miami,
Florida area to the greater Dayton, Ohio area.
B. Reasonable, out-of-pocket temporary living expenses for
Employee and his family in the greater Dayton, Ohio area until
the earlier of: (i) the Employee's purchase of a principal
residence in the greater Dayton, Ohio area, or (ii) December
31, 1998.
C. A "bridge loan" of $150,000 from Employer to Employee to
facilitate Employee's purchase of a principal residence in the
greater Dayton, Ohio area. Such loan is to be without
interest; without payments until its maturity; evidenced by a
promissory note; and secured by valid, enforceable second
mortgages on the Employee's residences in Miami, Florida and
the greater Dayton, Ohio area, suitable for recording. Such
loan will be made upon the purchase of the Employee's
residence in the greater Dayton, Ohio area. Such loan
Page 23 of 24
<PAGE> 7
will mature upon the earlier of: (i) the sale of the
Employee's existing residence in Miami, Florida, or (ii) July
31, 1999.
D. Employer will reimburse the cost of the principal and interest
payments on Employee's existing first mortgage on his Miami,
Florida residence of $2,800.44 per month, commencing upon the
Effective Date, and ending on the earlier of: (i) the sale of
Employee's existing residence in Miami, Florida, or (ii) July
31, 1999.
E. Employer will reimburse the actual out-of-pocket real estate
commissions paid by Employee upon the sale of his Miami,
Florida residence, up to a maximum of $35,000, reduced by the
amount of the signing bonus set forth in Section IV.D. herein.
F. The provisions of paragraphs A, B, D, and E of this section
will be incorporated into a more detailed agreement between
Employer and Employee, consistent with Employer's standard
moving expense policies.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and date first stated above.
ROBERDS, INC., by
/s/ Robert M. Wilson
- ------------------------------
Robert M. Wilson, its
Executive Vice President
/s/ Melvin H. Baskin
- ------------------------------
Melvin H. Baskin
Page 24 of 24
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
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<S> <C>
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0
0
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<INCOME-PRETAX> (6,610)
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