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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24328
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Richman Gordman 1/2 Price Stores, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 47-0771211
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
12100 West Center Road, Omaha, Nebraska 68144
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 691-4000
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None.
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Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $.01
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) 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. [X]
As of April 8, 1997, an aggregate of 26,715,000 shares of Common Stock,
par value $.01, were outstanding, composed of 16,515,000 shares of Series A
Common Stock and 10,200,000 shares of Series B Option Common Stock. The
registrant's stock is not publicly traded, and therefore there is no
ascertainable aggregate market value of voting stock held by non-affiliates.
APPLICABLE ONLY TO REGISTRANTS 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 Section 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
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Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended February 1, 1997, have been incorporated by reference into Parts I
and II of this Report. Portions of the Registrant's Registration Statement on
Form S-1 (Commission File No. 33-79352) and Amendment No. 4 thereto, have been
incorporated by reference in Part IV of this report.
Page 1 of 165
Exhibit Index on Page 35
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PART 1
ITEM 1. BUSINESS
THE COMPANY
GENERAL HISTORY
Richman Gordman 1/2 Price Stores, Inc. (the "Company") is the outgrowth
of a retail clothing business in Omaha dating back almost to the turn of the
century. The Company's predecessor was formed in 1915 by Sam Richman. In
1936, his son-in-law, Dan Gordman, joined him in the business, later becoming
his partner. In 1948, the Gordman family purchased the Richman family's
interests, with Dan Gordman becoming the Chairman and Chief Executive Officer
of Richman Gordman Stores. Until 1994, the Richman Gordman companies
remained privately owned, with all of the stock owned by members of Dan
Gordman's family.
RICHMAN GORDMAN STORES, INC.
Richman Gordman Stores, Inc. was the parent company of 1/2 Price Stores,
a regional retailer in the Midwest that operated the 1/2 Price Stores, a
chain of off-price stores offering first quality merchandise at one-half the
traditional department store full retail prices or one-half of manufacturers'
suggested retail price. Richman Gordman Stores was also the parent company
of Richman Gordman Department Stores which operated a separate chain of
moderate-end and full-price department stores. Richman Gordman Stores was a
holding company owning all of the Common Stock of 1/2 Price Stores and
Richman Gordman Department Stores.
RICHMAN GORDMAN DEPARTMENT STORES, INC.
Richman Gordman Department Stores, Inc. was a moderately priced
department store chain which at its peak consisted of 15 stores located in
five Midwestern states. Occupying a niche between mass merchants and
traditional department stores, Richman Gordman Department Stores was
positioned as a promotional, popularly priced, branded, family department
store. The chain's merchandising strategy was to dominate the market for
"main floor" (i.e. popularly priced) national brands in apparel and softline
home furnishings by offering broad assortments and inventory depth in sizes
and colors, and by promoting aggressively.
Through the end of the 1980s, Richman Gordman Department Stores
successfully maintained its market share in the face of growing competition
from a variety of regional and national retailers. However, three major
factors led to Richman Gordman Department Stores' eventual loss in market
share and financial stability: (i) national retailing trends favoring
discount
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shopping; (ii) a decision to upscale the merchandise offered by Richman
Gordman Department Stores; and (iii) an increasing overhead burden.
As part of the reorganization discussed below, and based on the above
factors, management decided to convert many of the Richman Gordman Department
Stores chain to the 1/2 Price Stores; those Richman Gordman Department Stores
that were not converted to 1/2 Price Stores were closed.
1/2 PRICE STORES, INC.
The first 1/2 Price store opened in 1972 as an outlet for marked-down
Richman Gordman Department Stores merchandise. The concept evolved into an
independent chain with separate buying, operations, advertising and human
resource staffs.
The 1/2 Price concept is to offer top quality, name brand merchandise at
half of department store and specialty store regular prices. 1/2 Price
Stores is able to execute this concept through opportunistic buying
strategies including the purchase of manufacturers' close-outs and
overstocks, in season purchases, other retailers' canceled orders,
merchandise made from excess piece goods and bulk production overruns. The
quality and negotiating strength of the 1/2 Price Stores' buying staff have
enabled the 1/2 Price Stores to acquire merchandise at substantial discounts
from normal wholesale prices, sell at not more than half of regular
department store prices and achieve strong gross margins. Please see "ITEM
1. BUSINESS -- THE COMPANY -- MERCHANDISING" for a discussion of the
Company's current merchandise strategy.
THE BANKRUPTCY
PLAN OF REORGANIZATION
On June 17, 1992, Richman Gordman Stores, Richman Gordman Department
Stores and 1/2 Price Stores filed for protection under the United States
Bankruptcy Code in the United States Bankruptcy Court for the District of
Nebraska. During the bankruptcy proceedings, the Companies operated as
debtors-in-possession.
On October 5, 1993, the Bankruptcy Court confirmed the Debtors' First
Amended Joint Plan of Reorganization Under Chapter 11, as modified (the
"Plan"), and the Plan became effective on October 20, 1993 (the "Effective
Date"). The Bankruptcy Court retains jurisdiction to interpret the terms of
and settle disputes arising from the Plan through the five-year term of the
Plan. The Plan provided for the issuance of Common Stock to former
shareholders and management (the "Series A Common Stock") and to unsecured
creditors (the "Series B Option Common Stock").
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Under the Plan, the Creditors' Committee, as the representative of the
Company's general unsecured creditors (the "Creditors"), will continue in
existence during the term of the Plan for the following primary purposes:
(1) monitoring compliance with the Plan; (2) monitoring defaults and granting
waivers and modifications of the Plan; and (3) exercising rights and duties
expressly granted in the Plan.
The Company also issued a secured note in the amount of $4 million to
Harris Trust and Savings Bank ("Harris Bank") in partial satisfaction of
pre-bankruptcy obligations. This note is payable in equal installments over
five years, and it bears an interest rate of 7%. The note is secured by most
of the real property held by the Company in addition to furniture, machinery
and equipment located in the Company's Distribution Center and corporate
offices. Events of default under the note include entering into voluntary
bankruptcy proceedings, involuntary bankruptcy proceedings that are not
dismissed within ninety days of their initiation, failure to pay principal or
interest payments within ten days after their due date, and acceleration of
annual payments to the Creditors by the Creditor's Committee. Please see
"ITEM 1. BUSINESS -- THE BANKRUPTCY -- PAYMENT OBLIGATIONS TO CREDITORS" for
a description of the acceleration provisions. Harris Bank was also the
largest unsecured creditor and, at April 8, 1997, held approximately 10.4% of
the Company's Series B Option Common Stock on a fully diluted basis.
The Plan provided that Richman Gordman Stores and 1/2 Price Stores merge
into Richman Gordman Department Stores. These mergers took place on the
Effective Date. Additionally, pursuant to the Plan, the Company was formed
and Richman Gordman Department Stores was merged into it.
As contemplated by the Plan, on the Effective Date, the Company entered
into a Credit Agreement with Congress Financial Corporation. The original
agreement was for a $25 million maximum facility with a four-year term
through October 20, 1997, with provisions for annual renewals unless either
party gives notice of non-renewal within 90 days prior to contract
expiration. The Credit Agreement is the Company's primary credit facility.
The amount the Company may borrow is determined by a formula based on
eligible inventory. This line of credit is secured by substantially all of
the current assets of the Company, including general intangibles.
The Company subsequently amended and extended the Congress Credit
Agreement in the Fall of 1996. The maximum facility was increased to $27.5
million, the interest rate was reduced to 1% over the prime rate, the
agreement was extended to October 20, 1999, the definition of eligible
inventories was expanded, and the borrowing advance rate was increased.
PAYMENT OBLIGATIONS TO CREDITORS
On the Effective Date of the Plan, the Creditors (with claims in the
approximate aggregate amount of $50,156,000) received cash in the total
amount of $10,000,000. In addition, the Creditors received 10,200,000 shares
of Series B Option Common Stock, or 34% of the total authorized Common Stock.
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Under the Plan, the Company remains obligated to the Creditors. The
following is a summary of all of the material provisions of the Company's
obligation to make payments to the Creditors. The summary is qualified with
reference to the complete terms and conditions of the obligation as contained
in the Plan.
ANNUAL MINIMUM PAYMENT OBLIGATION. The Annual Minimum Payment
obligation is an unconditional obligation to make payments in the amounts set
forth in the first column, titled Annual Minimum Payment, on the schedule
below. All scheduled payments received on this obligation will be applied
first to accrued stated interest and then payments of stated principal. Any
payments in excess of the cumulative total of stated principal and interest
($14,865,000) will be considered as payments of additional interest. The
Annual Minimum Payment obligation will be paid as set forth in the first
column on the schedule below. To the extent the cash flow contingencies as
detailed below allow additional payments in excess of the Annual Minimum
Payment column, such payments will be considered prepayments of the Annual
Minimum Payment obligation to be applied first to accrued stated interest (if
any) and then to stated principal.
<TABLE>
<CAPTION>
ANNUAL FISCAL YEAR ANNUAL MINIMUM CUMULATIVE MINIMUM ANNUAL PLAN CASH CUMULATIVE PLAN
PAYMENT PAYMENT BALANCE CASH BALANCE
- ------------------ -------------- ------------------ ---------------- ---------------
<S> <C> <C> <C> <C>
1993 $ 2,302,000 $ 2,302,000 $ 2,708,000 $ 2,708,000
1994 3,275,000 5,577,000 3,853,000 6,561,000
1995 5,521,000 11,098,000 6,495,000 13,056,000
1996 1,939,000 13,037,000 2,281,000 15,337,000
1997 1,828,000 14,865,000 2,151,000 17,488,000
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$14,865,000 $17,488,000
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</TABLE>
The Company operates on a fiscal year basis, and its Fiscal Years through
1997 end on the dates shown below:
<TABLE>
<CAPTION>
Fiscal Year Ends
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<S> <C>
Fiscal Year 1993 01/29/94
Fiscal Year 1994 01/28/95
Fiscal Year 1995 02/03/96
Fiscal Year 1996 02/01/97
Fiscal Year 1997 01/31/98
</TABLE>
ACTUAL CASH BALANCE. The Company is obligated to pay, for each of
Fiscal Years 1993-1997: (1) 100% of Actual Cash Balance, as defined in the
Plan, to a maximum of Cumulative Plan Cash
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Balance shown above, and (2) 50% of Excess Cash Balance, as defined in the
Plan. The fourth column represents the Company's estimate of Actual Cash
Balance for the Fiscal Years indicated.
OTHER TERMS. In no event will the Company be required to pay with
respect to any Fiscal Year an amount which, when added to prior payments of
Actual Cash Balance and Excess Cash Balance, exceeds the greater of
Cumulative Minimum Payments or Cumulative Actual Cash Balance. The annual
payment will be distributed to Creditors not later than 90 days after the end
of the Fiscal Year. However, in January, 1997, the Creditors' Committee
agreed to defer for up to one year the $1.9 million payment due for Fiscal
Year 1996 under the Plan.
Creditors are also entitled to tax refunds, if any, for the Fiscal Years
ended prior to the bankruptcy filing date in excess of an aggregate of
$500,000 for those years. Also, the Creditors are entitled to payments of
amounts equal to income tax benefits realized solely from the reduction of
taxable income which would otherwise be reported on the Company's federal and
state income tax returns for Fiscal Years 1993 through 1997 resulting from
utilization of pre-bankruptcy tax attributes (i.e., net operating loss carry
forwards, capital loss carry forwards (if any), alternative minimum tax
credit carry forwards, charitable contribution carry forwards and general
business credits including targeted job credits) and payments to Creditors.
On April 29, 1994, the Creditors were sent the annual payment for Fiscal
Year 1993 required by the Plan. The payment totaled $4,152,613, composed of
the following:
<TABLE>
<S> <C>
Annual Minimum Payment $2,302,000
Actual Cash Balance up to
Plan Cash Balance 406,000
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Annual Plan Cash Balance 2,708,000
50% of Excess Cash Balance 1,444,613
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Total Payment to Creditors $4,152,613
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</TABLE>
Payments to creditors required by the Plan for Fiscal Year 1994 in the
total amount of $6,073,260 were paid on April 28, 1995, and consisted of the
following amounts:
<TABLE>
<S> <C>
Annual Minimum Payment $3,275,000
Actual Cash Balance up to
Plan Cash Balance 578,000
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Annual Plan Cash Balance 3,853,000
Tax Benefit in Excess
of $500,000 387,649
50% of Excess Cash Balance 1,832,611
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Total Payment to Creditors $6,073,260
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</TABLE>
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Payments to creditors required by the Plan for Fiscal Year 1995 in the
total amount of $1,480,477 consisted of the following amounts:
<TABLE>
<S> <C>
Annual Minimum Payment $1,259,776
Tax Benefits 220,701
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Total Payment to Creditors $1,480,477
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</TABLE>
For Fiscal Year 1995, no Annual Cash Balance up to Plan Cash Balance or
Excess Cash Balance were available. The Annual Minimum Payment was computed
by crediting the previous two years' payment up to Plan Cash Balance and
Excess Cash Balance Payments to the required Cumulative Minimum Payment.
For Fiscal Year 1996, no Annual Cash Balance up to Plan Cash Balance or
Excess Cash Balance were available. In addition, the Creditors' Committee
agreed to allow the Company to defer the 1996 Minimum Payment of $1,939,000
for up to one year in exchange for a subordinated security interest in
certain real and personal property associated with the Company's distribution
center facility.
SERIES B REPURCHASE OPTION
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 that have been made to Creditors. Holders of
the Series B Option 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 previously paid to the Creditors shall be credited against, and shall
reduce the exercise price for, the option whether or not the holder of any
share 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 Fiscal Year 1995. No Excess Cash Balance
payments were generated for Fiscal Year 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 next Fiscal
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Year 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.
PLAN COVENANTS, DEFAULTS AND WAIVERS
The Plan contains a number of covenants. The covenants include the
Company's agreement to maintain its corporate existence, to maintain its
books in accordance with generally accepted accounting principles and provide
reports to creditors, to pay its taxes, to keep its property free of certain
liens, not to make prohibited investments, not to guarantee debts of third
parties, not to make loans to other parties, not to make distributions on
account of its stock, to maintain customary insurance and to comply with
environmental and pension laws. The breach of any of these covenants will
result in an event of default.
The Plan also describes certain occurrences that are defined as events
of default. These events include the failure to make payments pursuant to
the annual Minimum Payment Obligation, the failure to perform or observe any
of the terms or provisions of the Plan, the entering of an order of relief
under the Bankruptcy Code is granted to or against the Company, the Company
voluntarily or involuntarily makes an assignment for the benefit of
creditors, applies for or consents to the appointment of a receiver, trustee,
custodian or similar officer for all or for any substantial part of its
assets, voluntarily or involuntarily institutes any bankruptcy, insolvency,
liquidation, reorganization, readjustment, dissolution, or similar
proceeding, the entry of a judgment against the Company in an amount
exceeding the Company's insurance coverage by more than $200,000, and the
failure of the Company's cumulative EBITDA to equal or exceed certain EBITDA
levels. The Company did not meet the applicable EBITDA level at the end of
Fiscal Year 1995. However, the Creditors' Committee has waived the EBITDA
covenant in its entirety for Fiscal Year 1995, as well as Fiscal Years 1996
and 1997. Also, as noted above, in January, 1997, the Creditors' Committee
agreed to defer for up to one year the $1.9 million payment due for Fiscal
Year 1996 under the Plan.
Following an event of default, a majority of the Creditors' Committee
may accelerate the Cumulative Minimum Payments due under the Plan. The
Creditor's Committee, by a two-thirds vote of its members, may waive for up
to six months any payment required under the Plan and defer the due date of
some payments. The Creditors' Committee will, if requested in writing by a
majority in number or dollar amount of the Creditors, declare an acceleration
of any remaining unpaid annual payments, described above.
Additional information in response to this Item 1 is incorporated by
reference to the "Products and Services" section of the Company's Annual
Report to Shareholders for the fiscal year ended February 1, 1997 (the "1996
Annual Report").
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ITEM 2. PROPERTIES.
Information in response to this Item 2 is incorporated by reference to
the "Products and Services" Section of the 1996 Annual Report.
ITEM 3. LEGAL PROCEEDINGS
As noted above, the Company's predecessor entities filed for bankruptcy
protection in 1992, and in 1993 the United States Bankruptcy Court for the
District of Nebraska approved the Plan under which the Company continues to
operate. For a detailed discussion of the Plan, please see "ITEM 1. BUSINESS
-- THE COMPANY -- THE BANKRUPTCY -- PLAN OF REORGANIZATION." Additionally,
the Bankruptcy Court has retained jurisdiction to insure that the purpose and
intent of the Plan are carried out as well as to consider any modifications
of the Plan and to hear any claims, controversies, suits and disputes against
the Company that may arise during the five-year term of the Plan.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There are no items to report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Information in response to this Item 5 is incorporated by reference to
the 1996 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
Information in response to this Item 6 is incorporated by reference to
the "Selected Financial Data" section of the 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information in response to this Item 7 is incorporated by reference to
the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" section of the 1996 Annual Report.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information in response to this Item 8 is incorporated by reference to
the Consolidated Financial Statements, notes thereto and report thereon
contained in the 1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There are no items to report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
MANAGEMENT
DIRECTORS
Three members of the Gordman family are Directors of the Company: Jerome
P. Gordman, Nelson T. Gordman, and Jeffrey J. Gordman. Nelson and Jerome
Gordman are brothers; Jerome Gordman is the father of Jeffrey Gordman.
Jeffrey Gordman is also President and Chief Executive Officer. The table
below sets forth the name, age and position of the Company's Directors as
well as the means of designation pursuant to the Plan:
NAME AGE POSITION
- ----------------------- --- --------
Paul M. Bass, Jr.(2)(5) 61 Chairman of the Board of Directors
Jeffrey J. Gordman (2)(4) 33 Director, President, and Chief
Executive Officer
Paul M. Buxbaum(1)(5) 42 Director
Jerome P. Gordman(4) 58 Director
Nelson T. Gordman(3)(4) 57 Director
Thomas J. Noonan, Jr. 57 Director
(2)(3)(5)
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Philip Scheipe(1)(3)(5) 59 Director
Seth J. Lehr (1) 40 Director
(1) Member of the Compensation Committee.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee.
(4) Designated as a member of the Board by the Gordman Trustee.
(5) Designated as a member of the Board by the Creditors' Committee.
All Directors, other than Seth Lehr, were appointed on the Effective
Date. On October 1, 1996, Mr. Lehr was nominated by Jeffrey Gordman, as
President and Chief Executive Officer, to fill the vacancy created by the
resignation of Dennis Reaves, in accordance with the terms of the Plan. Mr.
Lehr was elected on October 29, 1996, by the Board of Directors to serve the
remaining term of Mr. Reaves' directorship.
The Directors will serve during the term of the Plan which commenced on
the Effective Date of the Plan and will end on the later of September 15,
1998, or payment in full of amounts due under the Plan. Accordingly,
shareholders will not be able to vote on the election of Directors until
expiration of the term of the Plan.
In the event of the death, resignation, or incapacity of any of the
initial Directors, a successor Director will be chosen as follows:
- Successor Directors to Directors selected by the Creditors'
Committee will be chosen by the remaining Directors selected by the
Creditors' Committee and any successor Directors to Directors selected
by the Creditors' Committee.
- Successor Directors to the Directors selected by the Chief
Executive Officer will be chosen by the Chief Executive Officer or any
successor thereto.
- Successor Directors to the Directors chosen by Dan Gordman will
be selected by the Gordman Trustee.
Within forty-five days after the expiration of the term of the Plan, the
then-Chairman of the Board of Directors shall call a special meeting to provide
for the election of new members of the Board of Directors. Shareholders will
not have cumulative voting rights with respect to the election of Directors.
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OFFICERS
The table below sets forth the name, age and position of the Company's
executive officers:
NAME AGE POSITION
--- --------
Paul M. Bass, Jr. 61 Chairman of the Board of Directors
Jeffrey J. Gordman 33 Director, President and Chief Executive
Officer
James H. Cooke 48 Vice President, Stores
Norman J. Farrington 49 Vice President, Chief Information Officer
Donald L. DeGraeve 54 Vice President, General Merchandise
Manager
John Simkins 49 Vice President, Distribution
Edward D. Williamson 42 Vice President, Human Resources
Ronald K. Hall 54 Vice President, Operations
Edward Pitkoff 56 Vice President, Marketing and Promotion
BIOGRAPHIES OF DIRECTORS AND OFFICERS
DIRECTORS
Mr. Paul M. Bass, Jr. is the Chairman of the Board of Directors. From
1988 to the present, he has been Vice Chairman of First Southwest Company, a
Dallas-based regional investment banking firm. Mr. Bass specializes in
corporate finance, investment management and public finance. Mr. Bass is also
presently a Director and Chairman of the Audit Committee and a member of the
Executive Committee of California Federal Savings Bank, a Director of Keystone
Consolidated Industries (also Chairman of Audit Committee), a Director of
Source Services, Inc. (also a member of Executive Committee) and is a Director
and Chairman of the Board of MACC Private Equities Inc., a business development
company making venture capital investments. Mr. Bass holds a B.B.A. in Finance
from Southern Methodist University.
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Mr. Paul M. Buxbaum is a Director of the Company. From 1973 to 1978, Mr.
Buxbaum was a field representative for liquidators of retail discount specialty
and department stores. In 1978 he opened a chain of mass merchandising
off-price retail men's clothing stores in greater Los Angeles and in 1982 he
sold the eight stores which were doing in excess of $8 million dollars in
annual sales. Mr. Buxbaum is the President and Secretary Treasurer of Buxbaum,
Ginsberg & Associates, a national merchandising firm organized in 1983 as a
consulting firm which emphasizes restructuring needs and recovery services to
companies on a nationwide basis. Mr. Buxbaum is also President of BGA
Consulting which provides loan evaluations for major banks, financial
institutions and insurance companies. He is also a Director and Chairman of
the Board of Ames Department Stores, Inc. of Rockyhill, Connecticut and serves
on the Compensation and Finance/Audit committees. Mr. Buxbaum attended
California State University in Northridge where he studied business and
finance.
Mr. Jeffrey J. Gordman is a Director, President and Chief Executive
Officer for the Company. At the Company, Mr. Gordman previously held positions
in merchandising, store operations and information technology. In addition,
Mr. Gordman designed the Planning and Allocation function for 1/2 Price Stores,
including the organization structure and business processes, and oversaw its
implementation in 1994. Prior to joining the Company in 1990, Mr. Gordman was
a mergers and acquisitions analyst for Shearson Lehman Brothers, a New
York-based investment banking firm now known as Lehman Brothers. Mr. Gordman
graduated cum laude from the harton School at the University of Pennsylvania
in 1986 with a B.S. in Economics. Mr. Gordman also earned a Masters of
Management at the Sloan School, Massachusetts Institute of Technology in 1990.
Mr. Jerome P. Gordman, Director, has 32 years of department store and
specialty store experience. He joined Richman Gordman in 1962 after active
duty with the Army as a lieutenant. He helped develop the Company into a
five-state retailer during his 23 years with Richman Gordman. He rose to Chief
Operating Officer of Richman Gordman Department Stores and Executive Vice
President of Richman Gordman Stores. In 1984, Mr. Gordman joined Kalico's,
Inc., a specialty store, as its President. After the closing of Kalico's, Inc.,
in 1997, Mr. Gordman became the Managing Partner of Gordman Properties Company,
a company with diversified real estate holdings in Nebraska and Iowa. Mr.
Gordman graduated from the Wharton School at the University of Pennsylvania
with a B.S. in Economics.
Mr. Nelson T. Gordman, a Director of the Company, is currently involved in
real estate development and management. He was previously President and COO of
Richman Gordman Department Stores and of Richman Gordman Stores, the parent
company of both Richman Gordman Department Stores and 1/2 Price Stores. Mr.
Gordman joined the Company in 1962 after completing studies at the University
of Pennsylvania's Wharton School and, in various capacities, participated in
and directed Richman Gordman's growth to 30 stores, five states and $250
million in annual sales volume.
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Mr. Seth Lehr is a Director of the Company. Mr. Lehr heads the
Philadelphia and New York Corporate Finance offices of Legg Mason Wood Walker,
Inc., a New York Stock Exchange-listed regional investment banking firm. Mr.
Lehr specializes in general corporate finance with an emphasis on the retail,
apparel, merchandising and consumer products industries. Mr. Lehr began his
investment banking career with The First Boston Corporation and Goldman, Sachs
& Co. Mr. Lehr then became a vice president of Shearson Lehman Brothers. Mr.
Lehr is on the Board of Directors of America's Best Contacts & Eyeglasses, L.P.
Mr. Lehr graduated with honors from the University of Pennsylvania and
received an MBA from The Wharton School of the University of Pennsylvania.
Mr. Thomas J. Noonan, Jr. is a Director of the Company. Mr. Noonan's
principal business experience over the past approximately ten years has been
managing and advising troubled and underperforming businesses. In this regard
he is presently an Executive Vice-President and Chief Financial Officer of
Herman's Sporting Goods, Inc., a specialty sporting goods retailer which filed
for protection under the United States Bankruptcy Code while Mr. Noonan was an
executive officer. Previously, he had served as a Managing Director of
Taggart/Fasola Group, a manager of troubled and underperforming businesses, and
as a Director and Executive Vice President of Intrenet, Inc. Previously, Mr.
Noonan served as Vice President-Finance for Pilot Freight Carriers, Inc.,
Senior Vice President-Finance for Purolator Courier Corporation, and a number
of line and financial positions with Airco, Inc. Mr. Noonan holds a B.S.
degree from Fordham University and an M.B.A. from St. John's University.
Mr. Philip Scheipe is a Director of the Company. Mr. Scheipe has over 30
years experience in the apparel and retail fields. Prior to retiring in 1994,
for the last fifteen years he was employed by Levi Strauss & Co. in the
positions of General Manager of DAE Financial Services and Vice President of
the Elesco Factors Division. Mr. Scheipe has broad experience in financial
disciplines and business reorganizations. He graduated from Pennsylvania State
University and is presently active as a consultant.
OFFICERS
Mr. James H. Cooke is the Vice President, Stores. He joined the Company
in 1987 after a sixteen year career with an Ohio-based discount chain. While
with that company, he served in a variety of operational positions. Prior to
that time, Mr. Cooke served in the United States Air Force. He is a graduate
of Ohio University.
Mr. Donald L. DeGraeve is the Vice President and General Merchandise
Manager of the Company. Prior to joining the 1/2 Price Stores in 1995, Mr.
DeGraeve was the Executive Vice President of Merchandising and Marketing for
Elder Beerman Stores, Inc. From 1983 to 1990 Mr. DeGraeve was the General
Merchandise Manager for Home, Mens and Childrens for the H.C. Prange Company.
He has also had a variety of merchandising positions with Federated Department
Stores, J.L. Brandeis Company, L.S. Ayres Company and Mercantile Stores
14
<PAGE> 15
Company, Inc. Mr. DeGraeve graduated from Kansas State University with a
Bachelor of Science in Business.
Mr. Norman J. Farrington is the Vice President, Chief Information Officer
for the Company. He received a B.S. and a M.S. in Computer Science from Iowa
State University. For a period of nine years, he owned and operated a
successful computer consulting business. Prior to joining the Company in 1984,
Mr. Farrington was on the faculty at Iowa State University teaching computer
science. He has earned the professional designations of Certified Data
Processor and Certified Systems Professional. Mr. Farrington is responsible
for the development and information strategy and support systems.
Ronald K. Hall is the Vice President of Operations for the Company. Prior
to joining the Company in May 1994, he completed a 29-year career as a Colonel
in the United States Air Force. His last assignment was as Deputy Director,
Command, Control, Communications, Computers and Intelligence for the United
States Strategic Command at Offutt Air Force Base, Nebraska. In that position,
he had responsibility for an annual budget of over $150 million while providing
computer and communications support to the nation's nuclear war planners. From
May 1994 until February 1997, he was Director of Systems Planning and
Development in the Information Technology Department of the Company. Mr. Hall
holds a BS in Industrial Engineering from North Dakota State University and an
MS degree in Systems Analysis from the Air Force Institute of Technology.
Mr. Edward Pitkoff joined the 1/2 Price Stores in October, 1996 as Vice
President Marketing and Sales Promotion. For thirty-five years Mr. Pitkoff has
held senior management positions in retail businesses such as department and
specialty stores. Most recently, Mr. Pitkoff was the Senior Vice President of
Marketing for Winkelman's, a 62 store women's specialty chain. He also has
extensive advertising agency experience, and he founded and directed his own
agency in New York. Mr. Pitkoff held the position of Senior Vice President
Marketing and Sales Promotion at Jordan Marsh in Miami as well as positions
with John Wanamaker and Gimbels in Philadelphia. He received a Bachelor of
Arts Degree from Philadelphia Museum School of Art.
Mr. John Simkins is the Vice President of Distribution for the Company.
Prior to joining the Company in July of 1993, he was director of operations for
Madigans in Chicago for two years. Before then, he was Vice President of
Distribution Operations for Carson Pirie Scott, also in Chicago; with
distribution responsibility for 35 stores, a staff of about 700 and an annual
budget of approximately $15 million. For eleven years prior to Carson's, Mr.
Simkins held increasingly responsible positions in operations and distribution
with the Bon Marche Corporation of Seattle. Mr. Simkins holds a degree from
Olympic College in Bremerton, Washington.
Mr. Edward D. Williamson is the Vice President of Human Resources for the
Company and is responsible for the human resources policy, training, benefits
and compensation. Prior to joining the Company in October of 1989, he
originated and directed the human resources department of Grisanti's, a
restaurant chain, during the company's national expansion phase. Mr.
15
<PAGE> 16
Williamson received a B.G.S. degree in general administration from the
University of Nebraska at Omaha, and currently holds the certification of
Senior Professional in Human Resources (SPHR).
COMMITTEES
The Board of Directors has three standing committees: the Executive
Committee, the Compensation Committee and the Audit Committee.
THE EXECUTIVE COMMITTEE
Mr. Bass, Mr. Noonan and Mr. Jeffrey Gordman are members of the Executive
Committee. The Executive Committee is intended generally to function on behalf
of the Board of Directors when the Board cannot be convened. The Executive
Committee will not act independently of the Board on significant matters
impacting the Company.
THE COMPENSATION COMMITTEE
Mr. Buxbaum, Mr. Scheipe and Mr. Lehr are members of the Compensation
Committee. The compensation of the Company's two former senior executive
officers, Mr. Dennis Reaves and Mr. Roger Faust, was established by the Plan
prior to the Effective Date and the seating of the present Board of Directors
and Compensation Committee. The primary functions of the Compensation
Committee have been negotiating the employment agreement with the Company's
President and Chief Executive Officer, Mr. Jeffrey J. Gordman, considering
issues that were raised under the employment agreements with Messrs. Faust and
Reaves, including amendments to the employment agreements, monitoring
employment agreements with vice presidents, including considering changes to
base salary and contract extensions, monitoring the bonus program for vice
presidents, monitoring and granting awards pursuant to the 1997 Stock Option
Plan and establishing compensation for additional officers that may be hired in
the future.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Of the three current members of the Compensation Committee, none are
executive officers of the Company, and no reportable interlocks exist with
respect to any such current members. However, during fiscal 1996, Mr. Jeffrey
Gordman and Mr. Jerome Gordman were members of the Company's Compensation
Committee. Mr. Jeffrey Gordman and Mr. Jerome Gordman are a present and former
employee of the Company, respectively, and are each beneficial owners of more
than 5% of the Common Stock. Mr. Jeffrey Gordman is the Company's President
and Chief Executive Officer. Mr. Jerome Gordman was an employee of the Company
for 23 years, ending in 1984.
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<PAGE> 17
THE AUDIT COMMITTEE
Mr. Noonan, Mr. Scheipe and Mr. Nelson Gordman are members of the Audit
Committee. The Audit Committee is responsible for recommending selection of
the independent auditors of the Company and reviewing audit results. The
Committee has the authority to engage and retain its own professionals.
SECTION 16(A) REPORTING DELINQUENCIES
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors and holders of
10% or more of the outstanding shares of the Company's Common Stock (together,
the "Reporting Persons") to file reports on Forms 3, 4 and 5 regarding their
transactions in the Company's Common Stock. Based solely upon its review of
the Company's records, copies of such Forms sent to the Company and/or written
statements from Reporting Persons that no Form 5 was required, the Company
believes that all Reporting Persons have timely filed all forms required to be
filed during Fiscal Year 1996 pursuant to Section 16(a) of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION.
EMPLOYMENT AGREEMENT WITH MR. JEFFREY GORDMAN
On February 1, 1997, the Company entered into an employment agreement with
Jeffrey J. Gordman, the Company's President and Chief Executive Officer. The
following describes the terms and conditions of Mr. Gordman's employment
agreement:
BASE SALARY. Mr. Gordman's employment agreement provides for an annual
base salary of $225,000, subject to such increases and bonuses as the
Compensation Committee of the Company's Board of Directors may from time
to time determine.
TERMINATION OF AGREEMENT AND SEVERANCE. Mr. Gordman's employment agreement
provides for an initial term of three years, with annual extensions upon
each anniversary of the date thereof if neither the Company nor Mr.
Gordman gives notice of nonextension. The employment agreement with Mr.
Gordman provides for termination for cause upon 15 days' written notice
and opportunity to be heard at a Board of Directors meeting. The
employment agreement further provides that Mr. Gordman or the Company may
terminate the agreement with or without cause upon 30 days' written
notice. If Mr. Gordman's employment is terminated by the Company without
cause, the employment agreement provides for severance payments equal to
the then-present value of his then-current base salary and benefits for
the remainder of the term of the employment agreement. If Mr. Gordman's
employment is terminated by the Company for nonperformance, Mr. Gordman
shall receive severance payments equal to his then-current base salary and
benefits for the lesser of 12 months or the remaining term of the
Agreement. If Mr. Gordman's employment is terminated by the
17
<PAGE> 18
Company for dishonesty or if Mr. Gordman resigns, Mr. Gordman shall
receive base salary and benefits only through the termination date.
EXECUTIVE BENEFITS. Mr. Gordman's employment agreement also provides
that he is entitled to the following executive benefits: (i) payment by
the Company of premiums for short term disability insurance and director
and officer liability insurance, and a bi-weekly benefits allowance
determined in accordance with the Company's executive benefits policy
currently in place; (ii) payment by the Company of membership dues in
Prairie Life Club; (iii) contribution by the Company to 401(k) plans on
terms applicable to other senior management; and (iv) all other then
current executive benefits offered by the Company. Mr. Gordman is also
entitled to at least four weeks of paid vacation per year.
NONCOMPETITION; TRADE SECRETS. The employment agreement contains a
covenant against competition with the Company for a period of one year
within 50 miles of the Company's corporate offices and its stores if Mr.
Gordman's employment is terminated for cause. The employment agreement
also prohibits Mr. Gordman from disclosing or benefiting from the
Company's trade secrets during the term of the agreement and at all times
thereafter. Mr. Gordman is also prohibited by the employment agreement
from hiring any employees of the Company within one year after the
termination of his employment with the Company.
EMPLOYMENT AGREEMENTS WITH
MR. DENNIS REAVES AND MR. ROGER FAUST
During Fiscal Year 1996, the Company was party to employment agreements
with Mr. Dennis Reaves and Mr. Roger Faust. Mr. Reaves' employment agreement
was terminated by letter agreement dated May 15, 1996 (the "Letter Agreement").
Mr. Faust's employment agreement was terminated pursuant to a Termination of
Employment Agreement dated February 11, 1997 (the "Termination Agreement").
The following describes the terms and conditions of Messrs. Reaves' and Faust's
employment agreements, as amended by the Letter Agreement and Termination
Agreement, respectively.
BASE SALARY. Mr. Reaves' employment agreement provided for an annual base
salary of $400,000. Mr. Faust's employment agreement provided for an
annual base salary, subject to annual adjustment, with a minimum increase
equal to the increase, if any, in the Bureau of Labor Statistics Consumer
Price Index (Urban Consumers-All City Average). Mr. Faust's base salary
for Fiscal Year 1995 was $211,150 and $216,430 for Fiscal Year 1996.
Mr. Reaves received a severance payment in accordance with the Letter
Agreement equal to the present value of unpaid base salary through
February 1, 1997. In accordance with the terms of the Termination
Agreement, Mr. Faust received a severance payment of approximately
$113,000, representing the present value of Mr. Faust's base salary for
the period January 11, 1997, through January 10, 1998, net of applicable
taxes, as provided for in Mr. Faust's employment agreement.
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<PAGE> 19
TERM OF AGREEMENT AND SEVERANCE. Mr. Reaves' employment agreement was
for a term extending through January 30, 1999; however, Mr. Reaves resigned
effective May 15, 1996. Mr. Faust's employment agreement had a three year
duration, subject to annual extension, with severance payment to be the
greater of one year's base salary or the remaining balance of the
contract term. Mr. Faust's employment agreement had been extended by the
Board through October 20, 1998; however, Mr. Faust resigned effective
January 10, 1997.
