<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CHADWICK'S OF BOSTON, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5961 APPLIED FOR
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
35 UNITED DRIVE
WEST BRIDGEWATER, MASSACHUSETTS 02379
508-583-8110
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
PRINCIPAL EXECUTIVE OFFICES)
------------------------
DHANANJAYA K. RAO, PRESIDENT AND CHIEF EXECUTIVE OFFICER
CHADWICK'S OF BOSTON, LTD.
35 UNITED DRIVE
WEST BRIDGEWATER, MASSACHUSETTS 02379
508-583-8110
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
CONSTANTINE ALEXANDER ARTHUR G. SILER ALLAN G. SPERLING
NUTTER, MCCLENNEN & FISH, LLP ROPES & GRAY CLEARY, GOTTLIEB, STEEN & HAMILTON
ONE INTERNATIONAL PLACE ONE INTERNATIONAL PLACE ONE LIBERTY PLAZA
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02110 NEW YORK, NEW YORK 10006
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (par value
$.01 per share)....... 10,649,000 shs. $16.00 $170,384,000 $58,753
- ----------------------------------------------------------------------------------------------------------
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- ------------
<FN>
(1) Includes 1,389,000 shares which the Underwriters have the option to purchase to cover over-allotments.
(2) Estimated, pursuant to Rule 457(a), solely for the purpose of computing the registration fee.
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
CHADWICK'S OF BOSTON, LTD.
------------------------
<TABLE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS
OF THE INFORMATION REQUIRED BY PART I OF FORM S-1
<CAPTION>
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
- ------------------------------------------------- --------------------------------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page of the Registration
Statement; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors; The
Company
4. Use of Proceeds............................. Use of Proceeds
5. Determination of Offering Price............. Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution.................................... *
7. Selling Security Holders.................... Relationship with TJX; Ownership of
Securities
8. Plan of Distribution........................ Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered................................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Dividend Policy;
Description of Capital Stock
10. Interests of Named Experts and Counsel...... *
11. Information with Respect to the
Registrant................................. Outside Front Cover Page; Prospectus
Summary; Risk Factors; The Company;
Dividend Policy; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Relationship with
TJX; Ownership of Securities; Shares
Eligible for Future Sale; Description of
Capital Stock
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. *
- ---------------
<FN>
* Omitted because inapplicable.
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
MAY 24, 1996
PROSPECTUS
9,260,000 SHARES
[LOGO] CHADWICKS
OF BOSTON LTD.
COMMON STOCK
($.01 PAR VALUE)
All of the shares of common stock, $.01 par value per share (the "Common Stock")
of Chadwick's of Boston, Ltd. ("Chadwick's" or the "Company") being offered
hereby are being sold by The TJX Companies, Inc. ("TJX"). The Company will not
receive any of the proceeds from the sale of the shares of Common Stock offered
hereby.
Prior to this offering (the "Offering"), there has been no public market for the
Common Stock. It is currently anticipated that the initial public offering price
will be between $14.00 and $16.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price.
Application will be made to list the Common Stock on the New York Stock Exchange
(the "NYSE").
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT TJX(1)
<S> <C> <C> <C>
Per Share.................... $ $ $
Total(2)..................... $ $ $
- ---------------------------------------------------------------------------------------
(1) Before deducting expenses payable by TJX estimated to be $ .
(2) TJX has granted to the Underwriters a 30-day option to purchase up to an
aggregate of 1,389,000 additional shares of Common Stock at the Price to
Public, less Underwriting Discount, solely to cover over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to TJX will be $ , $ and
$ , respectively. See "Underwriting."
</TABLE>
The shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Common Stock will be made at the office of
Salomon Brothers Inc, Seven World Trade Center, New York, New York or through
the facilities of The Depository Trust Company, on or about , 1996.
SALOMON BROTHERS INC GOLDMAN, SACHS & CO.
The date of this Prospectus is , 1996.
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in that Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and its
Common Stock, reference is hereby made to such Registration Statement, exhibits
and schedules. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects to such reference. The Registration Statement, including the exhibits
and schedules thereto, can be inspected and copied at the Commission's Public
Reference Room, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Chicago
Regional Office, Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661 and New York Regional Office, Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can also be obtained at
prescribed rates by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549.
The Company will register its Common Stock under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and, in accordance with the
Exchange Act, thereafter will be required to file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and
information may be inspected and copied at the public reference facilities
maintained by the Commission referenced above. The Company intends to furnish
holders of Common Stock with annual reports that include audited annual
consolidated financial statements and a report thereon by its independent
certified public accountants and quarterly reports containing unaudited
consolidated financial information for each of the first three quarters of each
fiscal year. As long as the Common Stock is listed on the New York Stock
Exchange, such reports, proxy statements and information also can be inspected
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated or the context
otherwise requires: (i) all references to a year in connection with statements
concerning the Company's financial or operating results means the Company's
fiscal year which ends on the last Saturday in January in the following calendar
year (e.g., "1995" means the fiscal year ended January 27, 1996); (ii) the
information contained in this Prospectus assumes that the Exchange Transaction
(as defined and described below under "Relationship with TJX") occurred prior to
all relevant periods presented herein; (iii) the information contained in this
Prospectus assumes no exercise of the Underwriters' over-allotment option; and
(iv) the "Company" or "Chadwick's" refers to Chadwick's of Boston, Ltd., its
subsidiary, Chadwick's, Inc. and its subsidiary, and "TJX" refers to The TJX
Companies, Inc. and its subsidiaries.
THE COMPANY
Chadwick's of Boston, Ltd. is the nation's first and largest catalog
retailer of off-price women's apparel and one of the largest participants in
women's apparel catalog retailing. The Company offers a broad selection of high
quality branded and private label apparel at prices typically 25% to 50% below
the regular prices of department and specialty retail stores. The Company
believes that it has developed a strong and unique franchise and a well
recognized brand name by consistently delivering exceptional value while
satisfying its customers' wardrobe needs for career, casual and social wear, all
in a broad selection of colors, styles and sizes. Chadwick's believes that its
success in executing this merchandising strategy is the result of its thorough
understanding of the Company's target customer, extensive off-price
merchandising experience, powerful catalog presentation, strong product
development and worldwide sourcing capabilities. As a result, Chadwick's has
increased sales at a compound annual growth rate of 28.0%, from $173.4 million
in 1991 to $465.6 million in 1995.
The Company believes that Chadwick's of Boston is one of the most well
recognized brand names in women's apparel catalog retailing, and that its
customer list is one of the largest and most valuable in the women's apparel
industry. Chadwick's has over 10 million names on its customer list, more than
six million of which are active customers, having made one or more purchases in
the preceding 18 months. Management believes that its brand name and customer
list provide the Company with distinct competitive advantages that can be
neither easily nor cost-effectively replicated.
The Company's target customers are middle to upper middle income women
between the ages of 25 and 55, who the Company believes represent approximately
one-third of the adult female population in the United States or approximately
33 million women. The overall women's apparel industry generated approximately
$81 billion in sales in 1995, of which catalog sales represented approximately
9.4% or $7.6 billion. While sales in the overall women's apparel industry grew
by approximately one percent from 1994 to 1995, catalog sales of women's apparel
grew by 6.1% during the same period. The Company believes that catalog sales of
women's apparel will continue to increase because the busy lifestyles of today's
women demand the convenience and time savings afforded by catalog shopping.
From 1987 through 1993, the Company's net sales grew at a compound annual
growth rate of 46.7%. By the fall of 1994, the Company's order fulfillment and
customer service operations were unable to keep pace with its rapid sales
growth, resulting in a decline in sales growth, an increase in operating
expenses and a substantial decline in profitability. In response, the Company
reorganized its management team in the first quarter of 1995. This new
management team implemented a series of initiatives to increase operational
efficiencies and improve customer service to levels necessary to support the
Company's strong and established merchandising organization. Catalog circulation
- --------------------------------------------------------------------------------
3
<PAGE> 6
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was reduced and improvements were made in fulfillment center and telemarketing
operations, inventory management and coordination among all facets of the
business.
The Company's initiatives produced substantial and rapid improvement.
