<PAGE> 1
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 January 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-24328
Richman Gordman 1/2 Price Stores, Inc.
(Exact name of registrant as specified in its charter)
Delaware 47-0771211
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12100 West Center Road, Omaha, Nebraska 68144
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 691-4000 Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None.
Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $.01
(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
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. [ ]
As of March 30, 1998, an aggregate of 26,715,000 shares of Common Stock, par
value $.01, were outstanding, composed of 16,695,000 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
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended January 31, 1998, 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 112
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 1993, 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. Three major factors led to
Richman Gordman Department Stores' eventual loss in market share and financial
stability: (i) national retailing trends favoring discount 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.
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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 up to half off
department and specialty store regular 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 approved the Company's application to close the case during
1997. The Bankruptcy Court retains jurisdiction to interpret the terms of and
settle disputes arising from the Plan through the 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").
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 was payable in equal installments over
five years, and was paid in full during 1997. Harris Bank was also the largest
unsecured creditor and, at March 30, 1998, held approximately
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10.4% of the Company's Series B Option Common Stock on a fully diluted basis.
The Company also has an obligation to pay $200,205 to the Dan Gordman Fund, an
obligation which arose out of the personal portion of an insurance policy on the
life of Dan Gordman which was paid to Harris Bank in partial satisfaction of its
claim described above. This remaining obligation is scheduled to be paid in full
in fiscal 1998.
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. 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.
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 column titled Annual Minimum
Payment, on the schedule which follows. 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. To the extent the cash flow contingencies, as detailed
below, allow additional payments in excess of the Annual Minimum Payment column,
such
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payments were to 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 ANNUAL MINIMUM CUMULATIVE ANNUAL PLAN CUMULATIVE PLAN
YEAR PAYMENT MINIMUM CASH BALANCE CASH BALANCE
PAYMENT
- ----------------------------------------------------------------------------------
<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
- ----------------------------------------------------------------------------------
$14,865,000 $17,488,000
- ----------------------------------------------------------------------------------
</TABLE>
The Company operates on a fiscal year basis, and its Fiscal Years through 1998
end on the dates shown below:
<TABLE>
<CAPTION>
Fiscal Year Ends
---------------- ----
<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
Fiscal Year 1998 01/30/99
</TABLE>
ACTUAL CASH BALANCE. The Company was 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 Balance shown above, and (2) 50% of Excess Cash
Balance, as defined in the Plan. The fourth column represents the Company's
original 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. 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. In January, 1998, the Creditors' Committee agreed to defer
$1.8 million of the remaining obligation. This $1.8 million, which represents
all of the remaining payments required under the Plan, is scheduled to be
escrowed in three installments of $200,000 at the end of April, July and
October, 1998, with the final $1.2 million escrowed on January 31, 1999. The
unpaid obligation will bear interest at 12% until escrowed and is secured by an
interest in the Company's distribution center. Escrowed payments will be
disbursed to the creditor group on or before September 15, 1998 and March 15,
1999. Additionally, the Creditors will receive an additional amount should the
Company execute a sale/leaseback or other disposition of buildings #1 and/or #3
of its distribution center prior to February 1, 2000, as the Company has agreed
to disburse 1.25%
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of the gross proceeds of any such sale or disposition of buildings #1 and/or #3
of its distribution center to such creditors. However, it is not certain that
such a transaction will occur.
Creditors were 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. No such benefits were realized
in fiscal 1997, and the Creditors are not entitled to any such tax benefits in
the future.
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
----------
Annual Plan Cash Balance 2,708,000
50% of Excess Cash Balance 1,444,613
----------
Total Payment to Creditors $4,152,613
==========
</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
----------
Annual Plan Cash Balance 3,853,000
Tax Benefit in Excess
of $500,000 387,649
50% of Excess Cash Balance 1,832,611
----------
Total Payment to Creditors $6,073,260
==========
</TABLE>
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
----------
Total Payment to Creditors $1,480,477
==========
</TABLE>
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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.
In Fiscal Year 1997, a payment to the creditors of $1,967,000 was escrowed on
January 31, 1998 and disbursed to creditors on March 18, 1998. This payment was
made in accordance with the Waiver of Creditors' Committee of Deferred Payment
of 1998 Minimum Payment dated January 24, 1998, which also deferred the payment
of the remaining $1.8 million obligation until fiscal 1998 (the "1998 Creditors'
Committee Waiver").
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").
Pursuant to the 1998 Creditors' Committee Waiver, the exercise date of the
Option was extended until the Company fulfills its obligations under the Plan.
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 the day following the escrow of the remaining fixed
obligation of $1.8 million plus accrued interest. 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.
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 Years 1996 or 1997, and no such payments will be required for Fiscal
Year 1998. Therefore the Excess Cash Balance payments will result in no
reduction from fair market value in the Option exercise price.
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
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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.
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 January 31, 1998 (the "1997 Annual
Report").
ITEM 2. PROPERTIES.
Information in response to this Item 2 is incorporated by reference to the
"Products and Services" Section of the 1997 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.
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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
"Shareholder Information" section of the 1997 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 1997 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 1997 Annual Report.
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 1997 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There are no items to report.
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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 J. Gordman. Jeffrey J.
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:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul M. Bass, Jr. (1)(2)(5) 62 Chairman of the Board of Directors
Jeffrey J. Gordman (2)(4) 34 Director, President, and Chief
Executive Officer
Paul M. Buxbaum(1)(5) 43 Director
Jerome P. Gordman(4) 59 Director
Nelson T. Gordman(3)(4) 58 Director
Thomas J. Noonan, Jr. 58 Director
(2)(3)(5)
Philip Scheipe(1)(3)(5) 60 Director
Seth J. Lehr (1) 41 Director
</TABLE>
(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
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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 to Creditors of amounts due under the Plan. If the Company makes
the final payment to Creditors under the plan when due pursuant to the
Creditors' Committee Waiver dated January 31, 1999, the plan would end on or
before March 15, 1999. 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. Mr. Jeffrey J. Gordman currently
serves as both Chief Executive Officer of the Company and 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.
OFFICERS
The table below sets forth the name, age and position of the Company's executive
officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul M. Bass, Jr. 62 Chairman of the Board of Directors
Jeffrey J. Gordman 34 Vice-Chairman of the Board of
Directors, President and
Chief Executive Officer
</TABLE>
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<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Lance Graves 49 Executive Vice President of
Merchandising and Marketing
James H. Cooke 49 Vice President, Stores
Michael A. Mallaro 35 Vice President of Finance and Chief
Financial Officer
Martin Kresge 46 Vice President, Marketing
Norman J. Farrington 50 Vice President, Chief Information
Officer
Edward D. Williamson 42 Vice President, Human Resources
Ronald K. Hall 54 Vice President, Operations
</TABLE>
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 F.S.B., a Director of Keystone
Consolidated Industries (also Chairman of Audit Committee), a Director of Source
Services, Inc. (also a member of Executive Committee), a Director and Chairman
of the Board of MACC Private Equities Inc., a Director of Jayhawk Acceptance
Corporation, and a Director of Compx International. Mr. Bass holds a B.B.A. in
Finance from Southern Methodist University.
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.
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Mr. Jeffrey J. Gordman is Vice-Chairman of the Board of Directors, 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 Wharton 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.
Mr. Seth J. Lehr is a Director of the Company. Mr. Lehr is a Managing Director,
Corporate Finance with Legg Mason, 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 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 in the process of liquidation.
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
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<PAGE> 14
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. Lance Graves is the Executive Vice President of Merchandising and Marketing.
He joined the Company in January, 1998 after 22 years in the retail business. He
previously held senior merchandising positions with QVC, Ames Department Stores
and Mervyns Department Stores. Mr. Graves holds a bachelors degree from the
University of Nebraska and an M.B.A. from the University of Michigan.
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. Michael A. Mallaro is the Vice President of Finance and Chief Financial
Officer. He joined the Company in June, 1997. Prior to joining the Company, he
spent 12 years with the accounting firm Deloitte & Touche. He was selected for
admission to that firm's ownership as an audit partner in 1997, but declined the
invitation prior to joining Richman Gordman. He holds the C.P.A. and C.M.A.
designations and has a bachelors degree from the University of Iowa.
Mr. Martin Kresge joined the 1/2 Price Stores in August, 1997 as Vice President
of Marketing. He has over 20 years of retail marketing experience, 16 as the top
marketing executive. Most recently, he was the Vice President of Marketing for
Lil' Things, a start-up superstore concept specializing in baby and juvenile
products which filed bankruptcy reorganization proceedings in June 1997. Prior
to that he was director of advertising and sales promotion for Leewards Creative
Crafts. He earned his undergraduate degree from the University of Colorado and
an M.B.A. from the University of Michigan.
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
14
<PAGE> 15
Engineering from North Dakota State University and an MS degree in Systems
Analysis from the Air Force Institute of Technology.
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.
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. 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, Mr. Bass and Mr. Lehr are members of the 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, 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
15
<PAGE> 16
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.
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 appropriately filed all forms required
to be filed during Fiscal Year 1997 pursuant to Section 16(a) of the Exchange
Act, except that Mr. Lance Graves, Mr. Ronald Hall, Mr. Martin Kresge, and Mr.
Michael Mallaro each filed late his respective Form 3; and Mr. James Cooke, Mr.
Edward Williamson, Mr. Ronald Hall, Mr. Martin Kresge, Mr. Michael Mallaro, and
Mr. Norman Farrington each filed late his respective Form 5 following the
completion of the Company's fiscal year 1997.
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
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<PAGE> 17
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 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) contribution by the
Company to 401(k) plans on terms applicable to other senior management; and
(ii) 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.
BONUS PROGRAM AND EMPLOYMENT AGREEMENTS FOR VICE PRESIDENTS
All of the Company's Vice Presidents (except Dean Williamson) are parties to
employment agreements. These employment agreements provide for one to three-year
terms, with a minimum base salary level for each of the three years. The
employment agreements 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 adopted an Officer Incentive Program in March, 1997. In accordance
with their employment agreements, all of the Vice Presidents participate in this
bonus program, although no bonuses were earned or paid for Fiscal Year 1997. The
Company anticipates that it will have a bonus plan for its Vice Presidents for
1998 as well. Bonuses are expected to be earned if the Company realizes net
income in excess of $1 million for the year.
The Vice Presidents also participate in certain employee benefits, including
health insurance and a 401(k) plan. In Fiscal Year 1997, the Company made
matching contributions equal to 25% of each employee's contribution, but not in
excess of 4% of the employee's compensation, and expects to do the same in
fiscal 1998.
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<PAGE> 18
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, 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
1997, 1996 and 1995:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
NAME OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
AND POSITION YEAR(1) SALARY BONUS COMPENSATION(2) PAYOUT OPTIONS (#) COMPENSATION(3)
------------ ------- ------ ----- --------------- ------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeffrey J. Gordman 1995 $ 93,644 $ 15,000 $ 49 -0- -0- -0-
Director, President, and 1996 $ 145,222 $ -0- $ 150 -0- -0- $ 1,336
Chief Executive Officer 1997 $ 225,071 $ 50,000 $ 1,044 -0- -0- $ 2,251
James Cooke 1995 $ 160,000 $ 29,000 $ 4,641 -0- -0- -0-
V.P. Stores 1996 $ 180,718 $ -0- $ 1,635 -0- -0- $ 1,335
1997 $ 181,620 $ 5,000 $ 3,957 -0- 25,000 $ 1,814
Don DeGraeve 1995 $ 60,061 $ 10,000 $ 123 -0- -0- -0-
Former V.P. of 1996 $ 171,697 $ 10,000 $ 1,772 -0- -0- -0-
Merchandising 1997 $ 182,738 $ 34,000 $ 2,390 -0- 25,000 -0-
Norm Farrington 1995 $ 95,659 $ 17,000 $ 3,238 -0- -0- -0-
V.P. Information 1996 $ 111,928 $ -0- $ 3,263 -0- -0- -0-
Technology 1997 $ 121,648 $ 5,000 $ 3,179 -0- 25,000 $ 1,213
Dean Williamson 1995 $ 112,717 $ 21,000 $ 3,238 -0- -0- $ 860
V.P. Human Resources 1996 $ 117,642 $ -0- $ 3,264 -0- -0- $ 949
1997 $ 116,370 $ 5,000 $ 3,179 -0- 25,000 $ 1,164
John Simkins 1995 $ 114,803 $ 10,000 $ 3,238 -0- -0- -0-
Former V.P. of Distribution 1996 $ 118,073 $ -0- $ 3,212 -0- -0- -0-
1997 $ 121,576 $ -0- $ 3,024 -0- 25,000 -0-
</TABLE>
(1) Represents Fiscal Years commencing in January or February of the stated
year.
(2) "Other Annual Compensation" is primarily in the form of, life insurance,
reimbursement of health and dental insurance, health club memberships,
value of company-paid automobiles, etc.
(3) "All Other Compensation" represents 401(k) matching contributions made by
the Company.
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<PAGE> 19
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential realizable value at assumed annual Alternative to (f),
Individual Grants rates of stock appreciation for option term (g) and (h) value
----------------- ---------------------------------------------- -------------------
(a) (b) (c) (d) (e) (f) (g) (h) (I)
% of total
options granted
Number of during year to Exercise Expiration 0% 5% 10% Grant date
Name Options (#) all employees Price/share Date ($) ($) ($) present value(1)
- ---- ----------- ------------- ----------- ---- --- --- --- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jim Cooke 25,000 2.9% $ 0.051 Sept 2007 $0 $801 $2,032 -0-
Don DeGraeve 25,000 2.9% $ 0.051 NA(2) $0 $801 $2,032 -0-
Norm Farrington 25,000 2.9% $ 0.051 Sept 2007 $0 $801 $2,032 -0-
Dean Williamson 25,000 2.9% $ 0.051 Sept 2007 $0 $801 $2,032 -0-
John Simkins 25,000 2.9% $ 0.051 NA(2) $0 $801 $2,032 -0-
</TABLE>
(1) The Company's stock is not traded on any exchange and there is no active
trading of the stock. The Company had a independent appraiser value to stock on
September 12, 1997, upon granting of these options. The valuation at that time
was estimated at $0.51 per share for these shares. No subsequent valuations have
been performed and thus no incremental value is disclosed in this table.
(2) These options were forfeited by the recipient upon termination of employment
in fiscal 1997.
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, 1998, 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.