MANAGEMENT STOCK. Mr. Reaves' and Mr. Faust's employment agreements both
provided for the issuance of Series A Common Stock as part of their
compensation. The employment agreements provided that Messrs. Reaves and
Faust may receive 9% and 3% on a fully diluted basis, respectively, of the
Common Stock issued by the Company over five years in equal annual
installments beginning in Fiscal Year 1994, subject to the following
conditions: (1) 75% of the annual installment of such stock would vest if
Cumulative Minimum Payment were made; and (2) the remaining 25% of the
annual installment of such stock would vest if the Cumulative Adjusted
Plan Cash Flow were achieved. Any missed installments could have been
earned in subsequent years if the appropriate cumulative test had been met
at that time. Any Common Stock reserved for Messrs. Reaves and Faust
which was not earned within 90 days after January 31, 1998, was to be
distributed pro rata to Creditors as provided by the Plan. Any unvested
Common Stock of Mr. Faust or Mr. Reaves, respectively, would automatically
have been earned if (i) more than 50% of the Common Stock were sold or
transferred or (ii) his employment were terminated by the Company without
cause. In accordance with the terms of the Letter Agreement, the unearned
portion of Mr. Reaves' stock bonus as of May 15, 1996, was awarded as of
that date, and all of the 2,565,000 shares of Series A Common Stock owned
by Mr. Reaves after giving effect to such award were repurchased by the
Company at a price equal to $.088 per share, for an aggregate price of
$225,270.
CASH BONUS COMPENSATION. Mr. Reaves' employment agreement provided for a
cash bonus, net of taxes, of $500,000 paid in October, 1995. In
accordance, with the Letter Agreement, Mr. Reaves retained all the cash
bonus following the termination of his employment with the Company. Mr.
Faust's employment agreement provided for cash bonus payments in each year
upon the following terms: (1) 20% of base salary if the Cumulative
Minimum Payment were met; (2) an additional 20% of base salary if
Cumulative Adjusted Plan Cash Balance were met; (3) any missed bonus would
have been earned and payable within 90 days after the end of any Fiscal
Year in which the respective cumulative test had been satisfied by such
date; (4) the Company would pay 5% of its 50% share of Excess Cash Balance
to Mr. Faust; and (5) the bonuses referred to in this sentence would not
have been earned in any year in which the Company's cumulative EBITDA is
less than the following EBITDA requirements (the "EBITDA Requirements"):
19
<PAGE> 20
<TABLE>
<CAPTION>
FISCAL YEAR MINIMUM CUMULATIVE EBITDA
----------- -------------------------
<S> <C>
1993 $ 4,562,000
1994 9,974,000
1995 16,577,000
1996 23,596,000
1997 31,468,000
</TABLE>
EXECUTIVE BENEFITS. The employment agreements further required (1)
current executive benefits, including short term disability insurance and
a benefits allowance; (2) payment by the Company of membership dues in
Prairie Life Club; (3) four weeks vacation annually; and (4) contribution
by the Company to 401(k) plans on terms applicable to other participants.
The Company did not make contributions to the 401(k) plan in Fiscal Year
1995. For Fiscal Year 1996, the Company authorized matching contributions
equal to 25% of each employee's contribution, but not in excess of 4% of
the employee's compensation. In accordance with the Letter Agreement, the
Company continued to pay the premiums for Mr. Reaves' health and dental
insurance through February 1, 1997, and matched Mr. Reaves' 401(k)
contribution with respect to the severance payment described above. Mr.
Reaves assumed the cost of his long-term disability and life insurance as
of May 15, 1997. In accordance with the Termination Agreement, Mr. Faust
received a payment in the amount of approximately $9,700, representing
four weeks and one day of vacation pay, net of applicable taxes. The
Termination Agreement also requires the Company to continue to pay the
premiums for Mr. Faust's health and dental insurance through the coverage
period ending January 10, 1998, and Mr. Faust's directors and officers
liability insurance through January 10, 1998. Mr. Faust assumed the cost
of his long-term disability and life insurance as of January 10, 1997.
TAX BONUS. The employment agreements provided for the payment of cash
bonuses to Mr. Reaves and Mr. Faust for purposes of paying income tax on
the stock bonuses received by them. Such tax bonuses were not to exceed
the tax savings attributable to the deduction available to the Company in
connection with such transaction. No such tax bonus was paid by the
Company with respect to Mr. Reaves' award of unearned stock bonus as
provided for in the Letter Agreement.
MUTUAL RELEASE. Both the Letter Agreement and the Termination Agreement
provide for the mutual release of the Company and Mr. Reaves and Mr.
Faust, respectively, from any and all causes of action arising out of Mr.
Reaves' and Mr. Faust's respective employments with the Company and the
terminations thereof.
BONUS PROGRAM AND EMPLOYMENT AGREEMENTS FOR VICE PRESIDENTS
All of the Company's Vice Presidents except Mr. Williamson are parties to
employment agreements. These employment agreements provide for three-year
terms, beginning February 1, 1997, with a minimum base salary level for each of
the three years. The employment agreements
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<PAGE> 21
provide for severance payments in an amount equal to the greater of
then-current salary for six months or for the remainder of the fiscal year
during which notice is given in the event of termination for any reason other
than expiration of the term of the employment agreement or the Vice President's
misconduct or breach of the employment agreement. The employment agreements
also provide for a review and possible extension not less than one year prior
to expiration.
The Company also adopted an Officer Incentive Program in March, 1997. In
accordance with their employment agreements, all of the Vice Presidents
participate in this bonus program. The bonus program includes the following
provisions:
- A bonus pool of $100,000 will be established if the Company
achieves its planned operating profit for Fiscal Year 1997;
- Five percent of any operating profit in excess of planned
operating profit will be added to the bonus pool;
- Of the available bonus pool, 75% will be distributed in equal
shares to program participants, and the remaining 25% will be
distributed as determined by the Chief Executive Officer.
The Vice Presidents also participate in certain executive benefits,
including: (i) 60% of the Vice President's group health insurance premiums are
paid by the Company; (ii) Vice President life insurance premiums are paid by
the Company; and (iii) a 401(k) plan. In Fiscal Year 1996, the Company made
matching contributions equal to 25% of each employee's contribution, but not in
excess of 4% of the employee's compensation. For Fiscal Year 1997, the
Company has authorized matching contributions equal to 25% of each employee's
contribution, but not in excess of 4% of the employee's compensation.
COVENANT NOT TO COMPETE
Pursuant to the Plan, Mr. Nelson Gordman, a Director, has executed a
covenant not to compete anywhere in the United States with the Company in
exchange for payments of $125,000 per annum through October 1998.
DIRECTORS
The Chairman of the Company's Board of Directors receives an annual fee of
$25,000, and all other Directors receive an annual fee of $20,000. Each
Director also receives $1,500 per board meeting attended. Directors attending
board meetings by telephone receive $750 per meeting. Members of committees
receive $1,000 per committee meeting attended. Committee members attending
committee meetings by telephone receive $500 per meeting. Directors who are
also officers or employees of the Company do not receive Directors fees. Such
Directors, however,
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<PAGE> 22
are reimbursed for expenses related to meeting attendance. The Board of
Directors has adopted a policy requiring members to attend at least 75% of all
meetings each year in order to receive compensation as a Director.
OFFICERS COMPENSATION
The following table summarizes the compensation of the Chief Executive
Officer and the four additional most highly compensated officers during the
Fiscal Years 1996, 1995 and 1994:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------- LONG-TERM
NAME OTHER ANNUAL COMPENSATION ALL OTHER
AND POSITION(1) YEAR(2) SALARY BONUS COMPENSATION(3) PAYOUTS COMPENSATION(4)
- -------------- ----- ------ ----- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Roger Faust(8) 1994 $205,800 $ 224,151(5) $ 4,464 -0- -0-
Sr. V.P., Sec., 1995 $211,150 $ 195,125(5) $ 3,748 -0- -0-
Treas., and Chief 1996 $206,438 $ -0- $ 2,736 -0- $ 228,913(9)
Financial Officer
Dennis Reaves(7) 1994 $257,250 $ 387,992(6) $ 3,688 -0- -0-
Director, Pres., and 1995 $322,596 $1,336,254(6) $ 3,105 -0- -0-
Chief Executive 1996 $138,461 $ 49,896(6) $ 123 -0- $ 410,438(10)
Officer
Jeffrey J. Gordman 1994 $ 75,000 $ 8,167 $ 92 -0- -0-
Director, President, and 1995 $ 93,644 $ 15,000 $ 49 -0- -0-
Chief Executive Officer 1996 $145,222 $ -0- $ 150 -0- $ 1,336
David Potter 1994 $127,115 $ 23,000 $ 3,100 -0- -0-
V.P. of Merchandising 1995 $150,000 $ 25,000 $ 3,066 -0- -0-
1996 $ 90,738 $ -0- $ 196 -0- $ 68,247(11)
James Cooke 1994 $145,000 $ 26,000 $ 4,263 -0- -0-
V.P., Stores 1995 $160,000 $ 29,000 $ 4,641 -0- -0-
1996 $180,718 $ -0- $ 1,635 -0- $ 1,335
Stanley Latacha 1994 $130,000 $ 25,000 $ 2,886 -0- -0-
V.P. of Marketing 1995 $140,000 $ 26,000 $ 3,027 -0- -0-
1996 $ 79,629 $ -0- -0- -0- $ 443
</TABLE>
(1) The current or last position with the Company is given. During the years
listed the named persons held various positions with Richman Gordman
Stores, Richman Gordman Department Stores and 1/2 Price Stores.
(2) Represents Fiscal Years commencing in January or February of the stated
year.
(3) "Other Annual Compensation" is primarily in the form of other cash
benefits, life insurance, reimbursement of health and dental insurance,
health club memberships, value of company-paid automobiles, etc.
(4) "All Other Compensation" represents 401(k) matching contributions made by
the Company.
(5) For Fiscal Year 1995, includes cash, stock and tax bonuses of $123,132,
$51,372 and $20,621, respectively. For Fiscal Year 1994, includes cash,
stock, and tax bonuses of $152,230, $51,372, and $20,549, respectively.
(6) For Fiscal Year 1996, includes stock bonus of $35,640 and tax bonus of
$14,256. For Fiscal Year 1995, includes cash, stock and tax bonuses of
$1,120,274, $154,116 and $61,864, respectively. For Fiscal Year 1994,
includes cash, stock, and tax bonuses of $172,230, $154,116, and $61,646,
respectively.
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<PAGE> 23
(7) The increase in the 1995 bonus compensation represents a bonus to Mr.
Reaves under an employment agreement dated October 1, 1995. The
employment agreement provided for a cash bonus, net of taxes, in the
amount of $500,000, covering a period of 40 months. Mr. Reaves resigned
from the Company effective May 15, 1996.
(8) Mr. Faust resigned from the Company effective January 10, 1997.
(9) Includes severance payments of $227,311 and 401(k) matching contributions
made by the Company in the amount of $1,602.
(10) Includes severance payments of $408,991 and 401(k) matching contributions
made by the Company in the amount of $1,602.
(11) Includes severance payments of $67,100 and 401(k) matching contributions
made by the Company in the amount of $1,447.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The table below represents shares of Common Stock held by management.
Additionally, the table includes those Creditors who, as of April 8,
1997, had been issued and hold shares of Common Stock in an amount that
is equal to or greater than 5% of the Common Stock on a fully diluted
basis.
NAME, PERCENTAGE
TITLE, OF TOTAL
ADDRESS NUMBER AUTHORIZED(1)
- ------- ------ -----------
R.G. Stock Trust 16,200,000(2) 54.0%
Jeffrey J. Gordman,
Trustee
Richman Gordman 1/2
Price Stores, Inc.
12100 West Center Road
Omaha, NE 68144
Jeffrey J. Gordman 16,200,000(3) 54.0%
Richman Gordman 1/2
Price Stores, Inc.
12100 West Center Road
Omaha, NE 68144
Nelson T. Gordman 6,302,939(4) 21.0%
10777 North 60th Street
Omaha, Nebraska 68152
Jerome P. Gordman 4,916,326(5) 16.4%
9925 Essex Drive
Omaha, Nebraska 68114
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<PAGE> 24
Harris Trust and 3,123,459 10.4%
Savings Bank
200 West Monroe Street
P.O. Box 755
Chicago, Illinois 60603
Roger Faust 315,0006 1.1%
7011 S. 140th St.
Omaha, Nebraska 68137
- ---------------------
(1) Presented on a fully-diluted basis assuming issuance of all 30,000,000
authorized shares; 29,280,000 presently issued and 26,715,000 outstanding.
(2) These 16,200,000 shares of Series A Common Stock are the property of the
R.G. Stock Trust created by Dan Gordman. Mr. Jeffrey J. Gordman, the
Gordman Trustee, is sole trustee of the trust and is Dan Gordman's designee
for purposes of the Plan. The Gordman Trustee has exclusive voting and
investment power with respect to the 16,200,000 shares of Series A Common
Stock. There are three beneficiaries of the trust, Mr. Jeff Gordman, Mr.
Nelson T. Gordman and Mr. Jerome P. Gordman, all members of the Board of
Directors of the Company.
(3) See Note 2 above. As sole trustee of the R.G. Stock Trust, Jeff Gordman has
exclusive voting and investment power with respect to 16,200,000 shares of
Series A Common Stock. As a beneficiary of the trust with a 35% interest,
Jeff Gordman in his individual capacity is the beneficial owner of 5,670,000
shares, plus an additional 4,860,000 shares representing the 30% beneficial
interest in the trust of his father, Jerome Gordman.
(4) Nelson Gordman is the beneficial owner of 5,670,000 shares of Series A
Common Stock as a beneficiary of the R.G. Stock Trust with a 35% interest.
Through his interest in Gordman family entities which are registered owners
of shares of Series B Option Common Stock, Nelson Gordman is the beneficial
owner of an additional 632,939 shares of Series B Option Common Stock.
(5) Jerome Gordman is the beneficial owner of 4,860,000 shares of Series A
Common Stock as a beneficiary of the R.G. Stock Trust with a 30% interest.
Through his interest in Gordman family entities which are registered owners
of shares of Series B Option Common Stock, Jerome Gordman is the beneficial
owner of an additional 56,326 shares of Series B Option Common Stock.
(6) Mr. Faust is the registered owner of 315,000 shares of Series A Common Stock
issued pursuant to his Employment Agreement with the Company. Mr. Faust
resigned from the Company effective January 10, 1997.
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<PAGE> 25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following table describes facilities that the Company leases from
entities owned or controlled by Mr. Nelson Gordman, Mr. Jerome Gordman
(both Directors of the Company) or the estate of Dan Gordman. Nelson
and Jerome Gordman are Co-Personal Representatives of the Dan Gordman
estate.
<TABLE>
APPROXIMATE
FLOOR AREA ANNUAL
LOCATION (SQUARE FEET) RENT DESCRIPTION
- -------- ------------- ------ -----------
<S> <C> <C> <C>
Omaha, NE 98,700 $450,288 Corporate Headquarters(1)
Omaha, NE 163,300 676,710 Distribution Center(2)
Bellevue, NE 100,000 701,060 Store Location(3)
Grand Island, NE 91,400 215,023 Store Location(4)
LaVista, NE 81,200 269,540 Store Location(5)
Omaha, NE 103,200 628,161 Store Location(6)
Lincoln, NE 101,400 175,226 Store Location(7)
</TABLE>
- -------------
(1) Lease expires July 31, 2009 with a single option to renew for twenty
years.
(2) The Distribution Center is composed of a total of 267,000 square feet
(excluding internal mezzanine space of 111,400 square feet). The Company
owns 103,700 square feet of the Distribution Center and the land beneath
this portion ("Building 1"). Two portions totaling 163,300 square feet
are leased from Gordman entities. One lease for approximately 82,000
square feet ("Building 2") expires April 30, 2003; the Gordman entity
which leases Building 2 to the Company also owns the underlying land.
The Company has four five-year options to extend the term of the
Building 2 lease. The second lease for approximately 81,000 square feet
("Building 3") expires July 31, 1999. The land under Building 3 is
owned by the Company and is leased to the Gordman entity lessor for a
term also expiring July 31, 1999. Upon expiration of the Building 3
leases, the Company will own both the building and land for Building 3.
The Company and the Gordman entity are also parties to an Option
Agreement giving the Company the option to purchase Building 2 and its
underlying real estate at the end of the term or any option term at fair
market value. If the Company does not exercise its purchase option on
Building 2, the Gordman entity has the option to purchase Building 1
and/or Building 3 from the Company at fair market value.
(3) Lease expires October 31, 2003, with three renewal options of five
years each.
(4) Lease expires February 28, 1998, with no renewal options.
25
<PAGE> 26
(5) Lease expires July 31, 2005, with ten renewal options of five years
each.
(6) Lease expires July 31, 1998, with three renewal options of five years
each.
(7) Lease expires October 31, 2010, with a first privilege to negotiate a
second twenty year term.
During the bankruptcy proceedings, the Company conducted an extensive
review of all locations. As a result, many locations owned by Gordman
family members and other lessors were closed and the leases rejected as
being unsuitable. Also during the bankruptcy proceedings, an independent
third party analyzed the terms of remaining leases with Gordman family
enterprises. While some leases were found to be above market and others
below, the portfolio as a whole was found to be comparable to those from
unaffiliated parties in comparable real estate markets.
While the Company is not materially dependent on one or several store
locations, the Company is materially dependent on its Distribution
Center located in Omaha, Nebraska. The Distribution Center is
comprised of three buildings, one of which is owned by the Company.
The remaining two buildings are owned by entities controlled by members
of the Gordman family. Please see footnote 2 to the chart above. As
part of extension of the Building 2 lease, in February, 1996, the
Company granted the Gordman entity which is the lessor of Building 2 an
easement over a portion of the Company's property. This easement
provides for access to Building 2, including truck docking and parking.
As a result of the bankruptcy proceedings, four Gordman family
partnerships ("Gordman Partnerships") received unsecured claims of
$3,697,749, relating to the rejection of three store leases. Pursuant
to these allowed unsecured claims, the Gordman Partnerships received
the same treatment accorded other Class 3 Unsecured Claims under the
Plan, namely Series B Option Common Stock, cash payments and the right
to future cash payments to Creditors.
Three additional issues involving members of the Gordman family and the
Company were resolved during fiscal 1996. First, the Company's claim
against the Dan Gordman estate (the "Estate") approximating $77,000 and
arising from a loan from the Company to Mr. Dan Gordman was settled
pursuant to an Estate Claim Settlement Agreement (the "Estate Claim
Agreement") between the Company and the Estate dated December 13, 1996.
In accordance with the Estate Claim Agreement, the Estate paid the
Company approximately $43,000 and agreed to pay up to an additional
$34,000 from any dividends paid before April 15, 1999, on shares of the
Company's Common Stock owned by the Estate. Second, pursuant to an
Agreement Regarding Dan Gordman Fund between the Estate of Esther
Gordman, the Dan Gordman Fund and the Company, dated December 13, 1996,
the Company agreed to pay to the Esther Gordman Estate approximately
$347,000, arising out
26
<PAGE> 27
of the personal portion of an insurance policy on the life of Dan Gordman,
which was paid to one of the Company's Creditors, Harris Bank, pursuant to
a collateral assignment of the policy. The Company will be obligated to
make monthly payments following payment in full of Harris Bank. Third,
the Company released to Mr. Nelson Gordman its rights with regard to one
or more insurance policies on the life of Mr. Nelson Gordman in exchange
for approximately $13,500.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) Financial Statements.
(1) A. The following financial statements are incorporated by
reference to the 1996 Annual Report.
Consolidated Balance Sheets as of February 1, 1997, and February 3, 1996
Consolidated Statements of Operations for the fiscal years ended
February 1, 1997, February 3, 1996, and January 28, 1995
Consolidated Statements of Stockholders' Equity for the fiscal years
ended February 1, 1997, February 3, 1996 and January 28, 1995
Consolidated Statements of Cash Flows for the fiscal years ended
February 1, 1997, February 3, 1996, and January 28, 1995
Notes to Consolidated Financial Statements for fiscal years ended
February 1, 1997, February 3, 1996, and January 28, 1995
B. The Report of Independent Auditors with respect to the financial
statements listed in A. above is also incorporated by reference to the
1996 Annual Report.
(2) A. The following financial statement schedules are incorporated by
reference to the 1996 Annual Report
Schedule II -- Valuation and Qualifying Accounts
B. The Report of Independent Auditors with respect to the financial
statement schedules listed in A. above is also incorporated by reference
to the 1996 Annual Report.
(3) The following exhibits are filed herewith or incorporated by reference
as set forth below:
27
<PAGE> 28
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession (incorporated by reference to the Company's Registration
Statement on Form S-1 (Commission File No. 33-79382), filed with
the Commission on May 26, 1994).
(3)(i) Amended and Restated Certificate of Incorporation of Richman
Gordman 1/2 Price Stores, Inc. (incorporated by reference to the
Company's Registration Statement on Form S-1 (Commission File No.
33-79382), filed with the Commission on May 26, 1994).
(3)(ii) Bylaws of Richman Gordman 1/2 Price Stores, Inc. (incorporated
by reference to the Company's Registration Statement on Form S-1
(Commission File No. 33-79382), filed with the Commission on May
26, 1994).
(4)(i) Instruments defining the rights of security holders, including
indentures -- Section 6.03(a), 7.09, and 10.03 of First Amended
Joint Plan of Reorganization under Chapter 11 of the Bankruptcy
Code for Richman Gordman Stores, Inc., Richman Gordman Department
Stores, Inc., and 1/2 Price Stores, Inc. -- Please see Exhibit
(99)(i).
(4)(ii) Instruments defining the rights of security holders, including
indentures -- Please see Exhibit (3)(i).
(4)(iii) Instruments defining the rights of security holders, including
indentures -- Specimen Stock Certificate (incorporated by
reference to the Company's Registration Statement on Form S-1
(Commission File No. 33-79382) filed with the Commission on May
26, 1994).
(9) Voting trust agreement -- not applicable.
(10)(i)(a) Material Contracts -- Credit Agreement between Richman Gordman 1/2
Price Stores, Inc. and Congress Financial Corporation dated
October 20, 1993 (incorporated by reference to the Company's
Registration Statement on Form S-1 (Commission File No. 33-79382)
filed with the Commission on May 26, 1994).
(10)(i)(b) Material Contracts -- Amendment No. 1 to Credit Agreement between
Richman Gordman 1/2 Price Stores, Inc. and Congress Financial
Corporation, dated January 28, 1994 (incorporated by reference to
Amendment No. 4 to the Company's Registration
28
<PAGE> 29
Statement on Form S-1 (Commission File No. 33-79382) filed with
the Commission on March 6, 1995).
(10)(i)(c) Material Contracts -- Amendment No. 2 to Credit Agreement between
Richman Gordman 1/2 Price Stores, Inc. and Congress Financial
Corporation, dated February 24, 1994 (incorporated by reference to
Amendment No. 4 to the Company's Registration Statement on Form
S-1 (Commission File No. 33-79382) filed with the Commission on
March 6, 1995).
(10)(i)(d) Material Contracts -- Amendment No. 3 to Credit Agreement between
Richman Gordman 1/2 Price Stores, Inc. and Congress Financial
Corporation, dated September 11, 1995 (incorporated by reference
to the Company's Annual Report on Form 10-K for the fiscal year
ended February 3, 1996).
(10)(i)(e) Material Contracts -- Amendment No. 4 to Credit Agreement between
Richman Gordman 1/2 Price Stores, Inc. and Congress Financial
Corporation, dated May 6, 1996 (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended August 3, 1996).
(10)(i)(f) Material Contracts -- Amendment No. 5 to Credit Agreement between
Richman Gordman 1/2 Price Stores, Inc. and Congress Financial
Corporation, dated September 12, 1996 (incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended August 3, 1996).
(10)(i)(g) Material Contracts -- Amendment No. 6 to Credit Agreement between
Richman Gordman 1/2 Price Stores, Inc. and Congress Financial
Corporation, dated January 31, 1997.
(10)(i)(h) Material Contracts -- Amendment No. 7 to Credit Agreement between
Richman Gordman 1/2 Price Stores, Inc. and Congress Financial
Corporation, dated April 7, 1997.
(10)(ii)(a) Material Contracts -- Employment Agreement dated October 1, 1995,
between Richman Gordman 1/2 Price Stores, Inc. and Mr. Dennis
Reaves (incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended February 3, 1996).
(10)(ii)(b) Material Contracts -- Amendments dated January 17, 1996 to
Employment Agreement between Richman Gordman 1/2 Price
29
<PAGE> 30
Stores, Inc. and Mr. Dennis Reaves (incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 1996).
(10)(ii)(c) Material Contracts -- Letter Agreement between Richman Gordman 1/2
Price Stores, Inc. and Dennis E. Reaves, dated May 15, 1996
modifying Employment Agreement (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended August 3, 1996).
(10)(iii)(a) Material Contracts -- Employment Agreement between Richman Gordman
1/2 Price Stores, Inc. and Mr. Roger Faust (incorporated by
reference to the Company's Registration Statement on Form S-1
(Commission File No. 33-79382) filed with the Commission on May
26, 1994).
(10)(iii)(b) Material Contracts -- Amendments dated March 31, 1994 to
Employment Agreement between Richman Gordman 1/2 Price Stores,
Inc. and Mr. Roger Faust (incorporated by reference to the
Company's Form 10-K for the Fiscal Year ended January 28, 1995,
filed with Commission on April 28, 1995).
(10)(iii)(c) Material Contracts -- Amendments dated January 17, 1996 to
Employment Agreement between Richman Gordman 1/2 Price Stores,
Inc. and Mr. Roger Faust (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 1996).
(10)(iii)(d) Material Contracts -- Termination Agreement between Richman
Gordman 1/2 Price Stores, Inc. and Roger Faust, dated February 11,
1997, modifying Employment Agreement.
(10)(iv) Material Contracts -- Covenant Not To Compete between Richman
Gordman 1/2 Price Stores, Inc. and Mr. Nelson Gordman
(incorporated by reference to the Company's Registration
Statement on Form S-1 (Commission File No. 33-79382) filed with
the Commission on May 26, 1994).
(10)(v)(a) Material Contracts -- Vice President Incentive Program
(incorporated by reference to the Company's Registration
Statement on Form S-1 (Commission File No. 33-79382) filed with
the Commission on May 26, 1994).
30
<PAGE> 31
(10)(v)(b) Material Contracts -- Richman Gordman 1/2 Price Stores, Inc. 1997
Officer Incentive Program
(10)(vi) Material Contracts -- Employment Agreement between Richman Gordman
1/2 Price Stores, Inc. and Jeffrey J. Gordman, dated February 1,
1997.
(10)(vii) Material Contracts -- Employment Agreement between Richman Gordman
1/2 Price Stores, Inc. and James Cooke dated February 1, 1997.
(10)(viii) Material Contracts -- Junior Indenture of Mortgage, Deed of Trust
and Security Agreement from Richman Gordman 1/2 Price Stores, Inc.
to Chicago Title Insurance Company, in trust for the benefit of
Cathy Hershcopf, as agent for the Class 3 Creditors dated January
31, 1997.
(10)(ix) Material Contracts -- Junior Security Agreement between Richman
Gordman 1/2 Price Stores, Inc. and Cathy Hershcopf, as agent for
the Class 3 Creditors, dated as of January 31, 1997.
(10)(x) Material Contracts -- Agreement Regarding Dan Gordman Fund,
between the Estate of Esther Gordman, the Dan Gordman Fund and
Richman Gordman 1/2 Price Stores, Inc., dated as of December 13,
1996.
(11) Statement re computation of share earnings -- not applicable.
(12) Statements re computations of ratios -- not applicable.
(13) Annual report to security holders, Form 10-Q or
quarterly report to security holders -- Annual Report to
Shareholders for the Company's Fiscal Year ended February 1, 1997.
(16) Letter re change in certifying accountant -- not applicable.
(18) Letter re change in accounting principles -- not applicable.
(21) Subsidiaries of the Registrant -- not applicable.
(22) Published report regarding matters submitted to vote of security
holders -- not applicable.
31
<PAGE> 32
(23) Consents of Deloitte & Touche L.L.P.
(24) Power of attorney -- not applicable.
(27) Financial data schedule.
(28) Information from reports furnished to state regulatory authorities
-- not applicable.
(99)(i) Additional Exhibit -- First Amended Joint Plan of Reorganization
under Chapter 11 of the Bankruptcy Code for Richman Gordman
Stores, Inc., Richman Gordman Department Stores, Inc., and 1/2
Price Stores, Inc. (incorporated by reference to the Company's
Registration Statement on Form S-1 (Commission File No. 33-79382)
filed with the Commission on May 26, 1994).
(99)(ii) Additional Exhibit -- First Amended Disclosure Statement Pursuant
to Section 1125 of the Bankruptcy Code with Respect to the First
Amended Joint Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code for Richman Gordman Stores, Inc., Richman Gordman
Department Stores, Inc., and 1/2 Price Stores, Inc. (incorporated
by reference to the Company's Registration Statement on Form S-1
(Commission File No. 33-79382) filed with the Commission on May
26, 1994).
(b) Reports on Form 8-K.
The Company filed no Reports on Form 8-K during the last quarter of Fiscal
Year 1996.
[Remainder of this page intentionally left blank].
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: April 25 , 1997 By: /s/ Jeffrey J. Gordman
- ---------------------- -------------------------------------
Jeffrey J. Gordman
President and Chief Executive Officer
33
<PAGE> 34
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/s/ Jeffrey J. Gordman April 25, 1997
- ----------------------------- --------------
Jeffery J. Gordman
President and Chief Executive
Officer, Director
/s/ Paul M. Bass, Jr. April 24, 1997
- ----------------------------- --------------
Paul M. Bass, Jr.
Chairman, Board of Directors
April , 1997
- ----------------------------- --------------
Paul M. Buxbaum
Director
/s/ Jerome P. Gordman April 25, 1997
- ----------------------------- --------------
Jerome P. Gordman
Director
/s/ Nelson T. Gordman April 24, 1997
- ----------------------------- --------------
Nelson T. Gordman
Director
/s/ Thomas J. Noonan, Jr. April 25, 1997
- ----------------------------- --------------
Thomas J. Noonan, Jr.
Director
/s/ Philip Scheipe April 25, 1997
- ----------------------------- --------------
Philip Scheipe
Director
/s/ Seth Lehr April 25, 1997
- ----------------------------- --------------
Seth Lehr
Director
<PAGE> 35
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
(10)(i)(g) Material Contracts -- 37
Amendment No. 6 to
Credit Agreement between
Richman Gordman 1/2
Price Stores, Inc. and
Congress Financial
Corporation, dated
January 31, 1996.
(10)(i)(h) Material Contracts -- 40
Amendment No. 7 to
Credit Agreement between
Richman Gordman 1/2
Price Stores, Inc. and
Congress Financial
Corporation, dated
April 7, 1997.
(10)(iii)(d) Material Contracts -- 45
Termination Agreement between
Richman Gordman 1/2 Price
Stores, Inc. and Roger Faust,
dated February 11, 1997,
modifying Employment
Agreement.
(10)(v)(b) Material Contracts -- 49
Richman Gordman 1/2
Price Stores, Inc. 1997
Officer Incentive Program
(10)(vi) Material Contracts -- 53
Employment Agreement
between Richman Gordman
1/2 Price Stores, Inc. and
Jeffrey J. Gordman, dated
February 1, 1997.
<PAGE> 36
(10)(vii) Material Contracts -- Employment 62
Agreement between Richman
Gordman 1/2 Price Stores, Inc.
and James Cooke, dated
February 1, 1997.
(10)(viii) Material Contracts -- Junior 69
Indenture of Mortgage, Deed of
Trust and Security Agreement
from Richman Gordman 1/2
Price Stores, Inc. to Chicago
Title Insurance Company in
trust for the benefit of Cathy
Hershcopf, as agent for The
Class 3 Creditors, dated
January 31, 1997.
(10)(ix) Material Contracts -- Junior 98
Security Agreement between
Richman Gordman 1/2 Price
Stores, Inc. and Cathy
Hershcopf, as agent for The
Class 3 Creditors, dated
January 31, 1997.
(10)(x) Material Contracts -- Agreement 115
Regarding Dan Gordman Fund,
between the Estate of Esther
Gordman, The Dan Gordman
Fund and Richman Gordman 1/2
Price Stores, Inc., dated as of
December 13, 1996.
(13) Annual Report to Security 118
Holders, Form 10-Q or
quarterly report to security
holders -- Annual Report
to Shareholders for the
Company's Fiscal Year
ended February 1, 1997.
(23) Consents of Deloitte & 162
Touche L.L.P.
(27) Financial Data Schedule 164
<PAGE> 1
EXHIBIT (10)(i)(g)
Material Contracts --
Amendment No. 6 to
Credit Agreement between
Richman Gordman 1/2
Price Stores, Inc. and
Congress Financial
Corporation, dated
January 31, 1996.
<PAGE> 2
AMENDMENT NO. 6 TO
INVENTORY FINANCING AGREEMENT
AND ACCOUNTS SECURITY AGREEMENT
January 31, 1997
Richman Gordman 1/2 Price Stores, Inc.
12100 West Center Road
Omaha, Nebraska 68144
Ladies and Gentlemen:
Reference is made to the Inventory Financing Agreement and Accounts
Security Agreement dated as of October 20, 1993, as previously amended and
supplemented (the "Loan Agreement") between Congress Financial Corporation
(Central) ("Congress") and Richman Gordman 1/2 Price Stores, Inc. ("Borrower").
Terms used herein and not otherwise defined herein shall the meaning ascribed
to such terms in the Loan Agreement.
Borrower has requested that Congress agree to amend the Loan Agreement to
modify the inventory advance rate, and Congress is willing to do so subject the
terms and conditions set forth herein.
Accordingly, the Loan Agreement is hereby amended in the following
respect:
1. The first sentence of Section 2.1 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
In the absence of an Event of Default and in the absence of an
event which with the passage of time or the giving of notice or
both would mature into an Event of Default and subject to the
terms and conditions of this Agreement as amended by any
supplements and riders hereto, you shall make loans to us from
time to time, at our request, of up to thirty-six percent (36%)
of the retail value of Eligible Inventory (reduced to twenty
percent (20%) of the retail value of all "clearance items"
constituting Eligible Inventory in an amount not to exceed Six
Million Dollars ($6,000,000) which have been on our Premises for
a period of less than eighteen (18) months); provided that at no
time shall the outstanding loans made pursuant to the provisions
of this section exceed seventy-five percent (75%) of the "Mid
Range Liquidation Value", as determined by the most
<PAGE> 3
Richard Gordman 1/2 Price Stores, Inc.
January 31, 1997
Page 2
recently prepared Inventory Liquidation Sale Analysis of
Schottenstein Bernstein Capital Group, LLC (the "Mid Range
Liquidation Value Amount"). In the event that at any time the
loans made pursuant to this section exceed the Mid Range
Liquidation Value Amount, as so determined, Borrower shall be
obligated to immediately repay the loans by an amount necessary
to eliminate such excess.
The amendment to the Loan Agreement described herein shall be
effective upon the delivery by Borrower to Congress of a counterpart
of this Amendment No. 6 which has been acknowledged and agreed to by
Borrower, along with (i) resolutions of the board of directors of
Borrower pertaining to the subject matter hereof, in form and
substance satisfactory to Congress, and (ii) an opinion of counsel to
Borrower, regarding the subject matter hereof, in form and substance
satisfactory to Congress and (iii) evidence of the consent of the
Official Unsecured Creditors Committee of Richman Cordman 1/2 Price
Stores, Inc. to this Amendment No. 6.
Except as expressly set forth herein, the Loan Agreement shall
remain unmodified and in full force and effect.
Very truly yours,
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By /s/ Daniel Laven
---------------------------------------
Its Assistant Vice President
-------------------------------------
ACKNOWLEDGED AND AGREED TO as of
the 31st day of January, 1997.
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
By /s/ Jeff Gordman
-----------------------------------
Its President, CEO
-----------------------------------
<PAGE> 1
EXHIBIT (10)(i)(h)
Material Contracts --
Amendment No. 7 to
Credit Agreement between
Richman Gordman 1/2
Price Stores, Inc. and
Congress Financial
Corporation, dated
April 7, 1997.
<PAGE> 2
AMENDMENT NO. 7 TO
INVENTORY FINANCING AGREEMENT
AND ACCOUNTS SECURITY AGREEMENT
April 7, 1997
Richman Gordman 1/2 Price Stores, Inc.
12100 West Center Road
Omaha, Nebraska 68144
Ladies and Gentlemen:
Reference is made to the Inventory Financing Agreement and
Accounts Security Agreement dated as of October 20, 1993, as
previously mended and supplemented (the "Loan Agreement") between
Congress Financial Corporation (Central) ("Congress") and Richman
Gordman 1/2 Price Stores, Inc. ("Borrower"). Terms used herera and not
otherwise defined herein shall the meaning ascribed to such terms in
the Loan Agreement
Borrower has requested that Congress agree to amend the Loan
Agreement to, among other things, (i) modify the inventory advance
rate and (ii) decrease the interest rate and Congress is willing to do
so subject the terms and conditions set forth herein.
Accordingly, the Loan Agreement is hereby amended in the
following respects:
1. The following sentence is hereby added to the end of Section
1.5 to read as follows:
"Notwithstanding the foregoing sentence, Eligible Inventory
shall include, (a) Inventory, to the extent that it is
otherwise Eligible Inventory and to the extent that it has been
prepaid by Borrower and which is at the location of the
supplier of such Inventory ("Prepaid Inventory"); provided that
(1) such Inventory shall only be Eligible Inventory for 60 days
after payment in full has been made by Borrower and (2) the
aggregate mount of loan availability predicated on Prepaid
Inventory shall not exceed $500,000 and (b) Inventory m-transit
within the United States to Borrower; provided that the
aggregate amount of loan availability predicated on Inventory
mtransit shall not exceed $3,000,000."
2. The first sentence of Section 2.1 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
<PAGE> 3
Richard Gordman 1/2 Price Stores, Inc.
