<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended August 1, 1998
Commission File Number 000-24328
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 47-0771211
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
12100 WEST CENTER ROAD, OMAHA, NEBRASKA 68144
(Address of principal executive offices) (zip code)
(402) 691-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Class of Common Stock Outstanding at August 1, 1998
--------------------- -----------------------------
Common Stock:
Series A 16,695,000 shares
Series B Option 10,200,000 shares
Page 1 of 23
Exhibit Index Appears on Page 16
<PAGE> 2
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets as of
August 1, 1998 and January 31, 1998 3
Consolidated Statements of Operations -
Three Months and Six Months Ended
August 1, 1998 and August 2, 1997 4
Consolidated Statements of Cash Flows -
Six Months Ended August 1, 1998
and August 2, 1997 5
Notes to Consolidated Financial Statements 6 - 7
Item 2 - Management's Discussion and Analysis of 8 - 12
Financial Condition and Results of
Operations
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
Page 2 of 23
<PAGE> 3
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
AUGUST 1, 1998 JANUARY 31, 1998
------------------ ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 475,205 $ 453,830
Accounts receivable, less allowance for doubtful
accounts of $1,010,495 and $708,909 1,051,255 1,172,613
Merchandise inventories
Inventories 29,893,440 25,435,507
Prepaid inventories 523,311 2,224,725
LIFO reserves (6,478,851) (6,298,851)
------------------ ------------------
Total Merchandise Inventories 23,937,900 21,361,381
Prepaid expenses and other current assets 1,832,470 1,500,062
------------------ ------------------
Total current assets 27,296,830 24,487,886
PROPERTY, BUILDINGS AND EQUIPMENT, net 16,603,912 12,698,277
OTHER ASSETS 188,312 74,124
------------------ ------------------
$ 44,089,054 $ 37,260,287
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit borrowings $ 9,703,325 $ 2,946,658
Accounts payable 7,578,122 9,478,564
Accrued expenses 5,436,526 5,556,870
Taxes accrued and withheld 2,193,066 2,607,020
Current portion of long-term debt 104,347 2,100,201
Current maturities of capital lease obligations 965,377 1,273,386
------------------ ------------------
Total current liabilities 25,980,763 23,962,699
LONG TERM NOTE PAYABLE, net of current portion 6,645,653 -
CAPITAL LEASE OBLIGATIONS, net of current portion 7,433,143 7,985,563
OTHER LONG-TERM LIABILITIES 537,542 450,011
STOCKHOLDERS' EQUITY:
Common stock
Series A common stock: $.01 par value; 19,800,000
shares authorized; 19,260,000 shares issued 192,600 192,600
Series B option common stock: $.01 par value; 10,200,000
shares authorized, issued and outstanding 102,000 102,000
Paid-in capital 4,562,886 4,562,886
Retained earnings (accumulated deficit) (1,139,813) 230,248
Less: Treasury Stock, at cost, 2,565,000 shares (225,720) (225,720)
------------------ ------------------
Total stockholders' equity 3,491,953 4,862,014
------------------ ------------------
$ 44,089,054 $ 37,260,287
================== ==================
</TABLE>
See notes to consolidated financial statements.
