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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22702
ROBERDS, INC.
An Ohio Corporation 31-0801335
(IRS Employer Identification Number)
1100 East Central Avenue
Dayton, Ohio 45449-1888
(937) 859-5127
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
At the close of trading on January 31, 1999, 6,159,311 common shares, without
par value, were outstanding. Of these, 1,911,989 common shares, having an
aggregate market value (based upon the average of the high and low trading
prices on that date) of approximately $3,803,485 were held by non-affiliates of
the Registrant. Common shares held by each executive officer and director, and
by each person who owned five percent or more of the outstanding common shares,
were excluded, in that such persons may be deemed to be affiliates. However,
such calculation does not constitute an admission or determination that any such
officer, director, or holder of more than five percent of the outstanding common
shares is in fact an affiliate of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 1999 annual meeting of
shareholders are incorporated into Part III herein by reference.
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TABLE OF CONTENTS
<S> <C> <C>
ITEM 1. BUSINESS....................................................................................3
ITEM 2. PROPERTIES.................................................................................12
ITEM 3. LEGAL PROCEEDINGS..........................................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................16
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................20
ITEM 6. SELECTED FINANCIAL DATA....................................................................22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......52
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.............................................53
ITEM 11. EXECUTIVE COMPENSATION.....................................................................53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................53
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K...........................54
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
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Roberds, Inc.(1) is a leading retailer of a broad range of home furnishing
products, including furniture, bedding, major appliances, and high technology
consumer electronics. The Company operates in three geographic segments: the
Ohio market, which includes six stores in the greater Dayton, Ohio area and a
single megastore in Cincinnati, Ohio; the greater Atlanta, Georgia market, which
includes nine stores; and the greater Tampa, Florida market, which includes
eight stores.
The Company was incorporated in 1971 under the laws of the State of Ohio. Its
executive offices are located at 1100 East Central Avenue, Dayton, Ohio
45449-1888, and its telephone number is (937) 859-5127. The Company's common
shares trade on the Nasdaq National Market tier of The Nasdaq Stock Market,
under the symbol "RBDS."
FORWARD-LOOKING STATEMENTS
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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. For discussion of certain of
such risks and uncertainties, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Forward-Looking Statements."
OPERATING STRATEGY
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The Company's objective is to be the leading retailer of furniture, bedding,
major appliances, and high technology consumer electronics products in each of
its markets. Key elements of the Company's operating strategy include the
following:
DISTINCTIVE PRODUCT MIX. The Company's product mix is a key element of its
operating strategy. Roberds' product mix is distinctive within the retailing
industry, and management believes it provides Roberds with several competitive
advantages over retailers offering only one or two of the Company's product
categories. The Company's major appliance and consumer electronics product lines
generate significant store traffic, sales volume, and gross profit dollars,
enabling Roberds to price its furniture products more aggressively than
competing furniture retailers. The Company's higher-margin furniture and bedding
products enable it to offer its appliance and consumer electronics products at
prices equal to or below those of its competitors. The Company believes that its
mix of products provides a strategic advantage over certain of its competitors.
Management believes that the Company's product mix generates significant
operating efficiencies. Such efficiencies result from the higher level of sales
per store generated by the Company's diverse product mix, providing Roberds with
significant leverage of its fixed costs, including distribution, warehousing,
store facilities, advertising, and general and administrative expenses. The
Company's product mix enables Roberds to offer complementary products in a
single
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1 Roberds, Inc. is also referred to herein as "the Company," "Registrant,"
and "Roberds."
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package in a way in which many of its competitors cannot, and offers
cross-selling opportunities that do not exist for many of the Company's
competitors.
PRODUCT PRICING STRATEGY. The Company's product pricing strategy is to offer its
merchandise at competitive prices throughout the year. Roberds shops its
competition regularly and believes that it sets its prices equal to or below
those of its competitors. At the time of sale, and for 30 days thereafter, the
Company guarantees to its customers that its prices are equal to or below those
of its competitors.
BROAD SELECTION OF NAME-BRAND MERCHANDISE. The Company sells name-brand products
generally recognized by consumers, including many higher quality brands. The
Company's stores, which average approximately 60,000 square feet in size
(excluding the Cincinnati megastore), are larger than the stores of many of its
competitors. This enables the Company to attractively display a wide variety of
products that appeal to a broad range of consumer tastes, incomes, and age
groups. As a result, Roberds can offer its customers "one-stop" shopping for
almost every home furnishing product, thereby facilitating the purchasing
process and reducing the need for comparison shopping. In 1996, the Company
opened Roberds Grand(R) in Cincinnati, Ohio. Roberds Grand features a single
250,000 square foot showroom, with an even larger selection than is offered in
the Company's other stores.
STORE CONCENTRATION AND EFFICIENCIES. Roberds operates in metropolitan areas of
at least one million people. In Dayton, Atlanta, and Tampa, the Company has
concentrated multiple stores in order to enhance name recognition, achieve
market penetration, and gain economies of scale in distribution, advertising,
and management costs. The Company advertises in newspapers, on television and
radio, and through direct mail, and is able to benefit from the advertising
efficiencies of locating multiple stores within those three marketing areas. The
Company's "hub and spoke" warehouse and delivery functions also create operating
leverage by serving multiple stores from a regional facility. In Cincinnati,
Ohio, the Company has a single 250,000 square foot "megastore" concept.
CORPORATE COMMITMENT TO CUSTOMER SERVICE. The Company gives managers full
authority to respond to customer issues. Unlike many of its competitors, Roberds
employs commissioned, trained, professional sales associates, who are
knowledgeable about the products they sell, and almost all of whom are employed
full time by the Company. On in-stock merchandise, the Company offers delivery
within two days, for a reasonable charge, six days per week, and adds Sunday
delivery during peak retailing seasons. Roberds offers next-day delivery service
on selected merchandise. Roberds offers delivery on all merchandise sold, and
has a competitive policy on replacements and returns. Roberds also removes the
customer's old merchandise free of charge. In addition, Roberds offers service
contracts that provide additional warranty coverage beyond that which is
provided by the manufacturer.
OPERATIONS. The Company has experienced operating losses in each of the last
three years. The Company is implementing a series of changes in its operating
strategy and the day-to-day execution of its business that are designed to
improve its operating results. These changes are outlined throughout this
Report, and are summarized below in Management's Discussion and Analysis of
Financial Condition and Results of Operations-Outlook.
EXPANSION STRATEGY
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ENTRY INTO NEW MARKETS. In 1996, the Company entered Cincinnati, Ohio with a
single 250,000 square foot megastore known as Roberds Grand. With the
development of the Roberds Grand(R) format, the Company has two formats with
which it can enter new markets--multiple 60,000 square foot stores within a
market or a megastore. The determination of whether to utilize megastore or
multiple-store formats in new markets depends on a variety of factors, including
but not limited to retail shopping patterns, traffic patterns, accessibility,
and the availability of sites. The Company has no plans to enter new markets
during 1999.
RELOCATION OR EXPANSION WITHIN EXISTING MARKETS. The Company believes that the
growth of the Atlanta, Georgia area may present opportunities to relocate one or
more of its existing Atlanta area stores, and may also present opportunities for
new locations. The Company intends to explore such relocations and expansions
during 1999 for possible implementation in 2000.
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STORE RENOVATIONS. The Company periodically renovates and upgrades its existing
stores to keep them fresh and to support changes in its product offerings. In
March 1998, the Company expanded its Forest Park, Georgia store into space that
had been occupied by a third-party tenant, following the vacation of the space
by that tenant. The 18,000 square foot expansion area is utilized as additional
retail space offering clearance merchandise. Because the Forest Park center has
additional vacant tenant space, the Company is exploring how best to utilize
that space and may undertake a further expansion or relocation of its retailing
operations within the center in 1999.
GENERAL. The Company's growth depends, in part, on its ability to expand into
new markets and, to a lesser extent, its ability to open new stores within its
existing market areas. There is no assurance that the Company will be able to
locate favorable store sites and arrange favorable leases for new stores; open
new stores in a timely manner; or hire, train, and integrate employees and
managers in those new stores; or that the Company will have access to sufficient
financial resources to permit further expansion. Similarly, there can be no
assurance that the Company can enter new markets successfully.
MERCHANDISING AND PRODUCT LINES
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DISTINCTIVE FORMAT. Roberds' merchandising format, combining furniture, bedding,
major appliances, and high technology consumer electronics products in the same
store, is an important aspect of the Company's operations and a point of
significant differentiation from its competitors. The Company's traditional
stores are larger than the stores of most of its competitors, averaging
approximately 60,000 square feet in size. These larger stores allow the Company
to attractively display a wide selection of products and allow flexibility in
expanding and contracting merchandise categories to meet changing consumer
tastes and to introduce new products. The Company's Roberds Grand facility, in
Cincinnati, Ohio, is one of the largest home furnishings stores in North
America. Roberds' stores are organized into specialized departments, each
offering a wide selection of merchandise. The breadth of merchandise within each
product line is designed to provide customers with a varied selection and to
reduce the need for customers to comparison shop.
Roberds' furniture merchandise is priced to achieve gross margins that are
attractive for the Company, but competitive with those of other furniture
retailers. The Company's appliance and consumer electronics businesses have
lower margins, higher turnover, and tend to be somewhat more seasonal and
cyclical than furniture sales. However, the competitively priced appliance and
consumer electronics products generate customer traffic for the higher margin
furniture items and allow the Company to spread its operating expenses over a
larger base of sales. In addition, management believes the Company's major
appliance and high technology consumer electronics product offerings increase
the frequency of customer visits and create consumer loyalty, which leads
customers to shop for furniture at Roberds.
FURNITURE PRODUCTS. Roberds carries a broad selection of name-brand furniture
products. In addition, the Company offers a broad range of special-order
products. Unlike many other retailers, Roberds uses the same pricing formula for
special-order merchandise as it does for in-stock merchandise. Furniture sold by
the Company includes traditional, American country, eighteenth century, and
contemporary styles, and includes living room, dining room, and bedroom
furniture, tables, lamps, dinettes, reclining furniture, sleep sofas, desks, and
chairs. The Company offers extensive selections of both upholstered and leather
furniture, as well as casegoods. Roberds also sells furniture accessory items
including pictures, mirrors, vases, mantle pieces, wall hangings, and related
goods. Furniture brands carried by Roberds represent the middle to upper-middle
range of price, and include Action by Lane, Broyhill, Chromcraft, Flexsteel,
Kincaid, Natuzzi, and Pennsylvania House, among others. In the Roberds Grand
format, the Company offers an even broader and deeper selection of furniture
products, including many higher-end products such as Lexington, and the
Timberlake, Arnold Palmer, and Alexander Julian collections.
BEDDING PRODUCTS. The Company offers products from Sealy, Serta, and Simmons,
the three largest manufacturers of bedding sold in the United States, as well as
Stearns & Foster. Bedding products include wooden and brass bed frames,
mattresses, box springs, water beds, and futons. The brand names sold by the
Company cover the full range of bedding quality, except that the Company does
not compete in the private-label segment.
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MAJOR APPLIANCE PRODUCTS. Roberds' major appliance products include
refrigerators, freezers, ranges, washers, dryers, dishwashers, trash compactors,
disposals, room air conditioners, microwave ovens, dehumidifiers, and vacuum
cleaners. The Company also sells some specialty appliance products such as
under-counter refrigerators, built-in appliances, and cooktops. Roberds carries
the major appliance brands sold in the United States, ranging in price from
moderately low to very high. Major appliance brands carried by the Company
include Amana, Frigidaire, General Electric, JennAir, KitchenAid, Maytag,
SubZero, and Whirlpool, among others.
HIGH TECHNOLOGY CONSUMER ELECTRONICS PRODUCTS. High technology consumer
electronics products sold by the Company include portable, console, and big
screen televisions; VCRs; camcorders; stereo systems and audio components; and
satellite systems. The Company focuses its efforts on large, big-ticket
electronics products, in particular, home theater systems and components, rather
than the small-ticket items carried by many mass merchants. The Company offers
products from most of the major consumer electronics manufacturers, ranging in
price from lower-middle to high. Consumer electronics brands carried by the
Company include Bose, JVC, Mitsubishi, Pioneer, RCA, Sony, Toshiba, and Zenith,
among others. During 1998, the Company withdrew from the sale of personal
computers and related home-office products in the Ohio market. Those products
had been withdrawn from the Atlanta and Tampa markets in prior years.
Roberds has dedicated "home theater" displays in its stores. This merchandising
concept blends stereo televisions with supplemental audio equipment, to give the
consumer a movie viewing experience comparable to that enjoyed in theaters.
Because of its ability to offer these products together with complementary
furniture products, particularly entertainment centers and recliners and other
"motion" furniture, Roberds believes that it is well positioned to capitalize on
the home theater merchandising concept. The Company is adding high-definition
television ("HDTV") and plasma television to its product line.
OTHER. Selected floor-covering products are offered in the Ohio market. The
Company does not sell draperies, wallpaper, or tabletop merchandise.
ADVERTISING AND PROMOTION
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Roberds employs a combination of newspaper, broadcast, and direct mail
advertisements. Newspaper advertisements typically account for the majority of
gross advertising expenditures, with broadcast, direct mail, and other forms of
advertising constituting the balance. The Company uses a combination of
newspaper "run of press" advertising, contained in the body of the newspaper,
and "preprint" advertising, which is inserted into the newspaper. The Company
advertises continuously during the year, but most heavily during peak retailing
seasons such as Thanksgiving and Christmas and for other special promotional
programs. Roberds utilizes broadcast advertising primarily Wednesday through
Sunday, in newspapers primarily Friday through Sunday, and runs direct mail
programs periodically. Roberds runs a variety of promotional programs that range
in duration from one to fourteen days.
The Company has an in-house advertising department for the planning,
preparation, and production of advertising, and for coordinating advertising
with the Company's merchandising policies and programs. The Company employs an
advertising agency for the production of broadcast advertising and for
assistance in developing its overall advertising strategy. Advertising for all
market areas is developed around common themes and promotions, but product
prices are varied by market to meet each market's needs and to maintain Roberds'
commitment to be competitively priced.
CUSTOMER PROFILE
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Roberds targets consumers who are 25 to 54 years of age, have annual household
incomes greater than $30,000, are married, and have owned their own homes for
less than five years. The Company believes such customers are typically
interested in purchasing high-quality merchandise at prices that provide good
value. Management also believes that Roberds has a high proportion of repeat
shoppers.
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CUSTOMER SERVICE AND CONVENIENCE
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The Company stresses superior customer service. Store managers have broad
discretion to meet customers' needs. Roberds' stores are open 362 days each
year. The stores are open from 10:00 a.m. to 9:00 p.m., Monday through Saturday,
and 11:00 a.m. to 6:00 p.m., Sundays, providing ample opportunity for customers,
including two-income families, to shop. Store hours are extended during peak
selling seasons. Roberds employs commissioned, trained, professional sales
associates who are knowledgeable about the products they sell, and almost all of
whom are employed full time by the Company.
When a customer is interested in an item of merchandise that is carried in
stock, sales associates determine the item's availability from real-time
computer terminals located throughout the selling area. Similarly, if a customer
special-orders merchandise, the Company's computer system allows the customer to
know at any time the status of the order and the expected delivery date.
Customer inquiries after the sale are generally referred first to the
salesperson who made the sale, so as to maintain a friendly customer
relationship and encourage customer satisfaction and loyalty.
For furniture, major appliances, and consumer electronics products, Roberds
offers third-party service contracts that provide additional warranty coverage
beyond that which is provided by the manufacturer. The terms of the extended
warranty contracts range from nine months to ten years. Roberds provides service
for everything it sells. Roberds performs its own furniture and bedding repair
service in all markets. Appliance and electronics repair services are provided
with a combination of in-house staff and outside providers with whom Roberds has
working relationships.
HOME DELIVERY SYSTEM
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Roberds believes that its system for delivery of merchandise to its customers is
convenient for the customer and a strategic advantage. At the time of purchase,
customers can elect to take in-stock merchandise with them or schedule it for
delivery. Over 80 percent of the merchandise sold is delivered. If the customer
wants to arrange a delivery, it is scheduled at the time of sale, on the sales
floor, when the customer specifies a date for delivery. Full delivery service is
available Monday through Saturday, to provide maximum convenience for the
customer. Sunday delivery service is offered during peak retailing seasons.
Typically, the customer can schedule deliveries of in-stock merchandise within
two days after the sale, and the Company offers next-day delivery on selected
products.
Roberds operates a delivery fleet with distinctive trucks displaying the Roberds
logo. All delivery crews are Roberds employees wearing Company uniforms.
Delivery teams operate on a commissioned pay system. Management believes that,
as a result of the commission system, the Company's delivery personnel are
highly motivated to complete the delivery successfully on the first attempt and
to satisfy the customer.
PURCHASING AND VENDOR RELATIONS
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Roberds' buying operations are organized along its four major merchandise lines.
The buyers review inventory and sales reports on a daily basis and place orders
based on analysis of past sales and existing inventory levels in the geographic
market areas. The buyers also adjust product pricing and advertising to meet
competitive needs in each geographic region.
Virtually all furniture, bedding, and major appliances are purchased from North
American manufacturers. Consumer electronics products are purchased either from
domestic manufacturers or domestic suppliers representing European or Asian
manufacturers. Roberds is a member of NATM Buying Corp., a large national buying
group organized to purchase consumer electronics and major appliances. Roberds
believes its membership in NATM enables it to obtain better product pricing,
larger volume discounts, and more advertising rebates than it could obtain
independently.
Vendors provide the Company with substantial incentives in the form of cash
discounts, volume rebates, and cooperative advertising funds. The aggregate
amount of these incentives was approximately $16.4 million in 1998, $16.7
million in 1997, and $18.5 million in 1996. The decline in 1997, as compared to
1996, was principally due to a decrease in vendor incentives and cash discounts
as the Company reduced its volume of purchases and inventory levels to better
match consumer demand for its products. There can be no assurance that such
vendor
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incentives will continue at such levels. A reduction in, discontinuance of, or
delay in receiving these vendor incentives could have a material adverse effect
on the Company.
Access to certain vendors and brand names is important to the Company's
continued success. The loss of a significant or well-known vendor, such as
General Electric or Broyhill, could have a material adverse effect on the
Company.
DISTRIBUTION
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The Company operates a distribution center in each of its three market areas.
All merchandise is initially received into, and controlled in, a central
warehouse in each market. Smaller merchandise items, such as small televisions
and VCRs, which can be picked up by the customer, are then redistributed to the
stores for customer pick-up. Each store maintains warehouse space to facilitate
such customer pick-ups. Management believes this "hub and spoke" arrangement
allows for prompt product delivery and efficient distribution.
The Company tags and barcodes all merchandise at the time of arrival in its
warehouse centers. The movement of merchandise through the warehouse is tracked
by the Company's barcode process. The Company cycle-counts inventory on a
scheduled basis and performs physical inventories periodically.
MANAGEMENT INFORMATION SYSTEMS
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Roberds utilizes a fully integrated, enterprise-wide management information
system for inventory, merchandising, and certain accounting functions. The
system was purchased from, and is maintained by, the largest software provider
to the furniture retailing industry. The Company is in the process of upgrading
its hardware and software to accommodate growth, gain efficiencies, and become
Year 2000 compliant.
Each store is equipped with a system allowing Company sales personnel and buyers
to track merchandise inventories on a real-time basis. In addition, the
merchandising systems are designed to integrate fully the key retailing
functions of merchandise planning, purchase order management, merchandise
distribution, receiving, order entry, and inventory control.
Sales data is captured at the time of sale by the Company's sales personnel,
using point-of-sale terminals on the showroom floor, and is transmitted to the
Company's regional processing centers, where it is compiled to produce daily and
weekly management reports. The data is organized by department class, item,
style, and store, and enables management to regularly monitor the sales
performance of all products within each store and market. The system also
captures data regarding the customer, and maintains an on-line customer data
base with addresses and purchasing history for each customer.
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CUSTOMER CREDIT PROGRAMS
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The Company offers qualified customers a private-label charge card administered
by Banc One Private Label Credit Services ("Banc One"). According to Banc One,
at December 31, 1998, the Company had over 360,000 private-label charge card
accounts that generated sales of approximately $131 million in 1998. Such sales
represent approximately 41 percent of the Company's net sales and service
revenues for 1998. The credit approval and servicing process is administered by
Banc One, which issues customer account cards embossed with the Roberds logo.
Roberds receives income from such accounts, based on the difference between: (i)
the interest rate charged to the customer, and (ii) Banc One's cost of funds
plus an administrative charge. As part of its arrangement with Banc One, Roberds
funds a reserve account designed to cover a portion of the bad debt losses
incurred by Banc One. All credit losses in excess of the reserve account are the
responsibility of Banc One. To the extent the Company utilizes Banc One for
programs other than its standard 90-days, same-as-cash program, the Company pays
a fee to Banc One for such programs.
As a result of this arrangement, Roberds holds no significant consumer
receivables and bears no credit risk beyond the fixed amount contributed to Banc
One's bad debt reserve. Because a significant portion of the Company's sales are
financed by consumers, the lack of availability of consumer credit programs, or
a significant increase in the cost of such programs, could have a material
adverse effect on the Company.
From time to time, the Company has also arranged financing through other sources
for customers not qualifying for credit under the Banc One program. Under some
of these programs, the Company paid a fee to the providers for the use of the
program; under others, it earned a participation fee. However, under all of
these other programs, there was no recourse to Roberds for bad debts. During
1998, the Company's secondary financing source terminated its financing
arrangements with the Company. Following that termination, the Company and Banc
One agreed to certain changes in the Banc One program, and Banc One became the
sole provider of consumer financing to the Company's customers. The Company also
renewed its agreement with Banc One for a five-year period.
Roberd Insurance Agency, Inc., a wholly owned subsidiary of the Company, is
qualified as an insurance agency under Ohio law. It earns a commission on credit
insurance sold by the Company to its customers.
COMPETITION
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The retail sale of furniture, bedding, major appliances, and consumer
electronics products in the United States is highly competitive and, for
furniture and bedding products, is highly fragmented. There are large numbers of
local, regional, and national chains of department stores, specialty retailers,
and mass and catalog merchandisers, as well as mail-order and internet
merchandisers, competing in each of the Company's product categories and within
its geographic markets. Many of these competitors are publicly held and have
financial and other resources substantially greater than those of the Company.
Further, many of the Company's competitors, particularly in the appliance and
electronics product categories, have suffered severe financial problems. From
time to time, this has caused the Company to have to compete against retailers
that are liquidating merchandise or operating under the protection of the
bankruptcy laws. In the major appliance and consumer electronics categories,
there has been significant expansion into the Company's markets by publicly held
national "superstore" chains, which has greatly increased the competitive
environment in those product categories. In general, these competitive
conditions have led to heavy advertising, severe price competition, and
extensive use of "same-as-cash" programs. The Company expects such competition
to continue. As a result of these highly competitive conditions, during 1996,
the Company withdrew from the personal computer and home-office categories in
its Atlanta and Tampa markets, and during 1998 withdrew those products from its
Ohio market. The liquidation of such inventories had an adverse impact on the
Company's sales.
One national furniture retailer entered the Dayton market in January 1999 and
has announced plans to open another store in Dayton later in 1999. A regional
appliance and electronics retailer is entering the Cincinnati, Ohio market in
1999. Several national retailers operating in the Company's markets have
continued to expand within those markets. Several national department store
chains are experimenting with freestanding furniture, appliance, and electronics
formats, and some of those retailers have entered the Company's markets. These
competitors may generate additional competition in
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the furniture segment. One national furniture retailer, operating under
bankruptcy protection, has withdrawn from all of the Company's market areas.
While this withdrawal created additional competition during 1997 and 1998, it
has now been completed.
The industry competes on the basis of price; credit offerings; merchandise
selection, presentation, and availability; and service. The Company competes on
price by constantly shopping its competition within its geographic markets and
maintaining a competitive pricing approach. Because of its distinctive product
mix, Roberds can price its merchandise on the sales floor at or below the
competition. The Company believes it competes favorably on merchandise selection
because, at an average of 60,000 square feet of showroom size, its stores are
larger than those of many of its competitors, thus enabling Roberds to
attractively display a broader range of merchandise in each of its four product
categories. Management believes Roberds' product availability is good because of
its strong vendor relations and its regional distribution facilities, which are
located near its stores. The Company believes that it provides superior customer
service through its full-time, commissioned sales staff, effective delivery of
merchandise, and effective handling of special orders.
SEASONALITY
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The Company typically experiences an increase in its overall sales and
profitability 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. Operating results for the full year are highly dependent upon
the success of the Company's operations in the fourth quarter.
CYCLICALITY
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The market for furniture, bedding, major appliances, and consumer electronics
products has historically been cyclical, fluctuating significantly with general
economic cycles. During economic downturns, these product lines tend to
experience longer periods of recession and greater declines than the general
economy. The Company believes that the industry is significantly influenced by
economic conditions generally and particularly by the level of housing activity,
interest rates, consumer confidence, personal discretionary spending, and credit
availability. There can be no assurance that a prolonged economic downturn would
not have a material adverse effect on the Company.
BACKLOG
- -------
The Company's backlog of sales (sales orders written but not yet delivered) was
approximately $8.9 million at December 31, 1998 as compared to $9.5 million at
December 31, 1997.
EMPLOYEES
- ---------
At January 31, 1999, the Company had approximately 1,900 employees,
substantially all of whom were full time, including approximately 640 in sales
and sales management, 500 in office and administrative capacities, and 760 in
warehouse, service, and delivery functions. The Company has never experienced a
work stoppage due to labor difficulties and is not a party to any collective
bargaining arrangements. The Company considers its relations with its employees
to be good.
MERGERS; SUBSIDIARIES
- ---------------------
In 1994, Roberds Service Company was merged into Roberds, Inc. Roberd Insurance
Agency, Inc. is a wholly owned subsidiary of the Company, is a licensed
insurance agency under Ohio law, and earns a commission on credit insurance sold
by the Company.
10 of 116
<PAGE> 11
TRADEMARKS AND LICENSES
- -----------------------
The trademarks ROBERDS(R), AMERICA'S NAME BRAND HEADQUARTERS(R), THE BIG ONE(R),
EMPLOYEE PRICE SALE(R), and BACK DOOR SALE(R), ROBERDS GRAND FURNITURE
APPLIANCES ELECTRONICS(R), BOTTOM LINE . . . IT COSTS LESS AT ROBERDS(R), and
DOUBLE THE DIFFERENCE(R) are registered by the Company with the United States
Patent and Trademark Office. Roberds has an application pending to register HOME
THEATER SOLUTIONS @ ROBERDS(TM). Roberds does not license any intellectual
property to other parties. Roberds does not license any intellectual property
from others, except for computer software, principally for use in the Company's
management information system described elsewhere in this Report, and the
trademarks of certain of its vendors that permit Roberds to utilize their
trademarks in connection with the promotion and sale of the vendors' products.
11 of 116
<PAGE> 12
ITEM 2. PROPERTIES
Roberds' facilities are strategically located on major thoroughfares and many
are near interstate highways. Many stores are free-standing facilities, and all
have ample parking. The following table sets forth information regarding the
Company's stores and warehouses in each of its markets, at December 31, 1998:
<TABLE>
<CAPTION>
SHOWROOM WAREHOUSE
SIZE IN SIZE IN OWNED/
REGION DATE OPENED SQ. FT. SQ. FT. LEASED
- ------ ----------- ------- ------- ------
OHIO
- ----
<S> <C> <C> <C> <C>
West Carrollton, Ohio(1) June 1971 145,000 15,000 Leased(2)
West Carrollton, Ohio(1)(6) June 1974 20,000 Leased(2)
Piqua, Ohio(3) March 1983 56,000 4,000 Leased(2)
Springfield, Ohio May 1985 50,000 16,000 Leased(2)
Richmond, Indiana March 1988 55,000 4,000 Leased(2)
Vandalia, Ohio(7) July 1989 139,000 20,000 Owned
Beavercreek, Ohio April 1995 63,000 5,000 Owned
Fairborn, Ohio January 1996 480,000 Owned
Springdale, Ohio July 1996 250,000 64,000 Leased
GEORGIA
- -------
Norcross, Georgia(4) March 1979 60,000 28,000 Leased
Marietta, Georgia(8) July 1984 59,000 4,000 Leased(2)
Forest Park, Georgia(8) October 1987 75,000 4,000 Leased(2)
Roswell, Georgia September 1990 56,000 4,000 Leased
Doraville, Georgia January 1994 217,000 Leased
Gainesville, Georgia September 1994 71,000 10,000 Leased
Douglasville, Georgia(9) November 1994 64,000 4,000 Owned
Athens, Georgia August 1995 62,000 4,000 Owned
Fayetteville, Georgia September 1995 62,000 4,000 Owned
Atlanta (Buckhead), Georgia November 1996 70,000 6,000 Owned
FLORIDA
- -------
Tampa, Florida(5) March 1985 73,000 9,000 Owned
Bradenton, Florida June 1986 53,000 4,000 Leased
Clearwater, Florida September 1986 52,000 4,000 Leased
North Tampa, Florida March 1990 50,000 5,000 Owned
Brandon, Florida November 1990 49,000 5,000 Leased
Seminole, Florida November 1993 81,000 6,000 Leased
Brandon, Florida May 1994 159,000 Leased
Sarasota, Florida July 1994 50,000 5,000 Leased
Port Richey, Florida March 1995 60,000 6,000 Owned
---------- ----------
Total 1,805,000 1,116,000
========= =========
</TABLE>
12 of 116
<PAGE> 13
(1) Original store has been relocated and expanded several times since its
opening, and was remodeled and expanded again in 1994 and again in
1997.
(2) Facilities leased from entities controlled by one or more of the
Initial Shareholders. See Item 13 of this Report, Certain
Relationships and Related Transactions.
(3) Original store was relocated and expanded to the present facility in
1988.
(4) Remodeled and expanded in 1994.
(5) Relocated and expanded in 1995.
(6) Approximately 20,000 square feet in the former West Carrollton, Ohio
showroom/warehouse was used as a warehouse for the carpet division;
however, that space was abandoned in 1998 and the carpet warehouse was
relocated into the West Carrollton store facility. The former carpet
warehouse is available for lease to third parties. The remaining 40,000
square feet is used for corporate offices.
(7) Expanded in 1996.
(8) The Marietta and Forest Park, Georgia facilities include approximately
14,000 and 42,000 square feet, respectively, not included in the table
above, portions of which are currently leased to third party commercial
and retail tenants, and other portions of which are available for lease
to third parties.
(9) The Douglasville, Georgia store includes approximately 17,000 square
feet not included in the table above, which is leased to third
parties.
The Company operated a store in Decatur, Georgia through December 31, 1997, when
retailing operations ceased. The Company's lease on the facility expired in
January 1998, when the space was returned to the landlord.
In March 1998, the Company expanded its Forest Park, Georgia store into space
that had been occupied by a third-party tenant, following the vacation of the
space by that tenant. The 18,000 square foot expansion area is utilized as
additional retail space offering clearance merchandise.
The stores leased from unaffiliated third parties generally involve a base lease
term of ten to fifteen years, followed by a series of options to extend. While
most of these leased stores have rent escalation clauses, the majority have no
percentage-rent clauses.
As indicated in the table above, the Company leases seven of its properties from
the Initial Shareholders or entities controlled by one or more of them. These
properties include many of the Company's highest volume stores. The leases on
these properties expire in the years 2004 through 2017. Upon the expiration of
these leases, there can be no assurance that the Company can reach agreement
with the Initial Shareholders on the terms for the renewal of the leases or that
the Initial Shareholders will be willing to renew the leases.
13 of 116
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
GENERAL
- -------
In February 1994, the Company announced its earnings for the fourth quarter and
year ended December 31, 1993. Following that announcement, the Company's stock
price declined substantially. Four lawsuits were filed against the Company,
certain of its directors, certain of its officers, and its co-managing
underwriters, in U.S. District Court for the Southern District of Ohio, case
numbers C-3-94-86, 99, 100, and 127. The suits were consolidated into a single
suit, In re Roberds Securities Litigation. In December 1996, the Company reached
an agreement to settle the class-action securities litigation and such agreement
was approved by the court in 1997. A total of $1.6 million was paid into an
escrow account to satisfy the plaintiffs' legal expenses and claims for damages
to the class. In 1997, Roberds paid $342,500 into escrow as its share of the
settlement, and the insurance carrier for its officers and directors paid
$1,257,500. No portion of the funds paid into escrow can revert to the Company.
In 1998, the escrow agent distributed the funds to the claimants, and the matter
came to a close.
The Ohio Bureau of Workers' Compensation Fund has issued an assessment against
the Company for approximately $871,000 in connection with an audit of the
Company's workers' compensation tax returns. In the fourth quarter of 1996, the
Company accrued $2.6 million to cover its estimated liability resulting from the
State's assessment. Such assessment, and certain subsequent developments, are
discussed more fully in the Notes to the Consolidated Financial Statements,
which are included elsewhere in this Report.
In 1996, a former employee of the Company filed suit in the Court of Common
Pleas for Montgomery County, Ohio, Rouch, et. al. vs. Roberds Furniture &
Appliances, et. al., case number 96-1512. The complaint alleged that the Company
permitted certain unsafe conditions to exist in one of its Ohio warehouses,
which allegedly led to certain personal injuries sustained by the plaintiff. The
suit sought $825,000 in compensatory damages and $800,000 in punitive damages
from the Company. In January 1997, the plaintiffs voluntarily dismissed the
complaint, without explanation. In January 1998, the suit was re-filed as case
number 1998-CV-00125, making the same allegations that were made in the initial
complaint. During 1998, the Company's insurance carrier settled the lawsuit. The
Company did not contribute to the settlement.
In the ordinary course of its business, the Company is from time to time a party
in certain legal proceedings. In the opinion of management, the Company is not
party to any litigation, other than those described in this Item 3, that would
have a material adverse effect on its operations or financial condition if the
proceeding was determined adversely to the Company.
