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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, 1999
[ ] 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)
P.O. Box 8729
Dayton, Ohio 45401-8729
(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 [ ]
----- -----
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, 2000, 6,240,958 common shares, without
par value, were outstanding. Of these, 3,124,315 common shares were held by
non-affiliates of the Registrant, with an aggregate market value of
approximately $2,441,652, based upon the average of the high and low trading
prices on January 14, 2000, which was the last day the shares traded. 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 2000 annual meeting of
shareholders are incorporated into Part III herein by reference.
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TABLE OF CONTENTS
ITEM 1. BUSINESS............................................................3
ITEM 2. PROPERTIES..........................................................12
ITEM 3. LEGAL PROCEEDINGS...................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................15
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.......................................................................16
ITEM 6. SELECTED FINANCIAL DATA.............................................18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.........................................................20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..........................................................47
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.......................48
ITEM 11. EXECUTIVE COMPENSATION...............................................51
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......51
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................51
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.....52
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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. During 1999, the Company operated 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
included eight stores.
On January 19, 2000, the Company filed for protection under Chapter 11 of the
Federal bankruptcy laws, and announced that it was closing its Tampa, Florida
market and the Cincinnati, Ohio store, and offering for sale the Atlanta
(Buckhead), Georgia store facility. The Company announced that it would focus
its efforts on turning around the financial performance in its remaining
markets, Dayton, Ohio and Atlanta, Georgia. The Company is operating as a
debtor-in-possession under case number 00-30194, Southern District of Ohio,
Western Division, Dayton, Ohio.
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, its mailing address is P.O. Box 8729, Dayton, Ohio 45401-8729, and
its telephone number is (937) 859-5127. The Company's common shares trade on the
Nasdaq SmallCap Market, under the symbol "RBDSQ." As described in Item 5 below,
trading in the Company's shares was halted by Nasdaq following the Company's
announcement that it would seek protection under the federal bankruptcy laws.
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,
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(1) Roberds, Inc. is also referred to herein as "the Company," "Registrant," and
"Roberds."
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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 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 attempts to set 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, 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.
STORE CONCENTRATION AND EFFICIENCIES. Roberds operates in metropolitan areas of
at least one million people. 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 its geographic marketing areas. The Company's "hub and
spoke" warehouse and delivery functions also create operating leverage by
serving multiple stores from a regional facility.
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, seven days per week. Roberds offers
same-day and next-day delivery service on selected merchandise. Roberds has a
competitive policy on replacements and returns. Roberds 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
four 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. The Company has no plans to enter new markets during
2000.
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 is exploring such relocations and expansions during
for possible implementation
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in 2001 and beyond. However, the Company's ability to relocate or expand is
constrained by its financial condition and its line of credit.
STORE RENOVATIONS. The Company periodically renovates and upgrades its existing
stores to keep them fresh and to support changes in its product offerings. In
October 1999, Roberds opened a state-of-the-art electronics display in its
Norcross, Georgia store. During the third quarter of 1999, the Company opened a
Roberds Mattress Outlet in a vacant building in the parking lot of the Forest
Park, Georgia store. In addition, the two clearance centers that had been
operating within existing stores in the Atlanta market were consolidated into a
single, new clearance center located in space adjacent to the full-line Forest
Park store.
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. 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.
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
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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.
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, 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.
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 has added high-definition
television ("HDTV") and plasma television to its product line, and has
identified digital products as a source for revenue growth.
OTHER. Selected floor-covering products are offered in the Ohio market.
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, are married, and have
annual household incomes greater than $30,000. 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
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, and Sunday delivery service is offered throughout most of the year.
Typically, the customer can schedule deliveries of in-stock merchandise within
two days after the sale, and the Company offers same-day and 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.
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Vendors provide the Company with substantial incentives in the form of cash
discounts, volume rebates, promotional payments, and cooperative advertising
funds. The aggregate amount of these incentives was approximately $12.3 million
in 1999, $16.4 million in 1998, and $16.7 million in 1997. The decline in
incentives in 1999, as compared to 1998, was primarily due to a decline in the
volume of purchases by the Company, and a shift by the Company to products that
do not carry such incentives but have lower acquisition costs. There can be no
assurance that vendor incentives will continue at the current level. A delay or
reduction in, or discontinuance of, 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 single distribution center in each of its 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. During 1999, the Company upgraded 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 GE Card Services ("GE"), formerly known as Banc One Private Label Credit
Services. According to GE, at December 31, 1999, the Company had more than
420,000 private-label charge card accounts that generated sales of approximately
$131 million in 1999. Such sales represent approximately 46 percent of the
Company's net sales and service revenues for 1999. The credit approval and
servicing process is administered by GE, 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) GE's cost of funds plus an administrative charge. As part of its
arrangement with GE, Roberds funds a reserve account designed to cover a portion
of the bad debt losses incurred by GE. All credit losses in excess of the
reserve account are the responsibility of GE. To the extent the Company utilizes
GE for programs other than its standard 90-days, same-as-cash program, the
Company pays a fee to GE 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 GE'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. GE is the sole provider of consumer financing to
the Company's customers.
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.
One national furniture retailer entered the Dayton market in January 1999. A
regional appliance and electronics retailer entered the Cincinnati, Ohio and
Richmond, Indiana markets 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 the
furniture segment.
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. 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.
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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
- -----------
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 $6.4 million at December 31, 1999, compared to $8.9 million at
December 31, 1998.
EMPLOYEES
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At January 31, 2000, the Company had approximately 1,700 employees,
substantially all of whom were full time, including approximately 520 in sales
and sales management, 500 in office and administrative capacities, and 680 in
warehouse, service, and delivery functions. The Company has never experienced a
work stoppage due to labor difficulties. The Company considers its relations
with its employees to be good.
In May 1999, the commissioned sales associates in the Company's Ohio region
voted to be represented by the United Food and Commercial Workers, Local 1099
("UFCW"). Effective October 3, 1999, the Company and the UFCW entered into a
three-year agreement covering wages and working conditions for approximately 180
commissioned sales associates in the Ohio region. The Company does not believe
that the contract will have any significant effect on the Company's financial
position or operating results.
In November 1999, the drivers and helpers at the Company's Fairborn, Ohio
distribution center voted to be represented by Teamsters Local 957. The Company
is negotiating an agreement with the Teamsters. It is not possible to predict
the outcome of the negotiations or the effect of an agreement, if any, on the
Company's financial position or operating results.
SUBSIDIARIES
- ------------
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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 10 of 128
<PAGE> 11
TRADEMARKS AND LICENSES
- -----------------------
The trademarks ROBERDS(R), THE BIG ONE(R), EMPLOYEE PRICE SALE(R), 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), and has an
application pending to renew its registration Of AMERICA'S NAME BRAND
HEADQUARTERS(TM), which expired. 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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 11 of 128
<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, 1999:
<TABLE>
<CAPTION>
SHOWROOM WAREHOUSE OWNED/
REGION YEAR OPENED SQUARE FEET SQUARE FEET LEASED
- ------ ----------- ----------- ----------- ------
OHIO
- ----
<S> <C> <C> <C> <C>
West Carrollton, Ohio store 1971 145,000 15,000 Leased(1)
West Carrollton, Ohio offices 1974 Leased(1)
Piqua, Ohio 1983 56,000 4,000 Leased(1)
Springfield, Ohio 1985 50,000 16,000 Leased(1)
Richmond, Indiana 1988 55,000 4,000 Leased(1)
Vandalia, Ohio 1989 139,000 20,000 Owned
Beavercreek, Ohio 1995 63,000 5,000 Owned
Fairborn, Ohio 1996 480,000 Owned
Springdale, Ohio 1996 250,000 64,000 Leased(4)
GEORGIA
- -------
Norcross, Georgia 1979 75,000 13,000 Leased
Marietta, Georgia(2) 1984 59,000 4,000 Leased(1)
Forest Park, Georgia(2) 1987 110,000 4,000 Leased(1)
Roswell, Georgia 1990 56,000 4,000 Leased
Doraville, Georgia 1994 217,000 Leased
Gainesville, Georgia 1994 71,000 10,000 Leased
Douglasville, Georgia(3) 1994 64,000 4,000 Owned
Athens, Georgia 1995 62,000 4,000 Owned
Fayetteville, Georgia 1995 62,000 4,000 Owned
Atlanta (Buckhead), Georgia 1996 70,000 6,000 Owned(4)
FLORIDA
- -------
Tampa, Florida 1985 73,000 9,000 Owned(4)
Bradenton, Florida 1986 53,000 4,000 Leased(4)
Clearwater, Florida 1986 52,000 4,000 Leased(4)
North Tampa, Florida 1990 50,000 5,000 Owned(4)
Brandon, Florida 1990 49,000 5,000 Leased(4)
Seminole, Florida 1993 81,000 6,000 Leased(4)
Brandon, Florida 1994 159,000 Leased(4)
Sarasota, Florida 1994 50,000 5,000 Leased(4)
Port Richey, Florida 1995 60,000 6,000 Owned(4)
--------- ---------
Total 1,855,000 1,081,000
========= =========
</TABLE>
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 12 of 128
<PAGE> 13
(1) Facilities leased from entities controlled by one or more of the Initial
Shareholders. See Item 13 of this Report, Certain Relationships and Related
Transactions.
(2) The facilities in Marietta, Georgia include approximately 14,000 square
feet, and in Forest Park, Georgia approximately 8,000 square feet, not
included in the table above, leased, or available to lease, to third party
commercial and retail tenants.
(3) The Douglasville, Georgia store includes approximately 17,000 square feet
not included in the table above, leased to third parties.
(4) In January 2000, the Company announced that these stores would be closed as
part of its filing under Chapter 11 of the Federal bankruptcy laws and its
plan to reorganize.
In October 1999, portions of the Norcross, Georgia store were renovated into a
state-of-the-art high-technology electronics product display. In addition, the
portion of the store that had been used as a clearance center was renovated into
a new display area, primarily for bedding products. The merchandise that had
been displayed in the clearance area was relocated to the Forest Park, Georgia
store.
In the third quarter of 1999, the Company relocated and expanded the clearance
center that had been located in the Forest Park, Georgia complex, into new space
within the complex that had been available for rent to third parties. The
Company opened Roberds Mattress Outlet in the former clearance space. Upon
completion of these changes and upgrades, the Company occupied the entire Forest
Park complex, except for approximately 8,000 square feet leased or available for
lease to third parties.
The stores leased from unaffiliated third parties generally involve an initial
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(2) 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.
At December 31, 1999, the Company was in default on substantially all real
property leases because timely payment was not made. As a result, in most cases,
landlords have the right to cancel the lease and take possession of the
property. The Company may also be subject to penalties. As part of the
bankruptcy proceedings, all executory contracts, including lease obligations,
may be assumed or rejected. The Company is currently in the process of reviewing
leases for assumption or rejection.
- ---------------------
(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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 13 of 128
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
GENERAL
- -------
In 1994, the Ohio Bureau of Workers' Compensation ("Bureau") completed an
examination of the Company's 1992 and 1993 workers' compensation returns. After
adjustments, the Bureau assessed $871,000 against the Company, based on the
Bureau's reclassification of the majority of the Company's Ohio employees into
higher rate classifications. After a series of administrative and judicial
appeals by the Company, in August 1999 the Ohio Supreme Court ruled against the
Company in its final appeal. In 1998, the Company paid the $871,000 principal
amount of the 1992-1993 assessment. The Company has accrued $168,000 of
interest owed on the 1992-1993 assessment, which it expects to pay in 2000, as
well as the estimated amount of additional taxes that would be caused by a
reclassification of employees for the period from January 1994 through June
1996, consistent with the Bureau's position for 1992-93.
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.
On January 19, 2000, the Company filed for protection under Chapter 11 of the
Federal bankruptcy laws. It is not clear how long the Company may have to remain
under the protection of such laws, or whether the Company can successfully
emerge from bankruptcy protection.
ENVIRONMENTAL
- -------------
In 1985, a partnership between Kenneth W. Fletcher and Donald C. Wright (two of
the Company's Initial Shareholders), acquired a 21-acre parcel of land in
Springfield, Ohio ("Parcel") from an unaffiliated party. The Parcel included a
building 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 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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 14 of 128
<PAGE> 15
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.
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 included a gas station and car wash that were operated
for many years by a third-party tenant, under an agreement with the
Fletcher-Wright partnership. The Company was not a party to that agreement. 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. Late in 1999, Springfield Properties, Inc. removed
the abandoned tanks and demolished the former gas station and car wash.
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, 1999.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 15 of 128
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's shares trade on the Nasdaq SmallCap Market, under the symbol
"RBDSQ." 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 1999 and 1998.
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1999
- ----
High $3.33 $3.13 $2.19 $2.63
Low 1.69 1.88 1.00 0.50
Close 2.31 2.00 1.25 1.44
1998
- ----
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
Such quotations include inter-dealer prices, without retail markup, markdown, or
commission, and may not necessarily reflect actual transactions. At the close of
trading on January 31, 2000, the Company had approximately 245 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, 2000 was approximately 1,700.
In October 1998, 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. In June 1999, following an appeal
by the Company, trading of the Company's stock was moved from the Nasdaq
National Market tier to the Nasdaq SmallCap Market. In August 1999, Nasdaq
formally approved the Company's stock for listing on the Nasdaq SmallCap Market.
Following the Company's announcement on January 18, 2000 that it would file for
protection under Chapter 11 of the Federal bankruptcy laws, Nasdaq suspended
trading in the Company's stock. In February 2000, the Company responded to
Nasdaq's request for information about the bankruptcy filing and the Company's
prospects for the future. The Company expects Nasdaq to convene a hearing on the
trading halt, though the timing of such hearing is not known. Nasdaq has not
indicated when, or if, it will permit the Company's stock to resume trading.
Through the initial public offering of its common shares in 1993, the Company
paid dividends from time to time. In 1998, the Company settled an examination of
its 1993 and 1994 federal income tax returns, and accrued $225,000 payable to
the Initial Shareholders as the result of that settlement, pursuant to the Tax
Indemnification Agreement entered into at the time of the initial public
offering. A portion of that accrual was paid during 1999, and a portion remains
unpaid and subject to the bankruptcy proceedings. See Notes to the Consolidated
Financial Statements included elsewhere in this Report.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 16 of 128
<PAGE> 17
Other than reimbursements made pursuant to the Tax Indemnification Agreement,
the Company has declared no dividends since the initial public offering of its
common shares, and the Board of Directors contemplates no dividends. The
Company's revolving line of credit contains a covenant prohibiting the payment
of dividends. Therefore, no retained earnings were available for dividends at
December 31, 1999.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 17 of 128
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
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 1999. These
reclassifications had no effect on the net (loss) earnings or shareholders'
equity as previously reported.
OPERATIONS STATEMENT DATA:
- ---------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR-ENDED DECEMBER 31
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues $ 287,008 $ 318,710 $ 341,703 $ 342,102 $ 301,324
Cost of sales 189,064 218,497 230,754 238,645 209,320
--------- --------- --------- --------- ---------
Gross profit 97,944 100,213 110,949 103,457 92,004
Selling, delivery, and
administrative expenses 111,874 110,358 111,642 102,043 81,187
Interest expense, net 6,991 7,224 7,545 5,681 3,500
Litigation -- -- -- 3,314 --
Finance participation income (2,528) (3,032) (3,217) (2,451) (2,489)
Other income, net (4,415) (3,536) (3,495) (3,690) (3,440)
--------- --------- --------- --------- ---------
(Loss) earnings before income
taxes (13,978) (10,801) (1,526) (1,440) 13,246
Income taxes (benefit) -- 5,322 (425) (530) 5,225
Net (loss) earnings $ (13,978) $ (16,123) $ (1,101) $ (910) $ 8,021
========= ========= ========= ========= =========
Basic and diluted earnings
(loss) per share $ (2.26) $ (2.66) $ (0.18) $ (0.15) $ 1.36
========= ========= ========= ========= =========
Weighted average shares out-
standing:
Basic 6,189 6,065 5,979 5,934 5,898
========= ========= ========= ========= =========
Diluted 6,189 6,065 5,979 5,934 5,919
========= ========= ========= ========= =========
</TABLE>
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 18 of 128
<PAGE> 19
BALANCE SHEET DATA (AT PERIOD END):
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital (1) $ (42,641) $ 8,514 $ 18,182 $ 34,952 $ 23,060
Merchandise inventories 36,660 43,937 51,173 62,998 41,377
Property and equipment, net 88,212 92,085 99,364 104,953 81,310
Total assets 133,482 148,208 172,691 192,208 142,049
Long-term debt, including
capital leases, less current
maturities 29,959 70,065 73,309 90,365 54,448
Deferred warranty revenue 2.632 5,211 8,727 11,627 9,546
Total shareholders' equity 15,917 29,672 45,769 46,570 47,199
SELECTED OPERATING DATA:
Stores open at end of period 24 24 24 25 23
Selling square footage at end
of period (in thousands) (2) 1,805 1,805 1,782 1,784 1,394
Percentage (decrease) in
in comparable store sales (3) (9.9) (4.6) (11.0) (8.1) (0.9)
Inventory turnover (4) 4.7 4.6 4.0 4.6 5.3
</TABLE>
1) For 1999, includes $36,222 in debt, excluding capitalized lease
obligations, reclassified from long-term to current liabilities (Note D).
2) Total selling square footage includes selling and office space within each
store, but excludes warehouse space.
3) 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.
4) 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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 19 of 128
<PAGE> 20
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:
YEAR ENDED DECEMBER 31
1999 1998 1997
Net sales and service revenues 100.0% 100.0% 100.0%
Cost of sales and services 65.9 68.6 67.5
----- ----- -----
Gross profit 34.1 31.4 32.5
Selling, delivery and
administrative expenses 39.0 34.6 32.7
Interest expense, net 2.4 2.2 2.2
Finance participation income (0.9) (1.0) (1.0)
Other income, net (1.5) (1.0) (1.0)
----- ----- -----
(Loss) before income
taxes (benefit) (4.9) (3.4) (0.4)
Income taxes (benefit) -- 1.7 (0.1)
----- ----- -----
Net (loss) (4.9)% (5.1)% (0.3)%
===== ===== =====
Sales by the Company's three market areas as a percentage of total sales for
each of the last three years were as follows:
YEAR ENDED DECEMBER 31
1999 1998 1997
Ohio 46% 49% 50%
Georgia 33 31 30
Florida 21 20 20
--- --- ---
100% 100% 100%
=== === ===
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 20 of 128
<PAGE> 21
Sales by major product category as a percentage of total sales for each of the
last three years were as follows:
YEAR ENDED DECEMBER 31
1999 1998 1997
Furniture ........................... 42% 38% 37%
Bedding ............................. 13 13 13
Major appliances .................... 21 24 25
Consumer electronics ................ 18 18 19
Extended warranty contracts and other 6 7 6
--- --- ---
100% 100% 100%
=== === ===
1999 COMPARED TO 1998. Sales in 1999 were $287,008, compared to $318,710 in
1998, a 9.9% decrease. All stores were comparable in 1999. For 1999, the
percentage decreases in sales in the Company's three market areas were as
follows: Ohio (16%); Georgia (4%); and Florida (5%). During the third quarter of
1999, the Company was involved in the negotiation of a labor contract with its
sales force in the Ohio region, the Company's largest region. During the
negotiations, the union called for a boycott of the Company's Ohio stores, and
the sales associates were distracted by the bargaining, contributing to the
decline in Ohio sales. The labor contract has since been finalized. As a whole,
the Company believes that a highly competitive retail environment exists for its
major product lines. Distribution channels, particularly with electronics and
appliances, continue to expand to include national retailers, adding further
competitive pressures. These competitive factors also contributed to the decline
in comparable store sales (see "Business-Competition").
Furniture sales continued to increase as a percentage of total sales as the
Company continued to increase its emphasis on this higher margin category to
mitigate competitive pressures. The decline in major appliance sales as a
percentage of total sales reflects a highly competitive retailing environment,
expanded distribution channels in the industry, and a lack of new products in
this category. It is anticipated that the appliance category will remain under
pressure during 2000.
Gross profit for 1999 was $97,944, or 34.1% of sales, compared to $100,213, or
31.4% of sales, for 1998. The majority of the gross profit percentage
improvement in 1999 reflected an increase in the percentage of furniture sales
to total sales, which generated higher gross profit than other categories.
Additionally, furniture gross profit margins improved over 1998 due to better
pricing controls and fewer liquidations of discontinued merchandise. The gross
margin percentage in the fourth quarter of 1999 was positively affected by a
liquidation of LIFO inventory and a reduction in inventory shrinkage, which was
partially offset by a reduction in vendor incentives. Contributing to the gross
margin percentage improvement in 1999 was a decrease in the LIFO inventory
reserve of $298 versus an increase in the reserve of $1,211 in 1998.
Gross margins percentages for 1999 by category, were approximately 40% for
furniture, 46% for bedding, 22% for major appliances, and 17% for consumer
electronics. The gross margin percentages for 1999 increased for furniture as
compared to 1998, while margins for bedding, consumer electronics, and major
appliances held relatively steady. Product prices and margins in consumer
electronics and appliances continued to be under pressure during 1999, as a
result of competitive conditions in these categories.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 21 of 128
<PAGE> 22
Selling, delivery, and administrative expenses increased to $111,874, or 39.0%
of sales in 1999, compared to $110,358, or 34.6% of sales, in 1998. The increase
in expense in 1999 as compared to 1998 was primarily attributable to increased
advertising and workers' compensation expense. The increase in expenses as a
percentage of sales for 1999, as compared to 1998, was primarily due to the
effects of fixed costs in light of the Company's decline in store sales and an
increase in advertising expense.
Interest expense, net of interest income, decreased to $6,991 for 1999, as
compared to $7,224 in 1998. The decrease in interest expense in 1999 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 $2,528, or 0.9% of sales, in
1999, compared to $3,032, or 1.0% of sales, in 1998. Finance participation
decreased in 1999 compared to 1998 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 $4,415, or 1.5% of sales, in 1999, compared to $3,536, or 1.0%
of sales, for 1998. The increase in other income for 1999 was primarily due to
the receipt of life insurance proceeds of $1,102 resulting from the death of the
Company's chairman.
Loss before income taxes increased to $(13,978) in 1999, from $(10,801) in 1998
as a result of the above-mentioned items. There was no income tax expense for
1999 as compared to income tax expense of $5,322, or approximately 49% of the
loss before taxes, in 1998. The 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 increase in
the reserve was deemed necessary as a result of the uncertainty of the
recoverability of such future tax benefits.
As a result of the Company's continued declining sales in 1999, the resulting
sustained losses and inability to generate sufficient cash flow from operations,
and the failure to meet its debt covenant requirements, in January 2000 the
Company initiated a restructuring effort and filed for protection under the
United States Bankruptcy laws (see Note A).
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:
TOTAL COMPARABLE
STORES STORES
Ohio (8)% (8)%
Georgia (4) 3
Florida (8) (8)
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."
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 22 of 128
<PAGE> 23
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 were 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.
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
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 23 of 128
<PAGE> 24
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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash increased to $2,177 at December 31, 1999, compared to $932 at December 31,
1998. The Company generated $5,444 of cash from operating activities during
1999. Cash of $7,575 was provided from a reduction in merchandise inventories
due to limited vendor credit during the fourth quarter and to align inventory
with declining sales. Cash was also generated from: (a) the receipt of a tax
refund; (b) an increase in customer deposits resulting from delayed product
deliveries; (c) an increase in accounts payable due to liquidity issues; (d)
proceeds from a life insurance policy received after the death of the Chairman;
(e) a reduction in prepaid rent expense; and (f) a reduction in vendor
receivables due primarily to lower volume purchases. These funds were utilized
in part by reductions of $1,844 in accrued expenses and $2,579 in the balance of
deferred warranty revenue. As a result of the above factors, the Company paid
down debt by $1,330.
During 1999, the Company's capital expenditures totaled $3,087. These
expenditures primarily represented normal replacement and upgrade projects,
including the conversion of the former clearance space in the Norcross, Georgia
store into an expanded bedding center, the renovation of the electronics area in
that store into a state-of-the-art electronics display, and the consolidation of
the Company's two existing clearance centers in Atlanta, Georgia into the Forest
Park center. In addition, the Company took delivery of a new enterprise-wide
computer hardware and software system, financed by a $1,558 capital lease. The
Company has no other significant expansion or capital expenditure plans for 2000
other than normal replacement, repair and upgrade projects. The Company acquired
approximately $2,800 of vehicles and warehouse equipment during 1999, which were
financed by operating leases.
In March 1999, the Company refinanced its revolving line of credit. The amount
available under the line was limited to the lesser of: (a) $30,000 or (b) an
amount based upon a percentage of eligible inventory and receivables, which
varies seasonally. At December 31, 1999, $18,985 was available under the line,
of which $19,135 was outstanding. The line of credit bore interest at either the
bank's base rate (8.75% at December 31, 1999) or LIBOR plus 2.25% (8.60% at
December 31, 1999). The line of credit included certain restrictive covenants
including, among others, limitations on capital expenditures and the aggregate
amount of funded debt. The line prohibited the payment of dividends. The line
also required the maintenance of a minimum fixed-charge-coverage ratio.
On January 19, 2000, the Company filed a voluntary petition for reorganization
under Chapter 11 of the United States bankruptcy laws. In February 2000, the
Company entered into a debtor-in-possession credit facility and the existing
credit facility described above was repaid. As a result of various covenant
violations, mortgage loans are classified as current. The debtor-in-possession
credit facility will be classified as long-term (see Note A).
One of the mortgage notes payable contains a balloon payment which is due in
September 2000.
YEAR 2000 READINESS DISCLOSURE
- ------------------------------
The Company has so far experienced no significant problems caused by the
calendar year rollover to Year 2000. However, there still may be unknown Year
2000 issues the Company or its suppliers may experience throughout the upcoming
year. The costs related to the conversion of the credit-card processing system
were insignificant. The costs to upgrade the software and hardware for its
primary management information system were approximately $1,800, of which $1,558
was financed through a capital lease. The majority of the expenditures were for
hardware upgrades to accommodate new software.
The Company has upgraded several secondary information systems, such as payroll,
delivery, telephone, personal computer, and service department systems, to be
Year 2000 compliant. The majority of the costs were for software to
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 24 of 128
<PAGE> 25
incorporate the Company's service departments into the primary management
information system. These costs were approximately $500.
OUTLOOK
- -------
In January 2000 the Company announced the closing of its Tampa, Florida market
and the Cincinnati, Ohio store, and offering for sale its Atlanta (Buckhead),
Georgia store facility. During 2000, the Company will continue to focus on
improving business operations and customer service in its remaining markets in
Dayton, Ohio and Atlanta, Georgia. Areas of focus include improved selling-floor
disciplines, improving warehouse operations and delivery performance, improving
the management of inventory, improving asset utilization, reducing operating
expenses, and turning around comparable store sales. These efforts have required
operating expenditures that adversely affected the Company's financial results
for 1999. The Company believes these initiatives will yield improvement in the
Company's operations during 2000 and beyond.
The Company's financial performance is influenced by product availability,
consumer confidence, interest rates, consumer debt, the general level of housing
activity, and the general level of economic activity in the United States.
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 in the competitive environment in the Company's
markets. One national furniture retailer entered the Dayton market in January
1999. A regional appliance and electronics retailer entered the Cincinnati, Ohio
and Richmond, Indiana markets 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 the
furniture segment.
The Company expects the first quarter of 2000 to reflect a significant decrease
in net sales compared to the first quarter of 1999, due to limited product
availability resulting from the bankruptcy proceedings and the change of credit
facilities (see Note A). The Company expects increased merchandise availability
near the end of the first quarter, but there can be no assurance that the level
of inventory available under its line of credit and trade credit arrangements
will be adequate to sustain sales growth during subsequent periods.
INFLATION
- ---------
The Company does not believe that inflation had any significant impact on its
operations in 1999, 1998, or 1997.
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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 25 of 128
<PAGE> 26
The following tables show the Company's quarterly net sales, gross profit, net
(loss), and (loss) per common share for the last two years.
1999
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
Net sales and
service revenues $ 72,433 $ 68,950 $ 70,810 $ 74,815
Gross profit 25,595 25,314 23,953 23,082
Net loss (210) (1,656) (3,347) (8,765)
Basic and diluted loss
per share (0.03) (0.27) (0.54) (1.42)
1998
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
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)
Basic and diluted loss
per share (0.33) (0.20) (0.19) (1.93)
FORWARD LOOKING STATEMENTS
- --------------------------
In the interest of providing the Company's shareholders and potential investors
with information concerning management's assessment of the outlook for the
Company, this report contains certain "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Readers should bear in
mind that statements relating to the Company's business prospects, as distinct
from historical facts, are forward-looking statements, which, by their very
nature, involve numerous risks and uncertainties. Factors that could cause the
Company's actual results to differ materially from management's expectations
include, but are not limited to:
A. Changes in economic conditions in the United States, including but not
limited to the general level of economic activity, levels of housing activity,
interest rates, the availability of consumer credit, consumer confidence, and
inflation.
B. Changes in the economic conditions in the market areas in which the Company
operates, such as a strike or shutdown of a major employer or industry.
C. Unusual weather patterns, such as unusually hot or cool summers, which can
affect the sale of refrigeration products, or unusually cold winters, which can
affect consumers' desire and ability to shop for the Company's products. Acts of
God, such as floods, hurricanes, or tornadoes, that interrupt the Company's
ability to sell or deliver merchan-
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 26 of 128
<PAGE> 27
dise, 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. Difficulties in hiring and retaining an
effective senior management group. Business interruptions due to union
activities. An attempt to organize additional portions 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 lines of credit and real estate mortgage financing sources at
favorable rates of interest, terms, and conditions.
K. Access to additional equity capital.
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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 27 of 128
<PAGE> 28
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."
V. Changes in the cost or availability of liability, property, and health
insurance.
W. Ability to emerge successfully from bankruptcy protection.
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, 1999, the Notes thereto, and the Independent Auditors' Report
thereon are as follows:
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 28 of 128
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
Board of Directors
Roberds, Inc.
Dayton, Ohio
We have audited the accompanying consolidated balance sheets of Roberds, Inc.
(Debtor) and subsidiary (the "Company") as of December 31, 1999 and 1998, and
the related statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States of America. 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 financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note A, on January 19, 2000, the Company filed for
reorganization under Chapter 11 of the federal bankruptcy laws. The accompanying
financial statements do not purport to reflect or provide for the consequences
of the bankruptcy proceedings. In particular, such financial statements do not
purport to show (a) as to assets, their realizable value on a liquidation basis
or their availability to satisfy liabilities; (b) as to pre-petition
liabilities, the amounts that may be allowed for claims or contingencies, or the
status and priority thereof; (c) as to stockholder accounts, the effect of any
changes that may be made in the capitalization of the Company; or (d) as to
operations, the effect of any changes that may be made in its business.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A, the Company's
recurring losses from operations and negative working capital raise substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are also discussed in Note A. The financial statements
do not include adjustments that might result from the outcome of this
uncertainty.