Between 1994 and 1995, the initial fulfillment rate (percentage of merchandise
available to be shipped at the time of order) increased from 57.1% to a Company
record of 72.3% and the final fulfillment rate (percentage of total merchandise
orders filled) increased from 86.5% to 90.5%. Over the same period, gross margin
increased from 37.2% to 40.1% and selling, general and administrative expenses
as a percentage of net sales declined from 35.9% to 34.4%. These initiatives,
together with an expansion of the Company's deferred billing program, increased
profits, sales and average order value. Income before extraordinary items grew
from $1.3 million in 1994 to $11.7 million in 1995, and, over the same time
period, average order value increased from $81 to $86 and net sales increased
7.6%, from $432.7 million to $465.6 million, despite a 16.6% reduction in
catalog circulation, from 235.0 million to 196.1 million. This strong
performance continued into the first quarter of 1996, as net income increased
from $2.1 million in the first quarter of 1995 to $6.7 million and net sales
increased 13.2%, to $132.0 million.
The Company believes that its new operational structure, combined with
strong customer acceptance of its value-oriented merchandise, provides a solid
foundation for future growth. The Company intends to capitalize on opportunities
to increase sales to both existing and new customers, continue improvements in
operating efficiencies and increase leveraging of operating expenses through the
following strategies:
EXPAND THE COMPANY'S CORE WOMEN'S APPAREL BUSINESS. The Company
believes it has a substantial opportunity to increase sales to
existing customers by capturing a greater share of their apparel
purchases. The Company plans to expand its offering of women's apparel
by increasing average page count in its existing catalogs by
approximately 20% over the next three years.
EXPAND THE COMPANY'S COMPLEMENTARY PRODUCT OFFERINGS. The Company
plans to build on its success in women's apparel by expanding its
offering of complementary products to existing and new customers.
These products, which have been tested and offered on a limited basis,
include men's apparel, children's apparel, women's special sizes,
accessories, gifts and cosmetics. Since the Company began offering
complementary products in 1992, sales of these products have grown to
represent 16.2% of total net sales in 1995. The Company believes that
a significant opportunity exists to further increase sales of these
products.
DEVELOP AND GROW NEW CATALOG CONCEPTS. The Company intends to offer
in separate and distinct catalogs complementary products and new
product concepts that have the potential for significant sales growth.
In May 1996, the Company mailed Bridgewater, its first new concept
catalog, which offers an assortment of classic fashions for men and
women. To date, Bridgewater has met with strong customer response.
CONTINUE TO REFINE CATALOG MAILING SEGMENTATION TECHNIQUES. The
Company plans to further develop and refine its statistical models and
analyses to better target its catalog mailings and more profitably
capitalize on its current customer list of over 10 million names. By
refining its catalog mailing segmentation techniques, the Company
hopes to be able to increase its response rate and the dollar amount
of purchases for each catalog mailed.
EXPAND THE COMPANY'S CUSTOMER BASE. Chadwick's intends to grow its
customer base through its aggressive name acquisition program,
including the rental of customer lists and the implementation of
advertising campaigns specifically designed to add new customers.
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4
<PAGE> 7
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INCREASE THE COMPANY'S DEFERRED BILLING PROGRAM. The Company intends
to expand the use of its "buy now, pay later" deferred billing program
which it initiated in 1995. The Company believes that its deferred
billing program has contributed to an increase in average order value
and net sales.
CONTINUE TO IMPROVE ORDER FULFILLMENT OPERATIONS AND INVENTORY
MANAGEMENT. The Company plans to make additional improvements in the
areas of order fulfillment and inventory management. Chadwick's
believes continued opportunity exists to increase operating
efficiencies.
ENHANCE TELEMARKETING, CUSTOMER SERVICE AND MANAGEMENT INFORMATION
SYSTEMS. The Company intends to continue to upgrade its telemarketing
and management information systems that will enhance its ability to
increase sales, operating efficiency and overall customer service.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by TJX(1)....... 9,260,000 shares
Common Stock outstanding after the
Offering(2)........................ 15,178,847 shares
Use of Proceeds...................... The Company will not receive any of the proceeds from
the sale of the shares of Common Stock offered hereby.
All proceeds will be received by TJX.
Listing.............................. Application will be made to list the Company's Common
Stock on the NYSE.
Proposed NYSE Symbol................. CWK
<FN>
- ---------------
(1) Assumes the Underwriters' over-allotment option is not exercised.
(2) Exclusive of 850,000 shares that will be reserved for issuance upon exercise
of stock options and similar awards under the Company's 1996 Equity
Incentive Plan and the 1996 Stock Option Plan for Non-Employee Directors.
For a description of stock options to be issued contemporaneously with this
Offering, see "Executive Compensation -- Equity Incentive Plan."
</TABLE>
RELATIONSHIP WITH TJX
The Chadwick's of Boston catalog was established by TJX in 1983. The
Company's assets are held by Chadwick's, Inc. which, prior to the Offering, has
been a wholly-owned subsidiary of TJX. In connection with the Offering, TJX will
exchange all of the outstanding shares of common stock of Chadwick's, Inc. for
15,178,847 shares of Common Stock of the Company (the "Exchange Transaction"),
9,260,000 shares of which are being offered hereby by TJX. Concurrently with the
closing of the Offering (the "Closing"), TJX will contribute $20.0 million to
the equity of Chadwick's, Inc., and Chadwick's, Inc. will repay to TJX the
balance of outstanding intercompany indebtedness over the equity contribution at
such time, which balance is currently estimated to be approximately $52 million
(such repayment, together with the related equity contribution, is hereinafter
referred to as the "Debt Repayment"). The Company expects to generate the funds
for the repayment of this indebtedness entirely from credit facilities which it
will establish prior to the Offering. See "Risk Factors -- Financing
Requirements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
Upon completion of the Offering, TJX will own approximately 39% of the
Company's outstanding Common Stock (approximately 30% if the Underwriters
exercise their over-allotment option in
- --------------------------------------------------------------------------------
5
<PAGE> 8
- -------------------------------------------------------------------------------
full), and likely will be the Company's largest stockholder. As a result of its
ownership interest, TJX could have effective control of the vote on matters
submitted to stockholders following completion of the Offering, including the
election of directors and the approval of extraordinary corporate transactions.
TJX has advised the Company that it expects to reduce its ownership interest in
the Company over time, subject to prevailing market and other conditions. See
"Relationship with TJX." Currently, two of the four members of the Company's
Board of Directors (the "Board") are officers and directors of TJX. Either
simultaneously with the completion of the Offering or within six months
thereafter, the Company anticipates that the Board will be increased to seven
members through the addition of three persons who are neither affiliates of TJX
nor employees ("associates") or officers of the Company.
To the extent the Company has in the past had excess inventory which it
wished to liquidate in bulk, it has sold this inventory to TJX and others.
During 1994 and 1995, the Company liquidated approximately $14.4 million and
$10.6 million, respectively, of its total inventory liquidations through TJX,
representing in each year more than half of such liquidations. To continue and
formalize this mutually advantageous arrangement, the Company and TJX have
entered into an Inventory Purchase Agreement expiring on January 29, 2000. See
"Relationship with TJX -- Liquidation."
As part of their ongoing relationship following the Offering, TJX and the
Company will enter into a number of other agreements including a Services
Agreement and a Tax Sharing and Separation Agreement. See "Relationship with
TJX."
------------------------
Chadwick's[Registered Trademark] and Chadwick's of Boston, Ltd.[Registered
Trademark] are federally registered trademarks owned by the Company.
Bridgewater[Trademark] is a trademark owned by the Company.