<TABLE>
<CAPTION>
NAME, PERCENTAGE
TITLE, OF TOTAL
ADDRESS NUMBER AUTHORIZED(1)
- ------- ------ -------------
<S> <C> <C>
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
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
NAME, PERCENTAGE
TITLE, OF TOTAL
ADDRESS NUMBER AUTHORIZED(1)
- ------- ------ -------------
<S> <C> <C>
Jerome P. Gordman 4,916,326(5) 16.4%
9925 Essex Drive
Omaha, Nebraska 68114
Harris Trust and 3,123,459 10.4%
Savings Bank
200 West Monroe Street
P.O. Box 755
Chicago, Illinois 60603
Norm Farrington 495,000 1.7%
Richman Gordman 1/2
Price Stores, Inc.
12100 West Center Road
Omaha, Nebraska 68144
Lance Graves 250,000(6) 0.8%
Richman Gordman 1/2
Price Stores, Inc.
12100 West Center Road
Omaha, Nebraska 68144
</TABLE>
(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 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
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<PAGE> 21
entities which are registered owners of shares of Series B Option Common Stock,
Jerome Gordman is the owner of an additional 56,326 shares of Series B Option
Common Stock.
(6) Represents shares presently exercisable under stock option grants.
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 and Mr. Jerome Gordman (both Directors
of the Company).
<TABLE>
<CAPTION>
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. Building 3 is being subleased to a third
party effective in fiscal 1998. 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. The Company and the Gordman entity are also parties to a
Distribution Center Option Agreement which allows the Company to purchase
Building 2 for $2,850,000 should it choose to do so in connection with a
financing transaction, such as a sale-leaseback; the option expires on June
30, 1998.
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<PAGE> 22
(3) Lease expires October 31, 2000, with three renewal options of five years
each.
(4) Lease expires February 28, 2001, with no renewal options.
(5) Lease expires July 31, 2005, with ten renewal options of five years each.
(6) Lease expires July 31, 2003, with one renewal options of five years.
(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 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 is currently making
22
<PAGE> 23
monthly payments of $50,000 following payment in full of Harris Bank, and the
remaining balance due is $200,205, at January 31, 1998. 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.
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<PAGE> 24
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 1997 Annual Report.
- Consolidated Balance Sheets as of January 31, 1998, and February
1, 1997
- Consolidated Statements of Operations for the fiscal years ended
January 31, 1998, February 1, 1997 and February 3, 1996
- Consolidated Statements of Stockholders' Equity for the fiscal
years ended January 31, 1998, February 1, 1997 and February 3,
1996
- Consolidated Statements of Cash Flows for the fiscal years ended
January 31, 1998, February 1, 1997 and February 3, 1996
- Notes to Consolidated Financial Statements for fiscal years ended
January 31, 1998, February 1, 1997 and February 3, 1996.
B. The Report of Independent Auditors with respect to the financial
statements listed in A. above is also incorporated by reference
to the 1997 Annual Report.
(2) The following financial statement schedule is filed with this Annual
Report on Form 10-K:
- Schedule II -- Valuation and Qualifying Accounts.
(3) The following exhibits are filed herewith or incorporated by
reference as set forth below:
(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).
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<PAGE> 25
(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
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).
25
<PAGE> 26
(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 (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 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 (incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1997).
(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).
(10)(v)(b) Material Contracts -- Richman Gordman 1/2 Price Stores, Inc.
1997 Officer Incentive Program (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 1, 1997).
(10)(v)(c) Material Contracts -- Richman Gordman 1/2 Price Stores, Inc.
1997 Stock Option Plan (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended August 2, 1997).
26
<PAGE> 27
(10)(vi) Material Contracts -- Employment Agreement between Richman
Gordman 1/2 Price Stores, Inc. and Jeffrey J. Gordman, dated
February 1, 1997 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended February 1,
1997).
(10)(vii) Material Contracts -- Employment Agreement between Richman
Gordman 1/2 Price Stores, Inc. and James Cooke dated February 1,
1997 (incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended February 1, 1997).
(10)(viii) Material Contracts -- Employment Agreement between Richman
Gordman 1/2 Price Stores, Inc. and Don DeGraeve dated February
1, 1997.
(10)(ix) Material Contracts -- Employment Agreement between Richman
Gordman 1/2 Price Stores, Inc. and Norman Farrington, dated
February 1, 1997.
(10)(x) Material Contracts -- Reduced Hour Agreement between Richman
Gordman 1/2 Price Stores, Inc. and Dean Williamson dated
February 1, 1997.
(10)(xi) Material Contracts -- Employment Agreement between Richman
Gordman 1/2 Price Stores, Inc. and John W. Simkins dated
February 1, 1997.
(10)(xii) Material Contracts -- Executive Benefit Amendment Agreement
Between Richman Gordman 1/2 Price Stores, Inc. and Certain
Executive Officers dated August 27, 1997.
(10)(xiii) 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 (incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended February 1, 1997).
(10)(xiv) 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
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended February 1, 1997).
27
<PAGE> 28
(10)(xv) 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 (incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended February 1, 1997).
(11) Statement re computation of share earnings -- not applicable.
(12) Statements re computations of ratios -- not applicable.
(13) 1997 Annual Report.
(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.
(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).
28
<PAGE> 29
(b) Reports on Form 8-K. - The Company filed no Reports on Form 8-K during
the fourth quarter of fiscal year 1997.
[The remainder of this page intentionally left blank.]
29
<PAGE> 30
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 16, 1998 By: /s/ Jeffrey J. Gordman
--------------- ---------------------------------
Jeffrey J. Gordman
President and Chief Executive
Officer
Date: April 16, 1998 By: /s/ Michael A. Mallaro
-------------- ---------------------------------
Michael A. Mallaro
Vice President Finance and
Chief Financial Officer
30
<PAGE> 31
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/Jeffery J. Gordman April 16, 1998
----------------------
Jeffery J. Gordman
President and Chief Executive
Officer, Director
/s/ Paul M. Bass, Jr. April 16, 1998
---------------------
Paul M. Bass, Jr.
Chairman, Board of Directors
April , 1998
-------------------
Paul M. Buxbaum
Director
/s/ Jerome P. Gordman April 16, 1998
---------------------
Jerome P. Gordman
Director
/s/ Nelson T. Gordman April 16, 1998
---------------------
Nelson T. Gordman
Director
/s/ Thomas J. Noonan, Jr. April 16, 1998
-------------------------
Thomas J. Noonan, Jr.
Director
/s/ Philip Scheipe April 16, 1998
------------------
Philip Scheipe
Director
/s/ Seth J. Lehr April 16, 1998
----------------
Seth J. Lehr
Director
31
<PAGE> 32
FINANCIAL STATEMENT SCHEDULE INDEX
Item Page
---- ----
Schedule II -- Valuation and Qualifying Accounts 33
32
<PAGE> 33
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
33
<PAGE> 34
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 January 31, 1998 $587,150 $840,012 $(718,253) $708,909
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
</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.
34
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
(10)(viii) Material Contracts -- Employment 36
Agreement between Richman Gordman
1/2 Price Stores, Inc. and Don
DeGraeve dated February 1, 1997
(10)(ix) Material Contracts -- Employment 43
Agreement between Richman Gordman
1/2 Price Stores, Inc. and Norman
Farrington dated February 1, 1997
(10)(x) Material Contracts -- Reduced Hour 50
Agreement between Richman Gordman
1/2 Price Stores, Inc. and Edward Dean
Williamson dated February 1, 1997
(10)(xi) Material Contracts -- Employment 59
Agreement between Richman Gordman
1/2 Price Stores, Inc. and John Simkins
dated February 1, 1997
(10)(xii) Material Contracts -- Executive Benefit 66
Amendment Agreement between
Richman Gordman 1/2 Price Stores,
Inc. and Certain Executive Officers
dated August 27, 1997.
(13) Reports to securityholders -- 69
1997 Annual Report
(23) Consents of Experts -- Consent of Deloitte 109
& Touche L.L.P.
(27) Financial Data Schedule 110
</TABLE>
35
<PAGE> 1
EXHIBIT (10)(viii)
Material Contracts -- Employment Agreement
between Richman Gordman 1/2 Price Stores, Inc.
and Don DeGraeve dated February 1, 1997
36
<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
Donald L. DeGraeve ("Employee"), who resides at 12952 Seward Street, Omaha,
Nebraska 68154.
WHEREAS Employer has extended an offer of employment to Employee to serve
as the Vice President, General Merchandise Manager 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, General Merchandise Manager 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:
37
<PAGE> 3
<TABLE>
<CAPTION>
FISCAL YEAR ANNUAL SALARY
----------- -------------
<S> <C>
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
</TABLE>
Employee's salary shall be paid to Employee on a biweekly basis while this
Agreement shall be in force. Employer shall have the right to deduct from the
compensation and benefits payable to Employee under the provisions of this
Agreement all Social Security, federal and state taxes and charges as may now be
in effect or that may be enacted or required after the effective date of this
Agreement.
Employee shall also be entitled to and shall receive all other benefits and
conditions of employment available generally to other employees of Employer
employed at the same level and responsibility of Employee, provided that
eligibility requirements for each benefit program are satisfied. By way of
illustration, but not by way of limitation or guarantee, a description of such
benefits is set forth in Exhibits "A" and "B" which are attached hereto and are
incorporated herein by this reference.
4. BEST EFFORTS OF EMPLOYEE. Employee agrees that he will at all times
faithfully, industriously, and to the best of his ability, experience and
talents, perform all of the duties that may be required of and from him pursuant
to the express and implicit terms of this Agreement, to the reasonable
satisfaction of the Employer. Such duties shall be rendered at Employer's
principal office and at such other places as Employer shall in good faith
require or as the interest, needs, business or opportunity of Employer shall
require.
5. OTHER EMPLOYMENT. Employee shall devote all of his time, attention,
knowledge and skills solely to the business and interest of Employer, and
Employer shall be entitled to all of the benefits, profits or other issues
arising from or incident to all work, services and advice of Employee. Employee
shall not, during the term of this Agreement, be interested directly or
indirectly, in any manner, as a partner, officer, director, shareholder,
advisor, employee or in any other capacity in any other business similar to
Employer's business or any allied trade; provided, however, that nothing
contained in this provision shall be deemed to prevent or to limit the right of
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,
38
<PAGE> 4
material or important. Employer and Employee specifically and expressly agree
that such matters are important, material, confidential and gravely affect the
effective and successful conduct of the business of Employer and Employer's
goodwill, and that any breach of the terms of this provision shall be a material
breach of this Agreement. This provision shall survive termination of this
Agreement.
7. EMPLOYMENT POLICIES AND PROCEDURES. Employee agrees to abide by all of
Employer's employment polices and procedures that apply generally to other
employees at the same level and responsibility of Employee, as such policies and
procedures may be revised from time to time.
8. PERFORMANCE EVALUATION. Employee's performance shall be evaluated on an
annual basis. The results of the evaluations shall be discussed with Employee.
9. TERMINATION OF EMPLOYMENT. Employee may terminate his employment
pursuant to this Agreement after having provided Employer with thirty days'
written notice of his intention to terminate. Employer may terminate Employee's
employment at any time during the term of this Agreement for good cause. For
purposes of this Agreement, "good cause" for termination of employment is that
which a reasonable employer, acting in good faith, would regard as good and
sufficient reason for terminating the services of an employee, as distinguished
from an arbitrary whim or caprice. This definition includes, without limitation,
termination of employment due to Employee's poor performance or misconduct,
discontinuance of Employer's business or any significant portion thereof, or
Employee's violation of any provision of this Agreement. The employment of
Employee shall also cease upon the expiration of the term of this Agreement
unless Employer has, in writing, renewed this Agreement or Employer and Employee
have entered into a new agreement.
10. EMPLOYER'S OBLIGATION ON ITS TERMINATING EMPLOYEE'S EMPLOYMENT. If,
during the term of this Agreement, Employer terminates Employee's employment for
any reason other than Employee's misconduct or Employee's violation of any
provision of this Agreement, Employee will receive the Employee's then current
salary at the time the notice of termination is given for either six months
after termination or for the remainder of the 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 of 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
39
<PAGE> 5
intent, evil design or intentional and substantial disregard or Employer's
interests or of Employee's duties and obligations.
Employee shall not be entitled to any severance or payment beyond his last
day worked if Employee terminates his employment with Employer or if this
Agreement terminates upon the expiration on its three-year term.
Notwithstanding anything in this Agreement to the contrary, in the event
Employee breaches his obligations under this Agreement, including without
limitation Employee's obligations under Sections 6, 11 or 12, Employer shall
have no obligation to pay any severance benefits under this Section 10 and shall
be entitled to recover any severance benefits previously paid to Employee.
11. COOPERATION WITH EMPLOYER AFTER TERMINATION OF EMPLOYMENT. Following
the termination of Employee's employment, by either Employee or Employer,
Employee shall fully cooperate with Employer in all matters relating to the
continuation or completion of Employee's pending work on behalf of Employer and
the orderly transfer of any such pending work to other employees as may be
designated by Employer. Employer shall be entitled to such full-time or
part-time services of Employee as Employer may reasonably require during all or
any part of the 30-day period following any notice of termination of employment
by Employee.
12. EMPLOYER'S RELATIONSHIP WITH OTHER EMPLOYEES. Employer and Employee
agrees 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.
40
<PAGE> 6
15. AGREEMENT OUTSIDE OF CONTRACT. This Agreement contains the complete
agreement concerning the employment arrangement between Employer and Employee
and shall, as of the effective date hereof, supersede all other agreements
between Employer and Employee. Employer and Employee agree that neither of them
has made any representation with respect to the subject matter of this Agreement
except such representations as are specifically set forth in this Agreement.
Employer and Employee acknowledge that each of them have relied on their own
judgment in entering into this Agreement. Employer and Employee further
acknowledge that any payments or representations that may have been made by
either of them to the other prior to the date of executing this Agreement are of
no effect and that neither of them has relied thereon in connection with their
dealings with the other.
16. MODIFICATION OF AGREEMENT. Any modification of this Agreement or
additional obligations assumed by either Employer or Employee in connection with
this Agreement shall be binding only if evidenced in writing signed by both
Employer and Employee or their authorized representatives.
17. EFFECT OF PARTIAL INVALIDITY. The invalidity of any portion of this
Agreement shall not be deemed to affect the validity of any other provision of
this Agreement. In the event that any provision of this Agreement is held to be
invalid, Employer and Employee agree that the remaining provisions shall be
deemed to be in full force and effect as if they had been executed by both
parties subsequent to the expungement of the invalid provision.
18. CHOICE OF LAW AND FORUM. It is the intention of Employer and Employee
that this Agreement and any actions and special proceedings brought in
connection with this Agreement be construed in accordance with and pursuant to
the laws of the State of Nebraska, which shall govern to the exclusion of the
law of any other forum. Employer and Employee further agree that any action or
special proceeding that may be brought in connection with this Agreement shall
be brought in the State of Nebraska.
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.