ENVIRONMENTAL
- -------------
In 1985, a partnership between Kenneth W. Fletcher and Donald C. Wright (two of
the Company's Initial Shareholders(2), acquired a 21-acre parcel of land in
Springfield, Ohio ("Parcel") from an unaffiliated party. The Parcel included a
building
- -------------------
2 The Company's Initial Shareholders were Messrs. Kenneth W. Fletcher,
Donald C. Wright, and Howard W. Smith, who held all of the Company's
outstanding common shares immediately prior to the initial public
offering in 1993. Upon Mr. Fletcher's death in January 1999, his shares
moved into the hands of his estate and into a trust for the benefit of
his spouse. Further references in this Report to the Initial
Shareholders include the estate and trust as the context requires. See
also Item 12 of this Report, Security Ownership of Certain Beneficial
Owners and Management.
14 of 116
<PAGE> 15
and parking area previously operated by an unaffiliated party as a retail store.
In 1985, the Company remodeled the building and leased the Parcel from the
partnership as the location of its Springfield, Ohio store.
In 1990, the partnership was informed by the United States Environmental
Protection Agency ("EPA") that the Parcel had been operated by a previous owner
as an industrial landfill and that the EPA intended to investigate the Parcel.
In 1990, a contractor for the EPA examined the Parcel and took surface and
shallow soil samples but, contrary to the work plan that had been prepared by
EPA, did not take groundwater samples. Testing of the soil samples revealed
elevated concentrations of certain semi-volatile organic compounds. The Ohio EPA
subsequently criticized the contractor's soil testing methods and its failure to
take groundwater samples.
In 1993, the Company and the partnership engaged an environmental consultant to
conduct certain tests of the Parcel to attempt to determine the location of the
landfill, its proximity to the Company's store, and certain other information.
The consultant issued its report in April 1994. Among other things, it concluded
that the building in which the store operates is not located on, or immediately
adjacent to, the site of the former landfill.
In 1994, Messrs. Fletcher and Wright withdrew the Springfield property from the
Fletcher-Wright partnership and contributed it to Springfield Properties, Inc.,
an Ohio corporation owned by Messrs. Fletcher and Wright. The lease between
Roberds, Inc. and Fletcher-Wright was assigned to, and assumed by, Springfield
Properties, Inc.
In 1995, Springfield Properties, Inc. was contacted by a consultant to the EPA
and informed that the consultant had been engaged by the EPA to "re-score" the
Parcel for purposes of determining its priority for potential clean-up. In 1996,
the Company obtained a copy of the consultant's report. That report summarized
the history of the Parcel and the work of the various environmental consultants
to date. It concluded that the Parcel poses certain risks of contamination, but
did not recommend any further action with respect to the Parcel. The Company has
not yet obtained the new "score" for the Parcel.
It is not possible to predict whether the EPA will take further action, whether
remediation will be required, or the costs of remediation if required. The EPA
takes the position that a tenant can be liable for remediation costs, even if
the tenant did not contribute to the contamination of a site. However, the
Company is not aware of any circumstances in which a court has found a tenant
liable for remediation costs when the tenant did not contribute to the
contamination or fail to report contamination known to the tenant. At this
point, neither the Company, the partnership, nor Springfield Properties, Inc.
plans to take any further action with respect to the environmental issues
associated with the Parcel, unless the EPA initiates additional activity.
The Springfield site also includes a gas station and car wash that were operated
for many years by a third-party tenant. In December 1998, that operator
abandoned the facilities and informed Springfield Properties, Inc. that it did
not intend to upgrade the underground gasoline tanks that were on the site to
comply with federal and state regulations requiring such an upgrade. Springfield
Properties, Inc. has not yet determined how it will address the abandoned tanks
and facilities.
Certain other properties leased by the Company may contain, or have contained,
asbestos materials or petroleum underground storage tanks, but the Company does
not believe that any such circumstances are likely to have a material adverse
effect on the Company, and there are no active EPA investigations of these
facilities. The Company has removed asbestos and underground storage tanks in
connection with its acquisition and renovation of certain of its properties. To
the best of the Company's knowledge, such work has been done in compliance with
applicable environmental regulations and protocols.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1998.
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<PAGE> 16
EXECUTIVE OFFICERS OF REGISTRANT
The following information concerning executive officers of the Company is
provided pursuant to Instruction 3(b) of item 401 of Regulation S-K. The
following table sets forth certain information regarding the Company's executive
officers at January 31, 1999. The Company is not aware of any family
relationship between any executive officers or directors of the Company.
Executive officers serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Melvin H. Baskin 55 Chief Executive Officer
Robert M. Wilson 46 President, Chief Administrative Officer,
Chief Financial Officer, General Counsel,
Secretary, and Director
Billy D. Benton 47 Executive Vice President-Operations
R. Brian Good 40 Senior Vice President-Stores
Michael A. Bruns 36 Vice President, Controller, and Chief
Accounting Officer
Wayne B. Hawkins 45 Treasurer and Assistant Secretary
Jonathan W. House 54 Vice President-Warehousing, Distribution and
Logistics
Wayne P. McCollum 59 Chief Information Officer
Charles H. Palko 47 Vice President-Appliances and Electronics
M. Scott Taylor 39 Vice President-Human Resources
Michael Van Autreve 51 Vice President-Bedding
</TABLE>
MELVIN H. BASKIN was elected Chief Executive Officer in July 1998. He also
served as President from July through October 1998. From July 1997 through July
1998, he was Chief Operating Officer, Farm Stores, Inc., Miami, Florida. From
May 1997 through July 1997, he was President, Breuner's Home Furnishings Corp.,
Lancaster, Pennsylvania, and from June 1996 through July 1997 was
President-Eastern Division of Breuner's. From 1993 through May 1996, he was
President, Alex & Ivy Country Division, The Bombay Company, Inc., Fort Worth,
Texas.
ROBERT M. WILSON was elected President and Chief Administrative Officer in
October 1998. He has been General Counsel, Secretary, and a director since 1993.
He has also served as Chief Financial Officer of Roberds since 1988, and was an
Executive Vice President from 1988 through October 1998. He was Treasurer from
1993 through May 1995, and Assistant Treasurer from May 1995 through May 1997.
BILLY D. BENTON was elected Executive Vice President-Operations in May 1997.
From October 1996 through May 1997, he consulted with several business and
explored a number of business opportunities. Prior thereto, he was employed in a
variety of positions with Levitz Furniture Corporation, Boca Raton, Florida.
From January through October 1996, Mr. Benton was National Director of Retail
Marketing for Levitz. From August 1995 through January 1996, he was Eastern
Division President. From 1992 through August 1995, he was Vice President-General
Manager, Southeast Region. Levitz filed for protection under Chapter 11 of the
bankruptcy laws in September 1997.
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<PAGE> 17
R. BRIAN GOOD was elected Senior Vice President-Stores in November 1998. From
April 1998 through November 1998, he was Senior Divisional Vice President,
Good's division of Breuner's Home Furnishings Corp., Lancaster, Pennsylvania.
From June 1996 through April 1998, he was Senior Regional Vice President of the
Good's division. From January through June 1996, he was Senior Vice President of
Sales and Marketing, Good's Furniture, Inc. From 1990 through January 1996, he
was Vice President of Sales of Good's.
MICHAEL A. BRUNS joined Roberds in April 1994 as Manager of Financial Reporting
and Analysis, and was elected Vice President, Controller, and Chief Accounting
Officer in August 1994. From 1984 through April 1994, he was associated with
Deloitte & Touche (now Deloitte & Touche LLP) in various capacities, most
recently as Audit Senior Manager in the Dayton, Ohio office.
WAYNE B. HAWKINS was elected Treasurer in May 1995, and Assistant Secretary in
May 1997. Prior thereto, he was Assistant Treasurer since February 1994. Prior
thereto, he was Vice President, PNC Bank, Ohio, NA, since 1992.
JONATHAN W. HOUSE was elected Vice President-Warehousing, Distribution and
Logistics in May 1998. Prior thereto, he served as a consultant to the Company
since March 1998. From November 1996 through March 1998, he was a Senior
Consulting Project Manager in logistics, NCR Corporation, Dayton, Ohio. Prior
thereto, he served in the United States Army primarily in logistics functions
and commands, retiring as a Colonel in November 1996. From June 1994 through
November 1996, he was Commander and Deputy Commander, Defense Electronics Supply
Center, Dayton, Ohio. From 1993 through June 1994, he was Commander, U.S. Army
Transportation School, Fort Eustis, Virginia.
WAYNE P. MCCOLLUM was elected Chief Information Officer in November 1998. From
November 1997 through November 1998, he was Vice President of Information
Technology, Farm Stores, Inc., Miami, Florida. From April 1997 through November
1997, he explored business opportunities. From August 1995 through April 1997,
he was Chief Information Officer and later Chief Operating Officer, Rampage
Clothing Company, Los Angeles, California. From 1993 through August 1995, he was
Senior Consultant, Electronic Data Systems, Dallas, Texas, specializing in
retail clients.
CHARLES H. PALKO was elected Vice President-Appliances and Electronics in
January 1998. He was Vice President-Appliances from March 1996 through January
1998. From 1993 through March 1996, Mr. Palko was Vice President-Merchandising,
Fretter, Inc., Brighton, Michigan. Fretter, Inc. filed for protection under the
United States Bankruptcy laws in October 1996.
M. SCOTT TAYLOR was elected Vice President-Human Resources in November 1998.
From October 1996 through November 1998, he was Vice President-Stores, Farm
Stores, Inc., Miami, Florida. From April 1995 through October 1996, he was
Director-Executive Placement, Sunglass Hut International, Coral Gables, Florida.
From 1991 through April 1995, he was Human Resource Manager, T.J. Maxx, Dedham,
Massachusetts.
MICHAEL VAN AUTREVE has been Vice President-Bedding since 1988.
The Company's future performance will depend to a significant extent upon the
efforts and abilities of certain members of senior management. The loss of the
services of any member of senior management could have a material adverse effect
on the Company.
At January 31, 1999, the Initial Shareholders, and their spouses, owned
approximately 49.5 percent of the Company's outstanding shares. As a result,
they may be in a position to control the election of the entire Board of
Directors of the Company and control the outcome of all actions requiring
shareholder approval, thereby insuring their ability to control the future
direction and management of the Company.
The Company's Amended Articles of Incorporation and Regulations contain certain
provisions that may discourage acquisition bids for the Company and could limit
the price that certain investors might be willing to pay for the Company's
common shares. Among others, these provisions include the classification of the
Board of Directors, certain restrictions
17 of 116
<PAGE> 18
on shareholders' ability to remove directors, certain "fair price" provisions
adopted by the Company under Ohio law, and the Company's adoption of certain
restrictions on shareholders' ability to bring matters before meetings of
shareholders. In addition, the Company has the ability to issue preferred
shares, which could serve to discourage acquisition bids for the Company's
common shares.
The common shares held by the Initial Shareholders are not registered for sale
under the Securities Act of 1933; however, such shares can be sold under SEC
Rule 144 and other provisions of the securities laws. In addition, shares that
may be acquired by directors and executive officers of the Company through
certain benefit plans are registered for resale by such directors and executive
officers. Sales of substantial numbers of shares by the Company, the Initial
Shareholders, or other officers or directors, or the perception that such sales
could occur, could adversely affect the market price of the Company's stock.
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<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Trading in the common shares of Roberds, Inc. commenced in 1993, following its
initial public offering. The shares trade on the Nasdaq National Market tier of
The Nasdaq Stock Market, under the symbol "RBDS." The following table sets forth
the high, low, and closing prices for trading in the Company's common shares, as
reported on The Nasdaq Stock Market, for each quarter in fiscal 1998 and 1997.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1998
- ----
<S> <C> <C> <C> <C>
High $4.50 $3.50 $4.25 $3.00
Low 2.13 2.38 1.50 1.50
Close 3.00 2.63 2.50 2.06
1997
- ----
<S> <C> <C> <C> <C>
High $9.00 $7.25 $5.50 $5.13
Low 7.00 3.00 3.19 2.50
Close 7.06 5.25 3.50 3.00
</TABLE>
Such quotations include inter-dealer prices, without retail mark-up, mark-down,
or commission, and may not necessarily reflect actual transactions. At the close
of trading on January 31, 1999, the Company had approximately 226 shareholders
of record. Based upon the quantity of shareholder materials provided to
brokerage houses and individual shareholders requesting such materials, the
Company estimates that the total number of record and beneficial shareholders at
January 31, 1999 was approximately 2,000.
In October 1998, The Nasdaq Stock Market ("Nasdaq") informed the Company that it
failed to meet one of the requirements for continued listing on the Nasdaq
National Market tier, specifically the requirement that at least $5 million of
stock be held by individuals other than officers, directors, and those who own
more than ten percent of the Company's outstanding shares. The Company has
appealed the Nasdaq's determination, and will request additional time to meet
the requirement. The Company expects the appeal to be heard in March 1999. It is
not possible to predict the outcome of the appeal. If Nasdaq rules that the
Company's shares do not qualify for listing on the National Market tier, the
Company will explore other alternatives so that it can remain listed. However,
it is possible that the Company's shares may become de-listed from the Nasdaq
National Market tier, and that they would trade on The Nasdaq Small Cap Market,
or that they would become de-listed altogether and that they would trade on the
OTC Bulletin Board or on what is generally known as the "pink sheets." Such an
outcome could adversely affect the price of the Company's shares and investors'
ability to readily trade shares.
Through the initial public offering of its common shares in 1993, the Company
paid dividends from time to time. In 1994, the Company paid $193,000 to Initial
Shareholders, pursuant to the Tax Indemnification Agreement entered into by the
Company and the Initial Shareholders at the time of the initial public offering.
Such reimbursement is reflected in the Company's financial statements as a
distribution of retained earnings. In 1998, the Company settled an examination
of its 1993 and 1994 federal income tax returns, and accrued an additional
$225,000 payable to the Initial Shareholders as
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<PAGE> 20
the result of that settlement. See the Notes to the Consolidated Financial
Statements included elsewhere in this Report. Other than the reimbursements
described above, the Company has declared no dividends since the initial public
offering of its common shares, and no dividends are being contemplated by the
Board of Directors. The Company's revolving bank line of credit contains a
covenant prohibiting the payment of dividends. Therefore, no retained earnings
were available for dividends at December 31, 1998.
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<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
(All amounts in thousands, except per share data, percentages, and inventory
turnover)
The operations statement data and the balance sheet data presented below have
been derived from the Company's consolidated financial statements and should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
and Notes thereto, and the independent auditor's report thereon, included
elsewhere herein. Certain reclassifications have been made in the prior years'
selected financial data to conform to the classifications used in 1998. These
reclassifications had no effect on the net (loss) earnings or shareholders'
equity as previously reported.
OPERATIONS STATEMENT DATA:
- ---------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net revenues $318,710 $341,703 $342,102 $301,324 $259,159
Cost of sales 218,497 230,754 238,645 209,320 180,947
------- ------- ------- ------- -------
Gross profit 100,213 110,949 103,457 92,004 78,212
Selling, delivery, and
administrative expenses 110,358 111,642 102,043 81,187 71,089
Interest expense, net 7,224 7,545 5,681 3,500 1,636
Litigation 3,314
Finance participation
income (3,032) (3,217) (2,451) (2,489) (2,908)
Other income, net (3,536) (3,495) (3,690) (3,440) (2,123)
------- --------- ------ ------ -------
(Loss) earnings before
income taxes (benefit) (10,801) (1,526) (1,440) 13,246 10,518
Income taxes (benefit) 5,322(3) (425) (530) 5,225 3,925
------- -------- ---------- ------- -------
Net (loss) earnings $(16,123) $(1,101) $ (910) $8,021 $6,593
======== ======== ========== ====== ======
Basic and diluted
earnings (loss) per share $(2.66) $(0.18) $(0.15) $1.36 $1.12
===== ======= ======= ====== =====
Weighted average
shares outstanding:
Basic 6,065 5,979 5,934 5,898 5,871
===== ===== ===== ===== =====
Diluted 6,065 5,979 5,934 5,919 5,872
===== ===== ===== ===== =====
</TABLE>
- ------------------------------
3 See Note I to Consolidated Financial Statements.
21 of 116
<PAGE> 22
<TABLE>
<CAPTION>
BALANCE SHEET DATA (AT PERIOD END):
DECEMBER 31
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Working capital $8,514 $18,182 $34,952 $23,060 $15,764
Merchandise inventories $43,937 $51,173 $62,998 $41,377 $37,247
Property and equipment,
net $92,085 $99,364 $104,953 $81,310 $55,791
Total assets $148,208 $172,691 $192,208 $142,049 $105,556
Long-term debt,
including capital leases,
less current maturities $70,065 $73,309 $90,365 $54,448 $29,168
Deferred warranty revenue $5,211 $8,727 $11,627 $9,546 $6,925
Total shareholders'
equity $29,672 $45,769 $46,570 $47,199 $38,965
SELECTED OPERATING DATA:
Stores open at end
of period 24 24 25 23 19
Total selling square
footage at end
of period (1) 1,805 1,782 1,784 1,394 1,133
Percentage (decrease)
increase in comparable
store net sales (2) (4.6) (11.0) (8.1) (0.9) 10.0
Inventory turnover (3) 4.6 4.0 4.6 5.3 5.3
</TABLE>
1) Total selling square footage includes selling and office space within each
store, but excludes warehouse space.
2) Comparable store sales are computed monthly for each period presented by
comparing the sales in a month (for those stores that were open for the
entire month in the current year and the entire comparable month in the
prior year) with the sales for the comparable month in the prior year.
3) Inventory turnover is calculated by dividing cost of sales
for the period by the average of the beginning and ending inventory
balances for the period.
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<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(All dollar amounts in thousands, except per share data)
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth the results of operations as a percentage of
sales for the last three years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
<S> <C> <C> <C>
Net sales and service revenues 100.0% 100.0% 100.0%
Cost of sales and services 68.6 67.5 69.8
----- ----- -----
Gross profit 31.4 32.5 30.2
Selling, delivery and
administrative expenses 34.6 32.7 29.8
Interest expense, net 2.2 2.2 1.6
Litigation 1.0
Finance participation income (1.0) (1.0) (0.7)
Other income, net (1.0) (1.0) (1.1)
----- ----- -----
(Loss) before income
taxes (benefit) (3.4) (0.4) (0.4)
Income taxes (benefit) 1.7 (0.1) (0.1)
----- ----- -----
Net (loss) (5.1)% (0.3)% (0.3)%
===== ===== =====
</TABLE>
Sales by the Company's three market areas as a percentage of total sales for
each of the last three years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
<S> <C> <C> <C>
Ohio 49% 50% 46%
Georgia 31 30 32
Florida 20 20 22
------- -------- --------
100% 100% 100%
======= ======== ========
</TABLE>
23 of 116
<PAGE> 24
Sales by major product category as a percentage of total sales for each of the
last three years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
<S> <C> <C> <C>
Furniture................................. 38% 37% 38%
Bedding................................... 13 13 12
Major appliances.......................... 24 25 25
Consumer electronics...................... 18 19 21
Extended warranty contracts and other... 7 6 4
------- -- ---
100% 100% 100%
=== === ===
</TABLE>
1998 COMPARED TO 1997. Sales in 1998 were $318,710, compared to $341,703 in
1997, a 6.7% decrease. Comparable store sales in 1998 decreased by 4.6 %. The
decline in total sales includes the effect of closing the Decatur, Georgia store
in December 1997 ($7,728) and, to a lesser extent, the withdrawal from the
personal computer business in the Ohio market area ($4,303).
For 1998, the percentage increases (decreases) in sales in the Company's three
market areas were as follows:
<TABLE>
<CAPTION>
TOTAL COMPARABLE
STORES STORES
<S> <C> <C>
Ohio (8)% (8)%
Georgia (4) 3
Florida (8) (8)
</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. See "Business Competition."
In 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 contracts are sold. Revenues and selling costs related
to contracts sold prior to the effective date of the agreement are recognized
over the remaining lives of the contracts, and the expenses related to service
costs are recognized as incurred. Total sales were positively affected by this
new agreement by approximately 0.5% in 1998.
Gross profit for 1998 was $100,213, or 31.4% of sales, compared to $110,949, or
32.5% of sales, for 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. Also, contributing to the gross margin percentage
decline was an increase in the LIFO inventory reserve of $1,211 versus a
decrease in the reserve of $239 in 1997. 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 0.2% in 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.
24 of 116
<PAGE> 25
Gross margin percentages for 1998 by category were approximately 34% for
furniture, 45% for bedding, 21% for major appliances, and 17% for consumer
electronics. The gross margin percentages for 1998 decreased for furniture as
compared to 1997, while margins for bedding, consumer electronics, and major
appliances held relatively steady. Contributing to the decline in gross margin
percentage for furniture was the above mentioned liquidation of certain aged and
de-emphasized merchandise and the increase in the LIFO reserve. This liquidation
is now complete. Product prices and margins in consumer electronics and
appliances continued to be under pressure during 1998, as a result of
competitive conditions in these categories.
Selling, delivery, and administrative expenses decreased to $110,358, or 34.6%
of sales in 1998, compared to $111,642, or 32.7% of sales, in 1997. The increase
in expenses as a percentage of sales for 1998, as compared to 1997, was
primarily due to increases in selling and warehouse expenses to support the
clearance of aged and discontinued merchandise and, to a lesser extent,
increases in provisions for certain employee benefits and the effect of fixed
costs in light of the Company's decline in comparable store sales. Selling,
delivery and administrative expenses for 1998 reflect: (a) reduced net
advertising and promotional credit expenses; (b) a one-time refund of premiums
of $1,053 and a 75% rate reduction for the first half of 1998 to all
participants in the State of Ohio workers' compensation fund; (c) a reduction in
worker's compensation expense as a result of a change to insured programs in
Georgia and Florida; (d) a decrease in professional fees for outside consulting
services; and (e) a reduction in property insurance expenses due to a change in
insurance carriers.
Interest expense, net of interest income, decreased to $7,224 for 1998, as
compared to $7,545 in 1997. 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.
Finance participation income, which consists of income from the Company's
private-label credit card program, decreased to $3,032, or 1.0% of sales, in
1998, compared to $3,217, or 1.0% of sales, in 1997. Finance participation
decreased in 1998 as compared to 1997 as a result of ongoing changes in the use
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.
Other income, net, which consists primarily of cash discounts and rental income
from tenants, was $3,536, or 1.0% of sales, in 1998, compared to $3,495, or 1.0%
of sales, for 1997. The increase in other income for 1998 is a result of the
Company taking advantage of various cash discounts offered by its vendors.
Loss before income taxes (benefit) increased to $(10,801) in 1998, from $(1,526)
in 1997. Income tax expense for 1998 was $5,322, or approximately 49% of the
loss before taxes, as compared to income tax benefit of $425, or 28% of loss
before taxes, in 1997. The disproportionate provision for income taxes in 1998
reflects an increase in the valuation reserve provided for deferred tax assets
resulting in the elimination of all deferred tax assets at December 31, 1998.
The reserve was deemed necessary as a result of the uncertainty of the
recoverability of such future tax benefits.
1997 COMPARED TO 1996. Sales in 1997 decreased to $341,703 from $342,102 in
1996, a 0.1% decrease. Comparable store sales in 1997 decreased by 11.0%. The
decline in total sales for 1997, compared to 1996, is partially the result of
the comparison of sales for the Cincinnati megastore in 1997 to the very
successful grand opening of that store in the third quarter of 1996. 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, also contributed to the decrease in comparable store sales.
Additionally, during 1997, the Company focused on improving its gross margin
percentage versus the very price-promotional approach utilized during 1996.
25 of 116
<PAGE> 26
For 1997, the percentage increases (decreases) in sales in the Company's three
market areas were as follows:
<TABLE>
<CAPTION>
TOTAL COMPARABLE
STORES STORES
<S> <C> <C>
Ohio 8% (11)%
Georgia (5) (12)
Florida (10) (10)
</TABLE>
Comparable store sales for the Ohio market decreased due to the comparison
against the very successful grand opening period for the Cincinnati megastore in
the third and fourth quarters of 1996.
Sales of furniture product as a percentage of total sales declined in 1997. This
decline is the result of a decrease in total sales in the Cincinnati megastore,
as compared to its very successful grand opening in the third quarter of 1996,
when the Cincinnati megastore generated a disproportionately high percentage of
the Company's furniture sales. Sales of consumer electronics products have
declined as a percentage of total Company sales due to rapidly declining retail
prices in that product category, continued industry softness, a highly
competitive retailing environment, and the lack of new products, at higher
prices, to offset the effect of mature products with declining prices. The
Company expects retail price declines in the electronics category to continue
for the foreseeable future.
As previously mentioned, in March 1997, the Company entered into an agreement to
sell third-party extended warranty contracts. Total sales were positively
affected by this new agreement by approximately 1.8% in 1997. As a result of the
change in the extended warranty arrangement, extended warranty contract revenue
increased as a percentage of total sales in 1997.
Gross profit for 1997 was $110,949, or 32.5% of sales, compared to $103,457, or
30.2% of sales, for 1996. Sales of third-party extended warranty contracts
favorably affected gross margins as a percentage of sales by approximately 0.7%
in 1997.
Gross margin percentages for 1997 by category were approximately 38% for
furniture, 45% for bedding, 22% for major appliances, and 17% for consumer
electronics. The gross margin percentages for 1997 increased for furniture,
bedding, and consumer electronics as compared to 1996, while margins for major
appliances held relatively steady. The increase in the furniture gross margin
percentage reflects less aggressive pricing in this category in all market
areas, but particularly in the Cincinnati megastore where the furniture category
was heavily discounted during the grand opening of that market in 1996. The
gross margin percentage increase for consumer electronics reflects a reduction
in the use of the price-promotional approach during 1997 as compared to 1996.
Selling, delivery, and administrative expenses increased to $111,642, or 32.7%
of sales, in 1997 compared to $102,043, or 29.8% of sales, in 1996. The increase
as a percentage of sales in 1997 is primarily attributed to: (a) increased sales
commissions as a result of a higher percentage of revenue associated with
warranty contracts and increased product gross margins; (b) increased
advertising expenses; (c) the effect of fixed occupancy costs in light of the
Company's declining comparable store sales; (d) increased professional fees, as
the result of the engagement of a national management consulting firm and (e)
increased workers' compensation costs. These increases were offset in part by a
decrease in costs that were incurred in 1996 in conjunction with the grand
opening of the Cincinnati megastore and the consolidation of warehouse
operations in Dayton.
Interest expense, net of interest income, increased to $7,545 for 1997, as
compared to $5,681 in 1996. Interest expense increased in 1997 primarily as the
result of additional indebtedness incurred to finance the Cincinnati megastore
and the Buckhead showroom, and increased merchandise inventory levels during the
first half of 1997. Net interest expense was partially offset by the
capitalization of $38 during 1997, compared to $685 in 1996.
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<PAGE> 27
Finance participation income, which consists of income from the Company's
private-label credit card program, increased to $3,217, or 1.0% of sales, in
1997, compared to $2,451, or 0.7% of sales, in 1996. Finance participation
increased in 1997 as compared to 1996 because finance participation was
unfavorably impacted in 1996 by the initial influx of non-interest-bearing
accounts into the private-label credit card program as part of the Cincinnati
market entry. Additionally, finance participation increased in 1997 as a result
of the Company's emphasis on its core and shorter-period finance programs during
the first half of 1997, as compared to 1996 when it relied heavily on
twelve-months programs.
Other income, net, which consists primarily of cash discounts and rental income
from tenants, was $3,495, or 1.0% of sales, in 1997, compared to $3,690, or 1.1%
of sales, for 1996. Cash discounts decreased in total and as a percentage of
sales in 1997 as the Company reduced its appliance and consumer electronics
inventories to better match the consumer demand for these products.
Loss before income tax benefit increased to $(1,526) in 1997, from $(1,440) in
1996. Income tax benefit for 1997 was $425, or approximately 28% of the loss
before taxes, as compared $530, or 37% of loss before taxes, in 1996. The
disproportionate provision for income taxes in 1997 reflects minimum taxes
imposed by certain jurisdictions, and a valuation reserve for certain state
operating loss carryforwards because the Company determined that recoverability
of such carryforwards was uncertain.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash declined to $932 at December 31, 1998, compared to $2,494 at December 31,
1997. The Company generated $2,375 of cash from operating activities during
1998. Cash of $6,025 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 inventory levels to consumer demand and to increase
inventory turns. Funds generated from the reduction of merchandise inventories
were utilized in part by reductions of $2,741 in accounts payable and $3,516 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
took advantage of various cash discounts offered by its vendors. As a result of
the Company's ability to generate cash flow from operating activities during
1998, the Company was able to reduce its total debt by $3,031.
During 1998, the Company's capital expenditures totaled $1,499. These
expenditures primarily represented normal replacement and upgrade projects. As
of December 31, 1998, the Company had outstanding commitments to acquire
delivery vehicles and warehouse equipment totaling approximately $3,400. These
commitments are expected to be financed through operating leases. Subsequent to
December 31, 1998, the Company entered into an agreement to acquire
approximately $1,700 of computer hardware and software that is expected to be
financed under capital lease arrangements. The Company has no other significant
expansion or capital expenditure plans for 1999 other than normal replacement,
repair, and upgrade projects, and existing store refurbishment.
During the past two years the Company has generated $23,229 million in cash from
operating activities, of which $18,089 was generated through reductions of
inventory. The cash flow generated from operations in 1997 and 1998 was utilized
to reduce to Company's total debt by $20,747. While the Company will continue to
identify opportunities to reduce inventories, it does not believe that inventory
reductions will provide significant additional cash flow in 1999. As a result,
the Company's 1999 capital expenditure plans and debt maturities will need to be
funded by a combination of operating cash flow, the revolving line of credit, or
other alternative financing sources.
In March 1999, the Company refinanced its revolving line of credit with another
bank. The refinanced line expires in February 2004. 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 inventory, which varies seasonally. At December 31, 1998,
$27,181 would have been available under the line, of which $17,500 was
outstanding. The line of credit bears interest at either the bank's base rate
(7.75% at December 31, 1998) or LIBOR plus 2.25% (7.88% at December 31, 1998).
The line of credit includes certain restrictive covenants including, among
others, limitations on capital expenditures and the aggregate amount of funded
debt. The line prohibits the payment of dividends. The line also requires the
maintenance of a minimum fixed-charge-coverage ratio, which becomes increasingly
restrictive over time. In order to comply with
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<PAGE> 28
this covenant, the Company must improve operations significantly during 1999
over the actual results experienced during 1998. Such improvements in operations
are expected based upon the Company's 1999 business plan. If such improvements
are not achieved, the Company will have to renegotiate the 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.
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. The Company believes
that its 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 will be approximately
$1,700,000, which it expects to finance through a capital lease arrangement, for
which it has a commitment. The majority of the expenditures will be for hardware
upgrades to accommodate new software. No significant expenditures have occurred
to date. The Company expects to make all of the expenditures by the third
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 small portion of these expenditures has occurred to date. The Company
expects to make all such expenditures by late 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 monitoring its suppliers'
compliance activities.
The expenditures for the hardware upgrades to the primary management information
system are expected to be financed through leasing arrangements. The remaining
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.
OUTLOOK
- -------
The Company engaged a national management consulting firm 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.
28 of 116
<PAGE> 29
During 1999, the Company will continue to focus on improving business operations
and customer service. Areas of focus include imposing new selling-floor
disciplines, improving warehouse operations and delivery performance, improving
the management of inventory, 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 1998. The Company believes these initiatives
will yield improvement in the Company's operations during 1999 and beyond.
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
recent 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 all of the Company's markets. A regional furniture retailer has
entered the Dayton market during the first quarter of 1999, and a regional
electronics retailer will enter the Cincinnati market area in the first quarter
of 1999 to succeed a local competitor that closed in 1998. These expansions will
likely continue to put pressure on sales and gross margins.
INFLATION
- ---------
The Company does not believe that inflation had any significant impact on its
operations in 1998, 1997, or 1996.
SEASONALITY
- -----------
The Company typically experiences an increase in its 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. As a
result, operating results for the full year are highly dependent upon the
success of the Company's operations in the fourth quarter.
29 of 116
<PAGE> 30
The following tables show the Company's quarterly sales, gross profit, net
(loss) earnings, and (loss) earnings per common share for the last two years.
<TABLE>
<CAPTION>
1998
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Net sales and
service revenues $ 78,512 $ 73,894 $ 78,696 $ 87,608
Gross profit 24,681 23,096 25,460 26,976
Net loss (1,972) (1,218) (1,150) (11,783)(1)
Basic and diluted loss
per share (.33) (.20) (.19) (1.93)(1)
(1) Net loss for the fourth quarter of 1998 includes an increase in the
valuation allowance for deferred tax assets of $9,327, or $1.53 per share.
<CAPTION>
1997
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Net sales and
service revenues $ 83,152 $ 80,235 $ 83,928 $ 94,388
Gross profit 26,641 26,606 27,744 29,958
Net (loss) earnings (145) (1,313) 59 298
Basic and diluted (loss)
earnings per share (.02) (.22) .01 .05
</TABLE>
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.
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<PAGE> 31
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.
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.
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<PAGE> 32
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.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements for the three years ended
December 31, 1998, the Notes thereto, and the Independent Auditors' Report
thereon are as follows:
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<PAGE> 33
INDEPENDENT AUDITORS' REPORT
- ----------------------------
Board of Directors
Roberds, Inc.