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6
<PAGE> 9
<TABLE>
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SUMMARY FINANCIAL DATA
The following summary financial data is qualified by and should be read in
conjunction with the Company's Combined Financial Statements and Pro Forma
Combined Financial Statements and the notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<CAPTION>
PRO FORMA(1)
HISTORICAL ------------------
-------------------------------------------------------------------------- FISCAL THIRTEEN
THIRTEEN YEAR WEEKS
FISCAL YEAR ENDED WEEKS ENDED ENDED ENDED
---------------------------------------------------- ------------------- -------- --------
JAN. 25, JAN. 30, JAN. 29, JAN. 28, JAN. 27, APR. 29, APR. 27, JAN. 27, APR. 27,
1992 1993(2) 1994 1995 1996 1995 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, NET SALES PER CATALOG AND AVERAGE ORDER VALUE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............. $173,374 $295,532 $424,276 $432,660 $465,598 $116,611 $131,996 $465,598 $131,996
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit........ 67,263 112,346 155,043 160,786 186,730 47,467 58,696 186,730 58,696
Selling, general and
administrative
expenses, including
catalog and order
processing costs.... 55,656 90,366 131,439 155,329 160,282 42,387 45,831 161,982 46,231
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
operations........ 11,607 21,980 23,604 5,457 26,448 5,080 12,865 24,748 12,465
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before
extraordinary items
and cumulative
effect of accounting
changes............. $ 7,108 $ 13,184 $ 12,285 $ 1,262 $ 11,674 $ 2,116 $ 6,697 $ 11,332 $ 6,664
======== ======== ======== ======== ======== ======== ======== ======== ========
Net income(3)......... $ 7,108 $ 13,184 $ 12,665 $ 1,070 $ 8,336 $ 2,116 $ 6,697 $ 7,994 $ 6,664
======== ======== ======== ======== ======== ======== ======== ======== ========
PRO FORMA EARNINGS PER
COMMON SHARE:
Income before
extraordinary items
and cumulative
effect of accounting
changes............. $ .74 $ .44
======== ========
Net income............ $ .52 $ .44
======== ========
BALANCE SHEET DATA:
Total assets.......... $ 70,673 $121,094 $156,095 $177,625 $199,215 $210,540 $199,648 $186,401
Long-term debt(4)..... 7,580 22,152 52,154 47,391 70,769 81,712 60,277 30,000
Stockholder's
equity.............. 21,420 34,604 47,269 48,339 56,675 50,455 63,372 83,372
OTHER FINANCIAL AND
OPERATING DATA:
EBITDA(5)............. $ 13,580 $ 25,116 $ 28,109 $ 11,156 $ 33,160 $ 6,717 $ 14,524 $ 31,460 $ 14,124
Total catalog
circulation......... 78,555 123,064 213,168 234,973 196,073 64,150 48,487
Net sales per
catalog(6).......... $ 2.21 $ 2.40 $ 1.99 $ 1.84 $ 2.37 $ 1.82 $ 2.72
Average order
value(7)............ $ 84 $ 83 $ 81 $ 81 $ 86 $ 78 $ 94
<FN>
- ---------------
(1) The pro forma financial data for the year ended January 27, 1996 and for the
thirteen weeks ended April 27, 1996, have been derived from, and should be
read in conjunction with the unaudited pro forma combined financial
statements of the Company and the notes thereto (including a description of
the assumptions used in the pro forma data) included elsewhere in this
Prospectus.
(2) 53 week period.
(3) Net income includes a credit of $380,000 for the cumulative effect of
accounting changes in the fiscal year ended January 29, 1994 and includes
extraordinary charges for the early retirement of debt of $192,000 in the
fiscal year ended January 28, 1995 and $3.3 million in the fiscal year ended
January 27, 1996.
(4) Includes loans and advances from TJX.
(5) Earnings before interest, taxes, depreciation and amortization.
(6) Net sales per catalog equals net sales divided by total catalog circulation.
(7) Average order value equals total value of orders received divided by the
number of orders received.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
RISK FACTORS
Before making an investment decision, prospective purchasers of the Common
Stock offered hereby should carefully consider the following factors, in
addition to the other information in this Prospectus.
ABSENCE OF HISTORY AS A STAND-ALONE COMPANY
Following the consummation of the Offering, the Company will no longer be a
subsidiary of TJX, and TJX will have no obligation to provide management,
financial or other assistance to the Company or any of its subsidiaries except
as described in "Relationship with TJX -- Services." In addition, the Company
has never operated as, and the Company's management team has never managed, a
stand-alone company. The inability of the Company to operate competitively or of
management to manage the Company effectively and efficiently as a stand-alone
company could have a material adverse effect on the Company's business,
financial condition and results of operations.
VOLATILITY OF CONSUMER PREFERENCES AND SPENDING PATTERNS
Apparel sales have historically been dependent, in part, upon discretionary
consumer spending which is affected by general economic conditions, consumer
confidence, availability of consumer credit and other factors beyond the control
of the Company. In addition, the Company's performance is subject to risks
associated with changing fashion and the Company's ability to deliver fashion
that is in demand. Although the Company believes that its strategy of offering a
broad range of merchandise limits the risk attendant to the volatility of
consumer preferences, there can be no assurance that this strategy will be
successful. Misjudgment by the Company as to fashion trends or consumer
preferences or a downturn in discretionary consumer spending could have a
material adverse effect on the Company's business, financial condition and
results of operations.
IMPACT OF INCREASES IN COSTS OF POSTAGE, PAPER AND PRINTING
Postal rates and paper and printing costs affect the cost of the Company's
order fulfillment and catalog and promotional mailings. The Company relies
heavily on discounts from the basic United States Postal Service ("USPS") rate
structure, such as discounts for bulk mailings and pre-sorting by zip code and
carrier routes. Like others in the catalog industry, the Company passes on a
significant portion of its shipping and handling expenses directly to the
customer, but it does not directly pass on the costs of preparing and mailing
catalogs and other promotional materials. The Company historically has not
entered into long-term contracts for its paper purchases. Consequently, there
can be no assurance that the Company will not be subject to an increase in paper
costs. In addition, although the Company currently has contracts for the
printing of its catalogs, these contracts typically have three-year terms, and
offer no assurance that the Company's printing costs will not increase upon
renegotiation of these contracts. Significant increases in postal rates or paper
or printing costs could have a material adverse effect on the Company's
business, financial condition and results of operations, particularly to the
extent that the Company is unable to pass on such increases directly to
customers or to offset such increases by either raising prices or reducing other
costs.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will depend to a significant extent upon
the efforts and abilities of Dhananjaya K. Rao, the Company's President and
Chief Executive Officer, and Carol Meyrowitz, the Company's Executive Vice
President -- Merchandising, as well as certain other key officers and
associates. The loss of the services of Mr. Rao, Ms. Meyrowitz or such other key
officers and associates could have a material adverse effect on the Company's
business, financial condition and results of operations.
8
<PAGE> 11
FINANCING REQUIREMENTS
As a subsidiary of TJX, the Company has benefitted from its ability to
finance its operations and growth through funding provided by TJX. Following the
Offering, the Company's capital needs will be provided through internally
generated funds and bank credit facilities. The Company has received a
commitment from two banks to provide the Company with a three-year credit
facility composed of a $30 million term loan and a revolving line of credit of
up to $120 million. The Company has received and is reviewing proposals for a
long-term deferred billing facility which would allow it to periodically sell
its deferred billing receivables rather than finance them with short-term
borrowings. In the interim, the Company has received a commitment from one of
the aforementioned banks to provide a six-month $30 million loan to finance the
Company's deferred billing program. The Company will be subject to compliance
with various loan covenants under any such credit facilities. To the extent that
internally generated funds and funds available under any credit facilities
obtained by the Company are insufficient for its needs, the Company will have to
seek additional financing through public or private equity or debt financings.
There can be no assurance, however, that any such additional financing will be
available on acceptable terms, if at all. If adequate funds through the proposed
credit facilities or otherwise are not available for any reason, the Company's
business, financial condition and results of operations would be materially
adversely affected.
RELATIONSHIP WITH TJX; POTENTIAL CONFLICTS OF INTEREST
Upon completion of the Offering, TJX will own approximately 39% of the
Company's outstanding Common Stock (approximately 30% if the Underwriters
exercise their over-allotment option in full), and likely will be the Company's
largest stockholder. As a result of its ownership interest, TJX could have
effective control of the vote on matters submitted to stockholders following
completion of the Offering, including the approval of extraordinary corporate
transactions and the election of directors. Currently, two of the four members
of the Company's Board of Directors are officers and directors of TJX, which may
permit TJX to exert additional influence over the Company. Either simultaneously
with the completion of the Offering or within six months thereafter, the Company
anticipates that the Board will be increased to seven members through the
addition of three persons who are neither affiliates of TJX nor associates or
officers of the Company. See "Relationship with TJX." The inability of the
Company to operate free from the influences of TJX could have a material adverse
effect on the Company's business, financial condition and results of operations.