41
<PAGE> 7
IN WITNESS WHEREOF, Employer and Employee have executed this Agreement on
the day and year first above written.
RICHMAN GORDMAN EMPLOYEE:
1/2 PRICE STORES, INC.
/s/ Jeffrey J. Gordman /s/ Donald L. DeGraeve
- ---------------------------------- --------------------------------
Jeffrey J. Gordman Donald L. DeGraeve
President and CE0 Employee
42
<PAGE> 1
EXHIBIT (10)(ix)
Material Contracts -- Employment Agreement
between Richman Gordman 1/2 Price Stores, Inc.
and Norman J. Farrington dated February 1, 1997
43
<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
Norman J. Farrington ("Employee"), who resides at 16 Judd Street, Council
Bluffs, Iowa 51503.
WHEREAS Employer has extended an offer of employment to Employee to serve
as the Vice President, Chief Information Officer of 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, Chief Information Officer for Employer, and
Employee hereby accepts and agrees to such hiring, engagement, and employment,
subject to the general supervision and pursuant to the orders, advice, and
direction of Employer. Employee shall perform such other duties as are
customarily performed by one holding such position in other, same, or similar
businesses or enterprises as that engaged in by Employer, and shall also
additionally render such other and unrelated services and duties as may be
assigned to Employee from time to time by Employer.
2. TERM OF EMPLOYMENT. This Agreement is effective 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:
44
<PAGE> 3
<TABLE>
<CAPTION>
FISCAL YEAR(S) ANNUAL SALARY
-------------- -------------
<S> <C>
1997 $120,000
1998 and 1999 To be set by Company's Chief Executive
Officer and approved by Compensation
Committee and Board of Directors at a
level not less than the 1997 fiscal year
salary
</TABLE>
Employee's salary shall be paid to Employee on a biweekly basis while this
Agreement shall be in force. Employer shall have the right to deduct from the
compensation and benefits payable to Employee under the provisions of this
Agreement all Social Security, federal and state taxes and charges as may now be
in effect or that may be enacted or required after the effective date of this
Agreement.
Employee shall also be entitled to and shall receive all other benefits and
conditions of employment available generally to other employees of Employer
employed at the same level and responsibility of Employee, provided that
eligibility requirements for each benefit program are satisfied. By way of
illustration, but not by way of limitation or guarantee, a description of such
benefits is set forth in Exhibits "A" and "B" which are attached hereto and are
incorporated herein by this reference.
4. BEST EFFORTS OF EMPLOYEE. Employee agrees that he will at all times
faithfully, industriously, and to the best of his ability, experience and
talents, perform all of the duties that may be required of and from him pursuant
to the express and implicit terms of this Agreement, to the reasonable
satisfaction of the Employer. Such duties shall be rendered at Employer's
principal office and at such other places as Employer shall in good faith
require or as the interest, needs, business or opportunity of Employer shall
require.
5. OTHER EMPLOYMENT. Employee shall devote all of his time, attention,
knowledge and skills solely to the business and interest of Employer, and
Employer shall be entitled to all of the benefits, profits or other issues
arising from or incident to all work, services and advice of Employee. Employee
shall not, during the term of this Agreement, be interested directly or
indirectly, in any manner, as a partner, officer, director, shareholder,
advisor, employee or in any other capacity in any other business similar to
Employer's business or any allied trade; provided, however, that nothing
contained in this provision shall be deemed to prevent or to limit the right of
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
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<PAGE> 4
business of Employer, its manner of operation, its plans, processes or other
data, without regard to whether all of the above-stated matters are generally
deemed to be confidential, material or important. Employer and Employee
specifically and expressly agree that such matters are important, material,
confidential and gravely affect the effective and successful conduct of the
business of Employer and Employer's goodwill, and that any breach of the terms
of this provision shall be a material breach of this Agreement. This provision
shall survive termination of this Agreement.
7. EMPLOYMENT POLICIES AND PROCEDURES. Employee agrees to abide by all of
Employer's employment polices and procedures that apply generally to other
employees at the same level and responsibility of Employee, as such policies and
procedures may be revised from time to time.
8. PERFORMANCE EVALUATION. Employee's performance shall be evaluated on an
annual basis. The results of the evaluations shall be discussed with Employee.
9. TERMINATION OF EMPLOYMENT. Employee may terminate his employment
pursuant to this Agreement after having provided Employer with thirty days'
written notice of his intention to terminate. Employer may terminate Employee's
employment at any time during the term of this Agreement for good cause. For
purposes of this Agreement, "good cause" for termination of employment is that
which a reasonable employer, acting in good faith, would regard as good and
sufficient reason for terminating the services of an employee, as distinguished
from an arbitrary whim or caprice. This definition includes, without limitation,
termination of employment due to Employee's poor performance or misconduct,
discontinuance of Employer's business or any significant portion thereof, or
Employee's violation of any provision of this Agreement. The employment of
Employee shall also cease upon the expiration of the term of this Agreement
unless Employer has, in writing, renewed this Agreement or Employer and Employee
have entered into a new agreement.
10. EMPLOYER'S OBLIGATION ON ITS TERMINATING EMPLOYEE'S EMPLOYMENT. If,
during the term of this Agreement, Employer terminates Employee's employment for
any reason other than Employee's misconduct or Employee's violation of any
provision of this Agreement, Employee will receive the Employee's then current
salary at the time the notice of termination is given for either six months
after termination or for the remainder of the 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)
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<PAGE> 5
wanton or willful disregard of Employer's interests, (b) deliberate violation
Employer's rules, policies or procedures, (c) disregard of standards of behavior
which Employer can rightfully expect from Employee, or (d) negligence which
manifests culpability, wrongful intent, evil design or intentional and
substantial disregard or Employer's interests or of Employee's duties and
obligations.
Employee shall not be entitled to any severance or payment beyond his last
day worked if Employee terminates his employment with Employer or if this
Agreement terminates upon the expiration on its three-year term.
Notwithstanding anything in this Agreement to the contrary, in the event
Employee breaches his obligations under this Agreement, including without
limitation Employee's obligations under Sections 6, 11 or 12, Employer shall
have no obligation to pay any severance benefits under this Section 10 and shall
be entitled to recover any severance benefits previously paid to Employee.
11. COOPERATION WITH EMPLOYER AFTER TERMINATION OF EMPLOYMENT. Following
the termination of Employee's employment, by either Employee or Employer,
Employee shall fully cooperate with Employer in all matters relating to the
continuation or completion of Employee's pending work on behalf of Employer and
the orderly transfer of any such pending work to other employees as may be
designated by Employer. Employer shall be entitled to such full-time or
part-time services of Employee as Employer may reasonably require during all or
any part of the 30-day period following any notice of termination of employment
by Employee.
12. EMPLOYER'S RELATIONSHIP WITH OTHER EMPLOYEES. Employer and Employee
agree that any attempt on the part of Employee to induce others to leave the
employ of Employer, or any effort by Employee to interfere with Employer's
relationship with other employees, will be harmful and damaging to Employer.
Employee therefore expressly agrees that during the term of this Agreement and
for a period of two years thereafter, he will not in any way, directly or
indirectly (a) induce or attempt to induce any employee to quit employment with
Employer, (b) interfere with or disrupt Employer's relationship with other
employees, or (c) employ or attempt to employ any person employed by Employer.
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
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<PAGE> 6
or other business entity that succeeds to the business of Employer through
merger, consolidation, corporate re-organization or by acquisition of all or
substantially all of the assets of Employer, and which assumes Employer's
obligations under this Agreement.
15. AGREEMENT OUTSIDE OF CONTRACT. This Agreement contains the complete
agreement concerning the employment arrangement between Employer and Employee
and shall, as of the effective date hereof, supersede all other agreements
between Employer and Employee. Employer and Employee agree that neither of them
has made any representation with respect to the subject matter of this Agreement
except such representations as are specifically set forth in this Agreement.
Employer and Employee acknowledge that each of them have relied on their own
judgment in entering into this Agreement. Employer and Employee further
acknowledge that any payments or representations that may have been made by
either of them to the other prior to the date of executing this Agreement are of
no effect and that neither of them has relied thereon in connection with their
dealings with the other.
16. MODIFICATION OF AGREEMENT. Any modification of this Agreement or
additional obligations assumed by either Employer or Employee in connection with
this Agreement shall be binding only if evidenced in writing signed by both
Employer and Employee or their authorized representatives.
17. EFFECT OF PARTIAL INVALIDITY. The invalidity of any portion of this
Agreement shall not be deemed to affect the validity of any other provision of
this Agreement. In the event that any provision of this Agreement is held to be
invalid, Employer and Employee agree that the remaining provisions shall be
deemed to be in full force and effect as if they had been executed by both
parties subsequent to the expungement of the invalid provision.
18. CHOICE OF LAW AND FORUM. It is the intention of Employer and Employee
that this Agreement and any actions and special proceedings brought in
connection with this Agreement be construed in accordance with and pursuant to
the laws of the State of Nebraska, which shall govern to the exclusion of the
law of any other forum. Employer and Employee further agree that any action or
special proceeding that may be brought in connection with this Agreement shall
be brought in the State of Nebraska.
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.
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<PAGE> 7
20. NO WAIVER. The failure of either Employer or Employee to insist upon
the performance of any of the terms and provisions of this Agreement, or the
waiver of any breach of any of the terms or provisions of this Agreement, shall
not be construed as thereafter waiving any such terms and provisions, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
IN WITNESS WHEREOF, Employer and Employee have executed this Agreement as
of the day and year first above written.
RICHMAN GORDMAN EMPLOYEE:
1/2 PRICE STORES, INC.
/s/ Jeffrey J. Gordman /s/ Norman J. Farrington
---------------------------- ------------------------------
Jeffrey J. Gordman Norman J. Farrington
President and CE0
49
<PAGE> 1
EXHIBIT (10)(x)
Material Contracts -- Reduced Hour Agreement
between Richman Gordman 1/2 Price Stores, Inc.
and Dean Williamson dated February 1, 1997
50
<PAGE> 2
REDUCED HOUR AGREEMENT
This Reduced Hour Agreement (the "Agreement") is entered into 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 (the "Company") and Dean Williamson (the
"Employee"), who resides at 6131 S. 102nd Avenue, Omaha, Nebraska 68127.
WHEREAS, the Company and the Employee entered into an Employment Agreement
as of January 18, 1995 (the "Employment Agreement"), whereby the Employee was
employed to serve as Vice President of Human Resources for the Company on a
full-time basis for a term of three years; and
WHEREAS, since the time the Employment Agreement was entered into, the
Employee has begun the study of law on a part-time basis; and
WHEREAS, the Company and the Employee desire to terminate the Employment
Agreement and to provide for the terms and conditions under which the Employee
may continue his employment with the Company while attending law school;
NOW, THEREFORE, the parties agree as follows:
1. REDUCED HOURS EMPLOYMENT. The Employee shall continue to serve, at the
discretion of the Company, as the Vice President of Human Resources while he
attends law school at Creighton University School of Law on a part-time basis.
During such part-time status, he shall be available at the offices of the
Company whenever possible during normal work hours and, in any event, not less
than 35 hours per week. The Employee shall be responsible for fulfilling his
duties as Vice President of Human Resources notwithstanding his reduced hours.
2. COMPENSATION. During the time that this Agreement is in effect, the
Employee shall receive a base salary of $115,000. The Employee shall also
receive the fringe benefits reflected on Exhibit A to this Agreement and shall
be permitted to participate in the Company's cash incentive program for fiscal
year 1997, the terms of which are described in Exhibit B to this Agreement (the
"Cash Incentive Plan"). Solely for purposes of the Cash Incentive Plan, the
Employee shall be deemed to be a full-time employee participant. During the term
of this Agreement, the Employee shall not be eligible to participate in any
stock option plan adopted by the Company.
3. REIMBURSEMENTS TO COMPANY. For the school year which commenced August,
1996, and for each school year thereafter that this Agreement is in effect, the
Company will pay one-half of the Employee's tuition, plus one-half of related
school expenses not to exceed $5,000 in the aggregate (together, the "School
Expenses"). As agreed between the Employee and the Company, the Employee is
responsible for repaying to the Company the sum of $20,000 per school year,
which amount represents the
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<PAGE> 3
amount of tuition and expenses paid by the Company and the reduced hours of the
Employee. The Employee has executed and delivered to the Company a note in the
principal amount of $20,000 for the school year commencing August, 1996, and
will execute a note for each succeeding school year during the time that this
Agreement is in effect. Each such note (together, the "Notes") will bear
interest at the rate of 8% per annum and will mature on August 15, 2001, as set
forth in the form of note attached as Exhibit C to this Agreement.
4. TERMINATION. The Company may terminate this Agreement at any time by
giving the Employee written notice at least four (4) weeks prior to the
beginning of a school semester. At such time the Company shall have the right,
but not the obligation, to propose an employment agreement whereby the Employee
would again become a full-time employee of the Company.
5. AT WILL CONTRACT. This Agreement reflects that the Employee is an
employee at will of the Company. In the event that the Employee elects to
resign, the Employee shall be entitled only to the unpaid portion of base salary
and fringe benefits through the termination date, plus any accrued and unpaid
vacation pay. In the event that the Company elects to terminate the Employee,
the Employee shall be entitled (in addition to the benefits specified in the
preceding sentence) to other termination benefits, if any, which the Company
provides to terminated employees at the vice president level pursuant to the
Company's written policies (but not pursuant to employment agreements applicable
to specific vice presidents).
6. CANCELLATION, ACCELERATION OF NOTES. The Notes will be canceled in whole
or in part upon the occurrence of certain events, as indicated below:
(a) Upon termination of this arrangement by the Company pursuant to
Paragraph 4 above prior to the earlier of the Employee's graduation
from law school or August 15, 2001, all principal and accrued
interest on the Notes will be canceled.
(b) Upon termination of the Employee's law school education prior to
graduation at the choice of the Employee, the principal and accrued
interest on the Notes will be canceled at such time as the Employee
has completed full-time employment with the Company equal to the
number of months as the Employee had worked reduced hours while
attending law school, in each case rounded to six-month increments.
(c) Upon the Employee's graduation from law school, one-third of the
aggregate principal and accrued interest on the Notes will be
canceled for each full year of full-time employment that the Employee
works for the Company following such graduation.
(d) The aggregate principal and accrued interest on the Notes will also
be canceled in the event that (i) the Company terminates the Employee
without cause, or (ii)
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<PAGE> 4
the Company ceases operations, or (iii) upon written approval of the
Chief Executive Officer of the Company. For purposes of this
paragraph, "cause" means a reason which a reasonable employer, acting
in good faith, would regard as good and sufficient reason for
terminating the services of an employee, as distinguished from an
arbitrary whim or caprice. "Cause" includes, without limitation,
termination of employment as a result of the Employee's poor
performance or misconduct or his breach of this Agreement.