DELOITTE & TOUCHE LLP
Dayton, Ohio
February 25, 2000
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 29 of 128
<PAGE> 30
ROBERDS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ----------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
<S> <C> <C> <C>
NET SALES AND SERVICE REVENUES (NOTE G) $ 287,008 $ 318,710 $ 341,703
COST OF SALES AND SERVICES 189,064 218,497 230,754
--------- --------- ---------
Gross profit 97,944 100,213 110,949
SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES 111,874 110,358 111,642
INTEREST EXPENSE, NET 6,991 7,224 7,545
FINANCE PARTICIPATION INCOME (NOTE H) (2,528) (3,032) (3,217)
OTHER INCOME, NET (4,415) (3,536) (3,495)
--------- --------- ---------
LOSS BEFORE INCOME TAXES (BENEFIT) (13,978) (10,801) (1,526)
INCOME TAXES (BENEFIT) (NOTE I) -- 5,322 (425)
--------- --------- ---------
NET LOSS ($13,978) ($16,123) ($1,101)
========= ========= =========
BASIC AND DILUTED NET LOSS PER COMMON SHARE ($2.26) ($2.66) ($0.18)
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 6,189 6,065 5,979
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 30 of 128
<PAGE> 31
ROBERDS, INC. AND SUBSIDIARY
- ----------------------------
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- --------------
<TABLE>
<CAPTION>
DECEMBER 31
ASSETS 1999 1998
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,177 $ 932
Receivables:
Customers (less allowance of $370
in 1999 and $212 in 1998) 842 921
Vendors and other (less allowance of $820 in 1999) (Note C) 924 2,390
Merchandise inventories (Note B) 36,660 43,937
Refundable income taxes 116 2,360
Prepaid expenses and other 817 1,983
-------- --------
Total current assets 41,536 52,523
PROPERTY AND EQUIPMENT - AT COST (NOTES B AND E):
Land 15,539 15,539
Buildings and improvements 65,465 65,432
Leasehold improvements 34,927 33,590
Furniture, fixtures and office equipment 6,553 6,145
Computer equipment 4,611 5,788
Warehouse equipment and vehicles 2,576 3,176
Construction in progress 189 111
-------- --------
129,860 129,781
Less accumulated depreciation and amortization 41,648 37,696
-------- --------
88,212 92,085
CERTIFICATES OF DEPOSIT - RESTRICTED (NOTE B) 2,361 2,331
OTHER ASSETS 1,373 1,269
-------- --------
$133,482 $148,208
======== ========
</TABLE>
See notes to consolidated financial statements.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 31 of 128
<PAGE> 32
ROBERDS, INC. AND SUBSIDIARY
- ----------------------------
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
- ------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $15,488 $14,130
Accrued payroll and payroll taxes 5,028 5,702
Accrued sales taxes 1,636 2,073
Other accrued expenses 2,033 2,510
Customer deposits 13,547 11,573
Litigation (Note L) 1,271 1,271
Accrued self-insured workers' compensation 852 1,225
Deferred warranty revenue - current (Note B) 1,042 2,580
Current maturities of long-term debt (Notes D and E) 43,280 2,945
-------- --------
Total current liabilities 84,177 44,009
LONG-TERM LIABILITIES:
Long-term debt including capital leases (Notes D and E) 29,959 70,065
Deferred rent (Note E) 1,839 1,831
Deferred warranty revenue (Note B) 1,590 2,631
-------- --------
Total long-term liabilities 33,388 74,527
SHAREHOLDERS' EQUITY (NOTE F)
Preferred stock - authorized 5,000 shares,
none issued or outstanding
Common shares - authorized 15,000 shares,
no par value; issued and outstanding, 6,241 and
6,108 respectively, stated at $.10 per share 624 611
Additional paid-in capital 32,542 32,332
(Deficit) (17,249) (3,271)
-------- --------
Total shareholders' equity 15,917 29,672
-------- --------
$133,482 $148,208
======== ========
</TABLE>
See notes to consolidated financial statements.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 32 of 128
<PAGE> 33
ROBERDS, INC. AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
- --------------
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON STOCK PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT)
<S> <C> <C> <C> <C>
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 I)
(225)
-------- -------- -------- --------
BALANCE - December 31, 1998 6,108 611 32,332 (3,271)
Issuance of common shares (Note F) 133 13 210
Net loss
(13,978)
-------- -------- -------- --------
BALANCE - December 31, 1999 6,241 $ 624 $ 32,542 ($17,249)
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 33 of 128
<PAGE> 34
ROBERDS, INC. AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
--------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS YEARS ENDED DECEMBER 31
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($13,978) ($16,123) ($ 1,101)
Adjustments to reconcile net loss to net
Cash provided by operating activities:
Depreciation and amortization 8,314 8,795 9,025
LIFO reserve (298) 1,211 (239)
(Gain) loss on sales of property and equipment (16) 38 87
Deferred income taxes - 7,756 1,510
Changes in assets and liabilities:
Receivables 1,545 693 2,388
Merchandise inventories 7,575 6,025 12,064
Refundable income taxes 2,244 (335) (2,025)
Prepaid expenses and other 1,166 (191) 65
Accounts payable 1,333 (2,654) (769)
Customer deposits 1,974 (113) 2,899
Accrued expenses (1,844) 679 (230)
Deferred warranty revenue and rent (2,571) (3,406) (2,820)
-------- -------- --------
Net cash provided by operating activities 5,444 2,375 20,854
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,087) (1,499) (3,413)
Proceeds from sales of property and equipment 392 61 54
Decreases (increase) in certificates of deposit - restricted (30) 210 (248)
Other - 189 94
-------- -------- --------
Net cash used in investing activities (2,725) (1,039) (3,513)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 19,134 2,500 8,080
Payments on debt (20,464) (5,531) (25,796)
Net proceeds from issuance of common shares 131 164 220
Debt issuance costs (275) (31) (145)
-------- -------- --------
Net cash used in financing activities (1,474) (2,898) (17,641)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 1,245 (1,562) (300)
CASH AND CASH EQUIVALENTS - Beginning of year 932 2,494 2,794
-------- -------- --------
CASH AND CASH EQUIVALENTS - End of year $ 2,177 $ 932 $ 2,494
======== ======== ========
CASH PAID (REFUNDED) FOR:
Interest, net of capitalized amount of $38 in 1997 $ 6,765 $ 6,878 $ 7,621
======== ======== ========
Income taxes ($2,386) ($2,271) $ 826
======== ======== ========
NON-CASH TRANSACTIONS - Issuance of common shares to
Roberds, Inc. Employee Profit Sharing and Retirement Savings Plan $ 92 $ 87 $ 80
Capital lease ======== ======== ========
$ 1,558 - -
======== -------- --------
</TABLE>
See notes to consolidated financial statements
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 34 of 128
<PAGE> 35
ROBERDS, INC. AND SUBSIDIARY
- ----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
A. SUBSEQUENT EVENTS AND GOING CONCERN MATTERS
PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY LAWS. On January 19, 2000, the
Company ("Debtor") filed a voluntary petition for reorganization under Chapter
11 of the United States Bankruptcy laws, in the Southern District of Ohio,
Western Division, case number 00-30194 ("Chapter 11 Case"). The Debtor is
currently operating the business as debtor-in-possession.
In general, collection of the Debtor's pre-petition obligations, executory
contracts, and indebtedness is stayed during the bankruptcy proceedings.
Substantially all pre-petition liabilities are subject to settlement under a
plan of reorganization. Although the Debtor expects to file a plan to provide
for emergence from bankruptcy and liquidation of pre-petition obligations, there
can be no assurance that such a plan will be approved by the creditors or
confirmed by the Bankruptcy Court, or that any such plan will be consummated.
The Debtor has the exclusive right to submit a plan of reorganization for 120
days following the filing of the petition. The court may grant extensions of
time to file the plan. If the Debtor fails to file a plan of reorganization
during such period or if such plan is not accepted by the creditors and equity
holders, any party in interest may subsequently file its own plan of
reorganization for the Debtor. A plan of reorganization could result in holders
of the common shares receiving no value for their interest. Therefore, the value
of the Debtor's common shares is highly speculative.
The bankruptcy court has entered orders granting authority to the Debtor to pay
pre-petition employee wages, salaries, benefits, and other employee obligations,
and to honor certain pre-petition customer service obligations, including
deposits, refunds, warranties, returns and gift certificates.
In February 2000 the Company entered into a debtor-in-possession credit facility
(the "DIP Facility"). Under this agreement, the Company may borrow up to $25
million, subject to certain limitations, to fund ongoing working capital needs
while it operates under bankruptcy court protection. Financial covenants include
maintenance of a minimum ratio of inventory to post-petition trade payables,
limitations on capital expenditures, and compliance with cash flow budgets. The
DIP Facility includes a $3 million sub-facility for standby and trade letters of
credit. Interest rates on the DIP Facility are based on either the Base Rate as
to Prime Rate Loans plus 0.25% or the adjusted Eurodollar Rate plus 2.75%, at
the borrower's option. The DIP Facility is secured by substantially all assets
of the Company, subject to certain liens permitted by the DIP Facility.
Borrowings under the DIP Facility are based on a formula which considers
eligible inventories, eligible accounts receivable, eligible fair market value
of owned or liquidated real properties, and trade letters of credit obligations.
The DIP Facility contains certain restrictive covenants that limit capital
expenditures, prohibit dividends, and limit total indebtedness. The DIP Facility
expires the earlier of May 2002 or the effective date of the plan of
reorganization.
The bankruptcy court approved the DIP Facility on an interim basis with a final
hearing expected in March 2000. The Company believes the DIP Facility should
provide adequate liquidity to conduct its operations during bankruptcy.
RESTRUCTURING PLAN. As a result of the Company's decreased net sales in 1999,
the resulting negative cash flow from operations and the failure to meets its
debt covenants, in January 2000 the Company began a restructuring effort. In
late January 2000, the Company began the process of closing all eight stores and
the distribution center in Florida and the Roberds Grand store in Cincinnati,
Ohio, and listed for sale one store facility in Atlanta, Georgia. The Company
also began a reduction of its corporate staff.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 35 of 128
<PAGE> 36
During the first quarter of 2000, the Company expects to record the following
estimated charge for the restructuring:
Lease and other termination costs $ 5,629
Fixed asset impairment 12,221
--------
Total restructuring charge $ 17,850
========
Inventory liquidations $ 1,200
========
Lease and other termination costs include contractual rent, estimated lease
termination costs, and other real estate costs consisting primarily of
utilities, common area maintenance fees and real estate taxes, reduced by
estimated sublease income. The Company will pay lease termination fees as it is
able to negotiate such terminations or as it rejects such leases under the
bankruptcy proceedings. At December 31, 1999 the leases on the locations to be
closed vary in length, with expiration dates from June 2005 to November 2010.
The ultimate timing of lease termination payments will depend on the Company's
ability to negotiate acceptable lease exit terms. Other costs include estimated
debt and lease termination fees.
Property and equipment associated with the restructuring will be written-down to
reflect estimated fair value. Management anticipates selling or abandoning
substantially all owned and leased property and equipment associated with the
markets to be closed.
Approximately 500 employees were terminated pursuant to the restructuring.
Employee severance costs are not expected to be significant, and will be paid or
accrued in the first quarter of 2000.
The Company will record a loss of approximately $1,200 on the February 2000 sale
of inventory to a liquidator in the Florida market and Cincinnati. This loss
will be included in cost of sales.
The Company is continuing to assess its operations as it develops a plan of
reorganization. Additional restructuring costs may be incurred as the plan is
developed.
GOING CONCERN MATTERS. The accompanying consolidated financial statements have
been prepared on a going concern basis of accounting and do not reflect any
adjustments that might result if the Company is unable to continue as a going
concern. The Company's recent losses and negative cash flows from operations,
and the bankruptcy case raise substantial doubt about the Company's ability to
continue as a going concern. As discussed above, management intends to submit a
plan for reorganization to the court. The ability of the Company to continue as
a going concern and appropriateness of using the going concern basis is
dependent upon, among other things, (i) the Company's ability to obtain and
comply with debtor-in-possession financing agreements, (ii) confirmation of a
plan of reorganization by the court, (iii) the Company's ability to achieve
profitable operations after such confirmation, and (iv) the Company's ability to
generate sufficient cash from operations to meet its obligations.
Management believes that the plan of reorganization, as it is being developed
and subject to approval of the bankruptcy court, and the DIP Facility, along
with cash provided by operations, will provide sufficient liquidity to allow the
Company to continue as a going concern; however, there can be no assurance that
the sources of liquidity will be available or sufficient to meet the Company's
needs. The consolidated financial statements do not include any adjustments
relating to recoverability and classification of recorded asset amounts or the
amount and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 36 of 128
<PAGE> 37
B. 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 geographic market areas
selling furniture, bedding, appliances and electronics. At December 31, 1999,
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 (see Note A).
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 25% of merchandise inventories at December
31, 1999 and 24% at December 31, 1998. If the FIFO method had been used for all
inventory, inventory values would have been approximately $3,019 higher at
December 31, 1999 and $3,317 higher at December 31, 1998. The significant
reduction of inventory levels during the fourth quarter of 1999 resulted in
liquidations of various LIFO layers.
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:
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
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 1997, the
Company began 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 risk of
ownership transfers and 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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 37 of 128
<PAGE> 38
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 (LOSS) PER COMMON SHARE. In 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share." Diluted loss per
share is computed by dividing the net loss 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, 1999, 1998, and 1997, 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."
PENDING ACCOUNTING PRONOUNCEMENT. In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This pronouncement will be effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
is still in the process of analyzing the impact of the adoption of this
statement.
RECLASSIFICATIONS. Certain reclassifications have been made in the 1998 and 1997
financial statements to conform to the classifications used in 1999. These
reclassifications had no effect on the results of operations or shareholders'
equity as previously reported.
C. ACCOUNTS RECEIVABLE FROM VENDORS AND OTHER
Accounts receivable from vendors and others consist primarily of amounts due
from vendors for various rebate and cooperative advertising programs and for
merchandise inventory returns.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 38 of 128
<PAGE> 39
D. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
<S> <C> <C>
Revolving line of credit $19,135 $17,500
Mortgage note payable, due in monthly payments of $123,
including interest at 7.875%, to February 2011 11,019 11,558
Mortgage notes payable, due in monthly payments of $41,
plus interest at 9.675%, to June 2010 3,247 3,404
Mortgage notes payable, due in monthly payments of $62,
including interest at 8.00%, to December 2010 5,483 5,759
Mortgage note payable, due in monthly payments of $49,
including interest at 9.00%, to July 2010 4,059 4,259
Mortgage note payable, due in monthly payments of $29,
including interest at 7.64%, to January 2013 2,896 3,009
------- -------
Debt related to properties to be retained 45,839 45,489
Mortgage notes payable, due in monthly payments of $82,
plus interest at 9.03%, to April 2002 6,644 7,137
Mortgage notes payable, due in monthly payments of $36,
plus interest at 9.675%, to June 2010 2,873 3,012
Mortgage note payable, due in monthly payments of $35,
including interest at 10.375%, due in full, September 2000 3,216 3,287
Mortgage note payable, due in monthly payments of $33
including interest at 9.59%, to February 2010 2,583 2,713
------- -------
Debt related to properties to be disposed of 15,316 16,149
------- -------
Capital lease obligations 12,084 11,372
------- -------
73,239 73,010
Less current maturities 43,280 2,945
------- -------
$29,959 $70,065
======= =======
</TABLE>
In March 1999, the Company refinanced its revolving line of credit. The amount
available under the line was limited to the lesser of: (a) $30,000 or (b) an
amount based upon a percentage of eligible inventory and receivables, which
varies seasonally. At December 31, 1999, $18,985 was available under the line,
of which $19,135 was outstanding. The line of credit bore interest at either the
bank's base rate (8.75% at December 31, 1999) or LIBOR plus 2.25% (8.60% at
December 31, 1999).The line of credit included certain restrictive covenants
including, among others, limitations on capital expenditures and the aggregate
amount of funded debt. The line prohibited the payment of dividends. The line
also required the maintenance of a minimum fixed-charge-coverage ratio.
On January 19, 2000, the Company filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Laws. In February 2000, the
Company entered into a debtor-in-possession credit facility and the existing
credit facility was repaid. Essentially all of the Company's assets are pledged
as collateral for the Company's indebtedness. As a result of various covenant
violations, mortgage loans are classified as current. The debtor-in-possession
credit facility will be classified as long-term (see Note A).
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 39 of 128
<PAGE> 40
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 commitments for leases with remaining terms in excess of one year are as
follows:
OPERATING LEASES CAPITAL LEASES
RELATED RELATED
YEAR ENDING DECEMBER 31 PARTIES OTHER PARTIES OTHER
2000 $ 721 $ 6,006 $ 1,919 $ 590
2001 721 5,823 1,919 590
2002 721 5,676 1,919 246
2003 721 5,007 1,919 -
2004 605 4,050 1,919 -
2005 and later 5,422 11,620 10,244 -
------- ------- ------- -------
Total $ 8,911 $38,182 19,839 1,426
======= ======= ======= =======
Less amount representing interest 9,040 141
------- -------
Capital lease obligations $10,799 $ 1,285
======= =======
At December 31, 1999, the Company was in default on substantially all real
property leases because timely payment was not made. As a result, in most cases,
landlords have the right to cancel the lease and take possession of the
property. The Company may also be subject to penalties. As part of the
bankruptcy proceedings, all executory contracts, including lease obligations,
may be assumed or rejected. The Company is currently in the process of reviewing
leases for assumption or rejection.
Rent expense for all operating leases was approximately $8,279, $8,067, and
$8,391, for the years ended December 31, 1999, 1998 and 1997, which included
approximately $750, $721, and $721, for the years ended December 31, 1999, 1998
and 1997, to related parties. Rent expense also included $218, $246, and $262,
of contingent rentals based upon vehicle mileage for the years ended December
31, 1999, 1998 and 1997.
Capital leases included in building and improvements totaled $13,641 at December
31, 1999 and 1998. The capital lease included in computer equipment totaled
$1,558 at December 31, 1999. Accumulated amortization related to the capitalized
leases is $5,658 at December 31, 1999 and $4,474 at December 31, 1998.
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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 40 of 128
<PAGE> 41
Subsequent to the Company's bankruptcy filing in January 2000, the Company
terminated the plan and is winding up its affairs.
The Company issued 84,157 shares at $1.56 per share under the plan during 1999;
31,715 shares at $2.34 per share and 37,574 shares at $2.39 per share under the
plan during 1998; and 18,221 shares at $7.23 per share and 19,517 shares at
$4.52 per share under the plan during 1997.
1993 OUTSIDE DIRECTOR STOCK OPTION PLAN. The Company has a director's stock
option plan for outside directors of the Company. Grants are made at the market
price of the stock at the date of grant. The Company has outstanding options on
6,000 common shares, at $13.00 per share. All of the outstanding options were
exercisable; however, none have been exercised. During 1999, options expired on
2,000 shares at $9.25 per share. At December 31, 1998, the plan expired though
the outstanding options remain exercisable through 2003.
1993 STOCK INCENTIVE PLAN. The Company's stock incentive plan provides that
options on up to 3,000,000 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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 41 of 128
<PAGE> 42
A summary of option transactions under the stock incentive plan is as follows:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
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
Granted 200,783 1.76
Canceled (314,522) 3.36
---------
Outstanding December 31, 1999 961,039 3.60
=========
The following table shows various information about stock options outstanding at
December 31, 1999:
<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 1999 YEARS) PRICE 1999 PRICE
--------------- -------------- ----------- --------- -------------- --------
<S> <C> <C> <C> <C> <C>
$1.03 - 2.87 702,280 9.0 $ 2.15 126,625 $ 2.29
3.71 - 5.44 136,759 7.5 5.05 68,189 5.08
8.50 62,000 5.0 8.50 62,000 8.50
9.50 - 9.87 12,500 5.8 9.80 10,000 9.78
13.00 47,500 3.9 13.00 47,500 13.00
-------------- --------------
1.03 - 13.00 961,039 8.2 3.60 314,314 5.98
============== ==============
</TABLE>
At December 31, 1999, 2,038,461 shares were available for future grants under
the stock incentive plan.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 42 of 128
<PAGE> 43
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 the stock
option or employee stock purchase plans. 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:
YEAR ENDED DECEMBER 31
1999 1998 1997
Net loss
As reported ($13,978) ($16,123) ($1,101)
Pro forma (14,167) (16,241) (1,199)
Net loss per share
As reported ($2.26) ($2.66) ($0.18)
Pro forma (2.29) (2.68) (0.20)
G. NET SALES AND SERVICE REVENUE
Net sales and service revenue includes the following products:
YEAR ENDED DECEMBER 31
1999 1998 1997
Furniture $120,615 $122,383 $125,154
Bedding 37,876 42,342 43,015
Appliances 59,514 75,155 85,814
Electronics 50,363 57,693 65,859
Other 18,640 21,137 21,861
-------- -------- --------
$287,008 $318,710 $341,703
======== ======== ========
Total 1999 sales include the following sales for the Florida and Cincinnati
markets which will be closed in 2000 (see Note A): $52,449 for furniture;
$15,545 for bedding; $16,666 for appliances; $17,553 for electronics; and $5,433
for other.
H. FINANCE PARTICIPATION
The Company earns a finance participation fee on credit sales placed through a
private-label revolving credit plan. Receivables from this plan are held by the
bank without recourse to the Company. Sales under the private label plan as a
percentage of consolidated net sales was approximately 46 percent in the year
ended December 31, 1999, 41 percent in 1998, and 40 percent in 1997. 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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 43 of 128
<PAGE> 44
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:
DECEMBER 31
1999 1998
Deferred tax assets:
Deferred warranty revenue $ 1,027 $ 2,032
Merchandise inventories 651 787
Capital lease obligations 874 860
Depreciation 2,506 924
Workers' compensation accrual 701 973
Vacation accrual 484 527
Deferred rent 717 568
Other 719 528
Net operating loss carryforwards 7,393 2,608
Valuation allowance (15,072) (9,807)
--------- ---------
Net deferred tax asset $ - $ -
========= =========
Income taxes (benefit) consist of the following:
YEAR ENDED DECEMBER 31
1999 1998 1997
Currently payable (refundable):
Federal $ - ($2,279) ($1,985)
State and local - (155) 50
-------- -------- --------
(2,434) (1,935)
Deferred federal and state - 7,756 1,510
-------- -------- --------
$ - $5,322 ($ 425)
======== ======== ========
A reconciliation between the statutory federal income tax rate and the effective
tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1998 1997
<S> <C> <C> <C>
Statutory federal income tax rate (34)% (34)% (34)%
State and local income taxes, net of federal benefit (4) (5) (4)
Tax settlement (2)
Change in valuation allowance 38 90 10
------- ------- -------
-% 49% (28)%
======= ======= =======
</TABLE>
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 44 of 128
<PAGE> 45
The current period reflects no provision for income tax benefits because the
Company has the ability to only carry losses forward. Based on the Company's
recent performance, a valuation allowance is necessary. 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, 1999, the Company's federal net operating loss carryforward was
approximately $18,383, which expires in 2018 and 2019.
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.
Through the initial public offering of its common shares in 1993, the Company
paid dividends from time to time. In 1998, the Company settled an examination of
its 1993 and 1994 federal income tax returns, and accrued $225 payable to the
Initial Shareholders as the result of that settlement, pursuant to the Tax
Indemnification Agreement entered into at the time of the initial public
offering. A portion of that accrual was paid during 1999, and a portion remains
unpaid and subject to the bankruptcy proceedings.
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 $87 in the year ended
December 31, 1999, $82 in 1998, and $80 in 1997.
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 at no cost to the employees. The Company's
expense under the health and welfare benefit plan was approximately $512 in the
year ended December 31, 1999, $779 in 1998, and $484 in 1997.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 45 of 128
<PAGE> 46
K. BUSINESS SEGMENTS
- --------------------
The Company has 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, 1999, 1998 and 1997 are
as follows:
EARNINGS (LOSS) DEPRECIATION INTEREST
BEFORE INCOME AND EXPENSE,
NET SALES TAXES AMORTIZATION NET
1999 (NOTES A AND G)
- -------------------
Ohio $ 131,904 ($ 3,273) $ 4,494 $ 3,316
Georgia 94,321 (5,200) 2,521 2,503
Florida 60,783 (5,505) 1,299 1,172
--------- --------- --------- ---------
$ 287,008 ($ 13,978) $ 8,314 $ 6,991
========= ========= ========= =========
1998
- ----
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
========= ========= ========= =========
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 1994, the Ohio Bureau of Workers' Compensation ("Bureau") completed an
examination of the Company's 1992 and 1993 workers' compensation returns. After
adjustments, the Bureau assessed $871 against the Company, based on the Bureau's
reclassification of the majority of the Company's Ohio employees into higher
rate classifications. After a series of administrative and judicial appeals by
the Company, in August 1999 the Ohio Supreme Court ruled against the Company in
its final appeal. In 1998, the Company paid the $871 principal amount of the
1992-1993 assessment. The Company has accrued $168 of interest owed on the
1992-1993 assessment, which it expects to pay in 2000, as well as the estimated
amount of additional taxes that would be caused by a reclassification of
employees for the period from January 1994 through June 1996, consistent with
the Bureau's position for 1992-93.
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 herein, that would have a
material adverse effect on its operations or financial condition if the
proceeding was determined adversely to the Company.
On January 19, 2000, the Company filed for protection under Chapter 11 of the
Federal bankruptcy laws. It is not clear how long the Company may have to remain
under the protection of such laws, or whether the Company can successfully
emerge from bankruptcy protection.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 46 of 128
<PAGE> 47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 47 of 128
<PAGE> 48
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 2000 annual meeting of shareholders ("2000 Proxy Statement"), not later than
120 days after the end of the fiscal year covered by this Report, and certain
information included in the 2000 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 2000 Proxy Statement and is incorporated
herein by reference.
The following information concerning executive officers of the Company is
provided pursuant to instruction 3, item 401(b), Regulation S-K, at January 31,
2000. 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 56 Chief Executive Officer and Director
Robert M. Wilson 47 President, Chief Administrative Officer, General Counsel,
Secretary, and Director
Billy D. Benton 48 Executive Vice President-General Merchandise Manager
R. Brian Good 41 Senior Vice President-Stores*
Steven S. Klug 48 Senior Vice President-General Merchandise Manager
Gearry D. Davenport 45 Chief Financial Officer
Steven Dominguez 41 Vice President-Store Planning and Accessories
Wayne B. Hawkins 46 Treasurer and Assistant Secretary*
Jonathan W. House 55 Vice President-Warehousing, Distribution and Logistics*
Sandra J. Jackson 53 Vice President-Advertising and Marketing*
Wayne P. McCollum 60 Chief Information Officer*
Theodore D. Palmer 36 Vice President-Store Operations and Control
M. Scott Taylor 40 Vice President-Human Resources
Daniel L. Thobe 49 Vice President, Controller, and Chief Accounting Officer
Michael Van Autreve 52 Vice President-Bedding and Flooring
</TABLE>
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 48 of 128
<PAGE> 49
* Positions eliminated in February and March 2000.
MELVIN H. BASKIN was elected Chief Executive Officer in July 1998 and has been a
Director since February 1999. 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 served as Chief Financial Officer of Roberds from 1988 through July 1999, and
was 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--General Merchandise
Manager in April 1999. Prior thereto, he was Executive Vice President-Operations
from May 1997 through April 1999. From October 1996 through May 1997, he
consulted with several businesses and explored a number of business
opportunities. From January through October 1996, Mr. Benton was National
Director of Retail Marketing for Levitz Furniture Corporation, Boca Raton,
Florida. 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.
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.
STEVEN S. KLUG was elected Senior Vice President-General Merchandise Manager in
January 2000. He was Senior Vice President-Appliances and Electronics from
October 1999 through January 2000. From March 1995 through November 1999, he was
Senior Vice President-General Merchandise Manager, HomePlace, Cleveland, Ohio,
with responsibility for the furniture and floor covering categories, and for
store planning and visual presentation. HomePlace filed for protection under the
bankruptcy laws in January 1998. Early in 1995, Mr. Klug was seeking employment.
GEARRY D. DAVENPORT was elected Chief Financial Officer in July 1999. From 1993
through July 1999, he was Chief Financial Officer, Lindemann Produce, LLC, and
its predecessors, Reno, Nevada, a produce distributor. He also served as a
director of Lindemann from 1993 through February 1999.
STEVEN DOMINGUEZ was elected Vice President-Store Planning and Accessories in
January 2000. He was Vice President-Visual Merchandising from February 1999
through January 2000. From January 1997 through November 1998, he was Director
of Visual Merchandising, Breuner's Home Furnishings Corporation, Lancaster,
Pennsylvania. From April 1995 through December 1996, he was Visual Merchandising
Associate, Huffman Koos, Nanuet, New York. From 1984 through April 1995, he was
a consultant in visual merchandising and graphic design.
WAYNE B. HAWKINS was elected Treasurer in May 1995, and Assistant Secretary in
May 1997. Prior thereto, he was Assistant Treasurer since 1994.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 49 of 128
<PAGE> 50
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 1994 through November
1996, he was Commander and Deputy Commander, Defense Electronics Supply Center,
Dayton, Ohio.
SANDRA J. JACKSON was elected Vice President-Advertising and Marketing in April
1999. From January 1999 through April 1999, she explored business opportunities.
From January 1998 through January 1999, she was Creative Services Director,
Caldor Department Store, Norwalk, Connecticut. From January 1997 through January
1998, she was Creative Manager, Cadmus Communication, Atlanta, Georgia. From
1986 through January 1997, she was Creative Services Director, Federated
Department Stores, Inc., Atlanta, Georgia.
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.
THEODORE D. PALMER was elected Vice President-Store Operations and Control in
April 1999. From October 1998 through April 1999, he was Distribution Director
in the Company's Tampa market. From September 1996 through October 1998, he was
a store manager in the Company's Tampa market. From 1991 through September 1996,
he was Vice President/General Manager, Kane's Furniture, Tampa, Florida
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.
DANIEL L. THOBE was elected Vice President, Controller, and Chief Accounting
Officer in November 1999. From June 1997 through November 1999, he was Vice
President and Corporate Controller, Breuner's Home Furnishings Corporation,
Lancaster, Pennsylvania. From September 1996 through June 1997, he was
Divisional Vice President and Controller, The Bon-Ton Stores, Inc., York,
Pennsylvania. From 1973 through August 1996, he was associated with Sears,
Roebuck and Company, Hoffman Estates, Illinois, in a variety of management
positions, most recently as National Director of Capital Accounting and Control.
MICHAEL VAN AUTREVE was elected Vice President-Bedding and Flooring in January
2000, and prior thereto had 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, 2000, the Initial Shareholders, and their spouses, owned
approximately 48.6 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 ensuring their ability to control the future
direction and management of the Company.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 50 of 128
<PAGE> 51
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 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.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
"Executive Compensation" section of the Company's 2000 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 2000 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 2000
Proxy Statement.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 51 of 128
<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, 1999 and 1998.
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998, and 1997.
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1999, 1998, and 1997.
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997.
Notes to Consolidated Financial Statements for the years ended
December 31, 1999, 1998 and 1997.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 52 of 128
<PAGE> 53
(a)(2) FINANCIAL STATEMENT SCHEDULES
------------------------------------
The following financial statement schedule of the Company, for the three years
ended December 31, 1999, 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, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999, and have issued our report
thereon dated February 25, 2000, which report includes explanatory paragraphs
describing uncertainties relating to bankruptcy proceedings and 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.
DELOITTE & TOUCHE LLP
Dayton, Ohio
February 25, 2000
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 53 of 128
<PAGE> 54
ROBERDS, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
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, 1999:
Allowance for doubtful accounts $212 $1,349 $371 $1,190
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
</TABLE>
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 54 of 128
<PAGE> 55
(a)(3) EXHIBITS
----------------
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 4.1 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.
*10.1.3# Amendment to Roberds, Inc. 1993 Stock Incentive Plan, referred
to in Exhibit 10.1, effective as of April 30, 1999, filed
herewith.
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. In
January 2000, the Company terminated the plan and began to wind
up its affairs.
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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 55 of 128
<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. The plan expired in 1998,
though options issued under the plan remain exercisable through
2003.
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. The plan was terminated by
the filing for bankruptcy protection in January 2000, and its
affairs have been wound up.
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
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 56 of 128
<PAGE> 57
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.
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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 57 of 128
<PAGE> 58
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.
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.
10.5 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.
10.6.3.5 Second Amendment to Amended and Restated Business Loan
Agreement between Bank One, Dayton, NA and Registrant, dated
December 31, 1996, 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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 58 of 128
<PAGE> 59
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 as
Exhibit 10.6.3.7.3 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998, 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, which runs 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.
