<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended August 2, 1997
Commission File Number 000-24328
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 47-0771211
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
12100 WEST CENTER ROAD, OMAHA, NEBRASKA 68144
(Address of principal executive offices) (zip code)
(402) 691-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Class of Common Stock Outstanding at August 2, 1997
--------------------- -----------------------------
Common Stock:
<S> <C>
Series A 19,260,000 shares
Series B Option 10,200,000 shares
</TABLE>
Page 1 of 36
Exhibit Index Appears At Page 20
<PAGE> 2
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets as of
August 2, 1997 and February 1, 1997 3
Consolidated Statements of Operations -
Three Months and Six Months Ended
August 2, 1997 and August 3, 1996 4
Consolidated Statements of Cash Flows -
Six Months Ended August 2, 1997
and August 3, 1996 5
Notes to Consolidated Financial Statements 6 - 7
Item 2 - Management's Discussion and Analysis of 8 - 16
Financial Condition and Results of
Operations
PART II - OTHER INFORMATION
Items 1-4 - None 17
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit Index 20
</TABLE>
Page 2 of 36
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
AUGUST 2, 1997 FEBRUARY 1, 1997
-------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $334,957 $388,267
Accounts receivable, less allowance for doubtful
accounts of $645,180 and $587,150. 1,048,193 782,312
Merchandise inventories 28,073,292 25,314,919
Prepaid expenses and other current assets 2,280,002 1,883,490
----------- -----------
Total current assets 31,736,444 28,368,988
PROPERTY, BUILDINGS AND EQUIPMENT, net 13,625,986 14,267,207
OTHER ASSETS 174,524 212,904
----------- -----------
$45,536,954 $42,849,099
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit borrowings $15,094,274 $7,281,732
Accounts payable 7,773,382 7,038,664
Accrued expenses 5,299,772 4,797,191
Taxes accrued and withheld 2,058,590 1,935,810
Income taxes payable 23,391 23,715
Current portion of long-term debt 4,241,892 4,537,056
Current maturities of capital lease obligations 1,346,628 1,335,379
----------- -----------
Total current liabilities 35,837,929 26,949,547
CAPITAL LEASE OBLIGATIONS, net of current portion 8,600,682 9,258,949
OTHER LONG-TERM LIABILITIES 747,958 755,080
STOCKHOLDERS' EQUITY:
Common stock
Series A common stock, $.01 par value; 19,800,000
shares authorized; 19,260,000 shares issued 192,600 192,600
Series B option common stock, $.01 par value; 10,200,000
shares authorized, issued and outstanding 102,000 102,000
Paid-in capital 4,562,886 4,562,886
Retained earnings (accumulated) (4,281,381) 1,253,757
Less: Treasury Stock, at cost, 2,565,000 shares (225,720) (225,720)
----------- -----------
Total stockholders' equity 350,385 5,885,523
----------- -----------
$45,536,954 $42,849,099
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3 of 36
<PAGE> 4
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 2, 1997 AUGUST 3 ,1996 AUGUST 2, 1997 AUGUST 3 ,1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET SALES $43,448,072 $45,771,162 $80,050,814 $87,466,035
COST OF SALES 28,036,917 29,872,510 51,991,279 57,081,666
----------- ----------- ----------- -----------
Gross Profit 15,411,155 15,898,652 28,059,535 30,384,369
OPERATING AND
ADMINISTRATIVE EXPENSE 16,397,092 18,032,119 32,088,659 35,086,263
----------- ----------- ----------- -----------
Loss from operations (985,937) (2,133,467) (4,029,124) (4,701,894)
INTEREST EXPENSE (761,926) (966,118) (1,506,015) (1,786,277)
----------- ----------- ----------- -----------
LOSS BEFORE PROVISION FOR
INCOME TAX (1,747,863) (3,099,585) (5,535,139) (6,488,171)
PROVISION FOR INCOME TAXES - - - -
----------- ----------- ----------- -----------
NET LOSS (1,747,863) (3,099,585) (5,535,139) (6,488,171)
=========== =========== =========== ===========
LOSS PER COMMON SHARE ($0.06) ($0.11) ($0.20) ($0.22)
=========== =========== =========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING 27,435,000 28,290,000 27,435,000 29,145,000
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 4 of 36
<PAGE> 5
RICHMOND GORDMAN 1/2 PRICE STORES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 2, 1997 AUGUST 3, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($5,535,139) ($6,488,171)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 1,445,578 1,583,051
Net changes in assets and liabilities:
Accounts receivable (265,882) (465,362)
Merchandise inventory (2,758,373) (5,946,428)
Prepaid expenses and other current assets (396,512) (55,280)
Other assets 13,380 (1,009,997)
Accounts payable 734,722 482,263
Other accrued expenses 712,156 1,431,086
-------------- --------------
Net cash used in operating activities (6,050,070) (10,468,838)
============== ==============
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (779,357) (512,899)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit borrowing 7,812,542 12,384,569
Payments on obligations under capitalized leases (647,018) (617,636)
Payments on secured term note (389,407) (402,000)
Purchase of Treasury Stock 0 (225,720)
Payments made under plan of reorganization 0 (220,701)
-------------- --------------
Net cash provided by financing activities 6,776,117 10,918,512
-------------- --------------
NET DECREASE IN CASH (53,310) (63,225)
CASH, Beginning of period 388,267 488,012
-------------- --------------
CASH, End of period $334,957 $424,787
============== ==============
</TABLE>
Page 5 of 36
<PAGE> 6
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. MANAGEMENT REPRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, all
adjustments necessary for a fair presentation of the results of
operations for the interim periods have been included. All such
adjustments are of a normal recurring nature. Because of the seasonal
nature of the business, results for interim periods are not necessarily
indicative of a full year's operations. The accounting policies followed
by Richman Gordman 1/2 Price Stores, Inc. and subsidiary (the "Company")
and additional footnotes are reflected in the audited consolidated
financial statements contained in the Annual Report on Form 10-K of the
Company for the fiscal year ended February 1, 1997.
2. DESCRIPTION OF BUSINESS
On October 20, 1993, the Company emerged from Chapter 11 of the United
States Bankruptcy Code pursuant to a confirmed Plan of Reorganization
(the "Plan"). The Company operated 32 1/2 Price Stores as of August 2,
1997 and August 3, 1996. The 1/2 Price primary concept is to offer first
quality, name brand merchandise priced at one-half of department and
specialty store regular prices or at half of manufacturers' suggested
retail prices.
3. MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost (on a last-in,
first-out, or LIFO basis) or market. Total inventories (and working
capital) would have been higher at August 2, 1997 and February 1, 1997,
by approximately $7,871,083 and $7,862,748, respectively, had the FIFO
(first-in, first-out) method been used to determine the cost of all
inventories. Quarterly LIFO inventory determinations reflect assumptions
regarding fiscal year-end inventory levels and the estimated impact of
annual inflation.
Page 6 of 36
<PAGE> 7
4. INCOME TAXES
As of February 1, 1997 (the Company's most recent tax year-end), the
Company had net operating loss carryforwards of approximately
$27,800,000, which expire through 2011. A valuation allowance has been
provided against this net operating loss benefit until realization of
these benefits becomes more likely than not. No income tax benefit was
recorded for the first half of fiscal 1997 and 1996 because of the
uncertainty of the realization of such benefits in the future.
5. STOCKHOLDERS' EQUITY
Should the Company fulfill its minimum obligation to the unsecured
creditors under the Plan, the Company and the former preferred
shareholder's designee have the option to purchase all or a portion of
the 10,200,000 shares of Series B Option Common Stock issued to the
unsecured creditors at a price equal to the fair value of the stock on
February 2, 1998, less the amount of any Excess Cash Balance paid to the
unsecured creditors during the term of the Plan. As of August 2, 1997
there is no excess cash paid to the unsecured creditors.
6. EARNINGS PER SHARE
Earnings per common share were calculated using weighted average common
shares outstanding for all periods presented. For purposes of the
weighted average shares outstanding, all shares to be issued to certain
members of management or to the unsecured creditors during the term of
the Plan are considered outstanding. At August 2, 1997, 540,000 of such
shares had not yet been issued.
7. ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share which specifies the computation, presentation
and disclosure requirements for earnings per share. The objective of the
statement is to simplify the computation of earnings per share. The
Company does not expect this pronouncement to have a material impact on
its earnings per share as currently computed. SFAS No. 128 is applicable
for the Company beginning in the fourth quarter of fiscal 1997.
8. RECLASSIFICATIONS
Certain items in the historical financial statements have been
reclassified to provide consistent presentation.
Page 7 of 36
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PROGRESS REPORT
In our 1996 Annual Report we discussed the strategies we are using to turn the
Company around following a change in senior management and direction in
mid-1996. We believe we have achieved significant progress toward this
turnaround to date, as evidenced by the following accomplishments:
1. We have significantly improved our liquidity, as defined by excess
availability under our line of credit.
a. Average excess availability under our line of credit during
the first half of fiscal year 1997 was $7.6 million, a 93%
increase compared to the same period in fiscal year 1996.
b. Excess availability was $7.8 million at September 9, 1997.
c. Average borrowings under our line of credit during the first
half of fiscal year 1997 were $13.2 million, a decrease of 20%
compared to the same period in fiscal 1996.
d. Our primary lender, Congress Financial Corporation (Central),
continues to be very supportive, agreeing over the past 24
months to increase our line of credit to $27.5 million,
increase our advance rate, lower our interest rate and extend
the term of our loan agreement to October, 1999.
e. Our investment in inventory during the first half of fiscal
1997 is 22% lower, on average, than it was a year ago,
translating into almost a $7 million reduction.
f. Inventory turnover has increased by 17% during the first half
of fiscal 1997 as compared to the first half of fiscal 1996.
Our turnover in the first half of this fiscal year was the
highest in the Company's history.
g. Gross margin return on inventory (GMROI) increased by 18%
during the first half of fiscal 1997 as compared to the first
half of fiscal 1996. GMROI is at its highest level since
1991.
Page 8 of 36
<PAGE> 9
h. In August we made the final in a series of payments to our
pre-petition secured creditors under our Plan; less than $4
million in mandatory payments to unsecured creditors remain.
i. Working capital was a negative $4.1 million at the end of the
second quarter. However, our reported working capital is
significantly lowered by two of our accounting policies.
First, we report our inventory on a LIFO basis, unlike many
public companies who report inventory on a FIFO basis. Using
LIFO lowers reported inventory as compared to FIFO. Had our
Company used FIFO working capital would have increased by $7.9
million. Second, we classify all borrowings under our line of
credit as current liabilities, even though our credit
agreement extends through October, 1999. Under our credit
agreement there is no clean down requirement and, a large
portion of these borrowings, which totaled $15.1 million at
quarter-end, need not be repaid during the next twelve months.
2. Sales results improved in the second quarter and in the important
"Back-to-School" season, which includes the month of August, the first
month of the third quarter.
a. August (which is not included in these financial statements)
comparable store sales increased by 3.4% over last year and
exceeded our plan. (Comparable store gross margin dollars for
August were up 5.6% over last year.)
b. Second quarter sales were 5.1% below last year compared to a
12.2% sales decrease during the first quarter. Comparable
store sales have improved, relative to the previous month, in
each of the past four months. During the first half of fiscal
1997 we continued a strategic shift to offering desirable name
brand merchandise at everyday prices well below department and
specialty store regular prices. During the comparable period
of fiscal 1996, the Company was driving sales through a
promotional and advertising plan that offered discounts off
everyday prices. Thus a large part of our sales decrease was
planned.
c. Sales increased in three of our merchandising divisions during
the second quarter of fiscal 1997 as compared to fiscal 1996.
These divisions are Women's (+5%), Juniors (+6%) and Intimate
Apparel (+7%). Women's is our most important division, not
only because of its size relative to our other divisions, but
also because it attracts the female shopper to our store to
buy clothing for herself, which we believe will have a halo
effect throughout the store in the future as she also buys
shoes, accessories, children's clothes and toys, home goods
and certain men's clothing. Our Shoe (-17%) and Home (-12%)
divisions are not meeting our expectations, a problem we are
addressing aggressively by intensifying key brand offerings,
improving our merchandise assortment and strengthening our
buying staff in these areas.
Page 9 of 36
<PAGE> 10
3. Margins are improving noticeably.
a. Gross margins were 35.1% in the first half of fiscal 1997
compared to 34.7% in the first half of fiscal 1996. However,
gross margin percentage, on merchandise (which excludes
several components of reported gross margin, including LIFO,
aging reserves and discounts on prepayments) actually
increased by just under 1 point from 1996 to 1997.
b. Gross margin percentages in the first half of fiscal 1997
exceeded the first half of fiscal 1996 in all eight of our
merchandise divisions.
c. Our outlook for margins in the second half of fiscal 1997 is
very encouraging based on a sizable increase in the initial
mark-up versus last year on merchandise presently on order.