(e) The aggregate principal and accrued interest on the Notes will also
be canceled in the event that, while the Employee is still employed
by the Company, the Employee dies or becomes permanently disabled, as
described in Paragraph 12 below.
The Notes may be accelerated at the option of the Company in the event that
the Employee is terminated for misconduct or voluntarily terminates his
employment with the Company other than under the circumstances described in
subparagraph (d)(ii) above. For purposes of this paragraph, "misconduct" means
behavior by the Employee which evidences (aa) wanton or willful disregard of the
Company's interests; (bb) deliberate violation of the Company's rules, policies,
or procedures; (cc) disregard of standards of behavior which the Company can
rightfully expect from the Employee; or (dd) negligence which manifests
culpability, wrongful intent, evil design, or intentional and substantial
disregard of the Company's interests or of the Employee's duties and
obligations.
7. TERMINATION OF EMPLOYMENT AGREEMENT. Upon the execution and delivery of
this Agreement, the Employment Agreement shall terminate in its entirety as if
the termination date thereof had been amended to February 1, 1997, and the
Employment Agreement shall be of no further force and effect. Thereafter, all
rights and obligations between the Company and the Employee will be determined
in accordance with this Agreement.
8. EMPLOYMENT POLICIES AND PROCEDURES. The Employee agrees to abide by all
of the Company's employment policies and procedures that apply generally to
other employees at the same level and responsibility of the Employee, as such
policies and procedures may be revised from time to time.
9. PERFORMANCE EVALUATION. The Employee's performance shall be evaluated on
an annual basis. The results of the evaluations shall be discussed with the
Employee.
10. COOPERATION WITH EMPLOYER AFTER TERMINATION OF EMPLOYMENT. Following
the termination of the Employee's employment, by either the Employee or the
Company, the Employee shall fully cooperate with the Company in all matters
relating to the continuation or completion of the Employee's pending work on
behalf of the Employer and the orderly transfer of any such pending work to
other employees as may be designated by the Company. The Company shall be
entitled to such full-time or part-time services of the Employee as the Company
may reasonably require during all or any
53
<PAGE> 5
part of the 30-day period following any notice of termination of employment by
the Employee.
11. EMPLOYEE'S RELATIONSHIP WITH OTHER EMPLOYEES. The Company and the
Employee agree that any attempt on the part of the Employee to induce others to
leave the employ of the Company, or any effort by the Employee to interfere with
the Company's relationship with other employees, will be harmful and damaging to
the Company. The Employee therefore expressly agrees that, in consideration of
the Company's willingness to enter into this Reduced Hours Agreement, 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 the Company, (b) interfere with or disrupt the Company's
relationship with other employees, or (c) employ or attempt to employ any person
employed by the Company.
12. TERMINATION BY DEATH OR INCAPACITY OF EMPLOYEE. This Agreement shall
terminate immediately if the Employee dies or becomes permanently disabled. As
used in this Agreement, "permanently disabled" is defined as the inability of
the Employee to perform the essential functions of his position, either with or
without reasonable accommodation, for a period extending beyond six months. In
the event of such death or permanent disability, Subparagraph 6(e) will survive
the termination of this Agreement.
13. ASSUMPTION AND MERGER. The rights and duties of the Company and the
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 the
Company to any corporation or other business entity that succeeds to the
business of the Company through merger, consolidation, corporate re-organization
or by acquisition of all or substantially all of the assets of the Company, and
which assumes the Company's obligations under this Agreement.
14. AGREEMENT OUTSIDE OF CONTRACT. This Agreement contains the complete
agreement concerning the employment arrangement between the Company and the
Employee and shall, as of the effective date hereof, supersede all other
agreements between them. The Company and the 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. The
Company and the Employee acknowledge that each of them has relied on its or his
own judgment in entering into this Agreement. The Company and the Employee
further acknowledge that any payments or representations that may have been made
by either of them to the other prior to the date of executing this Agreement are
of no effect and that neither of them has relied thereon in connection with
their dealings with the other.
15. MODIFICATION OF AGREEMENT. Any modification of this Agreement or
additional obligations assumed by either the Company or the Employee in
connection with
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<PAGE> 6
this Agreement shall be binding only if evidenced in writing signed by both the
Company and the Employee or their authorized representatives.
16. 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, the Company and the 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.
17. CHOICE OF LAW AND FORUM. It is the intention of the Company and the
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. The Company and the 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.
18. ARBITRATION. Any differences, claims or matters in dispute between the
Company and the 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.
19. NO WAIVER. The failure of either the Company or the 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, the Company and the Employee have executed this
Agreement as of the day and year first above written.
RICHMAN GORDMAN EMPLOYEE:
1/2 PRICE STORES, INC.
/s/ Jeffrey J. Gordman /s/ Dean Williamson
---------------------------- -----------------------------
Jeffrey J. Gordman Dean Williamson
President and CE0
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<PAGE> 7
EXHIBIT "C"
PROMISSORY NOTE
Omaha, Nebraska $20,000.00
_______________ August 15, 2001
(Note Date) (Maturity Date)
DEAN WILLIAMSON ("Maker") promises to pay to the order of RICHMAN GORDMAN
1/2 PRICE STORES, INC. ("Lender") at the offices of Lender the principal sum of
$20,000.00. Principal and interest on the unpaid principal balance shall be due
at maturity, or if such day is not a Business Day, on the next succeeding
Business Day. All capitalized terms not defined herein shall have the meanings
set forth in that certain Reduced Hour Agreement dated as of February 1, 1997,
between Maker as Employee and Lender as Employer (the "Agreement".)
Interest shall accrue on the principal sum hereof from and including the
Note Date above until paid at the rate of 8%. After the maturity date hereof,
interest shall be due at the rate of 10%. Interest shall be calculated on the
basis of actual days elapsed and a year of 365 days.
This Promissory Note (the "Note) is one of the promissory notes specified
in the Agreement and is subject to being accelerated or canceled in accordance
with the terms of the Agreement.
Maker's liability under its obligations hereunder shall not be affected by
any of the following:
Acceptance or retention by Lender of property or interests as
security for the obligations, or for the liability of any person other than
a Maker with respect to the obligations;
The release of all or any collateral or other security for any of the
obligations;
or
Any release, extension, renewal, modification or compromise of any of
the obligations or the liability of Maker.
Maker agrees to pay all costs of collection in connection with this Note,
including reasonable attorneys' fees and legal expenses.
Upon the failure of Maker to make any payment of principal or interest when
due hereunder all of the Obligations shall, at the option of Lender and without
notice or demand, mature and become immediately due and payable; and Lender
shall have all rights and remedies for default provided by applicable law and
equity.
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<PAGE> 8
All costs and expenses incurred by Lender in enforcing its rights under
this Note or any agreement given in security thereof are the obligations of
Maker and are immediately due and payable. Interest shall accrue on such costs
and expenses from the date of incurrence at the rate specified herein for
delinquent Note payments. Maker hereby waives presentment, protest, demand,
notice of dishonor, and the defense of any statute of limitations.
Without affecting the liability of any Maker, endorser, surety or
guarantor, the holder of this Note may, without notice, renew or extend the time
for payment, accept partial payments, release or impair any collateral or other
security for the payment of this Note or agree not to sue any party liable on
it.
Lender shall not be deemed to have waived any of its rights upon or under
this Note, or under any agreement given in security therefor, unless such
waivers be in writing and signed by Lender or Agent, as the case may be. No
delay or omission on the part of Lender in exercising any right shall operate as
a waiver of such right or any other right. A waiver on any one occasion shall
not be construed as a bar to or waiver of any right on any future occasion. All
rights and remedies of Lender on liabilities or any collateral, whether
evidenced hereby or by any other instrument or papers, shall be cumulative and
may be exercised singularly or concurrently.
Subject to the cancellation provisions set forth in the Agreement, this
Note shall be binding upon the heirs, executors, administrators, assigns or
successors of Maker; shall constitute a continuing agreement, applying to all
future as well as existing transactions, whether or not of the character
contemplated at the date of this Note, and if all transactions between Lender
and Maker shall be at any time closed, shall be equally applicable to any new
transactions thereafter, provided that Lender's interest in any collateral shall
be limited to the extent provided in the applicable security agreement; shall
benefit Lender, its successors and assigns; and shall so continue in force
notwithstanding any change in any party hereto, whether such change occurs
through death, retirement or otherwise.
All obligations of Maker hereunder shall be payable in immediately
available funds in lawful money of the United States of America at the principal
office of Lender or at such other address as may be designated by any subsequent
holder hereof in writing.
This Note shall be construed according to the laws of the State of
Nebraska.
Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
57
<PAGE> 9
Executed as of this _____ day of ________________, 19_____.
DEAN WILLIAMSON
______________________________
58
<PAGE> 1
EXHIBIT (10)(xi)
Material Contracts -- Employment Agreement
between Richman Gordman 1/2 Price Stores, Inc.
and John Simkins dated February 1, 1997
59
<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 John W. Simkins ("Employee"), who resides at 2448 North 147th
Street, Omaha, Nebraska 68164.
WHEREAS Employer has extended an offer of employment to Employee to
serve as the Vice President of Distribution for Employer, subject to the terms
and provisions set forth in this Agreement; and
WHEREAS Employee accepts employment on the terms and provisions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises set forth in
this Agreement, the Employer and Employee agree as follows:
1. EMPLOYMENT. Employer hereby employs, engages, and hires Employee to
serve as the Vice President of Distribution 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:
60
<PAGE> 3
<TABLE>
<CAPTION>
FISCAL YEAR(S) ANNUAL SALARY
- --------------- ----------------------------------------------------
<S> <C>
1997 $120,000
1998 and 1999 To be set by Company's Chief Executive Officer
and approved by Compensation Committee and
Board of Directors at a level not less than the 1997
fiscal year salary
</TABLE>
Employee's salary shall be paid to Employee on a biweekly basis while
this Agreement shall be in force. Employer shall have the right to deduct from
the compensation and benefits payable to Employee under the provisions of this
Agreement all Social Security, federal and state taxes and charges as may now be
in effect or that may be enacted or required after the effective date of this
Agreement.
Employee shall also be entitled to and shall receive all other benefits
and conditions of employment available generally to other employees of Employer
employed at the same level and responsibility of Employee, provided that
eligibility requirements for each benefit program are satisfied. By way of
illustration, but not by way of limitation or guarantee, a description of such
benefits is set forth in Exhibits "A" and "B" which are attached hereto and are
incorporated herein by this reference.
4. BEST EFFORTS OF EMPLOYEE. Employee agrees that he will at all times
faithfully, industriously, and to the best of his ability, experience and
talents, perform all of the duties that may be required of and from him pursuant
to the express and implicit terms of this Agreement, to the reasonable
satisfaction of the Employer. Such duties shall be rendered at Employer's
principal office and at such other places as Employer shall in good faith
require or as the interest, needs, business or opportunity of Employer shall
require.
5. OTHER EMPLOYMENT. Employee shall devote all of his time, attention,
knowledge and skills solely to the business and interest of Employer, and
Employer shall be entitled to all of the benefits, profits or other issues
arising from or incident to all work, services and advice of Employee. Employee
shall not, during the term of this Agreement, be interested directly or
indirectly, in any manner, as a partner, officer, director, shareholder,
advisor, employee or in any other capacity in any other business similar to
Employer's business or any allied trade; provided, however, that nothing
contained in this provision shall be deemed to prevent or to limit the right of
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,
61
<PAGE> 4
material or important. Employer and Employee specifically and expressly agree
that such matters are important, material, confidential and gravely affect the
effective and successful conduct of the business of Employer and Employer's
goodwill, and that any breach of the terms of this provision shall be a material
breach of this Agreement. This provision shall survive termination of this
Agreement.
7. EMPLOYMENT POLICIES AND PROCEDURES. Employee agrees to abide by all
of Employer's employment polices and procedures that apply generally to other
employees at the same level and responsibility of Employee, as such policies and
procedures may be revised from time to time.
8. PERFORMANCE EVALUATION. Employee's performance shall be evaluated on
an annual basis. The results of the evaluations shall be discussed with
Employee.
9. TERMINATION OF EMPLOYMENT. Employee may terminate his employment
pursuant to this Agreement after having provided Employer with thirty days'
written notice of his intention to terminate. Employer may terminate Employee's
employment at any time during the term of this Agreement for good cause. For
purposes of this Agreement, "good cause" for termination of employment is that
which a reasonable employer, acting in good faith, would regard as good and
sufficient reason for terminating the services of an employee, as distinguished
from an arbitrary whim or caprice. This definition includes, without limitation,
termination of employment due to Employee's poor performance or misconduct,
discontinuance of Employer's business or any significant portion thereof, or
Employee's violation of any provision of this Agreement. The employment of
Employee shall also cease upon the expiration of the term of this Agreement
unless Employer has, in writing, renewed this Agreement or Employer and Employee
have entered into a new agreement.
10. EMPLOYER'S OBLIGATION ON ITS TERMINATING EMPLOYEE'S EMPLOYMENT. If,
during the term of this Agreement, Employer terminates Employee's employment for
any reason other than Employee's misconduct or Employee's violation of any
provision of this Agreement, Employee will receive the Employee's then current
salary at the time the notice of termination is given for either six months
after termination or for the remainder of the 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
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<PAGE> 5
rightfully expect from Employee, or (d) negligence which manifests culpability,
wrongful intent, evil design or intentional and substantial disregard or
Employer's interests or of Employee's duties and obligations.
Employee shall not be entitled to any severance or payment beyond his
last day worked if Employee terminates his employment with Employer or if this
Agreement terminates upon the expiration on its three-year term.
Notwithstanding anything in this Agreement to the contrary, in the
event Employee breaches his obligations under this Agreement, including without
limitation Employee's obligations under Sections 6, 11 or 12, Employer shall
have no obligation to pay any severance benefits under this Section 10 and shall
be entitled to recover any severance benefits previously paid to Employee.
11. COOPERATION WITH EMPLOYER AFTER TERMINATION OF EMPLOYMENT.
Following the termination of Employee's employment, by either Employee or
Employer, Employee shall fully cooperate with Employer in all matters relating
to the continuation or completion of Employee's pending work on behalf of
Employer and the orderly transfer of any such pending work to other employees as
may be designated by Employer. Employer shall be entitled to such full-time or
part-time services of Employee as Employer may reasonably require during all or
any part of the 30-day period following any notice of termination of employment
by Employee.
12. EMPLOYER'S RELATIONSHIP WITH OTHER EMPLOYEES. Employer and Employee
agree that any attempt on the part of Employee to induce others to leave the
employ of Employer, or any effort by Employee to interfere with Employer's
relationship with other employees, will be harmful and damaging to Employer.