Dayton, Ohio
We have audited the accompanying consolidated balance sheets of Roberds, Inc.
and subsidiary as of December 31, 1998 and 1997 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Roberds, Inc. and subsidiary at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
consolidated financial statements, the Company incurred operating losses during
the past several years. This matter raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Dayton, Ohio
February 16, 1999
(March 10, 1999 as to Note D)
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<PAGE> 34
ROBERDS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
<S> <C> <C> <C>
NET SALES AND SERVICE REVENUES (NOTE G) $318,710 $341,703 $342,102
COST OF SALES AND SERVICES 218,497 230,754 238,645
----------- ----------- ----------
Gross profit 100,213 110,949 103,457
SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES 110,358 111,642 102,043
INTEREST EXPENSE, NET 7,224 7,545 5,681
LITIGATION (NOTE L) 3,314
FINANCE PARTICIPATION INCOME (NOTE H) (3,032) (3,217) (2,451)
OTHER INCOME, NET (3,536) (3,495) (3,690)
----------- ----------- ----------
LOSS BEFORE INCOME TAXES (BENEFIT) (10,801) (1,526) (1,440)
INCOME TAXES (BENEFIT) (NOTE I) 5,322 (425) (530)
----------- ----------- ----------
NET LOSS ($16,123) ($1,101) ($910)
=========== =========== ==========
BASIC AND DILUTED NET LOSS PER COMMON SHARE ($2.66) ($0.18) ($0.15)
=========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 6,065 5,979 5,934
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
34 of 116
<PAGE> 35
ROBERDS, INC. AND SUBSIDIARY
- ----------------------------
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- --------------
<TABLE>
<CAPTION>
DECEMBER 31
ASSETS (NOTE D) 1998 1997
- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $932 $2,494
Receivables:
Customers (less allowance of $212
in 1998 and $75 in 1997) 921 1,311
Vendors and other (Note C) 2,390 2,693
Merchandise inventories (Note A) 43,937 51,173
Refundable income taxes 2,360 2,025
Prepaid expenses and other 1,983 1,792
Deferred tax assets (Note I) 3,375
---------- ----------
Total current assets 52,523 64,863
PROPERTY AND EQUIPMENT - AT COST (NOTES A AND E):
Land 15,539 15,539
Buildings and improvements 65,432 65,206
Leasehold improvements 33,590 33,020
Furniture, fixtures and office equipment 6,145 5,961
Computer equipment 5,788 5,792
Warehouse equipment and vehicles 3,176 3,227
Construction in progress 111
---------- ----------
129,781 128,745
Less accumulated depreciation and amortization 37,696 29,381
---------- ----------
92,085 99,364
DEFERRED TAX ASSETS (NOTE I) 4,381
CERTIFICATES OF DEPOSIT - RESTRICTED (NOTE A) 2,331 2,541
OTHER ASSETS 1,269 1,542
---------- ----------
$148,208 $172,691
========== ==========
</TABLE>
See notes to consolidated financial statements.
35 of 116
<PAGE> 36
ROBERDS, INC. AND SUBSIDIARY
- ----------------------------
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
- ------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $14,130 $16,871
Accrued payroll and payroll taxes 5,702 3,650
Accrued sales taxes 2,073 2,165
Other accrued expenses 2,510 1,640
Customer deposits 11,573 11,686
Litigation (Note L) 1,271 2,992
Accrued self-insured workers' compensation 1,225 1,430
Deferred warranty revenue - current (Note A) 2,580 3,516
Current maturities of long-term debt (Note D) 2,945 2,731
---------- ----------
Total current liabilities 44,009 46,681
LONG-TERM LIABILITIES:
Long-term debt including capital leases (Notes D and E) 70,065 73,309
Deferred rent (Note E) 1,831 1,721
Deferred warranty revenue (Note A) 2,631 5,211
---------- ----------
Total long-term liabilities 74,527 80,241
SHAREHOLDERS' EQUITY (NOTE F)
Preferred stock - authorized 5,000 shares,
None issued or outstanding
Common stock - authorized 15,000 shares,
no par value; issued and outstanding, 6,108 and
6,006 respectively, stated at $.10 per share 611 601
Additional paid-in capital 32,332 32,091
(Deficit) retained earnings (3,271) 13,077
---------- ----------
Total shareholders' equity 29,672 45,769
========== ==========
$148,208 $172,691
========== ==========
</TABLE>
See notes to consolidated financial statements.
36 of 116
<PAGE> 37
ROBERDS, INC. AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
- --------------
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON STOCK PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT)
<S> <C> <C> <C> <C>
BALANCE - December 31, 1995 5,909 $591 $31,520 $15,088
Issuance of common shares (Note F) 37 4 277
Net loss (910)
---------- ----------- ------------- -----------
BALANCE - December 31, 1996 5,946 595 31,797 14,178
Issuance of common shares (Note F) 60 6 294
Net loss
(1,101)
---------- ----------- ------------- -----------
BALANCE - December 31, 1997 6,006 601 32,091 13,077
Issuance of common shares (Note F) 102 10 241
Net loss (16,123)
Distributions payable to initial shareholders
pursuant to Tax Indemnification Agreement (Note (225)
I)
---------- ----------- ------------- -----------
BALANCE - December 31, 1998 6,108 $611 $32,332 ($3,271)
========== =========== ============= ===========
</TABLE>
See notes to consolidated financial statements.
37 of 116
<PAGE> 38
ROBERDS, INC. AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
- --------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($16,123) ($1,101) ($910)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 8,795 9,025 7,516
LIFO reserve 1,211 (239) (84)
Loss on sales of property and equipment 38 87 97
Deferred income taxes 7,756 1,510 (3,526)
Changes in assets and liabilities:
Receivables 693 2,388 (936)
Merchandise inventories 6,025 12,064 (21,537)
Refundable income taxes (335) (2,025)
Prepaid expenses and other (191) 65 (225)
Accounts payable (2,654) (769) 4,394
Customer deposits (113) 2,899 2,433
Accrued expenses 679 (230) 5,519
Deferred warranty revenue and rent (3,406) (2,820) 2,741
---------- ---------- ---------
Net cash provided by (used in) operating activities 2,375 20,854 (4,518)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,499) (3,413) (32,179)
Proceeds from sales of property and equipment 61 54 163
Decreases (increase) in certificates of deposit - restricted 210 (248) 273
Other assets 189 94 (131)
---------- ---------- ---------
Net cash used in investing activities (1,039) (3,513) (31,874)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 2,500 8,080 39,700
Payments on long-term debt (5,531) (25,796) (3,139)
Net proceeds from issuance of common shares 164 220 281
Debt issuance costs (31) (145) (66)
---------- ---------- ---------
Net cash (used in) provided by financing activities (2,898) (17,641) 36,776
---------- ---------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,562) (300) 384
CASH AND CASH EQUIVALENTS - Beginning of year 2,494 2,794 2,410
---------- ---------- ---------
CASH AND CASH EQUIVALENTS - End of year $932 $2,494 $2,794
========== ========== ==========
CASH PAID (REFUNDED) FOR:
Interest, net of capitalized amounts of $38 and $685
in 1997 and 1996, respectively $6,878 $7,621 $5,600
========== ========== ==========
Income taxes ($2,271) $826 $2,566
========== ========== ==========
NON-CASH TRANSACTIONS - Issuance of common shares to
Roberds, Inc. Employee Profit Sharing and Savings Plan $87 $80
========== ==========
See notes to consolidated financial statements
</TABLE>
38 of 116
<PAGE> 39
ROBERDS, INC. AND SUBSIDIARY
- ----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997
AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The accompanying consolidated financial statements include the accounts of
Roberds, Inc. and its wholly-owned subsidiary, Roberd Insurance Agency, Inc.
(the Company). All significant intercompany transactions and balances have been
eliminated.
Operations
- ----------
The Company operates retail stores in three market areas selling furniture,
bedding, appliances and electronics. At December 31, 1998, the Company operated
24 large-format stores, with seven in the Ohio market, including six in Dayton
and one megastore in Cincinnati, nine in the Atlanta, Georgia market, and eight
in the Tampa, Florida market.
Cash and Cash Equivalents
- -------------------------
Cash equivalents include all highly liquid investments with a maturity of three
months or less when purchased. The State of Florida requires the Company to
maintain deposits to partially fund its extended warranty and product
maintenance contracts and its self insured liability for workers' compensation.
Such deposits are included in certificates of deposit - restricted.
Merchandise Inventories
- -----------------------
Merchandise inventories are valued at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method, except for electronics which
are valued using the first-in, first-out (FIFO) method. Electronics represented
approximately 24% of merchandise inventories at both December 31, 1998 and 1997.
If the FIFO method had been used for all inventory, inventory values would have
been approximately $3,317 higher at December 31, 1998 and $2,106 higher at
December 31, 1997.
Pre-Opening Costs
- -----------------
Costs incurred in the opening of new stores are expensed as incurred.
Property and Equipment
- ----------------------
Property, equipment and improvements, including capital leases, are depreciated
or amortized over their estimated useful lives or the lease term using the
straight-line method. The lives, by category, generally are as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements 10 to 40 years
Leasehold improvements 10 years
Furniture, fixtures and office equipment 3 to 5 years
Computer equipment 3 to 8 years
Warehouse equipment and vehicles 3 to 10 years
</TABLE>
39 of 116
<PAGE> 40
Extended Warranty and Product Maintenance Contracts
- ---------------------------------------------------
Contracts with terms from nine months to ten years are sold to supplement or
extend manufacturers' warranties on appliances, electronics and furniture
products. In 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 contracts are sold. Deferred warranty
revenue and selling costs related to contracts sold prior to the effective date
of the agreement are recognized over the remaining lives of the contracts, and
the expenses related to service costs are recognized as incurred.
Revenue Recognition
- -------------------
Merchandise inventory sales are recognized when the goods are delivered to the
customer.
Advertising
- -----------
Advertising production costs, primarily those associated with television
advertising, are expensed the first time the related advertising is utilized.
Early Payment Discounts
- -----------------------
Discounts received from vendors for early payment have been classified as other
income in the consolidated statements of operations.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net Earnings (Loss) Per Common Share
- ------------------------------------
In 1997, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share." Diluted earnings per share are computed are
computed by dividing net earnings by the weighted average number of common
shares outstanding during the year, adjusted for the dilutive effect, if any, of
the Company's stock-based incentive plans. For the years ended December 31,
1998, 1997, and 1996, stock options outstanding under the Company's stock-based
incentive plans were anti-dilutive.
Stock Options
- -------------
The Company measures cost for stock options issued to employees using the method
of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees."
Reclassifications
- -----------------
Certain reclassifications have been made in the 1997 and 1996 financial
statements to conform to the classifications used in 1998. These
reclassifications had no effect on the results of operations or shareholders'
equity as previously reported.
B. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the
40 of 116
<PAGE> 41
Company has incurred an operating loss during each of the last three years.
These factors among others may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to comply with the terms and covenants of its
new financing agreement (Note D), to obtain additional financing or refinancing
as may be required, and ultimately to attain successful operations. Management
of the Company believes improved controls over selling prices and an increased
focus on add-on services to customers combined with expense reductions will
result, ultimately, in operating profits. However, management cannot provide any
assurance that these events will occur or that the Company will return to
profitability.
C. ACCOUNTS RECEIVABLE FROM VENDORS AND OTHER
Accounts receivable from vendors and other consist primarily of amounts due from
vendors for various rebate and cooperative advertising programs and for
merchandise inventory returns.
D. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
<S> <C> <C>
Revolving line of credit refinanced in March 1999 $17,500 $15,000
Mortgage note payable, due in monthly payments of $123,
including interest at 7.875%, to February 2011 11,558 12,104
Mortgage notes payable, due in monthly payments of $45,
plus interest at 9.03%, to April 2002 7,137 7,676
Mortgage notes payable, due in monthly payments of $77,
plus interest at 9.675%, to June 2010 6,416 6,709
Mortgage notes payable, due in monthly payments of $62,
including interest at 8.00%, to December 2010 5,759 6,037
Mortgage note payable, due in monthly payments of $49,
including interest at 9.00%, to July 2010 4,259 4,459
Mortgage note payable, due in monthly payments of $35,
including interest at 10.375%, to September 2000 3,287 3,357
Mortgage note payable, due in monthly payments of $29,
including interest at 7.64%, to January 2013 3,009 3,123
Mortgage note payable, due in monthly payments of $33
including interest at 9.59%, to February 2010 2,713 2,843
Term loan agreement repaid under the revolving line of
credit in February 1998 2,800
Capital lease obligations 11,372 11,932
----------- ----------
73,010 76,040
Less current maturities 2,945 2,731
----------- ----------
$70,065 $73,309
=========== ==========
</TABLE>
In March 1999, the Company refinanced its revolving line of credit with a bank.
The refinanced line expires in February 2004. 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 inventory, which varies seasonally. At December 31, 1998,
$27,181 would have been available under the line, of which $17,500 was
outstanding. The line of credit bears interest at either the bank's base rate
(7.75% at December 31, 1998) or LIBOR plus 2.25% (7.88% at December 31, 1998).
41 of 116
<PAGE> 42
The line of credit includes certain restrictive covenants including, among
others, limitations on capital expenditures, and the aggregate amount of funded
debt. The line prohibits the payment of dividends. The line also requires the
maintenance of a minimum fixed-charge-coverage ratio, which becomes increasingly
restrictive over time. In order to comply with this covenant, the Company must
improve operations significantly during 1999 over the actual results experienced
during 1998.
Maturities of long-term debt, including capital leases, are:
<TABLE>
<CAPTION>
<S> <C>
1999 $2,945
2000 6,302
2001 3,344
2002 8,602
2003 3,383
Thereafter 48,434
-----------
$73,010
===========
</TABLE>
Essentially all of the Company's assets are pledged as collateral for the
Company's indebtedness. The fair value of the Company's long-term debt based on
current rates offered to the Company for debt of similar maturities, excluding
capital leases, was $64,770 at December 31, 1998, and the related carrying value
was $61,638.
E. LEASING ACTIVITIES
The Company leases the majority of its retail locations, including some from
entities controlled by one or more of the initial shareholders. Most leases
include renewal options. In addition, the Company leases the majority of its
vehicles from third parties under operating leases. These vehicle leases
generally include contingent rentals based upon mileage.
Minimum lease commitments for leases with remaining lease terms in excess of one
year are as follows:
<TABLE>
<CAPTION>
Capital
CAPITAL
OPERATING LEASES LEASES-
RELATED RELATED
YEAR ENDING DECEMBER 31 PARTIES OTHER PARTIES
<S> <C> <C> <C>
1999 $721 $6,605 $1,919
2000 721 5,998 1,919
2001 721 5,768 1,919
2002 721 5,161 1,919
2003 721 5,038 1,919
2004 and later 6,027 15,639 12,163
----------- ---------- ----------
Total $9,632 $44,209 $21,758
=========== ==========
Less amount representing interest 10,386
----------
Capital lease obligations $11,372
==========
</TABLE>
Rent expense for all operating leases was approximately $8,067, $8,391, and
$7,921, for the years ended December 31, 1998, 1997 and 1996, which included
approximately $721, $721, and $731, for the years ended December 31, 1998, 1997
42 of 116
<PAGE> 43
and 1996, to related parties. Rent expense also included $246, $262, and $246,
of contingent rentals based upon vehicle mileage for the years ended December
31, 1998, 1997 and 1996.
Included in buildings and improvements at December 31, 1998 and 1997 are capital
leases totaling $13,641. Accumulated amortization related to the capitalized
leases is $4,474 at December 31, 1998 and $3,594 at December 31, 1997.
Certain leases include scheduled rent increases that have been recognized on a
straight-line basis over the term of the leases. The accumulated difference
between rent expense and cash payments is included in liabilities as deferred
rent.
F. SHAREHOLDERS' EQUITY
The Company's stock-based compensation plans are described below.
Employee Stock Purchase Plan.
- -----------------------------
The Company's employee stock purchase plan is qualified under the Internal
Revenue Code and permits employees to purchase shares at a price equal to 85% of
the lower of: (i) the fair market value of the shares at the commencement of
each six-month option period or (ii) the fair market value of the shares at the
close of the option period. A maximum of 500,000 shares may be issued under the
plan. With certain exceptions, all employees of the Company may participate in
the plan and pay for their options through payroll deductions.
The Company issued 31,715 shares at $2.34 per share and 37,574 shares at $2.39
per share under the plan during 1998; 18,221 shares at $7.23 per share and
19,517 shares at $4.52 per share under the plan during 1997; and 37,110 shares
at $7.44 per share during 1996. In January 1999, the Company issued 51,706
shares at $1.56 per share under the plan.
1993 Outside Director Stock Option Plan.
- ----------------------------------------
The Company has a director's stock option plan, which has reserved up to 10,000
common shares to be offered to outside directors of the Company. Grants are made
at the market price of the stock at the date of grant. The Company has granted
options on 6,000 common shares, at $13.00 per share and on 2,000 common shares,
at $9.25 per share. All of the outstanding options were exercisable at December
31, 1998; however, none have been exercised. At December 31, 1998, 2,000 options
were available under this plan for future grants.
1993 Stock Incentive Plan.
- --------------------------
The Company's stock incentive plan provides that options on up to 1,300,000
shares may be granted to employees of the Company. Grants are made at the market
price of the stock at the date of grant. One-fourth of the options become
exercisable on each anniversary of the grant. Any options which are not
exercisable by an employee at the termination of employment are canceled.
43 of 116
<PAGE> 44
A summary of option transactions under the stock incentive plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding December 31, 1995 249,500 $10.54
Granted 35,000 9.64
Exercised (500) 8.88
Canceled (44,500) 10.29
----------
Outstanding December 31, 1996 239,500 10.46
Granted 151,000 5.10
Canceled (39,500) 10.49
-----------
Outstanding December 31, 1997 351,000 8.15
Granted 830,778 2.28
Canceled (107,000) 5.43
-----------
Outstanding December 31, 1998 1,074,778 3.89
===========
</TABLE>
The following table shows various information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ---------------------------------
WEIGHTED-
AVERAGE
NUMBER REMAINING WEIGHTED- NUMBER WEIGHTED
OUTSTANDING AT CONTRACTUAL AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, LIFE (IN EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1998 YEARS) PRICE 1998 PRICE
<S> <C> <C> <C> <C> <C>
$1.84 - 2.87 774,000 9.8 $2.28 - -
3.82 - 5.44 137,778 8.5 5.06 34,000 $4.24
8.50 80,500 6.0 8.50 80,500 8.50
9.50 - 11.75 15,000 6.5 10.13 10,000 10.25
13.00 67,500 4.9 13.00 67,500 13.00
---------------- ------------------
3.82- 13.00 1,074,778 9.0 3.89 192,000 9.42
================ ==================
</TABLE>
At December 31, 1998, 225,222 shares were available for future grants under the
stock incentive plan.
The Company applies APB Opinion 25 "Accounting for Stock Issued to Employees"
and related Interpretations to measure the cost of stock options issued to
employees. Accordingly, no compensation cost has been recognized for it's stock
option plans or its employee stock purchase plan. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates for the awards under those plans consistent with the method
of FASB Statement 123 "Accounting for Stock Based Compensation", the effect on
the Company's net loss and loss per share would have been as follows:
44 of 116
<PAGE> 45
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
<S> <C> <C> <C>
Net loss
As reported ($16,123) ($1,101) ($910)
Pro forma ($16,241) (1,199) (985)
Net loss per share
As reported ($2.66) ($0.18) ($0.15)
Pro forma ($2.68) (0.20) (0.17)
</TABLE>
The majority of the additional expense included in the pro forma net loss in the
table above is the result of stock options issued under the stock incentive plan
in 1998 and the result of shares issued under the Employee Stock Purchase Plan
in 1997 and 1996.
G. NET SALES AND SERVICE REVENUE
Net sales and service revenue includes the following products:
YEAR ENDED DECEMBER 31
1998 1997 1996
Furniture $122,383 $125,154 $129,979
Bedding 42,342 43,015 40,361
Appliances 75,155 85,814 85,099
Electronics 57,693 65,859 71,620
Other 21,137 21,861 15,043
------------ ------------ ------------
$318,710 $341,703 $342,102
============ ============ ============
H. FINANCE PARTICIPATION
The Company earns a finance participation fee on credit sales placed through a
private-label revolving credit plan with a bank. Receivables from this plan are
held by the bank without recourse to the Company. Sales under the private label
plan represented approximately 41, 40, and 46 percent of consolidated net sales
for the years ended December 31, 1998, 1997, and 1996. Because a significant
portion of the Company's sales are financed by consumers, the lack of
availability of consumer credit programs, or a significant increase in the cost
of such programs, could have a material adverse effect on the Company.
45 of 116
<PAGE> 46
I. INCOME TAXES
Deferred taxes reflect the effects of temporary differences between carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. The principal current and non-current
deferred income tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
<S> <C> <C>
Deferred tax assets:
Deferred warranty revenue $2,032 $3,403
Merchandise inventories 787 1,177
Capital lease obligations 860 735
Depreciation 924 162
Workers' compensation accrual 973 1,725
Vacation accrual 527 295
Deferred rent 568
Other 528 259
Net operating loss carryforwards 2,608 155
Valuation allowance (9,807) (155)
=========== ===========
Net deferred tax asset $ - $7,756
=========== ===========
Included in the balance sheet:
Current $3,375
Long-term 4,381
===========
$7,756
===========
</TABLE>
Income taxes (benefit) consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
<S> <C> <C> <C>
Currently payable (refundable):
Federal ($2,279) ($1,985) $2,461
State and local (155) 50 535
----------- ---------- ---------
(2,434) (1,935) 2,996
Deferred federal and state 7,756 1,510 (3,526)
----------- ---------- ---------
$5,322 ($425) ($530)
=========== ========== =========
</TABLE>
A reconciliation between the statutory federal income tax rate and the effective
tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
<S> <C> <C> <C>
Statutory federal income tax rate (34)% (34)% (34)%
State and local income taxes, net of federal benefit (5) (4) (3)
Tax settlement (2)
Change in valuation allowance 90 10
----------- ----------- -----------
49% (28)% (37)%
=========== =========== ===========
</TABLE>
46 of 116
<PAGE> 47
The disproportionate provision for income taxes in 1998 reflects an increase in
the valuation reserve provided for deferred tax benefits. The reserve was deemed
necessary as a result of the uncertainty of the recoverability of such tax
benefits. The income tax benefit in 1997 reflects minimum taxes imposed by
certain jurisdictions and a valuation reserve for certain state operating loss
carryforwards. At December 31, 1998, the Company's federal net operating loss
carryforward was approximately $5,659, which expires in 2018.
In connection with the initial public offering of stock in 1993, the initial
shareholders of the Company entered into a Tax Indemnification Agreement that
requires the Company to reimburse them for certain additional taxes that they
may have to pay for any adjustments in taxable income in years prior to the
offering. In addition, the agreement requires the initial shareholders to
reimburse the Company for certain decreases in taxes that are refunded to them
for adjustments in taxable income. The Company also agreed to conduct, at its
expense, the defense of, or the negotiations in settlement with respect to, any
challenge to the S Corporation status in prior years.
During 1998 the Company settled an examination of its 1993 and 1994 federal
income tax returns. This resulted in an additional tax benefit to the Company of
$221 ($.03 per share). The Company was required under the Tax Indemnification
Agreement to reimburse the initial shareholders $225 for additional taxes they
were required to pay as part of the settlement. The additional tax benefit was
recorded as a reduction of income taxes for the year ended December 31, 1998 and
the payments were recorded as distributions payable to the initial shareholders.
As a result of the settlement of the 1993 examination, all obligations required
under the Tax Indemnification Agreement have been fulfilled by the Company.
J. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan for all eligible employees. Contributions
to the plan are made under guidelines established in the Roberds, Inc. Executive
Compensation Plan. Profit sharing plan expense was $82, $80, and $97 for the
year ended December 31, 1998, 1997, and 1996.
The Company has a self-insured group health and welfare benefit plan. This plan
operates through an independent trust and offers major medical, dental and
disability insurance coverage to all eligible employees. The Company provides
life insurance for all employees and their dependents at no cost to the
employees. The Company's expense under the health and welfare benefit plan was
approximately $779 in the year ended December 31, 1998,
$484 in 1997, and $281 in 1996.
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<PAGE> 48
K. BUSINESS SEGMENTS
As of December 31, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 131 "Disclosures about Segments of an Enterprise and
Related Information." The statement requires disclosure of segment information
based upon the way management organizes segments within the Company for making
operating decisions and assessing performance. The Company has identified the
three geographic market areas in which it operates as segments. A summary of the
Company's operations by segment for the years ended December 31, 1998, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
Earnings Depreciation Interest
(Loss)Before and Expense,
Net Sales Income Taxes Amortization net Litigation
1998
- ----
<S> <C> <C> <C> <C>
Ohio $156,310 2,502 $4,614 $3,532
Georgia 98,568 (5,144) 2,628 2,521
Florida 63,832 (8,159) 1,553 1,171
----------- -------------- ------------- ----------- -----------
$318,710 ($10,801) $8,795 $7,224
=========== ============== ============= =========== ===========
1997
Ohio $169,557 $5,161 $4,644 $3,670
Georgia 103,063 (4,212) 2,969 2,665
Florida 69,083 (2,475) 1,412 1,210
----------- -------------- ------------- ----------- -----------
$341,703 ($1,526) $9,025 $7,545
=========== ============== ============= =========== ===========
1996
Ohio $156,472 $463 $3,466 $2,634 $2,972
Georgia 108,942 (312) 2,548 1,935 200
Florida 76,688 (1,591) 1,502 1,112 142
----------- -------------- ------------- ----------- -----------
$342,102 ($1,440) $7,516 $5,681 $3,314
=========== ============== ============= =========== ===========
</TABLE>
Included in the operating results of the Company's segments are certain
corporate and non-segment expenses that have been allocated to the segments. The
Company does not report identifiable assets by operating segment. As a result,
such disclosures have been omitted from the segment data.
L. LITIGATION AND OTHER PROCEEDINGS
In February 1994, the Company announced its earnings for the fourth quarter and
year ended 1993. Following that announcement, the Company's stock price declined
substantially. Four lawsuits were filed against the Company, certain of its
directors, certain of its officers, and its co-managing underwriters, in U.S.
District Court for the Southern District of Ohio, case numbers C-3-94-86, 99,
100, and 127. The suits were consolidated into a single suit, In re Roberds
Securities Litigation. In December 1996, the Company reached an agreement to
settle the class-action securities litigation and such agreement was approved by
the court in 1997. A total of $1,600 was paid into an escrow account to satisfy
the plaintiffs' legal expenses and claims for damages to the class. In 1997,
Roberds paid $343 into escrow as its share of the settlement, and the insurance
carrier for its officers and directors paid $1,258. No portion of the funds paid
into escrow can revert to the Company.
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
48 of 116
<PAGE> 49
also for a similar adjustment for the years subsequent to 1993. The Company
accrued $2,600 in the fourth quarter of 1996 for the estimated amount of an
assessment for the 1992-1996 time period.
The amount of the Company's payment to settle the shareholders' suit, and the
related legal expenses, and the $2,600 accrual for the workers' compensation
issue are contained in Litigation in the consolidated statements of operations
in 1996.
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. In December
1998, the Bureau completed an examination of the Company's workers compensation
returns for the period from July 1996 through June 1998. The amounts assessed by
the audit approximated the amounts previously accrued by the Company for the
periods covered by the examination. The Company has accrued the estimated amount
of taxes that would be caused by a reclassification of employees for the period
from January 1994 through June 1996.
The Company is involved in various legal proceedings, incidental to normal
operations. At this time, it is not possible to determine the ultimate
liability, if any, in these matters. In the opinion of management, after
consultation with legal counsel, such proceedings will not have a material
effect on the financial position or results of operations.
M. COMMITMENTS
At December 31, 1998, the Company had outstanding commitments to acquire
delivery vehicles and warehouse equipment totaling approximately $3.4 million.
These commitments are expected to be financed through operating leases.
Subsequent to December 31, 1998, the Company entered into an agreement to
acquire approximately $1.7 million of computer hardware and software that is
expected to be financed under capital lease arrangements.
49 of 116
<PAGE> 50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
50 of 116
<PAGE> 51
PART III
Certain information required by Part III of this Report is omitted because the
Company will file a definitive proxy statement, pursuant to Regulation 14A, for
its 1999 annual meeting of shareholders ("1999 Proxy Statement"), not later than
120 days after the end of the fiscal year covered by this Report, and certain
information included in the 1999 Proxy Statement is incorporated herein by
reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information concerning the Company's directors is contained in the "Election of
Directors" section of the Company's 1999 Proxy Statement and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
"Executive Compensation" section of the Company's 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
"Security Ownership of Certain Beneficial Owners and Management" section of the
Company's 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
"Certain Relationships and Related Transactions" section of the Company's 1999
Proxy Statement.
51 of 116
<PAGE> 52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
-----------------------------
The following financial statements are filed as part of this Report and
are attached hereto:
Independent Auditors' Report.
Consolidated Balance Sheets at December 31, 1998 and 1997.
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997, and 1996.
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1997, and 1996.
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996.
Notes to Consolidated Financial Statements for the years ended
December 31, 1998, 1997 and 1996.
52 of 116
<PAGE> 53
(a)(2) FINANCIAL STATEMENT SCHEDULES
--------------------------------------
The following financial statement schedule of the Company, for the three years
ended December 31, 1998, is filed as part of this Report and should be read in
conjunction with the consolidated financial statements of Roberds, Inc. for the
periods then ended:
Independent Auditors' Report
Schedule II, Valuation and qualifying accounts
Schedules not listed above are omitted because they are not applicable, are not
required, or the information required to be set forth therein is included in the
Consolidated Financial Statements or the notes thereto.
INDEPENDENT AUDITORS' REPORT
- ----------------------------
Board of Directors
Roberds, Inc.
Dayton, Ohio
We have audited the consolidated financial statements of Roberds, Inc. and
subsidiary ("Company") as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998, and have issued our report
thereon dated February 16, 1999 (March 10, 1999 as to Note D) which expresses
an unqualified opinion and includes an explanatory paragraph describing matters
that raise substantial doubt about the Company's ability to continue as a going
concern. Such financial statements and report are included elsewhere in this
Annual Report on Form 10-K. Our audits also included the financial statement
schedule of Roberds, Inc. and subsidiary, listed in Item 14(a)(2) of this
Annual Report on Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects, the information set
forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Dayton, Ohio
February 16, 1999
53 of 116
<PAGE> 54
ROBERDS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------ ------------- ------------- ------------- -------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts $75 $669 $532 $212
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts $80 $620 $625 $75
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts $50 $619 $589 $80
</TABLE>
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<PAGE> 55
(a)(3) EXHIBITS
-------------------
2.5 Certificate of merger of Roberds Service Company into Roberds,
Inc., effective August 31, 1994, filed as Exhibit 2.5 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference.
3.1 Amended Articles of Incorporation of Registrant, filed January 10,
1994, as Exhibit 4.1 to Registrant's Form S-8, Registration File
No. 33-73900, and incorporated herein by reference.
3.2 Amended Code of Regulations of Registrant, filed January 10, 1994,
as Exhibit 4.2 to Registrant's Form S-8, Registration File No.
33-73900, and incorporated herein by reference.
4.1 Amended Articles of Incorporation of Registrant (filed as Exhibit
3.1).
4.2 Amended Code of Regulations of Registrant (filed as Exhibit 3.2).
4.3.1 Amended specimen certificate for Registrant's Common Shares,
reflecting the change in stock transfer agent to National City
Bank, Cleveland, Ohio, effective November 1, 1995, filed as
Exhibit 4.3.1 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, and incorporated
herein by reference.
4.4 Excluded from the exhibits are certain agreements relating to long
term debt which, individually, do not exceed 10% of the total
assets of Registrant. Registrant hereby undertakes to furnish a
copy of such agreements upon request by the Commission.
10.1# Roberds, Inc. 1993 Stock Incentive Plan, filed October 1, 1993 as
Exhibit 10.1 to Registrant's Form S-1, Registration File No.
33-69876, and incorporated herein by reference.
10.1.1# Amendment to Roberds, Inc. 1993 Stock Incentive Plan, filed as
Exhibit 99.1 to Registrant's Form S-8, File No. 33-97262, filed
September 25, 1995, and incorporated herein by reference.
10.1.2# Amendment to Roberds, Inc. 1993 Stock Incentive Plan, referred
to in Exhibit 10.1, effective as of November 1, 1996, and
filed as Exhibit 10.1.2 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996, and
incorporated herein by reference.
10.2# Roberds, Inc. Employee Stock Purchase Plan, filed October 1, 1993
as Exhibit 10.2 to Registrant's Form S-1, Registration File No.
33-69876, and incorporated herein by reference.
10.2.1# Amendment to Roberds, Inc. Employee Stock Purchase Plan,
referred to in Exhibit 10.2, effective as of November 1, 1996,
and filed as Exhibit 10.2.1 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, and
incorporated herein by reference.
10.2.2# Amendment to Roberds, Inc. Employee Stock Purchase Plan,
referred to in Exhibit 10.2, effective as of May 13, 1997, and
filed as Exhibit 99.1 to Registrant's Form S-8, Registration
File No. 333-37829, and incorporated herein by reference.
10.3# Roberds, Inc. 1993 Outside Director Stock Option Plan, filed
October 1, 1993 as Exhibit 10.3 to Registrant's Form S-1,
Registration File No. 33-69876, and incorporated herein by
reference.
55 of 116
<PAGE> 56
10.3.1# Amendment to Roberds, Inc. 1993 Outside Director Stock Option
Plan, referred to in Exhibit 10.3, effective as of November 1,
1996, and filed as Exhibit 10.3.1 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996, and incorporated herein by reference.
10.3.2# Roberds, Inc. Profit Sharing and Employee Retirement Savings Plan,
as amended, filed as Exhibit 99 to Registrant's Form S-8,
Registration File No. 33-81086, and incorporated herein by
reference.
10.3.2.1# Roberds, Inc. Profit Sharing and Employee Retirement Savings
Plan, as adopted March 26, 1997, and filed as Exhibit 99 to
Registrant's Form S-8, Registration File No. 333-43977, and
incorporated herein by reference.
10.3.3# Roberds, Inc. Amended and Restated Deferred Compensation Plan
for Outside Directors, effective 1996, filed as Exhibit 10.3.2
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, and incorporated herein by reference.
10.3.3.1# Amendment to Roberds, Inc. Amended and Restated Deferred
Compensation Plan for Outside Directors, referred to in
Exhibit 10.3.3, effective as of February 27, 1996, and filed
as Exhibit 10.3.3.1 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and incorporated
herein by reference.
10.3.3.2# Amendment to Roberds, Inc. Amended and Restated Deferred
Compensation Plan for Outside Directors, referred to in
Exhibit 10.3.3, effective as of November 1, 1996, and filed as
Exhibit 99.1 to Registrant's Form S-8, Registration File No.