4. Although we incurred a net loss again in the second quarter, it was
44% less than in the second quarter of fiscal 1996, and our net loss
through the first six months of fiscal 1997 is 15% less than in the
first half of fiscal 1996.
5. Key initiatives aimed at driving up our sales have been implemented in
merchandising, marketing and stores.
a. We have intensified, in terms of inventory and management
attention, those merchandise areas that represent the largest
growth potential. These include juniors, full figure,
petites, men's and women's activewear, careerwear, fine
jewelry, men's bottoms, athletic footwear, gifts, frames and
rugs.
b. We have added key brands to our inventory mix, including Nike
footwear and apparel, Levis and Dockers. We have upgraded our
brand offerings in most areas, including denim, activewear,
career and casual wear, and shoes.
c. We have increased our planned merchandise receipts by 15% for
the second half of fiscal 1997.
d. We have increased our advertising plan for the second half of
fiscal 1997, raising it 15% over fiscal 1996 and focusing on
Sunday pre-print circulars and radio. We are coupling this
increased spending with several fundamental changes in the
content of our advertising.
Page 10 of 36
<PAGE> 11
e. We are revolutionizing the culture in our stores - making the
customer the number one priority. Our Commitment to Customer
Satisfaction was rolled out Company-wide in July, with
noticeable results already. Our average sales transaction
increased by more than $1 in August (versus last year).
Sustaining a $1 increase per transaction would translate into
$8 million in sales annually.
6. Strengthening our key personnel make us a stronger Company, and is
having an impact on our results.
a. In the past six months we have added two new divisional
merchandise managers, five new buyers, and new Vice Presidents
of Marketing and Finance.
b. A recently revised incentive plan more directly ties pay to
performance for our key people.
We have accomplished a great deal in the past 12 months and remain optimistic
about our prospects for the next 18 months.
Page 11 of 36
<PAGE> 12
RESULTS OF OPERATIONS
The following table sets forth an analysis of various components of the
Consolidated Statements of Operations as a percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 64.5 65.3 64.9 65.3
----- ----- ----- -----
Gross Profit 35.5 34.7 35.1 34.7
Operating and
Administrative Expenses 37.7 39.4 40.1 40.1
----- ----- ----- -----
Loss From Operations (2.2) (4.7) (5.0) (5.4)
Interest Expense (1.8) (2.1) (1.9) (2.0)
----- ----- ----- -----
Loss Before Provision For Taxes (4.0) (6.8) (6.9) (7.4)
Provision For Income Taxes - - - -
----- ----- ----- -----
Net Loss (4.0)% (6.8)% (6.9)% (7.4)%
===== ===== ===== =====
</TABLE>
Net Sales for the second quarter of fiscal 1997 decreased approximately
$2,323,000, or 5.1%, compared to net sales for the second quarter of fiscal
1996. The comparable store sales decrease was also 5.1%. Sales were 3.4%
below plan for the second quarter.
Net sales for the first six months of fiscal 1997 decreased by approximately
$7,415,000, or 8.5% compared to net sales for the first six months of fiscal
1996. Comparable store sales decreased by 7.6% during the first half of 1997.
Sales were 3.9% below plan for the first half of 1997.
Page 12 of 36
<PAGE> 13
The shortfall in sales as compared to the Company's plan (3.4% for the second
quarter and 3.9% for the first half) was the result of fewer customer
transactions, which the Company believes is the result of a lack of marketplace
awareness of what the store has to offer, promotional discounting by department
stores and increasing competition for consumers' disposable income. Management
is addressing the lack of marketplace awareness by increasing its advertising
spending by 15% for the second half of 1997 in conjunction with market and
customer research it recently conducted. We are also intensifying certain
merchandise areas and refocusing others, all with the intent of offering
desirable brand name merchandise at everyday low prices of up to half off
department and specialty store regular prices.
The planned decrease in sales (1.7% for the second quarter and 4.7% for the
first half) was the result of the Company's strategic shift to offering
desirable brand name merchandise at everyday prices well below department and
specialty store regular prices. During comparable periods of fiscal 1996, the
Company was driving sales through a promotional and advertising plan that
offered discounts off everyday prices. That practice was changed during July,
1996.
Gross Profit decreased by approximately $487,000 or 3.0% for the second quarter
of fiscal 1997 compared to the second quarter of fiscal 1996. As a percentage
of net sales, gross margins were 35.5% in the second quarter of fiscal 1997
compared to 34.7% for the second quarter of fiscal 1996. Gross profit dollars
decreased approximately $2,325,000 or 7.7% for the first six months of fiscal
1997 versus the first six months of fiscal 1996. As a percentage of sales,
gross margins were 35.1% in the first six months of fiscal 1997 compared to
34.7% the first six months of fiscal 1996.
The increases in gross margin percentages was the result of the Company's
strategy described above which reduced the amount of promotional discounting in
prices. The gross margin dollar decrease was the result of the sales decrease.
Gross profit is calculated after giving effect to inventory markdown and aging
reserves and the LIFO provision. Gross margin percentage on merchandise (which
excludes several components of reported gross margin, including LIFO, aging
reserves and discounts on prepayments) actually increased by just under 1 point
from 1996 to 1997.
Operating and Administrative Expenses decreased approximately $1,635,000, or
9.1%, for the second quarter of fiscal 1997 compared to the second quarter of
fiscal 1996. As a percentage of net sales, operating and administrative
expenses were 37.7% in the second quarter of 1997 versus 39.4% in the prior
year period. The decrease in expenses was the result of lower payroll and
other costs at the corporate office and $1.1 million of severance costs related
to the Company's former President which are included in the second quarter 1996
expenses.
Page 13 of 36
<PAGE> 14
Operating and administrative expenses decreased approximately $2,998,000, or
8.5%, for the first six months of fiscal 1997 over the first six months of
fiscal 1996. As a percentage of sales, operating and administrative expenses
were 40.1% both for the first six months of fiscal 1997 and for the first six
months of fiscal 1996. The decrease in expense was due to lower payroll and
other costs at the corporate office and $1.1 million of severance costs related
to the Company's former President which are included in 1996 expenses.
Interest Expense decreased by approximately $204,000 for the second quarter of
fiscal 1997 compared to the second quarter of fiscal 1996 and was approximately
$280,000 less for the first six months of fiscal 1997 compared to the first six
months of fiscal 1996. The decrease in interest expense for both periods was
the result of decreases in borrowings on the Company's revolving line of
credit.