Page 3 of 23
<PAGE> 4
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 1, 1998 AUGUST 2, 1997 AUGUST 1, 1998 AUGUST 2, 1997
------------------- -------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
NET SALES $ 43,522,756 $ 43,448,072 $ 80,463,585 $ 80,050,814
COST OF SALES 28,022,303 28,036,917 51,946,286 51,991,279
------------------- -------------------- ------------------- ---------------------
Gross Profit 15,500,453 15,411,155 28,517,299 28,059,535
LICENSE FEE INCOME 568,218 0 1,095,114 0
OPERATING AND
ADMINISTRATIVE EXPENSES 15,357,993 16,397,092 29,825,273 32,088,659
------------------- -------------------- ------------------- ---------------------
Income (Loss) from operations 710,678 (985,937) (212,860) (4,029,124)
-------------------- -------------------- ------------------- ---------------------
INTEREST EXPENSE 584,460 761,926 1,157,201 1,506,015
------------------- -------------------- ------------------- ---------------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAX 126,218 (1,747,863) (1,370,061) (5,535,139)
PROVISION FOR INCOME TAXES - - - -
------------------- -------------------- ------------------- ---------------------
NET INCOME (LOSS) $ 126,218 $ (1,747,863) $ (1,370,061) $ (5,535,139)
=================== ==================== =================== =====================
BASIC AND DILUTED
INCOME (LOSS) PER COMMON SHARE $ 0.01 $ (0.07) $ (0.05) $ (0.20)
=================== ==================== =================== =====================
WEIGHTED AVERAGE
SHARES OUTSTANDING 27,435,000 27,435,000 27,435,000 27,435,000
------------------- -------------------- ------------------- ---------------------
</TABLE>
Page 4 of 23
<PAGE> 5
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 1, 1998 AUGUST 2, 1997
--------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (1,370,061) $ (5,535,139)
Adjustments to reconcile net loss to
Net cash used by operating activities:
Depreciation and amortization 995,437 1,445,578
Gain on sale of asset (150,298)
-
LIFO provision (credit) 180,000 (8,335)
Net changes in assets and liabilities:
Accounts receivable 121,358 (265,882)
Merchandise inventory (2,756,519) (2,750,038)
Prepaid expenses and other current assets (332,408) (396,512)
Other assets (114,188) 13,380
Accounts payable (1,901,088) 734,722
Other accrued expenses (446,766) 712,156
--------------------- --------------------
Net cash used in operating activities (5,774,533) (6,050,070)
===================== ====================
CASH FLOWS FROM INVESTING ACTIVITIES:
Net capital expenditures (5,100,064) (779,357)
Proceeds from sales of land 277,298 -
--------------------- --------------------
Net cash used in investing activities (4,822,766) (779,357)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit borrowings 6,756,667 7,812,542
Payments on obligations under capitalized leases (788,437) (647,018)
Proceeds from long term note payable 6,750,000 -
Payments on note payable-prepetition creditors (2,099,556) (389,407)
--------------------- --------------------
Net cash provided by financing activities 10,618,674 6,776,117
--------------------- --------------------
NET DECREASE IN CASH 21,375 (53,310)
CASH, Beginning of period 453,830 388,267
--------------------- --------------------
CASH, End of period $ 475,205 $ 334,957
===================== ====================
Cash paid for interest $ 529,838 $ 714,922
</TABLE>
Page 5 of 23
<PAGE> 6
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. MANAGEMENT REPRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, all
adjustments necessary for a fair presentation of the results of operations
for the interim periods have been included. All such adjustments are of a
normal recurring nature. Because of the seasonal nature of the business,
results for interim periods are not necessarily indicative of a full year's
operations. The accounting policies followed by Richman Gordman 1/2 Price
Stores, Inc. and subsidiary (the "Company") and additional footnotes are
reflected in the audited consolidated financial statements contained in the
Annual Report on Form 10-K of the Company for the fiscal year ended January
31, 1998.
2. DESCRIPTION OF BUSINESS
The Company operated 32 1/2 Price Stores as of August 1, 1998 and August 2,
1997. During the past year, the Company has closed one store and opened one
store. The 1/2 Price Store concept is to offer instantly recognizable brand
name merchandise 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. On October 20, 1993, the
Company emerged from Chapter 11 of the United States Bankruptcy Code
pursuant to a confirmed Plan of Reorganization. On July 15, 1998, the
Company escrowed the final payment owed to prepetition creditors under the
Plan. Debt payments to creditors totaled $26.6 million over the term of the
Plan.
3. MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost (on a last-in,
first-out, or LIFO basis) or market. Total inventories would have been
higher at August 1, 1998 and January 31, 1998, by approximately $6,479,000
and $6,299,000 respectively, had the FIFO (first-in, first-out) method been
used to determine the cost of all inventories. Working capital and
stockholders' equity would also be increased by these amounts under FIFO.
Quarterly LIFO inventory determinations reflect assumptions regarding
fiscal year-end inventory levels and the estimated impact of annual
inflation.
4. INCOME TAXES
As of January 31, 1998 (the Company's most recent tax year-end), the
Company had net operating loss carryforwards of approximately $28 million,
which expire through 2012. A valuation allowance has been provided against
this net operating loss benefit until realization of these benefits becomes
more likely than not. No income tax benefit was recorded for any part of
fiscal 1998 and 1997 because of the uncertainty of the realization of such
benefits in the future.