333-19903, and filed as Exhibit 10.3.3.2 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996, and incorporated herein by reference.
10.4.1 Lease Agreement dated April 1, 1990 among Registrant, Kenneth
W. Fletcher and Donald C. Wright, relating to Registrant's
facility located at 1000 East Central Avenue, West Carrollton,
Ohio, and amendments thereto, filed October 1, 1993 as Exhibit
10.4.1 to Registrant's Form S-1, Registration File No.
33-69876, and incorporated herein by reference.
10.4.1.1 Assignment and Assumption Agreement in connection with the
transfer of ownership of Registrant's facility located at 1000
East Central Avenue, West Carrollton, Ohio from Kenneth W.
Fletcher and Donald C. Wright, an Ohio general partnership, to
Kenneth W. Fletcher, individually, and assigning Registrant's
related lease of the property to Mr. Fletcher, all effective
January 1, 1995, and filed as Exhibit 10.4.1.1 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994 and incorporated herein by reference.
10.4.1.2 Assignment and Assumption Agreement in connection with the
transfer of ownership of Registrant's facility located at 1000
East Central Avenue, West Carrollton, Ohio from Kenneth W.
Fletcher, individually, to DAF Investments LTD., an Ohio limited
liability company controlled by Mr. Fletcher, and assigning
Registrant's related lease of the property to DAF Investments
LTD., all effective January 1, 1995, and filed as Exhibit 10.4.1.2
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference.
10.4.1.3 Assignment and Assumption of Lease in connection with the transfer
of ownership of Registrant's facility located at 1000 East Central
Avenue, West Carrollton, Ohio from DAF Investments LTD., an Ohio
limited liability company controlled by Mr. Kenneth W. Fletcher,
to DAF West Carrollton Plaza, LTD., an Ohio limited liability
company controlled by Mr. Fletcher, and assigning Registrant's
related lease of the property to DAF West Carrollton Plaza, LTD.,
effective January 14, 1997, and filed as Exhibit 10.4.1.3 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and incorporated herein by reference.
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<PAGE> 57
10.4.2 Lease Agreement dated April 1, 1990 among Registrant, Kenneth
W. Fletcher and Donald C. Wright, relating to Registrant's
facility located at 1100 East Central Avenue, West Carrollton,
Ohio, and amendments thereto, filed October 1, 1993 as Exhibit
10.4.2 to Registrant's Form S-1, Registration File No.
33-69876, and incorporated herein by reference.
10.4.2.1 Assignment and Assumption Agreement in connection with the
transfer of ownership of Registrant's facility located at 1100
East Central Avenue, West Carrollton, Ohio from Kenneth W.
Fletcher and Donald C. Wright, an Ohio general partnership, to
Kenneth W. Fletcher, individually, and assigning Registrant's
related lease of the property to Mr. Fletcher, all effective
January 1, 1995, and filed as Exhibit 10.4.2.1 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994 and incorporated herein by reference.
10.4.2.2 Assignment and Assumption Agreement in connection with the
transfer of ownership of Registrant's facility located at 1100
East Central Avenue, West Carrollton, Ohio from Kenneth W.
Fletcher, individually, to DAF Investments LTD., an Ohio limited
liability company controlled by Mr. Fletcher, and assigning
Registrant's related lease of the property to DAF Investments
LTD., all effective January 1, 1995, and filed as Exhibit 10.4.2.2
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference.
10.4.2.3 Assignment and Assumption of Lease in connection with the transfer
of ownership of Registrant's facility located at 1100 East Central
Avenue, West Carrollton, Ohio from DAF Investments LTD., an Ohio
limited liability company controlled by Mr. Kenneth W. Fletcher,
to DAF West Carrollton Plaza, LTD., an Ohio limited liability
company controlled by Mr. Fletcher, and assigning Registrant's
related lease of the property to DAF West Carrollton Plaza, LTD.,
effective January 14, 1997, and filed as Exhibit 10.4.2.3 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and incorporated herein by reference.
10.4.3 Lease Agreement dated June 1, 1988 among Registrant, Kenneth
W. Fletcher and Donald C. Wright, relating to Registrant's
Piqua, Ohio facility, and amendments thereto, filed October 1,
1993 as Exhibit 10.4.3 to Registrant's Form S-1, Registration
File No. 33-69876, and incorporated herein by reference.
10.4.3.1 Assignment and Assumption Agreement in connection with the
transfer of ownership of Registrant's Piqua, Ohio facility
from Kenneth W. Fletcher and Donald C. Wright, an Ohio general
partnership, to Donald C. Wright, individually, and assigning
Registrant's related lease of the property to Mr. Wright, all
effective January 1, 1995 and filed as Exhibit 10.4.3.1 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference.
10.4.4 Lease Agreement dated April 1, 1988 among Registrant, Kenneth
W. Fletcher and Donald C. Wright, relating to Registrant's
Richmond, Indiana facility, and amendments thereto, filed
October 1, 1993 as Exhibit 10.4.4 to Registrant's Form S-1,
Registration File No. 33-69876, incorporated herein by
reference.
10.4.4.1 Assignment and Assumption Agreement in connection with the
transfer of ownership of Registrant's Richmond, Indiana
facility from Kenneth W. Fletcher and Donald C. Wright, an
Ohio general partnership, to Donald C. Wright, individually,
and assigning Registrant's related lease of the property to
Mr. Wright, all effective January 1, 1995, and filed as
Exhibit 10.4.4.1 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated
herein by reference.
10.4.5 Lease Agreement dated March 1, 1992 among Registrant, Kenneth
W. Fletcher and Donald C. Wright, relating to Registrant's
Springfield, Ohio facility, and amendments thereto, filed
October 1, 1993 as Exhibit 10.4.5 to Registrant's Form S-1,
Registration File No. 33-69876, and incorporated herein by
reference.
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<PAGE> 58
10.4.5.1 Assignment and Assumption of Leases transferring ownership of
Registrant's Springfield, Ohio facility from Kenneth W.
Fletcher and Donald C. Wright, an Ohio general partnership, to
Springfield Properties, Inc., an Ohio corporation owned by
Messrs. Fletcher and Wright, and assigning Registrant's
related lease of the property to Springfield Properties, Inc.,
all effective November 16, 1994, and filed as Exhibit 10.4.5.1
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, and incorporated herein by reference.
10.4.6 Lease Agreement dated March 1, 1987 between Registrant and
Howard Investments, a partnership owned by the Initial
Shareholders, relating to Registrant's Norcross, Georgia
facility, filed October 1, 1993 as Exhibit 10.4.6 to
Registrant's Form S-1, Registration File No. 33-69876, and
incorporated herein by reference.
10.4.6.1 Amendments to Lease Agreement between Registrant and Howard
Investments, referred to in Exhibit 10.4.6, effective December
20, 1995, pursuant to a sale of the property by Howard
Investments to 800 Broadway and Ponce de Leon Stores, which
are unrelated to the Company and the Initial Shareholders,
filed as Exhibit 10.4.6.1 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, and
incorporated herein by reference.
10.4.7 Lease Agreement dated March 1, 1987 between Registrant and
Howard Investments, a partnership owned by the Initial
Shareholders, relating to Registrant's Marietta, Georgia
facility, filed October 1, 1993 as Exhibit 10.4.7 to
Registrant's Form S-1, Registration File No. 33-69876, and
incorporated herein by reference.
10.4.8 Lease Agreement dated November 1, 1987 between Registrant and
Howard Investments, a partnership owned by the Principal
Shareholders, relating to Registrant's Forest Park, Georgia
facility, and amendments thereto, filed October 1, 1993 as
Exhibit 10.4.8 to Registrant's Form S-1, Registration File No.
33-69876, and incorporated herein by reference.
10.4.9 Rent-Up Guarantee Agreement, filed October 1, 1993 as Exhibit
10.4.9 to Registrant's Form S-1, Registration File No.
33-69876, and incorporated herein by reference.
10.5 Tax Indemnification Agreement among Kenneth W. Fletcher, Donald C.
Wright, Howard W. Smith, and Registrant, filed October 1, 1993 as
Exhibit 10.5 to Registrant's Form S-1, Registration File No.
33-69876, and incorporated herein by reference.
10.6.2 Inventory Financing and Security Agreement between Whirlpool
Financial Corporation and Registrant, filed October 1, 1993 as
Exhibit 10.6.2 to Registrant's Form S-1, Registration File No.
33-69876, and incorporated herein by reference.
10.6.3 Business Loan Agreement between Bank One, Dayton, NA and
Registrant, dated November 23, 1993, for up to $30 million.
Filed as Exhibit 10.6.3 to Registrant's Form 10-K for the
fiscal year ended December 31, 1993, and incorporated herein
by reference.
10.6.3.1 Amendment to Business Loan Agreement between Bank One, Dayton,
NA and Registrant, dated April 20, 1994, amending the
agreement referred to in Exhibit 10.6.3, and filed as Exhibit
10.6.3.1 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, and incorporated herein
by reference.
10.6.3.2 Amendment to Amended and Restated Business Loan Agreement
between Bank One, Dayton, NA and Registrant, dated December 7,
1994, amending the agreement referred to in Exhibit 10.6.3,
and filed as Exhibit 10.6.3.2 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, and
incorporated herein by reference.
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<PAGE> 59
10.6.3.3 Amendment to Amended and Restated Business Loan Agreement
between Bank One, Dayton, NA and Registrant, dated October 13,
1995, amending the agreement referred to in Exhibit 10.6.3,
filed as Exhibit 10.6.3.3 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, and
incorporated herein by reference.
10.6.3.4 Amendment to Amended and Restated Business Loan Agreement
between Bank One, Dayton, NA and Registrant, dated as of June
29, 1996, amending the agreement referred to in Exhibit
10.6.3, filed as Exhibit 10.6.3.4 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996, and incorporated herein by reference.
10.6.3.5 Second Amendment to Amended and Restated Business Loan
Agreement between Bank One, Dayton, NA and Registrant, dated
December 31, 1996, amending the agreement referred to in
Exhibit 10.6.3.4, filed as Exhibit 10.6.3.5 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996, and incorporated herein by reference.
10.6.3.6 Amendment to Second Amended and Restated Business Loan
Agreement between Bank One, Dayton, NA and Registrant, dated
February 27, 1997, amending the agreement referred to in
Exhibit 10.6.3, filed as Exhibit 10.6.3.6 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996, and incorporated herein by reference.
10.6.3.7.1 Second Amendment to Second Amended and Restated Business Loan
Agreement between Bank One, NA, successor by merger of Bank
One, Dayton, NA, and Registrant, dated as of June 30, 1997,
amending the agreement referred to in Exhibit 10.6.3, filed as
Exhibit 10 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, and incorporated herein
by reference.
**10.6.3.7.2 Third Amendment to Second Amended and Restated Business Loan
Agreement between Bank One, NA, successor by merger of Bank
One, Dayton, NA, and Registrant, dated as of June 30, 1998,
amending the agreement referred to in Exhibit 10.6.3, filed as
Exhibit 10 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998, and incorporated herein
by reference.
*10.6.3.7.3 Fourth Amendment to Second Amended and Restated Business Loan
Agreement between Bank One, NA, successor by merger of Bank
One, Dayton, NA, and Registrant, dated as of December 31,
1998, amending the agreement referred to in Exhibit 10.6.3,
filed herewith.
10.6.4 Term loan agreement between Bank One, Dayton, NA and
Registrant, dated November 8, 1994, for up to $7 million, and
filed as Exhibit 10.6.4 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, and
incorporated herein by reference.
10.7 Amended and Restated Private Label Revolving Plan Agreement
between Registrant and Bank One, Dayton, N.A., filed October
1, 1993 as Exhibit 10.7 to Registrant's Form S-1, Registration
File No. 33-69876, and incorporated herein by reference.
Portions of the Exhibit have been omitted pursuant to a
request by Registrant for confidential treatment. During 1998,
the period of confidentiality was extended through 2003.
**10.7.1 Amended and Restated Private Label Revolving Credit Plan
Agreement between Registrant and Bank One, NA, dated as of
June 17, 1998, filed as Exhibit 10.2 to Registrant's Quarterly
Report on Form 10-Q for the fiscal period ended June 30, 1998,
and incorporated herein by reference.
*10.8 Loan and Security Agreement between Registrant and BankBoston
Retail Finance Inc., dated March 3, 1999, filed herewith.
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<PAGE> 60
10.9# Letter Agreements Limiting Salary and Bonus of Messrs.
Fletcher, Wright and Smith, filed November 12, 1993 as Exhibit
10.9 to Registrant's Amendment No. 3 to Form S-1, Registration
File No. 33-69876, and incorporated herein by reference.
10.10# Registrant's Executive Compensation Plan, adopted in 1994,
effective for the 1995 calendar year, filed as Exhibit 10.10
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference.
10.10.1# Registrant's Amended and Restated Executive Compensation Plan,
as amended for the 1996 calendar year, amending the Plan
referred to in Exhibit 10.10 above, and filed as Exhibit
10.10.1 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, and incorporated herein
by reference.
10.10.2# Registrant's Seconded Amended and Restated Executive
Compensation Plan, as amended for the 1997 calendar year,
amending the Plan referred to in Exhibit 10.10.1 above, filed
as Exhibit 10.10.2 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and incorporated
herein by reference.
10.10.3# Registrant's Third Amended and Restated Executive Compensation
Plan, as amended for the 1998 calendar year, amending the Plan
referred to in Exhibit 10.10.2 above, filed as Exhibit 10.10.3
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, and incorporated herein by
reference..
10.11.1# Employment Agreement, dated as of March 1, 1996, between
Registrant and Charles H. Palko, Vice President-Appliances,
filed as Exhibit 10.11.1 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996, and
incorporated herein by reference.
10.11.2# Employment Agreement, dated as of July 10, 1996, between
Registrant and Michael E. Ray, President-Tampa Market, filed
as Exhibit 10.11.2 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and incorporated
herein by reference.
10.11.3# Employment Agreement, dated as of May 27, 1997, between
Registrant and Billy D. Benton, Executive Vice
President-Operations, filed as Exhibit 10.11.3 to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by reference.
10.11.4# Consulting Agreement, dated as of December 1, 1997, between
Registrant and Kenneth W. Fletcher, Chairman of the Board,
filed as Exhibit 10.11.4 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1997, and incorporated
herein by reference.
**10.11.5# Employment Agreement, dated July 6, 1998, between Registrant
and Melvin H. Baskin, Chief Executive Officer, filed as
Exhibit 10.1 to Registrant's Report on Form 10-Q for the
quarterly period ended September 30, 1998, and incorporated
herein by reference.
21 Subsidiary of Registrant, filed as Exhibit 21 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference.
*23 Independent Auditors' Consent.
*24 Powers of attorney.
*27 Financial Data Schedules
60 of 116
<PAGE> 61
* Exhibits electronically filed herewith.
** Exhibits incorporated by reference for the first time.
# Constitutes a "management contract or compensatory plan or arrangement,
"pursuant to Item 14(a)(3),(c).
(b) REPORTS ON FORM 8-K
----------------------------
None.
(c) EXHIBITS
-----------------
The response to this portion of Item 14 is submitted as a separate section of
this Report.
(d) FINANCIAL STATEMENT SCHEDULES
--------------------------------------
The response to this portion of Item 14 is submitted as a separate section of
this Report.
61 of 116
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ROBERDS, INC., by
/s/ Melvin H. Baskin*
- ------------------------------------
Melvin H. Baskin, its
Chief Executive Officer
/s/ Robert M. Wilson
- ------------------------------------
Robert M. Wilson, its
President and
Chief Financial Officer
/s/ Michael A. Bruns
- ------------------------------------
Michael A. Bruns, its
Vice President and
Chief Accounting Officer
/s/ Robert M. Wilson
*By:--------------------------------
Robert M. Wilson
Attorney in Fact
February 16, 1999
62 of 116
<PAGE> 63
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant and in
the capacities indicated on February 16, 1999.
/s/ Carl E. Gunter*
- ------------------------------------
Carl E. Gunter
Director
/s/ Jerry L. Kirby*
- ------------------------------------
Jerry L. Kirby
Director
/s/ James F. Robeson*
- ------------------------------------
James F. Robeson
Director
/s/ Howard W. Smith*
- ------------------------------------
Howard W. Smith
Director
/s/ Gilbert P. Williamson*
- ------------------------------------
Gilbert P. Williamson
Director
/s/ Robert M. Wilson
- ------------------------------------
Robert M. Wilson
Director
/s/ Donald C. Wright*
- ------------------------------------
Donald C. Wright
Director
/s/ Robert M. Wilson
*By:--------------------------------
Robert M. Wilson
Attorney in Fact
63 of 116
<PAGE> 64
EXHIBIT INDEX
-------------
10.6.3.7.3 Fourth Amendment to Second Amended and Restated Business Loan
Agreement between Bank One, NA, successor by merger of Bank
One, Dayton, NA, and Registrant, dated as of December 31,
1998, amending the agreement referred to in Exhibit 10.6.3,
filed herewith.
10.8 Loan and Security Agreement between Registrant and BankBoston
Retail Finance Inc., dated March 3, 1999, filed herewith.
23 Independent Auditors' Consent.
24 Powers of attorney.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.6.3.7.3
FOURTH AMENDMENT TO SECOND AMENDED
AND RESTATED BUSINESS LOAN AGREEMENT
This Amendment ("Amendment") is made as of the 31st day of December,
1998, by and between Roberds, Inc. (the "Borrower") and Bank One, NA successor
by merger of Bank One, Dayton, NA (the "Bank").
WHEREAS, the Borrower and the Bank entered into a Second Amended and
Restated Business Loan Agreement dated December 31, 1996, as amended on February
27, 1997, June 30, 1997, and June 30, 1998 (the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth below:
NOW, THEREFORE, the parties hereto agree as follows:
1. Capitalized terms not defined herein shall have the meaning ascribed
in the Credit Agreement.
2. Section 6.2 of the Credit Agreement bearing the hearing FUNDED DEBT
TO TANGIBLE NET WORTH is hereby amended to add in the first paragraph after the
words "measured quarterly" the following language:
, except for the quarter ending December 31, 1998, the ratio
of Funded Debt to Tangible Net Worth shall not be more than
2.50 to 1.00.
3. Section 6.3 of the Credit Agreement bearing the heading FUNDED DEBT
TO EBITDA is hereby amended and restated to read as follows:
6.3 FUNDED DEBT TO EBITDA. Borrower agrees to maintain a ratio of
Funded Debt to EBITDA of not more than the ratio set forth for the
following periods measured at each quarter's end on a rolling four
quarter basis.
<TABLE>
<CAPTION>
Periods Ratios
-----------------------------------------------------
<S> <C>
04/01/98 through 06/30/98 8.50:1.00
07/01/98 through 9/30/98 7.25:1.00
10/01/98 through 12/31/98 13.50:1.00
</TABLE>
"Funded Debt" shall be determined in accordance with GAAP and shall be
deemed to include all interest bearing borrowings plus capitalized
leases.
"EBITDA" shall be defined as earnings before interest expense, taxes
and depreciation/amortization.
4. Section 6.4 of the Credit Agreement bearing the heading CURRENT
RATIO is hereby amended to add in the first paragraph after the words "measured
quarterly" the following language:
, except for the quarter ending December 31, 1998, the Current
Ratio shall be not less than 1.18 to 1.00.
5. Section 6.5 of the Credit Agreement bearing the heading FIXED CHARGE
COVERAGE is hereby amended by deleting the words and figures:
of not less than 1.10 to 1.00 at fiscal quarter-end June 30,
1998, September 30, 1998 and December 31, 1998 and beginning
fiscal quarter ending March 31, 1999 and at each fiscal
quarter-end thereafter of not less than 1.20 to 1.00 measured
on a rolling four quarter basis.
<PAGE> 2
and by inserting in substitution therefore the words and figures:
of not less than 1.10 to 1.00 at fiscal quarter-end June 30,
1998 and September 30, 1998, of not less than 0.43 to 1.00 at
fiscal quarter-end December 31, 1998, and beginning fiscal
quarter ending March 31, 1999 and at each fiscal quarter-end
thereafter of not less than 1.20 to 1.00 measured on a rolling
four quarter basis.
6. The Borrower represents and warrants that (a) the representations
and warranties contained in the Credit Agreement are true and correct in all
material respects as of the date of this Amendment, (b) no condition, act or
event which could constitute an Event of Default under the Credit Agreement
exists, and (c) no condition, event, act or omission has occurred, which, with
the giving of notice or passage of time, would constitute an Event of Default
under the Credit Agreement.
7. This Amendment shall become effective only after it is fully
executed by the Borrower and the Bank. Except as amended by this Amendment, the
Credit Agreement shall remain in full force and effect in accordance with its
terms, and the Borrower hereby specifically ratifies and affirms the terms and
provisions of the Credit Agreement.
8. This Amendment is a modification only and not a novation. Except for
the above- stated modification(s), the Credit Agreement, any agreement or
security document, and all the terms and conditions thereof, shall be and remain
in full force and effect with the changes herein deemed to be incorporated
herein. This Amendment is to be considered attached to the Credit Agreement and
made a part hereof. This Amendment shall not release or affect the liability of
any guarantor, surety or endorser of the Credit Agreement or release any owner
of collateral securing the Credit Agreement. The validity, priority and
enforceability of the Credit Agreement shall not be impaired hereby. To the
extent that any provision of this Amendment conflicts with any term or condition
set forth in the Credit Agreement, or any agreement or security document
executed in conjunction therewith, the provision of this Amendment shall
supersede and control. Borrower acknowledges that as of the date of this
Amendment it has no offsets with respect to all amounts owned by Borrower to
Bank and Borrower waives and releases any and all claims, known and unknown,
which it may have against Bank arising under or in connection with the Credit
Agreement on or prior to the date of this Amendment.
9. The Borrower acknowledges and agrees that this Amendment is limited
to the terms stated herein and shall not be construed as an amendment of any
other terms or provisions of the Credit Agreement. This Amendment shall not
establish a course of dealing or be construed as evidence of any willingness on
the Bank's part to grant other or future amendments, should any be requested.
IN WITNESS WHEREOF, the parties have entered into the Agreement as of
the day and year first above written.
BANK ONE, NA ROBERDS, INC.
By: /s/ Terry Warncke By: /s/ Wayne B. Hawkins
----------------------- -------------------------
Title: Vice President Title: Treasurer
<PAGE> 1
EXHIBIT 10.8
================================================================================
=======================================
LOAN AND SECURITY AGREEMENT
=======================================
BANKBOSTON RETAIL FINANCE INC.
AGENT FOR
THE LENDERS REFERENCED HEREIN
ROBERDS, INC.
THE BORROWER
=======================================
March 3, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<PAGE> 3
EXHIBITS
2-7 : Revolving Credit Note
4-2 : Related Entities
4-3 : Trade Names
4-6 : Locations, Leases, and Landlords
4-7 : Encumbrances
4-7(b) : Consigned Inventory
4-8 : Indebtedness
4-9 : Insurance Policies
4-11 : Capital Leases
4-14 : Taxes
4-17(a)(ii) : Hazardous Sites
4-18 : Litigation
5-4 : Borrowing Base Certificate
6-4(c) : List of Bonds
7-1 : DDA's.
7-2 : Credit Card Arrangements
<PAGE> 4
LOAN AND SECURITY AGREEMENT BANKBOSTON RETAIL FINANCE INC.
AGENT
March ___, 1999
THIS AGREEMENT is made between
BankBoston Retail Finance Inc. (in such capacity, herein the
"AGENT"), a Delaware corporation with offices at 40 Broad Street,
Boston, Massachusetts 02109, as agent for the ratable benefit of the
"LENDERS", who are, at present, those financial institutions identified
on the signature pages of this Agreement and who in the future are
those Persons (if any) who become "Lenders" in accordance with the
provisions of Section 2-21, below,
and
Roberds, Inc. (hereinafter, "Agent Borrower" and a
"Borrower"), an Ohio corporation with its principal executive offices
at 1100 East Central Avenue, Dayton, Ohio 45449-1888 in consideration
of the mutual covenants contained herein and benefits to be derived
herefrom,
WITNESSETH:
ARTICLE I - DEFINITIONS:
As herein used, the following terms have the following meanings or are
defined in the section of this Agreement so indicated:
"ACCEPTABLE FEDERAL TAX REFUND": Such portion of the Federal Tax Refund
as the Agent in its sole discretion from time to time
determines to be acceptable for borrowing, as to which Federal
Tax Refund, the Agent has a perfected security interest which
is prior and superior to all security interests, claims, and
all other Encumbrances other than Permitted Encumbrances.
"ACCEPTABLE INVENTORY": Such of the Borrower's Inventory, at such
locations, and of such types, character, qualities and
quantities, as the Agent in its sole discretion from time to
time determines to be acceptable for borrowing, as to which
Inventory, the Agent has a perfected security interest which
is prior and superior to all security interests, claims, and
all Encumbrances other than Permitted Encumbrances.
"ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts,
accounts receivable, credit card receivables, notes, drafts,
acceptances, and other forms of obligations and receivables
and rights to payment for credit extended and for goods sold
or leased, or services rendered, whether or not yet earned by
performance; all "contract rights" as formerly defined in the
UCC; all Inventory which gave rise thereto, and all rights
associated with such Inventory, including the right of
stoppage in transit; all reclaimed, returned, rejected or
repossessed Inventory (if any) the sale of which gave rise to
any Account.
"ACH": Automated clearing house.
"ACCOUNT DEBTOR": Has the meaning given that term in the UCC.
"AFFILIATE": With respect to any two Persons, a relationship in which
(a) one holds, directly or indi-
3
<PAGE> 5
rectly, not less than Twenty Five Percent (25%) of the capital
stock, beneficial interests, partnership interests, or other
equity interests of the other; or (b) one has, directly or
indirectly, the right, under ordinary circumstances, to vote
for the election of a majority of the directors (or other body
or Person who has those powers customarily vested in a board
of directors of a corporation); or (c) not less than Twenty
Five Percent (25%) of their respective ownership is directly
or indirectly held by the same third Person.
"AGENT": Is defined in the Preamble.
"AGENT'S FEE": Is defined in Section 2-11.
"AGENT'S RIGHTS AND REMEDIES": Is defined in Section 11-6.
"AVAILABILITY": Is defined in Section 2-1(b)(i).
"AVAILABILITY RESERVES": Such reserves as the Agent from time to time
determines in the Agent's discretion as being appropriate to
reflect the impediments to the Agent's ability to realize upon
the Collateral. Without limiting the generality of the
foregoing, Availability Reserves may include (but are not
limited to) reserves based on the following:
(i) Rent (based upon past due rent
and/or whether or not Landlord's
Waiver, acceptable to the Agent ,
has been received by the Agent );
provided, however, that solely in
the case of Borrower's retail
locations, the reserve for rent will
not exceed three months rent under
the applicable Lease.
(ii) In store customer credits.
(iii) Gift Certificates.
(iv) Frequent Shopper Programs.
(v) Layaways and Customer Deposits
(vi) Taxes and other governmental
charges, including, ad valorem,
personal property, and other taxes
which might have priority over the
security interests of the Agent in
the Collateral.
(vii) Year 2000 compliance.
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BASE": The Base Rate announced from time to time by BankBoston, N.A.
(or any successor in interest to BankBoston, N.A.). In the
event that said bank (or any such successor) ceases to
announce such a rate, "Base" shall refer to that rate or index
announced or published from time to time as the Agent, in good
faith, designates as the functional equivalent to said Base
Rate. Any change in "Base" shall be effective, for purposes of
the calculation of interest due hereunder, when such change is
made effective generally by the bank on whose rate or index
"Base" is being set. In all events, interest which is
determined by reference to Base (or any successor to Base)
shall be calculated on a 360 day year and actual days elapsed.
"BASE MARGIN LOAN": Each Revolving Credit Loan while bearing interest
at the Base Margin Rate.
"BASE MARGIN RATE": The aggregate of Base plus Zero Percent (0.0%) per
annum, subject to adjustment, from time to time, based upon
the Interest Rate Pricing Grid.
"BLOCKED ACCOUNT": Is defined in Section 7-3.
"BORROWER": Is defined in the Preamble.
"BORROWING BASE": Is defined in Section 2-1(b)(ii).
"BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b) any
day on which banks in Boston,
4
<PAGE> 6
Massachusetts, generally are not open to the general public
for the purpose of conducting commercial banking business; or
(c) a day on which the Agent is not open to the general public
to conduct business.
"CAPITAL EXPENDITURES": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.
"CAPITAL LEASE": Any lease which may be capitalized in accordance with
GAAP.
"CHANGE IN CONTROL": The occurrence of any of the following:
(a) The acquisition subsequent to the date of this
Agreement of 30% or more of the Voting Stock of the Borrower,
by any group of persons (within the meaning of the Securities
Exchange Act of 1934, as amended) or by any Person, of
beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission) holding as of the date of
this Agreement less than 30% of the Voting Stock of the
Borrower.
(b) The acquisition subsequent to the date of this
Agreement of an additional 5% or more of the Voting Stock of
the Borrower, by any group of persons (within the meaning of
the Securities Exchange Act of 1934, as amended) or by any
Person, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission) holding as of
the date of this Agreement more than 30% of the Voting Stock
of the Borrower.
(c) More than half of the persons who were directors
of the Borrower on the first day of any period consisting of
Twelve (12) consecutive calendar months (the first of which
Twelve (12) month periods commencing with the first day of the
month during which this Agreement was executed), cease, for
any reason other than death or disability, to be directors of
the Borrower.
"CHATTEL PAPER": Has the meaning given that term in the UCC.
"COLLATERAL": Is defined in Section 8-1.
"COMMITMENT" and "COMMITMENT PERCENTAGE": Subject to 2-21, the
following amounts and percentages:
<TABLE>
<CAPTION>
----------------------------------------------- ---------------------------- ----------------------------
Commitment Commitment
Lender Amount (Percentages)
----------------------------------------------- ---------------------------- ----------------------------
<S> <C> <C>
National City Commercial Finance, Inc. $10,000,000 33.33%
----------------------------------------------- ---------------------------- ----------------------------
BankBoston Retail Finance Inc. $20,000,000 66.67%
----------------------------------------------- ---------------------------- ----------------------------
</TABLE>
"CONCENTRATION ACCOUNT": Is defined in Section 7-3.
"COST": The lower of
(a) the calculated cost of purchases, as determined
from invoices received by the Borrower, the Borrower's
purchase journal or stock ledger, based upon the Borrower's
accounting practices, known to the Lender, which practices are
in effect on the date on which this Agreement was executed; or
(b) the cost equivalent of the lowest ticketed or
promoted price at which the subject inventory is offered to
the public, after all mark-downs (whether or not such price is
then reflected on the Borrower's accounting system), which
cost equivalent is determined in accordance with the retail
method of accounting, reflecting the Borrower's historic
business practices. "Cost" does not include inventory
capitalization costs or other non-purchase price charges (such
as freight) used in the Borrower's calculation of cost of
goods sold.
"COSTS OF COLLECTION": Includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred
by the Agent's and any Lender's attorneys, and all reasonable
costs incurred by the Agent or any Lender in the
administration of the Liabilities and/or the Loan Documents,
including, without limitation, reasonable costs and expenses
associated with travel on behalf
5
<PAGE> 7
of the Agent or any Lender, which costs and expenses are
directly or indirectly related to or in respect of the Agent's
and any Lender's: administration and management of the
Liabilities; negotiation, documentation, and amendment of any
Loan Document; or efforts to preserve, protect, collect, or
enforce the Collateral, the Liabilities, and/or the Agent's
Rights and Remedies and/or any of the Agent's rights and
remedies against or in respect of any guarantor or other
person liable in respect of the Liabilities (whether or not
suit is instituted in connection with such efforts). The Costs
of Collection are Liabilities, and at the Agent's option may
bear interest at the highest post-default rate which the Agent
may charge the Borrower hereunder as if such had been lent,
advanced, and credited by the Agent to, or for the benefit of,
the Borrower.
"DDA": Any checking or other demand daily depository account maintained
by the Borrower.
"DEPOSIT ACCOUNT": Has the meaning given that term in the UCC.
"DOCUMENTS": Has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.
"DOLLAR COMMITMENT": As provided in the Definition of "Commitment",
above.
"EARLY TERMINATION FEE": Is defined in Section 2-13.
"EBITDA": The Borrower's: (i) earnings before interest, taxes,
depreciation, and amortization, each as determined in
accordance with GAAP, applying a FIFO (first in, first out)
convention to determine cost of goods sold to, in turn,
calculate earnings, plus (ii) non-cash losses from the
disposition of fixed assets.
"EMPLOYEE BENEFIT PLAN": As defined in ERISA.
"ENCUMBRANCE": Each of the following:
(a) Any security interest, mortgage, pledge,
hypothecation, lien, attachment, or charge of any kind
(including any agreement to give any of the foregoing); the
interest of a lessor under a Capital Lease; conditional sale
or other title retention agreement; sale of accounts
receivable or chattel paper; or other arrangement pursuant to
which any Person is entitled to any preference or priority
with respect to the property or assets of another Person or
the income or profits of such other Person or which
constitutes an interest in property to secure an obligation;
each of the foregoing whether consensual or non-consensual and
whether arising by way of agreement, operation of law, legal
process or otherwise.
(b) The filing of any financing statement under the
UCC or comparable law of any jurisdiction.
"END DATE": The date upon which both (a) all Liabilities have been paid
in full and (b) all obligations of any Lender to make loans
and advances and to provide other financial accommodations to
the Borrower hereunder shall have been irrevocably terminated.
"ENVIRONMENTAL LAWS": All of the following:
(a) Any and all federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes,
decrees or requirements which regulate or relate to, or impose
any standard of conduct or liability on account of or in
respect to environmental protection matters, including,
without limitation, Hazardous Materials, as are now or
hereafter in effect.
(b) The common law relating to damage to Persons or
property from Hazardous Materials.