Net Loss for the second quarter of fiscal 1997 was $1,747,863 compared to
$3,099,585 for the second quarter of 1996, an improvement of 43.6%. Net loss
for the first half of 1997 was $5,535,199 compared to $6,488,171 for the first
half of 1996, an improvement of 14.7%
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, as defined by line of credit borrowings and excess
availability on the line, has strengthened considerably at August 2, 1997, as
compared to August 3, 1996, as evidenced by the following:
- - The Company's average excess borrowing capacity for the first half of
fiscal 1997 was $7,596,000, an increase of 93% compared to the same period
in 1996.
- - The Company's average borrowings for the first half of fiscal 1997 were
$13,180,000, a decrease of 20% versus the first half of fiscal 1996.
- - The Company used cash in operations of $6.1 million in the first half of
1997 compared to $10.5 million in the first half of 1996, an improvement of
$4.4 million.
These results are primarily attributable to the following developments:
1. Inventory turnover and gross margin return on inventory (GMROI)
have improved dramatically. In the first half of fiscal 1997,
average inventories were 21.7% less than during the first half of
fiscal 1996. This improvement was achieved by taking markdowns on
a more timely basis and better correlating receipt flow to sales.
As of August 2, 1997, merchandise inventories were $8,659,000 or
23.6% lower than last year. Inventory turnover has increased by
17% during the first half of fiscal 1997 as compared to the first
half of 1996 and was the highest in the Company's history. GMROI
has increased by 17.6% for the comparable period.
Page 14 of 36
<PAGE> 15
2. The Company negotiated amendments to the existing financing
agreement with its primary lender, Congress Financial Corporation
(Central), which increased cash availability by approximately $6.0
million. The current loan agreement extends to October 1999, and
provides a maximum line of $27.5 million. The interest rate is
prime plus 1%.
3. In January 1997, the Unsecured Creditors' Committee agreed to
defer for up to one year the $1.9 million payment due for 1996
under the Plan, even though the Company had sufficient excess
availability under its financing agreement to make this payment.
The deferral provides additional flexibility to continue to
implement our turnaround plans. The Company has paid Creditors
over $21.0 million since its emergence from Chapter 11 in late
1993, and currently has less than $4.0 million in remaining
payments.
The Company's primary ongoing cash requirements are for operating expenses,
inventory and the minimum payments to the Company's creditors (pursuant to the
Plan). The Company's primary sources of funds for its business activities are
cash from operations and borrowings under its revolving credit facility with
Congress Financial Corporation (Central). In addition, short term trade credit
(normally for 30-day periods) represents a significant source of interim
financing for merchandise inventories. Trade creditors, representing
approximately two-thirds of all merchandise purchases, are extending normal
credit terms. During the first half of fiscal 1997 approximately 33% of the
Company's purchases, primarily from those vendors that factor their invoices,
had to be prepaid because the factor would not extend normal credit terms to
the Company. Management believes the percentage of prepayments will not
increase over the next few months.
During the first half of fiscal 1997 and 1996, capital expenditures were
approximately $779,000 and $513,000, respectively. The Company plans to invest
approximately $600,000 in capital expenditures for the remainder of fiscal
1997.
The Company recognizes that it has a high level of indebtedness, primarily in
the form of line of credit borrowings, creditor debt and capital lease
obligations. Its projections take this fact into account, and the Company
believes that future cash flows will be sufficient to cover this level of
indebtedness. Management is closely monitoring liquidity in light of the
decrease in comparable store sales. Sales, inventory purchases, expenses and
other items impacting liquidity are being closely managed to assure that
adequate liquidity for operations is maintained.
Management believes that with its present operating plan and continued focus on
liquidity, cash flow from operations and the expanded credit facility will be
sufficient to fund capital expenditures, working capital requirements
(including prepayments to vendors not extending terms), creditor and long-term
debt payments.
Page 15 of 36
<PAGE> 16
SEASONALITY AND INFLATION
The company's business is seasonal, with the back-to-school season (July and
August) historically contributing approximately 17% of annual sales and the
Christmas season (November and December) accounting for approximately 28% of
annual sales. Sales and income are also affected by the timing of new store
openings. Although the Company's operations are influenced by general economic
conditions and inflationary pressures, the Company does not believe that
inflation has had a material effect on operations during the past 3 - 5 years.
FORWARD-LOOKING STATEMENTS
In this section of this Report on Form 10-Q, the Company and persons acting on
its behalf have made certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). These
forward-looking statements are identified as including terms such as "may",
"will", "should", "anticipates", expects", "plans", "intends", or similar
language. Such statements are made in good faith by the Company and such
persons pursuant to the safe-harbor provisions of the 1995 Act. In connection
with these safe-harbor provisions, the Company has identified in its Annual
Report to Shareholders for the fiscal year ended February 1, 1997 (the "Annual
Report"), important factors which could cause actual results to differ
materially from those contained in any forward-looking statement made by or on
behalf of the Company. The Company further cautions that the factors
identified in the Annual Report are not exhaustive or exclusive. The Company
does not undertake to update any forward-looking statement which may be made
from time to time by or on behalf of the Company.
Page 16 of 36
<PAGE> 17
PART II - OTHER INFORMATION
Items 1 - 4.
There are no items to report.
Item 5. - Other Information
The Series B Option Common Stock is subject to an option to purchase
exercisable by the Company or the Trustee of the R.G. Stock Trust in
1998 (the "Option"). The Option is noted upon the face of the Series
B Option Common Stock certificates. If the Option is exercised, the
holder or holders of shares must sell them for a price equal to the
fair value of the shares, as determined by an independent appraisal on
February 2, 1998, less any payments of Excess Cash Balance (as defined
in the Plan) that have been made to creditors entitled to payment
under the Plan ("Creditors"). Holders of the Series B Option Common
Stock will not have any rights of appraisal similar to dissenters'
rights if they dispute the market value as determined by the
independent appraisal. Payments of Excess Cash Balance would result
in shareholders having to sell their shares for less than fair market
value. Holders of Series B Option Common Stock should note that the
Excess Cash Balance paid to the Creditors, if any, shall be credited
against, and shall reduce the exercise price for, the option whether
or not the holder of any shares of Series B Option Common Stock with
respect to which the option is exercised received such Excess Cash
Balance.