The executive officers of TJX who serve as directors of the Company may
have conflicts of interest in addressing business opportunities and strategies
with respect to which the Company's and TJX's interests differ. Neither the
Company nor TJX has adopted any formal procedures designed to assure that such
conflicts of interest will not occur or to resolve any such conflicts.
The Company and TJX currently intend to continue their past practice of
having the Company sell excess inventory to TJX, among others. The Company and
TJX have entered into an Inventory Purchase Agreement expiring on January 29,
2000. See "Relationship with TJX -- Liquidation." The Company believes that the
Inventory Purchase Agreement will allow the Company and TJX to maintain their
mutually advantageous inventory liquidation relationship. If the terms of the
agreement do not continue to be advantageous to the Company during the term of
the agreement or if the liquidation arrangements were not to be continued upon
their expiration, there could be a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON SUPPLIERS; FOREIGN SOURCING
The Company's broad range of merchandise requires that it maintain
relationships with many manufacturing sources and suppliers. Although the
Company believes that it has established strong relationships with its principal
manufacturing sources, the Company does not have long-term contracts. The
inability of the Company to source quality goods in a timely fashion at
favorable prices could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Purchasing;
Suppliers."
9
<PAGE> 12
In 1995, approximately 34% of the Company's merchandise was directly
imported. Approximately 10% of all merchandise purchased was directly imported
from China. In addition, many of the Company's domestic vendors import a
substantial portion of their merchandise from abroad. Many of the Company's
imports are subject to existing or potential duties, tariffs or quotas that may
limit the quantity of certain types of goods that may be imported into the
United States. The Company competes with other companies for production
facilities and production capacity. The Company's business is also subject to a
variety of other risks associated with doing business abroad, such as political
instability, currency and exchange risks and other local issues. The Company's
future performance will be subject to such risks, which are beyond its control,
and there can be no assurance that the occurrence of any destabilizing event
abroad would not have a material adverse effect on the Company's business,
financial condition and results of operations.
On May 15, 1996, the United States announced proposed prohibitive tariffs
(possibly 100% or more) on a variety of products imported from China, including
many categories of textiles and apparel. The proposed tariffs are scheduled to
become effective on June 17, 1996 unless China takes adequate steps to implement
a 1995 agreement relating to the protection of intellectual property rights.
While the Company is hopeful that this matter will be resolved, the imposition
of the proposed or similar tariffs could have a material adverse effect upon the
Company's business, financial condition and results of operations.
RISK OF DISASTER
The Company conducts its operations primarily from a single facility in
West Bridgewater, Massachusetts. If a disaster (such as a fire or hurricane)
were to destroy or significantly damage the facility, the Company would have to
obtain alternative facilities from which to conduct its operations and replenish
its inventory, all of which would result in increased operating costs and
significant delays in fulfillment of customer orders. While the Company intends
to maintain business interruption insurance, any such increased costs or delays
could have a material adverse effect on the Company's business, financial
condition and results of operations.
COMPETITION
All aspects of the retail apparel industry are highly competitive. The
Company competes with all retail sellers of apparel, including T.J. Maxx and
Marshalls. The Company competes primarily with other catalog retailers,
department stores and specialty retailers, many of which have greater financial
resources than the Company. While the Company is currently the nation's largest
catalog retailer of off-price women's apparel, there can be no assurance that
other retailers of apparel will not decide in the future to enter the Company's
market. If the Company is unable to continue to compete effectively in the
women's apparel and other markets, the Company's business, financial condition
and results of operations would be materially adversely affected. See
"Business -- Competition."
RISKS RELATED TO UNIONIZED EMPLOYEES
At April 27, 1996, the Company had 2,452 associates, of whom approximately
992 were members of a labor union. If unionized associates were to engage in a
strike or other work stoppage or if additional associates were to become
unionized, the Company could experience a significant disruption of operations
and higher labor costs, all of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
NO CASH DIVIDENDS ON COMMON STOCK
The Company anticipates that for the foreseeable future all earnings, if
any, will be retained for the operation and expansion of its business.
Accordingly, the Company does not currently anticipate paying any cash dividends
on its Common Stock. See "Dividend Policy."
NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; MARKET VOLATILITY
Prior to this Offering, there has been no public market for the Company's
Common Stock. The Company will apply to list the shares of Common Stock on the
NYSE, but there can be no assurance
10
<PAGE> 13
that following the Offering an active public trading market will develop or be
sustained or that shares of the Common Stock will be resold at or above the
initial public offering price. The initial public offering price of the Common
Stock was determined by negotiations among the Company, TJX and the
Representatives of the Underwriters based on several factors and does not
necessarily bear any relationship to the Company's asset value, net worth or
other established criteria of value. Accordingly, such price should not be
considered an indication of the Company's actual value. See "Underwriting."
Additionally, the market price of the Common Stock may be subject to significant
fluctuations and may trade below the initial public offering price in response
to changes in the general condition of the economy or the retail and catalog
industries or other factors beyond the control of the Company. The Company's
quarterly results of operations may also fluctuate significantly as a result of
several factors, including the timing of catalog mailings and changes in the
selection of merchandise offered and sold. Any public market that may develop
for the Company's Common Stock may be materially adversely affected by any such
stock price or operational fluctuations.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, TJX will own approximately 39% of the
Company's outstanding Common Stock (approximately 30% if the Underwriters
exercise their over-allotment option in full). In connection with the Offering,
the Company and TJX will enter into an agreement that will provide TJX with
certain rights to have the shares of Common Stock owned by it after the Offering
registered by the Company under the Securities Act, in order to permit the
public sale of such shares. See "Relationship with TJX -- Registration Rights
Agreement." In addition, subject to the restrictions described below and
applicable law, TJX will be free to sell any and all of the shares of Common
Stock it owns after completion of the Offering. TJX has advised the Company that
it expects to reduce its ownership interest in the Company over time, subject to
prevailing market and other conditions. TJX has agreed, however, not to offer,
sell or contract to sell or otherwise dispose of, directly or indirectly, or
announce the offering of, or exercise any registration rights with respect to,
or register, cause to be registered or announce the registration or intended
registration of, any shares of Common Stock or any stock option or other
security convertible into or exchangeable for, any shares of Common Stock for a
period of 180 days from the date of the Underwriting Agreement relating to the
Offering without the prior written consent of the Representatives of the
Underwriters except for (a) in the case of the Company, Common Stock issued
pursuant to any employee or director plan described herein and (b) in the case
of directors and executive officers, the exercise of stock options pursuant to
benefit plans described herein and shares of Common Stock disposed of as bona
fide gifts. See "Underwriting." No prediction can be made as to the effect, if
any, that future sales of Common Stock, or the availability of Common Stock for
future sales, will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of Common Stock or the perception
that sales could occur could adversely affect prevailing market prices for the
Common Stock. See "Shares Eligible For Future Sale" and "Underwriting."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
By-laws and Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the Company or
limit the price that certain investors might be willing to pay in the future for
shares of the Common Stock. Certain of those provisions provide for a classified
Board of Directors, the issuance, without further stockholder approval, of
preferred stock with rights and privileges that could be senior to the Common
Stock, no right of the stockholders to call a special meeting of stockholders,
restrictions on the ability of stockholders to nominate directors and submit
proposals to be considered at stockholders' meetings and a supermajority voting
requirement in connection with stockholders' proposed amendments to the By-laws.
The Company also is subject to Section 203 of the Delaware General Corporation
Law (the "DGCL") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
any "interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder. See "Description of Capital
Stock."