"EQUIPMENT": Includes, without limitation, "equipment" as defined in
the UCC, and also all motor vehicles, rolling stock,
machinery, office equipment, plant equipment, tools, dies,
molds, store fixtures, office furniture, and other goods,
property, and assets which are used and/or were purchased for
use
6
<PAGE> 8
in the operation or furtherance of the Borrower's business,
and any and all accessions or additions thereto, and
substitutions therefor.
"ERISA": The Employee Retirement Security Act of 1974, as amended.
"ERISA AFFILIATE": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is
part of a group which includes the Borrower and which would be
treated as a single employer under Section 414 of the Internal
Revenue Code of 1986, as amended.
"EVENTS OF DEFAULT": Is defined in Article 10.
"FEDERAL FUNDS EFFECTIVE RATE": For any day, a fluctuating per annum
interest rate equal to the weighted average of the rates on
overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as
published on that date (or on the then next succeeding
Business Day, if not one) by the Federal Reserve Bank of New
York, provided that if such a rate is not so published for a
day which is a Business Day, Federal Funds Effective Rate
shall be the average of quotations for such day on such
transactions received by the Agent from three federal funds
brokers of recognized standing selected by the Agent.
"FEDERAL TAX REFUND": The federal tax refund applied for by the
Borrowers with the IRS based upon the Borrower's 1998 federal
tax return in the amount of $2,201,633.00
"FEE LETTER": That letter, styled the "Fee Letter" between the Borrower
and the Agent, as such letter may from time to time be
amended.
"FIXED CHARGE COVERAGE RATIO": The decimal equivalent of a fraction,
the numerator of which is EBITDA and the denominator of which
is the aggregate of interest expense and cash payments of
principal, capital leases and income taxes, all as determined
on a rolling/trailing twelve (12) month basis.
"FIXTURES": Has the meaning given to that term under the laws of the
Commonwealth of Massachusetts.
"FUNDED DEBT": The principal of all Indebtedness for borrowed money
and Capital Lease obligations, whether secured or unsecured,
excluding Indebtedness the payment of which are subordinated
(on terms and conditions acceptable to Agent in its sole
discretion) to Indebtedness of Borrower due to the Agent.
"GAAP": Principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its
predecessors (or successors) in effect and applicable to that
accounting period in respect of which reference to GAAP is
being made, provided, however, in the event of a Material
Accounting Change, then unless otherwise specifically agreed
to by the Agent, (a) the Borrower's compliance with the
financial performance covenants imposed pursuant to Section
5-12 shall be determined as if such Material Accounting Change
had not taken place and (b) the Borrower shall include, with
its monthly, quarterly, and annual financial statements a
schedule, certified by the Borrower's chief financial officer,
on which the effect of such Material Accounting Change to the
statement with which provided shall be described.
"GENERAL INTANGIBLES": Includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to
payment for credit extended; deposits; amounts due to the
Borrower; credit memoranda in favor of the Borrower; warranty
claims; tax refunds and abatements; insurance refunds and
premium rebates; all means and vehicles of investment or
hedging, including, without limitation, options, warrants, and
futures contracts; records; customer lists; telephone numbers;
goodwill; causes of action; judgments; payments under any
settlement or other agreement; literary rights; rights to
performance; royalties; license and/or franchise fees; rights
of admission; licenses; franchises; license agreements,
including all rights of the Borrower to enforce same; permits,
certificates of con-
7
<PAGE> 9
venience and necessity, and similar rights granted by any
governmental authority; patents, patent applications, patents
pending, and other intellectual property; Internet addresses
and domain names; developmental ideas and concepts;
proprietary processes; blueprints, drawings, designs,
diagrams, plans, reports, and charts; catalogs; manuals;
technical data; computer software programs (including the
source and object codes therefor), computer records, computer
software, rights of access to computer record service bureaus,
service bureau computer contracts, and computer data; tapes,
disks, semi-conductors chips and printouts; trade secrets
rights, copyrights, mask work rights and interests, and
derivative works and interests; user, technical reference, and
other manuals and materials; trade names, trademarks, service
marks, and all goodwill relating thereto; applications for
registration of the foregoing; and all other general
intangible property of the Borrower in the nature of
intellectual property; proposals; cost estimates, and
reproductions on paper, or otherwise, of any and all concepts
or ideas, and any matter related to, or connected with, the
design, development, manufacture, sale, marketing, leasing, or
use of any or all property produced, sold, or leased, by the
Borrower or credit extended or services performed, by the
Borrower, whether intended for an individual customer or the
general business of the Borrower, or used or useful in
connection with research by the Borrower.
"GOODS": Has the meaning given that term in the UCC.
"GROSS MARGIN": With respect to the subject accounting period for which
being calculated, the decimal equivalent of the following
(determined in accordance with the retail method of
accounting):
Sales (Minus) Cost Of Goods Sold
--------------------------------
Sales
"HAZARDOUS MATERIALS": Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as
to any of the foregoing) are defined or regulated as a
hazardous material in or under any Environmental Law and (b)
oil in any physical state.
"INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any
indebtedness which is non-recourse to the credit of such
Person but which is secured by an Encumbrance on any asset of
such Person) whether or not evidenced by a promissory note,
bond, debenture or other written obligation to pay money.
(b) In connection with any letter of credit or
acceptance transaction (including, without limitation, the
face amount of all letters of credit and acceptances issued
for the account of such Person or reimbursement on account of
which such Person would be obligated).
(c) In connection with the sale or discount of
accounts receivable or chattel paper of such Person.
(d) On account of deposits or advances.
(e) As lessee under Capital Leases. "Indebtedness"
also includes:
(x) Indebtedness of others secured by an
Encumbrance on any asset of such Person, whether or
not such Indebtedness is assumed by such Person.
(y) Any guaranty, endorsement, suretyship or
other undertaking pursuant to which that Person may
be liable on account of any obligation of any third
party.
(z) The Indebtedness of a partnership or
joint venture in which such Person is a general
partner or joint venturer.
"INDEMNIFIED PERSON": Is defined in Section 14-11.
"INSTRUMENTS": Has the meaning given that term in the UCC.
"INTEREST PAYMENT DATE": With reference to:
Each Libor Loan: The last day of each month; the last
day of the Interest Period relating thereto; the Termination
Date; and the End Date.
8
<PAGE> 10
Each Base Margin Loan: the first day of each month;
the Termination Date; and the End Date.
"INTEREST PERIOD":
(a) With respect to each Libor Loan: Subject to
Subsection (c), below, the period commencing on the date of
the making or continuation of, or conversion to, the subject
Libor Loan and ending one, two, or three months thereafter, as
the Borrower may elect by notice (pursuant to Section 2-4(a))
to the Agent.
(b) With respect to each Base Margin Loan: Subject to
Subsection (c), below, the period commencing on the date of
the making or continuation of or conversion to such Base
Margin Loan and ending on that date (i) as of which the
subject Base Margin Loan is converted to a Libor Loan, as the
Borrower may elect by notice (pursuant to Section 2-4(a)) to
the Agent, or (ii) on which the subject Base Margin Loan is
paid by the Borrower.
(c) The setting of Interest Periods is in all
instances subject to the following:
(i) Any Interest Period for a Base Margin
Loan which would otherwise end on a day which is not
a Business Day shall be extended to the next
succeeding Business Day.
(ii) Any Interest Period for a Libor Loan
which would otherwise end on a day that is not a
Business Day shall be extended to the next succeeding
Business Day, unless that succeeding Business Day is
in the next calendar month, in which event such
Interest Period shall end on the last Business Day of
the month during which the Interest Period ends.
(iii) Subject to Subsection (iv), below, any
Interest Period applicable to a Libor Loan, which
Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month
during which such Interest Period ends, shall end on
the last Business Day of the month during which that
Interest Period ends.
(iv) Any Interest Period which would
otherwise end after the Termination Date shall end on
the Termination Date.
(v) The number of Interest Periods in effect
at any one time is subject to Section 2-9(d) hereof.
"INTEREST RATE PRICING GRID": Commencing with the first day of any
fiscal quarter after the Agent's receipt of the Borrower's
audited financial statement for the Borrower's fiscal year
ending in December of 1999, the Libor Margin and Base Margin
shall be reset quarterly for loans initiated on or after the
date when so reset, and shall be based upon the following
pricing grid:
<TABLE>
<CAPTION>
- ----------- ------------------------------- ------------------------------------------ -------------- ---------------
TIER FIXED CHARGE RATIO ROLLING 12 MONTH AVERAGE EXCESS BASE MARGIN LIBOR MARGIN
AVAILABILITY (Basis (Basis Points)
Points)
- ----------- ------------------------------- ------------------------------------------ -------------- ---------------
<S> <C> <C> <C> <C>
I Equal to or greater than 2.3 Equal to or greater than $7,500,000 -0- 175
- ----------- ------------------------------- ------------------------------------------ -------------- ---------------
II Equal to or greater than 2.3 Less than $7,500,000 -0- 200
- ----------- ------------------------------- ------------------------------------------ -------------- ---------------
III Equal to or greater than 1.8 N/A -0- 225
but less than 2.3
- ----------- ------------------------------- ------------------------------------------ -------------- ---------------
IV Less than 1.8 N/A 25 250
- ----------- ------------------------------- ------------------------------------------ -------------- ---------------
</TABLE>
"INVENTORY": Includes, without limitation, "inventory" as defined in
the UCC and also all: packaging, advertising, and shipping
materials related to any of the foregoing, and all names or
marks affixed or to be affixed thereto for identifying or
selling the same; Goods held for sale or lease or furnished or
to be furnished under a contract or contracts of sale or
service by the Borrower, or used or consumed or to be used or
consumed in the Borrower's business; Goods of said description
in transit: returned, repossessed and rejected Goods of said
description; and all documents (whether or not negotiable)
which represent any of the foregoing.
9
<PAGE> 11
"IRS": Internal Revenue Service.
"INVENTORY ADVANCE RATE": For each year of the Revolving Credit, the
following percentages during the periods indicated:
<TABLE>
<CAPTION>
- ----------------------------------------------------------- ---------------------------------------------------------
Period Percentage
- ----------------------------------------------------------- ---------------------------------------------------------
<S> <C>
February 1 through and including April 30 65%
- ----------------------------------------------------------- ---------------------------------------------------------
May 1 through and including June 30 67%
- ----------------------------------------------------------- ---------------------------------------------------------
July 1 through and including September 30 65%
- ----------------------------------------------------------- ---------------------------------------------------------
October 1 through and including January 31 68%
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
"INVENTORY RESERVES": Such Reserves as may be established from time to
time by the Agent in the Agent's discretion with respect to
the determination of the saleability, at retail, of the
Acceptable Inventory or which reflect such other factors as
affect the market value of the Acceptable Inventory. Without
limiting the generality of the foregoing, Inventory Reserves
may include (but are not limited to) reserves based on the
following:
(i) Obsolescence (determined based upon
Inventory on hand beyond a given
number of days).
(ii) Shrinkage.
(iii) Change in Inventory character as
existing as of the date of this
Agreement.
(iv) Change in Inventory composition as
existing as of the date of this
Agreement.
(v) Change in Inventory mix as existing
as of the date of this Agreement.
(vi) Markdowns (both permanent and point
of sale)
(vii) Retail markons and markups
inconsistent with prior period
practice and performance; industry
standards; current business plans;
or advertising calendar and planned
advertising events.
(viii) Return to vendors (RTVs), damages,
and repairs.
(ix) Inventory upon which customer
deposits have been received.
"INVESTMENT PROPERTY": Has the meaning given that term in the UCC.
"IRS": Internal Revenue Service.
"ISSUER": The issuer of any L/C.
"L/C": Any letter of credit, the issuance of which is procured by the
Agent for the account of the Borrower and any acceptance made
on account of such letter of credit.
"L/C LANDING COSTS": To the extent not included in the Stated Amount of
an L/C, customs, duty, freight, and other out-of-pocket costs
and expenses which will be expended to "land" the Inventory,
the purchase of which is supported by such L/C.
"LEASE": Any lease or other agreement, no matter how styled or
structured, pursuant to which the Borrower is entitled to the
use or occupancy of any space.
"LEASEHOLD INTEREST": Any interest of the Borrower as lessee under any
Lease.
"LENDERS": Defined in the Preamble to this Agreement
"LIABILITIES" (in the singular, "Liability"): Includes, without
limitation, all and each of the following, whether now
existing or hereafter arising:
10
<PAGE> 12
(a) Any and all direct and indirect liabilities,
debts, and obligations of the Borrower to the Agent or any
Lender, each of every kind, nature, and description.
(b) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or
hereafter owing by the Borrower to the Agent or any Lender
(including all future advances whether or not made pursuant to
a commitment by the Agent or any Lender), whether or not any
of such are liquidated, unliquidated, primary, secondary,
secured, unsecured, direct, indirect, absolute, contingent, or
of any other type, nature, or description, or by reason of any
cause of action which the Agent or any Lender may hold against
the Borrower.
(c) All notes and other obligations of the Borrower
now or hereafter assigned to or held by the Agent or any
Lender, each of every kind, nature, and description.
(d) All interest, fees, and charges and other amounts
which may be charged by the Agent or any Lender to the
Borrower and/or which may be due from the Borrower to the
Agent or any Lender from time to time.
(e) All costs and expenses incurred or paid by the
Agent or any Lender in respect of any agreement between the
Borrower and Agent or any the Lender or instrument furnished
by the Borrower to the Agent or any Lender (including, without
limitation, Costs of Collection, attorneys' reasonable fees,
and all court and litigation costs and expenses).
(f) Any and all covenants of the Borrower to or with
the Agent or any Lender and any and all obligations of the
Borrower to act or to refrain from acting in accordance with
any agreement between the Borrower and the Agent or any Lender
or instrument furnished by the Borrower to the Agent or any
Lender.
(g) Each of the foregoing as if each reference to the
"Agent and each Lender" therein were to each Affiliate of
the Agent or any Lender.
"LIBOR BUSINESS DAY": Any day which is both a Business Day and a day on
which the principal interbank market for Libor deposits in
London in which BankBoston, N.A. participates is open for
dealings in United States Dollar deposits.
"LIBOR LOAN": Any Revolving Credit Loan which bears interest at a Libor
Rate.
"LIBOR OFFER RATE": That rate of interest (rounded upwards, if
necessary, to the next 1/100 of 1%) determined by the Agent to
be the highest prevailing rate per annum at which deposits on
U.S. Dollars are offered to BankBoston, N.A., by first-class
banks in the London interbank market in which BankBoston, N.A.
participates at or about 10:00 A.M. (Boston Time) Two (2)
Libor Business Days before the first day of the Interest
Period for the subject Libor Loan, for a deposit approximately
in the amount of the subject loan for a period of time
approximately equal to such Interest Period.
"LIBOR MARGIN": 225 basis points, subject to adjustment based upon the
Interest Rate Pricing Grid.
"LIBOR RATE": That per annum rate (calculated on a 360 day year and
actual days elapsed) which is the aggregate of the Libor Offer
Rate plus the Libor Margin except that, in the event that it
is determined by the Agent that any Lender may be subject to
the Reserve Percentage, the "Libor Rate" shall mean, with
respect to any Libor Loans then outstanding (from the date on
which that Reserve Percentage first became applicable to such
loans), and with respect to all Libor Loans thereafter made,
an interest rate per annum equal the sum of (a) plus (b),
where:
(a) is the decimal equivalent of the following
fraction:
Libor Offer Rate
----------------
1 minus Reserve Percentage
(b) the applicable Libor Margin.
"LINE (UNUSED) FEE": Is defined in Section 2-12.
"LOAN ACCOUNT": Is defined in Section 2-6.
11
<PAGE> 13
"LOAN CEILING": Thirty Million Dollars ($30,000,000), or such lesser
amount as Agent may establish following the occurrence of an
Event of Default.
"LOAN DOCUMENTS": This Agreement, each instrument and document executed
and/or delivered as contemplated by Article 3, below, and each
other instrument or document from time to time executed and/or
delivered in connection with the arrangements contemplated
hereby or in connection with any transaction with the Agent or
any Lender or any Affiliate of the Agent or any Lender,
including, without limitation, any transaction which arises
out of any cash management, depository, investment, letter of
credit, interest rate protection, or equipment leasing
services provided by the Agent or any Lender or any Affiliate
of the Agent or any Lender, as each may be amended from time
to time.
"LOCAL DDA": A depository account maintained by the Borrower, the only
contents of which may be transfers from the Operating Account
and actually used solely (i) for petty cash purposes; or (ii)
for payroll.
"MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to
accounting periods subsequent to the Borrower's fiscal year
most recently completed prior to the execution of this
Agreement, which change has a material effect on the
Borrower's financial condition or operating results, as
reflected on financial statements and reports prepared by or
for the Borrower, when compared with such condition or results
as if such change had not taken place or where preparation of
the Borrower's statements and reports in compliance with such
change results in the breach of a financial performance
covenant imposed pursuant to Section 5-12 where such a breach
would not have occurred if such change had not taken place or
visa versa.
"MATURITY DATE": March 3, 2004.
"OPERATING ACCOUNT": Is defined in Section 7-3.
"PARTICIPANT": Is defined in Section 14-14, hereof.
"PERMITTED ENCUMBRANCES": Those Encumbrances permitted as provided in
Section 4-7(a) hereof.
"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other
enterprise or entity.
"PROCEEDS": Includes, without limitation, "Proceeds" as defined in the
UCC (defined below), and each type of property described in
Section 8-1 hereof.
"RECEIPTS": All cash, cash equivalents, checks, and credit card slips
and receipts as arise out of the sale of the Collateral.
"RECEIVABLES COLLATERAL": That portion of the Collateral which consists
of the Borrower's Accounts, Accounts Receivable, General
Intangibles, Chattel Paper, Instruments, Documents of Title,
Documents, Investment Property, letters of credit for the
benefit of the Borrower, and bankers' acceptances held by the
Borrower, and any rights to payment.
"REFUND ADVANCE RATE": (a) For the period from the date the Borrower
files the last document necessary to complete its application
for its Federal Tax Refund through and including the earlier
of (i) payment by the IRS of the Federal Tax Refund or (ii)
August 31, 1999, Sixty Percent (60%), and (b) for all other
periods, Zero Percent (0%).
"RELATED ENTITY": (a) Any corporation, limited liability company,
trust, partnership, joint venture, or other enterprise which:
is a parent, brother-sister, subsidiary, or affiliate, of the
Borrower; could have such enterprise's tax returns or
financial statements consolidated with the Borrower's; could
be a member of the same controlled group of corporations
(within the meaning of
12
<PAGE> 14
Section 1563(a)(1), (2) and (3) of the Internal Revenue Code
of 1986, as amended from time to time) of which the Borrower
is a member; controls or is controlled by the Borrower or by
any Affiliate of the Borrower.
(b) Any Affiliate.
"REQUIREMENT OF LAW": As to any Person:
(a)(i) All statutes, rules, regulations, orders, or
other requirements having the force of law and (ii) all court
orders and injunctions, arbitrator's decisions, and/or similar
rulings, in each instance ((i) and (ii)) of or by any federal,
state, municipal, and other governmental authority, or court,
tribunal, panel, or other body which has or claims
jurisdiction over such Person, or any property of such Person,
or of any other Person for whose conduct such Person would be
responsible.
(b) That Person's charter, certificate of
incorporation, articles of organization, and/or other
organizational documents, as applicable; and (c) that Person's
by-laws and/or other instruments which deal with corporate or
similar governance, as applicable.
"RESERVE PERCENTAGE": The decimal equivalent of that rate applicable to
a Lender under regulations issued from time to time by the
Board of Governors of the Federal Reserve System for
determining the maximum reserve requirement of that Lender
with respect to "Eurocurrency liabilities" as defined in such
regulations. The Reserve Percentage applicable to a particular
Eurodollar Loan shall be based upon that in effect during the
subject Interest Period, with changes in the Reserve
Percentage which take effect during such Interest Period to
take effect (and to consequently change any interest rate
determined with reference to the Reserve Percentage) if and
when such change is applicable to such loans.
"RESERVES": All (if any) Availability Reserves and Inventory Reserves.
"REVOLVING CREDIT": Is defined in Section 2-1.
"REVOLVING CREDIT NOTE": Is defined in Section 2-7.
"REVOLVING CREDIT LOAN": A term of convenience which refers to so much
of the unpaid principal balance of the Loan Account as bears
the same rate of interest for the same Interest Period. (See
Section 2-9(c)).
"STATED AMOUNT": The maximum amount for which an L/C may be honored.
"SUSPENSION EVENT": Any occurrence, circumstance, or state of facts
which (a) is an Event of Default; or (b) would become an Event
of Default if any requisite notice were given and/or any
requisite period of time were to run and such occurrence,
circumstance, or state of facts were not absolutely cured
within any applicable grace period.
"TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 10-11 hereof; or
(c) date set by notice by the Agent to the Borrower, which
notice sets the Termination Date on account of the occurrence
of any Event of Default other than as described in Section
10-11 hereof.
"TRIPARTY AGREEMENT": That certain Triparty Federal Tax Refund
Agreement dated as of March 3, 1999 by and among the Borrower,
the Lender, and Deloitte & Touche LLP as same may be amended
from time to time.
"UCC": The Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
"UPFRONT FEE": Is defined in Section 2-10.
"VOTING STOCK": Any issued and outstanding capital stock of the
Borrower having the right, under ordinary
13
<PAGE> 15
circumstances, to vote for the election of directors of the
Borrower.
"YEAR 2000 COMPLIANT": Computer applications, imbedded microchips, and
other systems and subsystems which properly recognize and
perform their intended function without any adverse effect on
account of their respective inability to recognize certain
dates prior to, on, and after December 31, 1999 or on account
of their treating any date prior to, on, or after December 31,
1999 other than as the specific date in question.
ARTICLE II - THE REVOLVING CREDIT:
2.1. ESTABLISHMENT OF REVOLVING CREDIT.
(a) The Lenders hereby establish a revolving line of credit
(the "REVOLVING CREDIT") in the Borrower's favor pursuant to which each Lender,
subject to, and in accordance with, this Agreement, acting through the Agent,
shall make loans and advances and otherwise provide financial accommodations to
and for the account of the Borrower as provided herein, in each instance equal
to that Lender's Commitment Percentage of Availability, up to the maximum amount
of that Lender's Dollar Commitment. The amount available for borrowing under the
Revolving Credit shall be determined by the Agent by reference to Availability,
as determined by the Agent from time to time.
(b) As used herein, the following terms have the following
meanings:
(i) "AVAILABILITY" refers at any time to
the result of the following:
(A) Borrowing Base.
Minus
(B) The then unpaid principal
balance of the Loan Account.
Minus
(C) The then Stated Amount of all
L/C's.
(ii) "BORROWING BASE" refers at any time
to the lesser of 2-1(b)(ii)(A) or
2-1(b)(ii)(B), where:
(A) is the Loan Ceiling.
(B) is the result of the following:
(I) The Inventory
Advance Rate of
the Cost of
Acceptable
Inventory (net of
Inventory
Reserves).
Plus
(II) The Refund Advance
Rate of the
Acceptable Federal
Tax Refund up to a
maximum of One
Million Three
Hundred and Eighty
Thousand Dollars
($1,380,000) (net
of any offsets,
settlements, or
future taxes due
to the IRS);
provided however,
the Triparty
Agreement is and
remains
enforceable and
there does not
exist a continuing
event of default
thereunder.
Minus
(III) The then aggregate
of the Availability
Reserves.
(c) Availability shall be based upon Borrowing Base
Certificates furnished as provided in Section 5-4 hereof.
(d) The proceeds of borrowings under the Revolving Credit
shall be used solely in accordance with the Borrower's BUSINESS PLAN provided to
the Lender and for working capital purposes of the Borrower, to pay off the
Borrower's existing credit facility extended by Bank One, N.A., and for its
Capital Expenditures, all solely to the extent permitted by this Agreement.
(e) Availability based upon the Federal Tax Refund is further
subject to Agent's determination that (i) Borrower has, in the sole
determination of Agent, satisfactorily settled disputes with the IRS related to
disputed tax liability amounts for years prior to the 1998 fiscal year of the
Borrower, (ii) Deloitte & Touche LLP or another accounting firm acceptable to
Agent has prepared and signed the 1998 federal tax return giving rise to the
Federal Tax Refund and (iii) Agent shall be otherwise satisfied, in its sole
determination, as to the actual amounts of the Federal Tax Refund.
2.2. ADVANCES IN EXCESS OF BORROWING BASE. No Lender has any obligation
to make any loan or advance, or otherwise to provide any credit for the benefit
of the Borrower such that the balance of the Loan Account exceeds the Borrowing
Base. The making of loans, advances, and credits and the providing of financial
accommodations in excess of the Borrowing Base is for the benefit of the
Borrower and does not affect the obligations of the Bor-
14
<PAGE> 16
rower hereunder; such loans, advances, credits, and financial accommodations
constitute Liabilities. The making of any such loans, advances, and credits and
the providing of financial accommodations, on any one occasion such that the
Borrowing Base is exceeded shall not obligate any Lender to make any such loans,
credits, or advances or to provide any financial accommodation on any other
occasion nor to permit such loans, credits, or advances to remain outstanding.
2.3. RISKS OF VALUE OF COLLATERAL. The Agent's reference to a given
asset in connection with the making of loans, credits, and advances and the
providing of financial accommodations under the Revolving Credit and/or the
monitoring of compliance with the provisions hereof shall not be deemed a
determination by the Agent or any Lender relative to the actual value of the
asset in question. All risks concerning the saleability of the Borrower's
Inventory are and remain upon the Borrower. All Collateral secures the prompt,
punctual, and faithful performance of the Liabilities whether or not relied upon
by the Agent or by any Lender in connection with the making of loans, credits,
and advances and the providing of financial accommodations under the Revolving
Credit.
2.4 LOAN REQUESTS.
(a) Subject to the provisions of this Agreement, a loan or
advance under the Revolving Credit duly and timely requested by the Borrower
shall be made pursuant hereto, provided that:
(i) Borrowing Base will not be exceeded; and
(ii) The Revolving Credit has not been suspended as
provided in Section 2-4(i).
(b) Requests for loans and advances under the Revolving Credit
may be requested by the Borrower in such manner as may from time to time be
acceptable to the Agent.
(c) Subject to the provisions of this Agreement, the Borrower
may request a Revolving Credit Loan and elect an interest rate and Interest
Period to be applicable to that Revolving Credit Loan by giving the Agent notice
no later than the following:
(i) If such Revolving Credit Loan is or is to be
converted to a Base Margin Loan: By 11:30 A.M. on the Business Day on
which the subject Revolving Credit Loan is to be made or is to be so
converted. Base Margin Loans requested by the Borrower, other than
those resulting from the conversion of a Libor Loan, shall not be less
than $10,000.00.
(ii) If such Revolving Credit Loan is, or is to be
continued as, or converted to, a Libor Loan: By 1:00 P.M. Three (3)
Libor Business Days before the end of the then applicable Interest
Period. Libor Loans and conversions to Libor Loans shall each be not
less than $1,000,000 and in increments of $100,000 in excess of such
minimum.
(iii) Any Libor Loan which matures while a Suspension
Event is extant shall be converted, at the option of the Agent to a
Base Margin Loan notwithstanding any notice from the Borrower that such
Loan is to be continued as a Libor Loan.
(d) Any request for a Revolving Credit Loan or for the
conversion of a Revolving Credit Loan which is made after the applicable
deadline therefor, as set forth above, shall be deemed to have been made at the
opening of business on the then next Business Day or Libor Business Day, as
applicable. Each request for a Revolving Credit Loan or for the conversion of a
Revolving Credit Loan shall be made in such manner as may from time to time be
acceptable to the Agent
(e) If, during the thirty (30) days immediately preceding the
day on which a loan request is made there has been no unpaid principal balance
in the Loan Account on account of loans and advances under the Revolving Credit,
the loan so requested shall be made (subject to all other provisions of this
Agreement) no later than the Third Business Day after (and not counting) the day
on which the loan otherwise would have been made as provided above.
(f) The Borrower may request that the Agent cause the issuance
of L/C's for the account of the Borrower as provided in Section 2-16.
(g) The Agent may rely on any request for a loan or advance,
or other financial accommodation under the Revolving Credit which the Agent, in
good faith, believes to have been made by a Person duly authorized to act on
behalf of the Borrower and may decline to make any such requested loan or
advance, or issuance, or to provide any such financial accommodation pending the
Agent's being furnished with such documentation concerning that Person's
authority to act as may be satisfactory to the Agent.
(h) A request by the Borrower for loan or advance, or other
financial accommodation under the Revolving Credit shall be irrevocable and
shall constitute certification by the Borrower that as of the date of such
request, each of the following is true and correct:
(i) There has been no material adverse change in the
Borrower's financial condition
15
<PAGE> 17
from the most recent financial information furnished Agent or any
Lender pursuant to this Agreement.
(ii) The Borrower is in compliance with, and has not
breached any of, its covenants contained in this Agreement.
(iii) All or a portion of any loan or advance so
requested will be set aside by the Borrower to cover all of the
Borrower's obligations for sales tax on account of sales since the then
most recent borrowing pursuant to the Revolving Credit.
(iv) Each representation which is made herein or in
any of the Loan Documents (defined below) is then true and complete as
of and as if made on the date of such request.
(v) No Suspension Event is then extant.
(i) Upon the occurrence from time to time of any Suspension
Event:
(i) The Agent may suspend the Revolving Credit
immediately.
(ii) Neither the Agent nor any Lender shall be
obligated, during such suspension, to make any loans or advance, or to
provide any financial accommodation hereunder or to seek the issuance
of any L/C.
(iii) The Agent may suspend the right of the Borrower
to request any Libor Loan or to convert any Base Margin Loan to a Libor
Loan.
2.5 MAKING OF LOANS UNDER REVOLVING CREDIT.
(a) A loan or advance under the Revolving Credit shall be made
by the transfer of the proceeds of such loan or advance to the Operating Account
or as otherwise instructed by the Borrower.
(b) A loan or advance shall be deemed to have been made under
the Revolving Credit (and the Borrower shall be indebted to the Agent for the
amount thereof immediately) at the following:
(i) The Agent's initiation of the transfer of the
proceeds of such loan or advance in accordance with the Borrower's
instructions (if such loan or advance is of funds requested by the
Borrower).
(ii) The charging of the amount of such loan to the
Loan Account (in all other circumstances).
(c) There shall not be any recourse to or liability of the
Agent or any Lender, on account of:
(i) Any delay in the making of any loan or advance
requested under the Revolving Credit.
(ii) Any delay in the proceeds of any such loan or
advance constituting collected funds.
(iii) Any delay in the receipt, and/or any loss, of
funds which constitute a loan or advance under the Revolving Credit,
the wire transfer of which was properly initiated by the Agent in
accordance with wire instructions provided to the Agent by the
Borrower.
2.6 THE LOAN ACCOUNT.
(a) An account ("LOAN ACCOUNT") shall be opened on the books
of the Agent. A record may be kept in the Loan Account of all loans made under
or pursuant to this Agreement and of all payments thereon.
(b) The Agent may also keep a record (either in the Loan
Account or elsewhere, as the Agent may from time to time elect) of all interest,
fees, service charges, costs, expenses, and other debits owed the Agent and each
Lender on account of the Liabilities and of all credits against such amounts so
owed.
(c) All credits against the Liabilities shall be conditional
upon final payment to the Agent for the Account of each Lender of the items
giving rise to such credits. The amount of any item credited against the
Liabilities which is charged back against Agent or any Lender for any reason or
is not so paid shall be a Liability and shall be added to the Loan Account,
whether or not the item so charged back or not so paid is returned.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrower is obligated hereunder are
payable on demand. In the determination of Availability, the Agent may deem
fees, service charges, accrued interest, and other payments which will be due
and payable between the date of such determination and the first day of the then
next succeeding month as having been advanced under the Revolving Credit whether
or not such amounts are then due and payable.
(e) The Agent, without the request of the Borrower, may
advance under the Revolving Credit any interest, fee, service charge, or other
payment to which the Agent or any Lender is entitled from the Borrower pursuant
hereto and may charge the same to the Loan Account notwithstanding that such
amount so advanced may result in Borrowing Base's being exceeded. Such action on
the part of the Agent shall not constitute a waiver of the Agent's rights and
Borrower's obligations under Section 2-8(b). Any amount which is added to the
principal balance of the Loan Account as provided in this Section 2-6(e) shall
bear interest , subject to Section 2-9(f), at the Base Mar-
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gin Rate.
(f) Any statement rendered by the Agent or any Lender to the
Borrower concerning the Liabilities shall be considered correct and accepted by
the Borrower and shall be conclusively binding upon the Borrower unless the
Borrower provides the Agent with written objection thereto within twenty (20)
days from the mailing of such statement, which written objection shall indicate,
with particularity, the reason for such objection. The Loan Account and the
Agent's books and records concerning the loan arrangement contemplated herein
and the Liabilities shall be prima facie evidence and proof of the items
described therein.
2.7 THE REVOLVING CREDIT NOTES. The obligation to repay loans and
advances under the Revolving Credit, with interest as provided herein, shall be
evidenced by Notes (each, a "REVOLVING CREDIT NOTE") in the form of EXHIBIT 2-7,
annexed hereto, executed by the Borrower, one payable to each Lender. Neither
the original nor a copy of any Revolving Credit Note shall be required, however,
to establish or prove any Liability. In the event that any Revolving Credit Note
is ever lost, mutilated, or destroyed, the Borrower shall execute a replacement
thereof and deliver such replacement to the Agent.
2.8 PAYMENT OF THE LOAN ACCOUNT.
(a) The Borrower may repay all or any portion of the principal
balance of the Loan Account from time to time until the Termination Date. Such
payments shall be applied first to Base Margin Loans and only then to Libor
Loans
(b) The Borrower, without notice or demand from the Agent or
any Lender, shall pay the Agent that amount, from time to time, which is
necessary so that the unpaid balance of the Loan Account does not exceed the
Borrowing Base. Such payments shall be applied first to Base Margin Loans and
only then to Libor Loans
(c) The Agent shall endeavor to cause those application of
payments (if any), pursuant to Sections 2-8(a) and 2-8(b) against Libor Loans
then outstanding in such manner as results in the least cost to the Borrower,
but shall not have any affirmative obligation to do so nor liability on account
of the Agent's failure to have done so. In no event shall action or inaction
taken by the Agent excuse the Borrower from any indemnification obligation under
Section 2-8(e).