*10.7.2 Amendment to Amended and Restated Private Label Revolving
Credit Plan Agreement between Registrant and GE Capital
Consumer Card Co., as successor to Bank One, NA, dated as of
January 24, 2000, amending the agreement referred to in Exhibit
10.7.1, filed herewith.
10.8 Loan and Security Agreement between Registrant and BankBoston
Retail Finance Inc., dated March 3, 1999, filed as Exhibit 10.8
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by reference.
**10.8.1 First Amendment to Loan and Security Agreement between
Registrant and BankBoston Retail Finance, Inc., dated as of May
14, 1999, amending the Loan and Security Agreement referred to
in 10.8 above, filed as Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the fiscal period ended June 30, 1999,
and incorporated herein by reference.
**10.8.2 First Modification Agreement to Loan and Security Agreement
between Registrant and BankBoston Retail Finance, Inc., dated
as of November 17, 1999, amending the Loan and Security
Agreement referred to in 10.8 above, filed as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the fiscal
period ended September 30, 1999, and incorporated herein by
reference.
*10.8.3 Post-Petition Loan and Security Agreement for up to $25 million
between Registrant and Jackson National Life Insurance Company,
dated as of February 22, 2000, replacing the financing referred
to in Exhibit 10.8.2, filed herewith.
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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 59 of 128
<PAGE> 60
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.
10.11.3# 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# Amended and Restated Employment Agreement, dated as of April
30, 1999, between Registrant and Billy D. Benton, Executive
Vice President-General Merchandise Manager, superseding the
Agreement referred to in 10.11.3 above, filed as Exhibit 10.11
to Registrant's Report on Form 10-Q for the quarterly period
ended June 30, 1999, 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
* 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.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 60 of 128
<PAGE> 61
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/ Gearry D. Davenport*
- ------------------------------------
Gearry D. Davenport, its
Chief Financial Officer
/s/ Daniel L. Thobe*
- ------------------------------------
Daniel L. Thobe, its
Vice President and
Chief Accounting Officer
/s/ Robert M. Wilson
*By:________________________________
Robert M. Wilson
Attorney in Fact
February 25, 2000
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 61 of 128
<PAGE> 62
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 25, 2000.
/s/ Melvin H. Baskin*
- ------------------------------------
Melvin H. Baskin
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
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 62 of 128
<PAGE> 63
EXHIBIT INDEX
-------------
10.1.3 Amendment to Roberds, Inc. 1993 Stock Incentive Plan, referred
to in Exhibit 10.1, effective as of April 30, 1999.
10.7.2 Amendment to Amended and Restated Private Label Revolving
Credit Plan Agreement between Registrant and GE Capital
Consumer Card Co., as successor to Bank One, NA, dated as of
January 24, 2000, amending the agreement referred to in
Exhibit 10.7.1.
10.8.3 Post-Petition Loan and Security Agreement for up to $25
million between Registrant and Jackson National Life Insurance
Company, dated as of February 22, 2000, replacing the
financing referred to in Exhibit 10.8.2.
23 Independent Auditors' Consent.
24 Powers of attorney.
27 Financial Data Schedules.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 63 of 128
<PAGE> 1
EXHIBIT 10.1.3
ROBERDS, INC.
AMENDED 1993 STOCK INCENTIVE PLAN
April 30, 1999
1. PURPOSE. The purpose of this 1993 Stock Incentive Plan (the "Plan") is to
advance the interests of Roberds, Inc. ("the Company") and its shareholders by
offering to those employees of the Company and its subsidiaries who will be
responsible for the long-term growth of the Company's earnings the opportunity
to acquire or increase their equity interests in the Company or to enjoy
performance-based stock and/or cash incentives, thereby achieving a greater
commonality of interest between shareholders and employees, enhancing the
Company's ability to retain and attract highly qualified employees and providing
an additional incentive to such employees to achieve the Company's long-term
business plans and objectives.
2. AWARD OPPORTUNITIES. Awards under the Plan may be granted in the form of (a)
incentive stock options as provided in Section 412 of the Internal Revenue Code
of 1986, as amended (the "Code"), (b) nonqualified stock options, (c) shares of
common stock of the Company which are restricted and must be purchased by the
employee ("Restricted Stock"), (d) stock appreciation rights ("SARs"), (e)
limited stock appreciation rights ("LSARs"), (f) performance units, or (g) stock
units (all of which shall hereinafter be collectively referred to as "Awards").
Incentive and non-qualified stock options shall hereinafter be referred
to individually as an "option" and collectively as "Options" in this Plan.
3. ADMINISTRATION.
(A) COMMITTEE. The Plan shall be administered by the Company's Board
of Directors (the "Board") or by a committee (the "Committee") of the
Board, as determined from time to time by the Board. The Committee
shall consist of no fewer than three directors of the Company who
shall be appointed, from time to time, by the Board. At any time that
the Company has a class of equity securities registered under Section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), only directors who, at the time of service, qualify as
"non-employee directors" within the meaning of Rule 16b-3 or its
successor under the Exchange Act shall be members of the Committee.
All references in this Plan to the Board shall be understood to refer
either to the full Board or to the Committee, to the extent
administration of the Plan has been delegated by the Board to the
Committee.
(B) AUTHORITY. The Board, or the Committee, to the extent the Board
has delegated such authority to the Committee, shall have full and
final authority with respect to the Plan (i) to interpret all
provisions of the Plan consistent with law; (ii) to determine the
employees who will receive Awards; (iii) to determine the frequency of
grant of Awards; (iv) to determine the number and type of Options to
be granted to each employee and the price at which they may be
exercised; (v) to determine the number of shares of Restricted Stock
to be granted to each employee and the purchase price of such shares;
(vi) to specify the number of shares subject to each Option; (vii) to
prescribe the form and terms of instruments evidencing any Award
granted under the Plan; (viii) to determine when Options or SARs may
be exercised or; (ix) to determine the term of the
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
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<PAGE> 2
restricted period and other conditions applicable to Restricted Stock;
(x) to adopt, amend and rescind general and special rules and
regulations for the Plan's administration; and (xi) to make all other
determinations necessary or advisable for the administration of the
Plan. The Board may, with the consent of the person or persons who has
been granted an Award under the Plan, amend the instrument regarding
such Award consistent with the provisions of the Plan.
(C) INDEMNIFICATION. No member of the Board or the Committee shall be
liable for any action taken or determination made in good faith. The
members of the Board and the Committee shall be indemnified by the
Company for any acts or omissions in connection with the Plan to the
full extent permitted by Ohio and Federal law.
4. ELIGIBILITY. Participation in the Plan shall be determined by the Board and
shall be limited to employees of the Company and its subsidiaries.
5. STOCK SUBJECT TO PLAN. Subject to adjustments as provided in Section 12(A)
hereof, the aggregate number of shares of common stock, without par value, of
the Company ("Shares") as to which Awards may be granted under the Plan shall
not exceed 3,000,000 Shares. Such Shares may be authorized but unissued Shares
or treasury Shares.
The Board shall maintain records showing the cumulative total of all
Shares subject to Options outstanding, the number of Shares purchased as
Restricted Stock and their applicable restricted period under this Plan and the
number of Shares delivered in settlement of any other Award under the Plan.
If an Option granted hereunder shall expire or terminate for any reason
without having been fully exercised or if any Shares of Restricted Stock granted
under this Plan is forfeited to the Company or if any Shares to be issued
pursuant to an Award are not issued for any reason, then the Shares covered by
the unexercised portion of such Option, the forfeited Restricted Stock Shares
and the Shares not issued upon settlement of an Award shall be available for the
purposes of this Plan. In addition, any Shares which are used as full or partial
payment by a Participant of the exercise price upon exercise of an Option shall
be available for Awards under the Plan as shall any Shares which are withheld in
payment of tax withholding obligations of a Participant (as provided in Section
12 (F)).
6. OPTIONS.
(A) ALLOTMENT OF SHARES. The Board may, in its sole discretion and
subject to the provisions of the Plan, grant to eligible employees at
such times as it deems appropriate following adoption of the Plan by
the Board, Options to purchase Shares, subject to approval of the Plan
by the Company Shareholders.
Options may be allotted to participants in such amounts,
subject to the limitations specified in this Section, as the Board, in
its sole discretion, may from time to time determine.
(B) OPTION PRICE. The price per Share at which each non-qualified or
incentive stock option granted under the Plan may be exercised shall
not, as to any particular option, be less than one hundred percent
(100%) of the fair market value of a Share at the time such option is
granted. In the case of a participant who owns stock representing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of its parent or any subsidiary (as
determined under Section 425(d) of the Code) at the time the incentive
stock Option is granted, the Option price shall not be less than 110%
of the fair market value of the Shares at the time the incentive stock
option is granted. The foregoing rule shall not apply to a nonqualified
stock option.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 65 of 128
<PAGE> 3
For purposes of Options granted hereunder, "fair market value"
of a Share shall mean the average of the high and low prices reported
in the consolidated reporting system (for exchange traded securities
and last sale reported over-the-counter securities) or the average of
the bid and asked prices (for other over-the-counter securities), on
the date the Option is granted, or, if no such prices are available,
the fair market value on such date of a Share as the Board shall
determine. Unless another date is specified by the Board, the date on
which the Board approves the granting of an Option shall be deemed the
date on which the Option is granted.
(C) OPTION PERIOD. An Option granted under the Plan shall terminate,
and the right of the participant (or the participant's estate, personal
representative, or beneficiary) to purchase Shares upon exercise of the
Option shall expire, on the date determined by the Board at the time
the Option is granted (the "Termination Date"). No incentive stock
option shall be exercisable more than ten (10) years after the date on
which it was granted, and no nonqualified stock option shall be
exercisable more than ten (10) years and one (1) day after the date on
which it was granted. In the case of a participant who owns stock
representing more than ten percent (10%) of the total combined voting
power of all classes of the Company's stock, no incentive stock option
shall be exercisable more than five (5) years after the date on which
it is granted.
(D) EXERCISE OF OPTIONS.
(1) By a Participant During Continuous Employment.
Unless otherwise determined by the Board at the
time of grant, an Option will be exercisable in
four (4) equal annual installments commencing on
the first anniversary of the date the Option was
granted and within the guidelines established by
Section 6(F) applicable to incentive stock options.
In its discretion, the Board may at any time
accelerate the exercisability of an Option. During
the lifetime of a participant to whom an Option is
granted, the Option may be exercised only by the
participant or by the participant's
attorney-in-fact or legal guardian as hereinafter
provided (unless such exercise would disqualify an
Option as an incentive stock option).
A participant who has been continuously employed by
the Company or a subsidiary since the date of Option grant is
eligible to exercise all Options which are then exercisable up
to the Termination Date of such Options and within the
guidelines established by Section (F). The Board will decide
in each case, subject to the limitations set forth in Section
422 of the Code applicable to incentive stock options, to what
extent leaves of absence for government or military service,
illness, temporary disability, or other reasons shall not for
this purpose be deemed interruptions of continuous employment.
(2) By a Former Employee.
A participant who terminates employment with the
Company and its subsidiaries for reasons other than
retirement, permanent and total disability or death, must
exercise all Options previously awarded on or prior to the
date of his termination of employment (but no later than the
Termination Date of the Options). The exercise of such Options
must be within the guidelines established by Section 6(F). An
Option may be exercised on or prior to the date of such
termination of employment only for the number of Shares for
which it could have been exercised at the time the participant
terminated employment with the Company and its subsidiaries.
The failure to exercise all Options by a participant on or
prior to the date of his termination of employment will result
in the forfeiture of all unexercised Options.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 66 of 128
<PAGE> 4
(3) In Case of Retirement.
Upon retirement (as hereafter defined), the
non-qualified stock options of a participant must be exercised
within three (3) years of such retirement and the incentive
stock Options must be exercised within three (3) months of
such retirement and within the guidelines established by
Section 6(F) (but no later than the Termination Date of such
Option). For purposes of the Plan, "retirement" shall mean
that the participant on the date of termination of employment
has attained age 60 with 10 years of continuous employment
with the Company and its subsidiaries. If the participant
should die within the three (3) year or three (3) month period
following retirement, as applicable, the provisions contained
in Section 6(D), Paragraph 5 hereof shall apply. The
exercisability of all Options granted to such a Participant
shall be accelerated and the Options shall become immediately
exercisable without regard to the number of Shares for which
it otherwise could have been exercised on the date of
retirement.
(4) In Case of Permanent and Total Disability.
If a participant who was granted an Option terminates
employment with the Company and its subsidiaries because of
permanent and total disability and is eligible for benefits
under the Company disability plan, or successor plan, upon
termination of employment, all non-qualified stock Options
previously awarded must be exercised within three (3) years of
such termination of employment and all incentive stock Options
must be exercised within one (1) year of such termination of
employment subject to the guidelines established by Section 6
(F) (but no later than the Termination Date of such Option).
If the participant should die during such three (3) year or
one (1) year period, as applicable, the provisions contained
in Section 6(D), Paragraph 5 hereof shall apply. The
exercisability of all Options granted to such a Participant
shall be accelerated and the Options shall become immediately
exercisable without regard to the number of Shares for which
it could otherwise have been exercised on the date of
termination of employment.
(5) In Case of Death.
If a participant who was granted an Option dies while
employed by the Company or a subsidiary, or during the three
(3) year or three (3) month period following retirement or
during the three (3) year or one (1) year period following
termination of employment due to permanent and total
disability, as applicable, all Options previously awarded must
be exercised no later than the Termination Date of such Option
by the participant's estate, or by a person who acquired the
right to exercise the Option by bequest or inheritance and
within the guidelines established by Section 6(F). The
exercisability of all Options granted to such a Participant
shall be accelerated and the Options shall become immediately
exercisable without regard to the number of Shares for which
it otherwise could have been exercised on the date of death.
(6) Termination of Options.
An Option granted under the Plan shall be considered
terminated in whole or in part, to the extent that, in
accordance with the provisions of the Plan, it can no longer
be exercised for Shares originally subject to the Option.
(E) MANNER OF EXERCISE AND PAYMENT.
(1) Exercise
Each option granted under this Plan shall be deemed
exercised to the extent that the participant shall deliver to
the Company written notice of the number of full Shares with
respect to which
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
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<PAGE> 5
the Option is being exercised. The participant shall at the
same time tender to the Company payment in full for the
Shares for which the Option is exercised, which may be in
cash or, subject to Section 6(E), Paragraph 2 hereof, in
previously issued Shares or partly in cash and partly in
Shares, and shall comply with such other reasonable
requirements as the Board may establish, pursuant to Section
12(D) of the Plan. These provisions shall not preclude
exercise of an Option, or payment for Shares, by any other
proper legal method specifically approved by the Board.
No person, estate or other entity shall have any of
the rights of a shareholder with reference to Shares subject
to an Option until a certificate for the Shares has been
delivered.
An Option granted under this Plan may be exercised
for any lesser number of whole Shares than the full amount for
which it could then be exercised, provided, however, that the
Board may require, in the agreement evidencing an Option, any
partial exercise to be with respect to a specified minimum
number of Shares. Such a partial exercise of an Option shall
not affect the right to exercise the Option from time to time
in accordance with the Plan for the remaining Shares subject
to the Option.
(2) Payment in Shares
The value of Shares delivered for payment of the
exercise price shall be the fair market value of the Shares
determined as provided in Section 6(B) on the date the Option
is exercised. If certificates representing Shares are used to
pay all or part of the exercise price of an Option, separate
certificates shall be delivered to the Company representing
the number of Shares so used, and an additional certificate or
certificates shall be delivered representing the additional
Shares to which the Option holder is entitled as a result of
exercise of the Option. Notwithstanding the foregoing and the
provisions of Section 6(E), paragraph (1), the Board, in its
sole discretion, may refuse to accept Shares delivered for
payment of the exercise price, in which event any certificates
representing Shares that were actually received by the Company
with the written notice of exercise shall be returned to the
person exercising such Option together with notice by the
Company of the refusal of the Company to accept such Shares.
In the event Shares are delivered for payment of the
option price as herein provided, then, at the discretion of
the Board, the participant may be granted an Option to
purchase a number of Shares equal to the number of Shares
delivered in payment of the exercise price, with an exercise
price equal to the current fair market value of such Shares,
and with a term of such Option extending to the expiration
date of the Option which was exercised with respect to which
Shares were delivered as payment of all or a portion of the
exercise price.
(3) Loans
The Company may make loans to such holders of Options
as the Board, in its discretion, may determine (including a
holder who is a director or officer of the Company) in
connection with the exercise of Options granted under the
Plan; provided, however, that the Board shall not authorize
the making of any loan where the possession of such discretion
or the making of such a loan would result in a "modification"
(as defined in Section 425 of the Code) of any incentive stock
option. Such loans shall be subject to the following terms and
conditions and such other terms and conditions as the Board
shall determine at the time the loan is made which are not
inconsistent with the Plan. Such loans shall bear interest at
such rates as the Board shall determine from time to time,
which rates shall be the then current market rates. In no
event may any such loan exceed the fair market value, at the
date of exercise, of the Shares covered by the Option, or
portion thereof, exercised by the holder. No loan shall have
an initial term exceeding five years, but any such loan may be
renewable at the discretion of the Board. At the time a loan
is made, Shares having a fair market value at least equal to
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
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<PAGE> 6
the principal amount of the loan shall be pledged by the
holder to the Company as security for payment of the unpaid
balance of the loan. Every loan shall comply with all
applicable laws, regulations and rules of the Board of
Governors of the Federal Reserve System and any other
governmental agency having jurisdiction.
(4) Award of Cash or Shares in Lieu of Exercise
The Board may elect, in lieu of accepting payment of
the option price and delivering any or all Shares as to which
an Option has been exercised, to pay the holder of such Option
an amount in cash or Shares, or a combination of cash and
Shares, equal to the amount by which the fair market value
(determined as provided in Section 6(B)) on the date of
exercise of the Shares as to which such Option has been
exercised exceeds the option price that would otherwise be
payable by the holder of such Option for such Shares. The
Board may also permit a Participant to simultaneously exercise
an Option and sell the Shares acquired upon exercise, pursuant
to a brokerage arrangement, approved in advance by the Board,
and use the proceeds from such a sale as payment of the option
price of such Shares.
(5) Persons Subject to Section 16 of the Exchange Act
Participants who are subject to Section 16 of the
Exchange Act are hereby advised that reliance on Rule 16b-3
may require that any equity security of the Company acquired
upon exercise of an option by such person be held at least
until the date six months after the date of grant of the
option.
(F) LIMITATIONS ON EXERCISE. In the case of Options intended to be
incentive stock options, the aggregate fair market value, determined as
of the date of grant, of the Shares as to which such Options are
exercisable for the first time by a participant shall be limited to
$100,000 per calendar year.
Non-qualified stock options may be exercised by a participant
without regard to the foregoing limitation.
7. STOCK APPRECIATION RIGHTS.
(A) GRANTING OF STOCK APPRECIATION RIGHTS. The Board may, in its sole
discretion and subject to the provisions of the Plan, grant to eligible
employees at such times as it deems appropriate following adoption of
the Plan by the Board, Stock Appreciation Rights, subject to approval
of the Plan by the Company Shareholders.
(B) STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is a right
to receive the following amount of appreciation -- an amount equal to
the excess of the fair market value of a Share on the exercise date
over the fair market value of a Share on the date of grant of the Stock
Appreciation Right, multiplied by the number of Shares with respect to
which the Stock Appreciation Right shall have been exercised.
(C) TERMS OF GRANTS. A Stock Appreciation Right may be granted in
tandem with, in addition to or completely independent of an Option or
any other Award under the Plan.
(D) MANNER OF EXERCISE. A Stock Appreciation Right may be exercised by
a Participant in accordance with procedures established by the Board,
and a Stock Appreciation Right shall be exercisable as provided by the
Board on the date of grant. The Board may also provide that a Stock
Appreciation Right shall be automatically exercised on one or more
specified dates. Notwithstanding the foregoing, all Stock Appreciation
Rights shall be automatically exercised as of the end of the month in
which the participant's employment terminates due to death, permanent
and total disability or retirement.
---------------------------------------------
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<PAGE> 7
(E) FORM OF PAYMENT. Payment upon exercise of a Stock Appreciation
Right may be made in cash or in Shares, or any combination thereof, as
the Board shall determine; provided, however, that any Stock
Appreciation Right exercised upon or subsequent to the occurrence of a
Change of Control (as defined in Section 12(B)) shall be paid in cash.
(F) PERSONS SUBJECT TO SECTION 16 OF THE EXCHANGE ACT. Participants
who are subject to Section 16 of the Exchange Act are hereby advised
that, unless the date of exercise of a Stock Appreciation Right is
automatic or fixed in advance under this Plan and is outside the
control of the Participant, reliance on Rule 16b-3 with respect to cash
settlements of Stock Appreciation Rights requires that (1) the Company
on a regular basis publicly releases for publication quarterly and
annual summary statements of sales and earnings and (2) exercises of
Stock Appreciation Rights resulting in full or partial cash settlements
must occur only during the period beginning with the third business day
and ending on the twelfth business day following release of such
information.
8. LIMITED STOCK APPRECIATION RIGHTS
(A) GRANTING OF LIMITED STOCK APPRECIATION RIGHTS. The Board may, in
its sole discretion and subject to the provisions of the Plan, grant to
officers at such times as it deems appropriate following adoption of
the Plan by the Board, subject to approval of the Plan by the Company
Shareholders, rights to receive cash to Officers who are Option holders
equal to the fair market value of a Share of stock on the exercise date
over the exercise price of the related option ("Limited Stock
Appreciation Rights") which rights, however, are conditioned upon and
may be exercised only if each of the following three conditions are
satisfied:
(1) The Company has equity securities registered under
the Exchange Act;
(2) The option holder is an Officer subject to Section
16(b) of the Exchange Act; and
(3) There has been an event of Change of Control as
defined in Section 12(B).
Such Limited Stock Appreciation Rights shall be evidenced by
agreements in such form and containing such additional terms not
inconsistent with the Plan as the Board shall from time to time
approve.
(B) TERMS OF GRANTS. Each Limited Stock Appreciation Right shall
relate to a specific Option under the Plan. The number of Limited
Stock Appreciation Rights granted to a Participant shall be no more
than the number of Shares that the Participant is entitled to receive
pursuant to the related Option. The number of Limited Stock
Appreciation Rights held by a Participant shall be reduced by:
(i) the number of Limited Stock Appreciation Rights
exercised for cash under the Stock Appreciation
Rights agreement; and
(ii) the number of Shares of stock purchased by such
participant pursuant to the related Option.
(C) MANNER OF EXERCISE. In no event shall a Limited Stock Appreciation
Right be exercisable within the first six (6) months after the date of
the grant. If an event of Change of Control occurs and is outside the
control of the Participant, all Limited Stock Appreciation Rights held
by such Participant (other than any Limited Stock Appreciation Rights
granted within the prior six months or in response to the event of
Change of Control) shall be automatically exercised as of the date of
the Change of Control without any election by the Participant.
Determination of whether the Change of Control is within the control of
the Participant shall be
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<PAGE> 8
made based upon the interpretations by the Securities and Exchange
Commission or its staff as then available and in effect. If the event
of Change of Control is outside the control of the Participant, then
the Limited Stock Appreciation Rights held by such Participant shall
become immediately exercisable but shall not be automatically
exercised. A Participant described in the immediately preceding
sentence may exercise Limited Stock Appreciation Rights by giving
written notice of such exercise to the Company, and the date upon
which such notice is received by the Company shall be the exercise
date for the Limited Stock Appreciation Right. See Section 7 (F). All
Limited Stock Appreciation Rights shall be automatically exercised as
of the end of the month in which the Participant's employment
terminates due to death, permanent and total disability or retirement.
(D) APPRECIATION AVAILABLE. Each Limited Stock Appreciation Right
shall entitle a Participant to the following amount of appreciation --
the excess of the fair market value of a Share on the exercise date
over the option price of the related Option. The total appreciation
available to a Participant from any exercise of Limited Stock
Appreciation Rights shall be equal to the number of Limited Stock
Appreciation Rights being exercised, multiplied by the amount of
appreciation per Right determined under the preceding sentence.
(E) PAYMENT OF APPRECIATION. The total appreciation available to the
Participant from an exercise of Limited Stock Appreciation Rights shall
be paid to the Participant in cash. The amount thereof shall be the
amount of appreciation determined under Paragraph D above. Payment
shall be made within 10 days of the exercise of the Limited Stock
Appreciation Rights.
(F) LIMITATIONS UNDER EXERCISE OF LIMITED STOCK APPRECIATION RIGHTS. A
Participant may exercise a Limited Stock Appreciation Right for cash,
only after a Change of Control and only in conjunction with the Option
to which the Limited Stock Appreciation Right relates. Limited Stock
Appreciation Rights may be exercised only by such persons as may
exercise the related Options under the Plan. Adjustment to the number
of Shares in the Plan and the price per Share pursuant to Section 12
(A) shall also be made in a similar manner to any Limited Stock
Appreciation Rights held by each Participant.
9. RESTRICTED STOCK.
(A) GRANTING OF RESTRICTED STOCK. The Board may, in its sole
discretion and subject to the provisions of the Plan, grant to
eligible employees at such times as it deems appropriate following
adoption of the Plan by the Board, the right to purchase Shares of
Restricted Stock, subject to approval of the Plan by the Company
Shareholders.
(B) RESTRICTED STOCK PRICE. The price at which Restricted Stock may be
purchased by a Participant under the Plan shall be determined by the
Board and shall not be less than the fair market value of a Share. Fair
market value shall be determined as provided in Section 6(B) hereof.
The purchase price per Share as to any particular Restricted Stock
grant shall also be known as the "Initial Price Per Share."
(C) TERMS OF RESTRICTED STOCK. At the time of a Restricted Stock
grant, the Board shall establish a period of time (the "Restricted
Period") applicable to the Restricted Stock, which shall not be more
than ten (10) years from the date of grant. Each grant of Restricted
Stock may have a different Restricted Period. The Board may in its sole
discretion, at the time of the grant of Restricted Stock is made,
prescribe conditions for the incremental lapse of restrictions during
the Restricted Period and for the lapse of termination of restrictions
upon the satisfaction of other conditions with respect to all or any
portion of the Restricted Stock. The Board may also, in its sole
discretion, at any time shorten or terminate the Restricted Period or
waive any conditions for the lapse or termination of restrictions with
respect to all or any portion of the Shares of Restricted Stock.
Unless another date is specified, the date on which the Board
approves the grant of Restricted Stock shall be deemed the date on
which the Restricted Stock is granted.
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<PAGE> 9
In order for a Participant to exercise his right to purchase
Shares of Restricted Stock under a grant (unless that payment date is
further extended by the Board), within thirty (30) days after the date
of grant, such Participant shall execute, retroactive to the date of
such grant, an agreement reflecting the number of Shares he is
purchasing and the conditions imposed upon the purchase of such Shares
as determined by the Board.
As payment for the purchase price of the Restricted Stock, the
Participant may tender to the Company payment in cash, in previously
issued Shares (taken at their fair market value on the date the
Restricted Stock is granted determined as provided in Section 6(B)) or
partly in cash and partly in previously issued Shares and shall comply
with such other reasonable requirements as the Board may establish,
pursuant to this Section 9(C). Notwithstanding the foregoing, the
Board, in its sole discretion, may refuse to accept Shares in payment
of the purchase price.
A stock certificate representing the number of Shares of
Restricted Stock granted to and purchased by a Participant shall be
registered in the Participant's name but shall be held in custody by
the Company for the Participant's account. The Participant shall have
the rights and privileges of a shareholder as to such Shares of
Restricted Stock, including the right to vote such Shares, except that
(i) the Participant shall not be entitled to delivery of the
certificate until the expiration or termination of the Restricted
Period and the satisfaction of any other conditions prescribed by the
Board, (ii) none of the Shares may be sold, transferred, assigned,
pledged, or otherwise encumbered or disposed of during the Restricted
Period and until the satisfaction of any other conditions prescribed by
the Board, and (iii) all of the Restricted Stock shall be forfeited and
all rights of the Participant to such Restricted Stock Shares shall
terminate without further obligation on the part of the Company (except
for the obligation of the Company to purchase the Restricted Stock from
the Participant at the Initial Price Per Share) in the event the
Participant has not remained in the continuous employment of the
Company or a subsidiary until the expiration or termination of the
Restricted Period and the satisfaction of any other conditions
prescribed by the Board applicable to such Restricted Stock. The Board
shall decide in each case to what extent leaves of absence for
government or military service, illness, temporary disability or other
reasons shall not, for this purpose, be deemed interruption of
continuous employment. If the Participant's continuous employment
should be terminated because of death, permanent and total disability
or retirement, the provisions contained in Section 9(D) shall apply.
At the discretion of the Board, cash and stock dividends may
be either currently paid or withheld by the Company for the
Participant's account, and interest may be paid on the amount of cash
dividends withheld at a rate and subject to such terms as determined by
the Board.
Each Certificate evidencing Shares of Restricted Stock shall
be inscribed with a legend substantially as follows:
"The Shares of common stock of Roberds, Inc. evidenced by this
certificate are subject to the terms and restrictions of the
Roberds, Inc. 1993 Stock Incentive Plan. Such Shares are
subject to forfeiture or cancellation under the terms of said
Plan and shall not be sold, transferred, assigned, pledged,
encumbered or otherwise alienated or hypothecated except
pursuant to the provisions of said Plan, a copy of which is
available from Roberds, Inc. upon request."
Upon the expiration or termination of the Restricted Period
and the satisfaction of any other conditions prescribed by the Board or
at such earlier time as provided for in Section 9(D), the restrictions
applicable to the Restricted Stock Shares shall lapse and a stock
certificate for the number of Restricted Stock Shares with respect to
which the restrictions have lapsed shall be delivered, free of all such
restrictions, except any that may be imposed by law, to the Participant
or the Participant's beneficiary or estate, as the case may be. The
Company shall not be required to deliver any fractional Shares but will
pay, in lieu thereof, the fair market value (determined in accordance
with Section 6(B) as of the date the restrictions lapse) of such
fractional Shares to the Participant or the Participant's beneficiary
or estate, as the case may be.
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<PAGE> 10
(D) TERMINATION OF EMPLOYMENT. All rights to the Restricted Stock
Shares shall be forfeited if the Participant terminates employment
with the Company and its subsidiaries for any reason except for death,
permanent and total disability or retirement prior to the expiration
of the restrictions on such Shares and such forfeited Shares shall be
purchased by the Company at the Initial Price Per Share within a
reasonable time period established by the Board. Any attempt to
dispose of any such Shares in contravention of the foregoing
restrictions shall be null and void and without effect.
If a Participant who has been in the continuous employ of the
Company or a subsidiary since the date on which the Restricted Stock
was granted dies, becomes permanently and totally disabled or retires
while in such employment and prior to the lapse of the restrictions on
the Restricted Stock, all such restrictions shall lapse and cease to be
effective as of the end of the month in which the Participant's
employment terminates due to death, permanent and total disability or
retirement.
(E) PERSONS SUBJECT TO SECTION 16 OF THE EXCHANGE ACT. Participants
who are subject to Section 16 of the Exchange Act are hereby advised
that reliance on Rule 16b-3 may require that any equity security of
the Company acquired upon exercise of Restricted Stock by such person
be held at least until the date six months after the date of grant of
the Restricted Stock.