11
<PAGE> 14
THE COMPANY
Chadwick's of Boston, Ltd. is the nation's first and largest catalog
retailer of off-price women's apparel and one of the largest participants in
women's apparel catalog retailing. The Company offers a broad selection of high
quality branded and private label apparel at prices typically 25% to 50% below
the regular prices of department and specialty retail stores. The Company
believes that it has developed a strong and unique franchise and a well
recognized brand name by consistently delivering exceptional value while
satisfying its customers' wardrobe needs for career, casual and social wear, all
in a broad selection of colors, styles and sizes. Chadwick's believes that its
success in executing this merchandising strategy is the result of its thorough
understanding of the Company's target customer, extensive off-price
merchandising experience, powerful catalog presentation, strong product
development and worldwide sourcing capabilities. As a result, Chadwick's has
increased sales at a compound annual growth rate of 28.0%, from $173.4 million
in 1991 to $465.6 million in 1995.
The Company believes that Chadwick's of Boston is one of the most well
recognized brand names in women's apparel catalog retailing, and that its
customer list is one of the largest and most valuable in the women's apparel
industry. Chadwick's has over 10 million names on its customer list, more than
six million of which are active customers, having made one or more purchases in
the preceding 18 months. Management believes that its brand name and customer
list provide the Company with distinct competitive advantages that can be
neither easily nor cost-effectively replicated.
The Company's target customers are middle to upper middle income women
between the ages of 25 and 55, who the Company believes represent approximately
one-third of the adult female population in the United States or approximately
33 million women. The overall women's apparel industry generated approximately
$81 billion in sales in 1995, of which catalog sales represented approximately
9.4% or $7.6 billion. While sales in the overall women's apparel industry grew
by approximately one percent from 1994 to 1995, catalog sales of women's apparel
grew by 6.1% during the same period. The Company believes that catalog sales of
women's apparel will continue to increase because the busy lifestyles of today's
women demand the convenience and time savings afforded by catalog shopping.
The Chadwick's of Boston catalog was established by TJX in 1983. The
Company was organized under Delaware law on May 16, 1996 for the purpose of
facilitating the Exchange Transaction in connection with the Offering. The
Company's principal executive offices are located at 35 United Drive, West
Bridgewater, Massachusetts 02379 and its telephone number is (508) 583-8110.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of shares of
Common Stock offered hereby. All proceeds will be received by TJX.
DIVIDEND POLICY
The Company plans to retain any future earnings for expansion of its
business and, accordingly, the Company does not anticipate paying cash dividends
in the foreseeable future. Payment of dividends is within the discretion of the
Company's Board of Directors and will depend, among other factors, upon the
Company's earnings, financial condition and capital requirements.
12
<PAGE> 15
CAPITALIZATION
<TABLE>
The following table sets forth the capitalization of the Company as of
April 27, 1996 on a historical basis and on a pro forma basis, giving effect to
the Debt Repayment. This table should be read in conjunction with "Selected
Financial Data," the Combined Financial Statements, the Pro Forma Combined
Financial Statements and notes thereto included elsewhere in this Prospectus.
<CAPTION>
APRIL 27, 1996
-------------------------
HISTORICAL PRO FORMA
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt...................................................... -- --
Long-term debt:
Loans and advances from TJX(1)..................................... $ 60,277 --
Term loan.......................................................... -- 30,000
Stockholder's equity:
Preferred Stock, $.01 par value, authorized 5,000,000 shares, no
shares outstanding.............................................. -- --
Common Stock, $.01 par value, authorized 35,000,000 shares, issued
and outstanding 15,178,847 shares............................... 152 152
Additional paid-in capital......................................... -- 20,000
Retained earnings.................................................. 63,220 63,220
--------- --------
Total stockholder's equity........................................... 63,372 83,372
--------- --------
Total capitalization....................................... $ 123,649 $113,372
========= ========
<FN>
- ---------------
(1) Assumes $15,322,000 is repaid with the proceeds from the sale of deferred
billing receivables.
</TABLE>
13
<PAGE> 16
SELECTED FINANCIAL DATA
The selected financial data set forth below for each of the fiscal years in
the five-year period ended January 27, 1996, is derived from the Combined
Financial Statements of the Company. The information related to the income
statement data for the years ended January 29, 1994, January 28, 1995, and
January 27, 1996, and the balance sheet data as of January 28, 1995 and January
27, 1996, are derived from audited Combined Financial Statements of the Company.
The income statement data for the thirteen weeks ended April 29, 1995 and April
27, 1996, and for the years ended January 25, 1992 and January 30, 1993, and the
balance sheet data as of January 25, 1992, January 30, 1993, January 29, 1994,
April 29, 1995 and April 27, 1996, is derived from unaudited Combined Financial
Statements of the Company. In the opinion of the Company's management, all
adjustments (all of which were normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations have been
included in the aforementioned unaudited Combined Financial Statements. The
results of operations for the thirteen weeks ended April 27, 1996, are not
necessarily indicative of the results of operations expected for the entire
fiscal year.
The pro forma financial data for the year ended January 27, 1996 and as of
and for the thirteen weeks ended April 27, 1996, have been derived from and
should be read in conjunction with the unaudited Pro Forma Combined Financial
Statements of the Company and the notes thereto (including a description of the
assumptions used in the pro forma data) included elsewhere in this Prospectus.
14
<PAGE> 17
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
PRO FORMA
HISTORICAL -------------------
-------------------------------------------------------------------------- FISCAL THIRTEEN
THIRTEEN YEAR WEEKS
FISCAL YEAR ENDED WEEKS ENDED ENDED ENDED
---------------------------------------------------- ------------------- -------- --------
JAN. 25, JAN. 30, JAN. 29, JAN. 28, JAN. 27, APR. 29, APR. 27, JAN. 27, APR. 27,
1992 1993(1) 1994 1995 1996 1995 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, NET SALES PER CATALOG AND AVERAGE ORDER VALUE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................... $173,374 $295,532 $424,276 $432,660 $465,598 $116,611 $131,996 $465,598 $131,996
-------- -------- -------- -------- -------- -------- -------- -------- --------
Cost of sales, including
buying and order
fulfillment costs.......... 106,111 183,186 269,233 271,874 278,868 69,144 73,300 278,868 73,300
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit............... 67,263 112,346 155,043 160,786 186,730 47,467 58,696 186,730 58,696
Selling, general and
administrative expenses,
including catalog and order
processing costs........... 55,656 90,366 131,439 155,329 160,282 42,387 45,831 161,982 46,231
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from operations..... 11,607 21,980 23,604 5,457 26,448 5,080 12,865 24,748 12,465
Interest expense (income),
net........................ (213) (33) 3,378 3,940 6,920 1,542 1,404 5,800 1,060
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes,
extraordinary items and
cumulative effect of
accounting changes......... 11,820 22,013 20,226 1,517 19,528 3,538 11,461 18,948 11,405
Provision for income taxes... 4,712 8,829 7,941 255 7,854 1,422 4,764 7,616 4,741
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before extraordinary
items and cumulative effect
of accounting changes...... $ 7,108 $ 13,184 $ 12,285 $ 1,262 $ 11,674 $ 2,116 $ 6,697 $ 11,332 $ 6,664
======== ======== ======== ======== ======== ======== ======== ======== ========
Net income(2)................ $ 7,108 $ 13,184 $ 12,665 $ 1,070 $ 8,336 $ 2,116 $ 6,697 $ 7,994 $ 6,664
======== ======== ======== ======== ======== ======== ======== ======== ========
PRO FORMA EARNINGS PER COMMON
SHARE:
Income before extraordinary
items and cumulative effect
of accounting changes...... $ .74 $ .44
======== ========
Net income................... $ .52 $ .44
======== ========
BALANCE SHEET DATA:
Working capital.............. $ 9,228 $ 20,777 $ 52,368 $ 44,409 $ 77,843 $ 81,187 $ 75,140 $ 62,788
Total assets................. 70,673 121,094 156,095 177,625 199,215 210,540 199,648 186,401
Long-term debt(3)............ 7,580 22,152 52,154 47,391 70,769 81,712 60,277 30,000
Stockholder's equity......... 21,420 34,604 47,269 48,339 56,675 50,455 63,372 83,372
OTHER FINANCIAL AND OPERATING
DATA:
EBITDA(4).................... $ 13,580 $ 25,116 $ 28,109 $ 11,156 $ 33,160 $ 6,717 $ 14,524 $ 31,460 $ 14,124
Total catalog circulation.... 78,555 123,064 213,168 234,973 196,073 64,150 48,487
Net sales per catalog(5)..... $ 2.21 $ 2.40 $ 1.99 $ 1.84 $ 2.37 $ 1.82 $ 2.72
Average order value(6)....... $ 84 $ 83 $ 81 $ 81 $ 86 $ 78 $ 94
<FN>
- ---------------
(1) 53 week period.