Employee therefore expressly agrees that during the term of this Agreement and
for a period of two years thereafter, he will not in any way, directly or
indirectly (a) induce or attempt to induce any employee to quit employment with
Employer, (b) interfere with or disrupt Employer's relationship with other
employees, or (c) employ or attempt to employ any person employed by Employer.
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.
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<PAGE> 6
15. AGREEMENT OUTSIDE OF CONTRACT. This Agreement contains the complete
agreement concerning the employment arrangement between Employer and Employee
and shall, as of the effective date hereof, supersede all other agreements
between Employer and Employee. Employer and Employee agree that neither of them
has made any representation with respect to the subject matter of this Agreement
except such representations as are specifically set forth in this Agreement.
Employer and Employee acknowledge that each of them have relied on their own
judgment in entering into this Agreement. Employer and Employee further
acknowledge that any payments or representations that may have been made by
either of them to the other prior to the date of executing this Agreement are of
no effect and that neither of them has relied thereon in connection with their
dealings with the other.
16. MODIFICATION OF AGREEMENT. Any modification of this Agreement or
additional obligations assumed by either Employer or Employee in connection with
this Agreement shall be binding only if evidenced in writing signed by both
Employer and Employee or their authorized representatives.
17. EFFECT OF PARTIAL INVALIDITY. The invalidity of any portion of this
Agreement shall not be deemed to affect the validity of any other provision of
this Agreement. In the event that any provision of this Agreement is held to be
invalid, Employer and Employee agree that the remaining provisions shall be
deemed to be in full force and effect as if they had been executed by both
parties subsequent to the expungement of the invalid provision.
18. CHOICE OF LAW AND FORUM. It is the intention of Employer and
Employee that this Agreement and any actions and special proceedings brought in
connection with this Agreement be construed in accordance with and pursuant to
the laws of the State of Nebraska, which shall govern to the exclusion of the
law of any other forum. Employer and Employee further agree that any action or
special proceeding that may be brought in connection with this Agreement shall
be brought in the State of Nebraska.
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
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<PAGE> 7
thereafter waiving any such terms and provisions, but the same shall continue
and remain in full force and effect as if no such forbearance or waiver had
occurred.
IN WITNESS WHEREOF, Employer and Employee have executed this Agreement
as of the day and year first above written.
RICHMAN GORDMAN EMPLOYEE:
1/2 PRICE STORES, INC.
/s/ Jeffrey J. Gordman /s/ John W. Simkins
- -------------------------- -----------------------------
Jeffrey J. Gordman John W. Simkins
President and CE0 Employee
65
<PAGE> 1
Exhibit (10)(xii)
Material Contracts -- Executive Benefit Amendment Agreement
between Richman Gordman 1/2 Price Stores, Inc. and
Certain Executive Officers dated August 27, 1997.
66
<PAGE> 2
EXECUTIVE BENEFIT
AMENDMENT AGREEMENT
This Executive Benefit Amendment Agreement (the "Agreement") is made as
of August 1, 1997 among the Company and the officers (the "Officers" and, as to
each signatory hereto, an "Officer") of RICHMAN GORDMAN 1/2 PRICE STORES, INC.,
(the "Company").
WHEREAS, the Company has amended its executive benefits plans upon the
recommendation of the Officers; and
WHEREAS, each of the Officers is party to an employment-related
agreement (an "Employment Agreement") between the Officer and the Company; and
WHEREAS, the Company and the Officers desire to amend the Employment
Agreements to conform to the amended executive benefit plan;
NOW, THEREFORE, the undersigned Officers hereby acknowledge and agree
that, effective as of August 1, 1997, the following changes shall apply to
executive fringe benefits available to such Officers under general benefit plans
provided by the Company or under the Employment Agreements:
(a) Benefits in connection with health insurance, dental
insurance, life insurance and medical reimbursement will be no greater
than those provided to all other [salaried] associates. In this regard,
the Executive Reimbursement Account benefit has been terminated.
(b) The Company will no longer pay the initiation fee or dues
for Prairie Life Health Club memberships.
DATED as of August 27, 1997.
/s/ Jeffrey J. Gordman
-----------------------------
Jeffrey J. Gordman
/s/ Michael A. Mallaro
-----------------------------
Michael A. Mallaro
/s/ Dean Williamson
-----------------------------
Dean Williamson
67
<PAGE> 3
/s/ James H. Cooke
-----------------------------
James H. Cooke
/s/ Ronald Kent Hall
-----------------------------
Ronald Kent Hall
/s/ John W. Simkins
-----------------------------
John W. Simkins
/s/ Norman J. Farrington
-----------------------------
Norman J. Farrington
/s/ Donald L. DeGraeve
-----------------------------
Donald L. DeGraeve
68
<PAGE> 1
Exhibit (13)
Reports to securityholders --
1997 Annual Report
69
<PAGE> 2
CORPORATE PROFILE
Richman Gordman 1/2 Price Stores, Inc. ("the Company"), headquartered in Omaha,
Nebraska, operates a chain of 31 off-price department stores located in eight
Midwestern states. The Company's stores trade under the name "1/2 Price Store".
The 1/2 Price Store concept is to offer top quality, name brand merchandise at
up to 50% off department and specialty store regular prices every day.
The Company is uniquely positioned vis-a-vis other off-price retailers, discount
store chains and traditional department stores, 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.
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. Additionally,
over two-thirds of the Company's sales are generated by apparel and
apparel-related merchandise, while non- apparel categories represent the
majority of most discount stores' revenue base.
A 1/2 Price Store is organized with clearly identifiable "shops" similar to a
department store. The merchandise presentation and visual displays of a 1/2
Price Store are significantly more appealing and easier to shop than a typical
off-price store, which tends to simply display merchandise by size on long
straight chrome racks.
The Company's origins date back to the early 1900's, when Russian immigrant 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 Stores 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 concept.
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
Letter from the C.E.O. ............................................... 2
Progress Report ...................................................... 4
Products and Services ................................................ 7
Selected Financial Data .............................................. 16
Management's Discussion
and Analysis ...................................................... 17
Financial Statements ................................................. 24
Shareholder Information .............................................. 39
70
<PAGE> 3
TO OUR SHAREHOLDERS, EMPLOYEES, VENDORS AND FRIENDS:
I am pleased to report that our Company dramatically improved its bottom line
performance, cash flow from operations and asset productivity in 1997. This
improvement was achieved by maintaining a rigorous focus on the Company's
mission, which is based on a differentiated selling proposition of value that
was developed subsequent to the management changeover in mid-1996. Specifically,
our selling proposition is to offer our customers top quality brand name
merchandise at prices up to one half off department and specialty store regular
prices in visually appealing, well organized and easy to shop stores. In
addition, aggressive and disciplined management of merchandise inventories and
selling, general and administrative expenses has contributed to our enhanced
performance.
Prior to the change in direction in mid-1996, the Company faced several
fundamental problems, including a protracted deterioration in comparable store
sales, negative cash flow, significant operating losses and a lack of
credibility in our merchandise mix and pricing. To correct these deficiencies,
the Company implemented a set of strategic initiatives to:
- dramatically strengthen its portfolio of brand names;
- revise its marketing strategy to generate sales by focusing on
the inherent value of desirable name brands at up to 50% off
regular prices rather than by offering discounts off everyday
prices;
- significantly upgrade the quality of the in-store
presentation;
- refocus on ensuring that customer satisfaction is a top
priority among all store associates; and
- instill a high degree of discipline and control over
inventories and the cost structure.
The significant improvements in operating cash flow, earnings and comparable
store sales that were realized in 1997 validate the appropriateness of these
initiatives. Our Company almost tripled its operating cash flow last year,
improving from $3.2 million in 1996 to $8.7 million in 1997. This performance
was primarily attributable to an improvement in inventory turnover from 2.8
times in 1996 to 3.4 times in 1997. Average inventory levels in 1997 were 20%
below 1996 levels. In addition, liquidity was enhanced by improving the terms of
our line of credit with Congress Financial and by achieving improvements in
trade credit terms. As a result of these improvements, our average level of
unused availability on our line of credit was over $9 million in 1997, and never
fell below $5 million at any point throughout the year.
<PAGE> 4
We substantially reduced our net loss in 1997 to $1.0 million from a $5.6
million loss (before extraordinary item) in the previous year. The Company
produced a net income of $4.5 million in the second half of the year, which
represents nearly a seven-fold increase over the net income (before
extraordinary item) of $667,000 in fiscal 1996. This improvement for the year
was attributable to an increase in gross margin of 90 basis points from 34.5% in
1996 to 35.4% in 1997 and a reduction of 4%, or $3,186,000 in operating and
interest expenses. While we are not satisfied with reporting a loss for the
year, we are very encouraged by the underlying trends in our operating
performance, particularly in the second half of 1997, and are optimistic that we
will return to profitability in 1998.
In 1998 our Company will continue to focus on and refine its mission and
differentiated selling proposition. From a merchandising standpoint, we will
capitalize on a substantial growth opportunity in women's casual sportswear,
which is currently a very underdeveloped business for us. Other growth
opportunities include gifts, decorative home, and men's and women's activewear.
Our marketing effort will utilize preprint circulars as well as television
geared to both generate traffic as well as to position the Company in the minds
of potential customers as a viable shopping alternative to department and
specialty stores. Our store efforts will include a strong focus on our
Commitment to Customer Satisfaction initiative, the purpose of which is to
ensure that the customer is the number one priority of each and every associate
in the store. Since this program was implemented on August 1 of last year, the
Company's average sale transaction has increased by more than 3%.
We will also open a new store this year in the St. Louis market in time for the
back-to-school selling season. This store presents the Company with a unique
opportunity to develop a new prototype that reflects the quality and value of
our selling proposition, and that maximizes sales productivity and operational
efficiency.
Our Company has a fiduciary responsibility to meet and exceed the needs of four
important groups of stakeholders: our Associates, our Customers, the Communities
in which we operate and our Shareholders. By maintaining our tenacity of purpose
with respect to executing our mission, we will fulfill this responsibility, and
in turn plan to achieve a sustained and competitive level of profitability. We
would like to extend our sincere thanks to our vendors, shareholders, associates
and other friends for their continued support.
Jeffrey J. Gordman
President and Chief
Executive Officer
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<PAGE> 5
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
PROGRESS REPORT
Management is very encouraged by the results achieved in 1997, particularly the
positive trends evident the Company's performance. A summary of our progress, as
measured by our key performance indicators is provided below.
LIQUIDITY
Key Performance Indicators
<TABLE>
<CAPTION>
1997 1996 % Change
----------- ----------- --------
<S> <C> <C> <C>
Cash flow from operations $ 8,693,000 $ 3,151,000 176%
Average unused availability on line of credit $ 9,056,000 $ 6,757,000 34%
Unused availability at year-end $11,861,000 $ 8,423,000 41%
Average borrowings on line of credit $11,730,000 $14,051,000 -17%
Borrowings on line of credit at year end $ 2,947,000 $ 7,282,000 -60%
</TABLE>
The Company generated $8.7 million in operating cash flow, which represented a
176% increase over last year. This dramatic improvement was primarily
attributable to the reduction in inventory of 20.4% from the previous year, an
improvement in inventory turnover, improved trade credit terms and the improved
operating results
The Company maintains a line of credit with Congress Financial Corporation
(Central). The line provides for maximum borrowings of $27.5 million, subject to
inventory levels, carries interest at 1% over prime and extends through October,
1999. The agreement contains no covenants relative to income, cash flow, net
worth, working capital or related financial measures, nor does it contain an
annual clean down provision. Our unused availability was strong throughout 1997,
never falling below $5 million. Our financial projections indicate that we will
continue to have adequate availability through 1998.
COMPARABLE STORE SALES
Key Performance Indicators
<TABLE>
<CAPTION>
1997 1996
---- ----
Comparable store sales changes
<S> <C> <C>
First Quarter (12%) (13%)
Second Quarter (4%) (14%)
Third Quarter 1% (10%)
Fourth Quarter 10% (9%)
Full Year 0% (10%)
</TABLE>
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<PAGE> 6
Comparable store sales are improving, as evidenced by increases in 5 of the 6
months during the second half of 1997, including a 10% increase during the
holiday season. During the first half of fiscal 1997, the Company anticipated a
large portion of the comparable store sales decrease due to a strategic
marketing shift from promotional pricing to every day low pricing on desirable
name brand merchandise as a vehicle to drive sales.
For fiscal 1997, four out of eight merchandise divisions - women's, juniors,
women's accessories and intimate apparel experienced annual comparable store
sales increases in excess of 9%. Two other divisions - men's and home - had
comparable store decreases for the year as a whole, but improved noticeably
during the course of the year and actually posted comparable store increases
during the second half of 1997. The children's apparel division experienced
sales decreases during the year, but achieved a comparable store sales increase
during the fourth quarter. Our eighth division, shoes, experienced sales
decreases throughout the first three quarters and was leased out beginning in
the fourth quarter. Since leasing the department, sales of shoes have increased
6% compared to sales level for fiscal 1996.
The Company leased its footwear business to a leading shoe licensor in November
1997. Under the licensing agreement, the Company sold its existing shoe
inventory and fixtures to the licensor and will receive a percentage of all
ongoing shoe sales.
PROFITABILITY
Key Performance Indicators
<TABLE>
<CAPTION>
1997 1996 Change
------------- ------------ ------
<S> <C> <C> <C>
Gross margin percentage 35.4% 34.5% 0.9
Operating and interest expenses $70,389,000 $73,575,000 (4%)
Operating and interest expenses, % of sales 36.4% 37.3 (0.9)
Operating income(loss) $ 1,752,000 ($ 1,944,000) 190%
Net income (loss), before extraordinary item
First half of year ($ 5,535,000) ($ 6,220,000) 11%
Second half of year $ 4,511,000 $ 667,000 576%
Full year ($ 1,024,000) ($ 5,553,000) 82%
</TABLE>
Significant progress toward profitability was made in fiscal 1997. For the
second half of the year, the Company generated net income of $4,511,000 compared
to $667,000 (before extraordinary item) in the previous year. For the 1997
fiscal year, the net loss (before extraordinary item) was $4,529,000 less than
fiscal 1996, or $1,024,000.
The Company's strong improvement in gross margins was attributable to (1) a
strategic decision to use everyday low prices instead of promoting off price to
drive business, (2) an improved correlation between merchandise receipts and
sales and (3) a more timely and effective use of markdowns.
Aggressive and proactive management of expenses and inventory levels resulted in
a reduction in total operating and interest expenses by 4%, or $3,186,000 for
the year. Personnel reductions at the
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<PAGE> 7
end of 1997 in conjunction with a sublease arrangement on excess distribution
center space should further reduce operating costs in 1998.