10. PERFORMANCE UNITS.
(A) GRANTING PERFORMANCE UNITS. The Board may, in its sole discretion
and subject to the provisions of the Plan, grant to eligible employees
at such times as it deems appropriate following adoption of the Plan by
the Board, Performance Units, subject to approval of the Plan by the
Company Shareholders. Each Performance Unit shall represent the right
of a Participant to receive an amount equal to a Payment Value, which
Payment Value shall be determined by the Board and shall be based upon
the performance of the Participant, the Company, or a division of the
Company over a Performance Period or such other measure of performance
as may be determined by the Board. A Participant to whom an award of
Performance Units has been made shall not be required to provide any
consideration for a Performance Unit other than the rendering of
services or the payment of any minimum amount required by applicable
law, unless otherwise determined by the Board. Each Performance Unit
granted under the Plan shall be evidenced by a written Performance Unit
Agreement between the Company and the Participant. The Performance Unit
Agreement shall be in such form and shall contain such terms and
conditions as the Board shall determine.
(B) TERMS OF GRANTS. The Performance Period for each Performance Unit
granted under the Plan shall be of such duration as the Board shall
establish at the time of the award. The performance criteria for each
Performance Unit awarded under the Plan shall be determined by the
Board. More than one award of Performance Units may be granted to any
individual Participant under the Plan, and the terms and conditions of
Performance Units, such as the Performance Periods and performance
criteria, may differ. If during a Performance Period there should
occur, in the opinion of the Board, significant changes in economic
conditions or in the nature of the operations of the Company which the
Board did not foresee in establishing the performance criteria for such
Performance Period, and which in the Board's sole judgment, have, or
are expected to have, a substantial effect on the Participant's or the
Company's ability to meet the performance criteria, the Board may
revise the performance criteria formerly determined by it in such a
manner as the Board, in its sole judgment, may deem appropriate.
(C) TERMINATION OF EMPLOYMENT. A grant of Performance Units to a
Participant shall be forfeited if the Participant terminates employment
with the Company and its subsidiaries, during the Performance Period,
except for death, permanent and total disability or retirement prior to
the expiration of the Performance Period.
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<PAGE> 11
If a Participant who has been in the continuous employ of the
Company or a subsidiary since the date on which the Performance Unit
was granted dies, becomes permanently and totally disabled or retires
while in such employment and prior to the expiration of the Performance
Period, all Performance Units shall be deemed to be earned in such
amount as of the end of the month in which the Participant's employment
terminates due to death, permanent and total disability or retirement
as provided in the Performance Unit Agreement at the time of grant.
(D) MANNER OF SETTLEMENT. The Payment Value of a Performance Unit
shall be paid to a Participant in cash, in Shares, or in a combination
of cash and Shares as determined by the Board in its sole discretion.
The Payment Value of a Performance Unit shall be paid to the
Participant on such date following the conclusion of the Performance
Period as the Board shall designate at the time of grant.
(E) All other terms and conditions of a grant of Performance Units
shall be determined by the Board.
(F) PERSONS SUBJECT TO SECTION 16 OF THE EXCHANGE ACT. Participants
who are subject to Section 16 of the Exchange Act are hereby advised
that the Staff of the Securities and Exchange Commission has taken the
position that rights similar to Performance Units may be considered
Stock Appreciation Rights for purposes of Section 16, depending upon
the performance criteria for the particular Performance Units. See
Section 7(F).
11. STOCK UNITS
(A) GRANTING STOCK UNITS. The Board may, in its sole discretion and
subject to the provisions of the Plan, grant to eligible employees at
such times as it deems appropriate following adoption of the Plan by
the Board, either alone or in addition to other Awards made under the
Plan, units that are valued in whole or in part by reference to or
otherwise based on Shares ("Stock Units"), subject to the approval of
the Plan by the Company Shareholders. Each Stock Unit granted under
this Plan shall be evidenced by a written Stock Unit Agreement between
the Company and the Participant. The Stock Unit Agreement shall be in
such form and shall contain such terms and conditions as the Board may
determine.
(B) TERMS OF GRANTS. The Board shall determine the Participants to
whom Stock Units are to be granted, the times at which such awards are
to be made, the number of Shares to be granted pursuant to such awards
and all other terms and conditions regarding such awards. More than
one Stock Unit Award may be granted to an individual Participant under
the Plan, and the terms and conditions of Stock Unit Awards may
differ. A Participant to whom an award of Shares has been made
pursuant to a Stock Unit Award shall not be required to provide any
consideration for the Shares, other than the rendering of services or
the payment of any minimum amount required by applicable law, unless
otherwise determined by the Board.
(C) TERMINATION OF EMPLOYMENT. All rights to Stock Units shall be
forfeited if the Participant terminates employment with the Company and
its subsidiaries for any reason except for death, permanent and total
disability or retirement prior to the expiration of the applicable
measurement period for such Stock Units.
If a Participant who has been in the continuous employ of the
Company or a subsidiary since the date on which the Stock Unit was
granted dies, becomes permanently and totally disabled or retires while
in such employment and prior to the expiration of the measurement
period for such Stock Unit, the Stock Unit shall be deemed to be earned
in such amount as of the end of the month in which the participant's
employment terminates due to death, permanent and total disability or
retirement as provided in the Stock Unit Agreement at the time of
grant.
(D) MANNER OF SETTLEMENT. The amount due a Participant for Stock Units
which were granted may be paid in case in Shares, or in a combination
of cash and Shares, as determined by the Board in its sole discretion.
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<PAGE> 12
(E) All other terms and conditions of a grant of Stock Units shall be
determined by the Board.
(F) PERSONS SUBJECT TO SECTION 16 OF THE EXCHANGE ACT. Participants
who are subject to Section 16 of the Exchange Act are hereby advised
that the Staff of the Securities and Exchange Commission has taken the
position that rights similar to Stock Units may be considered Stock
Appreciation Rights for purposes of Section 16, depending upon the
performance criteria for the particular Stock Unit. See Section 7(F).
12. OTHER PROVISIONS
(A) ADJUSTMENT OF SHARES. In the event that the outstanding Shares are
changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split-up,
stock dividend or combination of Shares, or issuance or exercise of
warrants or rights, the Board shall make an appropriate and equitable
adjustment in the number and kind of Shares subject to outstanding
Awards, or portions thereof then unexercised, and the number and kind
of Shares subject to the Plan to the end that after such event the
Shares subject to the Plan and the Participant's right to a
proportionate interest in the Company shall be maintained as before the
occurrence of such event. Such adjustment in an outstanding Award shall
be made without change in the total price applicable to the Award or
the unexercised portion of any Award (except for any change in the
total price resulting from rounding off Share quantities or prices) and
with any necessary corresponding adjustment in option price per Share.
Any such adjustment made by the Board shall be final and binding upon
all Participants, the Company and all other interested persons. Any
adjustment of an incentive stock option under this paragraph shall be
made in such manner so as not to constitute a "modification" within the
meaning of Section 425(h)(3) of the Code. The Board, in its sole
discretion may at any time make or provide for such adjustments to the
Plan or any Award granted thereunder as it shall deem appropriate to
prevent the reduction or enlargement of rights, including adjustments
in the event of changes in the outstanding common stock by reason of
mergers, consolidations, combinations, exchanges of Shares,
separations, reorganizations, liquidations, issuance or exercise of
warrants or rights and the like in which the Company is not the sole
surviving successor to the assets or business of the Company
immediately prior thereto. In the event of any offer to holders of
common stock generally relating to the acquisition of their Shares, the
Board may make such adjustments as it deems equitable in respect of
outstanding Awards. Any such determination of the Board shall be
conclusive.
(B) CHANGE OF CONTROL. In the event the Company experiences a Change
of Control (as hereafter defined), all Options shall become
exercisable immediately prior to the Change of Control, provided that
any portion of such Option which is an incentive stock option shall be
exercisable up to the maximum amount allowed by Section 6(F)
applicable to incentive stock options and the balance shall become a
non-qualified stock option, all Restricted Stock restrictions shall
lapse immediately prior to such event, all Limited Stock Appreciation
Rights and Stock Appreciation Rights shall become exercisable
immediately prior to the Change of Control and all grants of
Performance Units and Stock Units shall be deemed to have been fully
earned immediately prior to the Change of Control, subject to the
limitation that any Award which has been outstanding less than six (6)
months on the date of Change of Control shall not be afforded such
treatment.
For purposes of these provisions, the term "Persons" shall
mean any individual, firm, corporation, partnership, joint venture,
association, trust, or other entity and any "Affiliate" or "Associate"
thereof (as such terms are defined in Rule 12b-2 promulgated under the
1934 Act).
For purposes of this Plan, the term "Change of Control" of the
Company shall mean and shall be deemed to have occurred if:
(a) The "acquisition" after the date hereof by any "Person"
(as such term is defined below) of "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act"),
as in effect on the date hereof) of any securities
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<PAGE> 13
of the Company which generally entitles the holder thereof to
vote generally for the election of directors of the Company
(the "Voting Securities") which, when added to the Voting
Securities then "Beneficially Owned" by such person, would
result in such Person "Beneficially Owning" twenty percent
(20%) or more of the combined voting power of the Company's
then outstanding Voting Securities; provided. however, that
for purposes of this paragraph (a), a Person shall not be
deemed to have made an acquisition of Voting Securities if
such Person: (i) acquires Voting Securities as a result of a
stock split, stock dividend or other corporate restructuring
in which all shareholders of the class of such Voting
Securities are treated on a pro rata basis; (ii) is generally
engaged in the business of underwriting securities and
acquires the Voting Securities ("Underwriting Securities")
(x) pursuant to the terms of an underwriting agreement (an
"Underwriting Agreement") to which the Company and such
underwriter are parties and which Underwriting Agreement is
on terms customarily used by that underwriter for primary or
secondary public offerings of equity securities or (y)
pursuant to stabilizing transactions to facilitate a
distribution contemplated by an Underwriting Agreement in
accordance with Rule 10b-7 promulgated under the 1934 Act; or
(z) to cover over allotments created in connection with a
distribution of Voting Securities pursuant to an Underwriting
Agreement; (iii) acquires the Voting Securities directly from
the Company; (iv) becomes the Beneficial Owner of more than
the permitted percentage of Voting Securities solely as a
result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities
outstanding, increases the proportional number of Shares
Beneficially Owned by such Person; (v) is the Company or any
corporation or other Person of which a majority of its voting
power or its equity securities or equity interest is owned
directly or indirectly by the Company (a "Subsidiary") or
(vi) acquires Voting Securities in connection with a
"Non-Control Transaction" (as defined in paragraph (c)
below); or
(b) The individuals who, as of July 31, 1993, are members of
the Board of Directors of the Company (the "Incumbent Board"),
cease for any reason (other than a voluntary resignation by
any such member) to constitute at least two-thirds of the
Board of Directors of the Company; PROVIDED, HOWEVER, that if
either the election of any new director or the nomination for
election of any new director by the Company's shareholders was
approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall be considered as a member of
the Incumbent Board; PROVIDED, FURTHER, HOWEVER, that no
individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the 1934 Act as in
effect on the date hereof) or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors (a "Proxy Contest")
including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(c) Approval of shareholders of the Company of:
(1) A merger, consolidation or reorganization
involving the Company (a "Business Combination"), unless
(i) the shareholders of the Company,
immediately before the Business Combination, own, directly or
indirectly immediately following the Business Combination, at
least 75% of the combined voting power for the election of
directors generally of the outstanding securities of the
Corporation resulting from the Business Combination (the
"Surviving Corporation") in substantially the same proportion
as their ownership of the Voting Securities immediately before
the Business Combination, and
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of the
agreement providing for the Business Combination constitute at
least two-thirds of the members of the Board of Directors of
the Surviving Corporation, and
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<PAGE> 14
(iii) no Person (other than the Company or
any Subsidiary, a trustee or other fiduciary holding
securities under one or more employee benefit plans or
arrangements (or any trust forming a part thereof) maintained
by the Company, the Surviving Corporation or any Subsidiary,
or any Person who, immediately prior to the Business
Combination, had Beneficial Ownership of twenty percent (20%)
or more of the then outstanding Voting Securities) upon
confirmation of the Business Combination is the Beneficial
Owner of twenty percent (20%) or more of the combined voting
power for the election of directors generally of the Surviving
Corporation's then outstanding securities (a transaction
described in clauses (i) through (iii) shall be referred to as
a "Non-Control Transaction");
(2) A complete liquidation or dissolution of the Company; or
(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other
than a transfer to a Subsidiary).
Voting Securities acquired by a Person that is not deemed to
constitute an "acquisition" of such Voting Securities by such Person by
reason of either of the proviso to paragraph (a) above shall, except in
the case of Underwriting Securities nevertheless be deemed to be
Beneficially Owned by such Person for purposes of determining whether
the "acquisition" of any additional Voting Securities by such Person
(which subsequent "acquisition" is not covered by either proviso to
paragraph (a) and, therefore, is considered to be an "acquisition" of
Voting Securities for purposes of paragraph (a)) would result in such
Person exceeding the twenty percent (20%) or more threshold or the more
than 30% threshold, as the case may be, established therein.
Notwithstanding the foregoing, a change shall not be deemed to
occur solely because twenty (20%) or more of the then outstanding
Voting Securities is Beneficially Owned by (i) a trustee or other
fiduciary holding securities under one or more employee benefit plans
or arrangements (or any trust forming a part thereof) maintained by the
Company or any Subsidiary or (ii) any corporation which, immediately
prior to its acquisition of such interest, is owned directly or
indirectly by the shareholders of the Company in the same proportion as
their ownership of stock in the Company immediately prior to such
acquisition; furthermore, if an employee's employment is terminated and
the employee reasonably demonstrates that such termination (i) was at
the request of a third party who has indicated an intention or taken
steps reasonably calculated to effect a Change Control and who
effectuates a Change of Control or (ii) otherwise occurred in
connection with, or in anticipation of, a Change Control which actually
occurs, then for all purposes hereof, a Changed Control shall be deemed
to have occurred and the date of a Change of Control with respect to
the employment shall mean the date immediately prior to the date of
such termination of employment.
(C) NON-TRANSFERABILITY. No Award granted to a Participant under this
Plan shall be transferable other than by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order as
defined in the Code, provided that transfer pursuant to a qualified
domestic relations order shall not be permitted with respect to
incentive stock options or in circumstances where such transfer would
cause a lapse of restriction for purposes of Section 83 of the Code.
Any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of, or to subject to execution, attachment or similar process,
any Award other than as permitted in the preceding sentence shall give
no right to the purported transferee.
(D) COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES. No Option
shall be exercisable and no Shares shall be delivered in settlement of
any Award and no unrestricted Shares shall be issued for Restricted
Stock under this Plan except in compliance with all applicable Federal
and state laws and regulations including, without limitation,
compliance with the rules of all domestic stock exchanges on which the
Company's Shares may be listed. Any Share certificate issued to
evidence Shares for which an Award is exercised or with respect to
which Restricted Stock restrictions lapse, shall bear such legends and
statements as the Board deems advisable in order to assure compliance
with Federal and state laws and regulations. No Award shall be
exercisable and no Shares shall be delivered and no Shares shall be
issued for Restricted Stock under this Plan until the
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<PAGE> 15
Company has obtained consent or approval from such regulatory bodies,
Federal or state, having jurisdiction over such matters as the Board
may deem advisable.
In the case of the exercise of an Award by a person or estate
acquiring the right to exercise such Award by bequest or inheritance or
in the case of a person or estate acquiring by bequest or inheritance
the right to receive Shares for Restricted Stock because of the lapse
of the restrictions, the right to the Payment Value of a Performance
Unit, or the right to receive settlement of a Stock Unit, the Board may
require reasonable evidence as to the ownership of the Award, and may
require such consents and releases of taxing authorities as it may deem
advisable.
(E) NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan nor its
operation, nor any document describing or referring to the Plan, or any
part thereof, shall confer upon any Participant under the Plan any
right to continue in the employ of the Company or a subsidiary or shall
in any way affect the right and power of the Company or a subsidiary to
terminate the employment of any participant under the Plan at any time
with or without assigning a reason therefor.
(F) TAX WITHHOLDING. The Board shall have the right to deduct from any
settlement of an Award, including without limitation the delivery or
vesting of Shares, made under the Plan any Federal, state or local
taxes of any kind required by law to be withheld with respect to such
payments or to take any such other action as may be necessary in the
opinion of the Board to satisfy all obligations for payment of such
taxes. If Shares which would otherwise be delivered in settlement of
the Award are used to satisfy tax withholding, such Shares shall be
valued based on their Fair Market Value determined in accordance with
section 6(B) when the tax withholding is required to be made.
Participants who are subject to Section 16 of the Exchange Act are
hereby advised that pursuant to Rule 16b-3 thereunder the use of Shares
to satisfy tax withholding will be treated as the exercise of a Stock
Appreciation Right. See Section 7(F).
(G) AMENDMENT AND TERMINATION. The Board may at any time suspend,
amend or terminate the Plan, and, without limiting the foregoing, the
Board shall have the express authority to amend the Plan from time to
time, with or without approval by the shareholders, in the manner and
to the extent that the Board believes is necessary or appropriate in
order to cause the Plan to conform to provisions of Rule 16b-3 under
the Exchange Act and any other rules under Section 16 of the Exchange
Act, as any of such rules may be amended, supplemented or superseded
from time to time. Except for adjustments made in accordance with
Section 12(A), the Board may not, without the consent of the grantee
of the Award, alter or impair any Award previously granted under the
Plan. No Award may be granted during any suspension of the Plan or
after termination thereof.
In addition to Board approval of an amendment, if the
amendment would: (i) materially increase the benefits accruing to
Participants; (ii) increase the number of Shares deliverable under the
Plan (other than in accordance with the provisions of Section 12(A) or,
(iii) materially modify the requirements as to eligibility for
participation in the Plan, then such amendment shall be approved by the
holders of a majority of the Company's outstanding capital stock
represented and entitled to vote at a meeting held for the purpose of
approving such amendment to the extent required by Rule 16b-3 of the
Exchange Act.
(H) EFFECTIVE DATE OF THE PLAN. This Plan was adopted by the Board on
September 24, 1993 and by the Shareholders on September 24, 1993. The
Plan shall become effective on the date the Registration Statement
filed by the Company under the Securities Act of 1933 becomes effective
with respect to Shares to be issued pursuant to the Plan. Awards may be
granted under this Plan prior to the date the Plan becomes effective,
but all such Awards shall be subject to the Plan becoming effective, as
provided above.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 78 of 128
<PAGE> 16
(I) DURATION OF THE PLAN. Unless previously terminated by the Board,
this Plan shall terminate at the close of business on September 23,
2003, and no Award shall be granted under it thereafter, but such
termination shall not affect any Award theretofore granted.
(J) USE OF CERTAIN TERMS. The terms "parent" and "subsidiary" shall
have the meanings ascribed to them in Section 425 of the Code and
unless the context otherwise requires, the other terms defined in
Section 421, 422 and 425, inclusive, of the Code and regulations and
revenue rulings applicable thereto, shall have the meanings attributed
to them therein.
APPROVED BY BOARD 2/16/99
APPROVED BY SHAREHOLDERS 4/30/99
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 79 of 128
<PAGE> 1
EXHIBIT 10.7.2
AMENDMENT TO AMENDED AND RESTATED
PRIVATE LABEL REVOLVING CREDIT PLAN AGREEMENT
---------------------------------------------
This Amendment to Amended and Restated Private Label Revolving
Credit Plan Agreement (the "Amendment") is entered into as of the 24th day of
January, 2000, by and between Roberds, Inc., as debtor and debtor in possession
("Roberds") and GE Capital Consumer Card Co., an Ohio corporation ("GE
Capital"), and amends that certain Amended and Restated Private Label Revolving
Credit Plan Agreement dated as of June 17, 1998, by and GE Capital, successor in
interest to Bank One, NA ("Bank One"), and Roberds (the "Program Agreement").
WHEREAS, on January 19, 2000 (the "Filing Date"), Roberds
commenced Chapter 11 Case No. 00-30194 (the "Chapter 11 Case") by filing a
voluntary petition for reorganization under Chapter 11 of the United States
Code, 11 U.S.C. sections 101 et seq. (The "Bankruptcy Code") with the United
States Bankruptcy Court for the Southern District of Ohio, Western Division
(the "Bankruptcy Court");
WHEREAS, Roberds continues to operate its business and manage
its properties as a debtor and debtor in possession pursuant to Section 1107(a)
and 1108 of the Bankruptcy Code;
WHEREAS, Roberds currently operates stores in Atlanta,
Georgia, Dayton, Ohio, Cincinnati, Ohio, Tampa, Florida and Richmond, Indiana,
and intends to close its stores in Cincinnati, Ohio and Tampa, Florida (the
"Closing Markets") and to continue to operate its stores in Atlanta, Georgia,
Dayton, Ohio and Richmond, Indiana (the "Remaining Markets"); and
WHEREAS, GE Capital and Roberds desire to amend the Program
Agreement as provided herein, and except as expressly amended by this Amendment,
to continue the Program Agreement in all other respects as set forth therein.
NOW, THEREFOR, the parties hereto hereby agree as follows:
I. DEFINITIONS.
Terms used in this Amendment, unless otherwise defined in the
Amendment, shall have the meanings specified in the Program Agreement.
II. ASSUMPTION OF PROGRAM AGREEMENT AS AMENDED.
Roberds hereby assumes the Program Agreement as amended by
this Amendment pursuant to Section 365 of the Bankruptcy Code, and GE Capital
hereby consents to such assumption.
III. AMENDMENTS TO PROGRAM AGREEMENT.
The Program Agreement is hereby amended as set forth below:
A. AMENDMENT TO SECTION 1.
Section 1 of the Program Agreement is amended to add the
following definitions in appropriate alphabetical order:
"AMENDMENT" means the Amendment to Amended and Restated Private Label
Revolving Credit
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 80 of 128
<PAGE> 2
Card Plan Agreement dated January 24, 2000 between Roberds and GE
Capital.
"APPROVAL ORDER" shall mean the order of the Bankruptcy Court entered
in the Chapter 11 Case upon the Debtor's Emergency Motion for Order
Pursuant to Bankruptcy Code Sections 105 and 365 Authorizing Debtor to
Assume the Amended and Restated Private Label Revolving Credit Card
Plan Agreement, as amended by the Amendment, substantially in the form
attached to the Amendment as Exhibit A, together with all extensions,
modifications and amendments thereto.
"BANKRUPTCY COURT" is defined in the first recital of the Amendment.
"CHAPTER 11" means the Chapter 11 case filed by the Debtor in federal
bankruptcy court in Dayton, Ohio.
"CLOSING MARKETS" is defined in the third recital of the Amendment.
"CONFIRMATION ORDER" means the order of the Bankruptcy Court entered in
the Chapter 11 Case which (i) confirms a Plan of Reorganization after
appropriate notice and hearing and is final and non-appealable, (ii)
finds or otherwise provides that all of the requirements of Section
1129 of the Bankruptcy Code have been satisfied, and (iii) in the
reasonable judgment of GE Capital, does not adversely affect in any
material manner (a) the validity, enforceability or the continued
effect of the Agreement or the Accounts, (b) the collectibility of the
Accounts, or (c) any of GE Capital's rights and remedies under, and the
prospective economic benefit to GE Capital of, the Agreement.
"CREDIT CARD" means any Plan Card or other private label card issued by
GE Capital or Bank One, NA, its predecessor, under or in connection
with this Agreement.
"DEBTOR" means Roberds, as debtor and debtor in possession in the
Chapter 11 Case.
"FILING DATE" is defined in the first recital of the Amendment.
"PLAN OF REORGANIZATION" means a plan of reorganization in the Chapter
11 Case satisfactory in form and substance to GE Capital.
"REORGANIZED DEBTOR" means Roberds on and after the effective date of
a Plan of Reorganization.
"REMAINING MARKETS" is defined in the third recital of the Amendment.
"ROBERDS" means Roberds, Inc., as Debtor and/or Reorganized Debtor, as
applicable.
B. AMENDMENTS TO SECTIONS 32 AND 33.
The following shall be added as new Sections 32 and 33 to the
Agreement, and Sections 32 through 35 are hereby renumbered as Sections 34
through 37:
1. NEW SECTION 32
32. CLOSING MARKETS. Notwithstanding anything to the contrary in this
Agreement,
a. effective as of the Filing Date, Roberds
shall have no right to receive any further distributions of Plan
Interest Proceeds that are attributable to the Closing Markets
Accounts that would otherwise be due to Roberds under the Agreement;
b. effective as of the Filing Date, GE
Capital shall have the right
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 81 of 128
<PAGE> 3
to utilize the Cardholders associated with any of the Closing Markets
in Tampa only for any purpose it desires in compliance with state and
federal law, including, without limitation, the right to sell customer
lists associated with Closing Markets in Tampa only, provide
substitute or replacement cards to the Cardholders associated with the
Closing Markets in Tampa only, and mail to the Cardholders associated
with the Closing Markets in Tampa only any material for the marketing
of GE Capital Services or other products or services offered by GE
Capital.
c. as soon as practicable after the Filing
Date and in no event after February 15, 2000, Roberds shall not permit
the use of any Credit Card in any store in any of the Closing Markets.
2. NEW SECTION 33.
33. REMAINING MARKETS. Notwithstanding anything to the contrary in
this Agreement,
a. effective as of February 1, 2000,
Roberds shall not permit any Cardholder to finance any down payment
using a Credit Card.
b. effective as of February 1, 2000, each
store in the Remaining Markets shall be limited to the "same as cash"
promotions as advertised after the Filing Date; PROVIDED, that such
"same as cash" promotions shall not exceed fifteen (15) months; and
PROVIDED, FURTHER, that the ongoing point of sale closure tool on Home
Theater packages is hereby canceled. The term "same as cash" as used
herein requires minimum monthly payments by the Cardholder, except as
otherwise agreed to in writing by GE Capital in its discretion.
c. By the date six (6) months after the Filing Date
and thereafter, one hundred percent (100%) of the products sold to
Cardholders paying for such products by use of any Credit Card, shall
be delivered by Roberds to such Cardholder within seven (7) calendar
days from the date the sale is charged to such Credit Card.
C. AMENDMENT TO SECTION 5 OF ADDENDUM C.
The first sentence in Section 5A of Addendum C to the Program
Agreement is amended by adding after the words "the total face amount" the words
"net of any deductions permitted to be taken by Bank under the Agreement".
D. AMENDMENT TO SECTION 21.
Section 21 is hereby amended by adding the following as
additional events of default under the Program Agreement ("Additional Events of
Default"):
1. The Bankruptcy Court shall enter an order
authorizing the appointment of an interim or permanent trustee in any
of the Chapter 11 Cases or the appointment of an examiner in any of the
Chapter 11 Cases with expanded powers to operate or manage the
financial affairs, business, or reorganization of any of the Debtor.
2. The Chapter 11 Case shall be dismissed or
converted from one under Chapter 11 to one under Chapter 7 of the
Bankruptcy Code.
3. The Approval Order shall not become a final and
non-appealable order by February 21, 2000.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 82 of 128
<PAGE> 4
4. The Approval Order shall be modified without GE
Capital's prior written consent.
5. The Confirmation Order shall have been entered
without GE Capital's consent.
6. There shall be a default under any debtor in
possession financing order or cash collateral order in the Chapter 11
Case, or the same shall be terminated without a replacement.
7. Roberds shall breach any of the agreements set
forth in the Amendment and the same, if capable of being cured, shall
not be cured to GE Capital's satisfaction within five (5) days of
written notice by GE Capital to Roberds.
E. AMENDMENT TO SECTION 21.
Section 21 is hereby further amended by adding the following
at the end of the Additional Events of Default:
Notwithstanding anything to the contrary in this Agreement, GE Capital
shall have the right to terminate this Agreement upon the occurrence of
any Additional Event of Default, which termination shall be effective
upon ten days' written notification by GE Capital to Roberds of the
occurrence of such Additional Event of Default.
IV. RELIEF FROM THE AUTOMATIC STAY.
Roberds acknowledges that (i) it has no interest in the
Accounts generated under the Program Agreement, and (ii) the automatic stay of
Section 362 of the Bankruptcy Code shall be modified or vacated, pursuant to and
effective upon entry of the Approval Order, to permit GE Capital to exercise any
of its rights under the Program Agreement, as amended (including taking
chargebacks and deducting amounts due to Roberds as provided hereunder) and its
remedies under the Program Agreement, as amended without further application or
motion to, or order from, the Bankruptcy Court.
V. CONSENT TO JURISDICTION.
Roberds hereby consents to personal jurisdiction, waives any
objection as to jurisdiction or venue, and agrees not to assert any defense
based on lack of jurisdiction or venue, in the Bankruptcy Court. Service of
process on any party in any action arising out of or relating to this Agreement
shall be effective if mailed to such party at the address listed in Section 34
of the Program Agreement; provided, that the address for Bank One shall be
replaced with the address for GE Capital. Nothing herein shall preclude other
legal action in any other jurisdiction.
VI. BINDING EFFECT.
This Agreement shall be binding upon, and inure to the benefit
of, the successors and permitted assigns of the parties hereto. The Program
Agreement, as amended shall be binding upon each Company, the estate of each
Debtor, and any trustee or successor in interest of each Debtor in its Chapter
11 Case or any subsequent case commenced under Chapter 7 of the Bankruptcy Code.
VII. CONDITIONS PRECEDENT.
Notwithstanding anything to the contrary herein, this
Amendment shall not be effective unless and until GE Capital shall have received
each of the below listed items in form and substance satisfactory to GE Capital
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 83 of 128
<PAGE> 5
or waived delivery thereof:
1. Evidence that the Bankruptcy Court has entered the
Approval Order;
2. Evidence that the Bankruptcy Court has entered an interim
order, or if there is no interim order or the interim order is no longer
effective, a final order, with respect to debtor in possession financing in form
and substance satisfactory to GE Capital and no appeal, certiorari petition,
reargument, rehearing or other review of such interim order or final order is
pending or if an appeal has been filed, no stay of such order pending appeal has
been granted.
VIII. GENERAL PROVISIONS.
A. FULL FORCE.
Except as amended herein, the Program Agreement remains in
full force and effect. Upon the effectiveness of the Amendment, on and after the
date hereof each reference in the Program Agreement to the Program Agreement,
"hereunder", "hereof", "herein" or words of like import shall mean and be a
reference to the Program Agreement as amended hereby.
B. GOVERNING LAW.
The Amendment shall be governed and construed in accordance
with the laws of the state of Ohio and any applicable laws of the United States
of America.
C. COUNTERPARTS.
The Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument.
D. NO WAIVER.
Except as specifically set forth in this Amendment, the
execution, delivery and effectiveness of this Amendment shall not (a) limit,
impair, constitute a waiver by, or otherwise affect any right, power or remedy
of GE Capital under the Program Agreement, including any setoff or recoupment
rights, (b) constitute a waiver of any provision in the Program Agreement, or
(c) alter, modify, amend or in any way affect any of the terms, conditions,
obligations, covenants or agreements contained in the Program Agreement, all of
which are ratified and affirmed in all respects and shall continue in full force
and effect.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 84 of 128
<PAGE> 6
IN WITNESS WHEREOF, the parties below have executed this
Amendment as of the day and year stated above.
GE CAPITAL CONSUMER CARD CO.
By: /s/ Ben W. Manley
-------------------------------
Title: Duly Authorized Signatory
Executive Vice President
ROBERDS, INC., as debtor and debtor in possession
By: /s/ Robert M. Wilson
---------------------------------
Title: President
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 85 of 128
<PAGE> 1
EXHIBIT 10.8.3
POST-PETITION LOAN AND SECURITY AGREEMENT
Dated as of February 22, 2000
between
JACKSON NATIONAL LIFE INSURANCE COMPANY
as Lender
and
ROBERDS, INC., a Debtor-in-Possession
as Borrower
RE:
TWENTY-FIVE MILLION DOLLAR ($25,000,000) CREDIT FACILITY
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 86 of 128
<PAGE> 2
POST-PETITION LOAN AND SECURITY AGREEMENT
THIS POST-PETITION LOAN AND SECURITY AGREEMENT ("Agreement") is made as of this
22nd day of February, 2000, by and among JACKSON NATIONAL LIFE INSURANCE
COMPANY, a Michigan insurance company ("Lender"), and ROBERDS, INC.