Although with respect to the Company's Fiscal Years ended
January 29, 1994, and January 28, 1995, the Company made Excess Cash
Balance payments of $1,444,613 and $1,832,611, respectively, to
Creditors, the Company's cash position during Fiscal Year 1995 was
such that all of the prior Excess Cash Balance payments were utilized
to make a portion of the $5.5 million minimum payment to creditors
required for the Fiscal Year ended February 3, 1996. Therefore, if
the Option were exercised at this date, the Excess Cash Balance
payments would result in no reduction from fair market value in the
Option exercise price. Additional payments of Excess Cash Balance may
be created in the future which may reduce the Option exercise price.
For any given Fiscal Year, the Excess Cash Balance is the excess of
the Company's actual year-end cash balance over the Cumulative Plan
Cash Balance for that year. The cumulative total of the Excess Cash
Balance will be reported in the Company's annual and quarterly
financial reports.
Page 17 of 36
<PAGE> 18
PART II - OTHER INFORMATION (CONTINUED)
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
(10) (i) Material Contracts -- 1997 Stock Option Plan
(10) (ii) Material Contracts -- Employment Agreement
between Richman Gordman 1/2 Price Stores,
Inc. and Michael A. Mallaro, dated June
21, 1997.
(10) (iii) Material Contracts -- Executive Benefit
Amendment Agreement among Richman Gordman 1/2
Price Stores, Inc., Jeffrey J. Gordman,
Michael A. Mallaro, Dean Williamson, James H.
Cooke, Ronald Kent Hall, John W. Simkins,
Norman J. Farrington, and Donald L. DeGraeve,
dated August 1, 1997.
(27) Financial Data Schedule
(b) Reports on Form 8-K
There are no items to report.
Page 18 of 36
<PAGE> 19
PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RICHMAN GORDMAN 1/2 PRICE
STORES, INC.
Date: September 12, 1997 By: /s/ Jeffrey J. Gordman
----------------------------------
Jeffrey J. Gordman, President and
Chief Executive Officer
Date: September 12, 1997 By: /s/ Michael A. Mallaro
----------------------------------
Michael A. Mallaro, Vice
President of Finance, Chief
Financial Officer, Secretary and
Treasurer
Page 19 of 36
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C> <C>
(10) (i) Material Contracts -- 1997 Stock Option Plan 21
(10) (ii) Material Contracts -- Employment Agreement between Richman
Gordman 1/2 Price Stores, Inc. and Michael A. Mallaro, dated
June 21, 1997. 25
(10) (iii) Material Contracts -- Executive Benefit Amendment Agreement
among Richman Gordman 1/2 Price Stores, Inc., Jeffrey J. Gordman,
Michael A. Mallaro, Dean Williamson, James H. Cooke, Ronald
Kent Hall, John W. Simkins, Norman J. Farrington, and Donald L.
DeGraeve, dated August 1, 1997. 32
(27) Financial Data Schedule 35
</TABLE>
Page 20 of 36
<PAGE> 1
EXHIBIT (10)(I)
Material Contracts --
1997 Stock Option Plan
Page 21 of 36
<PAGE> 2
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
1997 STOCK OPTION PLAN
Statement of the 1997 Stock Option Plan (the "Plan") of Richman Gordman
1/2 Price Stores, Inc., a Delaware corporation (the "Company").
1. Purpose. The purpose of the Plan is to provide a means by
which the Company shall be able to attract and retain highly talented employees
and provide those personnel with an opportunity to participate in the increased
value of the Company which their efforts, initiative, and skill have helped
produce.
2. Administration. The Plan shall be administered by the
Compensation Committee (the "Committee") of the Board of Directors (the
"Board") as that Committee may be constituted from time to time. Subject to
the express provisions of the Plan, the Committee also shall have absolute
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, and to make all other determinations necessary or
advisable for the administration of the Plan. The determinations of the
Committee shall be conclusive.
3. Eligibility. The class of persons eligible to receive options
to acquire ("Options") shares of the Company's $ .01 par value Series A Common
Stock ("Stock") pursuant to this Plan shall be all full-time employees. The
Options awarded pursuant to this Plan are referred to as "Awards". From time
to time the Committee, on recommendation of the President and CEO of the
Company, shall designate, from among such eligible persons, the persons to whom
Awards shall be granted (each person so designated, a "Participant", and
collectively, the "Participants"). Such designations shall be made on the
recommendation of the President and be approved at the discretion of the
Committee. In designating Participants, the President, with the approval of
the Committee, shall fix the number of shares subject to an Option or number of
Units to be granted to the Participants.
4. Award Restrictions. All Awards shall be subject to a
five-year vesting period, provided the Participant continues to be employed by
the Company at the end of the vesting period, except as otherwise provided
below. Each such schedule may provide for installment vesting or full vesting
at the end of the period, and may include any other conditions upon the vesting
of the Award as the Committee shall determine. The terms and conditions of
each Award shall be set forth in a written document constituting an "Option
Award Agreement" substantially in the form attached hereto (the "Agreement") to
be signed by the Participant and returned to the Company. Any unvested Award
shall vest upon a Change of Control (as defined in the Agreement).
5. Termination of Employment. If a Participant's employment
terminates during the vesting period due to death or disability or termination
by the Company other than for Cause, the Award will fully vest as of the date
of such event. Termination as an employee for any other
Page 22 of 36
<PAGE> 3
reason, including retirement, resignation or discharge for Cause, will result
in forfeiture of the Award at the time of termination as to any unvested
Options, unless otherwise specified in writing by the Committee. "Cause" means
a reason which a reasonable employer, acting in good faith, would regard as
good and sufficient reason for terminating the services of an employee, as
distinguished from an arbitrary whim or caprice. For example, "Cause"
includes, without limitation, the employee's substandard or poor performance,
misconduct, or breach of the Company's policies and procedures.
6. Amount of Stock. The aggregate number of shares of the
Company's Stock which may be subject to Option under this Plan shall be Nine
Hundred Thousand (900,000) shares of the Company's Stock, subject to legal
availability. This total number of shares available under the Plan shall be
subject to appropriate increase or decrease in the event of a stock dividend
upon, or a subdivision, split-up, combination or reclassification of, shares of
Stock (but excluding, without limitation, issuance of authorized but unissued
shares whether or not as a result of an increase in the number of authorized
shares). In the event Options under this Plan are forfeited as provided in
Paragraph 5, such forfeited Options may be granted to other Participants as
provided in this Plan. The total number of shares to be granted, up to the
limit specified above, shall be determined by the President in his sole
discretion. A portion of the available shares, in an amount to be determined
by the President in his sole discretion, shall be subject to grants in
accordance with this Plan during fiscal year 1997. The balance of the
remaining available shares may be granted following the end of fiscal year
1997 by the President in his sole discretion based upon the Company's
attaining or exceeding its 1997 net profit plan.