Page 6 of 23
<PAGE> 7
5. SERIES B OPTION
The Company and the former preferred shareholder's designee have the first
and second option, respectively, to purchase all or a portion of the
10,200,000 shares of Series B Option Common Stock at a price equal to the
appraised fair value of the stock determined as of July 16, 1998, the
business day following the date on which the final payment to the unsecured
creditors was escrowed. The Board of Directors has engaged the firm of
Murray, Devine & Co. of Philadelphia, PA to perform an appraisal of the
stock.
6. EARNINGS PER SHARE
Financial Accounting Standards Board (FASB) statement No. 128, Earning Per
Share, 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 weighed
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 SFAS No. 128.
7. LONG TERM DEBT
During the second quarter of fiscal 1998, the Company secured mortgage
financing on its distribution center. The $6,750,000 mortgage bears
interest at 7.47% with a 25 year amortization schedule for the monthly
payments and a balloon payment due in 12 years.
8. ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued SFAS No 131, Disclosure About Segments of an
Enterprise and Related Information, which will be effective later in 1998.
SFAS 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 in the Company's 1998 10-K is expected to be minimal.
Page 7 of 23
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's key performance indicators for the second quarter and first half
in terms of sales, profitability and liquidity are as follows:
COMPARABLE STORE SALES
1998 1997
---- ----
Second Quarter +10.3% (4.0)%
First Half +11.6% (7.6)%
PROFITABILITY
<TABLE>
<CAPTION>
Second Quarter
(All dollars in thousands)
1998 1997 Change
---- ---- ------
<S> <C> <C> <C>
Gross margin percentage 35.6% 35.5% 0.1
Operating and interest expenses, % of sales 36.6% 39.5% (2.9)%
Operating and interest expenses $ 15,942 $ 17,159 (7.1)%
Operating Income (loss) $ 711 $ (986) $ 1,697
Net Income (loss) $ 126 $ (1,748) $ 1,874
First Half
(All dollars in thousands)
1998 1997 Change
---- ---- ------
Gross margin percentage 35.4% 35.1% 0.3
Operating and interest expenses, % of sales 38.5% 42.0% (3.5)%
Operating and interest expenses $ 30,982 $ 33,595 (7.8)%
Operating loss $ (213) $ (4,029) $ 3,816
Net loss $ (1,370) $ (5,535) $ 4,165
</TABLE>
Page 8 of 23
<PAGE> 9
LIQUIDITY
<TABLE>
<CAPTION>
First Half
(All dollars in thousands)
1998 1997 Change
---- ---- ------
<S> <C> <C> <C>
Average unused availability on line of credit $ 9,969 $ 7,879 26.5
Unused availability at quarter-end $ 9,682 $ 6,649 45.6%
Average borrowings on line of credit $ 8,904 $ 12,063 (26.2)%
Borrowings on line of credit at quarter-end $ 9,703 $ 15,094 (35.7)%
Cash flow from operations $ (5,775) $ (6,050) 4.5%
Average investment in inventory, at retail $ 48,407 $ 49,129 (1.5)%
(Excluding footwear which was leased for 1998)
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth the components of the Consolidated Statements of
Operations as a percent to Sales:
<TABLE>
<CAPTION>
SECOND QUARTER FIRST HALF
THREE MONTHS ENDED SIX MONTHS ENDED
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of Sales 64.4 % 64.5 % 64.6 % 64.9 %
-------- -------- -------- --------
Gross Profit 35.6 % 35.5 % 35.4 % 35.1 %
License Fee Income 1.3 % - 1.4 % -
Operating and
Administrative Expenses 35.3 % 37.7 % 37.1 % 40.1 %
-------- -------- -------- --------
Income (Loss) From Operations 1.6 % (2.3)% (.3)% (5.0)%
Interest Expense 1.3 % 1.8 % 1.4 % 1.9 %
-------- -------- -------- --------
Net Income (Loss)
Before Income For Taxes 0.3 % (4.0)% (1.7)% (6.9)%
Provision For Income Taxes - - - -
-------- -------- -------- --------
Net Income (Loss) 0.3 % (4.0)% (1.7)% (6.9)%
======== ======== ======== =========
</TABLE>
Net Sales for the second quarter of fiscal 1998 increased $75,000 or 0.2%
compared to net sales in the second quarter of fiscal 1997. Net Sales for the
first half of fiscal 1998 increased by $413,000 or 0.5% compared to net sales in
the first half for 1997. The comparable store sales for the second quarter
increased by 10.3%. Comparable store sales for the first half of fiscal 1998
increased by 11.6%. Comparable store sales exclude sales associated with the
footwear business, which was leased out during the fourth quarter of 1997. The
increases in comparable store sales were partially offset by the impact of
leasing the footwear business. Comparable store sales have increased in each of
the first six months of fiscal 1998. All seven merchandise divisions have
produced comparable store sales increases for the year with Women's, Junior's
and Men's apparel showing the strongest increases. These results are
attributable to increasing the proportion of merchandise in highly recognizable
name brands, adjusting the merchandise
Page 9 of 23
<PAGE> 10
mix to higher growth departments, shifting the marketing strategy to showcase
the merchandise through Sunday newspaper preprints and television, and improving
the execution in the stores.