April 7, 1997
Page 25
In the absence of an Event of Default and in the absence of an
event which with the passage of time or the giving of notice or
both would mature into an Event of Default and subject to the
terms and conditions of this Agreement as amended by any
supplements and riders hereto, you shall make loans to us from
time to time, at our request, of up to thirty-eight percent (38%)
of the retail value of Eligible Inventory (reduced to (i) twenty
percent (20%) of the retail value of all "clearance items"
constituting Eligible Inventory in an mount not to exceed Six
Million Dollars ($6,000,000) which have been on our Premises for
a period of less than eighteen (18) months and (ii) twenty
percent (20%) of all Prepaid Inventory in an amount not to exceed
Two Million Five Hundred Thousand Dollars ($2,500,000); provided
that at no time shall the outstanding loans made pursuant to the
provisions of this section exceed seventy-five percent (75%) of
the "Mid Range Liquidation Value", as determined by the most
recently prepared Inventory Liquidation Sale Analysis of
Schottenstein Bernstein Capital Group, LLC (the "Mid Range
Liquidation Value Amount"). In the event that at any time the
loans made pursuant to this section exceed the Mid Range
Liquidation Value Amount, as so determined, Borrower shall be
obligated to immediately repay the loans by an amount necessary
to eliminate such excess.
3. The first sentence of Section 3.1 is hereby amended and
restated to read as follows:
"Interest shall be payable by us to you on the first day of
each month upon the closing daily balances in our loan account
for each day during the immediately preceding month, at a rate
equal to one percent (1.00%) per annum in excess of the prime
commercial interest rate publicly announced by Philadelphia
National Bank, incorporated as CoreStates Bank, N.A.,
Philadelphia, Pennsylvania, whether or not such announced rate
is the best rate available at such bank."
<PAGE> 4
Richard Gordman 1/2 Price Stores, Inc.
April 7, 1997
Page 3
4. The third sentence of Section 3 of Rider No. 1 to the Loan
Agreement is hereby amended and restated to read as follows:
"Debtor also acknowledges and agrees that Congress shall have
the right to engage Schottenstein Asset Recovery Division or
such other firm as is acceptable to Congress to appraise the
Inventory on a semi-annual basis, and Debtor shall be required
to reimburse Congress for such appraisal as provided in Section
3.8 of the Loan Agreement; provided that if at any time, the
amount by which loan availability of Debtor described in
Section 2.1 of the Loan Agreement exceeds the loans outstanding
under the Loan Agreement by an amount less than $2,500,000
after Debtor has paid or reserved for payment of all accounts
payable which are more than sixty (60) days past the invoice
date, then Congress shall have the right to obtain such
appraisals on a quarterly basis."
5. The first sentence of Section 2.1 of the Inventory Security
Agreement Supplement to Inventory Financing Agreement and
Accounts Security Agreement is hereby amended to read as
follows:
"Except for Inventory in transit and Prepaid Inventory, the
only locations of any tangible Collateral are those addresses
listed on Schedule A annexed hereto and made a part hereof, as
amended from time to time upon 30 days' prior written notice to
you."
The amendment to the Loan Agreement described herein shall be
effective upon the dehvery by Borrower to Congress of a counterpart of
this Amendment No. 7 which has been acknowledged and agreed to by
Borrower, along with (i) resolutions of the board of directors of
Borrower pertaining to the subject matter hereof, in form and
substance satisfactory to Congress, and (ii) evidence of the consent
of the Official Unsecured Creditors Committee of Richman Gordman 1/2
Price Stores, Inc. to this Amendment No. 7.
<PAGE> 5
Richard Gordman 1/2 Price Stores, Inc.
April 7, 1997
Page 4
Except as expressly set forth herein, the Loan Agreement shall remain
unmodified and in full force and effect.
Very truly yours,
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By /s/ David Levan
-----------------------------
Its Assistant Vice President
-----------------------------
ACKNOWLEDGED AND AGREED TO as of
the 18th day of April, 1997.
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
By /s/ Jeffrey J. Gordman
-----------------------------
Its President and CEO
----------------------------
<PAGE> 1
EXHIBIT (10)(iii)(d)
Material Contracts --
Termination Agreement between
Richman Gordman 1/2 Price
Stores, Inc. and Roger Faust,
dated February 11, 1997,
modifying Employment
Agreement.
<PAGE> 2
TERMINATION OF
EMPLOYMENT AGREEMENT
This Termination of Employment Agreement is made as of the 11th
day of February, 1997 (the "Agreement"), by and among ROGER FAUST
("Executive"), and RICHMAN GORDMAN 1/2 PRICE STORES, INC., a Delaware
corporation (the "Company"). Capitalized terms not defined herein
shall have their respective meanings set forth in the Employment
Agreement, as defined below.
WHEREAS, the Company and Executive are parties to an Employment
Agreement dated as of October 20, 1993, as amended by the First
Amendment to Employment Agreement dated as of March 31, 1994, and as
further amended by the Second Amendment to Employment Agreement dated
as of January 17, 1996 (the "Employment Agreement"); and
WHEREAS, Executive resigned as Senior Vice President, Chief
Financial Officer, Secretary and Treasurer of the Company effective
January 10, 1997;
NOW, THEREFORE, in consideration of the preceding premises which
are incorporated into the Agreement by this reference, and in
consideration of the agreements contained herein, the parties agree as
follows:
Section 1. Prior to the date hereof, Executive has received, as
part of regular payroll, payment of the net amount due Executive for
Base Salary and benefits through January 10, 1997.
Section 2. Two (2) checks shall be delivered to Executive upon
execution of this Agreement, as follows:
a. A check in the amount of $113,017.72, representing the
lump sum payment of the present value of Base Salary from
January 11, 1997 through January 10, 1998, as provided by
Section 8(c)(ii) of the Employment Agreement, net of
applicable taxes and withholding. (See attached
calculations).
b. A check in the amount of $9,710.63, representing four
weeks and one day of vacation pay, net of applicable taxes
and withholding. (See attached calculations).
Section 3. The Company will continue to pay the premiums on
Executive's existing health and dental insurance plans through the
coverage period ending January 10, 1998. The Company will maintain
directors and officers liability insurance for Executive comparable to
that presently in effect through January 10, 1998. Executive will
convert and assume the cost of long-term disability and life insurance
after January 10, 1997.
Section 4. In consideration of the payments above, Executive
hereby releases the Company and its directors, officers and employees
(the "Company Released Parties"), from any and all causes of action he
may have against them for matters arising during or out of his
employment or arising as a result of or in connection with his
employment relationship with the Company or the
<PAGE> 3
termination of that relationship, including without limitation under the
Employment Agreement. This release includes any causes of action he may
have against the Company Released Parties, whether known or unknown,
asserted or unasserted and whether in tort, contract, pursuant to
statutory employment law or otherwise, other than any claim by Executive
to enforce the terms of this Agreement.
Section 5. The Company hereby releases Executive from any and all
causes of action the Company may have against Executive for matters
arising during or out of his employment or arising as a result of or in
connection with his employment relationship with the Company or the
termination of that relationship, including without limitation under the
Employment Agreement. This release includes any causes of action the
Company may have against Executive, whether known or unknown, asserted
or unasserted and whether in tort, contract, pursuant to statutory
employment law or otherwise, other than any claim by the Company to
enforce the terms of this Agreement.
Section 6. Upon payment by the Company of the amounts specified in
Section 2 above, the Company's obligations under the Employment
Agreement will terminate except for the express obligations of the
Company under Section 3 above. Executive will continue to be
responsible for his obligations under Section 10 of the Employment
Agreement, provided that the Company and Executive acknowledge and agree
that subsection (c) of Section 10 is not applicable and is hereby
terminated and of no force and effect.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
EXECUTIVE:
/s/ Roger R. Faust
---------------------------------------
Roger R. Faust
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
By /s/ Jeffrey J. Gordman
-------------------------------------
Jeffrey J. Gordman, President
<PAGE> 4
Lump Sum Severance Calculation
$8,324.23 Bi-weekly Payment
0.230769% Interest Rate (Annual 6%, Bi-Weekly: .230769%)
26 Term of Annuity (1 Year - Biweekly Payments)
$209,830.20 Present Value of Annuity Payments
$216,430.00 Lump Sum Amount
$209,830.20 Present value
- - 75,538.87 Federal taxes (36%)
- - 14,688.11 State taxes (7%)
- - 3,542.96 Base FICA
- - 3,042.54 Medicare (1.45%)
-----------
$113,017.72 Net amount due
Vacation Calculation
$ 17,480.88 Four weeks and one day vacation
- - 6,293.12 Federal taxes (36%)
- - 1,223.66 State taxes (7%)
- - -0- Base FICA
- - 253.47 Medicare (1.45%)
-----------
$ 9,710.63
<PAGE> 1
EXHIBIT (10(v)(b)
Material Contracts --
Richman Gordman 1/2
Price Stores, Inc. 1997
Officer Incentive Program
<PAGE> 2
1/2 PRICE STORES
Officer
Incentive
Program
Fiscal Year 1997
<PAGE> 3
OFFICER INCENTIVE PROGRAM
OBJECTIVE
- ---------
Richman Gordman 1/2 Price Stores, Inc. is committed to your
continuing success as a member of the senior management team. Your
leadership and the performance of the staff you supervise has a major
effect on the profitability of our company. The Officer Incentive
Program is designed to reward the senior management team when their
collective contributions lead to the attainment of Company fiscal
objectives.
ELIGIBILITY
- -----------
Participation in the Officer Incentive Program is limited to those
officer-level associates designated by the Chief Executive Officer of
Richman Gordman 1/2 Price Stores, Inc. as eligible to participate.
Officers who are designated as participants after the beginning of the
fiscal year will be entitled to share in the bonus pool on a pro rated
basis determined by the number of full accounting periods during which
they were participants. Continuing participation is contingent upon
satisfactory performance of duties, and the Chief Executive Officer, in
his sole discretion, shall have the authority to grant or revoke
eligibility for participation in this Program.
BONUS PERIOD
- ------------
The Program applies to cumulative results obtained during Fiscal
Year 1997, which runs from a February through January accounting period
basis.
BONUS CALCULATION
- -----------------
The Program is designed to generate a bonus pool. from which a cash
incentive will be distributed to each Program participant. The bonus
calculation is detailed below:
- ATTAINMENT OF ANNUAL OPERATING PROFIT
Annual operating profit, for the purposes of bonus calculation, is
defined as earnings after depreciation and interest on leases, but
before other interest expense, LIFO provision, income taxes, gains
and losses from the sale of capital assets, and other extraordinary
gains and losses. If the Company achieves its planned operating
profit for Fiscal Year 1997 of $2,573,000, a bonus pool of $100,000
will be established.
<PAGE> 4
- EXTRA EFFORT
Five percent (5%) of any additional annual operating profit in
excess of $2,573,000 will be added to the bonus pool.
- DETERMINATION OF INDIVIDUAL INCENTIVE AMOUNTS
Seventy-five percent (75%) of the bonus pool will be distributed in
equal shares to the Program participants. The remaining
twenty--five percent (25%) of the bonus pool will be distributed to
all or some of the participants, in the amounts determined by the
Chief Executive Officer, in each case the participants and the
amounts to be determined in his sole discretion. There is no
ceiling imposed on the dollar amount of incentive that a
participant may earn under this Program.
- EXAMPLE:
This example assumes that there are 7.5 participants in the
Program, seven at the beginning of Fiscal Year 1997 and an eighth
participant added in mid-June. Assuming that the Company exceeds
its annual sales plan by $5,000,000, and that 31.5% of the
incremental sales flow through to operating profit, the annual
operating profit for Fiscal Year 1997 would be $4,148,000
($2,573,000 plus 31.5% of $5,000,000). The bonus pool is calculated
as follows:
$100,000 Attainment of annual operating profit of $2,573,000
$ 78,750 Extra effort addition of 5% of excess operating profit of
$1,575,000 ($2,573,000 + $1,575,000 -- $4,148,000)
--------
$178,750 Total bonus pool $17,875 Individual cash incentive
($178,750 divided by 7.5 participants times 75%)
The remaining twenty-five percent of the bonus pool, $44,687, would be
allocated among all or some of the Program participants in the amounts
determined by the Chief Executive Officer.
BONUS PAYMENTS
- --------------
Earned incentives will be paid in cash within 75 days of the end of the fiscal
year.
2
<PAGE> 5
SOURCE OF INCENTIVE DATA
- ------------------------
The internal year-end financial statements of Richman Gordman 1/2 Price
Stores, Inc., as presented to the Company's Board of Directors at the next
board meeting following the end of Fiscal Year 1997, will be the official
source for determining the annual operating profit achieved by the Company. Any
awarded incentive may be revoked at any time if subsequent audits detect any
discrepancies in accounting or inventory practices. Associates involved in
these types of practices may also face disciplinary actions up to, and
including termination of employment.
EMPLOYMENT SEPARATION
- ---------------------
A participant must be actively employed by the Company on the date of
bonus payment distribution to be eligible for incentive payment.
TERMINATION OF THE PLAN
- -----------------------
Richman Gordman 1/2 Price Stores, Inc. reserves the right to amend or
cancel the incentive program at any time. The Chief Executive Officer will
serve as the final arbiter in any questions arising from the Program.
ISSUED BY:
/s/Edward Williamson March 24, 1997
- ------------------------------------- ------------------
Vice President of Human Resources Date
APPROVED BY:
- -------------------------------------
/s/ Jeffrey Gordman March 24, 1997
- ------------------------------------- --------------
President and Chief Executive Officer Date
3
<PAGE> 1
EXHIBIT (10)(vi)
Material Contracts --
Employment Agreement
between Richman Gordman
1/2 Price Stores, Inc. and
Jeffrey J. Gordman, dated
February 1, 1997.
<PAGE> 2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of February 1,
1997, between RICHMAN GORDMAN 1/2 PRICE STORES, INC., a Delaware corporation
("Company") and Jeffrey J. Gordman ("Executive").
RECITALS:
Executive is currently the President and Chief Executive Officer for
Company. Company and Executive desire that Executive continue in this position
for Company upon the terms and conditions stated in this Agreement.
IT IS AGREED:
1. Position and Duties. Company hereby employs Executive in the capacity
of President and Chief Executive Officer. Executive shall perform the duties
as are reasonably associated with this position as Company may determine from
time to time. Executive shall have the authority to enable him to carry out
his duties.
2. Term. The term of this Agreement shall commence as of the date hereof
and continue for a term of three (3) years. On each anniversary of the
execution of this Agreement, the term shall automatically be extended for
another year unless either party gives notice of nonextension to the other
prior to such anniversary date.
3. Compensation. Company shall pay Executive a base salary of Two Hundred
Twenty-Five Thousand Dollars ($225,000) per year (the "Base Salary"), payable
biweekly in accordance with Company's normal payroll practices and subject to
normal withholding, including without limitation withholding for FICA and other
taxes. The Base Salary shall be subject to such annual increases as Company's
Compensation Committee shall determine are appropriate, provided that the Base
Salary shall not be less than $225,000. Any such annual increases shall become
effective at the beginning of each fiscal year of Company during the term of
this Agreement. Notwithstanding the foregoing, Executive shall be eligible to
be considered for a performance bonus from time to time or to be considered for
a mid-year increase in Base Salary, in each case at the sole discretion of
Company, as recommended by Company's Compensation Committee.
4. Benefits.
<PAGE> 3
a. General. Executive also shall be entitled to the following
benefits (the "Benefits"):
(1) Payment by Company of premiums for short term disability
insurance (100% of salary for up to six months) and director and
officer liability insurance for Executive, and a bi-weekly benefits
allowance determined in accordance with Company's executive
benefits policy currently in place;
(2) Payment by Company of membership dues for executive in
Prairie Life Club;
(3) Contribution by Company to 401(k) plans of Executive on terms
applicable to other senior management participants in such 401(k)
plans; and
(4) All other then current executive benefits offered by Company
and not otherwise specified above.
Any amounts payable to Executive under any benefit plans in respect of
any calendar year during which Executive is employed by Company for less
than the entire such year shall, unless otherwise required by government
regulation of the applicable plan, be prorated in accordance with the
number of days in such calendar year during which he is so employed.
b. Vacations. Executive shall be entitled to the number of paid
vacation days in each calendar year determined in accordance with
Company's vacation plan, but in no event less than twenty (20) working
days (four weeks) per calendar year. Executive shall also be entitled to
all paid holidays generally given by Company to its executives.
c. Services Furnished. Company shall furnish Executive in Omaha,
Nebraska with office space, secretarial assistance and such other
facilities and services as shall be suitable to Executive's position and
adequate for the performance of Executive's duties.
5. Reimbursement of Business Expenses. Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred in performing
services for Company, including reasonable entertainment expenses and
reasonable travel and living expenses while away from home in the performance
of services for Company, provided that such expenses are incurred and accounted
for in accordance with Company's policies and procedures in effect from time to
time.
6. Termination. For purposes of this Agreement, "Termination Date" shall
mean the last day of Executive's employment hereunder. This Agreement and
Executive's employment hereunder may be terminated as follows:
2
<PAGE> 4
a. Death. This Agreement shall terminate without notice
automatically upon the Executive's death. In such case, the Termination Date
shall be the date of death.
b. Total Disability. Company may terminate this Agreement following
Executive's total and continuous disability for a period of 180
consecutive days if the Board of Directors determines in good faith that
the disability prevents the Executive from carrying out his duties;
provided that such termination must be exercised by Notice of Termination
delivered to Executive prior to substantial cure of such disability. In
such case, the Termination Date shall be the date of delivery of the
Notice of Termination, or such later date as may be specified in the
Notice of Termination.
c. Cause. Company may terminate this Agreement for Cause provided
the conditions of this Section 6(c) are met. For purposes of this
Agreement, "Cause" shall mean (i) willful dishonesty which materially
damages Company or (ii) willful failure to substantially perform duties
if such performance is not commenced within five (5) business days after
written notice is delivered to Executive specifically identifying the
failure. Company shall initiate termination for Cause by delivering a
Notice of Termination to Executive. Upon delivery of the Notice of
Termination under clause (i) above, Executive shall be immediately
suspended, with pay, from his duties. Executive shall not be suspended
in connection with a Notice of Termination given under clause (ii) above.
Company shall give Executive at least 15 days written notice of and an
opportunity to be heard at a Board of Directors meeting at which the
Board shall decide whether to rescind the Notice of Termination. If the
Notice of Termination is not rescinded, the Termination Date shall be the
date of the Board of Directors meeting, or such later date as may be
specified by the Board.
d. Without Cause. Company may terminate this Agreement at any time
without Cause upon 30 days' Notice of Termination delivered to Executive.
In the event Company materially changes Executive's duties or authority
as provided in this Agreement, at Executive's option exercised at any
time following such event, Executive may deem such conditions to be
notice of termination by Company without Cause.
e. By Executive. Executive may terminate his employment hereunder
at any time with or without cause upon at least thirty (30) days' written
notice of termination.
"Notice of Termination", as used in this section, means a written notice
delivered to Executive by Company which states the specific termination
provision in this Agreement relied upon; sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so stated; and states the proposed
termination date in accordance with this Agreement.
3
<PAGE> 5
7. Severance Compensation. Upon termination of this Agreement, Executive
shall be entitled to the following severance compensation:
(a) Termination Without Cause. Upon termination by Company
without Cause, Executive shall be entitled to his then current Base
Salary and benefits under Section 4 hereof for the remainder of
the term hereof. The payment shall be paid within ninety (90) days
after the Termination Date in a lump sum equal to the present value
of the balance of such payments, such present value to be
calculated based on a discount factor equal to the then-current
general prime interest rate quoted for the fifth business day
preceding the payment in the Wall Street Journal or if the Wall
Street Journal is no longer being published, in a similar national
financial publication.
(b) Termination for Nonperformance. Upon termination of
Executive under 6(c)(ii) of this Agreement, Executive shall be
entitled to his then current Base Salary and benefits under Section
4 hereof for the lesser of 12 months or the remaining term of this
Agreement. The payment shall be paid on a bi-weekly basis,
pursuant to the provisions of Section 3 hereof. At Company's
option, the present value of any such remaining payments made be
made in a lump sum, such present value to be determined in
accordance with Section 7(a) above.
(c) Termination for Dishonesty, Resignation. Upon termination
of Executive under Section 6(c)(i) of this Agreement or if
Executive resigns, he shall be entitled only to Base Salary and
benefits under Section 3 of this Agreement through the Termination
Date.
8. Beneficiary Designation. Executive may by written notice delivered to
Company during his lifetime designate which person(s), including primary and
contingent beneficiaries, in the event of his death during the term of this
Agreement, he elects to have receive any payments which would otherwise be due
him under this Agreement. Executive may change his designations from time to
time and the last designation in writing filed with Company before his death
shall control. Failing such designation, the payments shall be made to the
legal representative(s) of Executive's estate. Company shall be fully
protected and absolved from any liability with respect to any payments made by
it hereunder in good faith and reasonably believed by it to be made in
compliance with any designation filed by Executive hereunder or, in the absence
thereof, to any persons reasonably believed by it in good faith to be entitled
to receive the same.
9. Hiring of Employees, Trade Secrets, Etc.
4
<PAGE> 6
a. Hiring of Employees. During the term of this Agreement and for a
period of one year thereafter, Executive shall not for any reason
whatsoever, directly or indirectly, induce or attempt to influence any
management employee of Company or any subsidiary of Company to terminate
his or her employment with Company or such subsidiary of Company or to
hire any employee of Company or any subsidiary of Company.
b. Trade Secrets. During the term of this Agreement and at all
times thereafter, Executive shall not use for his personal benefit, or
disclose, communicate or divulge to, or use for the direct or indirect
benefit of any person, firm, association or company other than Company or
any subsidiary of Company, any information regarding the business
methods, business policies, procedures, techniques, research or
development projects or results, trade secrets or other knowledge or
processes of a proprietary nature belonging to, or developed by, Company
or any other confidential information relating to or dealing with the
business operations or activities of Company or any subsidiary of
Company, made known to Executive or learned or acquired by Executive
while in the employ of Company.
c. Covenant Against Competition. Solely in the event that
Executive is terminated for Cause in accordance with Section 7(a) or his
employment terminates or is terminated under Section 7(b) above, for the
period of one year Executive shall not compete against Company within 50
miles of Company's corporate offices or any of its stores by, directly or
as an agent or employee of another entity, performing services that are
substantially similar to or are a competitive alternative to Company's
primary business of off-price retailing.
d. Remedies. Executive acknowledges that the restrictions
contained in the foregoing Sections 9(a) and (b) (the "Restrictions"), in
view of the nature of the business in which Company and its subsidiaries
are engaged, are reasonable and necessary in order to protect the
legitimate interests of Company and its subsidiaries, and that any
violation thereof would result in irreparable injury to Company.
Executive therefore further acknowledges that, in the event Executive
violates, or threatens to violate, any Restrictions, Company and its
subsidiaries shall be entitled to obtain from any court of competent
jurisdiction, without the posting of any bond or other security,
preliminary and permanent injunctive relief as well as damages and an
equitable accounting of all earnings, profits and other benefits arising
from such violation, which rights shall be cumulative and in addition to
any other rights or remedies in law or equity to which Company or any
subsidiary of Company may be entitled.
e. Invalid Provisions. If any Restriction, or any part thereof, is
determined in any judicial or administrative proceeding to be invalid or
unenforceable, the remainder of the Restrictions shall not thereby be
affected and shall be given full effect, without regard to the invalid
provisions.
5
<PAGE> 7
f. Judicial Reformation. If the period of time or the area
specified in the Restrictions should be adjudged unreasonable in any
judicial or administrative proceeding, then the court or administrative
body shall have the power to reduce the period of time or the area
covered and, in its reduced form, such provisions shall then be
enforceable and shall be enforced.
g. Tolling. If Executive violates any of the Restrictions, the
restrictive period shall not run in favor of Executive from the time of
the commencement of any such violation until such time as such violation
shall be cured by Executive to the satisfaction of Company.
10. Other Investments. Nothing herein shall prohibit investments by the
Executive in other persons and enterprises, provided that such investments
shall not interfere with duties delegated to the Executive.
11. Notices. Any notice under this Agreement shall be deemed given to
Executive when deposited in the U.S. Mail postage prepaid addressed to him at
his last known residence and otherwise when delivered to him personally and to
Company when deposited in the U.S. Mail postage prepaid addressed to Company at
its principal office in Omaha, Nebraska and otherwise when delivered to Company
at such address, or to such other place as either party may direct from time to
time in writing.
12. Miscellaneous. No provision of this Agreement may be modified or
waived unless such waiver or modification is agreed to in writing signed by
Executive and Company. No waiver by either party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Severability. The invalidity or unenforceability of any provision(s)
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
14 Successors and Assigns. The rights and obligations of Company under
this Agreement shall be binding upon and shall benefit its successors and
assigns. Company shall not sell substantially all of its assets or undertake a
liquidation or dissolution of Company without providing reasonable assurances
to Executive that this Agreement will be honored by the successor to Company's
business.
15. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto with respect to the subject matter contained herein. This
Agreement supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto in respect thereof.
6
<PAGE> 8
16. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Nebraska.
17. Survival. The provisions of Sections 6, 7, 8 and 9 of this
Agreement shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
By /s/ Paul M. Bass, Jr.
--------------------------------
Title Chairman
-----------------------------
EXECUTIVE
/s/ Jeffrey J. Gordman
----------------------------------
Jeffrey J. Gordman
7
<PAGE> 1
EXHIBIT (10)(vii)
Material Contracts -- Employment
Agreement between Richman
Gordman 1/2 Price Stores, Inc.
and James Cooke, dated
February 1, 1997.
<PAGE> 2
EMPLOYMENT AGREEMENT
This Agreement is made as of the 1st day of February, 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 James H. Cooke ("Employee"), who resides at 5807 S. 118th
Plaza, Omaha, Nebraska 68137.
WHEREAS Employer has extended an offer of employment to Employee to serve
as the Vice President, Stores 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, Stores, 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 for three (3) of
Employer's consecutive fiscal years, beginning February 1, 1997, subject to the
other terms and provisions herein. Upon the expiration of the three-year
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.
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:
<PAGE> 3
FISCAL YEAR(S) ANNUAL SALARY
--------------- -------------
1997 $ 180,000
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
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
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
2
<PAGE> 4
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 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.
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<PAGE> 5
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.
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
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<PAGE> 6
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.
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.
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<PAGE> 7
RICHMAN GORDMAN EMPLOYEE:
1/2 PRICE STORES, INC.
/s/ Jeffrey J. Gordman /s/ James H. Cooke
- --------------------------------- -----------------------------
Jeffrey J. Gordman James H. Cooke
President and CE0
<PAGE> 1
EXHIBIT (10)(viii)
Material Contracts -- Junior
Indenture of Mortgage, Deed of
Trust and Security Agreement
from Richman Gordman 1/2
Price Stores, Inc. to Chicago
Title Insurance Company in
trust for the benefit of Cathy
Hershcopf, as agent for The
Class 3 Creditors, dated
January 31, 1997.
<PAGE> 2
JUNIOR INDENTURE OF MORTGAGE, DEED OF TRUST
AND SECURITY AGREEMENT
This Junior Indenture of Mortgage, Deed of Trust and Security Agreement
(the "Indenture") dated as of January 31, 1997 from Richman Gordman 1/2 Price
Stores, Inc., a Delaware corporation (successor by merger to Richman Gordman
Stores, Inc., a former Nebraska corporation) with its mailing address at 12100
West Center Road, Omaha, Nebraska 68144 (hereinafter referred to as "Grantor"),
to Chicago Title Insurance Company, a Missouri corporation, in care of Spence
Title Services, Inc., with its mailing address at 1905 Harney Street, Suite
210, Omaha, Nebraska 68102 (the "Trustee "), in trust for the benefit of Cathy
Hershcopf, Esq., as agent for the Class 3 Creditors (the "Junior Beneficiary"),
as identified in the Richman Gordman Stores, Inc., Richman Gordman Department
Stores, Inc. and 1/2 Price Stores, Inc., (collectively, the "Debtors"), First
Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code
for the Debtors dated August 13, 1993 (such plan as confirmed as hereinafter
described being hereinafter referred to as the "Plan") in Case Nos. BK
92-81073, BK 92-81074 and BK 92-81075 in the United States Bankruptcy Court for
the District of Nebraska (the "Bankruptcy Court") with her mailing address in
care of Lawrence Gottlieb, Siegel, Sommers & Schwartz, 470 Park Avenue South,
New York, New York 10016;
WITNESSETH THAT:
WHEREAS, before its merger into the Grantor, the former Nebraska
corporation known as Richman Gordman Stores, Inc. did heretofore execute and
deliver to the Trustee and Harris Trust and Savings Bank, an Illinois banking
corporation with its principal place of business and mailing address at P.O.
Box 755, 111 West Monroe Street, Chicago, Illinois 60690 (the "Senior
Beneficiary") that certain Indenture of Mortgage, Deed of Trust and Security
Agreement dated as of April 4, 1991 and recorded in the Recorder's Office of
Douglas County, Nebraska on April 5, 1991 at Book 3598, Pages 465-496 of
Mortgages, as amended by that certain First Supplement to Indenture of
Mortgage, Deed of Trust and Security Agreement dated as of September 17, 1991
and recorded in the Recorder's Office of Douglas County, Nebraska on September
23, 1991 at Book 3672, Pages 256-266 of Mortgages, as further amended by that
certain Second Supplement to Indenture of Mortgage, Deed of Trust and Security
Agreement dated as of March 30, 1992 and recorded in the Recorder's Office of
Douglas County, Nebraska on April 20, 1992 at Book 3779, Pages 227-237 of
Mortgages (as so amended, the "Original Indenture "), in order to secure
certain indebtedness therein described of said Richman Gordman Stores, Inc.
owed to the Senior Beneficiary (the "Original Mortgage Debt"); and
WHEREAS, the Plan was confirmed by order of the Bankruptcy Court entered
on October 5, 1993; and
WHEREAS, pursuant to the Plan, the Grantor issued to the Senior
Beneficiary a Secured Term Note of the Grantor dated October 20, 1993 payable
to the order of the Senior Beneficiary in the face principal amount of
$4,000,000 (such Secured Term Note and any and all notes issued
<PAGE> 3
in extension or renewal thereof or in substitution or replacement therefor, in
each case whether in whole or in part, as each of the foregoing may from time
to time be modified or amended, being hereinafter referred to collectively as
the "Term Note") to evidence $4,000,000 in principal amount of the Original
Mortgage Debt as the same has been modified by the Plan; and
WHEREAS, the Guarantor executed and delivered an Indenture of Mortgage,
Deed of Trust, and Security Agreement (the "Senior Indenture"), dated October
20, 1993, to the Trustee and the Senior Beneficiary to confirm and assure that
the lien of the Original Indenture continues to encumber the Mortgaged Premises
(as hereinafter defined) for the benefit and security of the Term Note, it
being understood and agreed that nothing contained in this Indenture shall in
any manner affect or impair the priority of the lien of the Original Indenture
as to such portion of the Senior Indenture, including the Original Mortgage
Debt secured thereby; and
WHEREAS, a portion of the Term Note was prepaid from the proceeds of an
insurance policy (the "Insurance") on the life of A. D. (Dan) Gordman; and
WHEREAS, The Dan Gordman Fund (the "Fund") as beneficiary of the
Insurance, is subrogated to the rights of the Senior Beneficiary under the Term
Note, and the Security Agreement and the Senior Indenture securing such Term
Note, and as such is also a Senior Beneficiary; and
WHEREAS, this Indenture is made and given pursuant to that certain Waiver
executed and delivered by the Class 3 Creditors (the "Waiver") dated as of
January 31, 1997, which Waiver agrees to the deferral of the Class 3 Creditor
Minimum Cumulative Payment under the Plan of $1,939,000, scheduled to be
escrowed on February 1, 1997 (the "1997 Minimum Payment"); and
NOW, THEREFORE, for good and valuable consideration, receipt whereof is
hereby acknowledged, the Grantor, to secure (i) the payment of the principal
and premium, if any, of and interest on the 1997 Minimum Payment and the Class
3 Creditor Minimum Cumulative Payment under the Plan of $1,828,000 due to be
escrowed on February 2, 1998 (the "1998 Minimum Payment") (as to the 1997
Minimum Payment and the 1998 Minimum Payment together, the "Minimum Payments")
as and when the same becomes due and payable (whether by lapse of time,
acceleration or otherwise), (ii) any and all expenses and charges, legal or
otherwise, suffered or incurred by the Trustee or the Junior Beneficiary in
collecting or in enforcing the Minimum Payments or realizing on or protecting
or preserving any collateral security therefor, including, without limitation,
the lien and security interest granted hereby, (iii) the payment of all other
indebtedness, obligations and liabilities which this Indenture secures pursuant
to any of its terms and (iv) the observance and performance of all covenants
and agreements contained herein or in the Minimum Payments or in any other
instrument or document at any time evidencing or securing any of the foregoing
or setting forth terms and conditions applicable thereto (all of such
indebtedness, obligations and liabilities identified in (i), (ii), (iii) and
(iv) above being hereinafter collectively referred to as the "indebtedness
hereby secured"; provided, however, that "indebtedness hereby secured" shall
not include any sums paid by Grantor pursuant to Section 6 hereof in respect of
any taxes, assessments, fees or impositions levied, assessed or charged by the
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<PAGE> 4
State of Nebraska pursuant to Article 14 of Chapter 77 of the Revised Statutes
of Nebraska, or any comparable successor statute thereto, and any interest paid
thereon), and in consideration of the property and rights conveyed and the sum
of One Dollar in hand well and truly paid by Trustee, the receipt of which is
hereby acknowledged, Grantor has granted, bargained, sold, conveyed, alienated,
released, transferred and confirmed, and by these presents does hereby grant,
bargain, sell, convey, alien, release, transfer and confirm, unto Trustee WITH
POWER OF SALE, and to Trustee's successors and assigns forever, and does hereby
grant to Trustee, Trustee's successors and assigns (but as to all personal
property described below, to the Junior Beneficiary and its successors and
assigns as hereinbelow provided) forever, a security interest in all and
singular the properties, rights, interests and privileges described in Granting
Clauses I, II, III, IV, V and VI below, all of the same being collectively
referred to herein as the "Mortgaged Premises ":
GRANTING CLAUSE I
That certain real estate lying and being in Omaha, County of Douglas and
State of Nebraska more particularly described in Schedule I attached hereto and
made a part hereof.
GRANTING CLAUSE II
All buildings and improvements of every kind and description heretofore or
hereafter erected or placed on the property described in Granting Clause I and
all materials intended for construction, reconstruction, alteration and repairs
of the buildings and improvements now or hereafter erected thereon, all of
which materials shall be deemed to be included within the premises immediately
upon the delivery thereof to the said real estate, and all fixtures, machinery,
apparatus, equipment, fittings and articles of personal property of every kind
and nature whatsoever (other than inventory, pallet jacks, forklifts and
movable conveyor systems which are not attached to the real property described
in Granting Clause I hereof or the buildings or improvements now or hereafter
erected thereon) now or hereafter attached to or contained in or used or useful
in connection with said real estate and the buildings and improvements now or
hereafter located thereon and the operation, maintenance and protection
thereof, including but not limited to all machinery, motors, fittings,
radiators, awnings, shades, screens, all gas, coal, steam, electric, oil and
other heating, cooking, power and lighting apparatus and fixtures, all fire
prevention and extinguishing equipment and apparatus, all cooling and
ventilating apparatus and systems, all plumbing, incinerating, and sprinkler
equipment and fixtures, all elevators and escalators, all communication and
electronic monitoring equipment, all window and structural cleaning rigs and
all other machinery and equipment of every nature and fixtures and
appurtenances thereto and all items of furniture, appliances, draperies,
carpets, other furnishings, equipment and personal property used or useful in
the operation, maintenance and protection of' the said real estate and the
buildings and improvements now or hereafter located thereon and all renewals or
replacements thereof or articles in substitution therefor, whether or not the
same are or shall be attached to said real estate, buildings or improvements in
any manner, and all proceeds of any of the foregoing; it being mutually agreed,
intended and declared that all the aforesaid property shall, so far as
permitted by law, be deemed to form a part and parcel of the real estate and
for the purpose of this Indenture to be real estate and covered by this
Indenture;
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<PAGE> 5
and as to the balance of the property aforesaid, this Indenture is hereby
deemed to be as well a security agreement under the provisions of the Uniform
Commercial Code for the purpose of creating hereby a security interest in said
property, which is hereby granted by Grantor as debtor to Junior Beneficiary as
secured party, securing the indebtedness hereby secured and this Indenture is
also hereby deemed to be as well a financing statement under the provisions of
the Uniform Commercial Code for the purpose of perfecting the aforesaid
security interest in said property. The addresses of Grantor (debtor) and
Junior Beneficiary (secured party) appear at the beginning hereof. The tax
identification number of Grantor (debtor) is 47-0429876 and the tax
identification number of Junior Beneficiary (secured party) is 057 40 5875.