ASSET MANAGEMENT
Key Performance Indicators
<TABLE>
<CAPTION>
1997 1996 % Change
----------------- ----------------- --------
<S> <C> <C> <C>
Inventory turnover 3.4 times 2.8 times 21%
Gross margin return on inventory investment (GMROI) 2.1 times 1.7 times 24%
Average investment in inventory, at retail $56,106,000 $70,465,000 (20%)
</TABLE>
The Company's largest asset is merchandise inventory, representing on average
well over half of the Company's asset base. A disciplined, rigorous and
systematic approach to inventory management translated into a significant
improvement in both inventory turnover and GMROI, which increased 21% and 24%
respectively. These indicators represent the best performance in the Company's
recent history, and were primarily the result of better correlating receipts to
sales and more timely markdown management. In addition, the average age of our
inventory basis decreased by 30% over the course of the year. This improvement
in inventory management was a significant factor behind the dramatic improvement
in sales and profitability in the second half of the year.
CREDITOR OBLIGATION STATUS
Key Performance Indicators
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash paid to prepetition unsecured creditors $1,967,000 $ 0
Remaining obligation to unsecured creditors $1,800,000 $3,593,728
Cash paid to prepetition secured creditors $ 426,555 $ 804,000
Remaining obligation to secured creditors $ 0 $ 426,555
</TABLE>
The Company made a $1,967,000 payment to unsecured creditors in 1997. The
remaining $1.8 million obligation is scheduled to be paid in fiscal 1998.
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<PAGE> 8
PRODUCTS AND SERVICES
COMPANY MISSION
The Company's mission is to exceed its customers' expectations through an
exciting shopping experience offering top quality name brands at half price.
This mission revolves around a differentiated selling proposition of value,
comprised of three critical elements:
1. QUALITY -- defined as instantly recognizable brand names;
2. PRICE -- up to one-half of department and specialty store
regular prices, every day; and
3. SHOPPING EXPERIENCE -- a store that is visually appealing,
well organized, and has strong clarity of offer.
MERCHANDISING
The Company's merchandise strategy is to procure highly recognizable department
and specialty store brands at up to 50% off department and specialty store
regular prices every day. To consistently accomplish this mission, The Company's
staff of 21 buyers employs a variety of opportunistic buying strategies that
require a high degree of creativity, negotiating ability and entrepreneurial
ability. These strategies include taking advantage of vendor excess inventory
positions, canceled orders from other retailers, close-outs and in-line product.
The Company's ability to effectively execute its merchandising strategy is
enhanced by building and maintaining strong vendor partnerships based on a high
level of trust and integrity.
The 1/2 Price Stores have seven merchandise divisions with apparel representing
the majority of the business. An eighth division, shoes, is now leased. The Home
Furnishings division includes decorative home products, bedding and bath,
housewares for the kitchen, luggage, rugs, picture frames, crystal, silver and
framed art. The following table reflects the percentage mix of sales by
merchandise division for Fiscal Year 1997:
<TABLE>
<CAPTION>
MERCHANDISE DIVISION 1997
- --------------------- -----
<S> <C>
Men's 17.5%
Children's 9.4
Women's Accessories 12.4
Misses 16.6
Juniors 8.6
Intimate Apparel 3.2
Home Furnishings 26.5
Shoes 5.8
-----
Total 100.0%
=====
</TABLE>
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<PAGE> 9
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. The Company's
effort to both upgrade and expand the breadth of trusted brands is ongoing.
The following tables give examples of the national brands featured in each
merchandise division:
MEN'S CHILDREN'S ACCESSORIES
Guess Izod Liz Claiborne
Calvin Klein Calvin Klein Monet
Izod Buster Brown Anne Klein II
Bugle Boy Adidas Aris-Isotoner
Nike Bugle Boy Guess
Adidas Levis Christian Dior
Chaps Lee Rider Totes
Arrow Pacific Trail Gold Toe
Levi's Osh Kosh B'Gosh Elizabeth Arden
Union Bay Mickey and Co. Esprit
Pacific Trail Reebok Revlon
Haggar My Michelle Coty
Dockers Fila Timex
Fila Guess Armitron
MISSES JUNIORS INTIMATE APPAREL HOME
Sag Harbor Calvin Klein Playtex Samsonite
Nike Union Bay Olga Rubbermaid
Erika Classics Esprit Wonderbra Mikasa
Counterparts Guess Rene Rofe Springs
Fritzi Big Flirt Lilyette Anchor-Hocking
Bill Blass Wrappers Warner's Fieldcrest
Bugle Boy Mickey and Co. Joe Boxer Mattel (Barbie)
Gloria My Michelle Bali Hasbro
Vanderbilt All That Jazz Burlington
Donnkenny Generation X Dan River
Pacifica Trail Pfaltzgraff
Fila Cannon
Reebok Playskool
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<PAGE> 10
FACILITIES
The Company's physical facilities consist of a corporate headquarters building
of 98,700 square feet, a Distribution Center of 267,000 square feet (excluding
internal mezzanine space of 111,400 square feet), and 31 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. Approximately one-third of
the distribution center has been subleased to an unrelated third party effective
in fiscal 1998. All other facilities are leased from third parties. 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 state and
market:
STATE STORES STATE STORES
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
------
5
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 31
==
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<PAGE> 11
MARKET POSITION AND COMPETITION
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 the Company differentiates it 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 62,000
selling square feet, and therefore can offer a much broader assortment of
merchandise.
The Company differentiates itself from discount stores with respect to
merchandise assortment, presentation and brands. 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 non-apparel.
Each store is organized with clearly identifiable "shops" similar to a
department store. A racetrack traffic aisle adjacent to the perimeter of the
store provides easy visual and physical access to all departments. An updated
store design and fixture system contributes to the contemporary department store
atmosphere.
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.
Consumer acceptance of the 1/2 Price Stores is demonstrated in the 1996 Omaha
World-Herald Consumer Preference Survey which ranks the Company ahead of many
national retailers with respect to market share. The average household income
and education levels of a 1/2 Price Store customer are similar to that of a
traditional department store shopper.
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.
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<PAGE> 12
STATE/CITY 1/2 PRICE STORE COMPETITORS BY MARKET
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 Burlington Coat, K-Mart, Sears, Target, Venture,
Wal-Mart, T.J. Maxx, 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
Wichita Burlington Coat, Dillards, JC Penney, K-Mart,
Montgomery Ward, Sears, Target, T.J. Maxx, Venture,
Wal-Mart and Kohl's
MISSOURI
Kansas City area Burlington Coat, Dillards, Halls, JC Penney, Jones
Store, K-Mart, Target, Marshall's, Montgomery Ward,
Sears, Stein Mart, T.J. Maxx, Venture, Wal-Mart,
Kohl's, and Jacobsons
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
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<PAGE> 13
NEBRASKA
Omaha/Council
Bluffs Burlington Coat, Dillards, JC Penney, K-Mart,
Marshall's, 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
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 did not open any new stores in
fiscal 1997. A single- market store in Lawrence, Kansas, was closed at the end
of fiscal 1997. In 1998 the Company will open a fourth store in the St. Louis
market.
SUPPLIERS
The total number of suppliers is approximately 1,500. The largest suppliers,
based on Fiscal Year 1997 purchases are Currants, Levis, Nike, Bugle Boy, Common
Scents, Fundamental Things, Sag Harbor, Rubbermaid, Gibson Greeting Cards, ACI,
Miss Erika and Sovereign Sales. As a group, these suppliers accounted for less
than 15% of total goods purchased by the 1/2 Price Stores in Fiscal Year 1997,
although none individually accounted for more than 1.8%. The Company considers
its supplier relations to be excellent.
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<PAGE> 14
DISTRIBUTION
The Company's stores are 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. In January
1998, the Company subleased approximately 81,000 square feet of the distribution
center facility for a five year term. Management believes that the current
storage and processing capacity of the Center can support the Company's planned
store expansion for several years.
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 1997. 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.
INFORMATION TECHNOLOGY (I.T.)
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 most major retail companies. 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.
I.T. 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.
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<PAGE> 15
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
implemented using frame relay protocols.
The Company is addressing the information technology issues surrounding the year
2000. At present, the Company has reviewed all programs for potential year 2000
issues and has compiled an inventory and assessment of those programs affected.
Approximately 15% of the Company's programs require some level of modification
to become compliant with the year 2000. During fiscal 1998, the Company will
complete the process of changing or replacing affected programs and fully
testing the revised versions. This process will include replacing the Company's
mainframe financial software with year 2000 compliant client server based
financial system. Management does not expect the costs of complying with year
2000 issues to be material (these costs are being expensed as incurred) to the
Company nor does it expect the year 2000 issue to adversely impact the Company's
operations. However, failure to remediate the year 2000 issues could have a
significant impact on the Company's operations.
MARKETING
The Company's marketing strategy employs a comprehensive and integrated
communications program focused on broadening its customer base in conjunction
with maximizing the value of existing customers.
The foundation of the communications strategy is the Sunday newspaper preprint.
Sunday preprints are the consumer's primary reference library for choosing where
to shop, and is the best medium for generating overall store traffic and sales.
Preprints also serve as a catalog to showcase the depth and breadth of the
Company's merchandise mix. Television is the primary medium to maximize consumer
awareness and gain new customers due to its wide reach, and is designed to
clearly position the stores in the marketplace. A new television campaign was
initiated in 1997 to develop a clearly defined, unique position for the 1/2
Price Stores as a viable alternative to department and specialty stores.
An outside agency is utilized for executing the broadcast media activity. The
Company's 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,
MacIntosh desktop publishing, marketing research and print media buying.
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<PAGE> 16
MANAGEMENT AND EMPLOYEES
The Company has no unions or collective bargaining agreements and has
experienced no work stoppages at any time in its history. 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.
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<PAGE> 17
SELECTED FINANCIAL DATA
The following table contains certain selected financial data for the Company for
each of the last five Fiscal Years through January 31, 1998, 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
---------------------------------------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29,
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------
(in thousands, except per share and selected operating data)
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Net sales $ 193,284 $ 197,024 $ 206,520 $ 191,148 $167,638
Gross margin 35.4% 34.5% 32.7% 35.6% 34.7%
Income (loss) from operations 1,752 (1,944) (2,001) 5,351 4,109
Income (loss) before extra-
ordinary item (1,024) (5,552) (5,775) 1,419 667
Net income (loss) (1) (1,024) $ (3,429) $ 775 $ 1,419 $ 15,867
Basic and diluted weighted
average shares outstanding 26,895 27,300 27,720 27,000 26,400
Basic and diluted income (loss) per share:
Income (loss) before
extraordinary item $ (.04) $ (.20) $ (.19) $ .05 $ .02
Extraordinary item (1) -- (.08) .22 -- .51
--------- --------- --------- --------- --------
Net income (loss) per share $ (.04) $ (.12) $ .03 $ .05 $ .53
========= ========= ========= ========= ========
Dividends paid on common stock -- -- -- -- --
Selected Operating Data:
Stores open at end of year 31 32 31 27 23
Change in comparable
store sales 0% (10)% (6)% (5)% 2%
Balance Sheet Data: (end of period)
Total assets 37,260 42,849 52,009 57,861 57,846
Long term debt (less current portion) -- -- 4,592 7,763 17,086
Capital lease
obligations (less current portion) 7,986 9,259 10,594 11,824 13,022
</TABLE>
(1) The extraordinary item included in net income(loss) is an adjustment to the
estimated liability to prepetition creditors made subsequent to approval of the
Plan of Reorganization. These extraordinary items did not involve the receipt or
payment of cash.
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<PAGE> 18
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
-------------------------------- 1996 TO 1995 TO
1997 1996 1995 1997 1996
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% (1.9)% (4.6)%
Cost of Sales 64.6 65.5 67.3 (3.2) (7.1)
------ ------ ------ ------ ------
Gross Profit 35.4 34.5 32.7 0.6 0.1
Operating and Administrative
Expenses 35.0 35.5 33.7 (3.4) 0.5
Unusual Items (0.3) -- -- 100.0 --
License Fees (0.2) -- -- 100.0 --
------ ------ ------ ------ ------
Income (loss) from Operations 0.9 (1.0) (1.0) 190.1 2.8
Interest Expense 1.4 1.8 1.8 (23.1) (0.4)
------ ------ ------ ------ ------
Loss Before Extraordinary Item (0.5) (2.8) (2.8) 86.1 --
Extraordinary Item-Gain on
Debt Forgiveness -- 1.1 3.2 (100.0) (67.6)
------ ------ ------ ------ ------
Net Income (loss) (0.5)% (1.7)% 0.4% 70.1% (542.3)%
====== ====== ====== ====== ======
</TABLE>
FISCAL YEAR 1997 COMPARED
TO FISCAL YEAR 1996
Net Sales for fiscal 1997 decreased approximately $3,740,000, or 2%, compared to
net sales for fiscal 1996. The decrease was primarily the result of the Company
leasing its shoe division during the fourth quarter of 1997. On a comparable
store basis, sales were flat compared to last year. Comparable store sales
decreased by 8% in the first half of fiscal 1997 and increased by 6% during the
second half of fiscal 1997.
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<PAGE> 19
Approximately half of the decrease in sales for the first six months of the year
was the result of the Company's strategic shift in its marketing and
merchandising strategy of emphasizing the inherent value of its desirable brand
name merchandise at everyday prices well below department and specialty store
regular prices. During comparable periods of fiscal 1996, the Company was
driving sales through a promotional and advertising plan that offered discounts
off everyday prices. That practice was changed during July, 1996, and thus had
no effect on the second half of fiscal 1997. The remainder of the decrease
during the first half was due primarily to weak sales in the shoe and home
divisions.
The increase in net sales during the second half of fiscal 1997 was the result
of continued strong sales increases in the women's, juniors, intimate apparel
and accessories divisions, coupled with improvements in sales in the men's and
home divisions. Second half sales were positively impacted by an increased flow
of inventory receipts.
Gross Profit increased by approximately $438,000 or 1% for fiscal 1997 compared
to the fiscal 1996. Gross margin percentage increased to 35.4% in fiscal 1997
compared to 34.5% for fiscal 1996. The increases in gross margin percentage was
the result of the Company's strategy described above which reduced the amount of
promotional discounting in prices.
Operating and Administrative Expenses decreased approximately $2,354,000, or 3%,
during fiscal 1997 compared to fiscal 1996. As a percentage of net sales,
operating and administrative expenses were 35.0% in 1997 versus 35.5% in 1996.
The decrease in expenses was the result of lower payroll and other costs at the
corporate office and distribution center, severance expense of $1.4 million
related to former executives during 1996 and lower depreciation expense.
Unusual Items provided a net benefit of $490,000 to the fiscal 1997 results.