(d) The Borrower shall repay the then entire unpaid balance of
the Loan Account and all other Liabilities on the Termination Date.
(e) The Borrower shall indemnify each Lender and hold each
Lender harmless from and against any loss, cost or expense (including loss of
anticipated profits) which such Lender may sustain or incur (including, without
limitation, by virtue of acceleration after the occurrence of any Event of
Default) as a consequence of the following:
(i) Default by the Borrower in payment of the
principal amount of or any interest on any Libor Loan as and when due
and payable, including any such loss or expense arising from interest
or fees payable by such Lender to lenders of funds obtained by it in
order to maintain its Libor Loans
(ii) Default by the Borrower in making a borrowing or
conversion after the Borrower has given (or is deemed to have given) a
request for a Revolving Credit Loan or a request to convert a Revolving
Credit Loan from one applicable interest rate to another.
(iii) The making of any payment on a Libor Loan or
the making of any conversion of any such Loan to a Base Margin Loan on
a day that is not the last day of the applicable Interest Period with
respect thereto, including interest or fees payable by such Lender to
lenders of funds obtained by it in order to maintain any such Loans as
"breakage fees" (so-called).
2.9 INTEREST RATES.
(a) Each Revolving Credit Loan shall bear interest at the Base
Margin Rate unless timely notice is given (as provided in Section 2-4(a)) that
the subject Revolving Credit Loan (or a portion thereof) is, or is to be
converted to, a Libor Loan.
(b) Each Revolving Credit Loan which consists of a Libor Loan
shall bear interest at the applicable Libor Rate.
(c) Subject to the provisions hereof, the Borrower, by notice
to the Agent, may cause all or a part of the unpaid principal balance of the
Loan Account to bear interest at the Base Margin Rate or the Libor Rate as
specified from time to time by the Borrower. For ease of reference and
administration, each part of the Loan Account which bears interest at the same
interest and for the same Interest Period is referred to herein as if it were a
separate "Revolving Credit Loan".
(d) The Borrower shall not select, renew, or convert any
interest rate for a Revolving Credit
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Loan such that, in addition to interest at the Base Margin Rate, there are more
than Five (5) Libor Rates applicable to the Revolving Credit Loans at any one
time.
(e) The Borrower shall pay accrued and unpaid
interest on each Revolving Credit Loan in arrears as follows:
(i) On the applicable Interest Payment Date
for that Revolving Credit Loan.
(ii) On the Termination Date and on the End
Date.
(iii) Following the occurrence of any Event
of Default, with such frequency as may be determined
by the Agent.
(f) Following the occurrence of any Event of Default
(and whether or not the Agent exercises the Agent's rights on
account thereof), all Revolving Credit Loans shall bear
interest, at the option of the Agent at rate which is the
aggregate of the Base Margin Rate plus Two Percent (2%) per
annum.
2.10 UPFRONT FEE. As compensation for the commitment of the Agent to
the Borrower to make loans and advances to the Borrower and as compensation for
its maintenance of sufficient funds for such purpose, the Agent has earned an
Upfront Fee (so referred to herein) at the times and in the amounts as set forth
in the Fee Letter.
2.11 INTENTIONALLY DELETED.
2.12 LINE (UNUSED) FEE. In addition to any other fee by the Borrower on
account of the Revolving Credit, the Borrower shall pay the Agent a LINE
(UNUSED) FEE (so referred to herein) in arrears, on the first day of each
quarter (and on the Termination Date). The Line (Unused) Fee shall be equal to
one quarter of one percent (0.25%) per annum of the average difference, during
the quarter just ended (or relevant period with respect to the payment being
made on the Termination Date) between the Loan Ceiling and the unpaid principal
balance of the Loan Account.
2.13 EARLY TERMINATION FEE.
(a) In the event that the Termination Date occurs, for any
reason, prior to the Maturity Date, the Borrower shall pay the Agent, for the
benefit of the Lenders, the EARLY TERMINATION FEE (so referred to herein)
determined and payable as follows:
(b) In the event that (i) the Termination Date occurs prior to
the Maturity Date for any reason, or (ii) the Borrower elects to prepay all
Liabilities in full and terminate this Agreement, or (iii) the Liabilities are
not paid in full on the Maturity Date (any such event being a "Termination
Event"), the Borrower shall pay the Agent, for the benefit of the Lenders, the
EARLY TERMINATION FEE (so referred to herein) determined and payable as follows,
(c) (i) if a Termination Event occurs prior to February 16,
2000, the Borrower shall pay to the Agent an Early Termination Fee equal to 1.0%
of the Loan Ceiling in effect on the date of this Agreement; and (ii) if the
Termination Event thereafter occurs, the Borrower shall pay to the Agent an
Early Termination Fee equal to 0.5% of the Loan Ceiling in effect on the date of
this Agreement.
(d) No Early Termination Fee shall be payable if such
termination is in concert with the establishment of a replacement senior secured
working capital facility provided or agented by BankBoston Retail Finance Inc.
or any of the affiliates (it being understood and agreed that the foregoing does
not constitute the commitment or agreement of BankBoston Retail Finance Inc. or
any of its affiliates to so refinance the Liabilities).
2.14 CONCERNING FEES.
(a) In addition to any other right to which the Agent is then
entitled on account thereof, the Agent may assess an additional fee payable by
the Borrower on account of the accommodation, from time to time, by the Agent to
the Borrower's request that the Agent depart or dispense with one or more of the
administrative provisions of this Agreement and/or the Borrower's failure to
comply with any of such provisions.
(i) By way of non-exclusive example, the
Agent may assess a fee on account of any of the
following:
(A) The Borrower's failure to pay that
amount which is necessary so that the principal balance of the
Loan Account does not exceed Borrowing Base (as required under
Section 2-8(b) hereof).
(B) The providing of a loan or advance under
the Revolving Credit or charging of the Loan Account such that
the Borrowing Base would be exceeded.
(C) The foreshortening of any of the time
frames with respect to the making of Revolving Credit Loans as
set forth in Section 2-4(a).
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(D) The Borrower's failure to provide a
financial statement or report within the applicable timeframe
provided for such report under Article 5 hereof.
(ii) The inclusion of the foregoing right on the part
of the Agent to assess a fee does not constitute an obligation, on the
part of the Agent, to waive any provision of this Agreement under any
circumstances. The assessment of any such fee in any particular
circumstance shall not constitute the Agent's waiver of any breach of
this Agreement on account of which such fee was assessed nor a course
of action on which the Borrower may rely.
(b) The Borrower shall not be entitled to any credit, rebate
or repayment of the Upfront Fee, Line (Unused) Fee, Early Termination Fee, or
other fee previously earned by the Agent or any Lender pursuant to this
Agreement notwithstanding any termination of this Agreement or suspension or
termination of the Agent's and any Lender's respective obligation to make loans
and advances hereunder.
2.15 AGENT'S AND LENDERS' DISCRETION.
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Agent or any Lender shall be to that Person's
exercise of its judgment, in good faith (which shall be presumed), based upon
that Person's consideration of any such factor as the Agent or that Lender,
taking into account information of which that Person then has actual knowledge,
believes:
(i) Will or reasonably could be expected to affect
the value of the Collateral, the enforceability of the Agent's security
and collateral interests therein, or the amount which the Agent would
likely realize therefrom (taking into account delays which may possibly
be encountered in the Lender's realizing upon the Collateral and likely
Costs of Collection).
(ii) Indicates that any report or financial
information delivered to the Agent or any Lender by or on behalf of the
Borrower is incomplete, inaccurate, or misleading in any material
manner or was not prepared in accordance with the requirements of this
Agreement.
(iii) Constitutes a Suspension Event.
(b) In the exercise of such judgment, the Agent and each
Lender also may take into account any of the following factors:
(i) Those included in, or tested by, the definitions
of "Acceptable Inventory," "Retail," and "Cost".
(ii) Material changes in or to the mix, character or
composition of the Borrower's Inventory.
(iii) Seasonality with respect to the Borrower's
Inventory and patterns of retail sales.
(iv) Such other factors as the Agent and each Lender
determines as having a material bearing on credit risks associated with
the providing of loans and financial accommodations to the Borrower.
(c) The burden of establishing the failure of the Agent or any
Lender to have acted in a reasonable manner in such Person's exercise of
discretion shall be the Borrower's.
2.16 PROCEDURES FOR ISSUANCE OF L/C'S.
(a) The Borrower may request that the Agent cause the issuance
of L/C's for the account of the Borrower. Each such request shall be in such
manner as may from time to time be acceptable to the Agent.
(b) The Agent will endeavor to cause the issuance of any L/C
so requested by the Borrower, provided that, at the time that the request is
made, the Revolving Credit has not been suspended as provided in Section 2-4(i)
and if so issued:
(i) The aggregate Stated Amount of all L/C's then
outstanding, does not exceed Three Million Dollars ($3,000,000).
(ii) The expiry of the L/C is not later than the
earlier of Thirty (30) days prior to the Maturity Date or the
following:
(A) Standby's: One (1) year from initial
issuance.
(B) Documentary's: Sixty (60) days
from issuance.
(iii) Borrowing Base would not be exceeded.
(c) The Borrower shall execute such documentation to apply for
and support the issuance of an L/C as may be required by the Issuer.
(d) There shall not be any recourse to, nor liability of, the
Agent or any Lender on account of
(i) Any delay or refusal by an Issuer to issue an
L/C;
(ii) Any action or inaction of an Issuer on account
of or in respect to, any L/C.
(e) The Borrower shall reimburse the Issuer for the amount of
any honoring of a drawing un-
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der an L/C on the same day on which such honoring takes place. The Agent,
without the request of the Borrower, may advance under the Revolving Credit (and
charge to the Loan Account) the amount of any honoring of any L/C and other
amount for which the Borrower, the Issuer, or the Lenders become obligated on
account of, or in respect to, any L/C. Such advance shall be made whether or not
a Suspension Event is then extant or such advance would result in Borrowing
Base's being exceeded. Such action shall not constitute a waiver of the Agent's
rights under Section 2-8(b) hereof.
2.17 FEES FOR L/C'S.
(a) The Borrower shall pay to the Agent a fee, on account of
L/C's, the issuance of which had been procured by the Agent, monthly in arrears,
and on the Termination Date and on the End Date, equal to 1.75% per annum of the
weighted average Stated Amount of all L/C's outstanding during the period in
respect of which such fee is being paid.
(b) In addition to the fee to be paid as provided in
Subsection 2-17(a), above, the Borrower shall pay to the Agent (or to the
Issuer, if so requested by Agent), on demand, all issuance, processing,
negotiation, amendment, and administrative fees and other amounts charged by the
Issuer on account of, or in respect to, any L/C.
2.18 CONCERNING L/C'S.
(a) None of the Issuer, the Issuer's correspondents, or any
advising, negotiating, or paying bank with respect to any L/C shall be
responsible in any way for:
(i) The performance by any beneficiary under any L/C
of that beneficiary's obligations to the Borrower.
(ii) The form, sufficiency, correctness, genuineness,
authority of any person signing; falsification; or the legal effect of;
any documents called for under any L/C if (with respect to the
foregoing) such documents on their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of any
L/C and of any drawing thereunder, any drafts or other documents otherwise in
order, but signed or issued by an administrator, executor, conservator, trustee
in bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular instance,
the Borrower hereby authorizes any Issuer to:
(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers
relating to any L/C are at the risk of the Borrower. The Issuer shall have
discharged the Issuer's obligations under any L/C which, or the drawing under
which, includes payment instructions, by the initiation of the method of payment
called for in, and in accordance with, such instructions (or by any other
commercially reasonable and comparable method). None of the Agent, any Lender,
nor the Issuer shall have any responsibility for any inaccuracy, interruption,
error, or delay in transmission or delivery by post, telegraph or cable, or for
any inaccuracy of translation.
(e) The Agent's, each Lender's, and the Issuer's rights,
powers, privileges and immunities specified in or arising under this Agreement
are in addition to any heretofore or at any time hereafter otherwise created or
arising, whether by statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided
hereunder or agreed to in writing by the Issuer and the Borrower, the L/C will
be governed by the Uniform Customs and Practice for Documentary Credits,
International Chamber of Commerce, Publication No. 500, and any subsequent
revisions thereof.
(g) If any change in any law, executive order or regulation,
or any directive of any administrative or governmental authority (whether or not
having the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) impose, modify or deem applicable any reserve,
special deposit or similar requirements against letters of credit
heretofore or hereafter issued by any Issuer or with respect to which
the Agent, any or any Issuer has an obligation to lend to fund drawings
under any L/C; or
(ii) impose on any Issuer any other condition or
requirements relating to any such letters of credit;
and the result of any event referred to in Section 2-18(g)(i) or 2-18(g)(ii),
above, shall be to increase the cost to any Issuer of issuing or maintaining any
L/C (which increase in cost shall be the result of such Issuer's reasonable
allocation among that Issuer's letter of credit customers of the aggregate of
such cost increases resulting from such events),
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then, upon demand by the Agent and delivery by the Agent to the Borrower of a
certificate of an officer of the subject Issuer describing such change in law,
executive order, regulation, directive, or interpretation thereof, its effect on
such Issuer, and the basis for determining such increased costs and their
allocation, the Borrower shall immediately pay to the Agent, from time to time
as specified by the Agent, such amounts as shall be sufficient to compensate
such Issuer for such increased cost. Any Issuer's determination of costs
incurred under Section 2-18(g)(i) or 2-18(g)(ii), above, and the allocation, if
any, of such costs among the Borrower and other letter of credit customers of
such Issuer, if done in good faith and made on an equitable basis and in
accordance with such officer's certificate, shall be conclusive and binding on
the Borrower.
(h) The obligations of the Borrower under this Agreement with
respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances,
whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or
restriction, restraint, or stay in the enforcement of this Agreement,
any L/C, or any other agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to the
departure from, any L/C.
(iii) The existence of any claim, set-off, defense,
or other right which the Borrower may have at any time against the
beneficiary of any L/C.
(iv) Any good faith honoring of a drawing under any
L/C, which drawing possibly could have been dishonored based upon a
strict construction of the terms of the L/C.
2.19 CHANGED CIRCUMSTANCES.
(a) The Agent may give the Borrower notice of the occurrence
of the following:
(i) The Agent shall have determined in good faith
(which determination shall be final and conclusive) on any day on which
the rate for a Libor Loan would otherwise be set, that adequate and
fair means do not exist for ascertaining such rate.
(ii) The Agent shall have determined in good faith
(which determination shall be final and conclusive) that:
(A) The continuation of or conversion of any
Revolving Credit Loan to a Libor Loan has been made
impracticable or unlawful by the occurrence of a contingency
that materially and adversely affects the applicable market or
compliance by the Agent or any Lender in good faith with any
applicable law or governmental regulation, guideline or order
or interpretation or change thereof by any governmental
authority charged with the interpretation or administration
thereof or with any request or directive of any such
governmental authority (whether or not having the force of
law).
(B) The indices on which the interest rates
for Libor Loans are based shall no longer represent the
effective cost to the Agent or any Lender for U.S. dollar
deposits in the interbank market for deposits in which it
regularly participates.
(b) In the event that the Agent gives the Borrower notice of
an occurrence described in Section 2-19(a), then, until the Agent notifies the
Borrower that the circumstances giving rise to such notice no longer apply:
(i) The obligation of the Agent and of each Lender to
make Libor Loans of the type affected by such changed circumstances or
to permit the Borrower to select the affected interest rate as
otherwise applicable to any Revolving Credit Loans shall be suspended.
(ii) Any notice which the Borrower had given the
Agent with respect to any Libor Loan, the time for action with respect
to which has not occurred prior to the Agent's having given notice
pursuant to Section 2-19(a), shall be deemed at the option of the Agent
to not having been given.
2.20 INCREASED COSTS. If, as a result of any requirement of law, or of
the interpretation or application thereof by any court or by any governmental or
other authority or entity charged with the administration thereof, whether or
not having the force of law, which:
(a) subjects any Lender to any taxes or changes the basis of
taxation, or increases any existing taxes, on payments of principal, interest or
other amounts payable by the Borrower to the Agent or any Lender under this
Agreement (except for taxes on the Agent or any Lender's overall net income or
capital imposed by the jurisdiction in which the Agent or that Lender's
principal or lending offices are located);
(b) imposes, modifies or deems applicable any reserve, cash
margin, special deposit or similar requirements against assets held by, or
deposits in or for the account of or loans by or any other acquisition of funds
by the relevant funding office of any Lender;
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(c) imposes on any Lender any other condition with respect to
any Loan Document; or
(d) imposes on any Lender a requirement to maintain or
allocate capital in relation to the Liabilities;
and the result of any of the foregoing, in the such Lender's reasonable opinion,
is to increase the cost to that Lender of making or maintaining any loan,
advance or financial accommodation or to reduce the income receivable by such
Lender in respect of any loan, advance or financial accommodation by an amount
which the such Lender deems to be material, then upon the Agent's giving written
notice thereof, from time to time, to the Borrower (such notice to set out in
reasonable detail the facts giving rise to and a summary calculation of such
increased cost or reduced income), the Borrower shall forthwith pay to the
Agent, for the benefit of the subject Lender, upon receipt of such notice,
that amount which shall compensate the subject Lender for such additional cost
or reduction in income.
2.21 LENDERS' COMMITMENTS.
(a) The obligations of each Lender are several and not joint.
No Lender shall have any obligation to make any loan or advance under the
Revolving Credit in excess of the lesser of
(i) that Lender's Commitment Percentage of the
subject loan or advance or of Availability; or
(ii) that Lender's Dollar Commitment,
(b) No Lender shall have any liability to the Borrower on
account of the failure of any other Lender to provide any loan or advance under
the Revolving Credit nor any obligation to make up any shortfall which may be
created by such failure.
(c) The Dollar Commitments, Commitment Percentages, and
identities of the Lenders (but not the overall Commitment) may be changed, from
time to time by the reallocation or assignment of Dollar Commitments and
Commitment Percentages amongst the Lenders or with other Persons who determine
to become "Lenders", provided, however,
(i) Unless an Event of Default has occurred (in which
event, no consent of the Borrower is required) any assignment to a
Person not then a Lender shall be subject to the prior consent of the
Borrower (not to be unreasonably withheld), which consent will be
deemed given unless the Borrower provides the Agent with written
objection, not more than Five (5) Business Days after the Agent shall
have given the Borrower written notice of a proposed assignment).
(ii) Any such assignment or reallocation shall be on
a pro-rata basis such that each reallocated or assigned Dollar
Commitment to any Person remains the same percentage of the overall
Commitment (in terms of dollars) as the reallocated Commitment
Percentage is to such Person.
(d) Upon written notice given the Borrower from time to time
by the Agent, of any assignment or allocation referenced in Section 2-21(c):
(i) The Borrower shall execute replacement one or
more Revolving Credit Notes to reflect such changed Dollar Commitments,
Commitment Percentages, and identities and shall deliver such
replacement Revolving Credit Notes to the Agent (which promptly
thereafter shall deliver to the Borrower the Revolving Credit Notes so
replaced) provided however, in the event that a Revolving Credit Note
is to be exchanged following its acceleration or the entry of an order
for relief under the Bankruptcy Code with respect to the Borrower, the
Agent, in lieu of causing the Borrower to execute one or more new
Revolving Credit Notes, may issue the Agent's Certificate confirming
the resulting Commitments and Commitment Percentages.
(ii) Such change shall be effective from the
effective date specified in such written notice and any Person added as
a Lender shall have all rights and privileges of a Lender hereunder
thereafter as if such Person had been a signatory to this Agreement and
any other Loan Document to which a Lender is a signatory and any person
removed as a Lender shall be relieved of any obligations or
responsibilities of a Lender hereunder thereafter.
(e) The Borrower recognizes that the Agent's exercise of any
discretion accorded to the Agent herein and of its rights, remedies, powers,
privileges, and discretions with respect to the Borrower is subject to a certain
Agency Agreement amongst the Agent and the Lenders.
ARTICLE III - CONDITIONS PRECEDENT:
As a condition to the effectiveness of this Agreement, the
establishment of the Revolving Credit, and the making of the first loan under
the Revolving Credit, each of the documents respectively described in Sections
3-1 through and including 3-5, and 3-11 (each in form and substance satisfactory
to the Agent) shall have been delivered to the Agent, and the conditions
respectively described in Sections 3-6 through and including 3-10, shall have
been
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satisfied:
3.1. CORPORATE DUE DILIGENCE.
(a) A Certificate of corporate good standing issued by the
Secretary of State of Ohio, Indiana, Florida and Georgia.
(b) Certificates of due qualification, in good standing,
issued by the Secretary(ies) of State of each State in which the nature of the
Borrower's business conducted or assets owned could require such qualification.
(c) A Certificate of the Borrower's Secretary of the due
adoption, continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
3.2. OPINION. An opinion of counsel to the Borrower in form and
substance reasonably satisfactory to the Agent.
3.3. LANDLORD WAIVERS. The delivery to the Agent of Landlord Waivers
(each in form satisfactory to the Agent) for all warehouses and locations owned
by Affiliates or Related Entities of the Borrower.
3.4. ADDITIONAL DOCUMENTS. Such additional instruments and documents as
the Agent or its counsel reasonably may require or request, including but not
limited to the Triparty Agreement executed by the parties thereto.
3.5. OFFICERS' CERTIFICATES. Certificates executed by the President and
the Chief Financial Officer of the Borrower and stating that the representations
and warranties made by the Borrower to the Agent and the Lenders in the Loan
Documents are true and complete as of the date of such Certificate, and that no
event has occurred which is or which, solely with the giving of notice or
passage of time (or both) would be an Event of Default.
3.6. REPRESENTATIONS AND WARRANTIES. Each of the representations made
by or on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by or
on behalf of the Borrower shall be true and complete as of the date as of which
such representation or warranty was made.
3.7. MINIMUM EXCESS AVAILABILITY. The Borrowing Base, after giving
effect to the first funding under the Revolving Credit; all then held checks (if
any); accounts payable which are beyond credit terms then accorded the Borrower;
overdrafts; (excluding checks not yet presented to the bank) any charges to the
Loan Account made in connection with the establishment of the credit facility
contemplated hereby; and L/C's to be issued at, or immediately subsequent to,
such establishment, is not less than Three Million Five Hundred Thousand Dollars
($3,500,000.00).
3.8. ALL FEES AND EXPENSES PAID. All fees due at or immediately after
the first funding under the Revolving Credit and all costs and expenses incurred
by the Agent in connection with the establishment of the credit facility
contemplated hereby (including the fees and expenses of counsel to the Agent)
shall have been paid.
3.9. NO SUSPENSION EVENT. No Suspension Event shall then exist.
3.10. NO ADVERSE CHANGE. No event shall have occurred or failed to
occur, which occurrence or failure is or could have a materially adverse effect
upon the Borrower's financial condition when compared with the Borrower's
projections dated January 28, 1999 or from the Borrower's unaudited financial
statements at, and for the period closing at the end of, December 31, 1998.
3.11. GUARANTEE PLEDGE. A guarantee of Roberd Insurance Agency, Inc. in
favor of the Agent and pledge of all of the shares of stock of Roberd Insurance
Agency, Inc. from the Borrower to the Agent, in form and substance satisfactory
to the Agent.
No document shall be deemed delivered to the Agent or any Lender until received
and accepted by the Agent at its head offices in Boston, Massachusetts. Under no
circumstances will this Agreement take effect until executed and accepted by the
Agent at said head office.
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ARTICLE IV - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
To induce each Lender to establish the loan arrangement contemplated
herein and to make loans and advances and to provide financial accommodations
under the Revolving Credit (each of which loans shall be deemed to have been
made in reliance thereupon) the Borrower, in addition to all other
representations, warranties, and covenants made by the Borrower in any other
Loan Document, makes those representations, warranties, and covenants included
in this Agreement.
4.1. PAYMENT AND PERFORMANCE OF LIABILITIES. The Borrower shall pay
each Liability when due (or when demanded if payable on demand) and shall
promptly, punctually, and faithfully perform each other Liability.
4.2. DUE ORGANIZATION - CORPORATE AUTHORIZATION - NO CONFLICTS.
(a) The Borrower presently is and shall hereafter remain in
good standing as an Ohio corporation and is and shall hereafter remain duly
qualified and in good standing in every other State in which, by reason of the
nature or location of the Borrower's assets or operation of the Borrower's
business, such qualification may be necessary.
(b) Each Related Entity is listed on EXHIBIT 4-2, annexed
hereto. Each Related Entity is and shall hereafter remain in good standing in
the State in which incorporated and is and shall hereafter remain duly qualified
in which other State in which, by reason of that entity's assets or the
operation of such entity's business, such qualification may be necessary. The
Borrower shall provide the Agent with prior written notice of any entity's
becoming or ceasing to be a Related Entity.
(c) The Borrower shall not change its State of incorporation
nor its taxpayer identification number.
(d) The Borrower has all requisite corporate power and
authority to execute and deliver all Loan Documents to which the Borrower is a
party and has and will hereafter retain all requisite corporate power to perform
all Liabilities.
(e) The execution and delivery by the Borrower of each Loan
Document to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary
corporate action.
(ii) Do not, and will not, contravene in any material
respect any provision of any Requirement of Law or obligation of the
Borrower.
(iii) Will not result in the creation or imposition
of, or the obligation to create or impose, any Encumbrance upon any
assets of the Borrower pursuant to any Requirement of Law or
obligation, except pursuant to the Loan Documents.
(f) The Loan Documents have been duly executed and delivered
by the Borrower and are the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective
terms.
(g) Borrower has no Affiliates other than Roberd Insurance
Agency, Inc., and will not at any time hereafter acquire any other Affiliates.
4.3. TRADE NAMES.
(a) EXHIBIT 4-3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever conducted
its business.
(ii) All entities and/or persons with whom the
Borrower ever consolidated or merged, or from whom the Borrower ever
acquired in a single transaction or in a series of related transactions
substantially all of such entity's or person's assets.
(b) The Borrower will not change its name or conduct its
business under any name not listed on EXHIBIT 4-3 except (i) upon not less than
twenty-one (21) days prior written notice (with reasonable particularity) to the
Agent and (ii) in compliance with all other provisions of this Agreement.
4.4. INFRASTRUCTURE.
(a) The Borrower has and will maintain a sufficient
infrastructure to conduct its business as presently conducted and as
contemplated to be conducted as described in the BUSINESS PLAN.
(b) To the Borrower's best knowledge and belief, the Borrower
owns and possesses, or has the right to use (and will hereafter own, possess, or
have such right to use) all patents, industrial designs, trademarks,
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trade names, trade styles, brand names, service marks, logos, copyrights, trade
secrets, know-how, confidential information, and other intellectual or
proprietary property of any third Person necessary for the Borrower's conduct of
the Borrower's business.
(c) To the Borrower's best knowledge and belief, the conduct
by the Borrower of the Borrower's business does not presently infringe (nor will
the Borrower conduct its business in the future so as to infringe) the patents,
industrial designs, trademarks, trade names, trade styles, brand names, service
marks, logos, copyrights, trade secrets, know-how, confidential information, or
other intellectual or proprietary property of any third Person.
4.5. YEAR 2000 COMPLIANCE. On or before September 30,
1999, the Borrower shall remedy all Year 2000 Problem deficiencies it may have
with existing computer applications that could have a material adverse effect on
the Borrower's business operations, to the Agent's reasonable satisfaction. The
Borrower will not employ any computer application hereafter unless the Borrower
shall have first made a diligent inquiry to assure that no Year 2000 Problem
will arise on account of the use of such application.
4.6. LOCATIONS.
(a) The Collateral, and the books, records, and papers of the
Borrower pertaining thereto, are kept and maintained solely at the Borrower's
chief executive offices at
(i) 1000 and 1100 East Central Avenue, Dayton, Ohio;
and
(ii) those locations which are listed on EXHIBIT 4-6,
annexed hereto, which EXHIBIT includes, with respect to each such
location, the name and address of the landlord on the Lease which
covers such location (or an indication that the Borrower owns the
subject location) and of all service bureaus with which any such
records are maintained and the names and addresses of each of the
Borrower's landlords.
(b) The Borrower shall not remove any of the Collateral from
said chief executive office or those locations listed on EXHIBIT 4-6 except to:
(i) accomplish sales of Inventory in the ordinary
course of business; or
(ii) move Inventory from one such location to another
such location; or
(iii) utilize such of the Collateral as is removed
from such locations in the ordinary course of business (such as motor
vehicles).
(iv) The Borrower will not commit to, or open or
close any location at which the Borrower maintains, offers for sales,
or stores any of the Collateral.
(v) The Borrower may execute, alter, modify, or amend
any Lease, provided that, any such new Lease or alteration,
modification, or amendment to an existing Lease reflects commercially
reasonable and fair market terms that would have been negotiated in an
arms-length Lease.
(c) Except as otherwise disclosed pursuant to, or permitted
by, this Section 4-6, no tangible personal property of the Borrower is in the
care or custody of any third party or stored or entrusted with a bailee or other
third party and none shall hereafter be placed under such care, custody,
storage, or entrustment.
4.7. TITLE TO ASSETS.
(a) The Borrower is, and shall hereafter remain, the owner of
the Collateral free and clear of all Encumbrances with the exceptions of the
following (the "PERMITTED ENCUMBRANCES"):
(i) Encumbrances in favor of the Agent.
(ii) Those Encumbrances (if any) listed on
EXHIBIT 4-7, annexed hereto.
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower, except for as provided on EXHIBIT
4.7(b), which consigned property shall not exceed $1 million valued at Cost.
(c) The Borrower shall not acquire or obtain the right to use
any Equipment, the acquisition or right to use of which Equipment is otherwise
permitted by this Agreement, in which Equipment any third party has an interest,
except for:
(i) Equipment which is merely incidental to the
conduct of the Borrower's business.
(ii) Equipment, the acquisition or right to use of
which has been consented to by the Agent, which consent may be
conditioned upon the Agent's receipt of such agreement with the third
party which has an interest in such Equipment as is satisfactory to the
Agent.
4.8. INDEBTEDNESS. The Borrower does not and shall not hereafter have
any Indebtedness with the exceptions of:
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(a) Any Indebtedness to the Lenders.
(b) The Indebtedness (if any) listed on EXHIBIT 4-8, annexed
hereto.
(c) Funded Debt other than amounts due on account of the
Revolving Credit, incurred in connection with Equipment leasing or purchase
money Indebtedness for the acquisition of Equipment, up to a maximum aggregate
amount of Sixty Million Dollars ($60,000,000) outstanding at any one time.
4.9. INSURANCE POLICIES.
(a) EXHIBIT 4-9, annexed hereto, is a schedule of all
insurance policies owned by the Borrower or under which the Borrower is the
named insured. Each of such policies is in full force and effect. Neither the
issuer of any such policy nor the Borrower is in default or violation of any
such policy.
(b) The Borrower shall have and maintain at all times
insurance covering such risks, in such amounts, containing such terms, in such
form, for such periods, and written by such companies as may be reasonably
satisfactory to the Agent. The coverage reflected on EXHIBIT 4-9 presently
satisfies the foregoing requirements, it being recognized by the Borrower,
however, that such requirements may change hereafter to reflect changing
circumstances. All insurance carried by the Borrower shall provide for a minimum
of Sixty (60) days' written notice of cancellation to the Agent and all such
insurance which covers the Collateral shall include an endorsement in favor of
the Agent, which endorsement shall provide that the insurance, to the extent of
the Agent's interest therein, shall not be impaired or invalidated, in whole or
in part, by reason of any act or neglect of the Borrower or by the failure of
the Borrower to comply with any warranty or condition of the policy. In the
event of the failure by the Borrower to maintain insurance as required herein,
the Agent, at its option, may obtain such insurance, provided, however, the
Agent's obtaining of such insurance shall not constitute a cure or waiver of any
Event of Default occasioned by the Borrower's failure to have maintained such
insurance. The Borrower shall furnish to the Agent certificates or other
evidence satisfactory to the Agent regarding compliance by the Borrower with the
foregoing insurance provisions.
(c) The Borrower shall advise the Agent of each claim in
excess of $100,000 made by the Borrower under any policy of insurance which
covers the Collateral and will permit the Agent, at the Agent's option in each
instance, to the exclusion of the Borrower, to conduct the adjustment of each
such claim (and of all claims following the occurrence of any Suspension Event).
The Borrower hereby appoints the Agent as the Borrower's attorney in fact to
obtain, adjust, settle, and cancel any insurance described in this section and
to endorse in favor of the Agent any and all drafts and other instruments with
respect to such insurance. The within appointment, being coupled with an
interest, is irrevocable until this Agreement is terminated by a written
instrument executed by a duly authorized officer of the Agent. The Agent shall
not be liable on account of any exercise pursuant to said power except for any
exercise in actual willful misconduct and bad faith. The Agent will apply any
proceeds of such insurance against the Liabilities, whether or not such have
matured, in such order of application as the Agent may determine.
4.10. LICENSES. Each license, distributorship, franchise, and similar
agreement issued to, or to which the Borrower is a party is in full force and
effect. No party to any such license or agreement is in default or violation
thereof. The Borrower has not received any notice or threat of cancellation of
any such license or agreement.
4.11. LEASES. EXHIBIT 4-11, annexed hereto, is a schedule of all
presently effective Capital Leases. Exhibit 4-6 includes a list of all other
presently effective Leases. Each of such Leases and Capital Leases is in full
force and effect. No party to any such Lease or Capital Lease is in default or
violation of any such Lease or Capital Lease and the Borrower has not received
any notice or threat of cancellation of any such Lease or Capital Lease. The
Borrower hereby authorizes the Agent at any time and from time to time to
contact any of the Borrower's landlords in order to confirm the Borrower's
continued compliance with the terms and conditions of the Lease(s) between the
Borrower and that landlord and to discuss such issues, concerning the Borrower's
occupancy under such Lease(s), as the Agent may determine following the
occurrence and during the continuance of an Event of Default or upon Lender
learning that Borrower is and continues to be past due with any landlord.