7. Expiration. Options shall expire as specified in the
respective Agreement establishing the award of Options for each Participant,
but all Options shall expire no later than 10 years from the date of grant.
8. Exercise Price. If the Stock is actively traded on a national
securities exchange or NASDAQ, the exercise price for Options shall be the
Market Value of the Stock at the close of business on the date of the Option
grant. Market Value means the last bid price for the Stock on that particular
day or the most recent preceding day for which a bid price is available, or if
the Stock is not so traded, or if no bid price is available, the value
determined at such date by or at the direction of the Committee.
9. Exercise. Options may be exercised, to the extent exercisable
by their terms, in whole or in part from time to time and at any time before
their expiration. Any exercise shall be accompanied by a written notice to the
Company specifying the number of Options being exercised.
10. Transferability. Any rights arising under the Plan with
respect to Options shall not be transferable otherwise than by will or the laws
of descent and distribution.
Page 23 of 36
<PAGE> 4
11. Condition of Employment. The granting of Awards under this
Plan shall impose no obligation on the Company (or any of its parent or
subsidiary corporations) to continue the employment of any Participant and
shall not lessen or affect the right to terminate such employment of the
Participant.
12. Amendment of the Plan. The Board of the Company may from time
to time alter, amend, suspend or discontinue this Plan and make rules for its
administration, except that the Board shall not end or modify any rights which
would otherwise exist under an Agreement, once entered into.
13. Grants Discretionary. The granting of Awards under this Plan
shall be entirely discretionary and, except as expressly stated herein, nothing
in the Plan shall be deemed to give any employee any right to participate in
the Plan or to receive an Award.
14. Securities Laws. The Company has no obligation to register
Options granted to Participants under this Plan. If Options granted have not
been registered, upon issuance of Options to the Participant and upon issuance
of Stock upon exercise of Options, the Participant shall represent and warrant
to the Company that shares of Stock, Options or Units are being acquired for
investment purposes and shall acknowledge transfer restrictions under
applicable securities laws as provided in the Agreement. The Company shall
place a legend on any Stock certificate issued under the Plan to assure
compliance with this Paragraph. No shares of Stock shall be required to be
distributed until the Company shall have taken such action, if any, as is then
required to comply with the provisions of the Securities Act of 1933 and any
other than applicable securities law.
15. Withholding of Tax. There shall be deducted from each
distribution under the Plan the amount of any tax required by any governmental
authority to be withheld and paid over by the Company to that governmental
authority for the account of the Participant entitled to the distribution.
16. Effective Date. The Plan shall become effective upon approval
of it by the Board.
Adopted by the Board of Directors
of Richman Gordman 1/2 Price Stores, Inc.
on June 4, 1997.
/s/ Jeffrey J. Gordman
- --------------------------------------
Secretary
Page 24 of 36
<PAGE> 1
EXHIBIT (10)(II)
Material Contracts --
Employment Agreement between
Richman Gordman 1/2 Price
Stores, Inc. and Michael A.
Mallaro, dated June 21, 1997
Page 25 of 36
<PAGE> 2
EMPLOYMENT AGREEMENT
This Agreement is made as of the 11th day of June, 1997 between Richman
Gordman 1/2 Price Stores, Inc., a Delaware corporation with its principal
office located at 12100 West Center Road, Omaha, Nebraska, 68144 ("Employer"),
and Michael A. Mallaro ("Employee"), who resides at 4707 South 174th Avenue,
Omaha, Nebraska.
WHEREAS Employer has extended an offer of employment to Employee to
serve as the Vice President of Finance and Chief Financial Officer for
Employer, subject to the terms and provisions set forth in this Agreement; and
WHEREAS Employee accepts employment on the terms and provisions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises set forth in
this Agreement, the Employer and Employee agree as follows:
1. EMPLOYMENT. Employer hereby employs, engages, and hires
Employee to serve as the Vice President of Finance and Chief Financial Officer
for Employer, and Employee hereby accepts and agrees to such hiring,
engagement, and employment, subject to the general supervision and pursuant to
the orders, advice, and direction of Employer. Employee shall perform such
other duties as are customarily performed by one holding such position in
other, same, or similar businesses or enterprises as that engaged in by
Employer, and shall also additionally render such other and unrelated services
and duties as may be assigned to Employee from time to time by Employer.
2. TERM OF EMPLOYMENT. This Agreement is effective June 11, 1997
and continues through the end of fiscal year 1999, subject to the other terms
and provisions herein. Upon the expiration of this period, this Agreement shall
terminate without any further action on the part of either Employer or
Employee, and there shall be no implied renewal or extension of this Agreement
under any circumstance, nor any obligation of Employer to negotiate regarding
any such renewal or extension.
Not less than one year before the expiration of this Agreement, Employer
and Employee shall meet to discuss a new agreement with terms and provisions
similar to those herein, or with terms and provisions that are mutually
acceptable to Employer and Employee. Alternatively, Employer has the option, at
any time, to renew this Agreement for similar periods after its expiration, so
long as such renewal is in writing and is signed by both Employer and Employee,
or to permit this Agreement to terminate.
Page 26 of 36
<PAGE> 3
3. COMPENSATION AND BENEFITS. During the term of this Agreement,
Employer shall pay Employee an annual salary for services performed on
Employer's behalf as follows:
<TABLE>
<CAPTION>
FISCAL YEAR(S) ANNUAL SALARY
-------------- -------------
<S> <C>
1997 $125,000
1998 and 1999 To be set by Company's Chief Executive Officer
and approved by Compensation Committee and
Board of Directors at a level not less than
the 1997 fiscal year salary
</TABLE>
Employee's salary shall be paid to Employee on a biweekly basis while
this Agreement shall be in force. Employer shall have the right to deduct from
the compensation and benefits payable to Employee under the provisions of this
Agreement all Social Security, federal and state taxes and charges as may now
be in effect or that may be enacted or required after the effective date of
this Agreement.
Employee shall also be entitled to and shall receive all other benefits
and conditions of employment available generally to other employees of Employer
employed at the same level and responsibility of Employee, provided that
eligibility requirements for each benefit program are satisfied. By way of
illustration, but not by way of limitation or guarantee, a description of such
benefits is set forth in Exhibits "A" and "B" which are attached hereto and are
incorporated herein by this reference.