GRANTING CLAUSE III
All right, title and interest of Grantor now owned or hereafter acquired
in and to all and singular the estates, tenements, hereditaments, privileges,
easements, licenses, franchises, appurtenances and royalties, mineral, oil, and
water fights belonging or in any wise appertaining to the property described in
the preceding Granting Clause I and the buildings and improvements now or
hereafter located thereon and the reversions, rents, issues, revenues and
profits thereof, including all interest of Grantor in all rents, issues and
profits of the aforementioned property and all rents, issues, profits,
revenues, royalties, bonuses, rights and benefits due, payable or accruing
(including all deposits of money as advanced rent or for security) under any
and all leases or subleases and renewals thereof, or under any contracts or
options for the sale of all or any part of, said property (including during any
period allowed by law for the redemption of said property after any foreclosure
or other sale), together with the right, but not the obligation, to collect,
receive and receipt for all such rents and other sums and apply them to the
indebtedness hereby secured and to demand, sue for and recover the same when
due or payable; provided that the assignments made hereby shall not impair or
diminish the obligations of Grantor under the provisions of such leases or
other agreements nor shall such obligations be imposed upon Trustee or Junior
Beneficiary. By acceptance of this Indenture, Trustee and Junior Beneficiary
agree, not as a limitation or condition hereof, but as a personal covenant
available only to Grantor that until an event of default (as hereinafter
defined) shall occur giving Trustee the right to foreclose this Indenture,
Grantor may collect, receive (but not more than 30 days in advance) and enjoy
such rents.
GRANTING CLAUSE IV
All judgments, awards of damages, settlements and other compensation
heretofore or hereafter made resulting from condemnation proceedings or the
taking of the property described in Granting Clause I or any part thereof or
any building or other improvement now or at any time hereafter located thereon
or any easement or other appurtenance thereto under the power of eminent
domain, or any similar power or right (including any award from the United
States Government at any time after the allowance of the claim therefor, the
ascertainment of the amount thereof and the issuance of the warrant for the
payment thereof), whether permanent or temporary, or for any damage (whether
caused by such taking or otherwise) to said property or any part thereof or the
improvements thereon or any part thereof, or to any rights appurtenant
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<PAGE> 6
thereto, including severance and consequential damage, and any award for change
of grade of streets (collectively "Condemnation Awards").
GRANTING CLAUSE V
All property and rights, if any, which are by the express provisions of
this instrument required to be subjected to the lien hereof and any additional
property and rights that may from time to time hereafter, by installation or
writing of any kind, be subjected to the lien hereof by Grantor or by anyone in
Grantor's behalf.
GRANTING CLAUSE VI
All rights in and to common areas and access roads on adjacent properties
heretofore or hereafter granted to Grantor and any after-acquired title or
reversion in and to the beds of any ways, roads, streets, avenues and alleys
adjoining the property described in Granting Clause I or any part thereof.
TO HAVE AND TO HOLD the Mortgaged Premises and the properties, rights and
privileges hereby granted, bargained, sold, conveyed, alienated, released,
transferred and confirmed, and in which a security interest is granted, or
intended so to be, unto Trustee, and unto Trustee's successors and assigns (but
as to all personal property constituting a part of the Mortgaged Premises, unto
the Junior Beneficiary and its successors and assigns as hereinabove provided)
forever;
IN TRUST NEVERTHELESS, upon the terms and trust herein set forth, for the
benefit, security and protection of the Junior Beneficiary with respect to the
Minimum Payments; provided always, however, that these presents are upon the
express condition that if the Grantor shall pay or cause to be paid all the
indebtedness hereby secured and shall observe, keep and perform all the terms
and conditions, covenants and agreements contained in this Indenture shall be
released, then these presents and the estate hereby granted and conveyed shall
cease and this Indenture shall become null and void.
AND GRANTOR COVENANTS, REPRESENTS AND WARRANTS AS FOLLOWS:
Section 1. Payment of Indebtedness. The indebtedness hereby secured will
be promptly paid as and when the same become due.
Section 2. Ownership of Mortgaged Premises. Grantor covenants and
warrants that it is lawfully seized of and has good and marketable title to the
Mortgaged Premises free and clear of all liens, charges and encumbrances
whatever except the interest of the Senior Beneficiary and those exceptions to
title listed on Schedule II attached hereto (together, the "Permitted
Exceptions") and Grantor has good right, full power and authority to convey,
transfer and mortgage the same to Trustee for the uses and purposes set forth
in this Indenture; and Grantor will warrant and forever defend the title to the
Mortgaged Premises subject to the Permitted Exceptions against all claims and
demands whatsoever.
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<PAGE> 7
Section 3. Further Assurances. Grantor will execute and deliver such
further instruments and do such further acts as may be necessary or proper to
carry out more effectively the purpose of this instrument and, without limiting
the foregoing, to make subject to the lien hereof any property agreed to be
subjected hereto or covered by the Granting Clauses hereof or intended so to
be.
Section 4. Possession. While Grantor is not in default hereunder, Grantor
shall be suffered and permitted to remain in full possession, enjoyment and
control of the Mortgaged Premises, subject always to the observance and
performance of the terms of this instrument.
Section 5. Payment of Taxes. Grantor shall pay before any penalty
attaches, all general taxes and all special taxes, special assessments, water,
drainage and sewer charges and all other charges of any kind whatsoever,
ordinary or extraordinary, which may be levied, assessed, imposed or charged on
or against the Mortgaged Premises or any part thereof and which, if unpaid,
might by law become a lien or charge upon the Mortgaged Premises or any part
thereof, and shall, upon written request, exhibit to Junior Beneficiary
official receipts evidencing such payments, except that, unless and until
foreclosure, distraint, sale or other similar proceedings shall have been
commenced, no such charge or claim need be paid if being contested (except to
the extent any full or partial payment shall be required by law), after notice
to Junior Beneficiary, by appropriate proceedings which shall operate to
prevent the collection thereof or the sale or forfeiture of the Mortgaged
Premises or any part thereof to satisfy the same, conducted in good faith and
with due diligence and if Grantor shall have furnished such security, if any,
as may be required in the proceedings or requested by Junior Beneficiary.
Section 6. Payment of Taxes on Indebtedness Hereby Secured, Indenture or
Interest of Trustee or Junior Beneficiary. Grantor agrees that if any tax,
assessment or imposition upon this Indenture or the indebtedness hereby secured
the interest of Trustee or Junior Beneficiary in the Mortgaged Premises or upon
Trustee or Junior Beneficiary by reason of or as a holder of any of the
foregoing (including, without limitation, corporate privilege, franchise and
excise taxes, but excepting therefrom any income tax on interest payments on
the principal portion of the indebtedness hereby secured imposed by the United
States or any state) is levied, assessed or charged, then, unless all such
taxes are paid by Grantor to, for or on behalf of Trustee or Junior
Beneficiary, as the case may be, as they become due and payable (which Grantor
agrees to do, to the extent permitted by law upon demand of Junior Beneficiary,
but without such demand as to any such taxes, assessments, fees or impositions
levied, assessed or charged by the State of Nebraska pursuant to Article 14 of
Chapter 77 of the Revised Statutes of Nebraska, or any comparable successor
statute), or Trustee or Junior Beneficiary, as the case may be, is reimbursed
for any such sum advanced by Trustee or Junior Beneficiary, as the case may be,
all sums hereby secured shall become immediately due and payable, at the option
of Junior Beneficiary upon 30 days' notice to Grantor, notwithstanding anything
contained herein or in any law heretofore or hereafter enacted, including any
provision thereof forbidding Grantor from making any such payment. Grantor
agrees to exhibit to Junior Beneficiary, upon request, official receipts
showing payment of all taxes and charges which Grantor is required to pay
hereunder.
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<PAGE> 8
Section 7. Recordation and Payment of Taxes and Expenses Incident Thereto.
Grantor will cause this Indenture, all deeds of trust supplemental hereto and
any financing statement or other notice of a security interest required by
Junior Beneficiary at all times to be kept, recorded and filed at its own
expense in such manner and in such places as may be required by law for the
recording and filing or for the rerecording and refiling of an indenture,
security interest, assignment or other lien or charge upon the Mortgaged
Premises, or any part thereof, in order fully to preserve and protect the
rights of Trustee and Junior Beneficiary hereunder and, without limiting the
foregoing, Grantor will pay or reimburse Junior Beneficiary for the payment of
any and all taxes, fees or other charges incurred in connection with any such
recordation or rerecordation, including any documentary stamp tax or tax
imposed upon the privilege of having this instrument or any instrument issued
pursuant hereto recorded.
Section 8. Insurance. Grantor will, at its expense, keep all buildings,
improvements, equipment and other property now or hereafter constituting part
of the Mortgaged Premises insured against loss or damage by fire, lightning,
windstorm, explosion and such other risks as are usually included under
extended coverage policies, or which are usually insured against by owners of
like property, in amount sufficient to prevent Grantor or Trustee or Junior
Beneficiary from becoming a co-insurer of any partial loss under applicable
policies and in any event not less than the then full insurable value (actual
replacement value without deduction for physical depreciation) thereof, as
determined at the request of Junior Beneficiary and at Grantor' s expense by
the insurer or insurers or by an expert approved by Junior Beneficiary, all
under insurance policies payable, in case of loss or damage, to Junior
Beneficiary (and, if Junior Beneficiary so requests, naming Junior Beneficiary
as additional insured therein), such rights to be evidenced by the usual
standard non-contributory form of mortgage clause to be attached to each
policy. Grantor shall not carry separate insurance concurrent in kind or form
and contributing in the event of loss, with any insurance required hereby.
Grantor shall also obtain and maintain public liability, property damage and
workmen's compensation insurance in each case in form and content satisfactory
to Junior Beneficiary and in amounts as are customarily carried by owners of
like property and approved by Junior Beneficiary. Grantor shall also obtain
and maintain such other insurance with respect to the Mortgaged Premises in
such amounts and against such insurable hazards as Junior Beneficiary from time
to time may require, including, without limitation, boiler and machinery
insurance, insurance against flood risks, host liquor liability, war risk
insurance when and to the extent obtainable from the United States Government
or any agency thereof, and insurance against loss of rent due to fire and risks
now or hereafter embraced by so-called "extended coverage". All insurance
required hereby shall be maintained with good and responsible insurance
companies satisfactory to Junior Beneficiary and shall not provide for any
deductible amount not approved in writing by Junior Beneficiary, shall provide
that any losses shall be payable notwithstanding any act or negligence of
Grantor, shall provide that no cancellation thereof shall be effective until at
least thirty days after receipt by Grantor and Junior Beneficiary of written
notice thereof, and shall be satisfactory to Junior Beneficiary in all other
respects. Upon the execution of this Indenture and thereafter not less than 15
days prior to the expiration date of any policy delivered pursuant to this
instrument, Grantor will deliver to Junior Beneficiary originals of any policy
or renewal policy, as the case may be, required by this instrument, bearing
notations evidencing the payment of all premiums. In the event of foreclosure,
Grantor authorizes and empowers Junior Beneficiary to effect insurance upon the
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Mortgaged Premises in amounts aforesaid for a period covering the time of
redemption from foreclosure sale provided by law, and if necessary therefor to
cancel any or all existing insurance policies.
Section 9. Damage to or Destruction of Mortgaged Premises. (a) Notice.
In case of any material damage to or destruction of the Mortgaged Premises or
any part thereof, Grantor shall promptly give written notice thereof to Junior
Beneficiary, generally describing the nature and extent of such damage or
destruction.
(b) Restoration. In case of any damage to or destruction of the
Mortgaged Premises or any part thereof, Grantor, provided that Junior
Beneficiary has made available to Grantor (subject to the provisions of Section
9(d) hereof) insurance proceeds, if any, received by Junior Beneficiary in
connection with such damages or destruction, and whether or not the insurance
proceeds, if any, received on account of such damage or destruction shall be
sufficient for the purpose, at Grantor's expense, will promptly commence and
complete (subject to unavoidable delays occasioned by strikes, lockouts, acts
of God, inability to obtain labor or materials, governmental restrictions and
similar causes beyond the reasonable control of Grantor) the restoration,
replacement or rebuilding of the Mortgaged Premises as nearly as possible to
its value, condition and character immediately prior to such damage or
destruction.
(c) Adjustment of Loss. Grantor hereby authorizes Junior Beneficiary, at
Junior Beneficiary's option, to adjust and compromise any losses under any
insurance afforded, but unless Junior Beneficiary elects to adjust the losses
as aforesaid, said adjustment and/or compromise shall be made by Grantor,
subject to final approval of Junior Beneficiary in the case of losses exceeding
$10,000.
(d) Application of Insurance Proceeds. Net insurance proceeds received
by Junior Beneficiary under the provisions of this Indenture or any instruments
supplemental hereto or thereto or under any policy or policies of insurance
covering the Mortgaged Premises or any part thereof shall be applied first
toward the payment of the amount owing on the indebtedness secured by the
Senior Indenture, with the balance, if any, applied toward the payment of the
amount owing on the indebtedness hereby secured in such order of application as
Junior Beneficiary may elect whether or not the same may then be due or be
otherwise adequately secured (and Junior Beneficiary is hereby irrevocably
authorized and directed to make such an application); provided, however, that
such proceeds shall be made available for the restoration of the portion of the
Mortgaged Premises damaged or destroyed if written application for such use is
made within 30 days of receipt of such proceeds and the following conditions
are satisfied: (i) Grantor has in effect business interruption insurance
covering the income to be lost during the restoration period as a result of the
damage or destruction to the Mortgaged Premises or provides Junior Beneficiary
with other evidence satisfactory to it that Grantor has cash resources
sufficient to pay its obligations during the restoration period; (ii) the
effect of the damage to or destruction of the Mortgaged Premises giving rise to
receipt of the insurance proceeds is not to terminate, or give a lessee the
option to terminate any lease of all or any portion of the Mortgaged Premises;
(iii) no event of default (as hereinafter defined), or event which, with the
lapse of time, the giving of notice, or both, would constitute an event of
default, shall have occurred or be continuing (and
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if such an event shall occur during restoration Junior Beneficiary may, at its
election, apply any insurance proceeds then remaining in its hands to the
reduction of the indebtedness hereby secured); (iv) Grantor shall have
submitted to Junior Beneficiary plans and specifications for the restoration
which shall be satisfactory to it; (v) Grantor shall submit to Junior
Beneficiary fixed price contracts with good and responsible contractors and
materialmen covering all work and materials necessary to complete restoration
and providing for a total completion price not in excess of the amount of
insurance proceeds available for restoration, or, if a deficiency shall exist,
Grantor shall have deposited the amount of such deficiency with Junior
Beneficiary; and (vi) Grantor shall have obtained a waiver of the right of
subrogation from any insurer under such policies of insurance who at that time
claims that no liability exists as to Grantor or the insured under such
policies. Any insurance proceeds to be released pursuant to the foregoing
provisions may at the option of Junior Beneficiary be disbursed from time to
time as restoration progresses to pay for restoration work completed and in
place and such disbursements may at Junior Beneficiary's option be made
directly to Grantor or to or through any contractor or materialman to whom
payment is due or to or through a construction escrow to be maintained by a
title insurer acceptable to Junior Beneficiary. Junior Beneficiary may impose
such further conditions upon the release of insurance proceeds (including the
receipt of title insurance) as are customarily imposed by prudent construction
lenders to insure the completion of the restoration work free and clear of all
liens or claims for lien. All title insurance charges and other costs and
expenses paid to or for the account of Grantor in connection with the release
of such insurance proceeds shall constitute so much additional indebtedness
hereby secured to be payable upon demand with interest at the Default Rate.
Junior Beneficiary may deduct any such costs and expenses from insurance
proceeds at any time standing in its hands. If Grantor fails to request that
insurance proceeds be applied to the restoration of the improvements or if
Grantor makes such a request but fails to complete restoration within a
reasonable time, Junior Beneficiary shall have the right, but not the duty, to
restore or rebuild said Mortgaged Premises or any part thereof for or on behalf
of Grantor in lieu of applying said proceeds to the indebtedness hereby secured
and for such purpose may do all necessary acts, including using funds deposited
by Grantor as aforesaid and advancing additional funds for the purpose of
restoration, all such additional funds to constitute part of the indebtedness
hereby secured payable upon demand with interest at the Default Rate.
Section 10. Eminent Domain. Grantor acknowledges that Condemnation Awards
have been assigned to Trustee, which awards Trustee is hereby irrevocably
authorized to collect and receive, and to give appropriate receipts and
acquittances therefor, and at Senior Beneficiary's option, to apply the same
toward the payment of the amount owing on account of the indebtedness secured
by the Senior Indenture, with the balance, if any, at Junior Beneficiary's
option, to apply the same toward the payment of the amount owing on account of
the indebtedness hereby secured in such order of application as Junior
Beneficiary may elect and whether or not the same may then be due and payable
or otherwise adequately secured, and Grantor covenants and agrees that Grantor
will give Trustee and Junior Beneficiary immediate notice of the actual or
threatened commencement of any proceedings under condemnation or eminent domain
affecting all or any part of the Mortgaged Premises including any easement
therein or appurtenance thereof or severance and consequential damage and
change in grade of streets, and will deliver to Trustee and Junior Beneficiary
copies of any and all papers served in
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connection with any such proceedings. Grantor further covenants and agrees to
make, execute and deliver to Trustee and Junior Beneficiary, at any time or
times upon request, free, clear and discharged of any encumbrances of any kind
whatsoever, any and all further assignments and/or instruments deemed necessary
by Junior Beneficiary for the purpose of validly and sufficiently assigning all
awards and other compensation heretofore and hereafter to be made to Grantor
for any taking, either permanent or temporary, under any such proceeding.
Section 11. Construction, Repair, Waste, Etc. Grantor agrees that, unless
no longer used or useful in the ordinary conduct of Grantor's business, no
building or other improvement on the Mortgaged Premises and constituting a part
thereof shall be altered, removed or demolished nor shall any fixtures or
appliances on, in or about said buildings or improvements be severed, removed,
sold or mortgaged, without the consent of Junior Beneficiary (which consent
shall not be unreasonably withheld in the case of alterations to such property
and which consent shall not be required in the case of a sale or removal of
equipment, other personal property or fixtures in the ordinary course of
business which is promptly replaced by similar equipment, personal property or
fixtures as provided below) and in the event of the demolition or destruction
in whole or in part of any of the fixtures, chattels or articles of personal
property covered hereby (except those no longer used or useful in the ordinary
conduct of Grantor's business), Grantor covenants that the same will be
replaced promptly by similar fixtures, chattels and articles of personal
property at least equal in quality and condition to those replaced, free from
any security interest in or encumbrance thereon or reservation of title
thereto; to permit, commit or suffer no waste, impairment or deterioration of
the Mortgaged Premises or any part thereof; to keep and maintain said Mortgaged
Premises and every part thereof in reasonable working order and repair and
condition, giving due regard to the use to which such part of the Mortgaged
Premises is put; to effect such repairs as Junior Beneficiary may reasonably
require and from time to time to make all needful and proper replacements and
additions so that said buildings, fixtures, machinery and appurtenances will,
at all times, be in reasonable working order and repair and condition, giving
due regard to the use to which such part of the Mortgaged Premises is put, fit
and proper for the respective purposes for which they were originally erected
or installed; to comply in all material respects with all statutes, orders,
requirements or decrees relating to the Mortgaged Premises by any Federal,
State or Municipal authority; to observe and comply in all material respects
with all conditions and requirements necessary to preserve and extend any and
all fights, licenses, permits (including, but not limited to, zoning variances,
special exceptions and non-conforming uses), privileges, franchises and
concessions which are applicable to the Mortgaged Premises or which have been
granted to or contracted for by Grantor in connection with any existing or
presently contemplated use of the Mortgaged Premises or any part thereof and
not to initiate or acquiesce in any changes to or terminations of any of the
foregoing or of zoning classifications affecting the use to which the Mortgaged
Premises or any part thereof may be put without the prior written consent of
Junior Beneficiary; and to make no material alterations in or improvements or
additions to the Mortgaged Premises except as required by governmental
authority or as permitted by Junior Beneficiary.
Section 12. Liens and Encumbrances. Grantor will not, without the prior
written consent of Junior Beneficiary, directly or indirectly, create or suffer
to be created or to remain and will discharge or promptly cause to be
discharged any mortgage, lien, encumbrance or
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charge on, pledge of, or conditional sale or other title retention agreement
with respect to, the Mortgaged Premises or any part thereof, whether superior
or subordinate to the lien hereof, except for this instrument and Original
Indenture and the Senior Indenture.
Section 13. Right of Trustee or Junior Beneficiary to Perform Grantor' s
Covenants, Etc. If Grantor shall fail to make any payment or perform any act
required to be made or performed hereunder, Trustee and/or Junior Beneficiary,
without waiving or releasing any obligation or default, may (but shall be under
no obligation to) each at any time thereafter make such payment or perform such
act for the account and at the expense of Grantor, and may enter upon the
Mortgaged Premises or any part thereof for such purpose and take all such
action thereon as, in the opinion of Trustee or Junior Beneficiary, as the case
may be, may be necessary or appropriate therefor; provided, however, that
Grantor shall be given prior notice of payment of all such sums unless Junior
Beneficiary, in its sole judgment, believes that the giving of such notice
would impair the adequacy of the security for the Minimum Payments.
Notwithstanding the foregoing, nothing contained in this Section 13 shall
impair the rights of the Grantor to contest any taxes or charges to the extent
permitted by Section 5 hereof. All sums so paid by Trustee or Beneficiary, as
the case may be, and all costs and expenses (including without limitation
reasonable attorney's fees and expenses) so incurred, together with interest
thereon from the date of payment or incurrence at the Default Rate, shall
constitute so much additional indebtedness hereby secured and shall be paid by
Grantor to Trustee or Beneficiary, as the case may be, on demand. Trustee and
Junior Beneficiary in making any payment authorized under this Section relating
to taxes or assessments may do so according to any bill, statement or estimate
procured from the appropriate public office without inquiry into the accuracy
of such bill, statement or estimate or into the validity of any tax assessment,
sale, forfeiture, tax lien or title or claim thereof. Junior Beneficiary or
Trustee, as the case may be, in performing any act hereunder, shall be the sole
judge of whether Grantor is required to perform same under the terms of this
Indenture, provided that Junior Beneficiary or Trustee, as the case may be, has
exercised reasonable judgment in making such determination.
Section 14. After-Acquired Property. Any and all property hereafter
acquired by Grantor which is of the kind or nature herein provided, or intended
to be and become subject to the lien hereof, shall ipso facto, and without any
further conveyance, assignment or act on the part of Grantor, become and be
subject to the lien of this Indenture as fully and completely as though
specifically described herein; but nevertheless Grantor shall from time to
time, if requested by Trustee or Junior Beneficiary, execute and deliver any
and all such further assurances, conveyances and assignments as Junior
Beneficiary or Trustee, as the case may be, may reasonably require for the
purpose of expressly and specifically subjecting to the lien of this Indenture
all such property.
Section 15. Inspection by Trustee or Junior Beneficiary. Trustee, Junior
Beneficiary and their respective representatives shall have the right to
inspect the Mortgaged Premises at all reasonable times, and access thereto
shall be permitted for that purpose; provided that, prior to any default
hereunder, Grantor shall be given reasonable advance notice of such
inspections.
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Section 16. Financial Reports. Grantor will furnish to the Junior
Beneficiary such information and data with respect to the Mortgaged Premises as
Junior Beneficiary may reasonably request.
Section 17. Rights of Senior Beneficiaries, Grantor. Notwithstanding any
other provisions of this Indenture, the rights of the Junior Beneficiary are
subject to the following:
(a) the rights of the Senior Beneficiaries under the Senior
Indenture; and
(b) the right of Grantor to sell and lease back Parcel 1 of
the Mortgaged Premises free of the interest of the Junior
Beneficiary upon payment to the Junior Beneficiary of the 1997
Minimum Payment.
Section 18. Events of Default. Any event of default under the Waiver
shall constitute an "event of default" hereunder.
Section 19. Remedies. When any event of default has happened and is
continuing (regardless of the pendency of any proceeding which has or might
have the effect of preventing Grantor from complying with the terms of this
instrument and regardless of the adequacy of the security for the Minimum
Payments) and in addition to such other rights as may be available under
applicable law, but subject at all times to any mandatory legal requirements:
(a) Acceleration. Junior Beneficiary may, by written notice to
Grantor, declare the Minimum Payments and all unpaid indebtedness hereby
secured, including any interest then accrued thereon, to be forthwith due
and payable, whereupon the same shall become and be forthwith due and
payable, without other notice or demand of any kind.
(b) Uniform Commercial Code. Junior Beneficiary shall, with respect
to any part of the Mortgaged Premises constituting property of the type
in respect of which realization on a lien or security interest granted
therein is governed by the Uniform Commercial Code, have all the rights,
options and remedies of a secured party under the Uniform Commercial Code
of Nebraska, including without limitation, the right to the possession of
any such property, or any part thereof, and the right to enter without
legal process any premises where any such property may be found. Any
requirement of said Code for reasonable notification shall be met by
mailing written notice to Grantor at its address above set forth at least
10 days prior to the sale or other event for which such notice is
required. The expenses of retaking, selling, and otherwise disposing of
said property, including reasonable attorney's fees and legal expenses
incurred in connection therewith, shall constitute so much additional
indebtedness hereby secured and shall be payable upon demand with
interest at the Default Rate.
(c) Foreclosure. Trustee and/or Junior Beneficiary may proceed to
protect and enforce the rights of Junior Beneficiary hereunder (i) by any
action at law, suit in equity or other appropriate proceedings, whether
for the specific performance of any agreement contained herein, or for an
injunction against the violation of any of the terms hereof, or
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in aid of the exercise of any power granted hereby or by law, or (ii) by
the judicial foreclosure of this Indenture. All rights of action under
this Indenture or under the indebtedness hereby secured may be enforced
by the Trustee without or any evidence of any indebtedness hereby
secured, or the production thereof on any trial or other proceedings
relative thereto.
(d) Appointment of Receiver. Trustee and/or Junior Beneficiary
shall, as a matter of right, without notice and without giving bond to
Grantor or anyone claiming by, under or through it, and without regard to
the solvency or insolvency of Grantor or the then value of the Mortgaged
Premises, be entitled to have a receiver appointed of all or any part of
the Mortgaged Premises and the rents, issues and profits thereof, with
such power as the court making such appointment shall confer, and Grantor
hereby consents to the appointment of such receiver and shall not oppose
any such appointment. Any such receiver may, to the extent permitted
under applicable law, without notice, enter upon and take possession of
the Mortgaged Premises or any part thereof by force, summary proceedings,
ejectment or otherwise, and may remove Grantor or other persons and any
and all property therefrom, and may hold, operate and manage the same and
receive all earnings, income, rents, issues and proceeds accruing with
respect thereto or any part thereof, whether during the pendency of any
foreclosure or until any right of redemption shall expire or otherwise.
(e) Taking Possession, Collecting Rents, Etc. Junior Beneficiary
and its agents or assigns may enter and take possession of the Mortgaged
Premises or any part thereof, with or without legal action, and manage,
operate, insure, repair and improve the same and take any action which,
in Junior Beneficiary's judgment, is necessary or proper to conserve the
value of the Mortgaged Premises. Junior Beneficiary may also take
possession of, and for these purposes use, any and all personal property
contained in the Mortgaged Premises and used in the operation, rental or
leasing thereof or any part thereof. Junior Beneficiary shall be entitled
to lease the Mortgaged Premises and to collect and receive all earnings,
revenues, rents, issues and profits of the Mortgaged Premises or any part
thereof (and for such purpose Grantor does hereby irrevocably constitute
and appoint Junior Beneficiary its true and lawful attorney-in-fact for
it and in its name, place and stead to receive, collect and receipt for
all of the foregoing, Grantor irrevocably acknowledging that any payment
made to Junior Beneficiary hereunder shall be a good receipt and
acquittance against Grantor to the extent so made) and to apply same to
the reduction of the indebtedness hereby secured. The fight to enter and
take possession of the Mortgaged Premises and use any personal property
therein, to manage, operate and conserve the same, and to lease the
Mortgaged Premises and to collect the rents, issues and profits thereof,
shall be in addition to all other rights or remedies of Junior
Beneficiary hereunder or afforded by law, and may be exercised
concurrently therewith or independently thereof. The expenses (including
any receiver's fees, counsel fees, costs and agent's compensation)
incurred pursuant to the powers herein contained shall be so much
additional indebtedness hereby secured which Grantor promises to pay upon
demand together with interest at the Default Rate. Junior Beneficiary
shall not be liable to account to Grantor for any action taken pursuant
hereto other than to account for
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any rents actually received by Junior Beneficiary. Without taking
possession of the Mortgaged Premises, Junior Beneficiary may, in the
event the Mortgaged Premises becomes vacant or is abandoned, take such
steps as it deems appropriate to protect and secure the Mortgaged
Premises (including hiring watchmen therefor) and all costs incurred in
so doing shall constitute so much additional indebtedness hereby secured
payable upon demand with interest thereon at the Default Rate.
(f) Exercise of Power of Sale. If Junior Beneficiary elects to
sell Grantor' s interest in the Mortgaged Premises by exercise of the
power of sale herein contained, Junior Beneficiary shall notify Trustee
in the manner then required by the Nebraska Trust Deeds Act (Neb. Rev.
Stat. Section 76-1001 et seq.) and any amendments thereto or replacements
thereof (the "Act"). Upon receipt of such notice from Junior Beneficiary
and at the direction of Junior Beneficiary, Trustee shall cause to be
recorded, published and delivered such notices of default and notices of
sale as may then be required by the Act and by this Indenture. Trustee
shall, only at the direction of the Junior Beneficiary and without demand
on Grantor, after such time as then may be required by the Act and after
recordation of such notice of default and after notice of sale having
been given as required by the Act, sell the Mortgaged Premises at the
time and place of sale set forth in such notice of sale, either as a
whole, or in separate lots or parcels or items as Junior Beneficiary
shall deem expedient, and in such order as it may determine, at public
auction to the highest bidder for cash in lawful money of the United
States payable at the time of sale, or as otherwise may then be required
by the Act.
The Trustee may conduct or cause the conduct of any number of sales from
time to time. The power of sale shall not be exhausted by any one or more such
sales as to any part of the Mortgaged Premises not heretofore lawfully sold,
but shall continue unimpaired until all of the Mortgaged Premises shall have
been sold or the Minimum Payments and all other indebtedness hereby secured
shall have been fully paid and discharged. Subject to the provisions of
applicable law, the Trustee may postpone or cause the postponement of the sale
of all or any portion of the Mortgaged Premises by announcement at the time and
place of such sale, and from time to time thereafter may further postpone such
sale by announcement made at the time of sale fixed by the preceding
postponement. Upon the completion of any sale or sales made under or by virtue
of this instrument, the Trustee shall execute and deliver to the accepted
purchaser or purchasers a good and sufficient deed, or good and sufficient
deeds, and other instruments conveying, assigning and transferring all their
estate, right, title and interest in and to the properties, privileges and
rights to be sold. The Trustee is hereby appointed the true and lawful
irrevocable attorney of the Grantor, in its name and stead or in the name of
the Trustee, to make all necessary conveyances, assignments, transfers and
deliveries of the Mortgaged Premises and the property, privileges and rights so
sold, and for that purpose the Trustee may execute all necessary deeds and
instruments of assignment and transfer and may substitute one or more persons
with like power, Grantor hereby ratifying and confirming all that its said
attorneys or such substitute or substitutes shall lawfully do by virtue hereof.
The recitals contained in any conveyance made by the Trustee to any purchaser
at any sale made pursuant hereto shall, conclusively to the extent permitted by
law, establish the truth and accuracy of the matters therein stated, including,
without limiting the generality of the foregoing, the amounts of unpaid
principal of and interest
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on the Minimum Payments, the nonpayment thereof, advertisement and conduct of
such sale in the manner provided herein and by applicable law of any of the
Mortgaged Premises and the appointment hereunder of any successor Trustee; and
all prerequisites to such sale shall be presumed to have been satisfied and
performed.
(g) The Junior Beneficiary may enforce its rights and remedies under this
Indenture and protect and preserve the Mortgaged Premises without further
application to or order of the Bankruptcy Court.
Section 20. Waiver of Right to Redeem From Sale - Waiver of Appraisement,
Valuation, Etc. To the fullest extent it may do so, Grantor shall not and will
not apply for or avail itself of any appraisement, valuation, stay, extension
or exemption laws, or any so-called "Moratorium Laws ", now existing or
hereafter enacted in order to prevent or hinder the enforcement or foreclosure
of this Indenture, but hereby waives the benefit of such laws. Grantor for
itself and all who may claim through or under it waives any and all right to
have the property and estates comprising the Mortgaged Premises marshaled upon
any foreclosure of the lien hereof and agrees that any court having
jurisdiction to foreclose such lien may order the Mortgaged Premises sold as an
entirety. In the event of any sale made under or by virtue of this instrument,
the whole of the Mortgaged Premises may be sold in one parcel as an entirety or
in separate lots or parcels at the same or different times, all as Junior
Beneficiary may determine. Junior Beneficiary shall have the fight to become
the purchaser at any sale made under or by virtue of this instrument and Junior
Beneficiary so purchasing at any such sale shall have the right to be credited
upon the amount of the bid made therefor by Junior Beneficiary with the amount
payable to Junior Beneficiary out of the net proceeds of such sale. In the
event of any such sale, the Minimum Payments and the other indebtedness hereby
secured, if not previously due, shall be and become immediately due and payable
without demand or notice of any kind. Grantor hereby irrevocably waives and
releases, to the extent permitted by applicable law, any and all rights of
redemption after the date of any sale of the Mortgaged Premises upon
foreclosure, whether statutory or otherwise, in respect of the Mortgaged
Premises now or hereafter in force, pursuant to rights herein granted, on
behalf of Grantor, and each and every person acquiring any interest in, or
title to the Mortgaged Premises described herein subsequent to the date of this
Indenture, and on behalf of all other persons to the extent permitted by
applicable law. All waivers contained herein are subject to any mandatory
limitations under applicable law.
Section 21. Costs and Expenses of Foreclosure. In any sale of the
Mortgaged Premises or suit to foreclose the lien hereof, to the extent
permitted by applicable law, there shall be allowed and included as additional
indebtedness in the decree for sale, or otherwise, all expenditures and
expenses which may be paid or incurred by or on behalf of Trustee and/or
Beneficiary for the costs and expenses of executing this trust, including
compensation to the Trustee, attorney's fees, appraiser's fees, outlays for
documentary and expert evidence, stenographic charges, publication costs and
costs (which may be estimated as the items to be expended after the entry of
the decree) of procuring all such abstracts of rifle, title searches and
examination, guarantee policies and similar data and assurances with respect to
title as Trustee and/or Beneficiary may deem to be reasonably necessary either
to prosecute any foreclosure
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action or to evidence to the bidder at any sale pursuant thereto the true
condition of the title to or the value of the Mortgaged Premises, all of which
expenditures shall become so much additional indebtedness hereby secured which
Grantor agrees to pay and all of such shall be immediately due and payable with
interest thereon from the date of expenditure until paid at the Default Rate.
Section 22. Application of Proceeds. Unless otherwise specified herein,
to the extent permitted by applicable law, the proceeds of any foreclosure or
other sale of the Mortgaged Premises or of any sale of property pursuant to
Section 19(b), 19(c) or 19(f) hereof shall be distributed in the following
order of priority: First, on account of any indebtedness secured by the Senior
Indenture; Second, on account of all costs and expenses incident to the
foreclosure, sale or other proceedings including all such items as are
mentioned in Sections 19(b), 19(c), 19(f), 21 and 25 hereof; Third, to all
other items which under the terms hereof constitute indebtedness hereby secured
in addition to that evidenced by the Minimum Payments, with interest thereon as
herein provided; and Fourth, to all principal of and interest on the Minimum
Payments, in such order as Junior Beneficiary shall determine, with any
overplus to whomsoever shall be lawfully entitled to same.
Section 23. Deficiency Decree. If at any foreclosure proceeding or other
sale the Mortgaged Premises shall be sold for a sum less than the total amount
of indebtedness hereby secured, (i) in the case of a foreclosure proceeding by
suit, the judgment creditor shall be entitled to the entry of a deficiency
decree against Grantor and against the property of Grantor for the amount of
such deficiency and (ii) in the case of foreclosure by exercise of the power of
sale granted herein, Grantor shall remain fully liable for any such deficiency
and Junior Beneficiary shall be entitled to a judgment therefor; and, to the
extent permitted by applicable law, Grantor does hereby irrevocably consent to
the appointment of a receiver for the Mortgaged Premises and the property of
Grantor and of the rents, issues and profits thereof after such sale and until
such deficiency decree is satisfied in full.
Section 24. Trustee's and Junior Beneficiary's Remedies Cumulative - No
Waiver. No remedy or right of Trustee or Junior Beneficiary shall be exclusive
of but shall be cumulative and in addition to every other remedy or right now
or hereafter existing at law or in equity or by statute or otherwise. No delay
in the exercise or omission to exercise any remedy or right accruing on any
default shall impair any such remedy or right or be construed to be a waiver of
any such default or acquiescence therein, nor shall it affect any subsequent
default of the same or a different nature. Every such remedy or right may be
exercised concurrently or independently, and when and as often as may be deemed
expedient by Trustee or Junior Beneficiary.
Section 25. Trustee or Junior Beneficiary Party to Suits. If Trustee or
Junior Beneficiary shall be made a party to or shall intervene in any action or
proceeding affecting the Mortgaged Premises or the title thereto or the
interest of Trustee or Junior Beneficiary under this Indenture (including
probate and bankruptcy proceedings), or if Trustee or Junior Beneficiary employ
attorneys to collect any or all of the indebtedness hereby secured or to
enforce any of the terms hereof or realize hereupon or to protect the lien
hereof, or if Trustee or Junior Beneficiary shall incur any costs or expenses
in preparation for the commencement of any foreclosure proceedings or for the
defense of any threatened suit or proceeding which might affect the
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Mortgaged Premises or the security hereof, whether or not any such foreclosure
or other suit or proceeding shall be actually commenced, then in any such case,
Grantor agrees to pay to Trustee or Junior Beneficiary, as the case may be,
immediately all reasonable costs, charges, expenses and attorneys' fees
incurred by Trustee or Junior Beneficiary, as the case may be, in any such
case, and the same shall constitute so much additional indebtedness hereby
secured payable upon demand with interest at the Default Rate.