4.12. REQUIREMENTS OF LAW. The Borrower is in compliance with, and
shall hereafter comply with and use its assets in compliance with, all
Requirements of Law. The Borrower has not received any notice of any violation
of any Requirement of Law (whether or not such violation is material), which
violation has not been cured or otherwise remedied.
4.13. MAINTAIN PROPERTIES. The Borrower shall:
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
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(b) Not suffer or cause the waste or destruction of any
material part of the Collateral.
(c) Not use any of the Collateral in violation of any policy
of insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
(i) The sale of Inventory in compliance with this
Agreement.
(ii) The disposal of Equipment which is obsolete,
worn out, or damaged beyond repair, which Equipment is replaced to the
extent necessary to preserve or improve the operating efficiency of the
Borrower.
(iii) The turning over to the Agent of all Receipts
as provided herein.
4.14. PAY TAXES.
(a) The Borrower has received written notice from the Internal
Revenue Service that the Internal Revenue Service has completed its examination
of the Borrower's federal income tax returns for all tax years through and
including the Borrower's taxable year referenced on EXHIBIT 4-14, annexed
hereto, and that all deficiencies, assessments, and other amounts asserted as a
result of such examinations have been fully paid or settled. No agreement is
extant which waives or extends any statute of limitations applicable to the
right of the Internal Revenue Service to assert a deficiency or make any other
claim for or in respect to federal income taxes. The Borrower is not aware of
any issues which have been raised in any such examination which, by application
of similar principles, reasonably could be expected to result in the assertion
of a deficiency for any fiscal year open for examination, assessment, or claim
by the Internal Revenue Service, which is not reflected in the Borrower's
financial statements.
(b) The Borrower has received written notice from the
respective state and local taxing authorities to which the Borrower is subject
that such authorities have completed their respective examination of the
Borrower's returns for all state and local income, excise, sales, and other
taxes for which the Borrower is liable for the respective tax years referenced
on EXHIBIT 4-14, annexed hereto, and that all deficiencies, assessments, and
other amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is extant which waives or extends any statute of
limitations applicable to the right of any state taxing authority to assert a
deficiency or make any other claim for or in respect to any such state taxes. No
issue has been raised in any such examination which, by application of similar
principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by any
state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 4-14, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any other taxing authority.
(d) The Borrower has, and hereafter shall: pay, as they become
due and payable, all taxes and unemployment contributions and other charges of
any kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority except for such
taxes as the Borrower disputes in good faith and for which it has established
adequate reserves; properly exercise any trust responsibilities imposed upon the
Borrower by reason of withholding from employees' pay or by reason of the
Borrower's receipt of sales tax or other funds for the account of any third
party; timely make all contributions and other payments as may be required
pursuant to any Employee Benefit Plan now or hereafter established by the
Borrower; and timely file all tax and other returns and other reports with each
governmental authority to whom the Borrower is obligated to so file.
(e) At its option, the Agent may, but shall not be obligated
to, pay any taxes, unemployment contributions, and any and all other charges
levied or assessed upon the Borrower or the Collateral by any person or entity
or governmental authority, and make any contributions or other payments on
account of the Borrower's Employee Benefit Plan as the Agent, in the Agent's
discretion, may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Agent's making of
any such payment shall not constitute a cure or waiver of any Event of Default
occasioned by the Borrower's failure to have made such payment.
4.15. NO MARGIN STOCK. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations U, T, and X of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
4.16. ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
hereafter shall:
(a) Violate or fail to be in full compliance with the
Borrower's Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by
ERISA to be filed by the Borrower.
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(c) Engage in any "prohibited transactions" or "reportable
events" (respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty
could be imposed upon the Borrower on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the
meaning of ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could
be asserted against any assets of the Borrower on account thereof pursuant to
ERISA.
(g) Be a member of, contribute to, or have any obligation
under any Employee Benefit Plan which is a multi-employer plan within the
meaning of Section 4001(a) of ERISA.
4.17. HAZARDOUS MATERIALS.
(a) The Borrower has never:
(i) Been legally responsible for any release or
threat of release of any Hazardous Material.
(ii) Received notification of any release or threat
of release of any Hazardous Material from any site or vessel occupied
or operated by the Borrower and/or of the incurrence of any expense or
loss in connection with the assessment, containment, or removal of any
release or threat of release of any Hazardous Material from any such
site or vessel, except as disclosed to Agent in EXHIBIT 4.17(a)(ii)
hereto.
(b) The Borrower shall:
(i) Dispose of any Hazardous Material only in
compliance with all Environmental Laws.
(ii) Not store on any site or vessel occupied or
operated by the Borrower and not transport or arrange for the transport
of any Hazardous Material, except if such storage or transport is in
the ordinary course of the Borrower's business and is in compliance
with all Environmental Laws.
(c) The Borrower shall provide the Agent with written notice
upon the Borrower's obtaining knowledge of any incurrence of any expense or loss
by any governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
4.18. LITIGATION. Except as described in EXHIBIT 4-18, annexed hereto,
there is not presently pending or threatened by or against the Borrower any
suit, action, proceeding, or investigation which, if determined adversely to the
Borrower, would have a material adverse effect upon the Borrower's financial
condition or ability to conduct its business as such business is presently
conducted or is contemplated to be conducted in the foreseeable future.
4.19. DIVIDENDS OR INVESTMENTS. The Borrower shall not:
(a) Pay any cash dividend or make any other distribution in
respect of any class of the Borrower's capital stock.
(b) Own, redeem, retire, purchase, or acquire any of the
Borrower's capital stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity.
(d) Merge or consolidate or be merged or consolidated with or
into any other corporation or other entity.
(e) Consolidate any of the Borrower's operations with those of
any other corporation or other entity.
(f) Organize or create any Related Entity.
(g) Subordinate any debts or obligations owed to the Borrower
by any third party to any other debts owed by such third party to any other
Person.
(h) Acquire any assets other than in the ordinary course and
conduct of the Borrower's business as conducted at the execution of this
Agreement.
4.20. LOANS. The Borrower shall not make any loans or advances to, nor
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
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expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
(c) Advances to The Roberds, Inc. Health & Welfare Benefit
Trust in amounts not to exceed $1 million in the aggregate at any one time,
provided there does not exist a continuing Suspension Event or Event of Default.
4.21. PROTECTION OF ASSETS. The Agent, in the Agent's discretion, and
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Agent may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Agent shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Agent has had an opportunity to be heard), from which finding no further appeal
is available, that the Agent had acted in actual bad faith or in a grossly
negligent manner. The Borrower shall pay to the Agent, on demand, or the Agent,
in its discretion, may add to the Loan Account, all amounts paid or incurred by
the Agent pursuant to this section. The obligation of the Borrower to pay such
amounts is a Liability.
4.22. LINE OF BUSINESS. The Borrower shall not engage in any business
other than the business in which it is currently engaged or a business
reasonably related thereto.
4.23. AFFILIATE TRANSACTIONS. The Borrower shall not make any payment,
nor give any value to any Related Entity except for goods and services actually
purchased by the Borrower from, or sold by the Borrower to, such Related Entity
for a price and on terms which shall
(a) be competitive and fully deductible as an "ordinary and
necessary business expense" and/or fully depreciable under the Internal Revenue
Code of 1986 and the Treasury Regulations, each as amended; and
(b) no be less favorable from those which would have been
charged in an arms length transaction.
4.24. ADDITIONAL ASSURANCES.
(a) The Borrower is not the owner of, nor has it any interest
in, any property or asset which, immediately upon the satisfaction of the
conditions precedent to the effectiveness of the credit facility contemplated
hereby (Article 3) will be not be subject to a perfected security or other
collateral interest in favor of the Agent (subject only to Permitted
Encumbrances) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or any
interest in property which is not, immediately upon such acquisition, subject to
such a perfected security or other collateral interest in favor of the Agent to
secure the Liabilities (subject only to Permitted Encumbrances).
(c) The Borrower shall execute and deliver to the Agent such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Agent may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Agent's security interests
in the Collateral; and to comply with all applicable statutes and laws, and
facilitate the collection of the Receivables Collateral and the Federal Tax
Refund. The Borrower shall execute all such instruments as may be required by
the Agent with respect to the recordation and/or perfection of the security
interests created herein and assignments made hereby.
(d) The Borrower hereby designates the Agent as and for the
Borrower's true and lawful attorney, with full power of substitution, to sign
and file any financing statements in order to perfect or protect the Agent's
security and other collateral interests in the Collateral.
(e) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section 4-24 shall be sufficient for filing to perfect the security
interests granted herein.
4.25. ADEQUACY OF DISCLOSURE.
(a) All financial statements furnished to the Agent and each
Lender by the Borrower has been prepared in accordance with GAAP consistently
applied and present fairly the condition of the Borrower at the date(s) thereof
and the results of operations and cash flows for the period(s) covered. There
has been no change in the financial condition, results of operations, or cash
flows of the Borrower since the date(s) of such financial statements, other than
changes in the ordinary course of business, which changes have not been
materially adverse, either singularly or in the aggregate.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or
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Capital Lease which is not noted in the Borrower's financial statements
furnished to the Agent and each Lender prior to the execution of this Agreement.
(c) No document, instrument, agreement, or paper now or
hereafter given the Agent or any Lender by or on behalf of the Borrower or any
guarantor of the Liabilities in connection with the execution of this Agreement
by the Agent and each Lender contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements therein not misleading. There is no fact known to the
Borrower which has, or which, in the foreseeable future could have, a material
adverse effect on the financial condition of the Borrower or any such guarantor
which has not been disclosed in writing to the Agent and each Lender.
4.26. OTHER COVENANTS. The Borrower shall not indirectly do or cause to
be done any act which, if done directly by the Borrower, would breach any
covenant contained in this Agreement.
ARTICLE V - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
5.1. MAINTAIN RECORDS. The Borrower shall:
(a) At all times, keep proper books of account, in which full,
true, and accurate entries shall be made of all of the Borrower's transactions,
all in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the periods in question.
(b) Timely provide the Agent with those financial reports,
statements, and schedules required by this Article 5 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of the
Collateral including, without limitation, accurate current stock, cost, and
sales records of its Inventory, accurately and sufficiently itemizing and
describing the kinds, types, and quantities of Inventory and the cost and
selling prices thereof.
(d) At all times, retain independent certified public
accountants who are reasonably satisfactory to the Agent and instruct such
accountants to fully cooperate with, and be available to, the Agent and each
Lender to discuss the Borrower's financial performance, financial condition,
operating results, controls, and such other matters, within the scope of the
retention of such accountants, as may be raised by the Agent or that Lender.
(e) Not change the Borrower's fiscal year.
5.2. ACCESS TO RECORDS.
(a) The Borrower shall accord the Agent and the Agent's
representatives with access from time to time as the Agent and such
representatives may require to all properties owned by or over which the
Borrower has control. The Agent and the Agent's representatives shall have the
right, and the Borrower will permit the Agent and such representatives from time
to time as the Agent and such representatives may request, to examine, inspect,
copy, and make extracts from any and all of the Borrower's books, records,
electronically stored data, papers, and files. The Borrower shall make all of
the Borrower's copying facilities available to the Agent.
(b) The Borrower hereby authorizes the Agent and the Agent's
representatives to:
(i) Inspect, copy, duplicate, review, cause to be
reduced to hard copy, run off, draw off, and otherwise use any and all
computer or electronically stored information or data which relates to
the Borrower, or any service bureau, contractor, accountant, or other
person, and directs any such service bureau, contractor, accountant, or
other person fully to cooperate with the Agent and the Agent's
representatives with respect thereto.
(ii) Verify at any time the Collateral or any portion
thereof, including verification with Account Debtors, and/or with the
Borrower's computer billing companies, collection agencies, and
accountants and to sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Collateral.
5.3. IMMEDIATE NOTICE TO AGENT.
(a) The Borrower shall provide the Agent with written notice
immediately upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
(i) Any change in the Borrower's Chief Executive
Officer, President, Treasurer, or Chief Accounting Officer.
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(ii) The completion of any physical count of the
Borrower's Inventory (together with a copy of the certified results
thereof).
(iii) Any ceasing of the Borrower's making of
payment, in the ordinary course, to any of its creditors (excluding the
ceasing of the making of such payments on account of a good faith
dispute with the subject creditor).
(iv) Any failure by the Borrower to pay rent at any
of the Borrower's locations, which failure continues for more than
Three (3) days following the day on which such rent first came due.
(v) Any material change in the business, operations,
or financial affairs of the Borrower.
(vi) The occurrence of any Suspension Event.
(vii) Any intention on the part of the Borrower to
discharge the Borrower's present independent accountants or any
withdrawal or resignation by such independent accountants from their
acting in such capacity (as to which, see Subsection 5-1(d)).
(viii) Any litigation which, if determined adversely
to the Borrower, might have a material adverse effect on the financial
condition of the Borrower.
(ix) Any delay in the Borrower's meeting the
timetable for its operations becoming Year 2000 Compliant as described
on EXHIBIT 4-5 or maintaining such operations as Year 2000 Compliant,
except where such delay or failure to so maintain will have no more
than a de minimus effect on the Borrower's operations.
(b) The Borrower shall:
(i) Provide the Agent, when so distributed, with
copies of any materials distributed to the shareholders of the Borrower
(qua such shareholders).
(ii) At the request of the Agent, from time to time,
provide the Agent with copies of all advertising (including copies of
all print advertising and duplicate tapes of all video and radio
advertising).
(iii) Provide the Agent, when received by the
Borrower, with a copy of any management letter or similar
communications from any accountant of the Borrower.
5.4. BORROWING BASE CERTIFICATE. The Borrower shall provide the Agent
by 11:30 A.M., daily, with a Borrowing Base Certificate (in the form of EXHIBIT
5-4 annexed hereto, as such form may be revised from time to time by the Agent).
Such Certificate may be sent to the Agent by facsimile transmission, provided
that, upon the Agent's request, the original thereof is forwarded to the Agent
on the date of such request. For purposes of such Borrowing Certificates,
Inventory shall be updated not less frequently than weekly.
5.5. INTENTIONALLY DELETED.
5.6. MONTHLY REPORTS.
(a) Monthly, the Borrower shall provide the Agent with
original counterparts of the following (each in such form as the Agent from time
to time may specify and (except as otherwise provided below) certified as to the
accuracy thereof by any two of the following persons: President, Treasurer,
Chief Financial Officer, or Controller of Borrower):
(i) Within Twenty (20) days of the end of the
previous month:
(A) A Certificate (signed by the Borrower's
President or Chief Financial Officer) concerning the
Borrower's Inventory.
(B) A Written verses Delivered Sales
Summary.
(C) A monthly Inventory Turns by
Department by Category Report.
(D) A Comparison of Markets Gross Margin
Percentage by Category.
(E) Major Sales Summary - Sales Totals by
SKU Range/Category.
(F) Deposit Balances Aging Schedule
Summary/Total Page by Region.
(G) "NAS" Summary Report by Location by
Division.
(ii) Within Thirty (30) days of the end of the
previous month:
(A) Reconciliation of the above described
Report and Inventory Certificate (Section 5-6(a)(i)(A)) to
Availability and to the general ledger as of the end of the
subject month.
(B) A Gross Margin Reconciliation.
(C) An aging of the Borrower's accounts
payable.
(D) A Store Activity Report.
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(E) An internally prepared financial
statement of the Borrower's financial condition the results of
its operations for, the period ending with the end of the
subject month, which financial statement shall include, at a
minimum, a balance sheet, income statement (on a regional and
on a "consolidated" basis), capital expenditures schedule and
comparison of same store sales for the corresponding month of
the then immediately previous year, as well as to the
Borrower's business plan provided to Agent, certified as to
the accuracy thereof and compliance with GAAP (subject to
year-end audit adjustments) by any two (2) of the following
officers: the President, Chief Executive Officer, the Chief
Accounting Officer, the Chief Financial Officer, and
Treasurer.
(F) An Aging of Borrower's accounts payable.
(b) For purposes of Section 5-6(a)(i), above, the first
"previous month" in respect of which the items required by that Section shall be
provided shall be February, 1999 and for purposes of Section 5-6(a)(ii), above,
the first "previous month" in respect of which the items required by that
Section shall be provided shall be February, 1999.
5.7. QUARTERLY REPORTS. Quarterly, within Forty Five (45) days
following the end of each of the Borrower's fiscal quarters, the Borrower shall
provide the Agent with an original counterpart the Borrower's Form 10Q and
Report filed with the Security and Exchange Commission of a management prepared
financial statement of the Borrower for the period from the beginning of the
Borrower's then current fiscal year through the end of the subject quarter, with
comparative information for the same period of the previous fiscal year, which
statement shall include, at a minimum, a balance sheet, income statement (on a
store specific and on a "consolidated" basis), statement of changes in
shareholders' equity, cash flows and comparisons for the corresponding quarter
of the then immediately previous year, as well as to the Borrower's BUSINESS
PLAN provided to Lender, certified as to the accuracy thereof and compliance
with GAAP (subject to year-end audit adjustments) by any two (2) of the
following officers: the President, Chief Executive Officer, Chief Accounting
Officer, the Chief Financial Officer, Chief Executive Officer, Treasurer.
5.8. ANNUAL REPORTS.
(a) Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Agent with an original
signed counterpart of the Borrower's annual financial statement, which statement
shall have been prepared by, and bear the unqualified opinion of, the Borrower's
independent certified public accountants (i.e. said statement shall be
"certified" by such accountants). Such annual statement shall include, at a
minimum (with comparative information for the then prior fiscal year) a balance
sheet, income statement, statement of changes in shareholders' equity, cash
flows, and the Borrower's Form 10K Report filed with the Security and Exchange
Commission.
(b) No later than the earlier of Fifteen (15) days prior to
the end of each of the Borrower's fiscal years or the date on which such
accountants commence their work on the audit of the Borrower's annual financial
statement, the Borrower shall give written notice to such accountants (with a
copy of such notice, when sent, to the Agent) that:
(i) Such annual financial statement will be delivered
by the Borrower to the Agent (for subsequent distribution to each
Lender).
(ii) It is the primary intention of the Borrower, in
its engagement of such accountants, to satisfy the financial reporting
requirements set forth in this Article 5.
(iii) The Borrower has been advised that the Agent
(and each Lender) will rely thereon with respect to the administration
of, and transactions under, the credit facility contemplated by this
Agreement.
(c) Each annual statement shall be accompanied by such
accountant's Certificate indicating that, in the preparation of such annual
statement, such accountants did not conclude that any Suspension Event had
occurred during the subject fiscal year (or if one or more had occurred, the
facts and circumstances thereof).
5.9. OFFICERS' CERTIFICATES. The Borrower shall cause the Borrower's
President and Chief Financial Officer respectively to provide such Person's
Certificate with those monthly, quarterly, and annual statements to be furnished
pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in
accordance with GAAP consistently applied and presents fairly the financial
condition of the Borrower at the close of, and the results of the Borrower's
operations and capital expenditures schedule or cash flows, as applicable, for,
the period(s) covered, subject, however
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to the following:
(i) usual year end adjustments (this exception shall
not be included in the Certificate which accompanies such annual
statement).
(ii) Material Accounting Changes (in which event,
such Certificate shall include a schedule (in reasonable detail) of the
effect of each such Material Accounting Change) not previously
specifically taken into account in the determination of the financial
performance covenant imposed pursuant to Section 5-12.
(b) Indicate either that (i) no Suspension Event has occurred
or (ii) if such an event has occurred, its nature (in reasonable detail) and the
steps (if any) being taken or contemplated by the Borrower to be taken on
account thereof.
(c) Include calculations concerning the Borrower's compliance
(or failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 5-12 hereof.
5.10. INVENTORIES, APPRAISALS, AND AUDITS.
(a) The Agent and each Lender, at the expense of the Borrower,
may participate in and/or observe each physical count and/or inventory of so
much of the Collateral as consists of Inventory which is undertaken on behalf of
the Borrower.
(b) The Borrower, at its own expense, shall cause not less
than Two (2) physical inventories to be undertaken in each twelve (12) month
period during which this Agreement is in effect (the spacing of the scheduling
of which inventories shall be subject to the Agent's discretion) conducted by
such inventory takers as are reasonably satisfactory to the Agent and following
such methodology as may be reasonably satisfactory to the Agent.
(i) The Borrower shall provide the Agent with a copy
of the preliminary results of each such inventory (as well as of any
other physical inventory undertaken by the Borrower) within ten (10)
days following the completion of such inventory.
(ii) The Borrower shall provide the Agent with a
reconciliation of the results of each such inventory (as well as of any
other physical inventory undertaken by the Borrower) to the Borrower's
books and records within thirty (30) days following the completion of
such inventory.
(iii) The Agent, in its discretion, following the
occurrence of a Suspension Event, may cause such additional inventories
to be taken as the Agent determines (each, at the expense of the
Borrower).
(c) Upon the Agent's request from time to time, the Borrower
shall permit the Agent to obtain appraisals conducted by such appraisers as are
satisfactory to the Agent, provided, however, that up to three such appraisals
during any 12 month period shall be at the Borrower's expense and all such
appraisals shall be at Borrower's expense following the occurrence and during
the continuance of an Event of Default hereunder.
(d) Borrower shall permit the Agent to conduct up to Four (4)
commercial finance audits (in each event, at the Borrower's expense, which
expense, in the absence of the occurrence of an Event of Default hereunder shall
not exceed $15,000 during any 12 month period, plus Agent's reasonable travel
expenses) of the Borrower's books and records during any Twelve (12) month
period during which this Agreement is in effect, but in its discretion, may (at
Agent's expense) undertake additional such audits during such period, provided,
however, following the occurrence and during the continuance of an Event of
Default hereunder, the Borrower shall permit the Agent to conduct such
additional commercial finance audits (in each event, at the Borrower's expense)
as Agent, in its sole discretion, deems necessary.
(e) The Agent from time to time (in all events, at the
Borrower's expense, which expense shall not exceed $250.00 during any 12 month
period) may undertake "mystery shopping" (so-called) visits to all or any of the
Borrower's business premises. The Agent shall provide the Borrower with a copy
of any non-company confidential results of such mystery shopping.
5.11. ADDITIONAL FINANCIAL INFORMATION.
(a) In addition to all other information required to be
provided pursuant to this Article 5, the Borrower promptly shall provide the
Agent (and any guarantor of the Liabilities), with such other and additional
information concerning the Borrower, the Collateral, the operation of the
Borrower's business, and the Borrower's financial condition, including original
counterparts of financial reports and statements, as the Agent may from time to
time request from the Borrower.
(b) The Borrower may provide the Agent, from time to time
hereafter, with updated projections of the Borrower's anticipated performance
and operating results.
(c) In all events, the Borrower, no sooner than ninety (90)
nor later than the last day of each of the Borrower's fiscal years, shall
furnish the Agent with an updated and extended projection (inclusive of balance
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sheets, income statements, and statements of cash flow for each fiscal month)
which shall go out at least through the end of the then next fiscal year.
(d) Intentionally Deleted.
(e) The Borrower recognizes that all appraisals, inventories,
analysis, financial information, and other materials which the Agent or any
Lender may obtain, develop, or receive with respect to the Borrower is
confidential to the Agent and the Lenders and that, except as otherwise provided
herein, the Borrower is not entitled to receipt of any of such appraisals,
inventories, analysis, financial information, and other materials, nor copies or
extracts thereof or therefrom.
5.12. FINANCIAL PERFORMANCE COVENANTS. The Borrower shall at all times
observe and comply with those financial performance covenants set forth below:
5.12.1 FIXED CHARGE COVERAGE RATIO. The Borrower will not
suffer or permit its Fixed Charge Coverage Ratio as measured on a
rolling/trailing 12-month basis, to be measured on the last day of each of the
Borrower's fiscal month commencing with its month ending February, 1999, to be
less than as follows:
February, 1999 0.60
March, 1999 0.70
April, 1999 0.80
May, 1999 0.70
June, 1999 0.70
July, 1999 0.75
August, 1999 0.83
September, 1999 0.85
October, 1999 0.95
November, 1999 1.10
Thereafter on a 1.35
rolling/trailing 12-month basis
5.12.2 CAPITAL EXPENDITURES. The Borrower may not incur
Capital Expenditures in excess of $2,900,000 in any fiscal year with a maximum
of $1,300,000 expended in the first six months of any fiscal year (exclusive of
a computer lease contemplated as of the date of this Agreement of approximately
$1,700,000 from Data General Corporation or its Affiliate).
Compliance with such financial performance covenants shall be made as
if no Material Accounting Changes had been made (other than any Material
Accounting Changes specifically taken into account in the setting of such
covenants). The Agent may determine the Borrower's compliance with such
covenants based upon financial reports and statements provided by the Borrower
to the Agent or any Lender (whether or not such financial reports and statements
are required to be furnished pursuant to this Agreement) as well as by reference
to interim financial information provided to, or developed by, the Agent.
ARTICLE VI - USE AND COLLECTION OF COLLATERAL:
6.1. USE OF INVENTORY COLLATERAL.
(a) The Borrower shall not engage in any sale of the Inventory
other than for fair consideration in the conduct of the Borrower's business in
the ordinary course and shall not engage in sales or other dispositions to
creditors; sales or other dispositions in bulk; and any use of any of the
Inventory in breach of any provision of this Agreement.
(b) No sale of Inventory shall be on consignment, approval, or
under any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Agent.
6.2. INVENTORY QUALITY. All Inventory now owned or hereafter acquired
by the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
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6.3. ADJUSTMENTS AND ALLOWANCES. The Borrower may grant such allowances
or other adjustments to the Borrower's Account Debtors (exclusive of extending
the time for payment of any Account or Account Receivable, which shall not be
done without first obtaining the Agent's prior written consent in each instance)
as the Borrower may reasonably deem to accord with sound business practice,
provided, however, the authority granted the Borrower pursuant to this Section
6-3 may be limited or terminated by the Agent at any time in the Agent's
discretion.
6.4. VALIDITY OF ACCOUNTS.
(a) The amount of each Account shown on the books, records,
and invoices of the Borrower represented as owing by each Account Debtor is and
will be the correct amount actually owing by such Account Debtor and shall have
been fully earned by performance by the Borrower.
(b) The Borrower has no knowledge of any impairment of the
validity or collectibility of any of the Accounts and shall notify the Agent of
any such fact immediately after the Borrower becomes aware of any such
impairment.
(c) Except for those disclosed on EXHIBIT 6.4(c), the Borrower
shall not post any bond in excess of $100,000 (not to exceed $300,000 in the
aggregate at any one time) to secure the Borrower's performance under any
agreement to which the Borrower is a party nor cause any surety, guarantor, or
other third party obligee to become liable to perform any obligation of the
Borrower (other than to the Agent ) in the event of the Borrower's failure so to
perform.
6.5. NOTIFICATION TO ACCOUNT DEBTORS. The Agent shall have the right at
any time (whether or not an Event of Default has occurred) to notify any of the
Borrower's Account Debtors to make payment directly to the Agent and to collect
all amounts due on account of the Collateral.
ARTICLE VII - CASH MANAGEMENT. PAYMENT OF LIABILITIES:
7.1. DEPOSITORY ACCOUNTS.
(a) Annexed hereto as EXHIBIT 7-1 is a Schedule of all present
DDA's, which Schedule includes, with respect to each depository (i) the name and
address of that depository; (ii) the account number(s) of the account(s)
maintained with such depository; and (iii) a contact person at such depository.
(b) The Borrower shall deliver to the Agent, as a condition to
the effectiveness of this Agreement:
(i) Notification, executed on behalf of the Borrower,
to each depository institution with which any DDA is maintained (other
than the Operating Account or any Local DDA), in form satisfactory to
the Agent, of the Agent's interest in such DDA.
(ii) An agreement (generally referred to as a
"Blocked Account Agreement"), in form satisfactory to the Agent with
any depository institution at which both any DDA (other than the
Operating Account) and the Operating Account is maintained.
(iii) An agreement (generally referred to as a
"Blocked Account Agreement"), in form satisfactory to the Agent, with
any depository institution at which a Blocked Account is maintained.
(c) The Borrower will not establish any DDA hereafter (other
than a Local DDA) unless, contemporaneous with such establishment, the Borrower
delivers to the Agent an agreement (in form satisfactory to the Agent) executed
on behalf of the depository with which such DDA is being established.
7.2. CREDIT CARD RECEIPTS.
(a) Annexed hereto as EXHIBIT 7-2, is a Schedule which
describes all arrangements to which the Borrower is a party with respect to the
payment to the Borrower of the proceeds of all credit card charges for sales by
the Borrower.
(b) The Borrower shall deliver to the Agent, as a condition to
the effectiveness of this Agreement, notification, executed on behalf of the
Borrower, to each of the Borrower's credit card clearinghouses and processors of
notice (in form satisfactory to the Agent ), which notice provides that payment
of all credit card charges submitted by the Borrower to that clearinghouse or
other processor and any other amount payable to the Borrower by such
clearinghouse or other processor shall be directed to the Concentration Account
or as otherwise designated from time to time by the Agent. The Borrower shall
not change such direction or designation except upon and with the prior written
consent of the Agent.
7.3. THE CONCENTRATION, BLOCKED, AND OPERATING ACCOUNTS.
(a) The following checking accounts have been or will be
established (and are so referred to
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herein):
(i) The CONCENTRATION ACCOUNT: Established by the
Agent with BankBoston, N.A.
(ii) The BLOCKED ACCOUNT: Established by the Borrower
with Bank One, or any of the Lenders.
(iii) The OPERATING ACCOUNT: Established by the
Borrower with Bank One, or any of the Lenders.
(b) The contents of each DDA (other than the Operating
Account) and of the Blocked Account constitutes Collateral and Proceeds of
Collateral. The contents of the Concentration Account constitutes the Agent's
property.
(c) The Borrower:
(i) Contemporaneous with the execution of this
Agreement, shall provide the Agent with such agreement (generally
referred to as a "Blocked Account Agreement") of the depository with
which the Blocked Account is maintained as may be satisfactory to the
Agent; and
(ii) Shall not establish any Blocked Account
hereafter except upon not less than thirty (30) days prior written
notice to the Agent and the delivery to the Agent of a similar such
agreement.
(d) The Borrower shall pay all fees and charges of, and
maintain such impressed balances as may be required by the Agent or by any bank
in which any account is opened as required hereby (even if such account is
opened by and/or is the property of the Agent).
7.4. PROCEEDS AND COLLECTION OF ACCOUNTS.
(a) All Receipts constitute Collateral and proceeds of
Collateral and shall be held in trust by the Borrower for the Agent; shall not
be commingled with any of the Borrower's other funds; and shall be deposited
and/or transferred only to the Blocked Account.
(b) The Borrower shall cause the ACH or wire transfer to the
Blocked Account, no less frequently than daily (and whether or not there is then
an outstanding balance in the Loan Account) of
(i) the then contents of each DDA (other than (A) any
Local DDA and (B) the Operating Account), each such transfer to be net
of any minimum balance, not to exceed $1,000.00, as may be required to
be maintained in the subject DDA by the bank at which such DDA is
maintained); and
(ii) the proceeds of all credit card charges not
otherwise provided for pursuant hereto. Telephone advice (confirmed by
written notice) shall be provided to the Agent on each Business Day on
which any such transfer is made.
(c) Whether or not any Liabilities are then outstanding, the
Borrower shall cause the ACH or wire transfer to the Concentration Account, no
less frequently than daily, of then entire ledger balance of the Blocked
Account, net of such minimum balance, not to exceed $1,000.00, as may be
required to be maintained in the Blocked Account by the bank at which the
Blocked Account is maintained.
(d) In the event that, notwithstanding the provisions of this
Section 7-4, the Borrower receives or otherwise has dominion and control of any
Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Agent
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Agent.
7.5. PAYMENT OF LIABILITIES.
(a) On each Business Day, the Agent shall apply, towards the
Liabilities, the then collected balance of the Concentration Account (net of
fees charged, and of such impressed balances as may be required by the bank at
which the Concentration Account is maintained), provided, however, for purposes
of the calculation of interest on the unpaid principal balance of the Loan
Account, such payment shall be deemed to have been made one (1) Business Day
after such transfer.
(b) The following rules shall apply to deposits and payments
under and pursuant to this Agreement:
(i) Funds shall be deemed to have been deposited to
the Concentration Account on the Business Day on which deposited,
provided that notice of such deposit is available to the Agent by 2:00
P.M. on that Business Day.
(ii) Funds paid to the Agent, other than by deposit
to the Concentration Account, shall be deemed to have been received on
the Business Day when they are good and collected funds, provided that
notice of such payment is available to the Agent by 2:00 P.M. on that
Business Day.
(iii) If notice of a deposit to the Concentration
Account (Section 7-5(b)(i)) or payment (Section 7-5(b)(ii)) is not
available to the Agent until after 2:00 P.M. on a Business Day, such
deposit or
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payment shall be deemed to have been made at 9:00 A.M. on the then next
Business Day.
(iv) All deposits to the Concentration Account and
other payments to the Agent are subject to clearance and collection.
(c) The Agent shall transfer to the Operating Account any
surplus in the Concentration Account remaining after the application towards the
Liabilities referred to in Section 7-5(a), above (less those amount which are to
be netted out, as provided therein) provided, however, in the event that both
(i) a Suspension Event has occurred and (ii) one or more L/C's are then
outstanding, the Agent may establish a funded reserve of up to 110% of the
aggregate Stated Amounts of such L/C's.
7.6. THE OPERATING ACCOUNT. Except as otherwise specifically provided
in, or permitted by, this Agreement, all checks shall be drawn by the Borrower
upon, and other disbursements shall be made by the Borrower solely from, the
Operating Account.
ARTICLE VIII - GRANT OF SECURITY INTEREST:
8.1. GRANT OF SECURITY INTEREST. To secure the Borrower's prompt,
punctual, and faithful performance of all and each of the Liabilities, the
Borrower hereby grants to the Agent, for the ratable benefit of the Lenders, a
continuing security interest in and to, and assigns to the Agent, for the
ratable benefit of the Lenders, the following, and each item thereof, whether
now owned or now due, or in which the Borrower has an interest, or hereafter
acquired, arising, or to become due, or in which the Borrower obtains an
interest, and all products, Proceeds, substitutions, and accessions of or to any
of the following (all of which, together with any other property in which the
Agent may in the future be granted a security interest, is referred to herein as
the "COLLATERAL"):
(a) All Accounts and accounts receivable.