("Borrower"), an Ohio corporation, as debtor and debtor-in-possession.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, on January 19, 2000, Borrower filed a voluntary petition for relief
under the Bankruptcy Code with the United States Bankruptcy Court for the
Southern District of Ohio, Western Division (the "Voluntary Petition"), and
Borrower continues to operate its business and manage its properties as a
debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code;
and WHEREAS, from time to time Borrower may request Lender to make loans and
advances to and extend certain credit accommodations to Borrower, and the
parties wish to provide for the terms and conditions upon which such loans,
advances and credit accommodations shall be made.
NOW, THEREFORE, in consideration of any loans, advances and credit
accommodations (including any loans by renewal or extension) hereafter made to
Borrower by Lender, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by Borrower, the parties agree
as follows:
1. DEFINITIONS.
-----------
1.1 GENERAL DEFINITIONS
"Account" shall mean all present and future rights of Borrower to payment for
goods sold or leased or for services rendered, which are not evidenced by
Instruments or Chattel Paper, and whether or not earned by performance.
"Account Debtor," "Chattel Paper," "Documents," "General Intangibles," "Goods,"
"Instruments," and "Investment Property" shall have the respective meanings
assigned to such terms in the UCC.
"Additional Credit" shall have the meaning specified in paragraph 12.10(d).
"Adjusted Eurodollar Rate" shall mean, with respect to each Interest Period for
any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) determined by dividing (a)
the Eurodollar Rate for such Interest Period by (b) a percentage equal to: (i)
one (1) minus (ii) the Reserve Percentage. For purposes hereof, "Reserve
Percentage" shall mean the reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking authority for determining
the reserve requirement which is or would be applicable to deposits of United
States dollars in a non-United States or an international banking office of
Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan
made with the proceeds of such deposit, whether or not the Reference Bank
actually holds or has made any such deposits or loans. The Adjusted Eurodollar
Rate shall be adjusted on and as of the effective day of any change in the
Reserve Percentage.
"Advance" means any loan made to Borrower by Lender pursuant to PARAGRAPH 2.1
and any payments made by Lender to any Person pursuant to PARAGRAPH 2.2 hereof
or otherwise in accordance with this Agreement.
"Affiliate" means any Person who owns at least 5% of the outstanding capital
stock of the Borrower or any Person directly or indirectly controlling,
controlled by or under common control with the Borrower.
"Availability" means, at any time, the lesser of the Revolving Loan Commitment
or the Borrowing Base minus, in either case, the aggregate amount of all
outstanding Obligations.
"Availability Reserves" means, as of any date of determination, such amounts as
Lender may from time to time establish and revise in good faith reducing the
amount of Advances which would otherwise be available to Borrower under the
lending formula(s) provided for herein: (a) to reflect events, conditions,
contingencies or risks which, as determined by Lender in good faith, do or may
affect either (i) the Collateral or any other property which is security for the
obligations hereunder or its value, (ii) the assets, business or prospects of
Borrower or (iii) the Security Interests and other rights of Lender in the
Collateral (including the enforceability, perfection and priority thereof); (b)
to reflect Lender's good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower to Lender is or may have been
incomplete, inaccurate or misleading in any material respect; (c) in respect of
any state of facts which Lender determines in good faith constitutes an Event of
Default or may, with notice or passage of time or both, consti-
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 87 of 128
<PAGE> 3
tute an Event of Default; or (d) to reflect the Carve-Out and the G.E. Capital
Lien. Without limiting the generality of the foregoing, Availability Reserves
may include (but are not limited to) reserves based on rent, in-store customer
credits, gift certificates, frequent shopper programs, layaways and customer
deposits and other Charges.
"Base Rate" means the highest prime or equivalent rate of interest (expressed
as an annual rate rounded upwards, if necessary, to the next 1/16 of 1%)
publicly announced by The Chase Manhattan Bank, N.A. or Bank of America
National Trust and Savings Association from time to time as its "prime rate" or
"reference rate", each change in such a rate to take effect on the date of
effective change of such prime rate or reference rate. The Base Rate is not
intended to be the lowest rate of interest charged by the Lender to its
borrowers.
"Bankruptcy Case" shall mean that certain Chapter 11 Bankruptcy Case No.
00-30194 in the United States Bankruptcy Court, Southern District of Ohio,
Western Division, pursuant to which Borrower is the debtor-in-possession.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"Bankruptcy Court" shall mean the United States Bankruptcy Court before which
the Borrower's Bankruptcy Case is pending.
"Blocked Account" shall have the meaning specified in PARAGRAPH 6 hereof.
"Borrowing Base" shall have the meaning specified in PARAGRAPH 2.1 hereof.
"Budget" shall mean the Borrower's budget of projected income and expenses as
set forth on EXHIBIT F hereto, as the same shall be updated from time to time in
accordance with this Agreement.
"Business Day" means any day other than a Saturday, Sunday, or such other day
as banks in Chicago, Illinois are authorized or required to be closed for
business and a day on which the Lender is open for the transaction of business.
"Capital Expenditures" means, with respect to any period, the aggregate of all
expenditures (whether paid in cash, in kind or accrued as liabilities and
including Capital Lease obligations during such period that are required by GAAP
to be included or reflected in the property, plant or equipment or similar fixed
asset accounts (or in intangible accounts subject to amortization) on a balance
sheet.
"Capital Lease" means any lease of Property required by GAAP to be reflected as
a liability on the Borrower's balance sheet.
"Carve-Out" shall have the meaning set forth in paragraph 3.
"CERCLA" means the Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended from time to time, 42 U.S.C. sec. 9601 et
seq.
"Change of Control" means any transaction or event as a result of which any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) is or becomes the beneficial owner,
directly or indirectly, of more than 30% of the issued and outstanding shares of
the capital stock of the Borrower.
"Charges" shall have the meaning specified in PARAGRAPH 9.1(g).
"Clearance Inventory" means Inventory with minor cosmetic defects but otherwise
in good condition or working order located in Borrower's stores that contain a
department in those areas designated to sell only clearance merchandise that is
not Eligible Liquidation Inventory or Eligible Inventory.
"Closing Date" shall mean the date upon which the initial Loan is made.
"Collateral" means: (i) all property referred to in PARAGRAPH 3, wherever
located and whether now existing or hereafter acquired, in which Borrower now
has or may hereafter acquire any interest; (ii) any other property of Borrower
of any kind or nature coming into the Lender's possession, custody or control;
and (iii) all other property and interests in property, real or personal, now
owned or leased or hereafter acquired or leased, now or hereafter pledged or
assigned as collateral security for payment of any of the Obligations.
"Commission" means the Securities and Exchange Commission or any other federal
agency then administering the Securities Act of 1933, as amended, and other
federal securities laws.
"Consolidated Tangible Net Worth" means the amount, computed in accordance with
GAAP, equal to the excess of the Borrower's Consolidated Total Assets plus
Subordinated Debt over their Consolidated Total Liabilities, less the amounts
then being presented on the applicable Financial Statement as: (i) the excess of
cost over net assets of purchased businesses; and (ii) licenses, franchises,
permits, patents, copyrights, trademarks, tradenames and other like intangibles
and organizational expenses.
"Consolidated Total Assets" means the amount, computed in accordance with GAAP,
of the total assets of the Borrower and its consolidated Subsidiaries,
excluding: (i) all Intercompany Accounts; (ii) all transactions with Affiliates
not permitted by PARAGRAPH 10.2(e); and (iii) minority interests in
Subsidiaries.
"Consolidated Total Liabilities" means the amount, computed in
accordance with GAAP, of the total liabilities (including all Indebtedness) of
the Borrower and its consolidated Subsidiaries, and all reserves and deferred
credits.
---------------------------------------------
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<PAGE> 4
"DDA" means any checking or other demand daily depository account maintained by
Borrower.
"Default" shall mean any event, condition or default which with the giving of
notice, the lapse of time or both would be an Event of Default. "Default Rate"
shall have the meaning specified in PARAGRAPH 2.4 hereof.
"Dilution" shall mean, with respect to any period, the percentage obtained by
dividing: (a) the sum of non-cash credits against Accounts of Borrower for such
period, plus pending or probable, but not yet applied, non-cash credits against
Accounts of Borrower such period, as determined by Lender, by (b) gross invoiced
sales of Borrower for such period.
"EBITDA" shall mean, with respect to any period, net income after taxes for such
period (excluding: (i) any after-tax gains or losses on the sale of assets other
than in the ordinary course of business; and (ii) other after-tax extraordinary
gains or losses) PLUS interest expense, income tax expense, depreciation and
amortization for such period, LESS gains and losses attributable to any fixed
asset sales made during such period, PLUS OR MINUS any other non-cash charges or
gains which have been subtracted or added in calculating net income after taxes
for such period.
"Eligible Account" means a bona fide outstanding Account (other than G.E.
Capital Accounts) which arose in the ordinary course of business, LESS all
unearned finance charges, late fees, and other fees which are unearned, as to
which the Lender has a first priority perfected security interest under the UCC
and: (x) if for the sale of services, as to which all applicable services have
been duly performed and acknowledged and accepted by the Account Debtor; (y) if
for a lease of merchandise, as to which all applicable merchandise has been duly
leased for the term covered thereby; and (z) if for the sale of goods, as to
which all goods have been shipped or delivered to an Account Debtor against a
receipt therefor pursuant to a purchase order or otherwise on an absolute sale
basis and as to which no rejections or returns have been made or offered.
Eligible Accounts shall not include any Accounts:
(i) which have remained unpaid for either (i) more than thirty
(30) days from the original due date shown on the invoice or
(ii) more than ninety (90) days after the original invoice
date;
(ii) owed by an Account Debtor which collectively has more than
fifty percent (50%) of the aggregate amount of its Accounts
unpaid more than thirty (30) days past its original due date
or more than ninety (90) days from its original invoice date;
(iii) as to which any representation, warranty or covenant
contained in this Agreement and the Other Agreements with
respect to such Account has been breached;
(iv) with respect to which a check, promissory note, draft, trade
acceptance or other instrument for the payment of money has
been received, presented for payment and returned uncollected
for any reason;
(v) which relates to any cooperative advertising arrangement, a
contra account, a chargeback or to a sale which is subject to
any repurchase obligation or return right, such as a
consignment sale, bill-and-hold sale, guaranteed sale, sale
on approval or sale or return arrangement;
(vi) which is evidenced by a promissory note or other instrument
or by chattel paper or is not payable in United States
dollars;
(vii) as to which Borrower has extended the time for payment
without the consent of the Lender or which is for goods sold
or leased or services rendered under a contract or agreement
pursuant to which the Account Debtor's obligation to pay such
invoice is conditioned upon Borrower completion of any
further performance under the contract or agreement;
(viii) owed by an Account Debtor as to which an Insolvency
Proceeding has commenced or, in the case of an individual, as
to whom death or a judicial declaration of incompetency has
occurred;
(ix) owed by an Account Debtor which: (w) is an Affiliate or
employee of the Borrower; (x) does not maintain its chief
executive office in the United States; (y) is not organized
under the laws of the United States or any state thereof; or
(z) is the government of any foreign country or sovereign
state, or of any state, province, municipality, or other
political subdivision thereof, or of any department, agency,
public corporation, or other instrumentality thereof; except
to the extent that such Account is secured or payable by a
letter of credit or accep-
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<PAGE> 5
tance, or insured under foreign credit insurance, on terms
and conditions satisfactory to the Lender in its discretion;
(x) as to which either the perfection, enforceability, or
validity of the Lender's Security Interest in such Account,
or the Lender's right or ability to obtain direct payment to
the Lender of the Proceeds of such Account, is governed by
any federal, state, or local statutory requirements other
than those of the UCC;
(xi) is not a valid, legally enforceable and unconditional
obligation of the Account Debtor or is subject to setoff,
counterclaim, credit, allowance or adjustment by the Account
Debtor, or to any claim by such Account Debtor denying
liability thereunder in whole or in part;
(xii) which are owed by the government of the United States of
America, or any department, agency, public corporation, or
other instrumentality thereof, unless the Borrower has
assigned its right to payment of such Account to the Lender
in full compliance with the Federal Assignment of Claims Act
of 1940, as amended;
(xiii) which are owed by any state, municipality, or other political
subdivision of the United States of America, or any
department, agency, public corporation, or other
instrumentality thereof and as to which the Lender determines
that its Security Interest therein is not or cannot be
perfected, unless Lender, in its sole discretion, determines
(on a case-by-case basis) that any such Account shall qualify
as an Eligible Account;
(xiv) which are owed by an Account Debtor located in a state which
requires the Borrower, in order to commence or maintain an
action in the courts of that state, to either have qualified
to do business and be in good standing in such state or file
a notice of business activities report or similar report with
such state's taxing authority, unless the Borrower has either
complied with such requirement or is exempt from any such
requirement;
(xv) which (i) arises out of a contract or order which fails in
any material respect to comply with any requirement of
applicable law or (ii) which is not fully enforceable by
Borrower in the courts of the jurisdiction of the Account
Debtor's residence or (iii) is subject to any lien other than
a Permitted Lien; or
(xvi) which are contra accounts, poor credits, chargebacks, or are
otherwise unacceptable to the Lender as collateral for
lending purposes.
"Eligible Inventory" means, at the time of determination, Inventory owned by
Borrower located at premises within the United States listed on SCHEDULE 9.1(H)
in which the Lender has a first priority Security Interest under the UCC and
which Inventory meets all of the following criteria:
(i) is new and in good condition, in a finished state
and ready for immediate sale, free from defects and
not, in the Lender's reasonable judgment, obsolete,
unserviceable, slow-moving or unmerchantable;
(ii) is not (a) spare parts, (b) packaging and shipping
materials or (c) supplies used or consumed in
Borrower's business;
(iii) meets all applicable standards imposed by any
governmental or other regulatory authority over such
Inventory;
(iv) in the ordinary course of the Borrower's business,
is currently saleable and is being held for sale;
(v) is either Letter of Credit Inventory or is not in
transit or subject to any other assignment,
bailment, consignment, claim, lien, charge,
encumbrance, third party dispute, offset or
counterclaim;
(vi) does not fail in any material respect to comply with
any requirement of applicable law;
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<PAGE> 6
(vii) as to which all applicable representations,
warranties or covenants of Borrower to the Lender
are true and correct or have been performed and
complied with;
(viii) is not Clearance Inventory or Eligible Liquidation
Inventory; and
(ix) is otherwise acceptable to the Lender as collateral
for lending purposes.
For purposes of this Agreement, unless otherwise specified herein, Eligible
Inventory shall be valued in accordance with GAAP at the lower of cost,
calculated on a first-in, first-out basis, or market. Lender, at Borrower's sole
cost and expense, may obtain appropriate quarterly inventory appraisals.
"Eligible Liquidation Inventory" means Inventory which is:
(x) located at Borrower's facilities or stores in
Cincinnati, Ohio, or the State of Florida;
(xi) approved for sale by liquidation by the Bankruptcy
Court;
(xii) subject to guaranteed liquidator's bids acceptable
to Lender, in its sole discretion;
(xiii) not Eligible Inventory or Clearance Inventory; and
(xiv) not otherwise unacceptable to Lender as collateral
for lending purposes.
"Eligible Liquidation Real Estate" means real property owned by Borrower located
within the United States and set forth on SCHEDULE 9.1(S) which is:
(xv) approved for sale by liquidation by the Bankruptcy
Court;
(xvi) subject to guaranteed liquidator's bids acceptable
to Lender, in its sole discretion;
(xvii) not considered Owned Real Property for purposes of
PARAGRAPH 2.1; and
(xviii) not otherwise unacceptable to Lender as collateral
for lending purposes.
"Environmental Laws" means all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety, hazardous substances, and environmental
matters applicable to the Borrower's business and facilities (whether or not
owned by it) as any of the same may be from time to time hereafter amended.
"Equipment" means all of Borrower's now owned and hereafter acquired equipment,
machinery, computers and computer hardware and software (whether owned or
licensed), vehicles, tools, furniture, fixtures, all attachments, accessions and
property now or hereafter affixed thereto or used in connection therewith, and
substitutions and replacements thereof, wherever located.
"Eurodollar Rate" shall mean with respect to the Interest Period for a
Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (Chicago time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrower in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
"Event of Default" shall have the meaning specified in PARAGRAPH 11 hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and all rules and regulations from time to time promulgated thereunder.
"Excess Availability" means, as of any date of determination by Lender, the
excess, if any, of (i) the Borrowing Base over (ii) the outstanding Advances
and Letter of Credit Obligations, in each case as of the close of business on
such date.
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<PAGE> 7
For purposes of calculating Excess Availability and the amount of the Borrowing
Base relating thereto, all of Borrower's trade payables and outstanding debt,
other than the Obligations hereunder, which remain unpaid more than thirty (30)
days after the due dates thereof, other than pre-petition debts, shall, on the
date of the determination of Excess Availability, be deemed to have been paid
by Borrower.
"Exit Financing" means financing obtained by Borrower which provides for a
portion of such financing to be used to consummate a Reorganization Plan.
"Facility" means the credit facility extended to the Borrower hereunder in the
principal amount of $25,000,000.
"Fair Market Value" means, with respect to Owned Real Property, the fair market
value thereof based upon the most recent appraisal provided by Borrower to
Lender, in form and substance satisfactory to Lender, in its sole discretion
less any outstanding Liens.
"Filing Date" means the date the Borrower filed the Voluntary Petition.
"Financials" means those consolidated financial statements of Borrower and its
Subsidiaries described on SCHEDULE 9.1(O)(1) hereto, all of which financial
statements have been certified as accurate and complete by the chief financial
officers of the Borrower and with respect to Fiscal Year end Financials,
certified by Deloitte & Touche LLP or another independent certified public
accounting firm acceptable to the Lender.
"Fiscal Quarter" means in a Fiscal Year each of the four (4) calendar quarters
ending March 31, June 30, September 30 and December 31.
"Fiscal Year" means the twelve month period ending on December 31.
"GAAP" means generally accepted accounting principles and practices as in effect
from time to time, consistently applied during each interval and from period to
period.
"G.E. Capital Account" means any Account created as a result of amounts
due Borrower in accordance with the G.E. Capital Agreement provided, however,
Borrower is not in default under such Agreement and G.E. Capital is not entitled
to exercise any set-off rights with respect to such Accounts.
"G.E. Capital Agreement" means that certain Amended and Restated Private Label
Revolving Credit Plan Agreement, as amended, by and between G.E. Capital
Consumer Card Co. (as successor to Bank One, N.A.) and Borrower, or any
successor agreements or arrangements with third-party credit card providers
that are substantially similar in terms and conditions to the arrangements
existing under the aforementioned agreement and that are acceptable in form and
substance to Lender, in its sole discretion.
"G.E. Capital Lien" means the Lien on Borrower's Inventory granted to G.E.
Capital Consumer Card Co. or its successor to secure payment of Borrower's
obligations under the G.E. Capital Agreement, such Lien to be limited to
merchandise returned by customers who used a credit card to purchase such
merchandise in an amount not to exceed $2,000,000 at any one time.
"GOB Value" means with respect to either Eligible Inventory or Clearance
Inventory the non-auction liquidation value thereof in an orderly "going out of
business" sale to the public conducted by a liquidator who is approved by Lender
and is regularly engaged in the business of appraising and liquidating inventory
similar in type to the Inventory.
"Gross Margin" means with respect to the subject accounting period, the decimal
equivalent of the following (determined in accordance with the retail method of
accounting:
sales (minus) cost of goods sold
--------------------------------
Sales
"Guaranteed Liquidation Inventory Value" means a liquidator's guaranteed-bid
receivable representing the value of liquidation proceeds, less all fees and
expenses, from Eligible Liquidation Inventory.
"Guaranteed Liquidation Real Estate Value" means a liquidator's guaranteed-bid
receivable representing the value of liquidation proceeds (net of all Liens
thereon), less all fees and expenses, from Eligible Liquidation Real Estate.
"Hazardous Substances" means all materials, substances, compounds and solutions
the use, transportation, storage, generation or disposal of which are regulated
by any Environmental Law. Without limiting the generality of the foregoing,
Hazardous Substances shall include (a) "hazardous substances", as defined in
CERCLA 42 U.S.C. sec. 9601 (14), (b) "petroleum" as defined in RCRA 42 U.S.C.
sec. 6991(2)(B), and (c) "pollutant" and "contaminant", each as defined in
CERCLA 42 U.S.C. sec. 9601 (33).
"Indebtedness" means all liabilities, obligations and indebtedness of any and
every kind and nature, including, without limitation, the Obligations and all
obligations to trade creditors whether heretofore, now or hereafter owing,
arising, due, or payable from Borrower to any Person and howsoever evidenced,
created, incurred, acquired, or owing, whether primary, secondary, direct,
contingent, fixed, or otherwise. Without in any way limiting the generality of
the foregoing, Indebtedness specifically includes (i) all obligations or
liabilities of any Person that are secured by any lien, claim, encumbrance, or
security interest upon property owned by Borrower, even though Borrower has not
assumed or become
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<PAGE> 8
liable for the payment thereof; (ii) obligations or liabilities created or
arising under any lease of real or personal property or conditional sale or
other title retention agreement with respect to property used or acquired by
Borrower, even though the rights and remedies of the lessor, seller or lender
thereunder are limited to repossession of such property; (iii) all unfunded
pension fund obligations and liabilities; and (iv) all deferred or accrued
taxes.
"Indemnified Party" shall have the meaning specified in PARAGRAPH 13 hereof.
"Information Certificate" means the Information Certificate of Borrower
constituting SCHEDULE 1.1(B) hereto and containing material information with
respect to Borrower, its business and assets.
"Insolvency Proceeding" means, with respect to the Person in question, the
commencement or filing by or against it of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as
a bankrupt, winding-up, or other similar relief under the bankruptcy,
insolvency, or similar laws of the United States, any state or territory
thereof, or any foreign jurisdiction, now or hereafter in effect; the making of
any general assignment for the benefit of creditors; the appointment of a
receiver, trustee or custodian for it or for any of its assets; the institution
by or against it of any of the foregoing or of any formal or informal
proceeding for the dissolution or liquidation of, settlement of claims against,
or winding up of its affairs; the sale, assignment, or transfer of all or any
material part of its assets; the nonpayment generally of its debts as they
become due; or the cessation of its business as a going concern.
"Intercompany Accounts" means all Accounts, however arising, which are due to
Borrower from, or which are due from Borrower to, any Affiliate.
"Interest Period" shall mean for any Eurodollar Rate Loan, a period of
approximately one (1), two (2), or three (3) months duration as Borrower may
elect, the exact duration to be determined in accordance with the customary
practice in the applicable Eurodollar Rate market; provided, that, Borrower may
not elect an Interest Period which will end after the last day of the
then-current term of this Agreement.
"Inventory" means with respect to Borrower, all inventory, whether now owned or
hereafter acquired including, but not limited to, all goods intended for sale or
lease by Borrower, or for display or demonstration used in connection with the
manufacturing, printing, advertising, selling, leasing or furnishing of such
goods or otherwise used or consumed in the business of Borrower; and all
documents evidencing and General Intangibles relating to any of the foregoing,
whether now owned or hereafter acquired by Borrower.
"Inventory Advance Rate" shall mean the advance rate applied to the applicable
Inventory pursuant to paragraph 2.1(a) hereof.
"Lease" means any lease or other agreement pursuant to which Borrower is
entitled to the use or occupancy of any space.
"Leasehold Interest" means any interest of the Borrower as lessee under any
Lease.
"Letter of Credit" means any documentary or stand-by letter of credit issued
for Borrower's account pursuant to PARAGRAPH 2.2 hereof, which Letter of
Credit: (x) may be either a trade letter of credit or a stand-by letter of
credit; and (y) unless the Lender otherwise agrees, shall have an expiration
date no later than the earlier of: (i) the day numerically corresponding to the
date of issuance in the twelfth month thereafter (or, if there is no such day,
on the last day of such month); and (ii) six Business Days prior to the
expiration of the Term.
"Letter of Credit Inventory" means any Eligible Inventory which Borrower has
purchased, the payment of which is secured by the issuance of a Letter of
Credit.
"Letter of Credit Obligations" means the maximum undrawn amount of all Letters
of Credit and to the extent not charged to Borrower's account as an Advance, all
drawn amounts of all Letters of Credit not paid directly by the Borrower, and
all fees, costs and expenses of any kind payable by the Borrower or the Lender
directly or indirectly in connection therewith.
"Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever, including any conditional sale or other title
retention agreement. "Lien" includes reservations, exceptions, easements, leases
and other restrictions and encumbrances affecting real property. For purposes
hereof a Person shall be deemed to own property acquired or held pursuant to a
conditional sale or similar security arrangement.
"Loan Documents" shall mean this Agreement and the Other Agreements.
"Loans" collectively means the revolving loan Advances.
"Material Adverse Effect" shall mean with respect to any event, act, condition
or occurrence of whatever nature (including any adverse determination in any
litigation, arbitration or governmental investigation or proceeding), whether
singly or in conjunction with any other event or events, act or acts, condition
or conditions, occurrence or occurrences,
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<PAGE> 9
whether or not related, a material adverse change in, or a material adverse
effect upon, any of the business, property, assets, operations, condition
(financial or otherwise) or prospects of the Borrower, taken as a whole.
"Mortgages" means the fee or leasehold mortgages, deeds of trust or similar
instruments concurrently or hereafter entered into by the Borrower for the
benefit of the Lender. At any time when there is only one Mortgage, references
to "Mortgages" shall be deemed to refer only to such Mortgage.
"Net Income" means, with respect to any fiscal period of Borrower, the net
income after the provision for income and franchise taxes for such fiscal period
of Borrower, as determined in accordance with GAAP.
"Notes" collectively means the Notes which evidence the revolving loan Advances
substantially in the form of EXHIBIT A.
"Obligations" means and includes the aggregate of the unpaid principal balance
of all revolving loan Advances and all accrued interest on all thereof, the
Letter of Credit Obligations, and all other loans, indebtedness, debts,
liabilities, obligations, interest, fees, premiums, guarantees, covenants and
duties owing by Borrower to the Lender, of every kind and description (whether
or not evidenced by any note or other instrument and whether or not for the
payment of money), direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, including those arising before, during
and after the commencement of any case with respect to Borrower under the
Bankruptcy Code or any similar statute or those arising under the Other
Agreements. "Obligations" includes: (i) any debt, liability or obligation owing
from Borrower to others which the Lender may obtain by assignment or otherwise;
(ii) all interest, fees, charges or other costs and payments that Borrower is
required to pay to the Lender under or as a result of the Loan Documents or by
law; (iii) all fees, costs and expenses described in PARAGRAPH 14.2 or otherwise
required to be paid by Borrower to the Lender pursuant to any Loan Document.
"Orders" means the Interim Order and the Final Order of the Bankruptcy Court
referred to in paragraph 12.6 and 12.10.
"Other Agreements" means, collectively, the Orders, the Information
Certificate, all agreements, instruments and documents including, without
limitation, notes, guarantees, mortgages, trust deeds, pledges, powers of
attorney, consents, assignments, contracts, notices, security agreements,
leases, financing statements and all other writings heretofore, now or from
time to time hereafter executed by or on behalf of Borrower or any other Person
and delivered to Lender or to any parent, affiliate or subsidiary of Lender in
connection with the Obligations or the transactions contemplated hereby.
"Over Advance" shall have the meaning specified in PARAGRAPH 2.1(c).
"Owned Real Property" means real property owned by Borrower other than Eligible
Liquidation Real Estate as set forth on SCHEDULE 9.1(s).
"Permitted Liens" means: (i) Liens for taxes not yet payable or being contested
in good faith and by appropriate proceedings diligently pursued, provided that
the reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor; (ii) deposits or pledges to secure the
payment of workmen's compensation, unemployment insurance, old age pensions or
other social security benefits or obligations; (iii) deposits or pledges to
secure the performance of bids, tenders, contracts, leases, public or statutory
obligations, surety or appeal bonds, or other deposits or pledges for purposes
of a like general nature made or given in the ordinary course of business and
not in connection with the borrowing of money; (iv) Liens in favor of the
Lender; (v) such utility, access and other easements, rights of way,
restrictions, exceptions, minor defects or irregularities in or clouds on title
or encumbrances not arising out of the borrowing of money or the securing of
advances or credit, and which will not interfere with or impair in any respect
the utility, operation or value of any properties of Borrower; and (vii) Liens
described in detail on SCHEDULE 9.1(b) hereof.
"Permitted Sale Assets" means any property or assets owned by Borrower
other than Owned Real Property, Eligible Liquidation Real Estate or Eligible
Liquidation Inventory which is:
(i) approved for sale by liquidation by the Bankruptcy Court;
(ii) set forth on Schedule 1.1(c); and
(iii) subject to Lender's consent, in its sole discretion.
"Person" means any individual, trust, firm, partnership, corporation or any
other form of public, private or governmental entity or authority.
"Pre-Petition Payment" shall mean a payment (by way of adequate protection or
otherwise) of principal or interest or otherwise on account of any pre-petition
Indebtedness or trade payables or other pre-petition claims against Borrower.
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<PAGE> 10
"Prime Rate Loans" shall mean any Loans or portion thereof on which interest is
payable based on the Base Rate in accordance with the terms thereof.
"Proceeds" means all products and proceeds (as defined in the UCC) of any
Collateral, and all proceeds of any such proceeds, including all cash, credit
balances and all payments under any indemnity, warranty, or guaranty payable
with respect to any Collateral, all awards for taking by eminent domain, all
proceeds of fire or other insurance and all proceeds obtained as a result of
any legal action or proceeding with respect to any Collateral.
"Property" means any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
"Real Property Leases" shall mean the Borrower's Leasehold Interest in the real
property set forth on SCHEDULE 9.1(s).
"Reference Bank" shall mean The Chase Manhattan Bank, N.A., or such other bank
as Lender may from time to time designate.
"Release" shall have the meanings assigned to such term in CERCLA 42 U.S.C. sec.
9601(22).
"Reorganization Plan" means a plan of reorganization in the Bankruptcy
Case. "Reportable Event" shall have the meaning specified in PARAGRAPH 9.1(f).
"Revolving Loan Commitment" shall mean the amount of $25,000,000.
"Revolving Note" shall mean the promissory note in the original principal amount
of $25,000,000, executed by Borrower to the order of Lender, dated as of the
Closing Date.
"Security Interest" collectively means the liens and security interests created
for the benefit of the Lender pursuant to the Loan Documents.
"Special Collateral" shall have the meaning specified in PARAGRAPH 3.
"Solvent" means when used with respect to any Person, that:
(b) the fair value and present fair saleable value of such
Person's assets is in excess of the total amount of such
Person's stated liabilities including identified contingent
liabilities;
(c) the present fair saleable value of such Person's assets is in
excess of the amount that will be required to pay such
Person's probable liability on such Person's debts as they
become absolute and mature;
(d) such Person does not have unreasonably small capital to carry
on the business in which such Person is engaged and all
businesses in which such Person is about to engage; and
(e) such Person has not incurred debts beyond such Person's
ability to pay such debts as they mature.
"Subordinated Debt" means Indebtedness of Borrower which is subordinated to the
Obligations in a manner satisfactory in form and substance to Lender.
"Subsidiary" means any corporation (or other legal entity) of which more than
50% of the outstanding stock (or other equity interests) having by its terms the
ordinary voting power to elect a majority of the board of directors, managers or
trustees of such corporation (or other legal entity) is at the time, directly or
indirectly through one or more intermediaries, owned or controlled by the
Borrower and/or one or more of its Subsidiaries, irrespective of whether or not,
at the time, stock (or other equity interests) of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency.
"Superpriority Claim" means a claim against Borrower in the Bankruptcy Case
which is an administrative expense claim having priority over any or all
administrative expenses of the kind specified in Sections 503(b) or 507(b) of
the Bankruptcy Code.