Gross Profit for the second quarter in 1998 increased $89,000 or 0.6%. The gross
margin percentage was 35.6% for the second quarter of fiscal 1998 compared to
35.5% in the second quarter of fiscal 1997. Comparable store gross margin
dollars increased 13.5% during the second quarter.
Gross profit increased $458,000 or 1.6% in the first half of fiscal 1998
compared to the first half of 1997. The gross margin percentage was 35.4% in the
first half of 1998 versus 35.1% in fiscal 1997. Comparable store gross margin
dollars increased 12.8% during the first half.
Operating and Administrative Expenses decreased by $1,039,000 or 6.3% in the
second quarter of fiscal 1998 compared to the same period in fiscal 1997. As a
percent of net sales, operating and administrative expenses were 35.3% in the
second quarter of fiscal 1998 compared to 37.7% in fiscal 1997. Operating and
Administrative expenses decreased by $2,263,000 or 7.1% for the first half of
fiscal 1998 compared to fiscal 1997. As a percent of net sales, operating and
administrative expenses were 37.1% and 40.1% respectively, for the first half of
1998 and 1997. The significant decrease in operating and administrative expenses
was primarily the result of reduced costs at the corporate offices and
distribution center, lower depreciation and the closing of a low sales volume
store in fiscal 1997.
Interest Expense (Net) decreased by $177,000 or 23.3% in the second quarter of
fiscal 1998 compared to 1997. For the first half of 1998 versus 1997, interest
expense decreased by $349,000 or 23.2%. The decrease in interest expense was a
result of decreases in borrowings on the Company's revolving line of credit.
Net Income for the second quarter was $126,000 compared to a loss of $1,748,000
a year ago, an improvement of $1,874,000 . Net loss for the first half of fiscal
1998 was $1,370,000 compared to a $5,535,000 loss in fiscal 1997, an improvement
$4,165,000 or 75.2%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, as defined by line of credit borrowings and excess
availability, has continued to strengthen compared to last year. Borrowings on
the line of credit at quarter-end were $9,703,000 which was 35.7% less than a
year ago. Average unused availability has been $9,969,000 in fiscal 1998,
compared to $7,879,000 in fiscal 1997, an improvement of $2.1 million or 26.5%.
The low point in availability so far this year has been $8.3 million.
Several factors have contributed to the Company's improved liquidity, including
improved operating performance, increased inventory turnover, improved trade
credit and the distribution center mortgage (see following paragraph). Inventory
prepayments have declined over the past year. During the second quarter of
fiscal 1998, the Company prepaid 7.6% of its inventory purchases compared to
32.9% in the second quarter for fiscal 1997. Approximately $1.5 million of the
$5.4 million of the reduction in borrowings on the line of credit was due to the
proceeds from the mortgage on the distribution center.
Page 10 of 23
<PAGE> 11
During the second quarter of fiscal 1998, the Company secured mortgage financing
on its distribution center. The $6,750,000 million mortgage bears interest at
7.47% with a 25 year amortization schedule for the monthly payments and a
balloon payment due in 12 years. Proceeds of the mortgage were used as follows:
(1) $1,663,00 to make the final payment to prepetition creditors required under
the Plan of Reorganization; (2) $3,121,000 to purchase leased portions of the
distribution center for which ownership was required to obtain the mortgage; (3)
$360,00 for temporary deposits related to the mortgage; (4) $143,000 in fees and
expenses and (5) $1,460,000 to reduce borrowings under the line of credit.