(b) All Inventory.
(c) All General Intangibles.
(d) All Equipment.
(e) All Goods.
(f) All Fixtures.
(g) All Chattel Paper.
(h) All books, records, and information relating to the
Collateral and/or to the operation of the Borrower's business, and all rights of
access to such books, records, and information, and all property in which such
books, records, and information are stored, recorded, and maintained.
(i) All Investment Property, Instruments, Documents, Deposit
Accounts, policies and certificates of insurance, deposits, impressed accounts,
compensating balances, money, cash, or other property.
(j) All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and credit insurance, whether
any of such proceeds, refunds, and premium rebates arise out of any of the
foregoing (8-1(a) through 8-1(i)) or otherwise.
(k) All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing (8-1(a) through 8-1(i)), including the right
of stoppage in transit.
(l) All Leasehold Interests.
8.2. EXTENT AND DURATION OF SECURITY INTEREST. The security interest
created and granted herein is in addition to, and supplemental of, any security
interest previously granted by the Borrower to the Agent and shall continue in
full force and effect applicable to all Liabilities until all Liabilities have
been paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Agent.
ARTICLE IX - AGENT AS BORROWER'S ATTORNEY-IN-FACT:
9.1. APPOINTMENT AS ATTORNEY-IN-FACT. The Borrower hereby irrevocably
constitutes and appoints the Agent as the Borrower's true and lawful attorney,
with full power of substitution, to convert the Collateral into cash at the sole
risk, cost, and expense of the Borrower, but for the sole benefit of the Agent.
The rights and powers granted the Agent by the within appointment include but
are not limited to the right and power to:
(a) Prosecute, defend, compromise, or release any action
relating to the Collateral.
(b) Sign change of address forms to change the address to
which the Borrower's mail is to be sent to such address as the Agent shall
designate; receive and open the Borrower's mail; remove any Receivables
Collateral and Proceeds of Collateral therefrom and turn over the balance of
such mail either to the Borrower or to any trustee in bankruptcy, receiver,
assignee for the benefit of creditors of the Borrower, or other legal
representative of
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the Borrower whom the Agent determines to be the appropriate person to whom to
so turn over such mail.
(c) Endorse the name of the Borrower in favor of the Agent
upon any and all checks, drafts, notes, acceptances, or other items or
instruments; sign and endorse the name of the Borrower on, and receive as
secured party, any of the Collateral, any invoices, schedules of Collateral,
freight or express receipts, or bills of lading, storage receipts, warehouse
receipts, or other documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Receivables Collateral; sign
the Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors,
and on notices of lien, claims of mechanic's liens, or assignments or releases
of mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the
payment of any letter of credit and/or banker's acceptance of which the Borrower
is a beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver,
alter or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles of
the Borrower.
9.2. NO OBLIGATION TO ACT. The Agent shall not be obligated to do any
of the acts or to exercise any of the powers authorized by Section 9-1 herein,
but if the Agent elects to do any such act or to exercise any of such powers, it
shall not be accountable for more than it actually receives as a result of such
exercise of power, and shall not be responsible to the Borrower for any act or
omission to act except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the Agent
has had an opportunity to be heard) which determination includes a specific
finding that the subject act or omission to act had been grossly negligent or in
actual bad faith.
ARTICLE X - EVENTS OF DEFAULT:
The occurrence of any event described in this Article 10 respectively
shall constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event
of Default described in Section 10-11, any and all Liabilities shall become due
and payable without any further act on the part of the Agent or any Lender. Upon
the occurrence of any other Event of Default, any and all Liabilities shall
become immediately due and payable, at the option of the Agent and without
notice or demand. The occurrence of any Event of Default shall also constitute,
without notice or demand, a default under all other agreements between the Agent
or any Lender and the Borrower and instruments and papers given the Agent or any
Lender by the Borrower, whether such agreements, instruments, or papers now
exist or hereafter arise.
10.1. FAILURE TO PAY REVOLVING CREDIT. The failure by the Borrower to
pay any amount when due under the Revolving Credit.
10.2. FAILURE TO MAKE OTHER PAYMENTS. The failure by the Borrower to
pay when due (or upon demand, if payable on demand) any payment Liability other
than under the Revolving Credit.
10.3. FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD). The
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
Section 10-1 or Section 10-2 hereof, and included in any of the following
provisions hereof:
<TABLE>
<CAPTION>
SECTION RELATES TO:
------------------------------------------
<S> <C>
4-6 Location of Collateral
4-7 Title to Assets
4-8 Indebtedness
4-9 Insurance Policies
4-14 Pay taxes
4-23 Affiliate Transactions
4-24 Additional Assurances
6-1 Use of Collateral
Article 5 Reporting Requirements and Financial Covenants
Article 7 Cash Management
</TABLE>
10.4. FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD). The
failure by the Borrower, upon Ten (10) days written notice by the Agent, to
cure the Borrower's failure to promptly, punctually and faithfully perform,
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<PAGE> 40
discharge, or comply with any covenant or Liability not described in any of
Sections 10-1, 10-2, or 10-3 hereof.
10.5. MISREPRESENTATION. The determination by the Agent that any
representation or warranty at any time made by the Borrower to the Agent or any
Lender, was not true or complete in all material respects when given.
10.6. ACCELERATION OF OTHER DEBT, BREACH OF LEASE. The occurrence of
any event such that any Indebtedness of the Borrower to any creditor other than
the Agent or any Lender could be accelerated or, without the consent of the
Borrower, any Lease could be terminated (whether or not the subject creditor or
lessor takes any action on account of such occurrence).
10.7. DEFAULT UNDER OTHER AGREEMENTS. The occurrence of any breach or
default under any agreement between the Agent or any Lender and the Borrower or
instrument or paper given the Agent or any Lender by the Borrower, whether such
agreement, instrument, or paper now exists or hereafter arises (notwithstanding
that the Agent or the subject Lender may not have exercised its rights upon
default under any such other agreement, instrument or paper).
10.8. UNINSURED CASUALTY LOSS. The occurrence of any uninsured loss,
theft, damage, or destruction of or to any material portion of the Collateral
which exceeds $100,000 in the aggregate at any one time.
10.9. JUDGMENT; RESTRAINT OF BUSINESS.
(a) The service of process upon the Agent or any Lender or any
Participant seeking to attach, by trustee, mesne, or other process, any of the
Borrower's funds on deposit with, or assets of the Borrower in the possession
of, the Agent or any Lender or such Participant.
(b) The entry of any judgment against the Borrower, which
judgment is not satisfied (if a money judgment) or appealed from (with execution
or similar process stayed) within thirty (30) days of its entry.
(c) The entry of any order or the imposition of any other
process having the force of law, the effect of which is to restrain in any
material way the conduct by the Borrower of its business in the ordinary course.
10.10. BUSINESS FAILURE. Any act by, against, or relating to the
Borrower, or its property or assets, which act constitutes the application for,
consent to, or sufferance of the appointment of a receiver, trustee, or other
person, pursuant to court action or otherwise, over all, or any part of the
Borrower's property; the granting of any trust mortgage or execution of an
assignment for the benefit of the creditors of the Borrower, or the occurrence
of any other voluntary or involuntary liquidation or extension of debt agreement
for the Borrower; the offering by or entering into by the Borrower of any
composition, extension, or any other arrangement seeking relief from or
extension of the debts of the Borrower; or the initiation of any judicial or
non-judicial proceeding or agreement by, against, or including the Borrower
which seeks or intends to accomplish a reorganization or arrangement with
creditors; and/or the initiation by or on behalf of the Borrower of the
liquidation or winding up of all or any part of the Borrower's business or
operations.
10.11. BANKRUPTCY. The failure by the Borrower to generally pay the
debts of the Borrower as they mature; adjudication of bankruptcy or insolvency
relative to the Borrower; the entry of an order for relief or similar order with
respect to the Borrower in any proceeding pursuant to the Bankruptcy Code or any
other federal bankruptcy law; the filing of any complaint, application, or
petition by the Borrower initiating any matter in which the Borrower is or may
be granted any relief from the debts of the Borrower pursuant to the Bankruptcy
Code or any other insolvency statute or procedure; the filing of any complaint,
application, or petition against the Borrower initiating any matter in which the
Borrower is or may be granted any relief from the debts of the Borrower pursuant
to the Bankruptcy Code or any other insolvency statute or procedure, which
complaint, application, or petition is not timely contested in good faith by the
Borrower by appropriate proceedings or, if so contested, is not dismissed within
thirty (30) days of when filed.
10.12. DEFAULT BY GUARANTOR OR RELATED ENTITY. The occurrence of any of
the foregoing Events of Default with respect to any guarantor of the
Liabilities, or the occurrence of any of the foregoing Events of Default with
respect to any parent (if the Borrower is a corporation), subsidiary, or Related
Entity, as if such guarantor, parent, or Related Entity were the "Borrower"
described therein.
10.13. INDICTMENT - FORFEITURE. The indictment of, or institution of
any legal process or proceeding against,
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<PAGE> 41
the Borrower, under any federal, state, municipal, and other civil or criminal
statute, rule, regulation, order, or other requirement having the force of law
where the relief, penalties, or remedies sought or available include the
forfeiture of any property of the Borrower and/or the imposition of any stay or
other order, the effect of which could be to restrain in any material way the
conduct by the Borrower of its business in the ordinary course.
10.14. TERMINATION OF GUARANTY. The termination or attempted
termination of any guaranty by any guarantor of the Liabilities.
10.15. CHALLENGE TO LOAN DOCUMENTS.
(a) Any challenge by or on behalf of the Borrower or any
guarantor of the Liabilities to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly in accordance with
the subject Loan Document's terms or which seeks to void, avoid, limit, or
otherwise adversely affect any security interest created by or in any Loan
Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10.16. EXECUTIVE MANAGEMENT. The death, disability, or failure of
either of Robert M. Wilson or Melvin H. Baskin at any time to exercise that
authority and discharge those management responsibilities with respect to the
Borrower as are exercised and discharged by such Person at the execution of this
Agreement.
10.17. CHANGE IN CONTROL. Any Change in Control.
ARTICLE XI - RIGHTS AND REMEDIES UPON DEFAULT:
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Agent is provided prior to the occurrence of an Event of
Default, the Agent shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to Section 362 of the Bankruptcy Code or
otherwise shall stay, limit, prevent, hinder, delay, restrict, or otherwise
prevent the Agent's exercise of any of such rights and remedies.
11.1. RIGHTS OF ENFORCEMENT. The Agent shall have all of the rights and
remedies of a secured party upon default under the UCC, in addition to which the
Agent shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the
Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Agent deems advisable and with or without the taking of possession of any of
the Collateral.
(d) To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral.
(e) To apply the Receivables Collateral or the Proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11.2. SALE OF COLLATERAL.
(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Agent deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Agent's disposition of the Collateral.
(b) The Agent, in the exercise of the Agent's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Agent's own right or by one or more agents and contractors. Such sale(s) may
be conducted upon any premises owned, leased, or occupied by the Borrower. The
Agent and any such agent or contractor, in conjunction with any such sale, may
augment the Inventory with other goods (all of which other goods shall remain
the sole property of the Agent or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and ex-
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<PAGE> 42
penses incurred in their disposition) shall be the sole property of the Agent or
such agent or contractor and neither the Borrower nor any Person claiming under
or in right of the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to
decline speedily in value, or is of a type customarily sold on a recognized
market (in which event the Agent shall provide the Borrower with such notice as
may be practicable under the circumstances), the Agent shall give the Borrower
at least seven (7) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such written
notice shall satisfy all requirements for notice to the Borrower which are
imposed under the UCC or other applicable law with respect to the exercise of
the Agent's rights and remedies upon default.
(d) The Agent and any Lender may purchase the Collateral, or
any portion of it at any sale held under this Article.
(e) If any of the Collateral is sold, leased, or otherwise
disposed of by the Agent on credit, the Liabilities shall not be deemed to have
been reduced as a result thereof unless and until payment is finally received
thereon by the Agent.
(f) The Agent shall apply the proceeds of any exercise of the
Agent's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Agent determines.
11.3. OCCUPATION OF BUSINESS LOCATION. In connection with the Agent's
exercise of the Agent's rights under this Article 11, the Agent may enter upon,
occupy, and use any premises owned or occupied by the Borrower, and may exclude
the Borrower from such premises or portion thereof as may have been so entered
upon, occupied, or used by the Agent. The Agent shall not be required to remove
any of the Collateral from any such premises upon the Agent's taking possession
thereof, and may render any Collateral unusable to the Borrower. In no event
shall the Agent be liable to the Borrower for use or occupancy by the Agent of
any premises pursuant to this Article 11, nor for any charge (such as wages for
the Borrower's employees and utilities) incurred in connection with the Agent's
exercise of the Agent's Rights and Remedies.
11.4. GRANT OF NONEXCLUSIVE LICENSE. The Borrower hereby grants to the
Agent a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, trade name, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Agent's exercise of
the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
11.5. ASSEMBLY OF COLLATERAL. The Agent may require the Borrower to
assemble the Collateral and make it available to the Agent at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Agent and Borrower.
11.6. RIGHTS AND REMEDIES. The rights, remedies, powers, privileges,
and discretions of the Agent hereunder (herein, the "AGENT'S RIGHTS AND
REMEDIES") shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. No delay or omission by the Agent in exercising or
enforcing any of the Agent's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Agent of any Event of Default or
of any default under any other agreement shall operate as a waiver of any other
default hereunder or under any other agreement. No single or partial exercise of
any of the Agent's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Agent and any person, at
any time, shall preclude the other or further exercise of the Agent's Rights and
Remedies. No waiver by the Agent of any of the Agent's Rights and Remedies on
any one occasion shall be deemed a waiver on any subsequent occasion, nor shall
it be deemed a continuing waiver. All of the Agent's Rights and Remedies and all
of the Agent's rights, remedies, powers, privileges, and discretions under any
other agreement or transaction are cumulative, and not alternative or exclusive,
and may be exercised by the Agent at such time or times and in such order of
preference as the Agent in its sole discretion may determine. The Agent's Rights
and Remedies may be exercised without resort or regard to any other source of
satisfaction of the Liabilities.
ARTICLE XII - NOTICES:
12.1. NOTICE ADDRESSES. All notices, demands, and other communications
made in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
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<PAGE> 43
If to the Agent: BankBoston Retail Finance Inc.
40 Broad Street
Boston, Massachusetts 02109
Attention : Michael Pizette
Managing Director
Fax : 617 434-4312
With a copy to: Stroock & Stroock & Lavan LLP
100 Federal Street
Boston, Massachusetts 02110
Attention : Peter J. Antoszyk, Esquire
Fax : 617 330-5111
If to the Borrower: Roberds, Inc.
1100 East Central Avenue
Dayton, Ohio 45449-1888
Attention : Robert M. Wilson
Fax : 937 859-6291
With a copy to: Pickrel, Schaeffer & Ebeling
2700 Kettering Tower
Dayton, Ohio 45423-2700
Attention : Jon M. Rosemeyer, Esquire
Fax: : 937 223-0339
12.2. NOTICE GIVEN.
(a) Except as otherwise specifically provided herein, notices
shall be deemed made and correspondence received, as follows (all times being
local to the place of delivery or receipt):
(i) By mail: the sooner of when actually received or
Three (3) days following deposit in the United States mail, postage
prepaid.
(ii) By recognized overnight express delivery: the
Business Day following the day when sent.
(iii) By Hand: If delivered on a Business Day after
9:00 A.M. and no later than Three (3) hours prior to the close of
customary business hours of the recipient, when delivered.
Otherwise, at the opening of the then next Business Day.
(iv) By Facsimile transmission (which must include a
header on which the party sending such transmission is indicated): If
sent on a Business Day after 9:00 A.M. and no later than Three (3)
hours prior to the close of customary business hours of the recipient,
one (1) hour after being sent. Otherwise, at the opening of the then
next Business Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or Facsimile Number for which no due notice
was given shall each be deemed receipt of the notice sent.
ARTICLE XIII - TERM:
13.1. TERMINATION OF REVOLVING CREDIT. The Revolving Credit shall
remain in effect (subject to suspension as provided in Section 2-4(i) hereof)
until the Termination Date.
13.2. EFFECT OF TERMINATION. On the Termination Date, the Borrower
shall pay the Agent (whether or not then due), in immediately available funds,
all then Liabilities including, without limitation: the entire balance of the
Loan Account; any then remaining balance of the Facility Fee; any accrued and
unpaid Line Fee; any payments due on account of the indemnification obligations
included in Section 2-8(e); and all unreimbursed costs and expenses of the Agent
and of each Lender for which the Borrower is responsible; and shall make such
arrangements concerning any L/C's then outstanding are reasonably satisfactory
to the Agent. Until such payment, all provisions of this Agreement, other than
those contained in Article 2 which place an obligation on the Agent and any
Lender to make any loans or advances or to provide financial accommodations
under the Revolving Credit or otherwise, shall remain in full force and effect
until all Liabilities shall have been paid in full. The release by the Agent of
the security and
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other collateral interests granted the Agent by the Borrower hereunder may be
upon such conditions and indemnifications as the Agent may reasonably require.
ARTICLE XIV - GENERAL:
14.1. PROTECTION OF COLLATERAL. The Agent has no duty as to the
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Agent and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Agent may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Agent.
14.2. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Borrower and the Borrower's representatives, successors, and assigns and shall
enure to the benefit of the Agent and each Lender and the respective successors
and assigns of each provided, however, no trustee or other fiduciary appointed
with respect to the Borrower shall have any rights hereunder. In the event that
the Agent or any Lender assigns or transfers its rights under this Agreement,
the assignee shall thereupon succeed to and become vested with all rights,
powers, privileges, and duties of such assignor hereunder and such assignor
shall thereupon be discharged and relieved from its duties and obligations
hereunder.
14.3. SEVERABILITY. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
14.4. AMENDMENTS. COURSE OF DEALING.
(a) This Agreement and the other Loan Documents incorporate
all discussions and negotiations between the Borrower and the Agent and each
Lender, either express or implied, concerning the matters included herein and in
such other instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Agent or any Lender to give notice to the Borrower of the
Borrower's having failed to observe and comply with any warranty or covenant
included in any Loan Document shall constitute a waiver of such warranty or
covenant or the amendment of the subject Loan Document. No change made by the
Agent in the manner by which Availability is determined shall obligate the Agent
to continue to determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Agent. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Agent, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Agent shall be in reliance upon all representations and
warranties theretofore made to the Agent by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
14.5. POWER OF ATTORNEY. In connection with all powers of attorney
included in this Agreement, the Borrower hereby grants unto the Agent full power
to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any disability or incapacity suffered by the Borrower and each
shall survive the same. All powers conferred upon the Agent by this Agreement,
being coupled with an interest, shall be irrevocable until this Agreement is
terminated by a written instrument executed by a duly authorized officer of the
Agent.
14.6. APPLICATION OF PROCEEDS. The proceeds of any collection, sale, or
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Agent
determines in its sole discretion. The Borrower shall remain liable for any
deficiency remaining following such application.
14.7. COSTS AND EXPENSES OF AGENT AND OF LENDERS.
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(a) The Borrower shall pay on demand all Costs of Collection
and all reasonable expenses of the Agent in connection with the preparation,
execution, and delivery of this Agreement and of any other Loan Documents,
whether now existing or hereafter arising, and all other reasonable expenses
which may be incurred by the Agent in preparing or amending this Agreement and
all other agreements, instruments, and documents related thereto, or otherwise
incurred with respect to the Liabilities, and all costs and expenses of the
Agent which relate to the credit facility contemplated hereby.
(b) The Borrower shall pay on demand all costs and expenses
(including attorneys' reasonable fees) incurred, following the occurrence of any
Event of Default, by each Lender in connection with the enforcement, attempted
enforcement, or preservation of any rights and remedies under this, or any other
Loan Document, as well as any such costs and expenses in connection with any
"workout", forbearance, or restructuring of the credit facility contemplated
hereby.
(c) The Borrower authorizes the Agent to pay all such fees and
expenses and in the Agent's discretion, to add such fees and expenses to the
Loan Account.
(d) The undertaking on the part of the Borrower in this
Section 14-7 shall survive payment of the Liabilities and/or any termination,
release, or discharge executed by the Agent in favor of the Borrower, other than
a termination, release, or discharge which makes specific reference to this
Section 14-7.
14.8. COPIES AND FACSIMILES. This Agreement and all documents which
relate thereto, which have been or may be hereinafter furnished the Agent or any
Lender may be reproduced by that Person or by the Agent by any photographic,
microfilm, xerographic, digital imaging, or other process, and that Person may
destroy any document so reproduced. Any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made in the regular course of business). Any facsimile which
bears proof of transmission shall be binding on the party which or on whose
behalf such transmission was initiated and likewise shall be so admissible in
evidence as if the original of such facsimile had been delivered to the party
which or on whose behalf such transmission was received.
14.9. MASSACHUSETTS LAW. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
14.10. CONSENT TO JURISDICTION.
(a) The Borrower agrees that any legal action, proceeding,
case, or controversy against the Borrower with respect to any Loan Document may
be brought in the Superior Court of Suffolk County Massachusetts or in the
United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Agent may elect in the Agent's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) The Borrower WAIVES personal service of any and all
process upon it, and irrevocably consents to the service of process out of any
of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by certified mail, postage prepaid, to the Borrower at the
Borrower's address for notices as specified herein, such service to become
effective five (5) Business Days after such mailing.
(c) The Borrower WAIVES any objection based on forum non
conveniens and any objection to venue of any action or proceeding instituted
under any of the Loan Documents and consents to the granting of such legal or
equitable remedy as is deemed appropriate by the Court.
(d) Nothing herein shall affect the right of the Agent to
bring legal actions or proceedings in any other competent jurisdiction.
(e) The Borrower agrees that any action commenced by the
Borrower asserting any claim or counterclaim arising under or in connection with
this Agreement or any other Loan Document shall be brought solely in the
Superior Court of Suffolk County Massachusetts or in the United States District
Court, District of Massachusetts, sitting in Boston, Massachusetts, and that
such Courts shall have exclusive jurisdiction with respect to any such action.
14.11. INDEMNIFICATION. The Borrower shall indemnify, defend, and hold
the Agent and each Lender and any Participant and any employee, officer, or
agent of any of the foregoing (each, an "INDEMNIFIED PERSON") harmless of and
from any claim brought or threatened against any Indemnified Person by the
Borrower, any guarantor or endorser of the Liabilities, or any other Person (as
well as from attorneys' reasonable fees and expenses in connection therewith) on
account of the relationship of the Borrower or of any other guarantor or
endorser of the Liabilities with
44
<PAGE> 46
the Agent or any Lender (each of claims which may be defended, compromised,
settled, or pursued by the Indemnified Person with counsel of the Lender's
selection, but at the expense of the Borrower) other than any claim as to which
a final determination is made in a judicial proceeding (in which the Agent and
any other Indemnified Person has had an opportunity to be heard), which
determination includes a specific finding that the Indemnified Person seeking
indemnification had acted in a grossly negligent manner or in actual bad faith.
This indemnification shall survive payment of the Liabilities and/or any
termination, release, or discharge executed by the Agent in favor of the
Borrower, other than a termination, release, or discharge which makes specific
reference to this Section 14-11.
14.12. RULES OF CONSTRUCTION. The following rules of construction shall
be applied in the interpretation, construction, and enforcement of this
Agreement and of the other Loan Documents:
(a) Words in the singular include the plural and words in the
plural include the singular.
(b) Titles, headings (indicated by being UNDERLINED or shown
in SMALL CAPITALS) and any Table of Contents are solely for convenience of
reference; do not constitute a part of the instrument in which included; and do
not affect such instrument's meaning, construction, or effect.
(c) The words "includes" and "including" are not limiting.
(d) Text which follows the words "including, without
limitation" (or similar words) is illustrative and not limitational.
(e) Except where the context otherwise requires or where the
relevant subsections are joined by "or", compliance with any Section or
provision of any Loan Document which constitutes a warranty or covenant requires
compliance with all subsections (if any) of that Section or provision. Except
where the context otherwise requires, compliance with any warranty or covenant
of any Loan Document which includes subsections which are joined by "or" may be
accomplished by compliance with any of such subsections.
(f) Text which is shown in italics, shown in BOLD, shown IN
ALL CAPITAL LETTERS, or in any combination of the foregoing, shall be deemed to
be conspicuous.
(g) The words "may not" are prohibitive and not permissive.
(h) The word "or" is not exclusive.
(i) Any reference to a Person's "knowledge" (or words of
similar import) are to such Person's knowledge assuming that such Person has
undertaken reasonable and diligent investigation with respect to the subject of
such "knowledge" (whether or not such investigation has actually been
undertaken).
(j) Terms which are defined in one section of any Loan
Document are used with such definition throughout the instrument in which so
defined.
(k) The symbol "$" refers to United States Dollars.
(l) Unless limited by reference to a particular Section or
provision, any reference to "herein", "hereof", or "within" is to the entire
Loan Document in which such reference is made.
(m) References to "this Agreement" or to any other Loan
Document is to the subject instrument as amended to the date on which
application of such reference is being made.
(n) Except as otherwise specifically provided, all references
to time are to Boston time.
(o) In the determination of any notice, grace, or other period
of time prescribed or allowed hereunder:
(i) Unless otherwise provided (I) the day of the act,
event, or default from which the designated period of time begins to
run shall not be included and the last day of the period so computed
shall be included unless such last day is not a Business Day, in which
event the last day of the relevant period shall be the then next
Business Day and (II) the period so computed shall end at 5:00 PM on
the relevant Business Day.
(ii) The word "from" means "from and including".
(iii) The words "to" and "until" each mean "to, but
excluding".
(iv) The work "through" means "to and including".
(p) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section 14-13
hereof, provided, however, in the event of any inconsistency between the
provisions of this Agreement and any other Loan Document, the provisions of this
Agreement shall govern and control.
14.13. INTENT. It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) The scope of the security interests created by this
Agreement be broadly construed in favor of the Agent.
45
<PAGE> 47
(c) The security interests created by this Agreement secure
all Liabilities, whether now existing or hereafter arising.
(d) All reasonable costs and expenses incurred by the Agent
and, to the extent provide in Section 14-7 each Lender in connection with such
Person's relationship(s) with the Borrower shall be borne by the Borrower.
(e) Unless otherwise explicitly provided herein, the Agent's
consent to any action of the Borrower which is prohibited unless such consent is
given may be given or refused by the Agent in its sole discretion and without
reference to Section 2-15 hereof.
14.14. RIGHT OF SET-OFF. Any and all deposits or other sums at any time
credited by or due to the Borrower from the Agent, any Lender, or any
participant (a "PARTICIPANT") in the credit facility contemplated hereby or any
from any Affiliate of the Agent, any Lender, or any Participant and any cash,
securities, instruments or other property of the Borrower in the possession of
the Agent, any Lender, any Participant or any such Affiliate, whether for
safekeeping or otherwise (regardless of the reason such Person had received the
same) shall at all times constitute security for all Liabilities and for any and
all obligations of the Borrower to the Agent and each Lender or any Participant
or any such Affiliate and may be applied or set off against the Liabilities and
against such obligations at any time, whether or not such are then due and
whether or not other collateral is then available to the Agent, any Lender, or
any Participant or any such Affiliate.
14.15. MAXIMUM INTEREST RATE. Regardless of any provision of any Loan
Document, none of the Agent or any Lender shall be entitled to contract for,
charge, receive, collect, or apply as interest on any Liability, any amount in
excess of the maximum rate imposed by applicable law. Any payment which is made
which, if treated as interest on a Liability would result in such interest's
exceeding such maximum rate shall be held, to the extent of such excess, as
additional collateral for the Liabilities as if such excess were "Collateral."
14.16. WAIVERS.
(a) The Borrower (and all guarantors, endorsers, and sureties
of the Liabilities) make each of the waivers included in Section 14-16(b),
below, knowingly, voluntarily, and intentionally, and understands that the Agent
and each Lender, in entering into the financial arrangements contemplated hereby
and in providing loans and other financial accommodations to or for the account
of the Borrower as provided herein, whether not or in the future, is relying on
such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND
SURETY RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required hereby,
notice of non-payment, demand, presentment, protest and all forms of
demand and notice, both with respect to the Liabilities and the
Collateral.
(ii) Except as otherwise specifically required
hereby, the right to notice and/or hearing prior to the Agent's
exercising of the Agent's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE AGENT OR ANY LENDER IS OR BECOMES A PARTY
(WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE AGENT
OR ANY LENDER OR IN WHICH THE AGENT OR ANY LENDER IS JOINED AS A PARTY
LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF,
ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE AGENT OR ANY LENDER (AND THE AGENT AND EACH LENDER LIKEWISE
WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR
CONTROVERSY).
(iv) The benefits or availability of any stay,
limitation, hindrance, delay, or restriction (including, without
limitation, any automatic stay which otherwise might be imposed
pursuant to Section 362 of the Bankruptcy Code) with respect to any
action which the Agent may or may become entitled to take hereunder.
(v) Any defense, counterclaim, set-off, recoupment,
or other basis on which the amount of any Liability, as stated on the
books and records of the Agent or any Lender, could be reduced or
claimed to be paid otherwise than in accordance with the tenor of and
written terms of such Liability.
(vi) Any claim to consequential, special, or punitive
damages.
46
<PAGE> 48
ROBERDS, INC.
("BORROWER")
By: /S/ ROBERT M. WILSON
------------------------------
Print Name: Robert M. Wilson
Title: President
BANKBOSTON RETAIL FINANCE INC.
("AGENT")
By: /S/ MICHAEL L. PIZETTE
------------------------------
Print Name: Michael L. Pizette
Title: Managing Director
BANKBOSTON RETAIL FINANCE INC.
("LENDER")
By: /S/ MICHAEL L. PIZETTE
------------------------------
Print Name: Michael L. Pizette
Title: Managing Director
NATIONAL CITY COMMERCIAL
FINANCE, INC.
By: /S/ SUSAN E. WENK
------------------------------
Print Name: Susan E. Wenk
Title: Vice President
47
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in (i) Registration Statement No.
33-73900 of Roberds, Inc. on Form S-8, (ii) Registration Statement No. 33-81086
of Roberds, Inc. on Form S-8, (iii) Registration Statement No. 33-79182 of
Roberds, Inc. on Form S-8, (iv) Registration Statement No. 33-97262, of
Roberds, Inc. on Form S-8, (v) Registration Statement No. 333-19903 of Roberds,
Inc. on Form S-8, (vi) Registration Statement No. 333-43977 of Roberds, Inc. on
Form S-8, and (vii) Registration Statement No. 333-37829 of Roberds, Inc. on
Form S-8 of our report dated February 16, 1999 (March 10, 1999 as to Note D)
appearing in this Annual Report on Form 10-K of Roberds, Inc. for the year
ended December 31, 1998, which expressed an unqualified opinion and includes an
explanatory paragraph describing matters that raise substantial doubt about the
Company's ability to continue as a going concern.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Dayton, Ohio
March 10, 1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
FORM 10-K
KNOW ALL MEN BY THESE PRESENTS: That each person whose signature appears below
has made, constituted, and appointed, and by this instrument does make,
constitute, and appoint Robert M. Wilson, Glenn E. Morrical, and Robert T.
Wilson, and each of them, his true and lawful attorney, with full power of
substitution and re-substitution, to affix for him and in his name, as
attorney-in-fact his signature as a Director or Officer, or both, of ROBERDS,
INC., an Ohio corporation ("Company"), to the Company's annual report on Form
10-K for the year ended December 31, 1998, pursuant to the Securities Exchange
Act of 1934, as amended, and to any and all amendments and exhibits to that Form
10-K, and to any and all applications and other documents pertaining thereto,
giving and granting to each such attorney-in-fact full power and authority to do
and perform every act and thing whatsoever necessary to be done, as fully as the
undersigned might do or could do if personally present, and hereby ratifies and
confirms all that each of such attorneys-in-fact or any such substitute shall
lawfully do or cause to be done by virtue hereof. This power of attorney shall
survive the death or disability of the undersigned.
IN WITNESS WHEREOF, this Power of Attorney has been signed as of this 16th day
of February, 1999.
/s/ Melvin H. Baskin /s/ Jerry L. Kirby
- --------------------------------- ------------------------------------
Melvin H. Baskin Jerry L. Kirby
/s/ Robert M. Wilson /s/ Gilbert P. Williamson
- --------------------------------- ------------------------------------
Robert M. Wilson Gilbert P. Williamson
/s/ Carl E. Gunter /s/ Donald C. Wright
- --------------------------------- ------------------------------------
Carl E. Gunter Donald C. Wright
/s/ Michael A. Bruns /s/ Howard W. Smith
- --------------------------------- ------------------------------------
Michael A. Bruns Howard W. Smith
/s/ James F. Robeson
- ---------------------------------
James F. Robeson
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (identify
specific financial statements) the consolidated Balance Sheet and the
Consolidated Statement of Operations AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 932
<SECURITIES> 0
<RECEIVABLES> 3,523
<ALLOWANCES> 212
<INVENTORY> 43,937
<CURRENT-ASSETS> 52,523
<PP&E> 129,781
<DEPRECIATION> 37,696
<TOTAL-ASSETS> 148,208
<CURRENT-LIABILITIES> 44,009
<BONDS> 70,065
0
0
<COMMON> 611
<OTHER-SE> 29,061
<TOTAL-LIABILITY-AND-EQUITY> 148,208
<SALES> 318,710
<TOTAL-REVENUES> 318,710
<CGS> 218,497
<TOTAL-COSTS> 218,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,224
<INCOME-PRETAX> (10,801)
<INCOME-TAX> 5,322
<INCOME-CONTINUING> (16,123)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,123)
<EPS-PRIMARY> (2.66)
<EPS-DILUTED> (2.66)
</TABLE>