(2) Net income includes a credit of $380,000 for the cumulative effect of
accounting changes in the fiscal year ended January 29, 1994 and includes
extraordinary charges for the early retirement of debt of $192,000 in the
fiscal year ended January 28, 1995 and $3.3 million in the fiscal year ended
January 27, 1996.
(3) Includes loans and advances from TJX.
(4) Earnings before interest, taxes, depreciation and amortization.
(5) Net sales per catalog equals net sales divided by total catalog circulation.
(6) Average order value equals total value of orders received divided by the
number of orders received.
</TABLE>
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated or the context otherwise requires in this
section, each reference to a year is to the Company's fiscal year which ends on
the last Saturday in January in the following calendar year (e.g., "1995" means
the fiscal year ended January 27, 1996). The following discussion and analysis
should be read in conjunction with "Selected Financial Data" and the Combined
Financial Statements and related notes thereto which appear elsewhere in this
Prospectus.
OVERVIEW
From 1987 through 1993, the Company's net sales grew at a compound annual
growth rate of 46.7%. By the fall of 1994, the Company's order fulfillment and
customer service operations were unable to keep pace with its rapid sales
growth, resulting in a decline in sales growth, an increase in operating
expenses and a substantial decline in profitability. In response, the Company
reorganized its management team in the first quarter of 1995. This new
management team implemented a series of initiatives to increase operational
efficiencies and improve customer service to levels necessary to support the
Company's strong and established merchandising organization. Catalog circulation
was reduced and improvements were made in fulfillment center and telemarketing
operations, inventory management and coordination among all facets of the
business.
RESULTS OF OPERATIONS
<TABLE>
The following table is derived from the Company's statements of income for
the periods indicated and expresses the results of operations in such periods as
a percentage of net sales:
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
---------------------------------- ---------------------
JAN. 29, JAN. 28, JAN. 27, APR. 29, APR. 27,
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including buying and order
fulfillment costs......................... 63.5 62.8 59.9 59.3 55.5
----- ----- ----- ----- -----
Gross margin...................... 36.5 37.2 40.1 40.7 44.5
Selling, general and administrative
expenses, including catalog and order
processing costs.......................... 31.0 35.9 34.4 36.3 34.7
----- ----- ----- ----- -----
Income from operations............ 5.6 1.3 5.7 4.4 9.7
Interest expense, net....................... 0.8 0.9 1.5 1.3 1.1
Income before income taxes, extraordinary
items and cumulative effect of accounting
changes................................... 4.8% 0.4% 4.2% 3.0% 8.7%
===== ===== ===== ===== =====
</TABLE>
A comparison of the results of operations for the most recent quarter and
for the past three years follows.
THIRTEEN WEEKS ENDED APRIL 27, 1996 COMPARED WITH THIRTEEN WEEKS ENDED APRIL 29,
1995
Net sales for the first quarter ended April 27, 1996 increased 13.2% to
$132.0 million from $116.6 million in the prior year, despite a 24.4% decrease
in catalog circulation for the same period from 64.2 million catalogs to 48.5
million catalogs. The Company experienced a significant increase in average
order value compared to the same period in 1995 and continued to maintain the
strong fulfillment rates achieved in 1995.
Cost of sales, including buying and order fulfillment costs, as a
percentage of net sales was 55.5% in the quarter ended April 27, 1996 versus
59.3% in the quarter ended April 29, 1995. The improvement reflects an increase
in merchandise margin and a reduction in fulfillment center labor
16
<PAGE> 19
and shipping costs as a percentage of net sales. Results for the quarter ended
April 29, 1995 did not reflect the benefit of operating efficiencies initiated
during that year.
Selling, general and administrative expenses, including catalog and order
processing costs, as a percentage of net sales were 34.7% for the quarter ended
April 27, 1996 versus 36.3% in the comparable period for the prior year. This
improvement is primarily due to increased sales productivity per catalog.
Net income was $6.7 million for the quarter ended April 27, 1996 compared
to $2.1 million in the comparable period for the prior year.
1995 COMPARED WITH 1994 AND 1994 COMPARED WITH 1993
Net sales for 1995 totalled $465.6 million on circulation of 196.1 million
catalogs versus net sales of $432.7 million on circulation of 235.0 million
catalogs in 1994. The increase in net sales of 7.6%, despite a decrease in
circulation of 16.6%, is attributable to a number of factors, including
improvements in inventory management and order fulfillment, which allowed the
Company to satisfy and ship customer orders on a more timely and efficient
basis, expansion of the Company's deferred billing program and improvement in
overall levels of customer service. The increase in the Company's average order
value to $86 in 1995 from $81 in 1994 and the increase in net sales per catalog
to $2.37 in 1995 from $1.84 in 1994 are primarily attributable to the
aforementioned factors coupled with decreased catalog circulation.
Net sales of $432.7 million in 1994 increased 2.0% over net sales of $424.3
million in 1993 while circulation increased 10.2% to 235.0 million catalogs from
213.2 million catalogs in 1993. The most significant issue impacting lackluster
sales in 1994 was the Company's poor performance in fulfilling customer orders,
resulting in customer dissatisfaction and loss of sales. This operational
problem, along with higher catalog circulation to prospective customers in 1994,
were factors contributing to the decrease in the net sales per catalog to $1.84
in 1994 from $1.99 in 1993.
Cost of sales, including buying and order fulfillment costs, as a
percentage of net sales was 59.9%, 62.8% and 63.5% in 1995, 1994 and 1993,
respectively. The improvement in the ratio in 1995 from 1994 reflects an
increase in shipping and handling income, less excess inventory to liquidate and
improved fulfillment center labor productivity. The improvement in this ratio in
1994 from 1993 is primarily due to savings in shipping costs.
Selling, general and administrative expenses, including catalog and order
processing costs, as a percentage of net sales were 34.4%, 35.9% and 31.0% in
1995, 1994 and 1993, respectively. These expenses as a percentage of net sales
decreased in 1995 as a result of improved sales productivity per catalog and
reduced catalog production costs, partially offset by increases in order
processing expenses. Catalog production costs decreased due to lower
circulation, which was partially offset by increases in paper and postage costs.
Total selling, general and administrative expenses as a percentage of net sales
increased in 1994 as a result of higher catalog production costs due to a 10.2%
increase in catalog circulation coupled with increased paper costs. These cost
increases were accompanied by a decrease in catalog productivity and an increase
in order processing costs, while the Company's ability to fulfill customer
orders declined.
Interest expense was $6.9 million, $3.9 million and $3.4 million in 1995,
1994 and 1993, respectively. The increase in interest expense in 1995 is due to
increased short-term borrowings from TJX and higher short-term interest rates.
The increased borrowings during 1995 are primarily the result of additional
working capital requirements associated with expansion of the Company's deferred
billing program.
The Company's effective income tax rate was 40.2%, 16.8% and 39.3% in 1995,
1994 and 1993, respectively. The low level of pretax income in 1994 along with
certain tax benefits in that year resulted in a lower effective income tax rate.
The difference between the federal statutory income
17
<PAGE> 20
tax rate and the effective income tax rate is primarily attributable to the
effective state income tax rate.
The Company recorded an extraordinary charge for the early retirement of
debt in both 1995 and 1994. The after-tax extraordinary charge of $3.3 million
in 1995 was due to the early prepayment of a $45.0 million loan secured by a
mortgage on the Company's offices and fulfillment center. The charge of $192,000
in 1994 was incurred when the Company retired its outstanding $5.4 million
mortgage, in connection with the $45.0 million financing described above. Net
income in 1993 was impacted by the cumulative effect of accounting changes for
postretirement medical costs and for accounting for income taxes, resulting in
an increase in net income of $380,000. After giving effect to these items, the
Company's net income was $8.3 million, $1.1 million and $12.7 million in 1995,
1994 and 1993, respectively.