"Term" shall have the meaning specified in PARAGRAPH 8 hereof.
"UCC" means the Uniform Commercial Code (or any successor statute) of the State
of New York or of any other state the laws of which are required by Section
9-103 of the UCC of New York to be applied in connection with the issue of
perfection of security interests.
2. LOANS AND TERMS OF PAYMENT
2.1 REVOLVING LOAN ADVANCES. (a) Upon the Borrower's requests made during
the Term, the Lender will make revolving loan Advances to Borrower in
an aggregate principal amount at any time outstanding not in excess of
the lesser of (x) the Borrowing Base or (y) the Revolving Loan
Commitment minus all Letter of Credit Obligations. As used herein the
term "Borrowing Base" shall mean an amount as of any time of
determination equal to the sum of:
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<PAGE> 11
(i) the lesser of either (x) 85% of the amount of Eligible
Accounts and of the G.E. Capital Account as at such date or
(y) $2,000,000; PLUS
(ii) the lesser of either (x) 68% of the value of Eligible
Inventory or (y) 85% of the GOB Value of Eligible Inventory;
PLUS
(iii) the lesser of either (x) 30% of the value of Clearance
Inventory or (y) 85% of the GOB Value of Clearance Inventory
or (z) $1,000,000; plus
(iv) the lesser of either (x) 85% of the value of Accounts
relating to Eligible Liquidation Inventory based on the
Guaranteed Liquidation Inventory Value or (y) $10,000,000
PLUS
(v) the lesser of (x) 67.3% of the Fair Market Value of Owned
Real Property or (y) $3,000,000; PLUS
(vi) the lesser of either (x) 75% of the value of Accounts
relating to Eligible Liquidation Real Estate based on the
Guaranteed Liquidation Real Estate Value or (y) $20,000,000;
and PLUS
(vii) an amount equal to the product of the applicable advance rate
set forth in paragraphs 2.1(ii) or (iii) above TIMES all
undrawn amounts on outstanding Letters of Credit issued for
the purchase of Eligible Inventory or Clearance Inventory;
and MINUS
(viii) all Letter of Credit Obligations; and MINUS
(ix) any Availability Reserve.
The Lender may, in its sole discretion, at any time or times upon three
Business Days' prior notice to the Borrower, increase or decrease the ratio of
the Advances against Eligible Accounts, Eligible Inventory, Eligible Liquidation
Inventory or Eligible Liquidation Real Estate, or all of the foregoing, and, in
the event that any such ratio shall be decreased for any reason, such decrease
shall become effective immediately for purposes of calculating the maximum
amount of new revolving loan Advances hereunder. Notwithstanding anything
contained herein to the contrary, upon repayment of Advances with the proceeds
of any sale of Owned Real Property, no additional Advances will be made with
respect to Owned Real Property.
(b) Lender may, in its discretion, from time to time: (i) reduce
the lending formula with respect to Eligible Accounts to the
extent that Lender determines in good faith that the Dilution
has increased with respect to the Accounts for any period to
five percent (5%) or greater or may be reasonably anticipated
to increase to five percent (5%) or greater; or (ii) upon not
less than one (1) day's prior notice to Borrower, establish
any Availability Reserves.
(c) Borrower shall request each Advance not later than 11:00 a.m.
(Chicago time): (i) on the Business Day the Borrower requests
Lender to make a Prime Rate Loan and (ii) at least three (3)
Business Days before the Business Day on which the Borrower
requests the Lender to make a Eurodollar Rate Loan. Each such
request shall be made by telephone or facsimile transmission
in the form of EXHIBIT B hereto ("Borrowing Request") and
shall specify the requested date and amount of such Advance.
Each such notice shall be irrevocable. Each oral request for
an Advance shall be conclusively presumed to be made by a
person authorized by Borrower to do so and shall be confirmed
in writing by delivery to Lender of a Borrowing Request the
next Business Day. Any Advance which is a Eurodollar Rate
Loan shall be in an amount not less than $5,000,000 and in
integral multiples of $1,000,000 each thereafter. Advances
shall be evidenced by a Note in the form of EXHIBIT A. All
Advances shall be repaid in full upon the earlier to occur at
(A) the end of the Term, if this Agreement is terminated at
such time pursuant to paragraph 8 hereof, and (B) the
acceleration of the Obligations pursuant to PARAGRAPH 11 of
this Agreement. If, at any time and for any reason, (x) the
amount of unpaid Advances and Letter of Credit Obligations
exceeds the Borrowing Base, or (y) if all of the Obligations
(including, without limitation, any Advances made pursuant to
this PARAGRAPH 2.1, or pursuant to any note or notes), at any
time and for any reason, exceed the sum of Twenty-Five
Million Dollars ($25,000,000) (such amount, an "Over
Advance"), then Borrower, upon Lender's election and demand,
shall be obligated to immediately pay to
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<PAGE> 12
Lender, in cash, the amount of such excess. Borrower hereby
authorizes Lender to charge any of the Borrower's accounts to
make any payments of principal or interest required by this
Agreement and any such payments shall be deemed to be an
Advance hereunder.
2.2 LETTERS OF CREDIT. (a) Upon the Borrower's request, and subject to the
terms and conditions of this Agreement, the Borrower will cause the
issuance of Letters of Credit for the account of Borrower within the
limits of the Borrowing Base up to a maximum aggregate undrawn face
amount of $3,000,000. Each Letter of Credit shall be acceptable in form
and substance to the Lender. Any payment made by Lender to any Person
on account of any Letter of Credit shall constitute an Advance
hereunder. At no time shall the aggregate sum of direct Advances by
Lender to the Borrower plus the contingent liability of Lender under
the outstanding Letters of Credit be in excess of the Revolving Loan
Commitment or the Borrowing Base.
(b) Borrower shall indemnify and hold Lender harmless from and against any
and all losses, claims, damages, liabilities, costs and expenses which
Lender may suffer or incur in connection with any Letter of Credit and
any documents, drafts or acceptances relating thereto, including, but
not limited to, any losses, claims, damages, liabilities, costs and
expenses due to any action taken by any issuer or correspondent with
respect to any Letter of Credit. Borrower assumes all risks with
respect to the acts or omissions of the drawer under or beneficiary of
any Letter of Credit and for such purposes the drawer or beneficiary
shall be deemed the agent of the Borrower. The Borrower assumes all
risks for, and agrees to pay, all foreign, federal, state and local
taxes, duties and levies relating to any goods subject to any Letter
of Credit or any documents, drafts or acceptances thereunder. Borrower
hereby releases and holds Lender harmless from and against any acts,
waivers, errors, delays or omissions, whether caused by Borrower, by
any issuer or correspondent or otherwise with respect to or relating
to any Letter of Credit. The provisions of this paragraph 2.2(b) shall
survive the payment of the Obligations and the termination or
non-renewal of the Loan Documents.
2.3 INTENTIONALLY OMITTED.
2.4 INTEREST.
(a) The Borrower will pay interest to the Lender on the unpaid principal
amount of all revolving loan Advances and all other Obligations, if
any, at a fluctuating rate per annum equal to one quarter of one per
cent (0.25%) above the Base Rate as to Prime Rate Loans and at
Borrower's option, at a rate equal to two and three quarters of one
percent (2.75%) per annum in excess of the Adjusted Eurodollar Rate
(based on the Eurodollar Rate applicable for the Interest Period. The
fluctuating rate of interest provided for above as to Prime Rate Loans
shall increase or decrease by an amount equal to any increase or
decrease in the Base Rate, effective as of the opening of business on
the day that any such change in the Base Rate occurs. Interest will be
calculated with respect to the outstanding principal balance of the
Loans at the close of each day computed on the basis of the actual
number of days elapsed over a 360-day year and all payment items which
the Lender receives shall be credited to the principal balance of the
Obligations, subject to collection, two (2) Business Days after the
Lender receives good funds therefor at its account designated by
Lender. Without affecting Borrower's obligation to immediately repay
to Lender the amount of any and all Over Advances in accordance with
the provisions of PARAGRAPH 2.1 of this Agreement, at any time when
any Over Advance exists, the Obligations shall bear interest, on the
daily balance thereof owing, at two percent (2%) percentage points
above the applicable per annum rates provided above (the "Over Advance
Rate"). At any time when an Event of Default has occurred and is
continuing the unpaid principal amount of all Obligations shall bear
interest at the respective applicable per annum rates provided for
above plus three percent (3%) (the "Default Rate"). All interest
payable by Borrower shall be due and payable on the last business day
of each calendar month during the term of this Agreement and Lender
may, at its option, charge such interest to Borrower's account with
Lender as an Advance.
Borrower may from time to time request that Prime Rate Loans be converted to
Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrower
shall specify the amount of the Prime Rate Loans which will constitute
Eurodollar Rate Loans (subject to the limits set forth below) and the
Interest Period to be applicable to such Eurodollar Rate Loans. Subject
to the terms
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<PAGE> 13
and conditions contained herein, three (3) Business Days after receipt
by Lender of such a request from Borrower, such Prime Rate Loans shall
be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans
shall continue, as the case may be, provided, however, that, (i) no
Event of Default, or event which with notice or passage of time or
both would constitute an Event of Default exists or has occurred and
is continuing; (ii) no party hereto shall have sent any notice of
termination or non-renewal of this Agreement; (iii) Borrower shall
have complied with such customary procedures as are established by
Lender and specified by Lender to Borrower from time to time for
requests by Borrower for Eurodollar Rate Loans; (iv) no more than four
(4) Interest Periods may be in effect at any one time; (v) the
aggregate amount of the Eurodollar Rate Loans must be in an amount not
less than $5,000,000 or an integral multiple of $1,000,000 in excess
thereof; and (vi) Lender shall have determined that the Interest
Period or Adjusted Eurodollar Rate is available to Lender through the
Reference Bank and can be readily determined as of the date of the
request for such Eurodollar Rate Loan by Borrower. Any request by
Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to
continue any existing Eurodollar Rate Loans shall be irrevocable.
Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans
upon the last day of the applicable Interest Period, unless Lender has
received and approved a request to continue such Eurodollar Rate Loan
at least three (3) Business Days prior to such last day in accordance
with the terms hereof. Any Eurodollar Rate Loans shall, at Lender's
option, upon notice by Lender to Borrower, convert to Prime Rate Loans
in the event that (i) an Event of Default or event which with the
notice or passage of time or both would constitute an Event of Default,
shall exist, (ii) this Agreement shall terminate or not be renewed, or
(iii) the aggregate principal amount of the Prime Rate Loans which have
previously been converted to Eurodollar Rate Loans or existing
Eurodollar Rate Loans continued, as the case may be, at the beginning
of an Interest Period shall at any time during such Interest Period
exceed either (A) the aggregate principal amount of the Loans then
outstanding, or (B) the then outstanding principal amount of the
Revolving Loans then available to Borrower under paragraph 2 hereof.
Borrower shall pay to Lender, upon demand by Lender (or Lender may, at
its option, charge any loan account of Borrower) any amounts required
to compensate Lender, the Reference Bank or any participant with Lender
for any loss (including loss of anticipated profits), cost or expense
incurred by such person, as a result of the conversion of Eurodollar
Rate Loans to Prime Rate Loans pursuant to any of the foregoing.
(b) It is the intent of the parties that the rate of interest and the other
charges to the Borrower under this Agreement shall be lawful;
therefore, if for any reason the interest or other charges payable
under this Agreement are found by a court of competent jurisdiction, in
a final determination, to exceed the limit which the Lender may
lawfully charge the Borrower, then the obligation to pay interest and
other charges shall automatically be reduced to such limit and, if any
amount in excess of such limit shall have been paid, then such amount
shall be refunded to the Borrower.
2.5 FEES. The Borrower will pay the fees described below to the Lender
during the term of this Agreement.
(a) An unused line fee of three eighths of one percent (0.375%) per annum
on the difference between the Facility and the average unpaid monthly
balance of the revolving loan Advances and undrawn Letter of Credit
Obligations outstanding under the Facility, payable monthly.
(b) A Letter of Credit fee equal to one and three quarters of one percent
(1.75%) per annum on the aggregate undrawn face amount of all
outstanding Letters of Credit issued for the account of Borrower,
which fee shall be payable monthly in arrears on the first day of each
month. The Borrower shall also pay on demand the normal and customary
administrative charges for issuance, amendment, negotiation, renewal
or extension of any Letter of Credit imposed by the bank issuing such
Letter of Credit. Upon the occurrence and during the continuance of an
Event of Default, all Letter of Credit fees shall be payable on demand
at a rate equal to three and three quarters of one percent (3.75%) per
annum on the aggregate undrawn face amount thereof.
(c) An examination fee of $750 per person, per day, plus reasonable
applicable expenses, for each examination performed by or at Lender's
direction of the Borrower's books and records and Collateral and such
other matters as Lender shall deem appropriate in its commercially
reasonable judgment, each such fee to be paid upon
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<PAGE> 14
the completion of each such examination. Notwithstanding the
foregoing, Lender reserves the right to increase the examination fee,
based upon Lender's customary practices, upon prior written notice to
Borrower.
(d) An early termination fee if the Term ends for any reason other than
confirmation by the Bankruptcy Court of a Reorganization Plan prior to
the expiration of twenty-seven (27) months after the Closing Date or a
liquidation of substantially all of the Borrower's assets prior to the
expiration of twenty-seven (27) months after the Closing Date,
determined with reference to the date on which the Term ends in
relation to the anniversaries of the Closing Date indicated below;
provided, however, that if Borrower obtains Exit Financing from any
source other than Lender and Lender offered to provide such Exit
Financing on terms and conditions substantially similar to the terms
and conditions provided in the Exit Financing then Borrower shall pay
Lender a fee in the amount of 0.5% of the Facility:
2.0% of the Facility from the date hereof to the first
anniversary of the date hereof; and
0.5% of the Facility from the first anniversary of the date
hereof to May 22, 2002
If the Facility is terminated because of the sale of the business prior
to one year from the Closing Date, the Borrower shall pay the Lender an early
termination fee in the amount of one half of one percent (0.5%) of the Facility;
provided, however, if the Facility is terminated because of the sale of the
business after one year from the Closing Date, the Lender shall not be entitled
to receive an early termination fee.
(e) A closing fee of $150,000, earned in full on the date hereof, which fee
shall be payable by Borrower to Lender on the Closing Date.
CHANGES IN LAWS AND INCREASED COSTS OF LOANS.
Notwithstanding anything to the contrary contained herein, all Eurodollar Rate
Loans shall, upon notice by Lender to Borrower, convert to Prime Rate
Loans in the event that (i) any change in applicable law or regulation
(or the interpretation or administration thereof) shall either (A) make
it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in
connection with the Eurodollar Rate Loans, by an amount deemed by
Lender to be material, or (B) shall result in the increase in the costs
to Lender, Reference Bank or any participant of making or maintaining
any Eurodollar Rate Loans; or (C) reduce the amounts received or
receivable by Lender in respect thereof, by an amount deemed by Lender
to be material; or (ii) the cost to Lender, Reference Bank or any
participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material.
Borrower shall pay to Lender, upon demand by Lender (or Lender may, at
its option, charge any loan account of Borrower) any amounts required
to compensate Lender, the Reference Bank or any participant with Lender
for any loss (including loss of anticipated profits), cost or expense
incurred by such person as a result of the foregoing, including,
without limitation, any such loss, cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired
by such person to make or maintain the Eurodollar Rate Loans or any
portion thereof. A certificate of Lender setting forth the basis for
the determination of such amount necessary to compensate Lender as
aforesaid shall be delivered to Borrower and shall be conclusive,
absent manifest error.
If any payments or prepayments in respect of the Eurodollar Rate Loans are
received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or
otherwise), including any payments pursuant to the application of
collections or any other payments made with the proceeds of Collateral,
Borrower shall pay to Lender upon demand by Lender (or Lender may, at
its option, charge any loan account of Borrower) any amounts required
to compensate Lender, the Reference Bank or any participant with Lender
for any additional loss (including loss of anticipated profits), cost
or expense incurred by such person as a result of such prepayment or
payment, including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such person to make or maintain such Eurodollar
Rate Loans or any portion thereof.
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<PAGE> 15
3. GRANT OF SECURITY INTEREST TO LENDER. As security for the payment of
all Loans now or in the future made by Lender to the Borrower hereunder and for
the payment or other satisfaction of all other Obligations, Borrower hereby
assigns to Lender and grants to Lender a continuing security interest in the
following property of Borrower, whether now or hereafter owned, existing,
acquired or arising and wherever now or hereafter located:
(a) all Accounts and all Goods whose sale, lease or other disposition by
Borrower has given rise to Accounts and have been returned to or
repossessed or stopped in transit by Borrower;
(b) all Chattel Paper, Instruments, Investment Property, Documents and
General Intangibles (including, without limitation, all patents,
patent applications, trademarks, trademark applications, tradenames,
trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, tax refund claims, claims against
carriers and shippers, guarantee claims, contracts rights, security
interests, security deposits and any rights to indemnification);
(c) all Inventory;
(d) all Goods including, without limitation, vehicles and fixtures;
(e) all Equipment;
(f) all deposits and cash and any other property of Borrower now or
hereafter in the possession, custody or control of Lender or any
agent or any parent, affiliate or subsidiary of Lender or any
participant with Lender in the Loans for any purpose (whether for
safekeeping, deposit, collection, custody, pledge, transmission or
otherwise);
(g) All capital stock of all Subsidiaries;
(h) all Leasehold Interests and all real property owned by Borrower,
including without limitation, Eligible Liquidation Real Estate and
Owned Real Property set forth on SCHEDULE 9.1(S); provided, however,
with respect to Leasehold Interests Lender shall not exercise any
rights to obtain control of such Leasehold Interests, unless Lender
agrees to assume the Borrower's obligations under the applicable
Leases as of the date of Lender's possession of such Leasehold
Interests, subject to any rights and remedies provided to the
Borrower and Lender pursuant to Bankruptcy Code sec.365; and
(i) all additions and accessions to, substitutions for, and replacements,
products and Proceeds of the foregoing property, including, without
limitation, proceeds of all insurance policies insuring the foregoing
property, and all of Borrower's books and records relating to any of
the foregoing and to its business.
Immediately upon Borrower's receipt of that portion of the Collateral which is
or becomes evidenced by an agreement, instrument and/or document, including,
without limitation, promissory notes, trade acceptances, documents of title and
warehouse receipts (the "SPECIAL COLLATERAL"), Borrower shall deliver the
original thereof to Lender, together with appropriate endorsements or other
specific evidence (in form and substance acceptable to Lender) of assignment
thereof to Lender.
Upon entry of the Interim Order pursuant to Section 364(c)(l) of the Bankruptcy
Code, the Obligations of the Borrower hereunder shall at all times constitute
allowed administrative expense claims in the Bankruptcy Case having priority
over all administrative expenses of the kind specified in Sections 503(b) or
507(b) of the Bankruptcy Code; provided, however, such priority of claims shall
be subordinate to (i) quarterly fees required to be paid pursuant to 28 U.S.C.
sec. 1930(c)(6) and fees payable to the Clerk of the Bankruptcy Court; and (ii)
the payment of fees and expenses of professionals engaged pursuant to Sections
327 and 1103 of the Bankruptcy Code that are unpaid and subject to allowance by
the Bankruptcy Court upon proper application therefor, in an amount not to
exceed $500,000 (collectively, the "Carve-Out"). The foregoing proviso is
without prejudice to Lender's right to object to any such application. In
addition, the Obligations shall be secured pursuant to Sections 364(c)(2) and
364(d)(1) of the Bankruptcy Code in
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<PAGE> 16
accordance with the terms of the Interim Order and the security interests and
Liens on the Collateral granted hereunder shall be senior to all other Liens on
the Collateral other than Permitted Liens. Notwithstanding anything herein to
the contrary, if an Event of Default shall have occurred, no payments shall be
made to professionals for fees and expenses incurred after such date.
4. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN. Borrower shall, at Lender's request, at any time and from time to
time, execute and deliver to Lender such financing statements, documents and
other agreements and instruments (and pay the cost of filing or recording the
same in all public offices deemed reasonably necessary or desirable by Lender)
and do such other acts and things as Lender may deem necessary or desirable in
order to establish and maintain a valid, attached and perfected security
interest in the Collateral in favor of Lender (free and clear of all other
liens, claims and rights of third parties whatsoever, whether voluntarily or
involuntarily created, except Permitted Liens) to secure payment of the
Obligations and in order to facilitate the collection of the Collateral.
Borrower irrevocably hereby makes, constitutes and appoints Lender (and all
Persons designated by Lender for that purpose) as Borrower's true and lawful
attorney and agent-in-fact to execute such financing statements, documents and
other agreements and instruments and do such other acts and things as may be
necessary to preserve and perfect Lender's security interest in the Collateral.
Borrower further agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement shall be sufficient
as a financing statement.
5. POSSESSION OF COLLATERAL AND RELATED MATTERS (a) Until an Event of
Default has occurred, Borrower shall have the right, except as otherwise
provided in this Agreement, in the ordinary course of Borrower's business, to
(i) sell, lease or furnish under contracts of service any of Borrower's
Inventory normally held by it for any such purpose, and (ii) use and consume
any raw materials, work in process or other materials normally held by Borrower
for such purpose; provided, however, that a sale in the ordinary course of
business shall not include any transfer or sale in satisfaction, partial or
complete, of a debt owed by Borrower.
(b) If Borrower sells any Owned Real Property, Eligible Liquidation Real
Estate, Eligible Liquidation Inventory, Clearance Inventory or any
other Permitted Sale Assets or if any of the Collateral is damaged,
destroyed or taken by condemnation, Borrower shall pay to Lender,
unless otherwise specifically provided herein or otherwise agreed to
by Lender, as and when received by Borrower, a sum equal to the
proceeds received from (i) such sale (except that with respect to any
sale of Owned Real Property or Eligible Liquidation Real Estate, the
payment of proceeds to Lender shall be subject to payment of existing
mortgages thereon having priority over the Liens of Lender) or (ii)
such damage, destruction or condemnation; provided, however, that
without Lender's consent, unless and until an Event of Default has
occurred and is continuing:
(i) obsolete or worn out Equipment may be sold or otherwise disposed of
by Borrower and the proceeds thereof may be retained by Borrower, so
long as the fair market value of any such Equipment sold or otherwise
disposed of in any single transaction is less than $100,000, and the
fair market value, in the aggregate, of all such Equipment sold or
otherwise disposed of by Borrower during any twelve-month period is
less than $500,000; and
(ii) proceeds of Collateral arising from the damage, destruction or
condemnation thereof may be retained by Borrower and used by Borrower
to repair, restore or replace such Collateral, as the case may be, so
long as the fair market value of any such Collateral damaged,
destroyed or condemned in any single incident is less than $100,000,
and the fair market value, in the aggregate, of all such Collateral
owned by the Borrower during any twelve-month period is less than
$500,000.
6. COLLECTIONS AND ADMINISTRATION.
(a) Borrower shall establish an account ("Blocked Account") in Lender's
name for the benefit of Borrower with a financial institution
acceptable to Lender, into which Borrower will immediately deposit
all payments made for Inventory or services sold or rendered by
Borrower and received by it in the identical form in which such
payments were made, whether by cash or check. The contents of each
Blocked Account constitute Collateral and proceeds of Collateral. If
Borrower, any Affiliate or Subsidiary thereof, or any shareholder,
officer, direc-
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<PAGE> 17
tor, employee or agent thereof or any Affiliate or Subsidiary, or any
other Person acting for or in concert with Borrower shall receive any
monies, checks, notes, drafts or other payments relating to or as
proceeds of Accounts or other Collateral, Borrower and each such
Person shall receive all such items in trust for, and as the sole and
exclusive property of, Lender and, immediately upon receipt thereof,
shall remit the same (or cause the same to be remitted) in kind to
the Blocked Account.
(b) Borrower shall deliver, or cause to be delivered by each of
Borrower's credit card clearinghouses and processors, payment of all
credit card charges submitted by Borrower to such clearinghouses or
other processors and any other amounts payable to Borrower by such
clearinghouses or other processors to the Blocked Account or as
otherwise designated from time to time by Lender. Borrower shall not
change such direction or designation except upon and with the prior
written consent of the Lender.
(c) Borrower shall cause the automated clearinghouse or wire transfer to
the Blocked Account, no less frequently than daily of
(i) the then contents of each DDA; provided, that each such transfer
shall be net of any minimum balance, not to exceed $5,000, 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 Lender on each Business Day on which any such transfer
is made.
(d) Each financial institution with which a Blocked Account is
established shall acknowledge and agree, in a manner satisfactory to
Lender, that the amounts on deposit in such Blocked Account are the
sole and exclusive property of Lender, that such financial
institution has no right to setoff against such Blocked Account or
against any other account maintained by such financial institution
into which the contents of such Blocked Account are transferred, and
that such financial institution shall wire, or otherwise transfer in
immediately available funds in a manner satisfactory to Lender, funds
deposited in the Blocked Account on a daily basis as such funds are
collected. Borrower agrees that all payments made to the Blocked
Account established by the Borrower or otherwise received by Lender,
whether in respect of the Accounts of Borrower or as proceeds of
other Collateral of the Borrower or otherwise, will be applied on
account of the Obligations of the Borrower in accordance with the
terms of this Agreement. Borrower agrees to pay all fees, costs and
expenses which Borrower incurs in connection with opening and
maintaining a Blocked Account. All of such fees, costs and expenses
which remain unpaid pursuant to any Blocked Account Agreement with
Borrower, to the extent same shall have been paid by Lender
hereunder, shall constitute Advances hereunder, shall be payable to
Lender by Borrower upon demand, and, until paid, shall bear interest
at the highest rate then applicable to Advances hereunder. All
checks, drafts, instruments and other items of payment or proceeds of
Collateral delivered to Lender in kind shall be endorsed by the
Borrower, to Lender, and, if that endorsement of any such item shall
not be made for any reason, Lender is hereby irrevocably authorized
to endorse the same on Borrower's behalf.
(e) For the purpose of this PARAGRAPH 6, Borrower irrevocably hereby
makes, constitutes and appoints Lender (and all Persons designated by
Lender for that purpose) as its true and lawful attorney and
agent-in-fact (i) to endorse Borrower's name upon said items of
payment and/or proceeds of Collateral of the Borrower and upon any
Chattel Paper, document, instrument, invoice or similar document or
agreement relating to any Account of Borrower or goods pertaining
thereto; (ii) to take control in any manner of any item of payment or
proceeds thereof; (iii) to have access to any lock box or postal box
into which any of the Borrower's mail is deposited; and (iv) open and
process all mail addressed to any Borrower and deposited therein;
provided, however, that Lender shall not exercise any such powers
described in SUBPARAGRAPHS (i) AND (ii) OF PARAGRAPH 6(e) (except for
routine lock box payments/proceeds) unless and until an Event of
Default has occurred.
(f) Lender may, at any time and from time to time after the occurrence of
an Event of Default, whether before or after notification to any
Account Debtor and whether before or after the maturity of any of the
Obligations, (i) enforce collection of any of the Borrower's Accounts
or contract rights by suit or otherwise; (ii) exercise
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<PAGE> 18
all of the Borrower's rights and remedies with respect to proceedings
brought to collect any Accounts; (iii) surrender, release or exchange
all or any part of any Accounts of the Borrower, or compromise or
extend or renew for any period (whether or not longer than the
original period) any indebtedness thereunder; (iv) sell or assign any
Account of Borrower upon such terms, for such amount and at such time
or times as Lender deems advisable; (v) prepare, file and sign the
requisite Borrower's name on any proof of claim in bankruptcy or
other similar document against any Account Debtor indebted on an
Account of such Borrower; and (vi) do all other acts and things which
are necessary, in Lender's sole discretion, to fulfill each
Borrower's Obligations under this Agreement and to allow Lender to
collect the Accounts. In addition to any other provision hereof,
Lender may at any time on or after the occurrence of an Event of
Default, at the Borrower's sole expense, notify any parties obligated
on any of the Accounts of the Borrower to make payment directly to
Lender of any amounts due or to become due thereunder.
(g) For the purpose of determining the Borrowing Base hereunder, Lender
shall, upon receipt by Lender at its office in Chicago, Illinois, of
cash or other immediately available funds from collections of items
of payment and proceeds of any Collateral, apply the whole or any
part of such collections or proceeds against the Obligations in such
order as Lender shall determine in its sole discretion or such order
as may be required by applicable law.
(h) Immediately upon a Borrower's receipt of any portion of the
Collateral evidenced by an agreement, Instrument or Document
including, without limitation, any Chattel Paper, Borrower shall
deliver the original thereof to Lender together with an appropriate
endorsement or other specific evidence of assignment thereof to
Lender (in form and substance acceptable to Lender). If an
endorsement or assignment of any such items shall not be made for any
reason, Lender is hereby irrevocably authorized, as such Borrower's
attorney and agent-in-fact, to endorse or assign the same on
Borrower's behalf.
(i) PAYMENT OF OBLIGATIONS. Upon the maturity (whether by acceleration or
otherwise) of any of the Obligations under this Agreement or any of
the other Loan Documents, the Lender shall be entitled to immediate
payment of such Obligations without further application to or order
of the Bankruptcy Court.
(j) NO DISCHARGE; SURVIVAL OF CLAIMS. The Borrower agrees that (i) its
Obligations hereunder shall not be discharged by the entry of an
order confirming a Reorganization Plan (and the Borrower pursuant to
Section 1141(d)(4) of the Bankruptcy Code, hereby waives any such
discharge) and (ii) the Superpriority Claim granted to the Lender
pursuant to the Orders and described in paragraph 3 and the security
interests and Liens granted to the Lender pursuant to the Orders and
described in paragraph 3 shall not be affected in any manner by the
entry of an order confirming a Reorganization Plan.
(k) USE OF PROCEEDS. Borrower shall use the initial proceeds of the Loans
provided by Lender to Borrower hereunder only in accordance with
Borrower's existing budget as approved by Lender for: (a) payments to
existing lenders under that certain revolving loan facility granted
by Fleet Retail Finance Inc. d/b/a BankBoston Retail Finance, Inc. as
agent for a syndicate of lenders and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery
of this Agreement and the other Loan Documents. All other Loans made
or Letters of Credit provided by Lender to Borrower pursuant to the
provisions hereof shall be used by Borrower only for general
operating, working capital and other proper corporate purposes of
Borrower not otherwise prohibited by the terms hereof. None of the
proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the purposes of
reducing or retiring any Indebtedness which was originally incurred
to purchase or carry any margin security or for any other purpose
which might cause any of the Loans to be considered a "purpose
credit" within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System, as amended.
7. SCHEDULES AND REPORTS.
(a) Within five (5) days after the close of each calendar week, and at
such other times as may be requested by Lender from time to time
hereafter, Borrower shall deliver to Lender a Borrowing Base
certificate for such week, which shall include calculations of the
Borrowing Base (excluding reserves but including calculations
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<PAGE> 19
of Eligible Accounts, Eligible Inventory, Eligible Liquidation
Inventory, Clearance Inventory, and Eligible Liquidation Real Estate)
and shall otherwise be in form and substance satisfactory to Lender
together with (i) an aged trial balance of Borrower's accounts that
are payable as of the end of such week and (ii) a schedule
identifying by age each Account a reconciliation thereof to the above
Borrowing Base calculations. At such times as may be requested by
Lender from time to time hereafter, Borrower shall deliver to Lender
(A) such additional schedules, certificates, reports and information
with respect to the Collateral as Lender may from time to time
require and (B) a collateral assignment of any or all items of
Collateral to Lender. Lender, through its officers, employees or
agents, shall have the right, at any time and from time to time in
Lender's name, in the name of a nominee of Lender or in Borrower's
name, to verify the validity, amount or any other matter relating to
any of the Accounts, by mail, telephone, telegraph or otherwise.
Borrower shall reimburse Lender, on demand, for all costs, fees and
expenses incurred by Lender in this regard.