4. BEST EFFORTS OF EMPLOYEE. Employee agrees that he will at all
times faithfully, industriously, and to the best of his ability, experience and
talents, perform all of the duties that may be required of and from him
pursuant to the express and implicit terms of this Agreement, to the reasonable
satisfaction of the Employer. Such duties shall be rendered at Employer's
principal office and at such other places as Employer shall in good faith
require or as the interest, needs, business or opportunity of Employer shall
require.
5. OTHER EMPLOYMENT. Employee shall devote all of his time,
attention, knowledge and skills solely to the business and interest of
Employer, and Employer shall be entitled to all of the benefits, profits or
other issues arising from or incident to all work, services and advice of
Employee. Employee shall not, during the term of this Agreement, be interested
directly or indirectly, in any manner, as a partner, officer, director,
shareholder, advisor, employee or in any other capacity in any other business
similar to Employer's business or any allied trade; provided, however, that
nothing contained in this provision shall be deemed to prevent or to limit the
right of
Page 27 of 36
<PAGE> 4
Employee to invest any of his money in the capital stock or other securities of
any corporation whose stock or securities are publicly owned or are regularly
traded on any public exchange.
6. CONFIDENTIAL INFORMATION. Employee shall not at any time or
in any manner, either directly or indirectly, divulge, disclose or communicate
to any person, firm, corporation or other entity in any manner whatsoever any
information concerning any matters affecting or relating to the business of
Employer, including without limitation, the prices it has paid or obtained for
its merchandise or any other information concerning the business of Employer,
its manner of operation, its plans, processes or other data, without regard to
whether all of the above-stated matters are generally deemed to be
confidential, material or important. Employer and Employee specifically and
expressly agree that such matters are important, material, confidential and
gravely affect the effective and successful conduct of the business of Employer
and Employer's goodwill, and that any breach of the terms of this provision
shall be a material breach of this Agreement. This provision shall survive
termination of this Agreement.
7. EMPLOYMENT POLICIES AND PROCEDURES. Employee agrees to abide
by all of Employer's employment polices and procedures that apply generally to
other employees at the same level and responsibility of Employee, as such
policies and procedures may be revised from time to time.
8. PERFORMANCE EVALUATION. Employee's performance shall be
evaluated on an annual basis. The results of the evaluations shall be discussed
with Employee.
9. TERMINATION OF EMPLOYMENT. Employee may terminate his
employment pursuant to this Agreement after having provided Employer with
thirty days' written notice of his intention to terminate. Employer may
terminate Employee's employment at any time during the term of this Agreement
for good cause. For purposes of this Agreement, "good cause" for termination of
employment is that which a reasonable employer, acting in good faith, would
regard as good and sufficient reason for terminating the services of an
employee, as distinguished from an arbitrary whim or caprice. This definition
includes, without limitation, termination of employment due to Employee's poor
performance or misconduct, discontinuance of Employer's business or any
significant portion thereof, or Employee's violation of any provision of this
Agreement. The employment of Employee shall also cease upon the expiration of
the term of this Agreement unless Employer has, in writing, renewed this
Agreement or Employer and Employee have entered into a new agreement.
10. EMPLOYER'S OBLIGATION ON ITS TERMINATING EMPLOYEE'S
EMPLOYMENT. If, during the term of this Agreement, Employer terminates
Employee's employment for any reason other than Employee's misconduct or
Employee's violation of any provision of this Agreement, Employee will receive
the Employee's then current salary at the time the notice of termination is
given for either six months after termination or for the remainder of the
Page 28 of 36
<PAGE> 5
fiscal year during which the notice of termination is given, whichever is
greater. The payments shall be paid on a biweekly basis, pursuant to the
provisions of Paragraph 3 above, and shall be deemed an obligation of Employer
regardless of whether Employee has begun new employment elsewhere.
If Employer terminates Employee's employment due to Employee's
misconduct or Employee's violation of any provision of this agreement, Employee
shall not be entitled to any compensation whatsoever from Employer beyond the
last day Employee worked. "Misconduct" for the purpose of this Agreement is
defined as behavior which evidences (a) wanton or willful disregard of
Employer's interests, (b) deliberate violation Employer's rules, policies or
procedures, (c) disregard of standards of behavior which Employer can
rightfully expect from Employee, or (d) negligence which manifests culpability,
wrongful intent, evil design or intentional and substantial disregard or
Employer's interests or of Employee's duties and obligations.
Employee shall not be entitled to any severance or payment beyond his
last day worked if Employee terminates his employment with Employer or if this
Agreement terminates upon the expiration on its three-year term.
Notwithstanding anything in this Agreement to the contrary, in the event
Employee breaches his obligations under this Agreement, including without
limitation Employee's obligations under Sections 6, 11 or 12, Employer shall
have no obligation to pay any severance benefits under this Section 10 and
shall be entitled to recover any severance benefits previously paid to
Employee.
11. COOPERATION WITH EMPLOYER AFTER TERMINATION OF EMPLOYMENT.
Following the termination of Employee's employment, by either Employee or
Employer, Employee shall fully cooperate with Employer in all matters relating
to the continuation or completion of Employee's pending work on behalf of
Employer and the orderly transfer of any such pending work to other employees
as may be designated by Employer. Employer shall be entitled to such full-time
or part-time services of Employee as Employer may reasonably require during all
or any part of the 30-day period following any notice of termination of
employment by Employee.
12. EMPLOYER'S RELATIONSHIP WITH OTHER EMPLOYEES. Employer and
Employee agree that any attempt on the part of Employee to induce others to
leave the employ of Employer, or any effort by Employee to interfere with
Employer's relationship with other employees, will be harmful and damaging to
Employer. Employee therefore expressly agrees that during the term of this
Agreement and for a period of two years thereafter, he will not in any way,
directly or indirectly (a) induce or attempt to induce any employee to quit
employment with Employer, (b) interfere with or disrupt Employer's relationship
with other employees, or (c) employ or attempt to employ any person employed by
Employer.
Page 29 of 36
<PAGE> 6
13. TERMINATION BY DEATH OR INCAPACITY OF EMPLOYEE. In spite of
anything in this Agreement to the contrary, this Agreement shall terminate
prior to the expiration of the term specified above if Employee dies or becomes
permanently disabled. As used in this paragraph, "permanently disabled" is
defined as the inability of Employee to perform the essential functions of his
position, either with or without reasonable accommodation, for a period
extending beyond six months.