Section 26. Modifications Not to Affect Lien. Trustee and Junior
Beneficiary, without notice to anyone, and without regard to the consideration,
if any, paid therefor, or the presence of other liens on the Mortgaged
Premises, may in Junior Beneficiary's discretion release any part of the
Mortgaged Premises or any person liable for any of the indebtedness hereby
secured or any other collateral security therefor, extend the time of payment
of any of the indebtedness hereby secured, grant waivers or other indulgences
with respect hereto and thereto, and agree with Grantor to modifications to the
terms and conditions contained herein or otherwise applicable to any of the
indebtedness hereby secured (including modifications in the rates of interest
applicable thereto), without in any way affecting or impairing the liability of
any party liable upon any of the indebtedness hereby secured or the priority of
the lien of this Indenture upon all of the Mortgaged Premises not expressly
released, and any party acquiring any direct or indirect interest in the
Mortgaged Premises shall take same subject to all of the provisions hereof.
Section 27. Notices. All communications provided for herein shall be in
writing and shall be deemed to have been given when personally served or mailed
by first class mail, postage prepaid, addressed to the parties hereto at their
addressee shown at the beginning of this Indenture, or to such other and
different address as shall be designated by any such party pursuant to a
written notice given to each other party in accordance with the provisions of
this Section. The parties hereto hereby request that copies of all notices of
default and notices of sale hereunder be mailed to them in accordance with this
Section 27 at the time required for mailing of notices of default and notices
of sale under Neb. Rev. Stat. Section 76-1001 et seq.
Section 28. Compliance with Environmental Laws. Grantor represents and
warrants that, to the best of Grantor's knowledge, the Mortgaged Premises
complies in all material respects with all applicable federal, state, regional,
county or local laws, statutes, rules, regulations or ordinances (collectively
"Governmental Regulations"), including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. Section
9601 et seq., the Resource Conservation and Recovery Act of 1976, as amended by
the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. Section 6901 et
seq., the Federal Water Pollution Control Act, as amended by the Clean Water
Act of 1977, 33 U.S.C. Section 1251 et seq., the Toxic Substances Control Act
of 1976, 15 U.S.C. Section 2601 et seq., the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq., the Clean Air Act
of 1966, as mended, 42 U.S.C. Section 7401 et seq., the National Environmental
Policy Act of 1975, 42 U.S.C. Section 4321, the Rivers and Harbours Act of
1899, 33 U.S.C. Section 401 et seq., the Occupational Safety and Health Act of
1970, 29 U.S.C. Section 651 et seq., and the Safe Drinking Water Act of 1974,
as amended, 42 U.S.C. Section 300(0 et seq., and all rules, regulations and
guidance documents promulgated or published thereunder, and any state,
regional, county or local statute, law, rule,
17
<PAGE> 19
regulation or ordinance relating to public health, safety or the environment,
including, without limitation, relating to releases, discharges, emissions or
disposals to air, water, land or groundwater, to the withdrawal or use of
groundwater, to the use, handling or disposal of polychlorinated biphenyls
(PCB's), asbestos or urea formaldehyde, to the treatment, storage, disposal or
management of hazardous substances (including, without limitation, petroleum,
its derivatives by-products or other hydrocarbons), to exposure to toxic,
hazardous, or other controlled, prohibited or regulated substances, to the
transportation, storage, disposal, management or release of gaseous or liquid
substances, and any regulation, order, injunction, judgment, declaration,
notice or demand issued thereunder.
Section 29. Condition of Property. Grantor warrants and represents that,
to the best of its knowledge (except to the extent that no applicable
Governmental Regulations are violated), in all material respects: the Mortgaged
Premises, including all personal property, is free from contamination, that
there has not been thereon a release, discharge or emission, or threat of
release, discharge or emission, of any hazardous substance, gas or liquid
(including, without limitation, petroleum, its derivatives or by-products, or
other hydrocarbons), or any other substance, gas or liquid, which is
prohibited, controlled or regulated under applicable law, or which poses a
threat or nuisance to safety, health or the environment, and that the Mortgaged
Premises does not contain, or is not affected by: (i) asbestos, (ii) urea
formaldehyde foam insulation, (iii)polychlorinated biphenyls (PCB's), (iv)
underground storage tanks, (v) landfills, land disposals or dumps.
Section 30. Notice of Environmental Problem. Grantor represents and
warrants that it has not given, nor should it give, nor has it received, any
notice, letter, citation, order, warning, complaint, inquiry, claim or demand
that: (i) Grantor has violated, or is about to violate, any federal, state,
regional, county or local environmental, health or safety statute, law, rule,
regulation, ordinance, judgment or order; (ii) there has been a release, or
there is threat of release, of hazardous substances (including, without
limitation, petroleum, its byproducts or derivatives or other hydrocarbons)
from the Mortgaged Premises; (iii) Grantor may be or is liable, in whole or in
part, for the costs or cleaning up, remediating or responding to a release of
hazardous substances (including, without limitation, petroleum, its by-products
or derivatives, or other hydrocarbons); (iv) any of the Grantor's property or
assets are subject to a lien in favor of any governmental body for any
liability, costs or damages, under federal, state or local environmental law,
rule or regulation arising from or costs incurred by such governmental entity
in response to a release of a hazardous substance (including, without
limitation, petroleum, its by-products or derivatives, or other hydrocarbons).
In the event that Grantor receives any notice of the type described in this
Section 30, Grantor shall promptly provide a copy to Junior Beneficiary, and in
no event, later than fifteen (15) days from Grantor's receipt or submission
thereof.
Section 31. Use of Property and Facilities. Grantor represents and
warrants that to the best of its knowledge, except to the extent permitted by
all applicable Governmental Regulations: it has never in the past engaged in,
and agrees that in the future it shall not conduct, any business, operations or
activity on the Mortgaged Premises, or employ or use the personal property or
facilities, to manufacture, use, generate, treat, store, transport or dispose
of any hazardous substance (including, without limitation, petroleum, its
derivatives or by-products, or
18
<PAGE> 20
other hydrocarbons), or any other substance which is prohibited, controlled or
regulated under applicable law, or which poses a threat or nuisance to safety,
health or the environment, including, without limitation, any business,
operation or activity which would bring Grantor, its property or facilities,
within the ambit of the Resource Conservation and Recovery Act of 1976, as
amended by the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. Section
6901 et seq., the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. Section 9601 et seq., the Clean Air Act
of 1966, as amended, 42 U.S.C. Section 7401 et seq., or any similar state,
county, regional or local statute, law, regulation, rule or ordinance,
including, without limitation, any state statute providing for financial
responsibility for cleanup for the release or threatened release of substances
provided for thereunder. The provisions of this Section 31 shall apply to all
real and personal property, without limitation, owned or controlled by Grantor
or its subsidiaries.
Section 32. Multisite Real Estate Transaction. Grantor acknowledges that
this Indenture is one of several security documents (the aforesaid being
together called the "Other Security Documents") which secure the Minimum
Payments. Grantor agrees that the lien of this Indenture shall be absolute and
unconditional and shall not in any manner be affected or impaired by any acts
or omissions whatsoever of the Trustee or Junior Beneficiary and, without
limiting the generality of the foregoing, the lien hereof shall not be impaired
by any acceptance by the Trustee or Junior Beneficiary of any security for or
guarantors upon any of the indebtedness hereby secured, or by any failure,
neglect or omission on the part of the Trustee or Junior Beneficiary to realize
upon or protect any of the indebtedness hereby secured or any security therefor
including the Other Security Documents. The lien hereof shall not in any
manner be impaired or affected by any release (except as to the property
released), sale, pledge, surrender, compromise, settlement, renewal, extension,
indulgence, alteration, changing, modification or disposition of any of the
indebtedness hereby secured or of any of the collateral security therefor,
including, without limitation, the Other Security Documents or of any guarantee
thereof, and the Trustee and/or Junior Beneficiary may at their discretion
foreclose, exercise any power of sale, or exercise any other remedy available
to it under any or all of the Other Security Documents without first exercising
or enforcing any of its right and remedies hereunder. Such exercise of
Trustee's or Junior Beneficiary's rights and remedies under any or all of the
Other Security Documents shall not in any manner impair the indebtedness hereby
secured, except to the extent of payment, or the lien of this Indenture and any
exercise of the rights or remedies of Trustee and/or Junior Beneficiary
hereunder shall not impair the lien of any of the Other Security Documents or
any of Trustee's or Junior Beneficiary's rights and remedies thereunder.
Grantor specifically consents and agrees that Trustee or Junior Beneficiary may
exercise their rights and remedies hereunder and under the Other Security
Documents separately or concurrently and in any order that they may deem
appropriate.
Section 33. Partial Invalidity. All rights, powers and remedies provided
herein are intended to be limited to the extent necessary so that they will not
render this Indenture invalid, unenforceable or not entitled to be recorded,
registered or filed under any applicable law. If any term of this Indenture
shall be held to be invalid, illegal or unenforceable, the validity and
enforceability of the other terms of this Indenture shall in no way be affected
thereby. Nothing herein contained shall ever entitle Trustee or Junior
Beneficiary, upon the arising of any
19
<PAGE> 21
contingency whatsoever, to receive or collect interest on any portion of the
indebtedness hereby secured or on any money obligation hereunder in excess of
the highest rate allowed by applicable law on such portion of indebtedness
hereby secured or on such money obligation, and in no event shall Grantor be
obligated to pay interest thereon in excess of such rate.
Section 34. Successors and Assigns. Whenever any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
assigns of such party; and all the covenants, promises and agreements in this
Indenture contained by or on behalf of Grantor, or by or on behalf of Trustee,
or by or on behalf of Junior Beneficiary, shall bind and inure to the benefit
of the respective successors and assigns of such parties, whether so expressed
or not. If more than one party signs this instrument as Grantor, then the term
"Grantor" as used herein shall mean all of such parties, jointly and severally.
Section 35. Headings. The headings in this instrument are for convenience
of reference only and shall not limit or otherwise affect the meaning of any
provision hereof.
Section 36. Changes, Etc. This instrument and the provisions hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
Section 37. Governing Law. The creation of the Indenture, the perfection
of the lien or security interest in the Mortgaged Premises, and the rights and
remedies of Trustee and Junior Beneficiary with respect to the Mortgaged
Premises, as provided herein and by the laws of the state in which the
Mortgaged Premises is located, shall be governed by and construed in accordance
with the internal laws of the state in which the Mortgaged Premises is located
without regard to principles of conflicts of law.
Section 38. Default Rate. As used herein, the term "Default Rate" shall
mean 9% per annum (computed on the basis of a year of 365 or 366 days, as the
case may be, and the actual number of days elapsed).
Section 39. No Claims Against Trustee or Beneficiary. Nothing contained
in this Indenture shall constitute any consent or request by Trustee or
Beneficiary, express or implied, for the performance of any labor or services
or the furnishing of any materials or other property in respect of the
Mortgaged Premises or any part thereof, or be construed to permit the making of
any claim against Trustee or Beneficiary in respect of labor or services or the
furnishing of any materials or other property or any claim that any lien based
on the performance of such labor or services or the furnishing of any such
materials or other property or any claim is prior to the lien of this
Indenture.
Section 40. Security Agreement. It is the intention of the parties hereto
that this instrument shall constitute a Security Agreement for the benefit of
Beneficiary within the meaning of the Uniform Commercial Code as enacted in the
State of Nebraska with respect to the personalty and fixtures comprising a part
of the Mortgaged Premises, and that a security interest shall attach thereto
for the benefit of Beneficiary to further secure the indebtedness
20
<PAGE> 22
hereby secured. Grantor hereby authorizes the Trustee and/or Beneficiary to
file financing and continuation statements with respect to such collateral in
which Grantor has a mortgageable interest, without the signature of Grantor
whenever lawful, and upon request, Grantor shall promptly execute financing and
continuation statements in form satisfactory to Beneficiary to further evidence
and secure Beneficiary's interest in such collateral, and shall pay all filing
fees in connection therewith. In the event of a default under this Indenture,
Trustee and/or Beneficiary, pursuant to the applicable provision of the Uniform
Commercial Cede, shall have the option of proceeding as to both real and
personal property in accordance with their rights and remedies in respect of
the real property, in which event the default provisions of the Uniform
Commercial Cede shall not apply. The parties agree that in the event Trustee
and/or Beneficiary elect to proceed with respect to collateral constituting
personalty or fixtures separately from the real property, ten (10) days' notice
of the sale of such collateral shall be reasonable notice. This Indenture
constitutes a financing statement.
Section 41. Discontinuance of Action. Junior Beneficiary may from time to
time, if permitted by law, take action to recover any sums, whether interest,
principal or any other obligation or sums, required to be paid under this
Indenture as the same become due, without prejudice to the right of Trustee or
Junior Beneficiary thereafter to bring an action of foreclosure, or any other
action, for a default or defaults by Grantor existing when such earlier action
was commenced. If Junior Beneficiary or Trustee shall have proceeded to enforce
any right under this Indenture and such proceedings shall have been
discontinued or abandoned for any reason, then in every such case Grantor,
Trustee and Beneficiary shall be restored to their former positions and the
rights, remedies and powers of all parties hereto shall continue as if no such
proceedings had been taken.
Section 42. Substitute Trustee. Trustee, or any substitute Trustee, may
be removed at any time with or without cause, at the option of Junior
Beneficiary, by written declaration of such removal signed by Junior
Beneficiary and duly recorded in the same records as this Indenture without any
notice to or demand upon Trustee or substitute Trustee so removed, or Grantor
or any other person. If at any time Trustee or any substitute Trustee should be
so removed, die, or refuse, fall or be unable to act as such Trustee or
substitute Trustee, Junior Beneficiary may appoint any person as substitute
Trustee hereunder, without any formality other than a written declaration of
such appointment executed by Junior Beneficiary and duly recorded in the same
records as this Indenture; and immediately upon such appointment, the
substitute Trustee so appointed shall automatically become vested with all the
estate and title in the Mortgaged Premises, and with all of the rights, powers,
privileges, authority, options and discretions, and charged with all of the
duties and liabilities, vested in or imposed upon Trustee by this Indenture,
and any conveyance executed by such substitute Trustee, including the recitals
therein contained, shall have the same' effect and validity as if executed by
Trustee.
Section 43. Indemnification Against Liabilities. Grantor will protect,
indemnify, save harmless and defend Trustee and Junior Beneficiary from and
against any and all liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) imposed upon or incurred by or asserted against
Junior Beneficiary and/or Trustee by reason of (a) ownership of an interest in
the
21
<PAGE> 23
Mortgaged Premises, (b) any accident or injury to or death of persons or loss
of or damage to or loss of the use of property occurring on or about the
Mortgaged Premises or any part thereof or the adjoining sidewalks, curbs,
vaults and vault spaces, if any, streets, alleys or ways, (c) any use, non-use
or condition of the Mortgaged Premises or any part thereof or the adjoining
sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (d)
any failure on the part of Grantor to perform or comply with any of the terms
of this Indenture, (e) performance of any labor or services or the furnishing
of any materials or other property in respect of the Mortgaged Premises or any
part thereof made or suffered to be made by or on behalf of Grantor, (f) any
negligence or tortious act on the part of Grantor or any of its respective
agents, employees, officers, directors, affiliates, contractors, lessees,
licensees or invitees or (g) any work in connection with any alterations,
changes, new construction or demolition of the Mortgaged Premises, excepting
only that which is attributable to the Trustee's or Junior Beneficiary's, as
the case may be, gross negligence or wilful misconduct. All amounts payable to
Junior Beneficiary or Trustee under this paragraph shall be payable on demand
and shall be deemed indebtedness hereby secured by this Indenture and any such
amounts which are not paid immediately upon demand therefor shall bear interest
at the Default Rate from the date of such demand. In case any action, suit or
proceeding is brought against Trustee or Junior Beneficiary by reason of any
such occurrence, Grantor, upon request of Trustee and/or Junior Beneficiary, as
the case may be, will, at Grantor's expense, resist and defend such action,
suit or proceeding or cause the same to be resisted or defended by counsel
designated by Grantor and approved by Trustee and Junior Beneficiary.
Section 44. Miscellaneous. All covenants contained herein shall run with
the Mortgaged Premises until the indebtedness hereby secured has been
satisfied. Time is of the essence in the payment or performance by Grantor of
all of the indebtedness hereby secured.
Section 45. Trustee's Fees. The Trustee shall, to the extent permitted by
applicable law, be entitled to fees for all services rendered in and about
foreclosure, enforcement or other protection of this Indenture, and Grantor
agrees to pay such fees as well as all out-of-pocket expenses and counsel fees
and court costs incurred by the Trustee, Junior Beneficiary or any holder of
the indebtedness hereby secured in such foreclosure, enforcement or other
protection, and the Grantor further agrees to indemnify the Trustee and Junior
Beneficiary against any liability or damages incurred or sustained by him or it
under this Indenture.
Section 46. Acknowledgment Form. Grantor hereby acknowledges that prior to
the execution of this Indenture it has executed an ACKNOWLEDGMENT FORM pursuant
to Neb. Rev. Stat. Section 76-1005(2).
Section 47. No Liability. Trustee shall not be liable for any error of
judgment or act done by Trustee, or be otherwise responsible or accountable
under any circumstances whatsoever. Trustee shall not be personally liable in
case of entry by him or anyone acting by virtue of the powers herein granted
him upon the Mortgaged Premises for debts contracted or liability or damages
incurred in the management or operation of the Mortgaged Premises. Trustee
shall have the right to rely on any instrument, document or signature
authorizing or supporting any action taken or proposed to be taken by him
hereunder or believed by him in good faith to be
22
<PAGE> 24
genuine. Trustee shall be entitled to reimbursement for expenses incurred by
him in the performance of his duties hereunder and to reasonable compensation
for such of his services hereunder as shall be rendered. Grantor will, from
time to time, pay compensation due the Trustee hereunder and reimburse Trustee
for and save and hold him harmless from and against any and all loss, cost,
liability, damage and expense whatsoever incurred by him in the performance of
his duties.
Section 48. No Impairment of Prior Liens. Nothing contained in this
Indenture shall in any manner affect or impair the priority of any liens or
security interests in the Mortgaged Premises heretofore granted to the Trustee
or any other security trustee for the benefit of the Senior Beneficiary or the
Junior Beneficiary.
[Remainder of page intentionally left blank]
23
<PAGE> 25
IN WITNESS WHEREOF, this Indenture has been duly executed by Grantor as of
the day and year first above written.
GRANTOR:
Signed and Delivered by Such Individual RICHMAN GORDMAN 1/2 PRICE
STORES,
on Behalf of Richman Gordman 1/2 Price INC.
Stores, Inc. in the
Presence of:
/s/ Susan C. Marrero By /s/ Jeffrey J. Gordman
- --------------------------------------- -------------------------
Its President
Susan C. Marrero Jeffrey J. Gordman
- --------------------------------------- -------------------------
(Type or Print Name) Type or Print Name
/s/ Patricia A. McMahen
- ---------------------------------------
Patricia A. McMahen
- ---------------------------------------
(Type or Print Name)
Signed and Delivered by Such ATTEST:
Acting Secretary of
Richman Gordman 1/2 Price
Stores, Inc. in the Presence of:
/s/ Susan C. Marrero /s/ Robert A. Cera
- -------------------------------- --------------------
Its Acting Secretary
Susan C. Marrero Robert A. Cera
- -------------------------------- --------------------
(Type or Print Name) Type or Print Name
/s/ Patricia A. McMahen
- --------------------------------
Patricia A. McMahen
- --------------------------------
(Type or Print Name)
24
<PAGE> 26
STATE OF NEBRASKA )
)ss.
COUNTY OF DOUGLAS )
The foregoing instrument was acknowledged before me this 17th day of
March, 1997 by Jeffrey J. Gordman, President of Richman Gordman 1/2 Price
Stores, Inc., a Nebraska corporation, and Robert A. Cera, Acting Secretary of
said corporation, on behalf of said corporation.
Witness my hand and notarial seal.
(NOTARIAL SEAL)
/s/ Carol A. Diebold
-------------------------------
Notary Public-County of Douglas
State of Nebraska
Name(Print): Carol A. Diebold
----------------------
My Commission Expires: Feb. 2, 2000
-------------
Residing at: 14924 K St
----------------------
Omaha, NE 68137
-----------------------------------
25
<PAGE> 27
SCHEDULE I
LEGAL DESCRIPTION
PROPERTY 1: The West 500 feet of the East 1,600 feet of the South Half of the
South Half of the Southwest Quarter (S1/2 S1/2 SW1/4) of
Section 34, Township 15 North, Range 12 East of the 6th P.M., in
the City of Omaha, in Douglas County, Nebraska, lying
between the North line of "F" Street and the South line of the
Union Pacific Railroad right-of-way (known as lane cutoff),
EXCEPT the West 50 feet 4 inches thereof, being sometimes more
particularly described as follows:
Commencing at the Southeast corner of said South Half of the South
Half of the Southwest Quarter; thence Northerly, on the East line
of said South half 50.00 feet, to the North line of "F" Street;
thence Westerly on a line 50 feet North of and parallel to the
South line of said South Half (the North line of said "F" Street),
1,100.00 feet, to the Point of Beginning; thence continuing
Westerly, on a line 50.00 feet North of and parallel to the South
line of said South Half (the North line of said "F" Street), 449.67
feet; thence Northerly, on a line perpendicular to the last
described course, 443.00 feet, to the South line of the Union
Pacific Railroad right-of-way; thence Easterly, on the South line
of said Union Pacific Railroad right-of-way, 449.67 feet; thence
Southerly, on a line perpendicular to the South line of the Union
Pacific Railroad right-of-way, 443.65 feet, to the Point of
Beginning.
PROPERTY 2: That part of the South Half of the South Half of the Southwest
Quarter (S1/2 S1/2 SW1/4) of Section 34, Township 15 North, Range
12 East of the 6th P.M., in the City of Omaha, in Douglas County,
Nebraska, described as follows:
Commencing at the Southeast corner of said South Half of the South
Half of the Southwest Quarter; thence Northerly, on the East line
of said South Half of the South Half of the Southwest Quarter,
50.00 feet to the North line of "F" Street; thence Westerly, on a
line 50.00 feet North of and parallel to the South line of said
South Half of the South Half of the Southwest Quarter (the North
line of said "F" Street), 1,759.67 feet, to the Southerly extension
of the West wall line of an existing building and the Point of
Beginning; thence continuing Westerly, on a line 50.00 feet North
of and parallel to the South line of said South Half of the South
Half of the Southwest Quarter (the North line of said "F" Street),
840.94 feet, to the East line of 96th Street; thence Northerly, on
a line 50.00 feet East of and parallel to the West line of said
South Half of the South Half of the Southwest Quarter (the East
line of said 96th Street), 439.43 feet, to the South line of the
Union Pacific Railroad right-of-way; thence Easterly, on the South
line of said Union Pacific Railroad right-of-way, 438.04 feet, to a
point 400.00 feet West of the West wall line of said existing
building; thence Southerly, on a line 400.00 feet West of and
parallel to the West wall line of said existing building, 189.59
feet, to the Northwest corner of a building under construction;
thence Easterly, on the North Wall line of said building under
construction, 400.00 feet, to the West wall line of said existing
building; thence Southerly, on the West wall line of said existing
building and its Southerly extension, 251.69 feet, to the Point of
Beginning;
EXCEPT that part thereof more particularly described as follows:
Beginning at the point of intersection of the East right-of-way
line of 96th Street and the North right-of-way line of "F" Street;
thence Northerly, along the East right-of-way line of 96th Street,
for a distance of 20.00 feet; thence Southeasterly, for a distance
of 28.28 feet, to a point on the North right-of-way line of "F"
Street; thence Westerly, along the North right-of-way of "F"
Street, for a distance of 20.00 feet, to the Point of Beginning.
[Tax Nos. 3644-0013-01]
<PAGE> 28
SCHEDULE II
PERMITTED EXCEPTIONS
1. Taxes not yet delinquent.
2. Easement granted to Omaha Public Power District and Northwestern Bell
Telephone Company by instrument dated October 20, 1971, filed November 1,
1971, in Book 504 at Page 357 of the Miscellaneous Records of Douglas
County, Nebraska, to install and maintain electric and telephone
facilities over, upon, along and under a portion of Property 1.
3. Terms, conditions, agreements and limitations contained in Party Wall
Agreement dated June 21, 1973, filed July 2, 1973, in Book 524 at Page 61
of the Miscellaneous Records of Douglas County, Nebraska, pertaining to a
party wall between Property 1 and property adjacent thereto on the West.
4. Terms, conditions, agreements and limitations contained in Party Wall
Agreement dated November 7, 1983, filed December 2, 1983, in Book 701 at
Page 175 of the Miscellaneous Records of Douglas County, Nebraska,
pertaining to party wall between Property 2 and property adjacent thereto
on the East.
5. Terms, conditions, agreements, limitations and easements contained in
Party Wall and Easement Agreement dated December 12, 1983, filed December
16, 1983, in Book 701 at Page 742 of the Miscellaneous Records of Douglas
County, Nebraska, pertaining to party wall between Property 2 and property
adjacent thereto on the South.
6. Easement granted to Gordman Properties Company by Permanent Access
Easement dated February 26, 1996, filed March 11, 1996, in Book 1171 at
page 125 at the Miscellaneous Records of Douglas County, Nebraska.
7. Easements, rights-of-way, restrictions, minor defects or irregularities
in title and other similar charges or encumbrances not interfering in any
material respect with the ordinary conduct of the business of Grantor.
8. Terms, conditions, agreements, limitations and covenants contained in
Indenture of Mortgage, Deed of Trust and Security Agreement of the Company
to the Trustee and the Senior Beneficiary, dated October 20, 1993,
recorded October 26, 1993, in Book 4176 at Page 296 of the Mortgage
Records of Douglas County, Nebraska.
9. The rights of The Gordman Fund as subrogee to the rights of the Senior
Beneficiary as acknowledged in the Agreement Regarding Dan Gordman Fund,
dated as of December 13, 1996, between the Grantor, The Gordman Fund, and
the Estate of Esther Gordman
<PAGE> 29
10. Option to Gordman Properties Company ("GPC") to acquire the Mortgaged
Premises under the terms of the Option Agreement dated as of February 26,
1996, by and between GPC and Grantor, filed July 18, 1996, in Book 1182 at
Page 304 of the Miscellaneous Records of Douglas County, Nebraska.
11. Terms and provisions of unrecorded Ground Lease, a Memorandum of which
was dated December 5, 1983 and recorded December 16, 1983, in Book 701 at
Page 739 of the Miscellaneous Records of Douglas County, Nebraska,
executed by and between Richman Gordman Stores, Inc., a Nebraska
corporation, as Lessor, and Gordman Properties Company, a Nebraska general
partnership, as Lessee. (Affects Property 2)
12. Terms and provisions of unrecorded Lease, a Memorandum of which was dated
December 12, 1983, and recorded December 22, 1983, in Book 702 at Page 156
of the Miscellaneous Records of Douglas County, Nebraska, executed by and
between Gordman Properties Company, a Nebraska general partnership, as
Landlord, and Richman Gordman Stores, Inc., a Nebraska corporation, as
Tenant. (Affects Property 2)
13. Mortgage dated as of July 18, 1984 and recorded July 17, 1984, in Book
2700 at Page 712 of the Mortgage Records of Douglas County, Nebraska,
executed by Gordman Properties Company, a Nebraska partnership, and
Richman Gordman Stores, Inc., a Nebraska corporation, in favor of Bankers
Life Company, securing the sum of $2,000,000.00 and any other amounts
payable under the terms thereof. (Affects Property 2)
14. Collateral Assignment of Lease and Rents dated as of July 18, 1984 and
recorded July 17, 1984, in Book 714 at Page 283 of the Miscellaneous
Records of Douglas County, Nebraska, executed by Gordman Properties
Company, a Nebraska partnership, in favor of Bankers Life Company, an Iowa
corporation. (Affects Property 2)
15. Terms and provisions of Subordination, Non-Disturbance and Attornment
Agreement dated as of July 18, 1984 and recorded July 18, 1984, in Book
714 at Page 347 of the Miscellaneous Records of Douglas County, Nebraska,
executed by and between Richman Gordman Stores, Inc., a Nebraska
corporation, as Lessee, and Bankers Life Company, an Iowa corporation, as
Mortgagee. (Affects Property 2)
16. Terms and provisions of Landlord's Waiver and Consent dated December 26,
1990 and recorded February 21, 1991,in Book 954 at Page 80 of the
Miscellaneous Records of Douglas County, Nebraska, pertaining to leased
personal property on Property 2.
17. Permanent Access Easement granted by instrument dated February 26, 1996,
and recorded March 11, 1996, in Book 1171 at Page 125 of the Miscellaneous
Records of Douglas County, Nebraska.
<PAGE> 1
EXHIBIT (10)(ix)
Material Contracts -- Junior
Security Agreement between
Richman Gordman 1/2 Price
Stores, Inc. and Cathy
Hershcopf, as agent for The
Class 3 Creditors, dated
January 31, 1997.
<PAGE> 2
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
JUNIOR SECURITY AGREEMENT
This Junior Security Agreement (the "Agreement") dated as of January 31,
1997 by and between RICHMAN GORDMAN 1/2 PRICE STORES, INC., a Delaware
corporation (successor by merger to Richman Gordman Stores, Inc. and Richman
Gordman Department Stores, Inc., each former Nebraska corporations) with its
principal place of business and mailing address at 12100 West Center Road,
Omaha, Nebraska 68144 (the "Company"), and Cathy Hershcopf, Esq., as agent for
the Class 3 Creditors (the "Class 3 Creditors"), identified in the First
Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code
for Richman Gordman Stores, Inc., Richman Gordman Department Stores, Inc. and
1/2 Price Stores, Inc. dated August 13, 1993 (the "Plan").
WITNESSETH THAT:
WHEREAS, before its merger into the Company, the former Nebraska
corporation known as Richman Gordman Stores, Inc. did execute and deliver to
Harris Trust and Savings Bank, an Illinois banking corporation with its mailing
address at 111 West Monroe Street, P.O. Box 755, Chicago, Illinois 60690 (the
"Bank") that certain Security Agreement dated as of March 30, 1992 (the "RGS
Security Agreement"), in order to secure certain indebtedness therein described
of said Richman Gordman Stores, Inc. owed to the Bank (the "Original Debt ");
and
WHEREAS, before its merger into the Company, the former Nebraska
corporation known as Richman Gordman Department Stores, Inc. did execute and
deliver to the Bank that certain Security Agreement dated as of March 30, 1992
(the "RGDS Security Agreement"), in order to secure the Original Debt; and
WHEREAS, before its merger into the Company, the former Nebraska
corporation known as 1/2 Price Stores, Inc. did execute and deliver to the
Bank that certain Security Agreement dated as of March 30, 1992 (the " 1/2
Price Security Agreement") (the RGS Security Agreement, RGDS Security Agreement
and 1/2 Price Security Agreement being hereinafter collectively referred to as
the "Original Security Agreements"), in order to secure the Original Debt; and
WHEREAS, before their merger into the Company, each of Richman Gordman
Department Stores, Inc., Richman Gordman Stores, Inc. and 1/2 Price Stores,
Inc., then all Nebraska corporations (collectively, the "Debtors"), proposed
the Plan, which Plan would, among other things, modify the Original Debt; and
WHEREAS, such Plan was confirmed by order of the Bankruptcy Court entered
on October 5, 1993; and
<PAGE> 3
WHEREAS, pursuant to the Plan, the Company has issued to the Bank a
Secured Term Note of the Company dated October 20, 1993 payable to the order of
the Beneficiary in the face principal amount of $4,000,000 (such Secured Term
Note and any all notes issued in extension or renewal thereof or in
substitution or replacement therefor, in each case whether in whole or in part,
as each of the foregoing may from time to time be modified or amended, being
hereinafter referred to collectively as the "Term Note") to evidence $4,000,000
in principal amount of the Original Debt as the same has been modified by the
Plan; and
WHEREAS, the Company did execute and deliver to the Bank that certain
Security Agreement dated as of October 20, 1993 (the "Senior Security
Interest"), in order to confirm and assure that the liens of the Original
Security Agreements continue to encumber the Collateral (as hereinafter
defined) for the benefit and security of the Term Note; and
WHEREAS, a portion of the Term Note was prepaid from the proceeds of an
insurance policy (the "Insurance") on the life of A. D. (Dan) Gordman; and
WHEREAS, The Dan Gordman Fund (the "Fund"), as beneficiary of the
Insurance, is subrogated to the rights of the Bank under the Term Note, and the
Security Agreement and Indenture of Mortgage, Deed of Trust and Security
Agreement securing such Term Note, and as such is also a holder of the Senior
Security Interest; and
WHEREAS, this Agreement is made and given pursuant to that certain waiver
and deferral agreement executed and delivered by the Class 3 Creditors
Committee (the "Waiver") as of January 31, 1997, which Waiver agrees to the
deferral of the Class 3 Creditor minimum cumulative payment under the Plan of
$1,939,000 scheduled to be escrowed on February 1, 1997 (the "1997 Minimum
Payment");
NOW, THEREFORE, for good and valuable consideration, receipt whereof is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Grant of Security Interest in the Collateral. The Company hereby
grants to the Class 3 Creditors a security interest in, and acknowledges and
agrees that the Class 3 Creditors have and shall continue to have a continuing
security interest in, any and all right, title and interest of the Company in
and to the following:
(a) Equipment. Equipment, whether now owned or hereafter acquired
(the term "Equipment" means and includes equipment, machinery, tools,
trade fixtures, furniture, furnishings, office equipment, and data
processing equipment, in each case now or hereafter used or usable in
connection with the Company's business, together with all parts,
accessories and attachments relating to any of the foregoing), provided
that Equipment shall in no event include goods used in connection with
the operation of, and located at, the Company's corporate headquarters or
operating retail stores, and further provided that Equipment shall in no
event include Equipment (a certain compactor and a certain film processor
and related equipment) securing the claim of Norwest Equipment
2
<PAGE> 4
Finance, Inc., pursuant to the Stipulation dated August 6, 1993, between
the Debtors and Norwest Equipment Finance, Inc.;
(b) Records. Supporting evidence and documents relating to any of
the above-described property, including, without limitation, delivery and
installation certificates, invoice copies, delivery receipts, insurance
certificates and the like, together with all books of account, ledgers
and cabinets in which the same are reflected or maintained, all whether
now existing or hereafter arising;
(c) Accessions and Additions. All accessions and additions to and
substitutions and replacements of any and all of the foregoing, whether
now existing or hereafter arising; and
(d) Proceeds and Products. All proceeds and products of the
foregoing and all insurance on the foregoing and proceeds thereof,
whether now existing or hereafter arising;
all of the foregoing being herein sometimes referred to as the "Collateral ".
2. Obligations Hereby Secured. The lien and security interest herein
granted and provided for is made and given to secure, and shall secure, the
prompt payment and performance in full when due (whether by lapse of time,
acceleration or otherwise) of (i) the payment of the principal and premium, if
any, of and interest on the 1997 Minimum Payment and the Class 3 Creditors
Minimum Payment under the Plan of $1,828,000 due to be escrowed on February 2,
1998, (together, the "Minimum Payments") as and when the same becomes due and
payable (whether by lapse of time, acceleration or otherwise), and (ii) any and
all expenses and charges, legal or otherwise, suffered or incurred by the Class
3 Creditors in collecting or enforcing the Company's obligation to pay the
Minimum Payments or realizing on or protecting or preserving any security
therefor, including, without limitation, the lien and security interest granted
hereby (all of such indebtedness, obligations, liabilities, expenses and
charges described in clauses (i) and (ii) above being hereinafter referred to
as the "Secured Obligations ").
3. Covenants, Agreements, Representations and Warranties. The Company
hereby covenants and agrees with, and represents and warrants to, the Class 3
Creditors that:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, is the sole
and lawful owner of the Collateral and has full right, power and
authority to enter into this Agreement and to perform each and all of the
matters and things herein provided for; and the execution and delivery of
this Agreement, and the observance and performance of any of the matters
and things herein set forth, will not violate or contravene any provision
of law or of the articles of incorporation or by-laws of the Company or
of any indenture, loan agreement or other agreement of or affecting the
Company or any of its properties.
3
<PAGE> 5
(b) The Collateral is and will remain in the Company's possession
or control at the locations listed on Schedule A attached hereto
(collectively, the "Permitted Collateral Locations "). If for any reason
Collateral is at any time kept or located at locations other than the
Permitted Collateral Locations, the Class 3 Creditors shall nevertheless
have and retain a security interest therein. The Company owns and will at
all times own all Permitted Collateral Locations, except to the extent
otherwise indicated on Schedule A. The Company's chief executive office
and principal place of business is at 12100 West Center Road, Omaha,
Nebraska 68144, and the Company has no other executive offices or places
of business other than retail stores. The Company will not maintain an
executive office or place of business at a location other than those
specified pursuant to the immediately preceding sentence without first
providing the Class 3 Creditors thirty (30) days' prior written notice of
its intent to do so; provided, however, that the Company will at all
times maintain its chief executive office in the contiguous continental
United States of America.