(b) Without limiting the generality of the foregoing, Borrower shall
deliver to Lender, at least once a month each of the following (each
in such form as Lender 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 fifteen (15) days after the end of each month:
(A) A certificate (signed by the Borrower's President
or Chief Financial Officer) concerning the Borrower's Inventory.
(B) A written versus delivered sales summary.
(C) A monthly Inventory turns by department and by
category report.
(D) A comparison of markets Gross Margin 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 twenty (20) days after the end of the previous month:
(A) Reconciliation of the above described Inventory
certificate (paragraph 7(c)(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.
(E) An internally prepared financial statement of the
Borrower's financial condition and 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),
detailed account of capital expenditures 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 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, the
Chief Accounting Officer, the Chief Financial Officer, and
Treasurer.
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<PAGE> 20
(c) The Borrower shall cause the Borrower's President and Chief Financial
Officer, respectively, to provide such Person's certificate with those
monthly statements to be furnished pursuant to this PARAGRAPH 7, 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 to the following:
(i) usual year end adjustments (this
exception shall not be included in the certificate
which accompanies any 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).
(B) Indicate either that (i) no Event of Default 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 PARAGRAPH 10.3.
(d) Borrower shall immediately notify Lender of any event causing loss or
depreciation in value of its Inventory (other than normal depreciation
occurring in the ordinary course of business). Further, Lender shall
perform or arrange for quarterly Inventory appraisals at the sole cost
and expense of Borrower.
(e) As soon as practicable, and in any event no later than 30 days prior to
the end of the last period set forth on the Budget attached hereto as
EXHIBIT F, Borrower shall furnish to the Lender an updated Budget,
which shall be in form and substance satisfactory to Lender, and
Borrower shall make its senior officers available to discuss the same
with the Lender upon the Lender's reasonable request.
(f) All schedules, certificates, reports and assignments and other items
delivered by Borrower to Lender hereunder shall be in such form and
contain such information as Lender shall reasonably request. Borrower
shall deliver from time to time such other schedules and reports
pertaining to the Collateral as Lender may reasonably request.
(g) Borrower shall deliver to Lender, within the period specified, those
additional reports specified in PARAGRAPH 10.1.
8. TERMINATION. This Agreement shall be in effect from the date hereof
until the earlier of: (i) the date occurring twenty-seven (27) months from the
date hereof or (ii) the effective date of a Reorganization Plan, unless sooner
terminated pursuant to the terms hereof (the "Term") at which time the
Obligations shall become due and payable. If one or more of the events specified
in SUBPARAGRAPHS (i) OR (ii) above occurs, this Agreement shall terminate on the
date thereafter that the Obligations are paid in full; provided, however, that
the security interests and liens created under the Loan Documents shall survive
such termination until the date upon which payment and satisfaction in full of
the Obligations shall have occurred. At such time as the Borrower has repaid all
of the Obligations and this Agreement has terminated, (i) Borrower shall deliver
to Lender a release, in form and substance reasonably satisfactory to Lender, of
all obligations and liabilities of Lender and its officers, directors,
employees, agents, parents, subsidiaries and affiliates to Borrower, and if
Borrower is obtaining new financing from another lender, Borrower shall deliver
its indemnification of Lender, in form and substance satisfactory to Lender, for
checks which Lender has credited to Borrower's account, but which subsequently
are dishonored for any reason and (ii) upon Borrower's request, Lender shall
deliver to Borrower a release in form and substance reasonably satisfactory to
Borrower.
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<PAGE> 21
9. WARRANTIES AND REPRESENTATIONS.
------------------------------
9.1 GENERAL WARRANTIES AND REPRESENTATIONS. Borrower warrants and
represents that at all times during the Term this Agreement:
(a) Borrower is a corporation duly organized and existing and in good
standing under the laws of the state of its incorporation and is
qualified or licensed to do business in all other countries, states and
provinces the laws of which require Borrower to be so qualified or
licensed; Borrower does not have any Subsidiary except as set forth on
the Information Certificate.
(b) Borrower has good, indefeasible and merchantable title to and ownership
of the Collateral, free and clear of Liens, except those of Lender and
Permitted Liens; the Equipment is in good operating condition and
repair and has not been permitted to become a fixture to any real
property;
(c) Except as set forth in the SCHEDULE 9.1(C) hereto, Borrower is not a
party to any contract, lease, license agreement or other agreement or
subject to any charge, corporate restriction, judgment, decree or order
which could reasonably be expected to have a Material Adverse Effect,
and is not a party to any labor dispute, and there are no strikes or
walkouts relating to any labor contract, and no such contract is
scheduled to expire during the Term; each material license is in full
force and effect and no event has occurred or failed to occur which
with the giving of notice or passage of time or both would constitute a
default under any such license;
(d) Borrower is not in violation of any applicable statute, regulation or
ordinance of any governmental entity, or of any agency thereof, which
could reasonably be expected to have a Material Adverse Effect;
(e) Other than the filing of the Voluntary Petition, Borrower is not in
default under the G.E. Capital Agreement and except as set forth on
SCHEDULE 9.1(E), Borrower is not in default under its Real Property
Leases;
(f) Borrower has not received any notice to the effect that it is not in
full compliance with any of the requirements of ERISA, and the
regulations promulgated thereunder and, to the best knowledge of
Borrower's executive officers, there exists no event described in
Section 4043(b)(3) thereof ("REPORTABLE EVENT");
(g) Borrower has filed all federal, state and local tax returns and other
reports it is required by law to file and has paid, to the extent due
and payable, all taxes, levies, assessments, charges, liens, claims or
encumbrances upon or relating to the Collateral, the Obligations, its
employees, payroll, income, and gross receipts, its ownership or use of
any of its assets, and any other aspect of its business (collectively,
the "CHARGES");
(h) The offices or locations where Borrower keeps the Collateral and books
and records concerning the Collateral, including, without limitation,
computer programs, printouts and other computer materials, are at the
locations set forth on SCHEDULE 9.1(h) hereto;
(i) The addresses specified on SCHEDULE 9.1(h) hereto include and designate
Borrower's chief executive office, chief place of business and other
offices and places of business and are the Borrower's sole offices and
places of business;
(j) Borrower has not, during the preceding five (5) years, been known as or
used any other corporate, trade or fictitious name, except as disclosed
on SCHEDULE 9.1(j) hereto;
(k) Borrower has the right and power and is duly authorized and empowered
to enter into, execute, deliver and perform this Agreement and the
other Agreements, and its officers executing and delivering the Loan
Documents are duly authorized and empowered to do so;
(l) The execution, delivery and performance by Borrower of the Loan
Documents shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a breach of
any provision con-
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ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
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<PAGE> 22
tained in its Articles or Certificate of Incorporation or By-Laws or
contained in any agreement, instrument or document to which it is now a
party or by which it is bound;
(m) Borrower has, and is current and in good standing with respect to, all
governmental approvals, permits, certificates, inspections, consents
and franchises necessary to continue to conduct its business as
heretofore conducted, and to own or lease and operate the properties
now owned or leased by it;
(n) Intentionally Omitted.
(o) The Financials as set forth on SCHEDULE 9.1(o)(l) hereto have been
prepared in accordance with GAAP and fairly present the assets,
liabilities and financial condition and results of operations of
Borrower and such other Persons described therein as of the dates
thereof; there are no omissions or other facts or circumstances which
are or may be material and no event has occurred since the date of the
Financials and is continuing which could reasonably be expected to have
a Material Adverse Effect other than those which customarily occur as a
result of events leading up to and following the commencement of a
proceeding under Chapter 11 of the Bankruptcy Code and the commencement
of the Bankruptcy Case; there exists no equity or long term investments
in, or outstanding advances to, any Person not reflected in the
Financials; except for trade payables arising in the ordinary course of
its business since the dates reflected in the Financials and except as
disclosed on SCHEDULE 9.1(o)(2) hereto and in the Financials, Borrower
does not have any actions or proceedings pending or any Indebtedness or
guaranteed the obligations of any other Person;
(p) The execution and delivery of the Loan Documents by Borrower does not
directly or indirectly violate or result in a violation of Section 7 of
the Securities and Exchange Act of 1934, as amended, or any regulations
issued pursuant thereto, including, without limitation, Regulations G,
U, T and X of the Board of Governors of the Federal Reserve System, and
Borrower does not own or intends to purchase or carry any "margin
security" as defined in said Regulations;
(q) Intentionally Omitted.
(r) Borrower has sufficient personnel and possesses adequate assets,
licenses, patents, patent applications, copyrights, trademarks and
trade names to continue to conduct its business as heretofore conducted
by it, and all such licenses, patents, patent applications, copyrights,
trademarks and trade names are listed on SCHEDULE 9.1(r) hereto;
(s) SCHEDULE 9.1(s) hereto lists all owned and leased real property and,
except as described in SCHEDULE 9.1(s), Borrower is not a party to any
contract or agreement for the sale, transfer, assignment or other
disposition of the real property or any portion thereof or interest
therein;
(t) The Liens granted to Lender under this Agreement and the other Loan
Documents constitute valid and perfected first priority liens and
security interests in and upon the Collateral subject only to the Liens
permitted under paragraph 10.2(l) hereof. Borrower has good and
marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges
of any kind, except those granted to Lender and such others as are
specifically permitted under paragraph 10.2(l) hereof.
(u) No event has occurred other than the commencement of the Bankruptcy
Case since December 31, 1998, and is continuing which has had or could
reasonably be expected to have a Material Adverse Effect;
(v) Except as disclosed in SCHEDULE 9.1(v), all premises and facilities
owned, leased, used or operated by Borrower or any Subsidiary or, to
the knowledge of any of the Borrower's executive officers, after a
reasonable investigation, any predecessor in interest, have been, and
continue to be, owned, leased, used or operated in compliance in all
material respects with all applicable Environmental Laws. SCHEDULE
9.1(v) identifies with respect to Borrower and each Subsidiary, or, to
the knowledge of the Borrower's executive officers, after a reasonable
investigation, any predecessor in interest (i) all environmental
audits, assessments or occupational health stud-
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 107 of 128
<PAGE> 23
ies undertaken by, or at the direction of, governmental agencies; (ii)
any claim, or complaint concerning environmental matters; and (iii) all
permits issued under any Environmental Laws;
(w) No broker or finder acting on behalf of Borrower brought about the
obtaining, making or closing of the loans pursuant to this Agreement
and Borrower has no obligation to any other Person in respect of any
finder's or brokerage fees in connection with the loans contemplated by
this Agreement;
(x) There has been no change in the credit terms or policies which Borrower
offers to its customers from those disclosed to Lender prior to the
date of this Agreement;
(y) No information contained in the Loan Documents, the Financials or any
written statement furnished by or on behalf of Borrower pursuant to the
terms of this Agreement, which has previously been delivered to Lender,
contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or
therein not misleading at the time and in light of the circumstances
under which made.
(z) Except for the Bankruptcy Case there are no actions, suits, claims,
investigations or proceedings which are pending or, to the best
knowledge of Borrower's executive officers, threatened, against or
affecting Borrower, its assets, goodwill or business or any other
Person which could reasonably be expected to have a Material Adverse
Effect or would impair the ability of Borrower to perform its
obligations under the Loan Documents or would impair the Lender's
ability to enforce any Obligations or realize upon any Collateral;
(aa) On the date of the making of the initial Loans or the issuance of the
initial Letters of Credit hereunder, whichever first occurs, the
Interim Order will have been entered and will not have been stayed,
amended, vacated, reversed or rescinded. On the date of the making of
any Loan or the issuance of any Letter of Credit, the Interim Order or
the Final Order, as the case may be, shall have been entered and shall
not have been amended, stayed, vacated, reversed or rescinded. Upon the
maturity (whether by the acceleration or otherwise) of any of the
Obligations of the Borrower hereunder and under the other Loan
Documents, the Lender shall be entitled to immediate payment of such
Obligations, and to enforce the remedies provided for hereunder,
without further application to or order by the Bankruptcy Court.
9.2 ACCOUNT WARRANTIES AND REPRESENTATIONS. With respect to its Accounts,
Borrower warrants and represents to Lender that Lender may rely, in
determining which Accounts listed on any schedule of Accounts are
Eligible Accounts, on all statements or representations made by
Borrower on or with respect to any such schedule and, unless otherwise
indicated in writing by Borrower, that:
(a) They are genuine, are in all respects what they purport to be, are not
evidenced by a judgment and are evidenced by executed original
instruments, agreements, contracts, or documents, which will be
delivered to Lender upon request therefor;
(b) They represent undisputed bona fide transactions completed in
accordance with the terms and provisions contained in any documents
related thereto;
(c) The face amounts shown on any schedule of Accounts provided to Lender
and all invoices and statements delivered to Lender with respect to any
Account are actually and absolutely owing to a Borrower and are not
contingent for any reason;
(d) To the best knowledge of the Borrower's executive officers, there are
no setoffs, counterclaims or disputes existing or asserted with respect
thereto and Borrower has not made any agreement with any Account Debtor
thereunder for any deduction therefrom, except discounts or allowances
allowed by such Borrower in the ordinary course of its business for
prompt payment, all of which discounts and allowances are either (x)
reflected in the calculation of the face amount of the invoices to
which such discounts or allowances relate, or (y) evidenced on a
general ledger account of such Borrower;
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<PAGE> 24
(e) To the best knowledge of the Borrower's executive officers, there are
no facts, events or occurrences which in any way impair the validity or
enforcement thereof or tend to reduce the amount payable thereunder
from the invoice face amount shown on any schedule of Accounts and on
all contracts, invoices and statements delivered to Lender with respect
thereto;
(f) To the best knowledge of the Borrower's executive officers, all Account
Debtors thereunder (i) had the capacity to contract at the time any
contract or other document giving rise to the Account was executed and
(ii) are Solvent;
(g) They are not subject to any Liens, except those of Lender;
(h) No executive officer of Borrower has knowledge of any fact or
circumstance which would impair the validity or collectability thereof;
(i) To the best knowledge of the Borrower's executive officers, there are
no proceedings or actions which are threatened or pending against any
Account Debtor thereunder which could reasonably be expected to have a
Material Adverse Effect;
(j) The goods giving rise thereto are not, and were not at the time of the
sale thereof, subject to any Liens, except those of Lender and those
removed or terminated prior to the date hereof; and
(k) They comply in all respects with all applicable laws and regulations,
including, but not limited to, truth-in-lending and consumer credit
disclosure laws and regulations and, in the case of Account Debtors who
are subject to the Bankruptcy Code, Section 524(c) thereof.
9.3 INVENTORY WARRANTIES AND REPRESENTATIONS. With respect to its
Inventory, Borrower warrants and represents to Lender that Lender may
rely, in determining which items of Inventory listed on any Schedule of
Inventory are Eligible Inventory, on all statements or representations
made by Borrower or with respect to any such Schedule and, unless
otherwise indicated in writing by Borrower that:
(a) All Inventory is located on premises listed on SCHEDULE 9.1(h) hereto;
(b) No Inventory is now, or shall at any time or times hereafter be, stored
with a bailee, warehouseman or similar party without Lender's prior
written consent and if Lender gives such consent, Borrower will
concurrent therewith, cause any such bailee, warehouseman or similar
party to issue and deliver to Lender, in form and substance acceptable
to Lender, warehouse receipts therefor in Lender's name;
(c) No Inventory is under consignment to any Person; and
(d) All Inventory is currently usable or currently saleable in the normal
course Borrower's business.
9.4 YEAR 2000 PREPAREDNESS. Borrower has not experienced, and Borrower has
no reason to expect Borrower to experience any Material Adverse Effect
on its operations as a result of any failure of Borrower's computer
hardware or software applications to function at least as effectively
with respect to dates or time periods occurring after December 31,
1999, as such applications functioned for dates or time periods
occurring prior to January 1, 2000.
9.5 WARRANTY AND REAFFIRMATION OF WARRANTIES AND REPRESENTATIONS; SURVIVAL
OF WARRANTIES AND Representations. Each request for an Advance made by
Borrower pursuant to the Loan Documents shall constitute (i) a warranty
and representation by Borrower to Lender that there does not then exist
an Event of Default or a Default, except as otherwise notified to the
Lender by Borrower and (ii) a reaffirmation as of the date of said
request of the representations and warranties of Borrower contained in
paragraphs (a) through (j) of PARAGRAPH 9.1 and in PARAGRAPHS 9.2, 9.3
AND 9.4 with respect to Collateral then existing. All representations
and warranties of
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<PAGE> 25
Borrower contained in the Loan Documents shall survive the execution,
delivery and acceptance thereof by the parties thereto and the closing
of the transactions described therein or related thereto.
10. COVENANTS AND CONTINUING AGREEMENTS.
10.1 AFFIRMATIVE COVENANTS. Borrower covenants that it shall:
(a) Keep books of account and prepare financial statements and shall cause
to be furnished to Lender the following (all of the foregoing and
following to be kept and prepared in accordance with GAAP):
(i) as soon as available, but not later than seven days after the date of
this Agreement, audited consolidated financial statements of Borrower
and the Subsidiaries as at December 31, 1998, certified by a firm of
independent certified public accountants of recognized standing,
reasonably acceptable to Lender and selected by Borrower (and which has
acknowledged a letter of the type referred to in PARAGRAPH 12.4(j))
which do not reflect changes, if any, of greater than 5% in any
material item from those presented to Lender prior to the date of this
Agreement;
(ii) as soon as available, but not later than ninety (90) days after the
close of Borrower's Fiscal Year hereafter, audited consolidated
financial statements of Borrower and the Subsidiaries as at the end of
such year certified by a firm of independent certified public
accountants of recognized standing, reasonably acceptable to Lender and
selected by Borrower (and which has acknowledged a letter of the type
referred to in PARAGRAPH 12.4(j)), together with any management letter
or other letters or certificates supplied by the Borrower to such
accountants;
(iii) concurrently with the delivery of the financial statements described in
subparagraph (ii) above, (a) a statement in reasonable detail showing
the calculations used in determining the financial covenants, and (b) a
certificate of such certified public accountants certifying to Lender
that, based upon their examination of the affairs of Borrower performed
in connection with the preparation of said financial statements, they
are not aware of the existence of any condition or event which
constitutes or would, upon notice or lapse of time or both, constitute
an Event of Default or, if they are aware of such condition or event,
the nature thereof;
(iv) as soon as available, but not later than twenty-five (25) days after
the end of each month thereafter, unaudited interim internal,
consolidating and consolidated income statements, an unaudited internal
consolidated balance sheet, an unaudited internal consolidated
statement of cash flows of Borrower and its Subsidiaries as at the end
of the portion of the Borrower's Fiscal Year then elapsed and a
reconciliation of Borrower's actual cash flow results in relation to
its cash flow budget as submitted to Lender together with: (a) a
statement in reasonable detail showing the calculations used in
determining the financial covenants, and (b) the certification of
Borrower's principal financial officer that all such financial
statements were prepared in accordance with GAAP (subject to normal
year-end adjustments and the absence of footnotes) and fairly present
the financial position and results of operations of the Borrower for
such period;
(v) as soon as possible, but not less than thirty (30) days prior to each
ninety-day period during the Term, a copy of Borrower's cash flow
budget for such ninety-day period, in form and substance satisfactory
to Lender;
(vi) such other data and information (financial and otherwise) as Lender,
from time to time, may reasonably request, bearing upon or related to
the Collateral, Borrower's financial condition or results of
operations;
(b) Promptly upon, but in no event later than three Business Days after,
Borrower's learning thereof, inform Lender, in writing, of (i) any
material delay in its performance of any of its obligations to any
Account Debtor and of any assertion of any material claims, offsets or
counterclaims by any Account Debtor and of any material allowances,
credits or other monies granted by any Borrower to any Account Debtor;
(ii) all material adverse information relating to the financial
condition of any Account Debtor; (iii) any facts relating to any
Ac-
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<PAGE> 26
count or Inventory which would render untrue any representation or
warranty made pursuant to PARAGRAPHS 9.2 OR 9.3 hereof with respect to
such Account or Inventory; and (iv) any litigation affecting Borrower,
whether or not the claim is considered by Borrower to be covered by
insurance, and of the institution of any suit or administrative
proceeding which litigation, suit or administrative proceeding could
reasonably be expected to have a Material Adverse Effect;
(c) Keep and maintain the Equipment in good operating condition and repair;
make all necessary replacements thereof so that the value and operating
efficiency thereof shall at all times be maintained and preserved;
promptly inform Lender of any additions to or deletions from the
Equipment; and prevent any such Equipment in excess of $50,000 in the
aggregate from becoming a fixture to real estate or accession to other
personal property;
(d) Pay, and cause its Subsidiaries to pay, promptly when due, all of the
Charges and promptly discharge any liens, encumbrances or other claims
against the Collateral;
(e) Maintain, and cause each Subsidiary to maintain, such insurance as may
be required by law and such other insurance to such extent and against
such hazards and liabilities as is customarily maintained by companies
similarly situated, and (i) include Lender as an additional insured on
all liability policies and (ii) provide Lender with a loss payee
endorsement in favor of the Lender satisfactory to the Lender;
(f) Comply, and cause each Subsidiary to comply, strictly and in all
respects with all applicable Environmental Laws, notify Lender, and
cause each Subsidiary to notify Lender, promptly in the event of any
Release of any Hazardous Substance reportable under Section 103 of
CERCLA upon any premises owned or operated by any Borrower or any
Subsidiary, and promptly forward, and cause each Subsidiary to promptly
forward, to Lender a copy of any order, notice, permit, application, or
any other communication or report in connection with any such Release
of any Hazardous Substance or any other matter relating to the
Environmental Laws as they may affect such premises. Borrower shall
indemnify Lender and hold Lender harmless from and against any loss,
liability, damage or expense, including attorneys' fees, suffered or
incurred by Lender, whether as mortgagee pursuant to any mortgage or
leasehold mortgage, as mortgagee in possession, or as successor in
interest to Borrower or any of its Subsidiaries as owner or lessee of
any premises by virtue of foreclosure or acceptance of deed in lieu of
foreclosure (i) under or on account of the Environmental Laws,
including the assertion of any lien thereunder; and (ii) with respect
to any Release of any Hazardous Substance whether or not reportable
under Section 103 of CERCLA affecting such premises or facility,
whether or not the same originates or emanates from such premises or
any contiguous real estate, including any loss of value of such
premises as a result of a Release of any Hazardous Substance; provided,
however, that Borrower will not be liable for such indemnification to
Lender to the extent that any such loss, liability, damage or expense
results from the gross negligence or willful misconduct of the Person
who would otherwise be entitled to be indemnified pursuant to this
PARAGRAPH 10.1(f);
(g) Keep or cause to be kept in full force and effect each material
license.
(h) Furnish to Lender (i) promptly after the filing thereof with the
Commission, a copy of each report, notice or other filing, if any, by
Borrower with the Commission, and (ii) a copy of each written
communication received by Borrower from or delivered by Borrower to the
Commission, promptly after such receipt or delivery; and
(i) Obtain and perfect first priority security interests on all merchandise
sold on credit and, in the case of Account Debtors who are subject to
the Bankruptcy Code, to the extent Borrower accepts payment from such
Account Debtor, with respect to obligations incurred prior to the
Account Debtor becoming subject to the Bankruptcy Code, require
compliance with respect to Bankruptcy Code Section 524(c) thereunder.
(j) Permit representatives of Lender, from time to time, as often as may be
reasonably requested, to visit and inspect all properties of Borrower
for all reasonable purposes to protect the interests, financial or
otherwise, of the Lender under the Loan Documents.
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<PAGE> 27
10.2 NEGATIVE COVENANTS. Without Lender's prior written consent, which
Lender may or may not in its sole discretion give, Borrower covenants
that it shall not:
(a) Merge or consolidate with or acquire any Person;
(b) Make any investment other than in the ordinary course of its business;
(c) Declare or pay dividends upon any of its capital stock or make any
distributions of its property or assets; provided that a Subsidiary may
declare or pay dividends upon its stock to Borrower;
(d) Redeem, retire, purchase or otherwise acquire, directly or indirectly,
any of its capital stock, or make any material change in its capital
structure or in any of its business objectives, purposes and operations
which might in any way adversely affect the repayment of the
Obligations;
(e) Enter into, or be a party to, any transaction with any Affiliate,
except in the ordinary course of and pursuant to the reasonable
requirements of its business and upon fair and reasonable terms which
are fully disclosed to Lender and are no less favorable than would be
obtained in a comparable arm's length transaction with a Person not an
Affiliate;
(f) Guarantee or otherwise, in any way, become liable with respect to the
obligations or liabilities of any Person except (i) its Affiliates'
obligations to Lender and (ii) by endorsement of instruments or items
of payment for deposit to its general account or for delivery to Lender
on account of the Obligations;
(g) Except as otherwise expressly permitted in the Loan Documents or with
respect to Permitted Sale Assets, encumber, pledge, mortgage, grant a
security interest in, assign, sell (except for the sale of inventory
and property in the ordinary course of business), lease or otherwise
dispose of or transfer, whether by sale, merger, consolidation,
liquidation, dissolution, or otherwise, any of its assets; provided,
however, that the terms and conditions of any of the foregoing actions
with respect to Permitted Sale Assets must be satisfactory to Lender
and the proceeds thereof must be applied in accordance with PARAGRAPH
5(a);
(h) Make any loans or advances of money to any Person (other than
intercompany loans between Borrower and Borrowing Subsidiaries),
including, without limitation, its employees or Affiliates (other than
salary and routine travel or expense account advances made in the
ordinary course of business) or permit the annual salary and bonus,
including any stock option or incentive plans, to its officers to
exceed the amounts set forth in SCHEDULE 10.2(H) except as such amounts
and all other direct and indirect remuneration may be adjusted for cost
of living increases, without the prior written consent of Lender;
(i) Make Capital Expenditures (including Capital Leases) during any Fiscal
Year, which, in the aggregate, exceed $2,000,000;
(j) Remove its books and records and/or the Collateral from the locations
set forth in SCHEDULE 9.1(H) or keep any of such books and records
and/or the Collateral at any other office(s) or location(s) unless (i)
it gives Lender written notice thereof and of the new location of said
books and records and/or the Collateral at least thirty (30) days prior
thereto and (ii) the other office or location is within the continental
United States of America;
(k) Create, incur, assume or have outstanding any Indebtedness, except: (i)
Indebtedness owing to Lender; (ii) Indebtedness incurred prior to the
Filing Date; or (iii) Indebtedness incurred by it subsequent to the
Filing Date in the ordinary course of business and in accordance with
the Budget;
(l) Create or permit any Lien on any of its properties or assets except:
(i) presently existing or hereinafter created Liens in favor of Lender;
and (b) Permitted Liens;
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<PAGE> 28
(m) Create any new Subsidiaries or permit any Subsidiary to incur
Indebtedness or other fixed or contingent obligations of more than
$10,000 in any Fiscal Year;
(n) Make any payment of any part or all of any Subordinated Debt or take
any action or omit to take any action in respect of any Subordinated
Debt, except in accordance with the agreements existing as of the date
hereof giving rise to such Subordinated Debt, which agreements have
been provided to the Lender and shall not be amended, modified or
altered in any manner without the prior written consent of the Lender;
(o) Incur, create, assume, suffer or exist or permit any other
Superpriority Claim which is PARI PASSU with or senior to the claims of
the Lender against the Borrower hereunder, except for the Carve-Out, or
apply to the Bankruptcy Court for the authority to do so;
(p) File, support or endorse any Reorganization Plan that does not provide
for the immediate and full payment of the Obligations upon confirmation
unless Lender has given prior written consent to any such plan;
(q) Engage in any business other than the business in which it is currently
engaged or a business reasonably related thereto;
(r) Close any stores operated by Borrower except as set forth on SCHEDULE
10.2(R) without Lender's consent, which consent shall not be
unreasonably withheld or delayed;
(s) Open any new retail stores without Lender's consent, which consent
shall not be unreasonably withheld;
(t) Amend the G.E. Capital Agreement.
10.3 FINANCIAL COVENANTS.
(a) Borrower shall continuously operate its business in full compliance
with its Budget as provided to, and approved by, Lender.
(b) Borrower shall maintain the minimum ratio of Inventory (valued in
accordance with GAAP at the lower of cost, calculated on a first-in,
first-out basis, or market) to post-petition trade payables specified
below for each of the following periods:
WEEK ENDING RATIO
----------- -----
March 3, 2000 3.52 to 1.00
March 31, 2000 2.65 to 1.00
April 28, 2000 3.50 to 1.00
10.4 PAYMENT OF CHARGES AND CLAIMS.
(a) If Borrower, at any time or times hereafter, shall fail to pay the
Charges when due or promptly obtain the discharge of such Charges or of
any Lien against the Collateral, subject to the provisions of PARAGRAPH
10.4(b) below, Lender may, without waiving or releasing any obligation
or liability of Borrower hereunder or any Event of Default, in its sole
discretion, at any time or times thereafter, make such payment, or any
part thereof, or obtain such discharge and take any other action with
respect thereto which Lender deems advisable. All sums so paid by
Lender and any expenses, including reasonable attorneys' fees, court
costs, expenses and other charges relating thereto, shall be payable,
upon demand, by Borrower to Lender and shall be additional Obligations
hereunder secured by the Collateral.
(b) Borrower may in good faith contest, by proper legal actions or
proceedings, the validity or amount of any Charges or claims, and
provided it gives Lender advance notice of its intention to contest the
validity or amount of any such Charge or claim, Lender will forebear
from making any payment or otherwise obtaining the discharge of such
Charge or claim if at the time of the commencement of any such action
or proceeding,
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<PAGE> 29
and during the pendency thereof (i) no Event of Default shall have
occurred and be continuing, (ii) reserves with respect thereto are
maintained on the books of Borrower in an amount acceptable to Lender,
(iii) such contest operates to suspend collection of the contested
Charges or claims and is maintained and prosecuted continuously with
diligence, (iv) none of the Collateral will be subject to forfeiture or
loss of any Lien in favor of Lender by reason of the institution or
prosecution of such contest, (v) no Lien shall exist for such Charges
or claims during such action or proceeding, (vi) Borrower shall
promptly pay or discharge such contested Charges and all additional
charges, interests, penalties and expenses, if any, and shall deliver
to Lender evidence acceptable to Lender of such compliance, payment or
discharge, if such contest is terminated or discontinued adversely to
Borrower, and (vii) Lender has not advised Borrower in writing that
Lender reasonably believes that non-payment or non-discharge thereof
would have a Material Adverse Effect.
11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT.
11.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an "EVENT OF DEFAULT".