Also, during the second quarter the Company secured an amendment to its line of
credit agreement with Congress Financial Corporation (Central). The amendment
(1) provides a $500,000 seasonal overadvance facility from September 15 to
December 15 of each year, (2) increases the advances available under certain
classes of inventory by $250,000, (3) increases the maximum size of the line
from $27.5 million to $30 million from September 15 to December 15 each year,
and (4) extends the term of the agreement by one year to October 2000. This
financing agreement carries an interest rate of 1% over prime and has no net
worth, working capital or profitability covenants nor any clean down provision.
The Company's primary ongoing cash requirements are for operating expenses and
inventory. The Company's primary sources for 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. The Company believes its cash flow sources will be
adequate to fund ongoing cash requirements.
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 three to five
years.
YEAR 2000
The Company is addressing the information technology (IT) issues surrounding the
year 2000 both in terms of IT systems and non-IT systems. Approximately 15% of
the Company's programs require some level of modification to become compliant
with the year 2000. The IT assessment has been completed and the testing phase
is expected to be completed by December 1998. The non-IT assessment started in
July 1998 and is expected to be completed by December of 1998, including the
third party testing phase. During fiscal 1998, the Company will complete the
process of changing or replacing affected programs and fully testing the revised
versions. Management does not expect the cost of complying with the year 2000
issues to be material. The Company planned to replace several IT systems
regardless of the year 2000 issues and did not accelerate the replacement due to
year 2000 issues. The Company's contingency plans are currently being determined
and are to be completed by December 1998. Management
PAGE 11 OF 23
<PAGE> 12
has determined that no material effect or consequences on the company's results
of operations is reasonably likely to occur although no assurances can be given
in that regard.
FORWARD-LOOKING STATEMENTS
In this section of this Report on Form 10-Q, the Company and persons acting on
its behalf have made certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). These
forward-looking statements are identified as including terms such as "may",
"will", "should", "anticipates", expects", "plans", "intends", or similar
language. Such statements are made in good faith by the Company and such persons
pursuant to the safe-harbor provisions of the 1995 Act. In connection with these
safe-harbor provisions, the Company has identified in its Annual Report to
Shareholders for the fiscal year ended January 31, 1998 (the "Annual Report"),
important factors which could cause actual results to differ materially from
those contained in any forward-looking statement made by or on behalf of the
Company. The Company further cautions that the factors identified in the Annual
Report are not exhaustive or exclusive. The Company does not undertake to update
any forward-looking statement which may be made from time to time by or on
behalf of the Company.
Page 12 of 23
<PAGE> 13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There are no items to report.
Item 2. - Changes in Securities and Use of Proceeds
On June 25, 1998, the Company held a Special Meeting of Shareholders
(the "Special Meeting"), at which the shareholders of the Company approved an
amendment to the Company's Certificate of Incorporation. Pursuant to this
amendment, the terms under which the shares of Series B Option Common Stock may
be repurchased by the Company were amended to conform with the provisions of a
Waiver of Creditors' Committee of Deferred Payment of 1998 Minimum Payment
granted by the Creditors' Committee. As amended, the record date for exercise of
the option (the "Option") to which the shares of Series B Option Common Stock
are subject has been changed from February 2, 1998, to the first business day
following payment in escrow of the balance of the Company's obligations to the
creditors (the "Valuation Date"). The final payment was escrowed on July 15,
1998, and accordingly, the Valuation Date is July 16, 1996. The amendment did
not affect other provisions concerning the terms of the Option, such as the time
periods in which the Corporation and the Gordman designee have to exercise the
Option, the Option exercise payment periods and procedures, and related
provisions, except that such time periods run from the Valuation Date, rather
than February 2, 1998.
Item 3. - Defaults upon Senior Securities.
There are no items to report.
Item 4. - Submission of Matters to a Vote of Security Holders.
As noted above in response to Item 2, on June 25, 1998, the Company
held its Special Meeting to consider a proposed amendment to the Company's
Certificate of Incorporation. Present at the Special Meeting or represented by
proxy were the holders of 16,695,000 shares of Series A Common Stock,
representing 100% of the issued and outstanding shares of Series A Common Stock,
and the holders of 7,378,434 shares of Series B Option Common Stock,
representing 72% of the issued and outstanding shares of Series B Option Common
Stock.