QUARTERLY RESULTS
<TABLE>
The following table presents unaudited quarterly financial information for
the two years ended January 28, 1995 and January 27, 1996. This information has
been prepared by the Company on a basis consistent with the Company's audited
financial statements and includes all adjustments (consisting only of normal
recurring adjustments) which management considers necessary for a fair
presentation of the results for such periods.
<CAPTION>
FISCAL YEAR JANUARY 28, 1995 BY QUARTER
----------------------------------------------
FIRST SECOND THIRD FOURTH
-------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.................................... $108,832 $85,391 $120,953 $117,484
Gross profit................................. 43,643 30,851 50,590 35,702
% of net sales.......................... 40.1% 36.1% 41.8% 30.4%
Income (loss) from operations................ 857 4,027 3,690 (3,117)
% of net sales.......................... 0.8% 4.7% 3.1% (2.7%)
Net income (loss)(1)......................... (114) 1,979 1,472 (2,075)
% of net sales.......................... (0.1%) 2.3% 1.2% (1.8%)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR JANUARY 27, 1996 BY QUARTER
----------------------------------------------
FIRST SECOND THIRD FOURTH
-------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.................................... $116,611 $87,602 $151,458 $109,927
Gross profit................................. 47,467 31,647 65,071 42,545
% of net sales.......................... 40.7% 36.1% 43.0% 38.7%
Income (loss) from operations................ 5,080 (1,237) 13,727 8,878
% of net sales.......................... 4.4% (1.4%) 9.1% 8.1%
Net income (loss)(1)......................... 2,116 (1,719) 6,994 4,283
% of net sales.......................... 1.8% (2.0%) 4.6% 3.9%
<FN>
- ---------------
(1) Excludes fourth quarter extraordinary charges of $192,000 and $3.3 million
in years 1994 and 1995, respectively.
</TABLE>
The Company is not dependent on the year-end holiday season for a
disproportionate share of its business. The Company's sales and operating
results are more influenced throughout the year by the timing of the mailing of
its catalogs and by its merchandising strategies than by seasonal fluctuations.
18
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been for working capital to
support its growth, including the expansion of its deferred billing program, and
for costs associated with expanding its fulfillment center. Cash flows from
operating activities reflect increased deferred billing receivables as of
January 27, 1996 and higher prepaid catalog costs due to the timing of mailing
certain catalogs.
The Company's investing activities have consisted primarily of property
additions, which totalled $6.3 million in 1995 and $10.6 million in 1994.
Capital expenditures in 1994 included the cost of completing an expansion of the
Company's fulfillment center to its current capacity, which the Company believes
is adequate for the next several years. In addition, the Company made capital
expenditures to upgrade fulfillment center equipment and management information
systems equipment and related software. Capital expenditures for 1996 are
expected to approximate $8 million, with more than half planned to be dedicated
to the Company's new telemarketing and customer service system.
During 1994, the Company borrowed $45.0 million secured by a mortgage on
its offices and fulfillment center, to reduce advances from TJX and to repay a
$5.4 million mortgage assumed in the initial purchase of the mortgaged property.
This financing was guaranteed by TJX and, in connection with TJX's purchase of
Marshalls in 1995, the Company prepaid the $45.0 million loan and incurred an
after-tax extraordinary charge of $3.3 million. Proceeds to pay off this
mortgage were provided by intercompany borrowings from TJX.
The Company's borrowings from TJX are composed of long-term and short-term
borrowings. Historically, the long-term component was established at the
beginning of each year and generally represented the intercompany balance as of
the beginning of the year. The monthly change in the intercompany balance from
the long-term balance represents either short-term funds invested with TJX or
short-term borrowings from TJX. The Company is credited interest income or
charged interest expense at rates that approximate TJX's short-term investment
or borrowing rate. During the past three years, the maximum amounts the Company
has borrowed from TJX (based on month-end borrowing levels) were $118.4 million,
$65.3 million and $82.9 million in 1995, 1994 and 1993, respectively.
The Company currently is negotiating several agreements to deal with its
financing needs after the Offering of its Common Stock. The Company has received
a commitment from two banks to provide the Company with a three-year credit
facility composed of a $30 million term loan and a revolving line of credit of
up to $120 million. The Company has received and is reviewing proposals for a
long-term deferred billing facility which would allow it to periodically sell
its deferred billing receivables rather than finance them with short-term
borrowings. In the interim, the Company has received a commitment from one of
the aforementioned banks to provide a six-month $30 million loan to finance the
Company's deferred billing program. Immediately prior to the closing of the
Offering, the Company will repay any outstanding intercompany borrowings from
TJX net of $20.0 million which TJX will contribute to the equity of the Company.
Once these arrangements are in place, TJX does not intend to lend to the
Company, and the Company does not intend to borrow from TJX. The Company
believes that the proposed credit facilities, along with the Company's
internally generated cash flow, will be adequate to meet the currently
anticipated capital needs of the Company. See "Risk Factors--Financing
Requirements."
19
<PAGE> 22
BUSINESS
GENERAL
Chadwick's of Boston, Ltd. is the nation's first and largest catalog
retailer of off-price women's apparel and one of the largest participants in
women's apparel catalog retailing. The Company offers a broad selection of high
quality branded and private label apparel at prices typically 25% to 50% below
the regular prices of department and specialty retail stores. The Company
believes that it has developed a strong and unique franchise and a well
recognized brand name by consistently delivering exceptional value while
satisfying its customers' wardrobe needs for career, casual and social wear, all
in a broad selection of colors, styles and sizes. Chadwick's believes that its
success in executing this merchandising strategy is the result of its thorough
understanding of the Company's target customer, extensive off-price
merchandising experience, powerful catalog presentation, strong product
development and worldwide sourcing capabilities. As a result, Chadwick's has
increased sales at a compound annual growth rate of 28.0%, from $173.4 million
in 1991 to $465.6 million in 1995.
The Company believes that Chadwick's of Boston is one of the most well
recognized brand names in women's apparel catalog retailing, and that its
customer list is one of the largest and most valuable in the women's apparel
industry. Chadwick's has over 10 million names on its customer list, more than
six million of which are active customers, having made one or more purchases in
the preceding 18 months. Management believes that its brand name and customer
list provide the Company with distinct competitive advantages that can be
neither easily nor cost-effectively replicated.
The Company's target customers are middle to upper middle income women
between the ages of 25 and 55, who the Company believes represent approximately
one-third of the adult female population in the United States or approximately
33 million women. The overall women's apparel industry generated approximately
$81 billion in sales in 1995, of which catalog sales represented approximately
9.4% or $7.6 billion. While sales in the overall women's apparel industry grew
by approximately one percent from 1994 to 1995, catalog sales of women's apparel
grew by 6.1% during the same period. The Company believes that catalog sales of
women's apparel will continue to increase because the busy lifestyles of today's
women demand the convenience and time savings afforded by catalog shopping.
From 1987 through 1993, the Company's net sales grew at a compound annual
growth rate of 46.7%. By the fall of 1994, the Company's order fulfillment and
customer service operations were unable to keep pace with its rapid sales
growth, resulting in a decline in sales growth, an increase in operating
expenses and a substantial decline in profitability. In response, the Company
reorganized its management team in the first quarter of 1995. This new
management team implemented a series of initiatives to increase operational
efficiencies and improve customer service to levels necessary to support the
Company's strong and established merchandising organization. Catalog circulation
was reduced and improvements were made in fulfillment center and telemarketing
operations, inventory management and coordination among all facets of the
business.
The Company's initiatives produced substantial and rapid improvement.