(c) The Collateral and every part thereof is and will be free and
clear of all security interests, liens (including, without limitation,
mechanics', laborers' and statutory liens), attachments, levies and
encumbrances of every kind, nature and description and whether voluntary
or involuntary, except for the security interest of the Bank and the Fund
therein and as otherwise provided on Schedule B hereto. The Company will
warrant and defend the Collateral against any claims and demands of all
persons (other than the Bank and the Fund pursuant to the Senior Security
Interest) at any time claiming the same or any interest in the Collateral
adverse to the Class 3 Creditors.
(d) The Company will promptly pay when due all taxes, assessments
and governmental charges and levies upon or against the Collateral, in
each case before the same become delinquent and before penalties accrue
thereon, unless and to the extent that the same are being contested in
good faith by appropriate proceedings which prevent foreclosure on or
other realization upon any of the Collateral and the Company shall have
established adequate reserves therefor.
(e) The Company will not waste or destroy the Collateral or any
part thereof and will not be negligent in the care or in the use of any
Collateral. The Company will not use, manufacture, sell or distribute any
Collateral in violation of any statute, ordinance or other governmental
requirement. The Company will perform in all material respects its
obligations under any contract or other agreement constituting part of
the Collateral, it being understood and agreed that the Class 3 Creditors
have no responsibility to perform such obligations.
(f) Subject to the following sentence, the Company will not,
without the Class 3 Creditors' prior written consent, sell, assign,
mortgage, lease or otherwise dispose of the Collateral or any interest
therein. The Company may, until an Event of Default has occurred and is
continuing hereunder and until otherwise notified by the Class 3
Creditors, sell obsolete, worn out or unusable Equipment which is
concurrently replaced
4
<PAGE> 6
with similar Equipment at least equal in quality and condition to that
sold and owned by the Company free of any lien, charge or encumbrance
other than the lien hereof. Notwithstanding the foregoing, the parties
acknowledge that (i) it is the intention of the Company to (a) sell and
leaseback Building 1 (both building and land) of the Distribution Center
and (b) to terminate its lease of the corporate offices, and that (ii)
such contemplated sale and leaseback and lease termination will not be
deemed to be an Event of Default under this Agreement.
(g) The Company will at its own cost and expense maintain, keep and
preserve the Equipment in good repair, working order and condition,
ordinary wear and tear accepted, and without limiting the foregoing make
all necessary and proper repairs, replacements and additions to the
Equipment (other than Equipment which is obsolete or uneconomical) so
that the efficiency thereof shall be fully preserved and maintained.
(h) Upon the Class 3 Creditors' request, the Company shall at its
own cost and expense cause the lien of the Class 3 Creditors in and to
any portion of the Equipment subject to a certificate of title law to be
duly noted on such certificate of title or to be otherwise filed in such
manner as is prescribed by law in order to perfect such lien and will
cause all such certificates of title and evidences of lien to be
deposited with the Class 3 Creditors.
(i) None of the Equipment is or will be attached to real estate in
such a manner that the same may become a fixture except for Equipment
from time to time located on the real estate described on Schedule C
attached hereto. In any event the Company will, upon written request of
the Class 3 Creditors, furnish agreements signed by all parties (other
than mortgagees of the Company's landlords and the Bank and the Fund
pursuant to the Senior Security Interest) having any right, title or
interest in, or lien on, any real estate on which any Equipment is
located whereby such parties disclaim any right, title and interest in,
and lien on, any such Equipment which may be prior to the security
interest of the Class 3 Creditors therein (such agreements to contain a
legal description of such real estate and otherwise to be in a form
satisfactory to the Class 3 Creditors).
(j) The Company will insure the Collateral which is insurable
against such risks and hazards as other companies similarly situated
insure against, and including in any event loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as the Class
3 Creditors may reasonably specify, in amounts and under policies
containing loss payable clauses to the Class 3 Creditors as their
interests may appear or, if the Class 3 Creditors request, naming the
Class 3 Creditors as an additional insured therein) by insurers
reasonably acceptable to the Class 3 Creditors. All premiums on such
insurance shall be paid by the Company and the policies of such insurance
(or certificates therefor) delivered to the Class 3 Creditors. All
insurance required hereby shall provide that any losses shall be payable
notwithstanding any act or negligence of the Company, shall provide that
no cancellation thereof shall be effective until at least thirty (30)
days after receipt by the Company and the Class 3 Creditors of written
notice
5
<PAGE> 7
thereof, and shall be satisfactory to the Class 3 Creditors in all other
respects. In case of any material loss, damage to or destruction of the
Collateral or any part thereof, the Company shall promptly give written
notice thereof to the Class 3 Creditors generally describing the nature
and extent of such damage or destruction. In case of any loss, damage to
or destruction of the Collateral or any part thereof, the Company,
whether or not the insurance proceeds, if any, received on account of
such damage or destruction shall be sufficient for that purpose, at the
Company's cost and expense, will promptly repair or replace the
Collateral so lost, damaged or destroyed, except to the extent such
Collateral, prior to its loss, damage or destruction, had become obsolete
or worn out. In the event the Company shall receive any proceeds of such
insurance, the Company will immediately pay over such proceeds to the
holders of the Senior Security Interest and, upon satisfaction in full of
the Senior Security Interest, to the Class 3 Creditors. Net insurance
proceeds received by the Class 3 Creditors under the provisions hereof or
under any policy or policies of insurance covering the Collateral or any
part thereof shall be applied to the reduction of the Secured Obligations
(whether or not then due), provided, however, that the Class 3 Creditors
agree to release such insurance proceeds to the Company for replacement
or restoration of the portion of the Collateral lost, damaged or
destroyed required by this Agreement to be so replaced or restored if,
but only if, (i) no Event of Default hereunder, or any other event which
with the passage of time, the giving of notice, or both, would constitute
such an Event of Default, shall have occurred or be continuing at the
time of release, (ii) written application for such release is received
from the Company within thirty (30) days of receipt of such proceeds and
(iii) the Class 3 Creditors have received evidence reasonably
satisfactory to it that the Collateral lost, damaged or destroyed has
been or will be replaced or restored to its condition immediately prior
to the loss, destruction or other event giving rise to the payment of
such insurance proceeds. All insurance proceeds shall be subject to the
Senior Security Interest and the lien and security interest of the Class
3 Creditors hereunder.
(k) The Company will at all times allow the Class 3 Creditors or
their representatives free access to and right of inspection of the
Collateral. The Company will, upon the request of the Class 3 Creditors,
authorize and instruct all bailees and other parties at any time holding,
storing, shipping or transferring all or any part of the Collateral to
permit the Class 3 Creditors or their representatives to examine and
inspect any of the Collateral then in such party's possession and to
verify from such party's own books and records any information concerning
the Collateral or any part thereof which the Class 3 Creditors or their
representatives may seek to verify.
(1) The Company agrees from time to time to deliver to the Class 3
Creditors such evidence of the existence and identity of the Collateral
and of its availability as collateral security pursuant hereto, in each
case as the Class 3 Creditors may reasonably request. The Company shall
at the request of the Class 3 Creditors provide the Class 3 Creditors
from time to time as specified by the Class 3 Creditors with a report of
a physical listing and the location of all Equipment. The Company shall
furnish such other reports and information concerning Equipment as the
Class 3 Creditors may reasonably
6
<PAGE> 8
request (including, without limitation, reports stating the book value of
Equipment by major category and location). The Company will also promptly
notify the Class 3 Creditors of any Equipment which the Company has
determined to have been rendered obsolete, stating the prior book value
of such Equipment, its type and location.
(m) The Company will comply in all material respects with the terms
and conditions of any leases, easements, right-of-way agreements or other
agreements binding upon the Company or affecting the Collateral, in each
case which cover the premises wherein the Collateral is located, and any
orders, ordinances, laws or statutes of any city, state or other
governmental entity, department or agency having jurisdiction with
respect to such premises or the conduct of business thereon.
(n) The Company has not transacted business, and does not transact
business, under any trade names other than: Richman Gordman and 1/2 Price
and Richman Gordman 1/2 Price. The Company will not change its name or
transact business under any other trade name, in each case without first
giving the Class 3 Creditors thirty (30) days' prior written notice of
its intent to do so.
(o) The Company agrees to execute and deliver to the Class 3
Creditors such further agreements and assignments or other instruments
and documents and to do all such other things as the Class 3 Creditors
may reasonably deem necessary or appropriate to assure the Class 3
Creditors its security interest hereunder, including such financing
statement or statements or amendments thereof or supplements thereto or
other instruments and documents as the Class 3 Creditors may from time to
time reasonably require in order to comply with the Uniform Commercial
Code as enacted in the State of Nebraska and any successor statute(s)
thereto (the "Code"). The Company hereby agrees that a carbon,
photographic or other reproduction of this Agreement or any such
financing statement is sufficient for filing as a financing statement by
the Class 3 Creditors without notice thereof to the Company wherever the
Class 3 Creditors in their sole discretion desire to file the same. In
the event for any reason the law of any other jurisdiction than Nebraska
becomes or is applicable to the Collateral or any part thereof, or to any
of the Secured Obligations, the Company agrees to execute and deliver all
such instruments and documents and to do all such other things as the
Class 3 Creditors in its sole discretion deems necessary or appropriate
to preserve, protect and enforce the security interest of the Class 3
Creditors under the law of such other jurisdiction. If any Collateral is
in the possession or control of any of the Company's agents or processors
and the Class 3 Creditors so request, the Company agrees to notify such
agents or processors in writing of the Class 3 Creditors' security
interest therein and instruct them to hold all such Collateral for the
Class 3 Creditors's account and subject to the Class 3 Creditors'
instructions. The Company agrees to mark its books and records to reflect
the security interest of the Class 3 Creditors in the Collateral.
(p) On failure of the Company to perform any of the covenants and
agreements herein contained, the Class 3 Creditors may, at their option,
upon two days' prior notice to
7
<PAGE> 9
the Company (unless the Class 3 Creditors reasonably determine that
immediate payment or performance is necessary to preserve or protect the
Collateral) perform the same and in so doing may expend such sums as the
Class 3 Creditors may reasonably deem advisable in the performance
thereof, including without limitation the payment of any insurance
premiums, the payment of any taxes, liens and encumbrances, expenditures
made in defending against any adverse claims and all other expenditures
which the Class 3 Creditors may be compelled to make by operation of law
or which the Class 3 Creditors may make by agreement or otherwise for the
protection of the security hereof. All such sums and amounts so expended
shall be repayable by the Company immediately without notice or demand,
shall constitute additional Secured Obligations hereunder and shall bear
interest from the date said amounts are expended at the rate of 9% per
annum (computed on the basis of a year of 365 or 366 days, as the case
may be, and the actual number of days elapsed) (such rate per annum being
hereinafter referred to as the "Default Rate "). No such performance of
any covenant or agreement by the Class 3 Creditors on behalf of the
Company, and no such advancement or expenditure therefor, shall relieve
the Company of any default under the terms of this Agreement or in any
way obligate the Class 3 Creditors to take any further or future action
with respect thereto. The Class 3 Creditors in making any payment hereby
authorized may do so according to any bill, statement or estimate
procured from the appropriate public office or holder of the claim to be
discharged without inquiry into the accuracy of such bill, statement or
estimate or into the validity of any tax assessment, sale, forfeiture,
tax lien or title or claim. The Class 3 Creditors in performing any act
hereunder shall be the sole judge of whether the Company is required to
perform same under the terms of this Agreement. The Class 3 Creditors
are authorized to charge any depository or other account of the Company
maintained with the Class 3 Creditors for the amount of such sums and
amounts so expended.
4. Power of Attorney. In addition to any other powers of attorney
contained herein, the Company appoints the Class 3 Creditors, their nominee, or
any other person whom the Class 3 Creditors may designate as the Company's
attorney in fact, with full power, upon the occurrence and during the
continuation of any Event of Default hereunder, to endorse the Company's name
on any checks, notes, acceptances, money orders, drafts or other forms of
payment or security relating to the Collateral or other evidences of payment or
proceeds of Collateral that may come into the Class 3 Creditors' possession, to
sign the Company's name on any notices of assignment and on public records, and
to do all things necessary to carry out this Agreement. The Company hereby
ratifies and approves all acts of any such attorney and agrees that neither the
Class 3 Creditors nor any such attorney will be liable for any acts or
omissions nor for any error of judgment or mistake of fact or law other than
their gross negligence or willful misconduct. The foregoing power of attorney,
being coupled with an interest, is irrevocable until the Secured Obligations
have been fully paid and satisfied and any commitment of the Class 3 Creditors
to extend credit to the Company has terminated. The Class 3 Creditors may file
one or more financing statements disclosing its security interest in any or all
of the Collateral without the Company's signature appearing thereon. The
Company also hereby grants the Class 3 Creditors a power of attorney to execute
any such financing statements, or
8
<PAGE> 10
amendments and supplements to financing statements, on behalf of the Company
without notice thereof to the Company, which power of attorney is coupled with
an interest and is irrevocable until the Secured Obligations have been fully
paid and satisfied and any commitment of the Class 3 Creditors to extend credit
to the Company has terminated.
5. Defaults and Remedies. (a) The occurrence of any event of default
under the Waiver shall constitute an "Event of Default" hereunder.
(b) Upon the occurrence and during the continuation of any Event of
Default hereunder, the Class 3 Creditors shall have, in addition to all other
rights provided herein or by law, the rights and remedies of a secured party
under the Code (regardless of whether the Code is the law of the jurisdiction
where the fights or remedies are asserted and regardless of whether the Code
applies to the affected Collateral), and further the Class 3 Creditors may,
without demand and without advertisement, notice, hearing or process of law,
all of which the Company hereby waives, at any time or times, sell and deliver
any or all Collateral held by or for it at public or private sale, for cash,
upon credit or otherwise, at such prices and upon such terms as the Class 3
Creditors deem advisable, in its sole discretion. In addition to all other
sums due the Class 3 Creditors hereunder, the Company shall pay the Class 3
Creditors all costs and expenses incurred by the Class 3 Creditors, including
attorneys' fees and court costs, in obtaining, liquidating or enforcing payment
of Collateral or the Secured Obligations or in the prosecution or defense of
any action or proceeding by or against the Class 3 Creditors or the Company
concerning any matter arising out of or connected with this Agreement or the
Collateral or the Secured Obligations, including, without limitation, any of
the foregoing arising in, arising under or related to a case under the United
States Bankruptcy Code (or any successor statute), other than such costs and
expenses arising solely from the gross negligence or willful misconduct of the
Class 3 Creditors. Any requirement of reasonable notice shall be met if such
notice is personally served on or mailed, postage prepaid, to the Company in
accordance with Section 8(b) hereof at least ten (10) days before the time of
sale or other event giving rise to the requirement of such notice; however, no
notification need be given to the Company if the Company has signed, after an
Event of Default hereunder has occurred, a statement renouncing any right to
notification of sale or other intended disposition. The Class 3 Creditors shall
not be obligated to make any sale or other disposition of the Collateral
regardless of notice having been given. The Class 3 Creditors may be the
purchaser at any such sale. The Company hereby waives all of its rights of
redemption from any such sale. Subject to the provisions of applicable law,
the Class 3 Creditors may postpone or cause the postponement of the sale of all
or any portion of the Collateral by announcement at the time and place of such
sale, and such sale may, without further notice, be made at the time and place
to which the sale was postponed or the Class 3 Creditors may further postpone
such sale by announcement made at such time and place.
(c) Without in any way limiting the foregoing, the Class 3 Creditors
shall upon the occurrence and during the continuation of any Event of Default
hereunder have the right, in addition to all other rights provided herein or by
law, to take physical possession of any and all of the Collateral and anything
found therein, the right for that purpose to enter without legal process any
premises where the Collateral may be found (provided such entry be done
lawfully),
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<PAGE> 11
and the right to maintain such possession on the Company's premises (the
Company hereby agreeing to lease warehouses to the Class 3 Creditors or their
designee if the Class 3 Creditors so request) or to remove the Collateral or
any part thereof to such other places as the Class 3 Creditors may desire.
Upon the occurrence and during the continuation of any Event of Default
hereunder, the Company shall, upon the Class 3 Creditors' demand, assemble the
Collateral and make it available to the Class 3 Creditors at a place designated
by the Class 3 Creditors. If the Class 3 Creditors exercise their right to
take possession of the Collateral, the Company shall also at its expense
perform any and all other steps requested by the Class 3 Creditors to preserve
and protect the security interest hereby granted in the Collateral, such as
placing and maintaining signs indicating the security interest of the Class 3
Creditors and appointing overseers for the Collateral.
(d) Failure by the Class 3 Creditors to exercise any right, remedy or
option under this Agreement or any other agreement between the Company and the
Class 3 Creditors or provided by law, or delay by the Class 3 Creditors in
exercising the same, shall not operate as a waiver; no waiver by the Class 3
Creditors shall be effective unless it is in writing and then only to the
extent specifically stated. Neither the Class 3 Creditors nor any party acting
as attorney for the Class 3 Creditors shall be liable for any acts or omissions
or for any error of judgment or mistake of fact or law other than their gross
negligence or willful misconduct. The rights and remedies of the Class 3
Creditors under this Agreement shall be cumulative and not exclusive of any
other right or remedy which the Class 3 Creditors may have.
(e) The Class 3 Creditors may enforce its rights and remedies under this
Agreement and protect and preserve the Collateral without further application
to or order of the Bankruptcy Court.
(f) Notwithstanding any other provision of this Agreement, the rights of
the Class 3 Creditors shall be subject to the rights of the holders of the
Senior Security Interest.
6. Application of Proceeds. The proceeds and avails of the Collateral at
any time received by the Class 3 Creditors after the occurrence and during the
continuation of any Event of Default hereunder shall, when received by the
Class 3 Creditors in cash or its equivalent, be applied by the Class 3
Creditors as follows:
(i) First, to the payment and satisfaction of all sums paid and
costs and expenses incurred by the Class 3 Creditors hereunder or
otherwise in connection herewith, including such monies paid or incurred
in connection with protecting, preserving or realizing upon the
Collateral or enforcing any of the terms hereof, including attorneys'
fees and court costs, together with any interest thereon (but without
preference or priority of principal over interest or of interest over
principal), to the extent the Class 3 Creditors are not reimbursed
therefor by the Company; and
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<PAGE> 12
(ii) Second, to the payment and satisfaction of the remaining Secured
Obligations, whether or not then due (in whatever order the Class 3 Creditors
elect), both for interest and principal.
The Company shall remain liable to the Class 3 Creditors for any deficiency.
Any surplus remaining after the full payment and satisfaction of the foregoing
shall be returned to the Company or to whomsoever a court of competent
jurisdiction shall determine to be entitled thereto.
7. Continuing Agreement. This Agreement shall be a continuing agreement
in every respect and shall remain in full force and effect until all of the
Secured Obligations, both for principal and interest, have been fully paid and
satisfied. Upon such termination of this Agreement, the Class 3 Creditors
shall, upon the request at the expense of the Company, forthwith release their
security interest hereunder.
8. Miscellaneous. (a) This Agreement cannot be changed or terminated
orally. All of the rights, privileges, remedies and options given to the Class
3 Creditors hereunder shall inure to the benefit of its successors and assigns,
and all the terms, conditions, covenants, agreements, representations and
warranties of and in this Agreement shall bind the Company and its legal
representatives, successors and assigns, provided that the Company may not
assign its rights or delegate its duties hereunder without the Class 3
Creditors' prior written consent. The Company hereby releases the Class 3
Creditors from any liability for any act or omission relating to the Collateral
or this Agreement, except for the Class 3 Creditors' gross negligence or
willful misconduct.
(b) All communications provided for herein shall be in writing, except as
otherwise specifically provided for hereinabove, and shall be given and deemed
to have been made when served personally or when deposited in the United States
mail, postage prepaid, addressed if to the Company in c/o Richman Gordman
Stores, Inc., 12100 West Center Road, Omaha, Nebraska 68144, Attention:
President, or if to the Class 3 Creditors, at Class 3 Creditors in care of
Lawrence Gottlieb, Siegel, Sommers & Schwartz, 470 Park Avenue South, New York,
New York 10016, or at such other address as shall be designated by any party
hereto in a written notice given to each party pursuant to this Section 8(b).
(c) In the event that any provision hereof shall be deemed to be invalid
by reason of the operation of any law or by reason of the interpretation placed
thereon by any court, this Agreement shall be construed as not containing such
provision, but only as to such locations where such law or interpretation is
operative, and the invalidity of such provision shall not affect the validity
of any remaining provisions hereof, and any and all other provisions hereof
which are otherwise lawful and valid shall remain in full force and effect.
(d) This Agreement shall be deemed to have been made in the State of
Nebraska and shall be governed by and construed in accordance with the laws of
the State of Nebraska. All terms which are used in this Agreement which are
defined in the Nebraska Uniform Commercial
11
<PAGE> 13
Code shall have the same meanings herein as said terms do in the Nebraska
Uniform Commercial Code unless this Agreement shall otherwise specifically
provide. The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning of any provision hereof.
(e) This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterpart signature pages, each
constituting an original, but all together one and the same agreement. The
Company acknowledges that this Agreement is and shall be effective upon its
execution and delivery by the Company to the Class 3 Creditors, and it shall
not be necessary for the Class 3 Creditors to execute this Agreement or any
other acceptance hereof or otherwise to signify or express their acceptance
hereof.
(f) Nothing contained in this Agreement shall in any manner affect or
impair the priority of any liens or security interests in the Collateral
heretofore granted to the Class 3 Creditors.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed as of this 31st day of January, 1997.
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
a Delaware corporation, successor by merger to
Richman Gordman Stores, Inc., a Nebraska
corporation
By /s/ Jeffrey J. Gordman
----------------------------------
Its CEO
----------------------------------
CATHY HERSHCOPF, as agent for the
Class 3 Creditors
/s/ Cathy Hershcopf
--------------------------------------
12
<PAGE> 14
SCHEDULE A
LOCATIONS
Locations of Collateral (including Company's chief executive office and
principal place of business):
ADDRESS OWNER OF IMPROVEMENTS
12100 West Center Road A.G. Realty Company
Omaha, NE 68144
(Chief Executive Office
and principal place of business)
9202 "F' Street Company and Gordman
Omaha, NE 68127 Properties Company*
(Distribution Center)
*The parties acknowledge that (i) it is the intention of the Company to (a)
sell and leaseback Building 1 (both building and land) of the Distribution
Center at this address and (b) to terminate its lease of the corporate offices,
and that (ii) such contemplated sale and leaseback and lease transactions will
not be deemed to be an Event of Default under this Agreement.
<PAGE> 15
SCHEDULE B
PERMITTED LIENS
1. Existing capitalized leases to which the Company is party to the
extent set forth in the Plan as surviving its effective date.
2. New capitalized leases entered into by the Company and purchase money
security interests (not including any assets not so financed) granted by the
Company, provided that the aggregate amount of liabilities under any such
leases entered into during any calendar year and the aggregate amount secured
by such security interests granted during such year does not exceed on a
cumulative basis $500,000.
3. The Security Agreement dated as of October 20, 1993, between the
Company and Harris Trust and Savings Bank.
4. The subrogation claim of the Dan Gordman Fund in connection with such
Security Agreement as acknowledged in the Agreement Regarding Dan Gordman Fund
dated as of December 13, 1996, between the Company, the Dan Gordman Fund, and
the Estate of Esther Gordman.
5. Permitted encumbrances listed in Schedule II to the Junior Indenture
of Mortgage, Deed of Trust and Security Agreement, dated as of January 31,
1997, given by the Company to Old Republic Title Insurance Company as Trustee
for Cathy Hershcopf, Esq., as agent for the Class 3 Creditors.
<PAGE> 16
SCHEDULE "C"
PROPERTY 1: The West 500 feet of the East 1,600 feet of the South Half of the
South Half of the Southwest Quarter (S1/2 S1/2 SW1/4) of
Section 34, Township 15 North, Range 12 East of the 6th P.M., in
the City of Omaha, in Douglas County, Nebraska, lying between the
North line of "F" Street and the South line of the Union Pacific
Railroad right-of-way (known as lane cutoff), EXCEPT the West 50
feet 4 inches thereof, being sometimes more particularly described
as follows:
Commencing at the Southeast corner of said South Half of the South
Half of the Southwest Quarter; thence Northerly, on the East line
of said South half 50.00 feet, to the North line of "F" Street;
thence Westerly on a line 50 feet North of and parallel to the
South line of said South Half (the North line of said "F" Street),
1,100.00 feet, to the Point of Beginning; thence continuing
Westerly, on a line 50.00 feet North of and parallel to the South
line of said South Half (the North line of said "F" Street), 449.67
feet; thence Northerly, on a line perpendicular to the last
described course, 443.00 feet, to the South line of the Union
Pacific Railroad right-of-way; thence Easterly, on the South line
of said Union Pacific Railroad right-of-way, 449.67 feet; thence
Southerly, on a line perpendicular to the South line of the Union
Pacific Railroad right-of-way, 443.65 feet, to the Point of
Beginning.
PROPERTY 2: That part of the South Half of the South Half of the Southwest
Quarter (S1/2 S1/2 SW1/4) of Section 34, Township 15 North,
Range 12 East of the 6th P.M., in the City of Omaha, in Douglas
County, Nebraska, described as follows:
Commencing at the Southeast corner of said South Half of the South
Half of the Southwest Quarter; thence Northerly, on the East line
of said South Half of the South Half of the Southwest Quarter,
50.00 feet to the North line of "F" Street; thence Westerly, on a
line 50.00 feet North of and parallel to the South line of said
South Half of the South Half of the Southwest Quarter (the North
line of said "F" Street), 1,759.67 feet, to the Southerly extension
of the West wall line of an existing building and the Point of
Beginning; thence continuing Westerly, on a line 50.00 feet North
of and parallel to the South line of said South Half of the South
Half of the Southwest Quarter (the North line of said "F" Street),
840.94 feet, to the East line of 96th Street; thence Northerly, on
a line 50.00 feet East of and parallel to the West line of said
South Half of the South Half of the Southwest Quarter (the East
line of said 96th Street), 439.43 feet, to the South line of the
Union Pacific Railroad right-of-way; thence Easterly, on the South
line of said Union Pacific Railroad right-of-way, 438.04 feet, to a
point 400.00 feet West of the West wall line of said existing
building; thence Southerly, on a line 400.00 feet West of and
parallel to the West wall line of said existing building, 189.59
feet, to the Northwest corner of a building under construction;
thence Easterly, on the North Wall line of said building under
construction, 400.00 feet, to the West wall line of said existing
building; thence Southerly, on the West wall line of said existing
building and its Southerly extension, 251.69 feet, to the Point of
Beginning;
EXCEPT that part thereof more particularly described as follows:
Beginning at the point of intersection of the East right-of-way
line of 96th Street and the North right-of-way line of "F" Street;
thence Northerly, along the East right-of-way line of 96th Street,
for a distance of 20.00 feet; thence Southeasterly, for a distance
of 28.28 feet, to a point on the North right-of-way line of "F"
Street; thence Westerly, along the North right-of-way of "F"
Street, for a distance of 20.00 feet, to the Point of Beginning.
<PAGE> 17
ATTACHMENT A
Collateral
----------
(a) Equipment. Equipment, whether now owned or hereafter acquired (the
term "Equipment" means and includes equipment, machinery, tools, trade
fixtures, furniture, furnishings, office equipment, and data processing
equipment, in each case now or hereafter used or usable in connection with the
Company's business, together with all parts, accessories and attachments
relating to any of the foregoing), provided that Equipment shall in no event
include goods used in connection with the operation of, and located at, the
Company's corporate headquarters or operating retail stores, and further
provided that Equipment shall in no event include Equipment (a certain
compactor and a certain film processor and related equipment) securing the
claim of Norwest Equipment Finance, Inc., pursuant to the Stipulation dated
August 6, 1993, between the Debtors and Norwest Equipment Finance, Inc.;
(b) Records. Supporting evidence and documents relating to any of the
above-described property, including, without limitation, delivery and
installation certificates, invoice copies, delivery receipts, insurance
certificates and the like, together with all books of account, ledgers and
cabinets in which the same are reflected or maintained, all whether now
existing or hereafter arising;
(c) Accessions and Additions. All accessions and additions to and
substitutions and replacements of any and all of the foregoing, whether now
existing or hereafter arising; and
(d) Proceeds and Products. All proceeds and products of the foregoing
and all insurance on the foregoing and proceeds thereof, whether now existing
or hereafter arising;
<PAGE> 1
EXHIBIT (10)(x)
Material Contracts -- Agreement
Regarding Dan Gordman Fund,
between the Estate of Esther
Gordman, The Dan Gordman
Fund and Richman Gordman 1/2
Price Stores, Inc., dated as of
December 13, 1996.
<PAGE> 2
AGREEMENT REGARDING DAN GORDMAN FUND
THIS AGREEMENT is made by and between The Estate of Esther Gordman
("Estate"), The Dan Gordman Fund (hereinafter "Gordman Fund") and Richman
Gordman 1/2 Price Stores, Inc., a Delaware corporation (hereinafter "RG").
WHEREAS, The Gordman Fund is the beneficiary of and asserts it has a claim
(the "Subrogation Claim") against the proceeds of Security Life of Denver
Policy No. 9547594 (the "Policy") which insured the life of Dan Gordman; and
WHEREAS, RG and Esther Gordman collaterally assigned the Policy proceeds
to Harris Trust & Savings Bank (hereinafter "Harris Bank"), which assignment
the Estate and the Gordman Fund do not dispute; and
WHEREAS, upon the death of Dan Gordman (the insured) the Policy proceeds
were applied by Harris Bank to the balance due on a certain installment note
executed by RG in favor of Harris Bank (the "Note"); and
WHEREAS, RG acknowledges that the Subrogation Claim is valid and, upon
payment in full of the Note, shall become fully payable in accordance with
Paragraph 2 below; and
WHEREAS, the amount of the Subrogation Claim by the Gordman Fund can be
calculated as follows:
Insurance Payment:
Death Benefit plus Accelerator Rider: $655,606.50
Premium Reimbursement: $325,787.40 (48.95%)
Balance for Fund: $339,819.10 (51.05%)
Interest from date of death
until paid by insurer: $ 14,801.63
Company portion (48.95%): $ 7,245.40
<PAGE> 3
Fund Portion (51.05%): $7,556.23
Total principal amount of subrogation
claim:
Death benefit: $339,819.10
Interest paid by insurer: $ 7,556.23
-----------
Total Subrogation Claim $347,375.33
NOW, THEREFORE the Estate, Gordman Fund and RG agree as follows:
1. RG agrees, upon payment in full of the Note, to pay to the
Gordman Fund the Subrogation Claim principal amount of $347,375.33, plus
interest on the unpaid balance at the rate of 7%, which shall accrue
from and after May 5, 1994, the date on which Harris Bank applied the
proceeds of the Policy to the Note.
2. Payments of the Subrogation Claim amount shall be paid by RG to
the Gordman Fund on the 20th day of each month, commencing the month
after the Note is paid in full, in the amount of $67,000 per month until
fully paid.
Dated: December 13, 1996
DAN GORDMAN FUND
By: /s/ Jerome P. Gordman
---------------------------------
Jerome P. Gordman, Trustee
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
By: /s/ Jeffrey J. Gordman
---------------------------------
Jeffrey J. Gordman, President and Chief
Executive Officer
ESTATE OF ESTHER GORDMAN
By: /s/ Jerome P. Gordman
---------------------------------
Jerome P. Gordman, Co-Personal Representative
By: /s/ Nelson T. Gordman
---------------------------------
Nelson T. Gordman, Co-Personal Representative
<PAGE> 1
[RICHMAN GORDMAN LOGO]
RICHMAN GORDMAN
1/2 PRICE STORES, INC.
ANNUAL REPORT
FEBRUARY 1, 1997
<PAGE> 2
CORPORATE PROFILE
Richman Gordman 1/2 Price Stores, Inc. ("the Company") operates a chain of 32
off-price department stores located in eight Midwestern states. The Company's
stores trade under the name "1/2 Price Store" and its headquarters are in
Omaha, Nebraska.
The 1/2 Price Store concept is to offer top quality, name brand merchandise at
half of department and specialty store regular prices. The Company's sales are
generated from eight merchandise categories: men's, women's, juniors and
children's apparel, intimate apparel, footwear, women's accessories and home
furnishings (which include bed and bath, housewares, luggage, rugs and
giftware).
1/2 Price Stores is uniquely positioned vis-a-vis traditional department
stores, discount chains and other off-price concepts, as it represents a
synthesis of many of the best elements of all three formats. The quality,
timeliness and composition of the merchandise of 1/2 Price Stores
differentiates the Company from many other off-price retailers which frequently
offer a high percentage of irregulars, overstocks, and out of season product.
In addition, a typical 1/2 Price Store is two to four times larger than most
off-price stores, averaging over 60,000 selling square feet, and therefore can
offer a much broader assortment of merchandise.
The Company differentiates itself from discount stores in terms of the
merchandise content, presentation, and mix. The Company's merchandise is
predominantly comprised of department and specialty store brands not carried by
discounters. Additionally, over 70% of the Company's sales are generated by
apparel and apparel-related merchandise, while the strength of most discount
stores is hardlines.
Each store is organized with clearly identifiable "shops" similar to a
department store. A "racetrack" traffic aisle goes around the perimeter of the
store, providing easy visual and physical access to all departments. A modern
fixture and store design adds to the contemporary department store atmosphere,
utilizing gap tables, open sell fixturing, and extensive lighting including
neon.
The Company's origins date back to the early 1900's, when a Russian immigrant
named Sam Richman began a small retail clothing business in 1915. In 1936,
his son-in-law, Dan Gordman, joined him in the business, and Dan purchased
Sam's interest in the business twelve years later. Dan's sons Jerry and Nelson
joined him in the early 1960's, and together built the business into a 15 store
chain of moderately priced department stores called Richman Gordman.
Dan Gordman started the 1/2 Price Store concept in 1972, expanding it into a 15
store chain by the early 1990s. In 1992 the Company underwent a
reorganization, focusing exclusively on the 1/2 Price Store business.
The Company has been publicly owned since 1993, but the Gordman family retains
a majority interest in the Company and maintains an active role in its
management. Dan Gordman's grandson, Jeff Gordman, was named President and
Chief Executive Officer in 1996 and has been a member of the Board of Directors
since 1993. Dan's sons, Nelson and Jerry, are also Directors of the Company.
TABLE OF CONTENTS
- --------------------------------------------------
To Our Shareholders . . . . . . . . . . . 1
Products and Services . . . . . . . . . . 3
Selected Financial Data . . . . . . . . . 13
Management's Discussion
and Analysis . . . . . . . . . . . . . . 14
Financial Statements. . . . . . . . . . . 23
Shareholder Information . . . . . . . . . 41
- --------------------------------------------------
<PAGE> 3
TO OUR SHAREHOLDERS:
Subsequent to the change in strategic direction and management last June, our
Company has made significant progress in improving liquidity and operating
performance. Despite generating an operating loss for fiscal 1996, we are very
encouraged by the positive trend of comparable store sales, gross margin and
inventory turnover that our Company achieved in the second half of the fiscal
year and feel that we can build on this momentum through 1997.
The third and fourth quarters represent a significant turnaround in operating
performance versus the first half:
- - The Company's average liquidity, as defined by excess availability
on the Company's line of credit, for the month of April, 1997 has
improved by $3.7 million, or 70% compared to the same timeframe last
year, which is primarily attributable to reduced inventories, and an
enhanced loan agreement with our primary lender.
- - Operating income for the second half of $2.7 million represents a
significant improvement compared to $347,000 in the previous year.
- - The gross margin percent improved 3.0 percentage points over last
year for the second half, compared to being flat to last year for the
first half, and for the fourth quarter it increased 3.2 percentage
points.
- - Average inventories in the fourth quarter were 12.7% under last
year's levels, and ended the year 17.8% lower.
These positive trends were realized primarily due to the successful
implementation of several strategic initiatives at the end of the first half of
the year. These strategies addressed merchandising, marketing and stores. The
core initiative was the intensification of recognizable department and
speciality store name brands within our merchandise mix. The marketing
initiatives focused on generating sales by communicating our selling
proposition of value as defined by desirable name brands at half of department
store prices, rather than by offering discounts off everyday prices. Store
initiatives included the implementation of guidelines to improve the
merchandise presentation as well as the visual appeal and organization of the
store.
For fiscal year 1996, sales declined 4.6% from $206.5 million to $197.0
million. However, excluding 1995's 53rd week, the sales decrease would have
been 3.8%. The gross margin percent was up strongly versus last year, at 34.5%
versus 32.7%, which translated into a .6% increase in gross margin dollars.
The operating loss of $1.9 million was 2.8% smaller than the previous year.
However, operating income would have been $1.4 million better than last year
excluding non-recurring executive severance payments and prepaid compensation.
Excluding this item, the operating loss would have been $544,000, or one fourth
of the $2.0 million operating loss in the previous year.
In the first quarter of 1997 the Company initiated a strategic planning
process, the cornerstone of which was the refinement of and focus on its
mission:
"To exceed our Customers' expectations through an exciting shopping experience
offering top quality name brands at 1/2 price."
The goals of the strategic planning process are threefold: To broaden the
Company's customer base, to maximize sales from each
<PAGE> 4
customer, both new and existing, and to greatly increase the efficiency with
which merchandise inventory is utilized. To achieve these goals, several
actions are currently being pursued, including the identification of new but
related businesses, the intensification of underdeveloped businesses and a
database marketing strategy.
Several developments that occurred in recent months are noteworthy for their
very positive impact on our financial condition:
1. Over the last several months, the Company negotiated amendments to the
existing financing agreement with its primary lender, Congress Financial,
which increased cash availability by approximately $6.0 million. The loan
agreement was also extended by two years to October 1999, the size of the
line of credit was increased from $25.0 million to $27.5 million, and the
interest rate was reduced.