The Company's shareholders approved the proposed amendment to the
Company's Certificate of Incorporation by the following votes:
<TABLE>
<CAPTION>
For Against Abstain
----- ------- -------
<S> <C> <C> <C>
Series A Common Stock 16,695,000 -0- -0-
Series B Option Common Stock 6,847,601 349,190 181,643
</TABLE>
Page 13 of 23
<PAGE> 14
Item 5. - Other Information
The Series B Option Common Stock is subject to an option to purchase
exercisable by the Company or the Trustee of the R.G. Stock Trust in
1998 (the "Option"). The Option is noted upon the face of the Series B
Option Common Stock certificates. If the Option is exercised, the holder
or holders of shares must sell them for a price equal to the fair value
of the shares, as determined by an independent appraisal. The Board of
Directors has engaged the firm of Murray, Devine & Co. of Philadelphia,
PA to perform the appraisal of the stock as of July 16, 1998. The
valuation is expected to be completed in September 1998. Holders of the
Series B Option Common Stock will not have any rights of appraisal.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
(3)(i)(a) Amended and Restated Certificate of
Incorporation of Richman Gordman 1/2 Price
Stores, Inc. (incorporated by reference to the
Company's Registration Statement on Form S-1
(Commission File No. 33-79382), filed with the
Commission on May 26, 1994)
(3)(i)(b) Certificate of Amendment of Amended and
Restated Certificate of Incorporation of Richman
Gordman 1/2 Price Stores, Inc., Dated July 1,
1998
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K with respect to Item 5
thereof on July 15, 1998. The 8-K announced the mortgage
transaction related to the Company's distribution center.
Page 14 of 23
<PAGE> 15
PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RICHMAN GORDMAN 1/2 PRICE
STORES, INC.
Date: September 14, 1998 By: /s/ Jeffrey J. Gordman
------------------ ----------------------
Jeffrey J. Gordman, President
and Chief Executive Officer
Date: September 14, 1998 By: /s/ Michael A. Mallaro
------------------ ----------------------
Michael A. Mallaro, Vice
President of Finance,
Chief Financial Officer,
Secretary and Treasurer
Page 15 of 23
<PAGE> 16
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
3(i)(b) Certificate of Amendment of 17
Amended and Restated Certificate of
Incorporation of Richman Gordman 1/2Price
Stores, Inc., dated July 1, 1998
(27) Financial Data Schedule 22
Page 16 of 23
<PAGE> 1
Exhibit 3(i)(b)
Certificate of Amendment of
Amended and Restated Certificate of
Incorporation of Richman Gordman 1/2 Price
Stores, Inc., dated July 1, 1998
Page 17 of 23
<PAGE> 2
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
Richman Gordman 1/2 Price Stores, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That pursuant to a unanimous written consent in lieu of a meeting of the
Board of Directors of Richman Gordman 1/2 Price Stores, Inc. resolutions were
duly adopted setting forth a proposed amendment of the Amended and Restated
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendments is
as follows:
RESOLVED, that the Amended and Restated Certificate of Incorporation be amended
by changing the Article thereof numbered "6" so that, as amended, said Article
shall be and read as follows:
6. Common Stock Repurchase Option.
a. For the purposes of this Certificate of Incorporation:
(1) The term "Allowed Class 3 Claims" means claims held
by unsecured creditors classified in Classes 3A, 3B, or 3C
pursuant to the Plan against the Debtors (as defined in the
Plan) which have been deemed allowed under the Bankruptcy Code
or which have been allowed pursuant to the Plan or by the
court which has confirmed the Plan.
(2) The term "Creditors' Committee" shall mean the
Official Unsecured Creditors' Committee appointed pursuant to
Section 1102 of the Bankruptcy Code or which have been allowed
pursuant to the Plan or by the court which has confirmed the
Plan with respect to the Debtors under the Plan.
(3) The term "Cumulative Minimum Payment" shall mean the
Corporation's contractual obligation to make unconditional
minimum payments of stated principal and stated interest plus
any contingent interest as set forth in Section 6.02 of the
Plan to Holders of Class 3 Claims from the Effective Date (as
defined in the Plan) to the time of computation.