14. ASSUMPTION AND MERGER. The rights and duties of Employer and
Employee under this Agreement shall not be assignable by either party, except
that this Agreement and all of the rights hereunder may be assigned by Employer
to any corporation or other business entity that succeeds to the business of
Employer through merger, consolidation, corporate re-organization or by
acquisition of all or substantially all of the assets of Employer, and which
assumes Employer's obligations under this Agreement.
15. AGREEMENT OUTSIDE OF CONTRACT. This Agreement contains the
complete agreement concerning the employment arrangement between Employer and
Employee and shall, as of the effective date hereof, supersede all other
agreements between Employer and Employee. Employer and Employee agree that
neither of them has made any representation with respect to the subject matter
of this Agreement except such representations as are specifically set forth in
this Agreement. Employer and Employee acknowledge that each of them have relied
on their own judgment in entering into this Agreement. Employer and Employee
further acknowledge that any payments or representations that may have been
made by either of them to the other prior to the date of executing this
Agreement are of no effect and that neither of them has relied thereon in
connection with their dealings with the other.
16. MODIFICATION OF AGREEMENT. Any modification of this Agreement
or additional obligations assumed by either Employer or Employee in connection
with this Agreement shall be binding only if evidenced in writing signed by
both Employer and Employee or their authorized representatives.
17. EFFECT OF PARTIAL INVALIDITY. The invalidity of any portion
of this Agreement shall not be deemed to affect the validity of any other
provision of this Agreement. In the event that any provision of this Agreement
is held to be invalid, Employer and Employee agree that the remaining
provisions shall be deemed to be in full force and effect as if they had been
executed by both parties subsequent to the expungement of the invalid
provision.
18. CHOICE OF LAW AND FORUM. It is the intention of Employer and
Employee that this Agreement and any actions and special proceedings brought in
connection with this Agreement be construed in accordance with and pursuant to
the laws of the State of Nebraska, which shall govern to the exclusion of the
law of any other forum. Employer and Employee further agree that any action or
special proceeding that may be brought in connection with this Agreement shall
be brought in the State of Nebraska.
Page 30 of 36
<PAGE> 7
19. ARBITRATION. Any differences, claims or matters in dispute
between Employer and Employee in connection with this Agreement shall be
submitted by them to arbitration by the American Arbitration Association or its
successor, and the determination of the arbitrator or its successor shall be
final and absolute. The arbitrator shall be governed by the duly promulgated
rules and regulations of the American Arbitration Association or its successor,
and the pertinent provisions of the laws of the State of Nebraska, relating to
arbitration. The decision of the arbitrator may be entered as a judgment in any
court of the State of Nebraska or elsewhere.
20. NO WAIVER. The failure of either Employer or Employee to
insist upon the performance of any of the terms and provisions of this
Agreement, or the waiver of any breach of any of the terms or provisions of
this Agreement, shall not be construed as thereafter waiving any such terms and
provisions, but the same shall continue and remain in full force and effect as
if no such forbearance or waiver had occurred.
IN WITNESS WHEREOF, Employer and Employee have executed this Agreement
as of the day and year first above written.
RICHMAN GORDMAN EMPLOYEE:
1/2 PRICE STORES, INC.
/s/ Jeffrey J. Gordman /s/ Michael A. Mallaro
- ---------------------------- -------------------------------
Jeffrey J. Gordman Michael A. Mallaro
President and CEO
Page 31 of 36
<PAGE> 1
EXHIBIT (10)(III)
Material Contracts --
Executive Benefit Amendment Agreement
among Richman Gordman 1/2 Price Stores, Inc.,
Jeffrey J. Gordman, Michael A. Mallaro,
Dean Williamson, James H. Cooke, Ronald
Kent Hall, John W. Simkins, Norman J.
Farrington and Donald L. DeGraeve,
dated August 1, 1997
Page 32 of 36
<PAGE> 2
EXECUTIVE BENEFIT
AMENDMENT AGREEMENT
This Executive Benefit Amendment Agreement (the "Agreement") is made as
of August 1, 1997 among the Company and the officers (the "Officers" and, as
to each signatory hereto, an "Officer") of RICHMAN GORDMAN 1/2 PRICE STORES,
INC., (the "Company").
WHEREAS, the Company has amended its executive benefits plans upon the
recommendation of the Officers; and
WHEREAS, each of the Officers is party to an employment-related
agreement (an "Employment Agreement") between the Officer and the Company; and
WHEREAS, the Company and the Officers desire to amend the Employment
Agreements to conform to the amended executive benefit plan;
NOW, THEREFORE, the undersigned Officers hereby acknowledge and agree
that, effective as of August 1, 1997, the following changes shall apply to
executive fringe benefits available to such Officers under general benefit
plans provided by the Company or under the Employment Agreements:
(a) Benefits in connection with health insurance, dental
insurance, life insurance and medical reimbursement will be no greater
than those provided to all other salaried associates. In this
regard, the Executive Reimbursement Account benefit has been terminated.
(b) The Company will no longer pay the initiation fee or
dues for Prairie Life Health Club memberships.
DATED as of August 27, 1997.
/s/ Jeffrey J. Gordman
--------------------------------------
Jeffrey J. Gordman
/s/ Michael A. Mallaro
--------------------------------------
Michael A. Mallaro
Page 33 of 36
<PAGE> 3
/s/ Dean Williamson
--------------------------------------
Dean Williamson
/s/ James H. Cooke
--------------------------------------
James H. Cooke
/s/ Ronald Kent Hall
--------------------------------------
Ronald Kent Hall
/s/ John W. Simkins
--------------------------------------
John W. Simkins
/s/ Norman J. Farrington
--------------------------------------
Norman J. Farrington
/s/ Donald L. DeGraeve
--------------------------------------
Donald L. DeGraeve
Page 34 of 36
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> AUG-02-1997
<CASH> 334,957
<SECURITIES> 0
<RECEIVABLES> 3,973,375
<ALLOWANCES> 645,180
<INVENTORY> 28,073,292
<CURRENT-ASSETS> 31,736,444
<PP&E> 47,643,572
<DEPRECIATION> 34,017,586
<TOTAL-ASSETS> 45,536,954
<CURRENT-LIABILITIES> 35,837,929
<BONDS> 9,348,640
0
0
<COMMON> 294,600
<OTHER-SE> 55,785
<TOTAL-LIABILITY-AND-EQUITY> 45,536,954
<SALES> 80,050,814
<TOTAL-REVENUES> 80,050,814
<CGS> 51,991,299
<TOTAL-COSTS> 51,991,299
<OTHER-EXPENSES> 32,088,638
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