Unusual items consist of a $723,000 gain on the sale of a store lease, a $15,000
gain on the bulk sale of shoe inventory in conjunction with leasing the shoe
department, and a $248,000 charge for severance and workforce reduction in 1997.
License Fees contributed $414,000 in fiscal 1997. These represent the Company's
commission on shoe sales in its stores. The shoe department was leased effective
in November 1997. Shoe sales after leasing the department are no longer included
in sales or comparable store sales.
Interest Expense decreased by approximately $832,000 for fiscal 1997 compared to
fiscal 1996. The decrease in interest expense was primarily the result of
decreases in borrowings on the Company's revolving line of credit.
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<PAGE> 20
No income tax expense was recorded in Fiscal Years 1997 and 1996 due to the fact
that a taxable loss was incurred, which increased the Company's net operating
loss carryforward.
Net Loss Before Extraordinary Items for fiscal 1997 was $1,024,000 compared to a
loss of $5,553,000 for fiscal 1996, an improvement of $4,529,000.
FISCAL YEAR 1996 COMPARED
TO FISCAL YEAR 1995
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 were 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.
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. The Company attributed 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 versus 32.7% in
1995. This improvement translated into a slight increase of $418,000, or 0.6%,
in gross margin dollars 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 in fiscal 1995. Markdowns were lower
due to a combination of not discounting off regular prices as a vehicle to drive
business, as discussed previously, and a more controlled approach to inventory
management. In conjunction with improved inventory controls, fourth quarter
average inventories decreased by 13% compared to the previous year. The gross
margin improvement was 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.
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<PAGE> 21
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.
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 an increase in advertising expense, offset
by payroll reductions. However, the Company recorded severance expense of
approximately $1.4 million during Fiscal Year 1996 in connection with the
resignations of two of the Company's executive officers.
Income (loss) from operations - During Fiscal Year 1996, the Company incurred a
net loss from operations of approximately $1.9 million versus an operating loss
of $2.0 million in 1995. 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.
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.
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
89
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, as defined by line of credit borrowings and excess
availability on the line, has strengthened considerably, when compared to fiscal
1996:
- The Company generated positive cash flow from operations of
$8.7 in fiscal 1997 compared to $3.2 million in fiscal 1996.
- The Company's average excess borrowing capacity for fiscal
1997 was $9.1 million an increase of 34% compared to fiscal
1996.
- The Company's average borrowings for fiscal 1997 were $11.7
million, a decrease of 17% versus fiscal 1996.
These results are primarily attributable to the following:
1. During fiscal 1997, average inventories were 20% less than in fiscal
1996. This improvement was achieved by better correlating receipt flow
to sales, taking markdowns on a timely basis and using system and
managerial control to maintain desired inventory levels. At year end,
merchandise inventories were lower than last year by $3,953,000 or
16%. Inventory turnover and gross margin return on inventory (GMROI)
improved significantly during fiscal 1997. Inventory turned 3.4 times
in fiscal 1997 compared to 2.8 times in fiscal 1996, a 21%
improvement. GMROI increased to 2.1 times in fiscal 1997 from 1.7
times in fiscal 1996, an increase of 24%.
2. The Company negotiated amendments to its financing agreement with its
primary lender, Congress Financial Corporation (Central) during 1996
and early 1997, which provided for additional borrowings and cash
availability. The current loan agreement extends to October 1999, and
provides a maximum line of $27.5 million. The interest rate is prime
plus 1%. The agreement with Congress does not have a clean down
provision nor any covenants specifying the Company's earnings, working
capital, net worth, or cash flow levels.
During Fiscal Year 1997, the weighted average short-term borrowings were $11.7
million against the Company's lines of credit and peak short-term borrowings
were $18.9 million. These borrowings compare with weighted average short-term
borrowings against the Company's lines of credit of $14.1 million and $8.9
million, respectively, during fiscal years 1996 and 1995, and peak short-term
borrowings of $20.5 million and $19.6 million, respectively, during fiscal years
1996 and 1995. At the end of Fiscal Year 1997, there were short-term borrowings
of $2.9 million, and at the end of Fiscal Years 1996 and 1995 there were
short-term borrowings $7.3 million and $7.7, respectively. At the end of Fiscal
Year 1997, the Company had unused availability on its line of $11.9 million, and
at the end of Fiscal Years 1996 there was unused availability under the line of
$8.4 million.
In January, 1997, the Creditors' Committee agreed to defer the $1.9 million
payment due then (the 1997 Payment) under the Plan for one year. In January,
1998, the Company escrowed the 1997
90
<PAGE> 23
Payment in full and disbursed that amount to its prepetition creditors on March
18, 1998. The Creditors' Committee agreed to defer $1.8 million of the 1998
Payment as well. The Company had the cash availability under its line of credit
to make the entire payment in January 1998; however, the Company sought the
partial deferral in an effort to maximize its financial flexibility during
fiscal 1998. The remaining $1.8 million obligation must be paid in increments of
$200,000 at the end of April, July and October of 1998 with the remaining $1.2
million scheduled for payment on January 31, 1999. The remaining obligation is
collateralized by an interest in a portion of the Company's distribution center,
and will bear interest at a rate of 12%.
The Company's primary ongoing cash requirements are for operating expenses,
inventory and remaining 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 financing for
merchandise inventories. During fiscal 1997 approximately 28% of the Company's
purchases, were prepaid because the vendor or its factor would not extend normal
credit terms to the Company. The percentage of prepayments decreased in the
second half of fiscal 1997 as the Company continued to seek improved credit
arrangements with vendors and factors. Management believes the percentage of
prepayments will continue to decrease over the next year.
During fiscal 1997, 1996 and 1995 capital expenditures were approximately $1.5
million, $.6 million and $2.8 million, respectively . The Company anticipates
capital expenditures will be approximately $1.5 million in fiscal 1998.
The Company recognizes that it has a high level of indebtedness, primarily in
the form of line of credit borrowings, creditor debt and capital lease
obligations. Its projections take this fact into account, and the Company
believes that future cash flows will be sufficient to cover this level of
indebtedness. Management believes that with its present operating plan and
continued focus on liquidity, cash flow from operations and the existing credit
facility will be sufficient to fund capital expenditures, working capital
requirements (including prepayments to vendors not extending terms), creditor
and other obligations.
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<PAGE> 24
SEASONALITY AND INFLATION
The company's business is seasonal, with the back-to-school season (primarily
August) historically contributing approximately 10% of annual sales and the
Christmas season (November and December) accounting for approximately 28% of
annual sales. Sales and income are also affected by the timing of new store
openings. Although the Company's operations are influenced by general economic
conditions and inflationary pressures, the Company does not believe that
inflation has had a material effect on operations during the past 3 to 5 years.
RISKS
Throughout this Annual Report to Shareholders, particularly the Letter to
Shareholders, the Progress Report 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 included in the annual report,
some of the factors which may impact the Company's future results and 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.
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<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 January 31, 1998 and February 1,
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended January
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Richman Gordman 1/2 Price Stores,
Inc. and subsidiary as of January 31, 1998 and February 1, 1997 and the results
of their operations and their cash flows for each of the three years in the
period ended January 31, 1998 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.
DELOITTE & TOUCHE LLP
March 27, 1998
Omaha, Nebraska
93
<PAGE> 26
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
<S> <C> <C> <C>
NET SALES $ 193,284,204 $ 197,023,821 $ 206,520,255
COST OF SALES (124,823,501) (129,000,923) (138,915,561)
------------- ------------- -------------
Gross Profit 68,460,703 68,022,898 67,604,694
OPERATING AND ADMINISTRATIVE EXPENSES (67,613,052) (69,967,273) (69,605,046)
UNUSUAL ITEMS (Note I) 490,349 -- --
LICENSE FEES 414,376 -- --
------------- ------------- -------------
Income (loss) from operations 1,752,376 (1,944,375) (2,000,352)
INTEREST EXPENSE (2,775,885) (3,608,220) (3,774,423)
------------- ------------- -------------
LOSS BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM (1,023,509) (5,552,595) (5,774,775)
PROVISION FOR INCOME TAXES (Note H) -- -- --
------------- ------------- -------------
LOSS BEFORE EXTRAORDINARY ITEM (1,023,509) (5,552,595) (5,774,775)
EXTRAORDINARY ITEM - GAIN ON DEBT
FORGIVENESS (Note A) -- 2,123,096 6,550,230
------------- ------------- -------------
NET INCOME (LOSS) $ (1,023,509) $ (3,429,499) $ 775,455
------------- ------------- -------------
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary item $ (0.04) $ (0.20) $ (0.21)
Extraordinary item -- 0.08 0.24
------------- ------------- -------------
NET INCOME (LOSS) PER SHARE $ (0.04) $ (0.12) $ 0.03
------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
94
<PAGE> 27
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash $ 453,830 $ 388,267
Accounts receivable, less allowance for doubtful accounts of $708,909 and $587,150 1,172,613 782,312
Merchandise inventories (Note C) 21,361,381 25,314,919
Prepaid expenses and other current assets 1,500,062 1,883,490
------------ ------------
Total current assets 24,487,886 28,368,988
PROPERTY, BUILDINGS AND EQUIPMENT, net (Notes D and F) 12,698,277 14,267,207
OTHER ASSETS 74,124 212,904
------------ ------------
$ 37,260,287 $ 42,849,099
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit borrowings (Note F) $ 2,946,658 $ 7,281,732
Accounts payable 9,478,564 7,038,664
Accrued expenses (Note E) 8,163,890 6,998,440
Notes payable (Note F) 2,100,201 4,537,056
Current maturities of capital lease obligations (Note G) 1,273,386 1,335,379
------------ ------------
Total current liabilities 23,962,699 27,191,271
CAPITAL LEASE OBLIGATIONS, net of current portion (Note G) 7,985,563 9,258,949
OTHER LONG-TERM LIABILITIES 450,011 513,356
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
shares outstanding 192,600 192,600
Series B common stock, $.01 par value; 10,200,000 shares
authorized, issued and outstanding 102,000 102,000
Paid-in capital 4,562,886 4,562,886
Retained earnings 230,248 1,253,757
Less: Treasury stock, at cost, 2,565,000 shares (225,720) (225,720)
------------ ------------
Total stockholders' equity 4,862,014 5,885,523
------------ ------------
$ 37,260,287 $ 42,849,099
============ ============
</TABLE>
See notes to consolidated financial statements
95
<PAGE> 28
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL
SERIES SERIES PAID-IN RETAINED TREASURY
A B CAPITAL EARNINGS STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C>
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
Net loss -- -- -- (1,023,509) -- (1,023,509)
-------- -------- ---------- ----------- --------- -----------
BALANCE, January 31, 1998 $192,600 $102,000 $4,562,886 $ 230,248 $(225,720) $ 4,862,014
-------- -------- ---------- ----------- --------- -----------
</TABLE>
See notes to consolidated financial statements.
96
<PAGE> 29
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,023,509) $(3,429,499) $ 775,455
Adjustments to reconcile net income (loss) to net
cash flows from operating activities:
Extraordinary item-gain on debt forgiveness -- (2,123,096) (6,550,230)
Depreciation and amortization 2,120,935 3,073,376 3,050,338
LIFO (credit) provision (1,563,897) (753,229) 370,602
Loss (gain) on sale of property 18,542 (166,029) --
Net changes in assets and liabilities:
Accounts receivable (390,301) 146,480 349,919
Merchandise inventories 5,517,435 6,224,669 717,923
Prepaid expenses and other current assets 383,428 261,747 (1,353,341)
Other assets 88,780 606,974 (584,623)
Accounts payable 2,439,900 (914,360) (3,222,027)
Accrued expenses and other liabilities 1,102,105 223,864 (77,146)
----------- ----------- -----------
Net cash flows from operating activities 8,693,418 3,150,897 (6,523,130)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,456,046) (592,326) (2,820,309)
Proceeds from sale of land and equipment 935,499 250,261 --
Other -- 8,181 4,572
----------- ----------- -----------
Net cash flows from investing activities (520,547) (333,884) (2,815,737)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments on) proceeds from line of
credit borrowings (4,335,074) (409,191) 7,690,923
Payments on obligations under capitalized leases (1,335,379) (1,229,819) (1,206,320)
Payment to prepetition secured creditors (426,555) (778,426) (804,000)
Principal payments to prepetition unsecured creditors (1,793,728) (273,602) (2,461,200)
Payments on other debt obligations (216,572) -- --
Purchase of treasury stock -- (225,720) --
----------- ----------- -----------
Net cash flows from financing activities (8,107,308) (2,916,758) 3,219,403
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 65,563 (99,745) (6,119,464)
CASH, Beginning of year 388,267 488,012 6,607,476
----------- ----------- -----------
CASH, End of year $ 453,830 $ 388,267 $ 488,012
----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest $ 2,823,527 $ 3,278,245 $ 3,764,040
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
97
<PAGE> 30
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, FEBRUARY 1, 1997 AND FEBRUARY 3, 1996
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 totaled $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 at the time of issuance was $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.
During fiscal 1995 and 1996, the Company lowered its estimate of the
amounts expected to be repaid to the unsecured creditors under the Plan
based on revised estimates of future earnings, cash flow and net operating
loss tax benefits. As a result, extraordinary gains of $6,550,230 and
$2,123,096 were recorded in fiscal 1995 and 1996, respectively, to reflect
the change in this estimated liability to be paid to the unsecured
creditors. During fiscal 1996 and 1997, the Company also obtained waivers
to extend the due dates of portions of the cash payments required to be
paid to the unsecured creditors.
As a result of poor operating performance in fiscal 1995 and the first
half of fiscal 1996, the Company had a change in senior management in June
1996 and then initiated changes in its strategic and tactical approach to
operations. The changes have impacted most aspects of the Company, while
the key changes included re-establishing the integrity of the pricing,
increasing the offerings of desirable brand name merchandise, upgrading
store presentation and environment and changing the marketing approach.
Subsequent to change in senior management, the Company has generated
positive operating cash flow and has maintained excess borrowing capacity
on its line of credit. Management's financial plan for fiscal 1998
indicates the Company will have adequate financing for inventory purchases
and operations for the entire year given its existing levels of financing
from its line of credit and vendors.
98
<PAGE> 31
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Richman Gordman 1/2 Stores, Inc. operates 31 1/2
Price Stores in eight states. The 1/2 Price store concept is to offer
instantly recognizable brand name products at prices up to one-half off
department and specialty store regular prices through a visually appealing
and well organized store environment that presents strong clarity of
offer.
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 1997 and 1996 represent the
fifty-two week periods ended January 31, 1998 and February 1, 1997,
respectively, and fiscal year 1995 represents the fifty-three week period
ended February 3, 1996.