(4) The term "Disqualified Stock" shall have the meaning
assigned in Section 108(a)(10)(B) of the Code.
Page 18 of 23
<PAGE> 3
(5) Other capitalized terms used in this Certificate of
Incorporation and not separately defined in this Certificate
of Incorporation shall have the meaning ascribed to those
terms in the Plan.
b. Upon receipt of a favorable ruling from the Internal
Revenue Service prior to the end of Fiscal Year 1993 (or at such later
date as shall be approved by the Creditors' Committee) concluding that
subjecting the common stock distributed to holders of Allowed Class 3
Claims (the "Creditors' Stock") to the option and the related purchase
adjustment for Excess Cash Balance paid to the holders of Allowed Class
3 Claims described immediately below (the "Option") would not cause the
Creditors' Stock to be "Disqualified Stock", the Corporation and A.D.
(Dan) Gordman or his Designee shall be entitled to exercise the Option,
as provided in this Article 6 and the Plan, to purchase all or a
portion of the Creditors' Stock at the time and in the manner more
specifically described below. If the Internal Revenue Service does not
rule favorably prior to the end of Fiscal Year 1993 (or at such later
date as shall be approved by the Creditors' Committee), the Plan shall
not grant the Option. The Option may be exercised with respect to all
or a portion of the Creditors' Stock but may not be exercised unless
the Cumulative Minimum Payment has been made. As more particularly
provided below, the Corporation shall have the right to exercise the
Option prior to A.D. (Dan) Gordman or his Designee.
c. Subject to the credit for Excess Cash Balance described
below, the exercise price of the Option with respect to all of the
Creditors' Stock (the "Purchase Price") shall be the price, on the
business day immediately following the payment in full of the
Cumulative Minimum Payment (the "Valuation Date"), at which the
Creditors' Stock would change hands between a willing buyer and a
willing seller, each having a reasonable knowledge of the facts and
neither being under any compulsion to act, as determined according to
customary valuation methodologies, including, without limitation,
analysis of the net cash flow and market multiples of comparable
companies, analysis of comparable stock sales, and consideration of
whether the Creditors' Stock is or is not publicly traded as of the
Valuation Date. Within 30 days following the Valuation Date, an
investment banker to be mutually agreed upon by (a) at least a majority
of members of the Corporation's Board of Directors at the time of such
agreement which were selected by the Creditors' Committee or were the
successors to directors selected by the Creditors' Committee pursuant
to Section 10.01 of the plan, and (b) at least a majority of members of
the Corporation's Board of Directors at the time of such agreement
which were selected by A.D. (Dan) Gordman or his Designee or were the
successors to directors selected by A.D. (Dan) Gordman or his Designee
pursuant to Section 10.01 of the Plan, shall be engaged by and at the
expense of the Corporation to determine the Purchase Price of the
Creditors' Stock as of the Valuation Date (the "Valuation"). The
investment banker shall deliver the final Valuation to A.D. (Dan)
Gordman (or his Designee) and the Corporation. Delivery of the final
Valuation shall be deemed to occur on the day when such Valuation has
been mailed to all parties required by Section 10.03 of the Plan (the
"Valuation Delivery Date"). The investment banker who prepares the
Valuation shall be the final arbiter of the date of the Valuation
Delivery Date.
Page 19 of 23
<PAGE> 4
d. The Excess Cash Balance, if any, previously paid to the
holders of Allowed Class 3 Claims ("Paid Excess Cash Balance") shall be
a credit against, and shall reduce, the exercise price for the Option
whether or not (i) the Option is exercised with respect to all or a
portion of the Creditors' Stock, and (ii) the holder of any Creditors'
Stock with respect to which the Option is exercised received such
Excess Cash Balance. To the extent that the Option is exercised with
respect to less than all shares of the Creditors' Stock, the Option
shall be exercised Pro Rata with respect to all shares of Creditors'
Stock, and the exercise price for such Pro Rata share of Creditors'
Stock shall be (i) that percentage of the Purchase Price equal to the
percentage of all Creditors' Stock which such Creditors' Stock
represents (the "Pro Rata Purchase Price"), minus (ii) Paid Excess Cash
Balance up to the amount of the Pro Rata Purchase Price, provided,
however, that any Paid Excess Cash Balance which the Corporation
applies as a credit and reduction against the Pro Rata Purchase Price
for Creditors' Stock with respect to which the exercise price is
actually paid may not be applied as a credit and reduction by A.D.