(a) Borrower fails to pay the Obligations when due and payable or declared
due and payable;
(b) Lender notifies Borrower that the outstanding balance of the Advances
exceeds the limitation set forth under PARAGRAPH 2.1(a) and such
condition is not corrected within two (2) Business Days after such
notice;
(c) Borrower fails or neglects to perform, keep or observe any of the
provisions of PARAGRAPHS 10.2 AND 10.3;
(d) Borrower or any Affiliate fails to perform, keep or observe any other
term, provision, condition, covenant, warranty or representation
contained in the Loan Documents, which is required to be performed,
kept or observed by Borrower or any Affiliate, and such failure is not
cured to Lender's satisfaction within fifteen (15) days after the
sooner to occur of the Borrower's receipt of notice of such failure
from Lender or the date on which such failure becomes known to any
officer of Borrower but provided such failure is capable of being cured
within such 15 day period;
(e) A default shall occur under any agreement, document or instrument,
other than the Loan Documents, to which Borrower is a party, the
consequences of which could have a Material Adverse Effect;
(f) Any statement, report, financial statement or certificate made or
delivered by Borrower, or any of its officers, employees or agents, to
Lender is untrue, incomplete or incorrect in any material respect;
(g) There shall occur any material uninsured damage to, or loss, theft, or
destruction of, any of the Collateral in excess of $50,000 in the
aggregate;
(h) The Collateral or any other assets of Borrower are attached, seized,
levied upon or subjected to a writ or distress warrant, or come within
the possession of any receiver, trustee, custodian or assignee for the
benefit of creditors and the same is not cured within forty-five (45)
days thereafter; an application is made by any Person, other than
Borrower, for the appointment of a receiver, trustee, or custodian for
any assets of Borrower and the same is not dismissed within forty-five
(45) days after the application therefor;
(i) The filing of any plan of reorganization with respect to the Case which
does not provide for payment in cash in full of the Obligations on or
before the effective date of such plan;
(j) Borrower ceases to conduct its business as now conducted or is
enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business affairs; a petition
under any section or chapter of the Bankruptcy Code and such
injunction, restraint or petition is not dismissed within forty-five
(45) days after the entry or filing thereof;
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<PAGE> 30
(k) A notice of lien, levy or assessment is filed of record with respect to
all or any assets of Borrower by the United States, or any department,
agency or instrumentality thereof, or by any state, county, municipal
or other governmental agency, including, without limitation, the
Pension Benefit Guaranty Corporation, or if any taxes or debts owing at
any time or times hereafter to any one of these becomes a lien or
encumbrance upon any assets of Borrower and the same is not released
within thirty (30) days after the same becomes a lien or encumbrance;
provided that Borrower shall have the right to contest in good faith
and by appropriate proceedings any such lien, levy or assessment if
Borrower provides Lender with a bond or indemnity satisfactory to
Lender assuring the payment of such lien, levy or assessment;
(l) Borrower fails to (i) furnish Lender, within fifteen (15) days
thereafter, with written notice upon the occurrence of any of the
following events: (a) the happening of a Reportable Event with respect
to any pension plan governed by ERISA, (b) the termination of any such
plan, (c) the appointment of a trustee by an appropriate United States
District Court to administer any such plan, or (d) the institution of
any proceedings by the Pension Benefit Guaranty Corporation to
terminate any such plan or to appoint a trustee to administer any such
plan; or (ii) notify Lender promptly upon receipt of any notice of the
institution of any proceeding or other action which may result in the
termination of such plan;
(m) Any judgment or order as to a post-petition liability or debt for the
payment of money in excess of $25,000 shall be rendered against the
Borrower and the enforcement thereof shall not have been stayed;
(n) Any non-money judgment or order with respect to a post-petition event
shall be rendered against the Borrower which does or would reasonably
be expected to (i) cause a material adverse change in the financial
condition, business prospects, operations or assets of the Borrower,
(ii) have a material adverse effect on the ability of the Borrower to
perform its obligations under any Loan Document, or (iii) have a
material adverse effect on the rights and remedies of the Lender under
any Loan Document, and there shall be any period of 10 consecutive days
during which a stay of enforcement of such judgment or order, by reason
of a pending appeal or otherwise, shall not be in effect;
(o) Except as permitted by the Orders, the Borrower shall make any
Pre-Petition Payment other than Pre-Petition Payments authorized by the
Bankruptcy Court and as provided for in the Budget;
(p) Any Change of Control shall occur with respect to Borrower;
(q) The Bankruptcy Case shall be dismissed or converted to a case under
Chapter 7 of the Bankruptcy Code; a trustee under Chapter 7 or Chapter
11 of the Bankruptcy Code, a responsible officer or an examiner with
enlarged powers relating to the operation of the business (powers
beyond those set forth in Section 1106(a)(3) and (4) of the Bankruptcy
Code) under Section 1106(b) of the Bankruptcy Code shall be appointed
in the Bankruptcy Case and the order appointing such trustee,
responsible officer or examiner shall not be reversed or vacated within
30 days after the entry thereof; or an application shall be filed by
the Borrower for the approval of any other Superpriority Claim (other
than the Carve-Out) in the Bankruptcy Case which is PARI PASSU with or
senior to the claims of the Lender against the Borrower, or there shall
arise or be granted any such PARI PASSU or senior Superpriority Claim;
(r) The Bankruptcy Court shall enter an order or orders granting relief
from the automatic stay applicable under Section 362 of the Bankruptcy
Code to the holder or holders of any security interest to permit
foreclosure (or the granting of a deed in lieu of foreclosure or the
like) on any assets of the Borrower which have a value in excess of
$50,000;
(s) An order of the Bankruptcy Court shall be entered reversing, amending,
supplementing, staying for a period in excess of 10 days, vacating or
otherwise modifying either of the Orders;
(t) Any judgment or order as to a post-petition liability or debt for the
payment of money in excess of $50,000 shall be rendered against the
Borrower and the enforcement thereof shall not have been stayed;
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<PAGE> 31
(u) Any event shall have occurred and be continuing which could reasonably
be expected to have a Material Adverse Effect;
(v) The failure of Borrower, for any reason, to maintain at all times and
materially comply with the terms of the G.E. Capital Agreement;
(w) The occurrence of any of the foregoing Events of Default with respect
to any guarantor of the obligations; or
(x) The termination or attempted termination of any guaranty of the
Obligations.
11.2 ACCELERATION OF THE OBLIGATIONS. Upon the occurrence of an Event of
Default, all of the Obligations may, at the option of Lender and
without demand, notice, or legal process of any kind, including without
further order of or application to the Bankruptcy Court, be declared,
and immediately shall become, due and payable and upon notice to the
Borrower (with a copy to counsel for the Official Creditors' Committee
appointed in the Case and the United States Trustee for the Southern
District of Ohio, Western Division); Lender shall have the following
rights and remedies without further order of or application to the
Bankruptcy Court:
(a) The right to terminate the financing arrangements under the Loan
Documents;
(b) In addition to any other rights and remedies contained in the Loan
Documents, all of the rights and remedies under all applicable law and
all of the rights and remedies of a secured party under the Bankruptcy
Code, the UCC or other applicable law, all of which rights and remedies
shall be cumulative and non-exclusive, to the extent permitted by law,
and may be exercised, in the Lender's discretion, alternatively,
successively, or concurrently on any one or more occasions and shall
include, without limitation, the right to apply to a court of equity
for an injunction to restrain a breach or threatened breach by Borrower
of this Agreement or any of the other Loan Documents. Lender may, at
any time or times, proceed directly against Borrower or any obligor to
collect the Obligations without prior recourse to the Collateral.;
(c) The right to open Borrower's mail and collect any and all amounts due
the Borrower from Account Debtors;
(d) The right to (i) enter upon the premises of Borrower, without any
obligation to pay rent to Borrower, through self-help and without
judicial process, without first obtaining a final judgment or giving
Borrower notice and opportunity for a hearing on the validity of
Lender's claim, or any other place or places where the Collateral is
located and kept, and remove the Collateral therefrom to the premises
of Lender or any agent of Lender, for such time as Lender may desire,
in order to effectively collect or liquidate the Collateral, or (ii)
require the Borrower, at its expense, to assemble the Collateral and
make it available to Lender at a place to be designated by Lender, in
its sole discretion;
(e) The right to (i) sell or to otherwise dispose of all or any Collateral
at public or private sale or sales, with such notice as may be required
by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable; (ii) adjourn such sales from
time to time with or without notice; (iii) conduct such sales on
Borrower's premises or elsewhere and use Borrower's premises without
charge for such sales for such time or times as Lender may see fit;
provided, however, with respect to the disposition of any Collateral,
Lender shall provide Borrower (with a copy to counsel to the Official
Creditors' Committee in the Case and the United States Trustee for the
Southern District of Ohio, Western Division) with five (5) Business
Days written notice prior to taking the action contemplated thereby.
Lender is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks and advertising matter, or
any property of a similar nature, as it pertains to the Collateral, in
advertising for sale and selling any Collateral and Borrower's rights
under all licenses and all franchise agreements shall inure to Lender's
benefit. Lender shall have the right to sell, lease or otherwise
dispose of the Collateral, or any part thereof, for cash, credit or any
combination thereof, and Lender may purchase all or any part of the
Collateral at public or, if permitted by law, private sale and, in lieu
of actual payment of such purchase price, may setoff the amount of such
price against the Obligations. The proceeds realized from the sale of
any Collateral shall be applied first to the reasonable costs, expenses
and attorneys' fees and expenses incurred by
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<PAGE> 32
Lender for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; second to
interest due upon any of the Obligations; and third to the principal of
the Obligations; provided, however, that if applicable law requires
otherwise, such proceeds shall be applied in the order applicable law
requires. If any deficiency shall arise, the Borrower shall remain
liable to Lender therefor with interest at the highest rate provided
for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
11.3 NOTICE. Any notice required to be given by Lender of a sale, lease,
other disposition of the Collateral or any other intended action by
Lender, if given ten (10) days prior to such proposed action, shall
constitute commercially reasonable and fair notice thereof to Borrower.
11.4 MARSHALLING; PAYMENTS SET ASIDE. Lender shall be under no obligation to
marshall any assets in favor of Borrower or any other party or against
or in payment of any or all of the Obligations. To the extent that
Borrower makes a payment or payments to Lender or Lender enforces its
security interests or exercises its rights of set-off, and such payment
or payments or the proceeds of such enforcement or set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set-aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then to the extent of such
recovery, the Obligations or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or set-off had not
occurred.
12. CONDITIONS PRECEDENT.
This Agreement shall become effective upon the satisfaction of the following
conditions precedent:
12.1 EXCESS REVOLVING LOAN AVAILABILITY. Lender shall have determined, in
its sole discretion, that immediately after Lender has made the Loans
and Advances to Borrower contemplated hereby, Excess Availability will
not be less than $5,000,000 on a pro forma basis deeming all debt
(post-petition and critical allowed pre-petition) current.
12.2 FINANCIAL STATEMENTS. Lender shall have received and reviewed with
Borrower's independent certified public accountants a draft of the
audited consolidated financial statements of Borrower and any
Subsidiaries as of December 31, 1998, and such financial statements
shall be satisfactory to Lender in its sole discretion.
12.3 EXECUTION AND DELIVERY OF AGREEMENT. This Agreement or counterparts
thereof shall have been duty executed by, and delivered to Borrower and
Lender.
12.4 LOAN DOCUMENTS. Lender shall have received all of the following, each
in form and substance satisfactory to Lender:
(a) The Notes;
(b) A Certificate of the Secretary of Borrower, together with true and
correct copies of the Articles or Certificate of Incorporation and
By-Laws of Borrower, and all amendments thereto, and correct copies of
the resolutions of the Board of Directors of Directors of Borrower
authorizing or ratifying the execution, delivery and perform of the
Loan Documents to be executed by Borrower, and the names of the officer
or officers of Borrower authorized to sign said documents, together
with a sample of true signature of each such officer;
(c) The Opinion of Pickrel, Schaeffer & Ebeling, LPA, addressed to Lender,
in the form of EXHIBIT B attached hereto and made a part hereof;
(d) Articles or Certificate of Incorporation of Borrower, certified by the
Secretary of State of the jurisdiction of incorporation of Borrower;
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<PAGE> 33
(e) Good Standing Certificates for Borrower from the Secretaries of State
of each state in which Borrower is authorized to do business;
(f) UCC lien search reports of filings against Borrower and each Subsidiary
and tax lien and judgment searches relating thereto for such
jurisdictions as Lender deems appropriate;
(g) UCC financing statements filed against Borrower and Subsidiary in
respect to the locations listed in PARAGRAPH 9.1 (h);
(h) Collateral Assignment of Patents, Copyright, Trademarks (Security
Agreement) respecting those copyrights, patents, trademarks, trade
names and all related applications, licenses and such other materials
as described on SCHEDULE 9.1(r);
(i) Pledge Agreement in favor of Lender with respect to the pledge by
Borrower of all issued and outstanding capital stock of Roberd
Insurance Agency, Inc., in form and substance satisfactory to Lender;
(j) A letter from Borrower to its independent certified public accountant
advising that Borrower intends Lender to rely on the opinions and
reports of such accountants described in PARAGRAPH 10.1(a)(i), (ii) AND
(iii);
(k) Agreements with all financial institutions which Borrower maintains an
account regarding Lender's rights in such accounts, in form and
substance satisfactory to the Lender and an agreement with G.E. Capital
in form and substance satisfactory to Lender, which provides for the
transfer of all amounts due Borrower to be deposited to the Blocked
Account;
(l) Appraisals of the Inventory prepared by The Buxbaum Group;
(m) Originals or copies of each policy of insurance, and evidence of
payment of all premiums therefor, together with a properly executed
Lender's Loss Payee Endorsement;
(n) A guarantee from Roberd Insurance Agency, Inc. in favor of Lender in
form and substance satisfactory to Lender;
(o) Pay-off letters and releases and UCC termination statements with
respect to any and all existing liens and encumbrances affecting the
Collateral other than Permitted Liens;
(p) Any other Loan Documents and such additional materials as Lender may
reasonably request.
12.5 ABSENCE OF MATERIAL ADVERSE CHANGE. As of the date hereof, other than
commencement of the Bankruptcy Case and these events which customarily
lead up to or follow the commencement of a proceeding under Chapter 11
of the Bankruptcy Code and the commencement of the Bankruptcy Case,
since December 31, 1998, there shall have been (i) no material adverse
change in the business, financial or other condition of Borrower or
their Subsidiaries or in the Collateral or in the prospects or
projections of Borrower and its Subsidiaries, (ii) no material increase
in the Indebtedness of Borrower or any Subsidiary, whether or not
disclosed or required to be reserved against on any pro forma balance
sheet, and (iii) no material decrease in the assets of Borrower or its
Subsidiaries nor any distribution by any Subsidiary either by dividends
or otherwise, except such distributions as would be permitted by
PARAGRAPH 10.2 hereof. As of the date hereof, no litigation other than
the Bankruptcy Case against Borrower or any of its Subsidiaries shall
have been commenced or threatened which, if successful, would be
materially adverse thereto or challenge any transaction contemplated by
this Agreement, and the financing contemplated by this Agreement would
not violate any agreement of Borrower or any of its Subsidiaries or any
law, statute, court order, administrative rule or regulation by which
such Party are bound. The Borrower and the Subsidiaries shall have paid
their Indebtedness in accordance with good business and historical
practices. As of the date hereof, no Default or Event of Default shall
exist.
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12.6 INTERIM ORDER. At the time of the making of the initial Loans or at the
time of the issuance of the initial Letters of Credit whichever first
occurs, the Lender shall have received a certified copy of an order of
the Bankruptcy Court in substantially the form of EXHIBIT D (the
"INTERIM ORDER") approving the Loan Documents and granting of the
Superpriority Claim status and liens described herein which (i) shall
have been entered upon an application of the Borrower satisfactory in
form and substance to the Lender, on no less than two (2) days' prior
notice to the twenty (20) largest unsecured creditors of the Borrower,
(ii) shall be in full force an effect, and (iii) shall not have been
stayed, reversed, modified or amended in any respect and, if the
Interim Order is the subject of a pending appeal in any respect,
neither the making of such Loans nor the issuance of such Letters of
Credit nor the performance by the Borrower of any of its obligations
hereunder or under the Loan Documents or under any other instrument or
agreement referred to herein shall be the subject of presently
effective stay pending appeal.
12.7 APPROVAL OF LOAN DOCUMENTS. Each of the Loan Documents shall have been
approved by the Bankruptcy Court in an order or orders acceptable to
Lender
12.8 G.E. CAPITAL AGREEMENT. The G.E. Capital Agreement shall be in full
force and effect in the form provided to the Lender.
12.9 CONDITIONS TO THE INITIAL ADVANCE AND TO THE ISSUANCE OF THE INITIAL
LETTER OF CREDIT. It shall be a condition to the initial Advance and to
the issuance of the initial Letter of Credit that the conditions
contained in paragraphs 12.1, 12.2, 12.3, 12.4, 12.5, 12.6, 12.7 and
12.8 shall have been fulfilled and that Borrower shall have delivered
to Lender a Borrowing Base Certificate (as of the day immediately
preceding the day of the requested initial Advance or issuance of the
initial Letter of Credit).
12.10 CONDITIONS TO EACH ADVANCE AND THE ISSUANCE OF EACH LETTER OF CREDIT.
It shall be a further condition to the funding of each initial Advance
and each subsequent Advance after the initial Advance and the issuance
of the initial Letter of Credit and each subsequent Letter of Credit
that the following statements shall be true on the date of each such
advance or issuance:
(a) All of the representations and warranties of Borrower contained in the
Loan Documents shall be correct in all material respects on and as of
the date of each such Advance and the issuance of each such Letter of
Credit as though made on and as of such date, except (i) to the extent
that any such representation or warranty expressly relates to an
earlier date, and (ii) for changes therein permitted or contemplated by
this Agreement.
(b) No event shall have occurred and be continuing, or would result from
the funding of the Advance or the issuance of such Letter of Credit,
which constitutes or would constitute a Default or an Event of Default.
(c) The sum of the aggregate unpaid principal amount of all Advances plus
the outstanding Letter of Credit Obligations, after giving effect to
such Advance or the issuance of such Letter of Credit, shall not exceed
the lesser of (i) the Borrowing Base or (ii) the Revolving Loan
Commitment.
(d) ORDERS. The Interim Order shall be in full force and effect and shall
not have been stayed, reversed, modified or amended in any respect,
PROVIDED, that at the time of the making of any Loan or the issuance of
any Letter of Credit the aggregate amount of either of which, when
added to the sum of the principal amount of all Loans then outstanding
and the Letter of Credit would exceed the amount thereof which was
authorized by the Bankruptcy Court in the Interim Order (collectively,
the "ADDITIONAL CREDIT"), Lender shall have received a certified copy
of an order of the Bankruptcy Court in form and substance satisfactory
to Lender in its sole discretion (the "FINAL ORDER"), which, in any
event, shall have been entered by the Bankruptcy Court no later than 30
days after the entry of the Interim Order, and at the time of the
extension of any Additional Credit the Final Order shall be in full
force and effect, and shall not have been stayed, reversed, modified or
amended in any respect; and if either the Interim Order or the Final
Order is the subject of a pending appeal in any respect, neither the
making of the Loans nor the issuance of any Letter of Credit nor the
performance by the Borrower of any of its obligations under any of the
Loan Documents shall be the subject of a presently effective stay
pending appeal.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 119 of 128
<PAGE> 35
The acceptance by Borrower of the proceeds of any Advance shall be deemed to
constitute, as of the date of such acceptance, (i) a representation and warranty
by Borrower that the conditions in this PARAGRAPH 12.10 have been satisfied, and
(ii) a confirmation by Borrower of the granting and continuance of Lender's Lien
pursuant hereto.
13. INDEMNIFICATION. Borrower agrees to defend (with counsel reasonably
satisfactory to Lender), protect, indemnify and hold harmless (to the fullest
extent permitted by law) Lender, each affiliate or subsidiary of Lender, and
each of their respective officers, directors, employees, attorneys, agents and
attorneys-in-fact (each an "Indemnified Party") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, reasonable costs, expenses and disbursements of any kind or nature
(including, without limitation, the disbursements and the reasonable fees of
counsel for each Indemnified Party in connection with any investigative,
administrative or judicial proceeding, whether or not the Indemnified Party
shall be designated a party thereto), which may be imposed on, incurred by, or
asserted against, any Indemnified Party (whether direct, indirect or
consequential and whether based on any federal, state or local laws or
regulations including, without limitation, securities, environmental and
commercial laws and regulations, under common law or in equity, or based on
contract or otherwise) in any manner relating to or arising out of the
execution, delivery, enforcement, performance and administration of any Loan
Document, or any act, event, transaction or omission, related or attendant
thereto, the making and the management of the Loans or any Letters of Credit or
the use or intended use of the proceeds of the Loans or any Letters of Credit
and with respect to any investigation, litigation or proceeding related to the
Loan Documents; provided, however, that Borrower shall not have any obligation
hereunder to any Indemnified Party with respect to matters caused by or
resulting from the willful misconduct or gross negligence of such Indemnified
Party. To the extent that the undertaking to indemnify set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, Borrower shall satisfy such undertaking to the maximum extent
permitted by applicable law. Any liability, obligation, loss, damage, penalty,
cost or expense covered by this indemnity shall be paid to each Indemnified
Party on demand, and, failing prompt payment, shall, together with interest
thereon at the highest rate then applicable to Advances hereunder from the date
incurred by each Indemnified Party until paid by Borrower, be added to the
Obligations of Borrower and be secured by the Collateral. The provisions of this
PARAGRAPH 13 shall survive the satisfaction and payment of the Obligations and
the termination of this Agreement.
14. MISCELLANEOUS
14.1 MODIFICATION OF AGREEMENT; SALE OF INTEREST. The Loan Documents may not
be modified, altered or amended, except by an agreement in writing
signed by Borrower and Lender. Borrower may not sell, assign or
transfer the Loan Documents or any portion thereof, including, without
limitation, their rights, title, interests, remedies, powers, and/or
duties hereunder or thereunder. Borrower hereby consents to Lender's
participation, sale, assignment, transfer or other disposition, at any
time or times hereafter, of the Loan Documents, or of any portion
hereof or thereof, including, without limitation, Lender's rights,
title, interests, remedies, powers, and/or duties hereunder or
thereunder.
14.2 EXPENSES (INCLUDING ATTORNEYS' FEES). Borrower shall reimburse Lender
on demand for all of its reasonable expenses (including, but not
limited to, reasonable attorneys' fees) of, or incidental to:
(a) The preparation of, amendment of, modification of, or enforcement of
the Loan Documents;
(b) Any litigation, contest, dispute, suit, proceeding or action (whether
instituted by Lender, Borrower or any other Person) in any way relating
to the Collateral, the Loan Documents or Borrower's affairs;
(c) Any Default or Event of Default or advice or any action in connection
with any Default or Event of Default, or any attempt to enforce any
rights of Lender or any participant or assignee of Lender against
Borrower or any other Person which may be obligated to Lender by virtue
of the Loan Documents, including, without limitation, the Account
Debtors;
(d) Any attempt to inspect, verify, protect, collect, sell, liquidate or
otherwise dispose of the Collateral; and/or
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 120 of 128
<PAGE> 36
(e) Examination of Borrower's books and records and the Collateral,
including auditor fees and monitoring fees plus expenses.
Such expenses shall be additional Obligations hereunder secured by the
Collateral. Without limiting the generality of the foregoing, such expenses,
costs, charges and fees may include: paralegal fees, costs and expenses;
accountants' fees, costs and expenses; court costs and expenses; photocopying
and duplicating expenses; court reporter fees, costs and expenses; long distance
telephone charges; air express charges; telegram charges; secretarial over-time
charges; and expenses for travel, lodging and food.
14.3 WAIVER BY LENDER. Lender's failure, at any time or times hereafter, to
require strict performance by Borrower of any provision of this
Agreement shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance. Any suspension
or waiver by Lender of an Event of Default by Borrower under the Loan
Documents shall not suspend, waive or affect any other Event of Default
by Borrower under the Loan Documents, whether the same is prior or
subsequent thereto and whether of the same or of a different type. None
of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in the Loan Documents and no
Event of Default by Borrower under the Loan Documents shall be deemed
to have been suspended or waived by Lender, unless such suspension or
waiver is by an instrument in writing signed by an officer of Lender
and directed to Borrower specifying such suspension or waiver.
14.4 SEVERABILITY. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under
applicable law. If, however, any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining
provisions of this Agreement, unless the ineffectiveness of such
provision materially and adversely alters the benefits accruing to
either party hereunder.
14.5 PARTIES. The Loan Documents shall be binding upon and inure to the
benefit of the successors and assigns of Borrower. This provision,
however, shall not be deemed to modify PARAGRAPH 14.1 hereof.
14.6 INTENTIONALLY OMITTED.
14.7 CONFLICT OF TERMS. The Other Agreements and all Schedules and Exhibits
hereto are incorporated in this Agreement by this reference thereto.
Except as otherwise provided in this Agreement and except as otherwise
provided in the Other Agreements by specific reference to the
applicable provision of this Agreement, if any provision contained in
this Agreement is in conflict with, or inconsistent with, any provision
in the Other Agreements, the provision contained in this Agreement
shall govern and control.
14.8 WAIVERS BY BORROWER. Except as otherwise provided for in this
Agreement, Borrower waives (i) presentment, demand and protest and
notice of presentment, protest, default, non-payment, maturity,
release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, contract rights, documents, instruments,
chattel paper and guarantees at any time held by Lender on which
Borrower may in any way be liable and hereby ratifies and confirms
whatever Lender may do in this regard; (ii) all rights to notice of a
hearing prior to Lender's taking possession or control of, or to
Lender's reply, attachment or levy upon, the Collateral or any bond or
security which might be required by any court prior to allowing Lender
to exercise any of Lender's remedies; and (iii) the benefit of all
valuation, appraisement and exemption laws. Borrower acknowledges that
it has been advised by counsel with respect to this Agreement and the
transactions evidenced by this Agreement.
14.9 REMEDIES. Lender's rights and remedies under this Agreement shall be
cumulative and nonexclusive of any other rights and remedies which
Lender may have under any other agreement, including without
limitation, the Other Agreements, by operation of law or otherwise.
Recourse to the Collateral shall not be required.
14.10 POWER OF ATTORNEY. Borrower acknowledges and agrees that its
appointment of Lender as its attorney and agent-in-fact for the
purposes specified in this Agreement is an appointment coupled with an
interest and shall be irrevocable until all of the Obligations are paid
in full and this Agreement is terminated.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 121 of 128
<PAGE> 37
14.11 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION
RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,
THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT
OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER
THE LOAN DOCUMENTS.
14.12 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY LOAN
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE
PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS
OF THE UNITED STATES OF AMERICA. BORROWER AND LENDER AGREE THAT ALL
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL
BE TRIED AND LITIGATED ONLY IN THE BANKRUPTCY COURT. EACH OF THE
BORROWER AND LENDER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE
LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS
BROUGHT IN ACCORDANCE WITH THIS SECTION 14.12.
14.13 NOTICE. Except as otherwise provided herein, any notice or demand
which, by the provisions hereof, is required or which may be given to
or served upon Borrower shall be in writing and, if by telecopy, shall
be deemed to have been validly served, given or delivered when
transmitted and confirmed by telecopy answerback, if by personal
delivery, shall be deemed to have been validly served, given or
delivered upon actual delivery, if by overnight air courier, shall be
deemed to have been validly served, given or delivered one (1) Business
Day after delivery to the overnight air courier, and, if mailed, shall
be deemed to have been validly served, given or delivered three (3)
Business Days after deposit in the United States mails, as registered
or certified mail, with proper postage prepaid and addressed to the
party to be notified, at the following addresses (or such other
addressees) as a party may designate for itself by like notice:
H. If to Lender,
Jackson National Life Insurance Company
c/o PPM Finance, Inc.
225 West Wacker Drive
Chicago, Illinois 60603
Attention: Mr. Martin Battaglia
Telecopier No.: (312) 634-0815
with a copy to:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Gloria J. Frank, Esq.
Telecopier No.: (212) 278-1733
If to Borrower,
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 122 of 128
<PAGE> 38
By Courier:
Roberds, Inc.
1100 E. Central Avenue
Dayton, Ohio 45449
Attention: Mr. Robert M. Wilson
Telecopier No.: (937) 859-6291
or
By Mail:
Roberds, Inc.
P.O. Box 8729
Dayton, Ohio 45401-8729
Attention: Mr. Robert M. Wilson
Telecopier No.: (937) 859-6291
with a copy to:
Arter & Hadden LLP
10 West Broad Street
Columbus, Ohio 43215-3422
Attention: Nick V. Cavalieri, Esq.
Telecopier No.: (614) 221-0479
14.14 PARAGRAPH TITLES. The paragraph titles contained in this Agreement are
and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties
hereto.
14.15 ENTIRE AGREEMENT. The Loan Documents set forth the entire agreement of
the parties hereto with respect to the matters addressed herein and
therein, and the Loan Documents supersede all prior written or oral
agreements, documents or instruments respecting such matters.
14.16 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an
original and all of which counterparts taken together shall constitute
but one and the same instrument.
14.17 NO LENDER LIABILITY. Lender shall not have any liability to Borrower
(whether in tort, contract, equity or otherwise) for losses suffered by
Borrower in connection with, arising out of, or in any way related to
the transactions or relationships contemplated by this Agreement, or
any act, omission or event occurring in connection herewith, unless it
is determined by a final and non-appealable judgment or court order
binding on Lender, that the losses were the result of acts or omissions
constituting gross negligence or willful misconduct. In any such
litigation, Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 123 of 128
<PAGE> 39
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year
specified at the beginning hereof.
JACKSON NATIONAL LIFE INSURANCE COMPANY
By: PPM Finance, Inc., Attorney-in-Fact
By: /s/ James Gurgone
------------------------
Name: James Gurgone
Title: Vice President
ROBERDS, INC., debtor and debtor-in-possession
By: /s/ Robert M. Wilson
---------------------
Name: Robert M. Wilson
Title: President
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 124 of 128
<PAGE> 40
LIST OF SCHEDULES
Schedule 1.1(b) Information Certificate
Schedule 1.1(c) Permitted Sale Assets
Schedule 9.1(b) Permitted Liens
Schedule 9.1(c) Material Contracts
Schedule 9.1(e) Real Property Leases in Default
Schedule 9.1(h) List of all Borrower locations including
executive offices, other offices and where
all Collateral is kept.
Schedule 9.1(j) List of additional names under which
Borrower has conducted business during
past 5 years
Schedule 9.1(o)(1) Consolidated Financials statements of
Borrower
Schedule 9.1(o)(2) Legal Actions and Proceedings and
Indebtedness
Schedule 9.1(r) List of Intellectual Property Rights
Schedule 9.1(s) List of Owned and Leased Property
Schedule 9.1(v) Environmental
Schedule 10.2(h) Salary of Employees, Outstanding Company
Loans
Schedule 10.2(r) Stores to be Closed
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 125 of 128
<PAGE> 41
LIST OF EXHIBITS
Exhibit A Form of Note for Revolving Loan
Exhibit B Form of Opinion of Counsel
Exhibit C Intentionally Omitted
Exhibit D Interim Order
Exhibit E Intentionally Omitted
Exhibit F Budget
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 126 of 128
<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, (vii) Registration Statement No. 333-37829 of Roberds, Inc. on Form S-8 and
(viii) Registration Statement No. 333-87641 of Roberds, Inc. on Form S-8 of our
report dated February 25, 2000 (which expresses an unqualified opinion and
includes explanatory paragraphs describing uncertainties relating to bankruptcy
proceedings and matters that raise substantial doubt about the Company's ability
to continue as a going concern) appearing in this Annual Report on Form 10-K of
Roberds, Inc. for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Dayton, Ohio
February 25, 2000
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 127 of 128
<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 Christian D.
Saine, 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, 1999, 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 24th day
of February, 2000.
/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/ Howard W. Smith /s/ Donald C. Wright
- ------------------------------- ------------------------------------
Howard W. Smith Donald C. Wright
/s/ James F. Robeson /s/ Gearry D. Davenport
- ------------------------------- ------------------------------------
James F. Robeson Gearry D. Davenport
/s/ Daniel L. Thobe
- -------------------------------
Daniel L. Thobe
---------------------------------------------
ROBERDS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page 128 of 128
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,177
<SECURITIES> 0
<RECEIVABLES> 2,136
<ALLOWANCES> 370
<INVENTORY> 36,660
<CURRENT-ASSETS> 41,536
<PP&E> 129,860
<DEPRECIATION> 41,648
<TOTAL-ASSETS> 133,482
<CURRENT-LIABILITIES> 84,177
<BONDS> 29,959
0
0
<COMMON> 624
<OTHER-SE> 15,293
<TOTAL-LIABILITY-AND-EQUITY> 133,482
<SALES> 287,008
<TOTAL-REVENUES> 287,008
<CGS> 189,064
<TOTAL-COSTS> 189,064
<OTHER-EXPENSES> 111,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,991
<INCOME-PRETAX> (13,978)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,978)
<EPS-BASIC> 2.26
<EPS-DILUTED> 2.26
</TABLE>