2. 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 Joint Plan
of Reorganization, even though the Company has sufficient cash available
to make this payment. The deferral provides us with additional
flexibility to continue to implement our new merchandising and marketing
plan. 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.
3. Inventory turnover has improved dramatically. In the fourth quarter,
average inventories were almost 15% less than last year. This was
achieved by taking markdowns on a more timely basis and better correlating
receipt flow to sales. As of April, 1997 average inventories are
approximately 20% lower than last year.
Our Company's fiduciary responsibility is to maximize shareholder value.
Competitive and sustained profitability will be the benchmark of our success.
This objective can be achieved only if first we take care of our Associates,
then give back to the Communities in which we operate, while always maintaining
a laser focus on meeting the needs of our Customers. Thank you for your
continued support.
/s/ Jeffrey J. Gordman
Jeffrey J. Gordman,
President and Chief
Executive Officer
2
<PAGE> 5
PRODUCTS AND SERVICES
OVERVIEW
The 1/2 Price Stores is an off-price department store chain which
operates 32 stores in eight States: Colorado, Illinois, Iowa, Kansas, Missouri,
Nebraska, Oklahoma and South Dakota. The Company's mission is to exceed its
customers' expectations through an exciting shopping experience offering top
quality name brands at 1/2 price.
FACILITIES
The Company's physical facilities consist of a corporate headquarters
building of 98,700 square feet which was completed in 1984, a Distribution
Center of 267,000 square feet (excluding internal mezzanine space of 111,400
square feet), and 32 1/2 Price Stores averaging 80,000 gross square feet and
62,000 square feet of selling space. The Company owns 103,700 square feet of
the Distribution Center. The other 163,300 square feet, composed of two
additions to the Distribution Center, are leased from entities owned by members
of the Gordman family. All other facilities are leased from third parties.
For Fiscal Year 1996, the 1/2 Price Stores rentals averaged approximately $4
per square foot, and the chain's average sales per square foot of selling space
was $100. The stores are primarily located in strip shopping centers, and are
open seven days each week from 9:00 a.m. to 9:30 p.m., with extended hours
during the Christmas selling season. The following table reflects the number
of stores by market/state:
<TABLE>
<CAPTION>
STATE/MARKET STORES STATE/MARKET STORES
- ------------ ------ ------------ ------
<Y> <C> <C> <C>
COLORADO IOWA
Denver area 3 Des Moines 3
Sioux City 1
Council Bluffs 1
Waterloo 1
----
6
ILLINOIS KANSAS
Fairview Heights 1 Kansas City area 2
Topeka 1
Lawrence 1
Wichita 2
----
6
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
MISSOURI NEBRASKA
Kansas City area 3 Omaha 4
Springfield 1 Lincoln 1
St. Louis area 2 Fremont 1
---- Hastings 1
6 Grand Island 1
----
8
OKLAHOMA SOUTH DAKOTA
Tulsa 1 Sioux Falls 1
TOTAL 32
==
</TABLE>
MARKET POSITION AND COMPETITION
1/2 Price Stores is uniquely positioned in comparison to traditional
department stores, discount chains and other off-price concepts, as it
represents a synthesis of many of the best elements of all three formats. The
quality, timeliness and composition of the merchandise of the 1/2 Price Stores
differentiate them from many other off-price retailers which frequently offer a
high percentage of irregulars, overstocks, and out of season products. In
addition, a typical 1/2 Price Store is two to four times larger than most
off-price stores, averaging over 60,000 selling square feet, and therefore can
offer a much broader assortment of merchandise.
The Company differentiates itself from discount stores in terms of the
merchandise content, presentation and mix. The Company's merchandise is
predominantly comprised of department and specialty store brands not carried by
discounters. Additionally, over 70% of the Company's sales are generated by
apparel and apparel-related merchandise, while the strength of most discount
stores is hardlines. Each store is organized with clearly identifiable "shops"
similar to a department store. A "racetrack" traffic aisle goes around the
perimeter of the store, providing easy visual and physical access to all
departments. A modern fixture and store design adds to the contemporary
department store atmosphere, utilizing gap tables, open sell fixturing, and
extensive lighting, including neon.
Approximately 80% of the Company's merchandise mix is comprised of
department store and specialty store brands, with the remainder comprised
primarily of highly recognizable discount store brands. Approximately 70% of
the stores' merchandise is sold at not more than one-half of department store
prices.
Consumer acceptance of the 1/2 Price Stores is demonstrated in the 1996
Omaha World-Herald Consumer Preference Survey, a survey conducted by the Omaha
World-Herald, a local newspaper. In response to the questions, "At what one
store has your household spent most for (children's, women's and men's
clothing, and shoes) in the last three months?", the 1/2 Price Stores rank
ahead of many national chains. Customers of the 1/2 Price Store are
dual-income, home owning families in the middle income range. The median age
of adults among this group of frequent customers is 40 and the median household
income is $35,000. These compare with the medians of the total market of 41
years of age and $36,741.
4
<PAGE> 7
The 1/2 Price Stores compete, to some degree, against all other retail
formats: traditional department stores such as Dillards, Younkers and Kohl's;
national chains such as J.C. Penney and Sears; off-price concepts such as
Marshalls and T. J. Maxx and discounters such as Target and Shopko. The
following page reflects 1/2 Price Stores' competitors by market.
<TABLE>
<CAPTION>
STATE/CITY 1/2 PRICE STORE COMPETITORS BY MARKET
---------- -------------------------------------
<S> <C>
COLORADO
Denver area K-Mart, Target, Wal-Mart, Mervyn's, Sears, Ross, Marshall's, T.J.
Maxx, JC Penney, Foley's, Joslins, Burlington Coat, Montgomery
Ward, Stein Mart, Dillards, Nordstrom, Super K-Mart and Super
Wal-Mart
IOWA
Des Moines Burlington Coat, JC Penney, K-Mart, Kohl's, Montgomery Ward,
Sears, Target, T.J. Maxx, Venture, Von Maur, Wal-Mart and Younkers
Sioux City JC Penney, K-Mart, Sears, Shopko, Target, Wal-Mart, Younkers and
T.J. Maxx
Waterloo Herberger's, JC Penney, K-Mart, Sears, Target, Venture, Von Maur,
Wal-Mart and Younkers
ILLINOIS
Fairview Dillards, Famous Barr, Grandpa's, JC Penney,
Heights K-Mart, Sears, Target, Venture, Wal-Mart, T.J. Maxx, Burlington
Coat and Value City
KANSAS
Topeka Dillards, JC Penney, Jones Store, K-Mart, Montgomery Ward, Sears,
Target, T.J. Maxx, Venture, Wal-Mart, Kohl's and Stein Mart
Lawrence JC Penney, K-Mart, Outlet Malls, Wal-Mart, Weavers and Super
Target
Wichita Burlington Coat, Dillards, JC Penney, K-Mart, Montgomery Ward,
Sears, Target, T.J. Maxx, Venture, Wal-Mart and Kohl's
MISSOURI
Kansas City Burlington Coat, Dillards, Halls, JC Penney, Jones Store, K-Mart,
area Marshall's, Montgomery Ward, Sears, Stein Mart, T.J. Maxx,
Venture, Wal-Mart, Kohl's, Jacobsons and Target
</TABLE>
5
<PAGE> 8
Springfield Dillards, Famous Barr, JC Penney, K-Mart, Montgomery Ward,
Sears, T.J. Maxx, Venture, Wal-Mart, Target and Kohl's
St. Louis area Famous Barr, Dillards, JC Penney, Sears, K-Mart, Venture,
Target, Wal-Mart, Grandpa's, T.J. Maxx, Marshalls and
Burlington Coat, Value City and Outlet Mall
NEBRASKA
Omaha/Council
Bluffs Burlington Coat, Dillards, JC Penney, K-Mart, Marshall's,
Montgomery Ward, Outlet Mall, Sears, Shopko, Target, T.J.
Maxx, Wal-Mart, Younkers, Von Maur and Kohl's
Lincoln Dillards, JC Penney, K-Mart, Montgomery Ward, Sears, Shopko,
Target, T.J. Maxx, Wal-Mart, Younkers, Stein Mart and Kohl's
Fremont Alco, JC Penney, Schweser's and Wal-Mart
Hastings Herberger's, K-Mart, Allen's, Shopko and Wal-Mart
Grand Island Dillards, JC Penney, K-Mart, Schweser's, Sears, Shopko,
Wal-Mart, Younkers and Target
OKLAHOMA
Tulsa Anthonys, Dillards, Foley's, K-Mart, JC Penney, Marshalls,
Mervyn's, Sears, Target, Venture, Wal-Mart, Beall's,
Burlington Coat, T.J. Maxx, Stein Mart
SOUTH DAKOTA
Sioux Falls Dayton's, JC Penney, K-Mart, Kohl's, Sears, Shopko, Target,
T.J. Maxx, Wal-Mart and Younkers
MERCHANDISING
The Company's mission revolves around a differentiated selling proposition
of value, comprised of three critical elements:
1. QUALITY -- defined as instantly recognizable name brands;
2. PRICE -- one-half of department and specialty store regular prices,
every day; and
6
<PAGE> 9
3. SHOPPING EXPERIENCE -- a store that is visually appealing, is well
organized, and that has strong clarity of offer.
Maintaining a high percentage of recognizable department/specialty store brands
in all product categories is the number one critical success factor to driving
the business as well as maintaining the integrity of the mission. A brands
intensification effort resulted in the addition or intensification of over 50
new name brands to the merchandise mix in 1996, replacing less meaningful
brands. The Company's effort to both upgrade and expand the breadth of trusted
name brands is ongoing.
The Company is able to execute its mission of offering top quality name brands
at 1/2 price through opportunistic buying strategies, wherein the Company's
buyers go directly to the manufacturer and purchase:
- - Current, in line merchandise;
- - Factory overstock and/or overruns;
- - Close-outs;
- - Small quantities;
- - Pack and holds (seasonal merchandise purchased at end of season and held
until the season recurs);
- - Special cutting from unused piece goods (manufacturer's overstock of raw
materials that manufacturer is to use in production of goods to order,
such as blouses and trousers);
- - Orders canceled by other stores.
The following tables give examples of the national brands featured in each
merchandise division:
7
<PAGE> 10
<TABLE>
<CAPTION>
<S> <C> <C> <C>
WOMENS
SHOES MENS CHILDRENS ACCESSORIES
------------------ -------------- ---------------- ----------------
Converse Guess Izod Liz Claiborne
Adidas Calvin Klein Calvin Klein Monet
L.A. Gear Izod Buster Brown Anne Klein II
Reebok Bugle Boy Hanes Aris-Isotoner
Keds Nike Bugle Boy Guess
Bass Robert Stock Levis Christian Dior
Fila Chaps Lee Rider Totes
Sporto Arrow Pacific Trail Trifari
Nunn Bush Bill Blass Osh Kosh Elizabeth Arden
Naturalizer Union Bay Mickey and Co. Esprit
Connie Pacific Trail Weebok Hanes
Lifestride Baxter My Michelle
MISSES JUNIORS INTIMATE APPAREL HOME FURNISHINGS
------------------ -------------- ---------------- ----------------
Sag Harbor Calvin Klein Playtex Samsonite
Leslie Fay Union Bay Olga Rubbermaid
Erika Classics Esprit Lily of France Mikasa
Counterparts Guess Vanity Fair Springs
Fritzi E.B.G.B. Maidenform Anchor-Hocking
Bill Blass Wrappers Christian Dior Fieldcrest
Bugle Boy Mickey and Co. Warner's Mattel (Barbie)
Gloria My Michelle Bali Hasbro
Vanderbilt All That Jazz Jockey Burlington
Donnkenny Joe Boxer Dan River
Fundamental Things Hanes Fisher Price
Pacific Trail Ekco Cannon
Pepe Pfaltzgraff
Jones New York Playskool
</TABLE>
The 1/2 Price Stores have eight merchandise divisions with apparel
representing the largest portion of the business. Apparel and shoes generated
approximately 61.3% of the Company's 1996 sales. The Home Furnishings division
includes bed and bath, housewares for the kitchen, luggage, rugs, picture
frames, crystal, silver and framed art. The following table reflects the
percentage mix of business by merchandise division for Fiscal Year 1996:
8
<PAGE> 11
<TABLE>
<CAPTION>
MERCHANDISE DIVISION 1996
-------------------- ----
<S> <C>
Shoes 7.9%
Mens 17.5
Childrens 10.2
Womens Accessories 11.2
Misses 15.0
Juniors 7.8
Intimate Apparel 2.9
Home Furnishings 27.5
----
Total 100.0%
=====
</TABLE>
EXPANSION
In 1995, the Company opened four new stores in Lakewood and Thornton (both
in the Denver area), Colorado; Bridgeton (in the St. Louis area), Missouri; and
Des Moines, Iowa. In March, 1996, the Company opened one new store in St.
Charles (in the St. Louis area), Missouri.
The Company has no plans to open new stores in fiscal 1997. However,
starting in the second half of 1998, subject to a number of factors, including
available financial resources, the Company intends to expand into contiguous
markets within a 500-mile radius of the headquarters and Distribution Center in
Omaha. By doing so, it can better leverage advertising, purchasing and
transportation costs to achieve greater economies of scale, particularly in
markets such as St. Louis and Denver.
Areas currently targeted for new stores include: Denver, Colorado; St.
Louis, Missouri; Fayetteville, Arkansas; and Oklahoma City and Tulsa, Oklahoma.
There can be no assurance that the Company will be successful in opening any
or all of these additional stores.
SUPPLIERS
The total number of suppliers is approximately 1,500. The ten largest
suppliers, based on Fiscal Year 1996 purchases are Reebok, Rubbermaid, Z
Cavaricci, Gibson Greeting Cards, ACI, Bugle Boy, Converse, Fieldcrest, Miss
Erika and Enesco. As a group, these suppliers accounted for approximately 9.7%
of total goods purchased by the 1/2 Price Stores in Fiscal Year 1996, although
none individually accounted for more than 1.3%.
At the present time the majority of the Company's regular suppliers are
extending terms. During 1996 approximately 33% of the Company's merchandise
purchases had to be prepaid primarily from those vendors that factor their
invoices because the factor would not extend normal credit terms to the
Company. Management believes that if its operating plans are met, the
9
<PAGE> 12
percentage of prepayments will not increase throughout fiscal 1997, and
considers its supplier relations to be excellent.
DISTRIBUTION
The Company is served by a 267,000 square-foot Distribution Center located
in Omaha (excluding internal mezzanine space of 111,400 square feet). In
addition, the Company owns land adjacent to the Distribution Center which could
provide for an additional 76,000 square feet of high cubic storage. Management
believes that the current storage and processing capacity of the Center can
support at least forty stores.
In 1992 and 1993 Garr & Associates (warehouse consultants) were engaged to
work with Distribution Center management to review and make recommendations
regarding the Distribution Center operations. One of the results of that study
was that based on anticipated volume and known production levels, the
Distribution Center could support at least forty stores.
Virtually all of the 1/2 Price Stores' inventory purchases flow through
the Distribution Center, with only seasonal candy and greeting cards shipped
directly to the stores. Distribution Center personnel receive and ticket all
merchandise, perform warehousing and order picking functions, and make
deliveries to all stores. The Distribution Center has automated materials
handling systems and on-line information systems.
The Distribution Center processed approximately 28.5 million pieces in
Fiscal Year 1996. Merchandise is processed through the Distribution Center in
an average of 4.3 working days, and is subsequently delivered to the stores two
to three times per week, depending on the current activity and volume of the
stores. Deliveries to stores are made with a combination of the Company's
fleet of leased tractors and owned trailers as well as contracted carriers.
MANAGEMENT INFORMATION SYSTEMS
Recognizing the value of advanced systems as a competitive tool, Company
management has been a strong advocate of management information system
development. The Company has previously upgraded its data processing equipment
on a consistent basis in accordance with substantial information system
planning.
Having replaced former batch systems with the latest generation of
efficient, on-line, fully integrated database systems, the Company has
available to it all application programs found in any well-managed major retail
company. In a great number of these applications, data can be accessed on-line
at any of over 200 terminals throughout the Company's stores, corporate offices
and the Distribution Center. MIS provides the Company with sophisticated
on-line merchandise and executive information systems, as well as an array of
merchandise, financial, inventory and other reports. Management is determined
to make critical information available to anyone requiring it,
10
<PAGE> 13
yet at the same time to discipline the Company so as not to produce unnecessary
volumes of printed reports.
Since 1974, the Company has been 100% electronic point of sale (POS)
installed and uses IBM terminals. The Company currently operates on an IBM
9672-R12 CMOS mainframe. Additionally, local area networks (LANs) are set up
to off-load non-critical processing from the mainframe. Personal desktop and
notebook computers support users of information with graphical user interfaces
and various "client-server" protocols. Also, a wide area network (WAN)
capability is in the final phases of chain-wide implementation using frame
relay protocols.
ADVERTISING
Total advertising expense for the 1/2 Price Stores was approximately $9.0
million in Fiscal Year 1996.
The advertising strategy is to broaden the Company's customer base while
clearly positioning the concept of offering the best value -- everyday. With
the customer as the focus, the Company plans to implement this strategy by:
- - Educating customers on ways they can save at the 1/2 Price Stores and
"shop smart."
- - Utilizing a combination of "Seasonal Events" and "Special
Merchandise-Focused Events" to develop store traffic and increase sales.
- - Using a media mix to broaden the customer base.
Each advertising vehicle (preprints, newspapers, direct mail and
television) has specific strengths which together create an effective marketing
plan. Preprints and direct mail are merchandise focused and designed to drive
traffic for a four to five day period. They also serve as a catalog to
showcase the depth and breadth of merchandise available in the various
departments. Newspaper ads are merchandise and event focused. They are
designed to generate an incremental lift in sales for two to three days and to
extend the print reach of the customer base. Television ads are designed to
clearly position the stores in the marketplace while helping to drive traffic.
Because of its wide reach, television will also help broaden the customer base.
An outside agency is utilized for executing the broadcast media activity.
The Company's eleven-person advertising department is responsible for all other
creative and marketing services, including the design, development and
production of all print-related activity, which includes newspaper ads,
newspaper inserts (preprints), direct mail and in-store signing. The
department's in-house capabilities include creative concept and design,
copywriting, photography, typesetting, key lining, final composition, marketing
research and print media buying.
11
<PAGE> 14
Total advertising expense for the 1/2 Price Stores was approximately $9.3
million in fiscal year 1996 or 4.75% of sales. Of the Company's Fiscal Year
1996 advertising expense, 74% was allocated to high frequency print, with the
balance allocated to broadcast.
MANAGEMENT AND EMPLOYEES
The Company has experienced excellent relations with its employees through
its history, has no unions or collective bargaining agreements and has
experienced no work stoppages at any time. The Company currently employs
approximately 900 full-time and 1,500 part-time associates. The Company offers
to its employees a wide range of benefits which are competitive with those
offered by other major retailers. For all management and full-time hourly
personnel, the Company funds a major portion of the insurance program, which
includes health insurance and major medical, dental assistance, and life
insurance, as well as short and long-term disability. Various performance
incentives and a 401(k) Plan are also provided to all employees.
[Remainder of page intentionally left blank].
12
<PAGE> 15
SELECTED FINANCIAL DATA
The following table contains certain selected financial data for the Company
for each of the last five Fiscal Years through February 1, 1997, and should be
read in conjunction with the consolidated financial statements, including the
related notes thereto, included elsewhere in this document and with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------------------------------------------
FEBRUARY 1, JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(in thousands, except per share and selected operating data)
Income Statement Data:
- ---------------------
<S> <C> <C> <C> <C> <C>
Net Sales $197,024 $206,520 $191,148 $167,638 $212,709(3)
Cost of Sales 129,001 138,916 123,028 109,462 145,478
-------- -------- -------- -------- --------
Gross Profit 68,023 67,604 68,120 58,176 67,231
Operating & Administrative Expenses 69,967 69,605 62,769 54,067 77,289
-------- -------- -------- -------- --------
Income (loss) from Operations (1,944) (2,001) 5,351 4,109 (10,058)
Interest Expense Net 3,608 3,774 3,597 2,415 3,064
(Gain) loss on Life Insurance Benefits - - 335 (678) -
-------- -------- -------- -------- --------
Income (Loss) Before Reorganization
Item, Provision for Income Taxes
and Extraordinary Item (5,552) (5,775) 1,419 2,372 (13,122)
Reorganization Items - - - 1,705 12,809
Provision for Income Taxes - - - - 1,709
-------- -------- -------- -------- --------
Income (Loss) Before Extra-
ordinary Item (5,552) (5,775) 1,419 667 (27,640)
Extraordinary Item - Gain on
Debt Forgiveness 2,123 6,550 - 15,200 -
-------- -------- -------- -------- --------
Net Income (Loss) $(3,429) $775 $1,419 $15,867 $(27,640)
======== ======== ======== ======== ========
Average Common Shares
Outstanding(1) 28,290 30,000 30,000 30,000 -
Income(loss) per common share:
Income(loss) before
Extraordinary item $(.20) $(.19) $.05 $.02
Extraordinary item .08 .22 - .51
-------- -------- -------- --------
Net Income(loss) per common share $(.12) $.03 $.05 $.53
======== ======== ======== ========
Dividends paid on Common Stock - - - - -
Selected Operating Data:
- -----------------------
Stores Open at End of Period 32 31 27 23 24
Average Sales Per Square Foot
of Selling Space $101 $114 $123 $124 $128
Average Sales Per Store ($000's) $6,201 $7,079 $7,570 $7,649 $8,103
Change in Comparable
Store Sales(2) (10.4)% (5.5)% (4.8)% 1.6% (4.4)%
Balance Sheet Data:
- ------------------
(end of period)
Working Capital $845 $7,119 $11,271 $20,052 $42,356(3)
Total Assets 42,849 52,009 57,861 57,846 73,074
Long Term Debt - 4,592 7,763 17,086
Capital Lease
Obligations 9,259 10,594 11,824 13,022 -
Stockholder's
Equity 5,886 9,398 8,417 6,793 (12,383)(3)
</TABLE>
(1) Average common shares outstanding, based on the Restated Certificate of
Incorporation filed in Fiscal Year 1993, assumes that the 26,400,000 shares
issued to the unsecured creditors and the former preferred shareholder, as well
as the 3,600,000 shares issued and to be issued to certain members of management
or to the unsecured creditors during the term of the Plan, less treasury stock
purchases, were outstanding for all of Fiscal Years 1993, 1994, 1995 and 1996.
At February 1, 1997, 540,000 of such shares had not been issued.
13
<PAGE> 16
(2) Comparable store sales refer to 1/2 Price Stores open at least one full
year in each comparable period or stores converted from a Richman Gordman
Department Store in the same market area. Comparable store sales exclude the
effect of Richman Gordman Department Stores converted to 1/2 Price Stores in
market areas which previously had no 1/2 Price Stores, until open for a full
year in each comparable period. The Richman Gordman Department Store sales are
excluded for all years presented.
(3) During Fiscal Year 1992, the Company filed Chapter 11 bankruptcy. Please
see Note F to the Financial Statements for a discussion of the liabilities
classified as long-term as a result of the bankruptcy. These factors affect
the comparability of the information presented.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the years indicated summary information
from the Company's Statements of Operations expressed as a percentage of net
sales and the percentage change in the dollar amount of such items compared to
the prior period.
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE (DECREASE)
PERCENTAGE OF SALES -------------------------
FISCAL YEARS FROM FROM
---------------------------------- 1995 TO 1994 TO
1996 1995 1994 1996 1995
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% (4.6)% 8.0%
Cost of Sales 65.5 67.3 64.4 (7.1) 12.9
---- ---- ---- ----- ----
Gross Profit 34.5 32.7 35.6 0.1 (0.8)
Operating & Administrative
Expenses 35.5 33.7 32.8 0.5 10.9
---- ---- ---- --- ----
Income from Operations (1.0) (1.0) 2.8 2.8 (137.4)
Interest Expense- Net 1.8 1.8 1.9 (0.4) 4.9
Loss on Life Insurance Benefits - - 0.2 - -
---- ---- ---- --- ----
Income (Loss) Before
Provision for Income Taxes
and Extraordinary Item (2.8) (2.8) 0.7 0.4 -
Provision for Income Taxes - - - - -
---- ---- ---- --- ----
Income (Loss) Before Extra-
ordinary Item (2.8) (2.8) 0.7 0.4 -
Extraordinary Item-Gain on
Debt Forgiveness 1.1 3.2 - ( 67.6) -
---- ---- ---- ------- ----
Net Income (1.7)% .4% 0.7% (542.3)% (454)%
====== ===== ===== ======== =======
</TABLE>
FISCAL YEAR 1996 COMPARED
TO FISCAL YEAR 1995
While 1996 was a difficult year for the Company, during which it
experienced a sales shortfall and a small improvement in its loss from
operations compared to 1995, the positive trend in operating performance in the
second half versus the first half, as compared to the respective prior year
periods, is very encouraging. Specifically, operating income for the second
half of $2.7
14
<PAGE> 17
million was a significant improvement compared to $347,000 in the previous
year, while the operating loss for the first half was twice as large as in
1995. This turnaround is attributable, in part, to a refocus on the Company's
differentiated value offering that was the basis of its original success.
SALES
Net sales in 1996 of $197.0 million decreased $9.5 million, or 4.6%,
versus net sales for 1995 of $206.5 million. However, excluding 1995's 53rd
week, the sales decrease would have been 3.8%. Comparable store sales decreased
$19.2 million, or 10.4% to 1995. Sales have been impacted by a significant
increase in competition in the Company's markets. Over the past three years
(1994-1996) more than 15 million square feet of retail space have opened in the
Company's markets, which roughly translates into $3.0 billion in annual retail
sales, or fifteen times that of the Company. In addition, the riverboat casino
industry has exploded over the same timeframe, which also has diverted billions
of discretionary spending dollars away from retail in the U.S. The Christmas
selling season in 1996 was five days shorter than the previous year, which also
hurt sales. Sales were also negatively impacted by a shift in the Company's
advertising strategy from driving business by offering discounts off every day
prices to marketing desirable name brands at the Company's every day prices,
which are substantially below department and specialty store regular prices.
Finally, sales in the second half of fiscal 1996 were impacted by the
annualization of the grand opening of four new stores in 1995.
Notwithstanding the decline in comparable store sales on an annual basis
during 1996, the rate of this decline moderated from the first half to the
second half of the year by almost 5.0%. The Company attributes this
improvement to a better selection of recognizable department and specialty
store name brands, as well as a smoother flow of merchandise receipts.
GROSS PROFIT
The 1996 gross margin percentage of 34.5% was up strongly versus 32.7% in
1995. This improvement translated into a slight increase of $418,000, or 0.6%,
in gross margin to $68.0 million despite a 4.6% decrease in sales. The entire
gross margin percentage improvement over the previous year occurred in the
second half, which increased 3.0 percentage points to 34.5% compared to 31.5%
in the second half of 1995. The gross margin percentage improvement was
primarily attributable to a reduced level of markdowns compared to the previous
year and a LIFO credit of $753,000 in 1996 versus a $371,000 LIFO provision
last year. Markdowns were lower due to a combination of not discounting off
regular prices as a vehicle to drive business, as discussed previously, in
conjunction with improved inventory controls which resulted in fourth quarter
average inventories almost 12.7% less than the previous year. The gross margin
improvement was
15
<PAGE> 18
also due to a higher initial markup in the second half of 0.7 percentage
points. The LIFO credit in 1996 was the result of reduced inventory levels
which caused a liquidation of certain LIFO layers that were carried at costs
which were lower than the costs of current purchases.
These positive trends in gross margin profitability and comparable store
sales in the second half were attributable in part to the implementation of a
set of strategic initiatives that addressed merchandising, marketing and stores
at the end of the first half of the year. The core initiative was the
intensification of recognizable department and specialty store brands within
the Company's merchandise mix. The marketing initiatives focused on generating
sales by communicating the Company's selling proposition of value as defined by
desirable name brands at half of department store prices, rather than by
offering discounts off everyday low prices. Store initiatives included the
implementation of standards to improve the merchandise presentation as well as
the visual appeal and organization of the stores. As these strategic
merchandising initiatives become fully implemented in future periods,
management expects further improvements in operating results.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses in 1996 were $70.0 million and $69.6
million in 1995, an increase of 0.5%. As a percentage of net sales, operating
and administrative expenses were 35.5% and 33.7% in 1996 and 1995 respectively.
The increase in operating and administrative expenses as a percentage of net
sales was primarily the net result of payroll reductions, which were offset by
an increase in advertising expense. However, the Company made severance
payments of approximately $1.4 million during Fiscal Year 1996 in connection
with the resignations of two of the Company's executive officers. Excluding
these non-recurring expenses, operating and administrative expenses for Fiscal
Year 1996 would have been 34.8% of net sales in Fiscal Year 1996, and would
have represented a decrease of 1.5% versus 1995.
INCOME FROM OPERATIONS
During Fiscal Year 1996, the Company incurred a net loss from operations
of approximately $1.9 million versus a loss of $2.0 million in 1995, an
improvement of 2.8%. Excluding the non-recurring severance expenses referenced
above, the net loss from operations incurred in 1996 would have been $0.5
million, an improvement of approximately 72.8% compared to 1995. The Company's
net income from operations during the second half of $2.7 million represents a
major improvement compared to $347,000 for the same period in the previous
year. Again, the Company attributes these favorable second half operating
results in part to the strategic initiatives described previously, and
anticipates that further operating improvements will be achieved in future
periods as these plans become fully implemented.
16
<PAGE> 19
INTEREST, TAXES AND EXTRAORDINARY ITEMS
Interest expense decreased from $3.9 million in Fiscal Year 1995 to $3.6
million in Fiscal Year 1996, a decrease of $0.3 million. The decrease consists
of an increase of $0.5 million in interest and costs resulting from increased
borrowings on the Company's credit line, a decrease of $0.7 million in interest
on the pre-petition debt to the Company's unsecured creditors due to principal
payments and an decrease of $0.1 million of interest on capital leases.
No income tax expense was recorded in Fiscal Years 1996 and 1995 due to
the fact that a taxable loss was incurred, which increased the Company's net
operating loss carryforward. Management believes that if the Company meets
current operating plans, it will realize the benefit of these losses over the
next several years.
In Fiscal Years 1996 and 1995, the Company recorded extraordinary gains of
$2.1 million and $6.5 million, respectively, as a result of revising the
estimate of amounts to be paid to the Company's unsecured creditors. Recent
operating results, coupled with the Company's revised projections for the
balance of the Plan of Reorganization period (Fiscal Year 1997), indicate a
lower level of payout to the unsecured creditors.
FISCAL YEAR 1995 COMPARED
TO FISCAL YEAR 1994
Net sales in Fiscal Year 1995 increased $15.4 million, or 8.0% over Fiscal
Year 1994 due to sales from four new stores opened subsequent to January 28,
1995, and sales from four stores opened in Fiscal Year 1994 that were open for
a full year in Fiscal Year 1995. These stores produced increased sales of
$24.3 million in Fiscal Year 1995. Comparable store sales decreased $8.9
million, or 5.5%, during Fiscal Year 1995 compared to Fiscal Year 1994. The
decline in comparable store sales was a result of extremely weak retail market
conditions, especially in apparel lines, coupled with additional retail outlets
in the Company's markets.
The weaknesses in apparel lines cited above have contributed to the
weaknesses in comparable store sales, and have been noted by many other
retailers nationally. These trends have persisted for the past two to three
years and have particularly affected the Misses and Junior lines of womens
clothing. The Company is uncertain how long this trend will continue.
Comparable store sales have also been impacted by a significant increase
in competition in the Company's markets. Over the past three years (1993-1995)
over 11 million square feet of retail space have opened in the Company's
markets. The Company reacted to this by allocating an additional $1.6 million
to its advertising and marketing programs in order to heighten consumer
awareness of the 1/2 Price Stores and protect its market share. The
17
<PAGE> 20
Company is also increasing the number of special promotions and advertising
events to stimulate sales.
Gross profits decreased by $0.5 million in Fiscal Year 1995, or 0.8%, as
compared to Fiscal Year 1994. As a percentage of net sales, gross profits were
32.7% of sales in Fiscal Year 1995 compared to 35.6% in Fiscal Year 1994, a
decrease of 2.9%. This decrease was primarily due to a $9.0 million increase
in markdowns in Fiscal Year 1995. In addition, a $0.4 million LIFO provision
was required in Fiscal Year 1995 while no provision was required in Fiscal Year
1994.
Operating and administrative expenses for Fiscal Year 1995 increased $6.8
million as compared to Fiscal Year 1994. As a percentage of net sales,
operating and administrative expenses were 33.7% and 32.8% of net sales in
Fiscal Years 1995 and 1994, respectively. Of the increase in operating and
administrative expenses, $6.3 million represents costs associated with the
non-comparable stores, including $4.7 million in non-comparable store operating
costs, $1.9 million additional advertising costs and a $0.3 million decrease in
pre-opening expenses. In addition, $0.3 million of additional Distribution
Center expenses and $0.2 million in additional Corporate Headquarters costs
were incurred.
Interest expense increased from $3.8 million in Fiscal Year 1994 to $3.9
million in Fiscal Year 1995, an increase of $0.1 million. The increase
consists of an increase of $0.5 million in interest and costs resulting from
increased borrowings on the Company's credit line, a decrease of $0.3 million
in interest on the pre-petition debt to the Company's unsecured creditors due
to principal payments and a decrease of $0.1 million of interest on capital
leases.
No income tax expense was recorded in Fiscal Years 1995 and 1994 due to
the fact that a taxable loss was incurred, which increased the Company's net
operating loss carryforward. Management believes that if the Company meets
current operating plans, it will realize the benefit of these losses over the
next several years.
In Fiscal Year 1995, the Company recorded an extraordinary gain of $6.5
million, a result of revising the estimate of amounts to be paid to the
Company's unsecured creditors. Recent operating losses, coupled with the
Company's revised projections for the balance of the Plan of Reorganization
period (Fiscal Years 1996 and 1997), indicate a lower level of payout to the
unsecured creditors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, as defined by line of credit borrowings and
excess availability on the line, has strengthened considerably over the last
several months as manifested by the following:
18
<PAGE> 21
- - The Company generated positive cash flow from operations of $3.2 million
in 1996 compared to a negative $6.5 million in 1995.
- - The Company's average borrowings for the first two months of Fiscal 1997
were $9,654,000, a decrease of 13.2% versus the same timeframe in the
previous year.
- - The Company's average excess borrowing capacity for the first two months
of Fiscal 1997 was $8,297,000, an increase of 25.1% compared to the same
period in 1996.
These results are primarily attributable to several developments that occurred
in recent months:
1. Over the last several months, the Company negotiated amendments to
the existing financing agreement with its primary lender, Congress
Financial, which increased cash availability by approximately $6.0
million. The loan agreement was also extended by two years to
October 1999, and the size of the line of credit was increased from
$25.0 million to $27.5 million, and the interest rate was reduced.
2. 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
Joint Plan of Reorganization, even though the Company has sufficient
cash available to make this payment. The deferral provides us with
additional flexibility to continue to implement our new merchandising
and marketing plan. 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.
3. Inventory turnover has improved dramatically. In the fourth quarter,
average inventories were almost 15% less than last year. This was
achieved by taking markdowns on a more timely basis and better
correlating receipt flow to sales. As of the beginning of April
1997, merchandise inventories are 20.4% lower than last year.
The Company's primary ongoing cash requirements are for inventory, capital
expenditures 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. During Fiscal Year 1996, 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 that if its operating plans are met,
the percentage of prepayments will not increase throughout fiscal 1997.
Management believes that it has adequate capacity under its revolving line of
credit to fund such prepayments.
19
<PAGE> 22
During Fiscal Years 1996, 1995 and 1994, the Company's cash flow from
operations was $3.2 million, $(6.5) million, and $10.5 million, respectively.
Cash flow from operating activities was less in Fiscal Year 1995 than in Fiscal
Years 1996 and 1994 primarily because of the loss from operations and a
decrease in accounts payable. Cash flow in Fiscal Year 1996 was more than in
Fiscal Year 1995 primarily as a result of a lower investment in inventory.
The Company has a financing agreement with a financial institution
which provides for revolving credit borrowings and letters of credit of up to
$27.5 million (subject to a borrowing base limitation) with a maturity date in
October, 1999. The rate of interest on borrowings is prime plus 1.00% payable
monthly in arrears. A non-use fee of .5% per annum is payable monthly in
arrears on the unused portion of the facility.
The financing agreement contains certain restrictions, including
limitations on annual cumulative capital expenditures and additional borrowing.
The maximum cumulative capital expenditure covenant through Fiscal Year 1996
was $11.7 million, and the actual cumulative capital expenditures were $7.8
million.
During Fiscal Year 1996, there were weighted average short-term
borrowings of $14.1 million against the Company's lines of credit and peak
short-term borrowings of $20.5 million. These borrowings compare with weighted
average short-term borrowings against the Company's lines of credit of $8.9
million and $4.0 million, respectively, during Fiscal Years 1995 and 1994, and
peak short-term borrowings of $19.6 million and $12.3 million, respectively,
during Fiscal Years 1995 and 1994. At the end of Fiscal Year 1996, there were
short-term borrowings of $7.3 million, and at the end of Fiscal Years 1995 and
1994 there were short-term borrowings $7.7 million and $0, respectively. At
February 1, 1997, the Company had unused available borrowings of $8.4 million
under the revolving line of credit.