(Dan) Gordman or his Designee against the Pro Rata Purchase Price for
Creditors' Stock pursuant to A.D. (Dan) Gordman's or his Designee's
exercise (if any) of the Option.
e. Notice of intent to exercise the Option with respect to any
Creditors' Stock and the amount of such Creditors' Stock must be given
to the holders of the Creditors' Stock who were record holders as of
the Valuation Date (the "Option Record Holders") within 60 days
following the Valuation Delivery Date. Exercise of the Option with
respect to any Creditors' Stock must be completed within 120 days
following the expiration of such 60 day period. Exercise of the Option
with respect to any Creditors' Stock shall be deemed completed upon the
mailing by the party exercising the Option (or the agent of such party)
of the full exercise price with respect to such Creditors' Stock.
Notwithstanding the foregoing sentence, the giving of notice of intent
to exercise the Option with respect to all or a part of the Creditors'
Stock within 60 days following the Valuation Delivery Date shall be
deemed completion of the exercise of the Option to the extent of the
Paid Excess Cash Balance to be utilized by the party giving such
notice.
f. If the Corporation intends to exercise the Option with
respect to all or a portion of the Creditors' Stock, it shall give
written notice, not later than 30 days after the Valuation Delivery
Date, to (i) A.D. (Dan) Gordman (or his Designee) at the address of the
Corporation, and (ii) the Option Record Holders. If the Corporation
fails to give such notice within such period with respect to any
Creditors' Stock, the Corporation shall no longer be entitled to
exercise the Option with respect to such Creditors' Stock except upon
the express written consent of A.D. (Dan) Gordman (or his Designee) and
subject to the 60 day notice period for Option Record Holders described
above. If A.D. (Dan) Gordman (or his Designee) shall not have been
given notice by the Corporation of its intent to exercise the Option
with respect to any Creditors' Stock within 30 days after the Valuation
Delivery Date, then A.D. (Dan) Gordman (or his Designee) shall be
entitled to exercise the Option with respect to such Creditors' Stock
by giving notice to the Corporation and the Option Record Holders
within 60 days after the Valuation Delivery Date of its intent to
exercise the Option and the amount of Creditors' Stock against which it
intends to exercise the Option. The Corporation shall be obligated to
provide A.D. (Dan) Gordman (or his Designee) a list of the Option
Record Holders on or before 30 days after the Valuation Delivery Date.
Page 20 of 23
<PAGE> 5
g. If the Corporation has timely given notice to A.D. (Dan)
Gordman (or his Designee) and the Option Record Holders of its intent
to exercise the Option with respect to any Creditors' Stock but has not
mailed the full exercise price in cash with respect to such Creditors'
Stock to the Option Record Holders by 120 days after the Valuation
Delivery Date, then, except upon the express written consent of A.D.
(Dan) Gordman (or his Designee), the Corporation shall no longer be
entitled to exercise the Option with respect to such Creditors' Stock
and A.D. (Dan) Gordman (or his Designee) shall be entitled to exercise
the Option with respect to such Creditors' Stock and apply Paid Express
Cash Balance to the same extent as intended by the Corporation within
180 days after the Valuation Delivery Date. The Corporation shall give
notice to A.D. (Dan) Gordman (or his Designee) at the address of the
Corporation of its mailing of the full exercise price in cash to the
Option Record Holders with respect to Creditors' Stock against which
the Corporation has exercised the Option within 3 business days of such
mailing.
h. If a favorable ruling is obtained from the Internal Revenue
Service as described above, the Creditors' Stock shall be marked with a
legend indicating that it is subject to the Option more particularly
described in Section 10.03 of the Plan.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and held
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said Richman Gordman 1/2 Price Stores, Inc. has caused this
certificate to be signed by Jeffrey J. Gordman, an Authorized Officer, this 1
day of July, 1998.
By: /s/ Jeffrey J. Gordman
--------------------------------------
Name: Jeffrey J. Gordman
Title: President and Chief Executive Officer
Page 21 of 23
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<PERIOD-START> FEB-01-1998
<PERIOD-END> AUG-01-1998
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0
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