REVENUE RECOGNITION - The Company operates on a cash and carry basis.
Revenue is recognized at the time of sale and merchandise returns are
estimated and accrued at the end of each period.
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 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.
During fiscal 1997, the Company evaluated the useful lives of certain of
its equipment, fixtures and leaseholds and adjusted the useful lives where
deemed appropriate. These changes in estimates reduced depreciation
expense by approximately $644,000 compared to what depreciation expense
would have been under the previous useful lives.
DEFERRED FINANCING CHARGES - Deferred financing charges are 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.
STOCK-BASED COMPENSATION - The Company accounts for its stock-based
compensation under the provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25).
ADVERTISING COSTS - Advertising costs are expensed as incurred and
amounted to $8,539,000, $9,065,300 and $8,104,000 for fiscal years 1997,
1996 and 1995, respectively.
99
<PAGE> 32
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK - Financial
instruments which potentially subject the Company to concentrations of
credit risk are primarily cash and accounts receivable. The Company places
cash 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 and
the ability to affect receivables from vendors against payables to the
same vendor.
EARNINGS PER SHARE - The Financial Accounting Standards Board (FASB)
issued Statement No. 128, Earnings Per Share, which is effective for 1997
financial statements. FASB No. 128 requires dual presentation of Basic and
Diluted earnings per share for all periods for which an income statement
is presented. Basic earnings per share are based on the weighted average
outstanding common shares during the period. Diluted earnings per share
are based on the weighted average outstanding common shares and the
effects of all dilutive potential common shares, such as stock options.
All prior periods earnings per share have been restated in accordance with
FASB No. 128.
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.
ACCOUNTING PRONOUNCEMENTS - In June 1997, the FASB issued Statement No.
131, Disclosure About Segments of an Enterprise and Related Information,
which will be effective in 1998. FASB No. 131 establishes standards for
the way public enterprises report information about operating segments.
The Company currently complies with most provisions of this statement and
any incremental disclosure required by that statement is expected to be
minimal.
C. INVENTORY
The Company accounts for its inventories using the LIFO method. Total
inventories (and working capital and stockholders' equity) would have been
higher by $6,298,851 and $7,862,748 at January 31, 1998 and February 1,
1997, respectively, had the Company used the FIFO (first-in, first-out)
method for determining inventory costs. During fiscal years 1997, 1996 and
1995 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 cost of sales by
approximately $674,000, $647,000 and $89,000, respectively.
Included in inventory is $2,224,725 and $2,150,981 of prepaid inventory at
January 31, 1998 and February 1, 1997, respectively.
100
<PAGE> 33
D. PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consist of:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
<S> <C> <C>
Land $ 627,018 $ 1,406,060
Leasehold improvements 10,460,255 9,874,626
Furniture, fixtures and equipment 16,747,379 16,051,961
Capitalized leases 19,531,569 19,531,569
------------ ------------
47,366,221 46,864,216
Less accumulated depreciation (34,667,944) (32,597,009)
------------ ------------
$ 12,698,277 $ 14,267,207
============ ============
</TABLE>
E. ACCRUED EXPENSES
Accrued expenses consist of the following:
JANUARY 31, FEBRUARY 1,
1998 1997
Taxes accrued and withheld $2,607,020 $1,991,390
Store operating expenses 3,609,788 2,885,302
Employee compensation 1,897,458 2,016,882
Interest 49,624 104,866
---------- ----------
$8,163,890 $6,998,440
========== ==========
F. FINANCING AGREEMENTS
The Company has a financing agreement with Congress Financial Corporation
(Central) which provides for revolving credit borrowings and letters of
credit of up to $27.5 million. Borrowings under this agreement bear
interest at a rate which is 1% over prime. 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 eligible
inventory. Excess availability under this agreement at January 31, 1998
and February 1, 1997 totalled $11,861,000 and $8,423,000, respectively. At
the end of fiscal 1997 and 1996 borrowings were $2,946,658 and $7,281,732,
respectively, and the Company had outstanding letters of credit totaling
approximately $355,000 and $256,000, respectively. The maximum amount of
revolving credit borrowings during fiscal year 1997, 1996 and 1995 was
$18,916,000, $20,515,000 and $19,587,000, respectively. The weighted
average amount of revolving credit borrowings for fiscal years 1997, 1996
and 1995 was $11,730,000, $14,051,000 and $8,868,000, respectively, with
related weighted average interest rates of 9.5%, 9.8% and 10.5% in fiscal
1997, 1996 and 1995, respectively. The average excess availability under
the line was $9,056,000, $6,757,000, and $11,883,000 for fiscal years
1997, 1996 and 1995, respectively. Borrowings are secured by substantially
all of the current assets of the Company and general intangibles. A
non-use fee of .5% per annum is payable monthly on the unused portion of
the facility, and a servicing fee is payable quarterly during the term of
the agreement. Additional fees are due upon early termination of the
agreement.
The current financing agreement contains certain restrictions, including
limitations on annual cumulative capital expenditures and additional
borrowings and prohibition from paying dividends.
101
<PAGE> 34
The agreement does not contain any covenants regarding net income, net
worth, working capital or cash flow nor does it require the Company to
reduce borrowings to zero during the year.
Notes payable consists of:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
<S> <C> <C>
Payments to be made to prepetition unsecured creditors$ 1,800,000 $3,593,728
Secured term note, interest at 7% -- 426,555
Other notes payable, due in 1998 300,201 516,773
---------- ----------
$2,100,201 $4,537,056
========== ==========
</TABLE>
Under the Plan, and subsequent agreements between the Company and its
Creditor Committee, the Company escrowed principal and interest of
$1,967,000 in fiscal 1997 and disbursed that amount to its unsecured
creditors in March 1998. The remaining obligation is payable in $200,000
installments at the end of April, July and October 1998 and a final
payment of $1,200,000 on January 31, 1999. The unpaid balances bear
interest at 12%. This obligation is secured by an interest in the
Company's distribution center.
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, 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
--------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
<S> <C> <C> <C>
Minimum rentals $9,416,881 $9,432,296 $8,583,986
Contingent rentals -- 20,088 18,201
---------- ---------- ----------
$9,416,881 $9,452,384 $8,602,187
========== ========== ==========
</TABLE>
102
<PAGE> 35
Following is a summary of capitalized leased assets included in property,
buildings and equipment:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
<S> <C> <C>
Buildings and improvements $ 19,280,119 $ 19,280,119
Furniture, fixtures and equipment 251,450 251,450
------------ ------------
19,531,569 19,531,569
Less accumulated depreciation (14,828,992) (14,122,614)
------------ ------------
$ 4,702,577 $ 5,408,955
============ ============
</TABLE>
Future minimum lease payments under capitalized and operating leases with
rental terms of more than one year as of January 31, 1998, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
<S> <C> <C>
1998 $ 2,384,027 $ 7,257,712
1999 2,017,708 6,537,203
2000 1,965,814 5,949,886
2001 1,920,439 5,370,848
2002 1,781,689 5,345,291
After 2003 6,817,009 27,404,014
------------ ------------
Total minimum lease payments 16,886,686 $ 57,864,954
============
Less estimated executory costs (238,150)
------------
Net minimum lease payments under capitalized leases 16,648,536
Less amount representing interest (7,389,587)
------------
Present value of net minimum lease payments 9,258,949
Less current portion 1,273,386
------------
Long-term obligation $ 7,985,563
============
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of
$2,040,385 due in the future under non-cancelable subleases.
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 1997, 1996 and 1995 the Company paid
$3,120,920, $3,109,862 and $2,915,243, respectively, to these related
organizations under the terms of the leases.
103
<PAGE> 36
H. INCOME TAXES
In fiscal 1997, 1996 and 1995 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.
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 January 31, 1998 and February 1, 1997 are as follows:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
<S> <C> <C>
Accruals and other reserves $ 689,558 $ 677,502
Rejected leases 157,294 269,114
Capitalized inventory costs 544,000 719,335
Fixed assets (52,508) (108,508)
Capital leases 1,923,148 1,797,589
Net operating loss and tax credit carryforwards 9,679,231 9,188,942
Valuation reserve (12,940,723) (12,543,974)
------------ ------------
Net deferred asset $ -- $ --
============ ============
</TABLE>
On January 31, 1998 the Company has net operating loss carryforwards of
approximately $28,468,000 which expire through 2012. 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.
I. UNUSUAL ITEMS
Unusual items are comprised of the following:
<TABLE>
<S> <C>
Gain on sale of store leasehold, net $ 723,000
Gain on bulk sale of shoe inventory, net 15,501
Severance and workforce reduction costs (248,152)
---------
Net gain $ 490,349
=========
</TABLE>
During fiscal 1997, the Company sold the leasehold on its Lawrence, Kansas
store to another retailer. The lease on the store was an operating lease.
The gain on the sale represents the cash received of $850,000, less the
direct costs of closing the store.
During the fourth quarter of fiscal 1997, the Company entered into an
agreement to lease its shoe business to a third party. Under the
agreement, the third party purchased all of the shoe inventory and
fixtures, assumed responsibility for all shoe department employees and
will pay the Company a percentage of all ongoing shoe sales. The fees
received under the agreement are reflected as license fees in the
statement of operations. The term of the agreement is three years with
mutual options to renew. The gain on the bulk sale of shoes and fixtures
represents cash received of $2,348,470 less
104
<PAGE> 37
the LIFO cost of the shoes and the cost of fixtures. Had the Company
accounted for inventory on the FIFO method, the bulk sale of the shoe
inventory would have resulted in a loss of $694,499.
During fiscal 1997, the Company reduced its workforce at its Corporate
office and distribution center. All of the costs associated with the
reduction were either paid or accrued at year end.
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
years 1997 and 1996, $104,709 and $91,409, respectively, was contributed
to the plan, while no contributions were made to the plan in fiscal year
1995.
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.
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 allowed them to
receive up to 3,600,000 new Series A shares if certain cash flow goals
were achieved, of which 3,060,000 shares were issued. 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 its
estimated 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 the date the final creditor obligation is paid, less the
amount of any excess cash that has been paid to the unsecured creditors
during the term of the Plan. As of January 31, 1998 there is no excess
cash paid to the unsecured creditors.
105
<PAGE> 38
STOCK OPTION PLANS - Stock option plans established in 1997 provide for
granting up to 1,900,000 options to employees for purchase of Series A
Common Stock at prices equal to fair market value at the date of the
grant. Options become exercisable 20% per year for some employees, or one
year after grant for other employees, and expire ten years from date of
grant or upon termination of employment. The changes in outstanding stock
options are summarized below:
<TABLE>
<CAPTION>
GRANT AVERAGE
PRICE REMAINING
OPTIONS PER SHARE LIFE
<S> <C> <C> <C>
Balance, February 1, 1997 -- --
Granted $869,000 0.051
Exercised -- --
Forfeited $ 85,000 0.051
-------- -----
Balance, January 31, 1998 $784,000 0.051 9.5 years
======== ===== =========
</TABLE>
No compensation expense has been recorded for the Company's stock option
plans. Had compensation expense been determined based on the fair value at
the grant dates consistent with the method of FASB Statement No. 123,
Accounting for Stock-Based Compensation, the Company's net loss and net
loss per share would have been the same as is currently reported.
For purposes of FASB No. 123, the fair value of the options are estimated
on the grant date using the Black-Scholes pricing model with the following
assumptions: risk-free interest rate of 6%, expected lives of five years;
no expected dividends or volatility.
EARNINGS PER SHARE - The following table provides a reconciliation between
basic and diluted weighted average shares outstanding:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Weighted average shares
outstanding - basic 26,895,000 27,300,000 27,720,000
Common share equivalents -- -- --
---------- ---------- ----------
Weighted average shares
outstanding - diluted 26,895,000 27,300,000 27,720,000
========== ========== ==========
</TABLE>
106
<PAGE> 39
L. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information for fiscal 1997 and 1996 is as
follows (in thousands, except percentages and per share amounts):
<TABLE>
<CAPTION>
QUARTER
--------------------------------------------------------------------
FISCAL 1997 FIRST SECOND THIRD FOURTH TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $ 36,603 $ 43,448 $ 51,123 $ 62,110 $ 193,284
Gross profit $ 12,648 $ 15,411 $ 18,303 $ 22,099 $ 68,461
Gross profit percent 34.6% 35.5% 35.8% 35.6% 35.4%
Income (loss) from operations $ (3,042) $ (986) $ 881 $ 4,899 $ 1,752
Income (loss) before
extraordinary item $ (3,787) $ (1,748) $ 137 $ 4,374 $ (1,024)
Net income (loss) $ (3,787) $ (1,748) $ 137 $ 4,374 $ (1,024)
Basic and diluted income
(loss) per share $ (0.14) $ (0.07) $ 0.01 $ 0.16 $ (0.04)
Comparable store sales (12)% (4)% 1% 10% 0%
</TABLE>
Fourth quarter fiscal 1997 income was positively impacted in the amount of
$606,232 as a result of the year end calculation of the LIFO credit
exceeding estimates made at the end of the third quarter.
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. Through the first three quarters, the Company had projected a LIFO expense
would be recorded. 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.
107
<PAGE> 40
SHAREHOLDER INFORMATION
STOCK TRANSFER AGENT
Boston EquiServe (c/o BankBoston, Boston EquiServe, P.O. Box 8040, Boston, MA
02266-8040) 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 March 30,
1998, 19,080,000 shares of Series A Common Stock were issued, of which
16,515,000 were outstanding and held of record by a single shareholder, 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.
108
<PAGE> 1
EXHIBIT (23)
Consents of Experts -- Consent of
Deloitte & Touche L.L.P.
109
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-37677 on Form S-8 of Richman Gordman 1/2 Price Stores, Inc. of our reports
dated March 27, 1998, 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
January 31, 1998.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 22, 1998
110
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 453,830
<SECURITIES> 0
<RECEIVABLES> 1,676,223
<ALLOWANCES> 708,909
<INVENTORY> 21,361,381
<CURRENT-ASSETS> 24,487,886
<PP&E> 47,366,221
<DEPRECIATION> 34,667,944
<TOTAL-ASSETS> 37,260,287
<CURRENT-LIABILITIES> 24,246,625
<BONDS> 7,985,563
0
0
<COMMON> 294,600
<OTHER-SE> 4,567,415
<TOTAL-LIABILITY-AND-EQUITY> 37,260,287
<SALES> 193,284,204
<TOTAL-REVENUES> 193,284,204
<CGS> 124,823,501
<TOTAL-COSTS> 124,823,501
<OTHER-EXPENSES> 66,692,772
<LOSS-PROVISION> 67,712
<INTEREST-EXPENSE> 2,791,439
<INCOME-PRETAX> (1,023,509)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,023,509)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,023,509)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