For Fiscal Years 1996, 1995 and 1994, capital expenditures were $.6
million, $2.8 million, and $3.2 million, respectively. The following table
sets forth the major categories of capital expenditures for Fiscal Years 1996,
1995 and 1994:
20
<PAGE> 23
<TABLE>
<CAPTION>
Total Capital Expenditures
(in millions)
--------------------------
Fiscal Year
--------------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
New Stores $0.3 $2.6 $2.2
Existing Store Remodels, 0.2 - 0.2
New Fixtures, General
Distribution Center - 0.1 0.3
Computer Operations 0.1 0.1 0.5
---- ---- ----
TOTAL $0.6 $2.8 $3.2
==== ==== ====
</TABLE>
The Company plans to spend approximately $1.0 million for capital expenditures
in Fiscal Year 1997, an amount within the Company's cumulative capital
expenditure covenant under the Company's financing agreement. Of this amount,
the Company has allocated approximately $0.5 million to the acquisition of
leased property, with the balance for store maintenance and the acquisition of
information technology.
In January, 1997, the Creditors' Committee agreed to defer for up to
one year the $1.9 million payment due for Fiscal Year 1996 under the Plan. For
Fiscal Year 1995, the Company's cash position was such that previous cumulative
payments of plan and excess cash balances were utilized to make the cumulative
minimum payment. The cumulative minimum payment owed through Fiscal Year 1995
was $11.1 million. Prior payments by the Company of minimum, plan and excess
cash balances were $9.8 million. Therefore, the minimum cash payment made by
the Company for Fiscal Year 1995 was $1.3 million. In addition to the minimum
payment, the creditors will receive $0.2 million of tax benefits. The Company
is also required to make a minimum payment of $1.8 million to unsecured
creditors for Fiscal Year 1997. Thus, the final minimum payment due Creditors
following the end of Fiscal Year 1997 will be a total of $3.7 million.
The Company had long term debt and obligations under capital leases of
$9.3 million at February 1, 1997, and $15.1 million at February 3, 1996. The
Company's ability to satisfy
21
<PAGE> 24
scheduled principal and interest payments under such obligations is dependent
on its cash flow and existing credit facility.
The Company recognizes that it has a high level of indebtedness,
primarily under its revolving line of credit and capital leases. Management
intends to continue the implementation of certain merchandising, marketing and
stores initiatives which were introduced in the second half of Fiscal Year
1996, which they believe will expand upon the improvements in the Company's
operations achieved during the second half of Fiscal Year 1996. Management
believes its existing revolving credit agreement, which extends until October
1999, along with its planned cash flows from operations will provide adequate
financing for inventory purchases and operations throughout Fiscal Year 1997.
Management does not believe that its agreement to keep its property
free of certain liens and not to make certain prohibited investments will
adversely affect its liquidity or capital resources.
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. For quarterly financial data for Fiscal Years 1996 and
1995, please see Note L to the Financial Statements. 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.
[Remainder of this page intentionally left blank]
22
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Richman Gordman 1/2 Price Stores, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of Richman Gordman
1/2 Price Stores, Inc. and subsidiary as of February 1, 1997 and February 3,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended February
1, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Richman Gordman 1/2 Price Stores,
Inc. and subsidiary as of February 1, 1997 and February 3, 1996 and the results
of their operations and their cash flows for each of the three years in the
period ended February 1, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note A to the consolidated financial statements, on October 20,
1993 the Company emerged from Chapter 11 bankruptcy pursuant to a confirmed
Plan of Reorganization. Under the Plan of Reorganization, the Company is
required to comply with certain terms and conditions as more fully described in
Note A.
[Signature]
DELOITTE & TOUCHE LLP
April 4, 1997
Omaha, Nebraska
23
<PAGE> 26
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS FEBRUARY 1, FEBRUARY 3,
1997 1996
CURRENT ASSETS:
<S> <C> <C>
Cash $ 388,267 $ 488,012
Accounts receivable, less allowance for doubtful accounts of $587,150 and $392,948 782,312 928,792
Merchandise inventories (Note C) 25,314,919 30,786,359
Prepaid expenses and other current assets 1,883,490 2,145,237
---------- -----------
Total current assets 28,368,988 34,348,400
PROPERTY, BUILDINGS AND EQUIPMENT, net (Notes D and F) 14,267,207 16,681,855
OTHER ASSETS 212,904 978,691
---------- -----------
$42,849,099 $52,008,946
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit borrowings (Note F) $ 7,281,732 $ 7,690,923
Accounts payable 7,038,664 7,953,024
Accrued expenses (Note E) 5,145,863 5,118,000
Taxes accrued and withheld 2,185,605 2,458,555
Current portion of long-term debt (Note F) 4,537,056 2,779,207
Current maturities of capital lease obligations (Note G) 1,335,379 1,229,819
Total current liabilities ----------- -----------
27,524,299 27,229,528
LONG-TERM DEBT, net of current portion (Note F) - 4,592,336
CAPITAL LEASE OBLIGATIONS, net of current portion (Note G) 9,258,949 10,594,328
OTHER LONG-TERM LIABILITIES 180,328 194,572
COMMITMENTS AND CONTINGENCIES (Notes G, H and J)
STOCKHOLDERS' EQUITY:
Common stock (Note K):
Series A common stock, $.01 par value; 19,800,000 shares authorized; 19,260,000
and 17,640,000 shares issued in fiscal 1996 and 1995, respectively 192,600 176,400
Series B common stock, $.01 par value; 10,200,000 shares
authorized, issued and outstanding in fiscal 1996 and 1995 102,000 102,000
Paid-in capital 4,562,886 4,436,526
Retained earnings (Note F) 1,253,757 4,683,256
Less: Treasury stock, at cost, 2,565,000 shares (225,720) -
----------- -----------
Total stockholders' equity 5,885,523 9,398,182
----------- -----------
$42,849,099 $52,008,946
=========== ===========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 27
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
<S> <C> <C> <C>
NET SALES $197,023,821 $206,520,255 $191,147,802
COST OF SALES 129,000,923 138,915,561 123,028,330
------------ ------------ ------------
Gross Profit 68,022,898 67,604,694 68,119,472
OPERATING AND ADMINISTRATIVE EXPENSES 69,967,273 69,605,046 62,769,000
------------ ------------ ------------
Income (loss) from operations (1,944,375) (2,000,352) 5,350,472
OTHER INCOME (EXPENSE):
Interest expense (3,609,314) (3,904,015) (3,821,199)
Interest income 1,094 129,592 224,620
Loss on life insurance benefits (Note B) - - (334,977)
------------ ------------ ------------
(3,608,220) (3,774,423) (3,931,556)
------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM (5,552,595) (5,774,775) 1,418,916
PROVISION FOR INCOME TAXES (Note H) - - -
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (5,552,595) (5,774,775) 1,418,916
EXTRAORDINARY ITEM - GAIN ON DEBT
FOREGIVENESS (Notes A, F and H) 2,123,096 6,550,230 -
------------ ------------ ------------
NET INCOME (LOSS) $ (3,429,499) $ 775,455 $ 1,418,916
============ ============ ============
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item $ (0.20) $ (0.19) $ 0.05
Extraordinary item 0.08 0.22 -
------------ ------------ ------------
Net income (loss) per common share $ (0.12) $ 0.03 $ 0.05
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 28,290,000 30,000,000 30,000,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 28
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
COMMON SERIES SERIES PAID-IN RETAINED TREASURY
STOCK A B CAPITAL EARNINGS STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 29, 1994 $ 264,000 $ - $ - $4,039,950 $ 2,488,885 $ - $6,792,835
Reissuance of 16,200,000 shares
of predecessor owner's stock
as Series A shares (Note K) (162,000) 162,000 - - - - -
Reissuance of 10,200,000 shares
of creditor stock as Series B
shares (Note K) (102,000) - 102,000 - - - -
Issuance of 720,000 new Series
A shares to executive officers
under the Reorganization Plan - 7,200 - 198,288 - - 205,488
Net income - - - - 1,418,916 - 1,418,916
--------- -------- -------- ---------- ----------- --------- ----------
BALANCE, January 28, 1995 - 169,200 102,000 4,238,238 3,907,801 - 8,417,239
Issuance of 720,000 new Series
A shares to executive officers
under the Reorganization Plan - 7,200 - 198,288 - - 205,488
Net income - - - - 775,455 - 775,455
--------- -------- -------- ---------- ----------- --------- ----------
BALANCE, February 3, 1996 - 176,400 102,000 4,436,526 4,683,256 - 9,398,182
Purchase of Treasury Stock - - - - - (225,720) (225,720)
Issuance of 1,620,000 new Series
A shares to executive officers
under the Reorganization Plan 16,200 - 126,360 - - 142,560
Net loss - - - - (3,429,499) - (3,429,499)
--------- -------- -------- ---------- ----------- --------- ----------
BALANCE, February 1, 1997 $ - $192,600 $102,000 $4,562,886 $ 1,253,757 $(225,720) $5,885,523
========= ======== ======== ========== =========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 29
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $197,057,241 $206,470,621 $191,156,790
Merchandise purchases (124,451,337) (140,696,491) (119,521,493)
Cash paid for operating and administrative expenses (66,636,410) (68,533,220) (58,543,197)
Interest paid on capital leases (1,386,276) (1,533,450) (1,679,553)
Interest paid on other debt obligations (1,432,321) (2,230,590) (1,939,492)
Income tax refund received - - 1,065,902
------------ ------------ ------------
Net cash provided by (used in) operating
activities 3,150,897 (6,523,130) 10,538,957
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings and equipment (592,326) (2,820,309) (3,215,711)
Proceeds from sale of property 250,261 - -
Proceeds from life insurance policies - - 879,619
Other 8,181 4,572 121,000
------------ ------------ ------------
Net cash used in investing activities (333,884) (2,815,737) (2,215,092)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit borrowings (409,191) 7,690,923 -
Payments on obligations under capitalized leases (1,229,819) (1,206,320) (1,090,540)
Payments on secured term note (778,426) (804,000) (1,695,497)
Purchase of treasury stock (225,720) - -
Payments made under plan of reorganization (273,602) (2,461,200) (5,166,770)
------------ ------------ ------------
Net cash provided by (used in) in financing
activities (2,916,758) 3,219,403 (7,952,807)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH (99,745) (6,119,464) 371,058
CASH, Beginning of year 488,012 6,607,476 6,236,418
------------ ------------ ------------
CASH, End of year $ 388,267 $ 488,012 $ 6,607,476
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 30
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Net income (loss) $(3,429,499) $ 775,455 $ 1,418,916
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Extraordinary credit-gain on debt foregiveness (2,123,096) (6,550,230) -
Depreciation and amortization 3,073,376 3,050,338 3,013,260
LIFO (credit) provision (753,229) 370,602 (8,478)
Gain on sale of property (166,029) - -
Net changes in assets and liabilities:
Accounts receivable 146,480 349,919 85,791
Merchandise inventories 6,224,669 717,923 (2,666,768)
Prepaid expenses and other current assets 261,747 (1,353,341) 1,235,738
Income taxes recoverable - - 1,065,902
Other assets 606,974 (584,623) (173,679)
Accounts payable (914,360) (3,222,027) 4,954,358
Other accrued expenses 223,864 (77,146) 1,613,917
----------- ----------- -----------
Net cash provided by (used in) operating activities $ 3,150,897 $(6,523,130) $10,538,957
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Stock issued to Company officers under the Plan of
Reorganization $ 142,560 $ 205,488 $ 205,488
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 31
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
- --------------------------------------------------------------------------------
A. REORGANIZATION, BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL
STATEMENTS AND RECENT DEVELOPMENTS
On June 17, 1992, Richman Gordman Stores, Inc. and its two wholly owned
subsidiaries, Richman Gordman Department Stores, Inc. and 1/2 Price Stores,
Inc. (collectively the "Company") filed a voluntary petition for
reorganization under Chapter 11 of Title 11 of the United States Bankruptcy
Code ("Chapter 11") in the United States Bankruptcy Court for the District
of Nebraska. Under Chapter 11, certain claims against the Company were
stayed while the Company continued business operations as a
debtor-in-possession. These claims, which totalled $72,399,717 at January
30, 1993, were reflected as "Liabilities Subject to Compromise" as required
under Statement of Position 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code.
On October 20, 1993 (the "Effective Date"), the Company emerged from
Chapter 11 pursuant to a confirmed Plan of Reorganization (the "Plan"). As
part of the Plan, Richman Gordman Stores, Inc. and its two wholly-owned
subsidiaries, Richman Gordman Department Stores, Inc. and 1/2 Price Stores,
Inc. merged and now operate as Richman Gordman 1/2 Price Stores, Inc. (a
Delaware corporation). P.H. of Florida, Inc. was retained as a subsidiary
of the Company. The Plan provided for, among other things, the
cancellation of all prepetition ownership interests of the Company; the
issuance of 54% of the new authorized common stock of the Company to
certain prepetition owners; the issuance of 34% of the new authorized
common stock of the Company to the unsecured creditors (estimated fair
value $3,308,000); cash payments over a period of five years to the
prepetition unsecured creditors (see Note F); cash payments of priority
claims; and the assumption or rejection of unexpired leases. The Plan also
required the Company to maintain minimum levels of annual cumulative
earnings before interest, taxes, depreciation and amortization, but this
requirement was waived in April of 1996 for the remainder of the Plan term.
The present value of amounts expected to be paid to the unsecured
creditors were accrued at January 29, 1994. Liabilities subject to
compromise not expected to be repaid totalling $15,199,606 were recorded in
the statement of operations as an extraordinary gain in fiscal year 1993.
During fiscal 1995, the Company revised its estimate of the amounts
expected to be repaid to the unsecured creditors under the Plan. As a
result of actual earnings and revised projected earnings being lower than
originally estimated over the term of the Plan, the cash payments and net
operating loss tax benefits expected to be paid to the unsecured creditors
were expected to be lower than originally estimated. As a result, an
extraordinary gain of $6,550,230 was recorded in fiscal 1995 to reflect the
change in this estimated liability to be paid to the unsecured creditors.
During the fourth quarter of fiscal 1996, the Company revised its estimate
of the net operating loss tax benefits that are expected to be paid to the
unsecured creditors as a result of actual and projected taxable income
being lower than estimated in 1995. Accordingly, an extraordinary gain of
$2,123,096 was recorded in fiscal 1996 to reflect this decrease in the tax
benefits expected to be paid to the unsecured creditors.
29
<PAGE> 32
As noted above, operating results in 1995 and 1996 were lower than
initially projected under the Plan. Increased competition in the Company's
markets and the overall weakness in the retail industry resulted in a
decline of comparable store sales in fiscal 1995 and 1996. Management has
implemented an operating plan for fiscal 1997 which they believe will
produce improvements in the Company's operations. Key components of the
Plan include repositioning the product mix to include more name brands,
changes in advertising, maintaining sales at a level consistent with fiscal
1996, realizing the benefits of cost reductions implemented in fiscal 1996,
and several other strategies to improve margins. Management believes its
existing revolving credit agreement, which extends until October 1999,
along with its planned cash flows from operations will provide adequate
financing for inventory purchases and operations throughout fiscal 1997.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Richman Gordman 1/2 Price Stores, Inc. operates
32-1/2 Price Stores in eight states. The 1/2 Price concept is to offer
first quality, nationally branded merchandise at half of the conventional
department store prices or at half of manufacturers suggested retail
prices.
CONSOLIDATION - The consolidated financial statements include the accounts
of Richman Gordman 1/2 Price Stores, Inc. and its wholly-owned subsidiary,
P.H. of Florida. All material intercompany accounts and transactions have
been eliminated in consolidation.
FISCAL YEAR - Fiscal years are designated in the financial statements and
notes by the calendar year in which the fiscal year commences.
Accordingly, results for fiscal years 1996 and 1994 represent the fifty-two
week periods ended February 1, 1997 and January 28, 1995, respectively, and
fiscal year 1995 represents the fifty-three week period ending February 3,
1996.
CASH FLOW REPORTING - For purposes of the statement of cash flows, the
Company considers all temporary cash investments purchased with a maturity
of three months or less to be cash equivalents. There were no temporary
investments at February 1, 1997 and February 3, 1996.
MERCHANDISE INVENTORIES - Merchandise inventories are stated at the lower
of cost or market, using the last-in, first-out (LIFO) method.
PROPERTY, BUILDINGS AND EQUIPMENT - Property, buildings and equipment are
recorded at cost and are depreciated for financial reporting purposes using
the straight-line method over their estimated useful lives. Leasehold
improvements are depreciated over their related lease terms or useful life,
generally two to 40 years while furniture, fixtures and equipment are
depreciated over a period of two to 10 years. Buildings and equipment
recorded under capital leases are being amortized using the straight-line
method over the shorter of the related lease terms or useful life of the
assets, generally two to 32 years.
DEFERRED FINANCING CHARGES - Deferred financing charges are being amortized
using the straight-line method over the term of the related financing
agreement.
PRE-OPENING COSTS - Costs associated with the opening of new stores are
expensed during the fiscal year the stores are opened.
LOSS ON LIFE INSURANCE BENEFITS - Upon the death of the Chairman of the
Board in December, 1993, the Company recorded a gain on life insurance
benefits reflecting the proceeds of life insurance policies of $879,814
offset by the cash surrender value of $201,738, which was previously
recorded as an asset. These proceeds were received during fiscal year
1994. During fiscal year 1994, a claim against those insurance proceeds
was filed, resulting in the recording of an expense of $334,977 for the
amount that will be refunded by the Company.
30
<PAGE> 33
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK - Financial
instruments which potentially subject the Company to concentrations of
credit risk are primarily cash, temporary investments and accounts
receivable. The Company places cash and temporary investments in highly
rated financial institutions and in very short term investments.
Concentration of credit risk with respect to accounts receivable are limited
due to the large number of customer balances.
STOCK-BASED COMPENSATION - The Company accounts for its stock-based
compensation under the provisions of Accounting Principles Board Opinion 25,
Accounting for Stock Issued to Employees (APB 25).
EARNINGS PER SHARE - Income (loss) per common share was calculated using
weighted average common shares outstanding of 30,000,000, less treasury
stock purchases, for all years presented. For purposes of the weighted
average shares outstanding, the shares issued or to be issued to certain
members of management or to the unsecured creditors during the term of the
Plan are considered outstanding for all periods presented. At February 1,
1997, 540,000 of such shares had not yet been issued.
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
these estimates.
RECLASSIFICATIONS - Certain reclassifications have been made to prior years'
financial statements to conform to the current year presentation.
C. INVENTORY
Total inventories would have been higher at February 1, 1997 by $7,862,748
and at February 3, 1996 by $8,615,977, respectively, had the FIFO (first-in,
first-out) method been used to determine the cost of all inventories.
During fiscal years 1996, 1995 and 1994 inventory quantities were reduced
resulting in a liquidation of certain LIFO layers carried at costs which
were lower than the costs of current purchases, the effect of which
decreased the net loss in fiscal 1996 by approximately $647,000 and
increased net income by approximately $89,000 and $2,000 in fiscal 1995 and
1994, respectively.
Included in inventory is $2,150,981 and $2,371,108 of prepaid inventory at
February 1, 1997 and February 3, 1996, respectively.
D. PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consist of:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
<S> <C> <C>
Land $ 1,406,060 $ 1,406,060
Leasehold improvements 9,874,626 10,084,654
Furniture, fixtures and equipment 16,051,961 15,431,502
Capitalized leases 19,531,569 20,830,962
-------------- --------------
46,864,216 47,753,178
Less accumulated depreciation (32,597,009) (31,071,323)
-------------- --------------
$ 14,267,207 $ 16,681,855
============== ==============
</TABLE>
31
<PAGE> 34
E. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
<S> <C> <C>
Store operating expenses $3,024,116 $2,702,838
Employee compensation 2,016,881 2,299,639
Interest 104,866 115,523
---------- ----------
$5,145,863 $5,118,000
========== ==========
</TABLE>
F. FINANCING AGREEMENTS
Long-term debt consists of:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
<S> <C> <C>
Present value of payments to be made to
prepetition unsecured creditors discounted at 10% $3,693,728 $5,749,796
Secured term note; payments of $67,000 monthly plus
interest at 7%, matures August 20, 1997 426,555 1,230,554
Note payable; payments of $67,000 beginning
July 1997 through December 1997; interest of 7% 416,773 391,193
---------- ----------
4,537,056 7,371,543
Less current portion 4,537,056 2,779,207
---------- ----------
$ - $4,592,336
========== ==========
</TABLE>
The Company has a financing agreement with a financial institution which
provides for revolving credit borrowings and letters of credit of up to
$27.5 million. As a result of an amendment to the financing agreement in
fiscal 1996, borrowings under this agreement bear interest at a rate which
is 1.5% per annum greater than the applicable prime rate and the term of the
financing agreement extends to October 1999. The amounts the Company is
permitted to borrow under the agreement are determined by a formula based
upon the Company's eligible inventory from time to time. Amounts available
under this agreement at February 1, 1997 and February 3, 1996 totalled
$8,423,000 and $9,441,000, respectively. Such borrowings are secured by
substantially all of the current assets of the Company and general
intangibles. A non-use fee of .5% per annum is payable monthly on the
unused portion of the facility, and a servicing fee is payable quarterly
during the term of the agreement. Additional fees are due upon early
termination of the agreement. At the end of fiscal 1996 and 1995 borrowings
were $7,281,732 and $7,690,923, respectively, and the Company had
outstanding letters of credit totaling approximately $256,000 and $378,000,
respectively. The maximum amount of revolving credit borrowings during
fiscal year 1996, 1995 and 1994 was $20,515,000, $19,587,000 and
$12,275,000, respectively. The weighted average amount of revolving credit
borrowings for fiscal years 1996, 1995 and 1994 was $14,051,000, $8,868,000
and $4,036,000, respectively, with related weighted average interest rates
of 9.8%, 10.5% and 9.1% in fiscal 1996, 1995 and 1994, respectively.
The current financing agreement contains certain restrictions, including
limitations on annual cumulative capital expenditures and additional
borrowings. The Company is also restricted from making any dividend
payments. The secured term note is collateralized by certain Company owned
real estate, furniture, fixtures and equipment.
32
<PAGE> 35
During the third quarter of 1993 the Company emerged from Chapter 11
pursuant to a confirmed Plan of Reorganization (the "Plan"). The present
value of amounts estimated to be paid to the unsecured creditors over the
Plan's term were accrued at that time based on projections of income and
cash flows over the same period. In the fourth quarter of 1995, after
giving effect to actual operating results under the Plan and revised
projected earnings for the balance of the term of the Plan, the Company
reduced the estimated remaining liability for payments to unsecured
creditors, which resulted in recording an extraordinary gain of $6,550,230.
In the fourth quarter of 1996, the Company further reduced the estimated
remaining liability for payment to creditors, primarily to reflect a
decrease in the net operating loss tax benefits expected to be paid to the
unsecured creditors. This change in estimate resulted in recording an
extraordinary gain of $2,123,096. In addition, during 1996 the unsecured
creditors deferred the $1,939,000 minimum payment they were to receive until
fiscal 1997. The ultimate amount that will be paid to the unsecured
creditors will depend on the actual operating results and cash flows
throughout the entire term of the Plan. Due to uncertainties inherent in
the estimation process, it is at least reasonably possible that the ultimate
payments to the unsecured creditors could be revised in the near term.
Future estimated payments to unsecured creditors recorded at their present
value are as follows:
<TABLE>
<CAPTION>
DESCRIPTION OF PAYMENTS FISCAL YEAR
1997
<S> <C>
Annual minimum payments $3,767,000
Less amount representing interest (173,272)
----------
Present value of payments 3,593,728
Other 100,000
----------
Total expected payments 3,693,728
Less current portion (3,693,728)
----------
Long-term portion $ -
==========
</TABLE>
G. LEASES
The Company has entered into numerous long-term lease agreements classified
as both capital and operating leases. These leases relate to retail store
locations, additions to the distribution center, corporate headquarters, and
furniture, fixtures and equipment. The leases expire on various dates
through the year 2016 with most of the leases containing renewal options.
Certain retail store leases contain provisions for additional rent based on
varying percentages of sales.
Total rental expense related to all operating leases (including those with
terms less than one year) is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
<S> <C> <C> <C>
Minimum rentals $9,432,296 $8,583,986 $6,796,469
Contingent rentals 20,088 18,201 100,326
------------ ------------ ------------
$9,452,384 $8,602,187 $6,896,795
============ ============ ============
</TABLE>
33
<PAGE> 36
Following is a summary of capitalized leased assets included in property,
buildings and equipment:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
<S> <C> <C>
Buildings and improvements $19,280,119 $20,579,512
Furniture, fixtures and equipment 251,450 251,450
----------- -----------
19,531,569 20,830,962
Less accumulated depreciation (14,122,614) (14,478,000)
----------- -----------
$ 5,408,955 $ 6,352,962
=========== ===========
</TABLE>
Future minimum lease payments under capitalized and operating leases with
rental terms of more than one year as of February 1, 1997, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
<S> <C> <C>
1997 $ 2,659,502 $ 8,121,770
1998 2,384,027 6,945,686
1999 2,017,708 6,136,374
2000 1,965,814 5,614,134
2001 1,920,439 5,019,457
After 2000 8,598,698 24,493,597
----------- ----------
Total minimum lease payments 19,546,188 $56,331,018
===========
Less estimated executory costs 331,162
-----------
Net minimum lease payments under
capitalized leases 19,215,026
Less amount representing interest 8,620,698
-----------
Present value of net minimum
lease payments 10,594,328
Less current portion 1,335,379
-----------
Long-term obligation $ 9,258,949
===========
</TABLE>
H. INCOME TAXES
In fiscal 1996, 1995 and 1994 taxable losses were incurred which increased
the Company's net operating loss carryforwards. No tax benefit for these
losses were recorded due to the uncertainty of the realization of such
benefit. For federal income tax purposes, the gain on the debt forgiveness
is nontaxable pursuant to the stock for debt exception of IRC Section 108.
The Company applied for and received a favorable letter ruling from the
Internal Revenue Service with respect to this treatment. As a result, the
gain on debt forgiveness for the years ended February 1, 1997 and February
3, 1996 does not require the netting of income tax expense associated with
the gain.
34
<PAGE> 37
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts reported for income tax
purposes, and (b) operating loss and tax credit carryforwards. The tax
effects of significant items comprising the Company's net deferred tax
position as of February 1, 1997 and February 3, 1996 are as follows:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
<S> <C> <C>
Accruals and other reserves $ 677,502 $ 346,801
Rejected leases 269,114 28,575
Capitalized inventory costs 719,335 641,812
Fixed assets (108,508) 162,032
Capital leases 1,797,589 1,899,487
Net operating loss and tax credit carryforwards 10,281,846 5,553,317
Valuation reserve (13,636,878) (8,632,024)
------------ -----------
Net deferred asset $ - $ -
============ ===========
</TABLE>
On February 1, 1997 the Company has net operating loss carryforwards of
approximately $27,800,000 which expire through 2011. The valuation reserve
provided will be recorded as a reduction in income tax expense in future
periods if realization of the future deductions becomes more likely than
not. Under the Plan, the tax benefits associated with net operating loss
carryforwards and other tax credit carryforwards as of January 29, 1994
which are realized during the term of the Plan are to be paid to the
unsecured creditors. As of February 1, 1997, the Company has estimated that
none of such net operating loss carryforwards and other tax credit
carryforwards will be realized during the term of the Plan.
I. RELATED PARTY TRANSACTIONS
The Company currently leases five of its retail store locations, its
corporate headquarters and two additions to its distribution center from
organizations owned in whole or in part by certain stockholders of the
Company. During fiscal years 1996, 1995 and 1994 the Company paid
$3,109,862, $2,915,243 and $2,919,926, respectively, to these related
organizations under the terms of the leases.
J. EMPLOYMENT BENEFITS AND CONTRACTS
The Company offers a 401(k) thrift savings plan that allows employees to
defer a percentage of their income by making pretax contributions to the
savings plan. Matching contributions made by the Company are determined by
the Board of Directors in accordance with plan provisions. During fiscal
year 1996, $91,409 was contributed to the plan while no contributions were
made to the plan in fiscal years 1995 and 1994.
As part of the Plan of Reorganization, the Company entered into a
non-compete agreement with a former President (who is currently a member of
the Board of Directors) requiring the Company to pay him $125,000 annually
through October, 1998.
35
<PAGE> 38
K. STOCKHOLDERS' EQUITY
Under the approved Plan, all shares of existing common stock and existing
preferred stock were canceled in fiscal year 1993. The Company filed a
restated certificate of incorporation which authorized the issuance of
30,000,000 shares of $.01 par value common stock. Under the Plan, the
Company issued 10,200,000 new shares to the unsecured creditors and
16,200,000 new shares to the former preferred shareholder. The former
common shareholders' interests in the Company were canceled and they
received no distribution under the Plan.
During fiscal year 1994 and in order to clarify for the marketplace the
purchase option for common stock issued to unsecured creditors under the
Plan, the Company's Board of Directors designated the Company's common stock
into two series. The Series A common stock consists of the 19,260,000
shares of the Company's common stock that are not subject to the option to
repurchase (issued only to pre-reorganization shareholders and management).
The Series B option common stock (issued to unsecured creditors) consists of
the 10,200,000 shares that are subject to the option to repurchase, which is
discussed in the second succeeding paragraph that follows.
Employment agreements with certain members of management included a
provision that would allow them to receive over the five year term of the
Plan up to 3,600,000 new Series A shares if certain cash flow goals are
achieved. Any new shares reserved for these management members that are not
earned under the Plan will be distributed pro rata to the unsecured
creditors in 1998. As of February 1, 1997, 3,060,000 shares of Series A had
been issued under this incentive plan. During 1996 the management members
covered by these employment agreements resigned. In connection with the
resignation of one of these management members, the Company purchased
2,565,000 shares of the executive's stock at a fair value of $225,720.
Should the Company fulfill its minimum obligation to the unsecured creditors
under the Plan, the Company and the former preferred shareholder's designee
has the option to purchase all or a portion of the Series B option common
stock, issued to unsecured creditors, at fair value of the stock on February
2, 1998, less the amount of any excess cash that has been paid to the
unsecured creditors during the term of the Plan. As of February 1, 1997
there is no excess cash paid to the unsecured creditors. During fiscal
1995, previous excess cash payments totalling $3,277,224 were used to
fulfill the Company's minimum obligation to the unsecured creditors.
36
<PAGE> 39
L. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information for fiscal 1996 and 1995 is as
follows (in thousands, except percentages and per share amounts):
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------------------------
FISCAL 1996 FIRST SECOND THIRD FOURTH TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $41,695 $45,771 $50,485 $59,073 $197,024
Gross profit $14,368 $15,815 $18,117 $19,723 $ 68,023
Gross profit percent 34.50 % 34.60 % 35.90 % 33.40 % 34.50 %
Income (loss) from operations $(2,417) $(2,217) $ (2) $ 2,692 $ (1,944)
Income (loss) before
extraordinary item $(3,120) $(3,100) $(1,073) $ 1,740 $ (5,553)
Net income (loss) $(3,120) $(3,100) $(1,073) $ 3,864 $ (3,429)
Net income (loss) per common
share:
Net income (loss) before
extraordinary item $ (0.10) $ (0.11) $ (0.04) $ 0.06 $ (0.19)
Net income (loss) per
common share $ (0.10) $ (0.11) $ (0.04) $ 0.14 $ (0.11)
</TABLE>
Fourth quarter fiscal 1996 income was positively impacted by a LIFO credit
recorded in the amount of $1,222,229 related to the year end calculation of
LIFO. In addition, during the fourth quarter of fiscal 1996 the Company
recorded an extraordinary benefit for a change in estimate of the liability
due to the creditors of $2,123,096.
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------------------------
FISCAL 1995 FIRST SECOND THIRD FOURTH TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $38,359 $47,723 $52,731 $67,707 $206,520
Gross profit $13,184 $16,469 $17,503 $20,449 $ 67,605
Gross profit percent 34.40 % 34.50 % 33.20 % 30.20 % 32.70 %
Income (loss) from operations $(1,918) $ (429) $ (665) $ 1,012 $ (2,000)
Income (loss) before
extraordinary item $(2,875) $(1,461) $(1,700) $261 $ (5,775)
Net income (loss) $(2,875) $(1,461) $(1,700) $ 6,811 $ 775
Net income (loss) per common
share:
Net income (loss) before
extraordinary item $ (0.10) $ (0.05) $ (0.06) $ 0.01 $ (0.19)
Net income (loss) per
common share $ (0.10) $ (0.05) $ (0.06) $ 0.23 $ 0.03
</TABLE>
Fourth quarter fiscal 1995 income was negatively impacted by an accrual of
inventory markdowns of approximately $1,764,000 related to slow moving
merchandise. In addition, during the fourth quarter of fiscal 1995 the
Company recorded an extraordinary benefit for a change in estimate of the
liability due to the creditors of $6,550,230.
37
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Richman Gordman 1/2 Price Stores, Inc.
Omaha, Nebraska
We have audited the consolidated financial statements of Richman Gordman 1/2
Price Stores, Inc. as of February 1, 1997 and February 3, 1996, and for each of
the three years in the period ended February 1, 1997, and have issued our
report thereon dated April 4, 1997; such consolidated financial statements and
report are included in your 1996 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the financial
statement schedule of Richman Gordman 1/2 Price Stores, Inc., listed in Item 14
(a)(2). 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 financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 4, 1997
<PAGE> 41
SCHEDULE II
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
VALUATION AND QUALIFYING ACCOUNTS
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES (1) DEDUCTIONS (2) OF PERIOD
<S> <C> <C> <C> <C>
Allowance deducted from asset to which
it applies:
Allowance for doubtful accounts:
Year ended February 1, 1997 $392,948 $926,713 $(732,511) $587,150
Year ended February 3, 1996 $370,463 $688,530 $(666,045) $392,948
Year ended January 28, 1995 $741,816 $212,875 $(584,228) $370,463
</TABLE>
(1) Additions charged to expense is net of recoveries of amounts
previously written off.
(2) The deduction in this column are amounts written off against the
respective reserve.
<PAGE> 42
RISKS
Throughout this Annual Report to Shareholders, particularly the Letter
to Shareholders and Management's Discussion and Analysis of Financial Condition
and Results of Operations, 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 herein 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 herein 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.
With respect to those forward-looking statements concerning future
results of operations, some of the factors which may impact the Company's
future operating performance include the following: (i) weather conditions
which adversely affect the buying patterns of the Company's customers; (ii) the
seasonality of the demand for the Company's merchandise; (iii) an increase in
or change in the composition of the competition in the Company's markets, the
actions of such competitors and the ability of the Company to respond to such
actions; (iv) the loss of key personnel; and (v) the ability of the Company to
procure merchandise opportunistically such that it can be offered by the
Company at half price.
With respect to those forward-looking statements concerning future
liquidity and capital resources, some of the factors which may impact the
Company's future financial condition include the following: (i) the continued
availability of trade credit from the Company's suppliers; (ii) the ability to
achieve expected cash flow from operations; and (iii) the Company's high level
of indebtedness.
<PAGE> 43
SHAREHOLDER INFORMATION
STOCK TRANSFER AGENT
Fleet National Bank, Corporate Trust Department, P.O. Box 1440
Hartford, CT 06101, serves as transfer agent and registrar for both series of
the Company's common stock. Certificates to be transferred should be mailed
directly to the transfer agent, preferably by registered mail.
SHAREHOLDERS
The Company's sole class of equity securities, common stock, consists
of 30,000,000 shares on a fully diluted basis and is divided into two series,
the Series A Common Stock and the Series B Option Common Stock. As of April 8,
1997, 19,080,000 shares of Series A Common Stock were issued, of which
16,515,000 were outstanding and held of record by 2 shareholders, and
10,200,000 shares of Series B Option Common Stock were issued and outstanding
and held of record by 790 shareholders.
DIVIDENDS
The Company has never paid a cash dividend and intends to retain
earnings, if any, and does not presently intend to pay any cash dividends on
either series of the Common Stock. However, holders of both series of the
Common Stock are entitled to such dividends as may be declared from time to
time by the Company's Board of Directors.
MARKET PRICES
No established public trading market exists with respect to either
series of the Company's Common Stock.
<PAGE> 1
EXHIBIT (23)
Consents of Deloitte &
Touche L.L.P.
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-94014 on Form S-8 of Richman Gordman 1/2 Price Stores, Inc. of
our reports dated April 4, 1997, appearing in and incorporated by
reference in the Annual Report on Form 10-K of Richman Gordman 1/2
Price Stores, Inc. for the year ended February 1, 1997.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 388,267
<SECURITIES> 0
<RECEIVABLES> 1,369,462
<ALLOWANCES> 587,150
<INVENTORY> 25,314,919
<CURRENT-ASSETS> 28,368,988
<PP&E> 46,864,216
<DEPRECIATION> 32,597,009
<TOTAL-ASSETS> 42,849,099
<CURRENT-LIABILITIES> 27,524,299
<BONDS> 9,258,949
0
0
<COMMON> 294,600
<OTHER-SE> 5,590,923
<TOTAL-LIABILITY-AND-EQUITY> 42,849,099
<SALES> 197,023,821
<TOTAL-REVENUES> 197,023,821
<CGS> 129,000,923
<TOTAL-COSTS> 129,000,923
<OTHER-EXPENSES> 69,967,273
<LOSS-PROVISION> 926,713
<INTEREST-EXPENSE> 3,609,314
<INCOME-PRETAX> (5,552,595)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,552,595)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,123,096
<CHANGES> 0
<NET-INCOME> (3,429,499)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