Between 1994 and 1995, the initial fulfillment rate (percentage of merchandise
available to be shipped at the time of order) increased from 57.1% to a Company
record of 72.3% and the final fulfillment rate (percentage of total merchandise
orders filled) increased from 86.5% to 90.5%. Over the same period, gross margin
increased from 37.2% to 40.1% and selling, general and administrative expenses
as a percentage of net sales declined from 35.9% to 34.4%. These initiatives,
together with an expansion of the Company's deferred billing program, increased
profits, sales and average order value. Income before extraordinary items grew
from $1.3 million in 1994 to $11.7 million in 1995, and, over the same time
period, average order value increased from $81 to $86 and net sales increased
7.6%, from $432.7 million to $465.6 million, despite a 16.6% reduction in
catalog circulation, from 235.0 million to 196.1 million. This strong
performance continued into the first quarter of 1996, as net
20
<PAGE> 23
income increased from $2.1 million in the first quarter of 1995 to $6.7 million
and net sales increased 13.2%, to $132.0 million.
BUSINESS STRATEGIES
The Company believes that its new operational structure, combined with
strong customer acceptance of its value-oriented merchandise, provides a solid
foundation for future growth. The Company intends to capitalize on opportunities
to increase sales to both existing and new customers, continue improvements in
operating efficiencies and increase leveraging of operating expenses through the
following strategies:
Expand the Company's Core Women's Apparel Business. Chadwick's ability to
consistently deliver high quality merchandise at every day low prices has
created a large base of value-conscious customers. Chadwick's has successfully
increased sales and profitability by expanding the number of styles offered in
its catalog and increasing the assortment of sizes and colors offered with
respect to many items. The Company believes it has a substantial opportunity to
increase sales to existing customers by capturing a greater share of their
apparel purchases. The Company plans to expand its offering of women's apparel
by increasing average page count in its existing catalogs by approximately 20%
over the next three years.
Expand the Company's Complementary Product Offerings. The Company
continually identifies and tests new product categories that are natural
extensions of the Company's existing core women's apparel business. To date, the
Company has tested or offered on a limited basis men's apparel, children's
apparel, women's special sizes, accessories, gifts and cosmetics in certain of
its catalogs. Since the Company began offering complementary products in 1992,
sales of these products have grown to represent 16.2% of total net sales in
1995. Chadwick's believes that a significant opportunity exists to further
increase sales to its core customer base as well as to attract new customers by
expanding these additional product offerings in its existing catalogs.
Develop and Grow New Catalog Concepts. The Company intends to offer in
separate and distinct catalogs complementary products and new product concepts
that have the potential for significant sales growth. In May 1996, the Company
mailed Bridgewater, its first new concept catalog, which offers an assortment of
classic fashions for men and women. To date, Bridgewater has met with strong
customer response.
Continue to Refine Catalog Mailing Segmentation Techniques. The Company
plans to further develop and refine its statistical models and analyses to
better target its catalog mailings and more profitably capitalize on its current
customer list of over 10 million names. The Company continually evaluates its
catalog presentation in order to provide the best formats for certain groups of
customers. By refining its catalog mailing segmentation techniques, the Company
hopes to be able to increase its response rate and the dollar amount of
purchases for each catalog mailed.
Expand the Company's Customer Base. The women's retail catalog apparel
market generated approximately $7.6 billion in sales in 1995. The Company
believes that approximately one-third of the adult female population of the
United States or 33 million women meet the Company's target customer profile. As
a result, the Company believes there is opportunity to grow its customer base
and thereby increase sales. The Company intends to achieve such growth by
continuing its aggressive name acquisition program, including the rental of
customer lists and the implementation of advertising campaigns specifically
designed to add new customers.
Increase the Company's Deferred Billing Program. The Company initiated a
deferred billing program in 1995 under which a customer purchases merchandise on
credit but the purchase is not billed to the customer's credit card until a date
90 to 120 days after the catalog is mailed. The Company believes that this "buy
now, pay later" program has contributed to an increase in average order value
and net sales, and intends to expand the use of the program to more of its
catalogs.
Continue to Improve Order Fulfillment Operations and Inventory
Management. The Company continually evaluates and improves its order
fulfillment operations and inventory management procedures in order to increase
operating efficiencies. As a result of these efforts to date, the
21
<PAGE> 24
Company has increased its initial and final fulfillment rates and decreased the
number of customer service calls received, the return rate, the average number
of days from order to delivery and fulfillment center expenses (as an absolute
number and as a percentage of sales). Notwithstanding these accomplishments, the
Company believes that there is room for continued improvement in these
operations and intends to pursue such improvements.
Enhance Telemarketing, Customer Service and Management Information
Systems. The Company intends to continue to upgrade its telemarketing and
management information systems in order to enhance its ability to increase
sales, operating efficiency and overall customer service. The Company is
developing a new order taking and customer service system that is designed to
aid telemarketing and customer service representatives by providing them with
on-line catalog information and data on customer orders and past purchases. This
additional information is expected to increase the ability of the Company's
sales representatives to personalize transactions, market additional products
that complement the purchases being made by the customer and recommend
alternatives for items that are back ordered or sold out. The Company believes
the new system will lead to increased productivity by utilizing "universal
agents" to receive both telephone orders and customer service calls. The Company
also continually evaluates its operations to determine ways in which it can
better serve the customer by, among other things, reducing the time it takes to
place and deliver orders. In addition, the Company plans to continue investing
in and enhancing its management information systems in order to improve
efficiencies in the areas of inventory management, fulfillment center
operations, returns processing and finance.
INDUSTRY OVERVIEW
The retail catalog apparel market is estimated to be approximately $11.5
billion, with the retail catalog markets for women's apparel and men's apparel
accounting for approximately $7.6 billion and $3.2 billion of that total,
respectively. Based upon industry sources, from 1994 to 1995, catalog sales of
women's apparel grew 6.1%, as compared to the growth rate of approximately one
percent in the overall women's apparel industry for the comparable period. The
Company believes that retail catalog sales of women's apparel will continue to
increase because the busy lifestyles of today's women demand the convenience and
time savings afforded by catalog shopping. Despite the difficult United States
apparel market over the past few years, Chadwick's has continued to grow its
sales. Based upon its continued strength, the Company believes that it is well
positioned to capitalize on future opportunities for growth.
MERCHANDISING
Since its inception, Chadwick's merchandising strategy has been to deliver
exceptional value to the middle to upper middle income American woman. The
Company offers a broad selection of high quality branded and private label
apparel at prices typically 25% to 50% below the regular prices of department
and specialty retail stores. The Company offers every day low prices and
publishes only two end-of-season clearance catalogs per year.
The Company believes that it has developed a strong and unique franchise
and a well recognized brand name by consistently delivering exceptional value to
its customers through high quality, low prices and broad selection. Chadwick's
believes that its success in executing its merchandising strategy is the result
of its thorough understanding of the Company's target customer, extensive
off-price merchandising experience, powerful catalog presentation, strong
product development and worldwide sourcing capabilities. Chadwick's also
believes that it is distinct in its ability to offer value across its
merchandise lines, which feature a wide array of colors and styles designed to
satisfy its customers' wardrobe needs for career, casual and social wear. The
Company continuously offers merchandise which includes both basic styles and
current fashion. A benefit of Chadwick's merchandising strategy is Chadwick's
ability to shift the mix of its merchandise offerings as consumer demand shifts.
In general, the Company plans to increase sales in its core business by offering
an expanded selection of women's apparel through increased page count in its
existing catalogs.
22
<PAGE> 25
The Company continually identifies and tests new product categories that
are natural extensions of the Company's existing core women's apparel business.
To date, the Company has tested or offered on a limited basis men's apparel,
children's apparel, women's special sizes, accessories, gifts and cosmetics in
certain of its catalogs. Since the Company began offering complementary products
in 1992, sales of these products have grown to represent 16.2% of total net
sales in 1995. Chadwick's believes that a significant opportunity exists to
further increase sales to its core customer base as well as to attract new
customers by expanding these additional product offerings in its existing
catalogs. In May 1996, the Company mailed Bridgewater, its first new concept
catalog, which offers an assortment of classic fashions for men and women.
Bridgewater has met with strong customer response.
The Company's success in implementing its merchandising strategy is in
large part due to the Company's team approach to merchandising, catalog design
and inventory management. The key members of the Company's merchandising team
have been with the Company for an average of eight years. The Company believes
that its merchandising team's collective experience and negotiating skills,
coupled with the team's knowledge of apparel markets and the Company's target
customer, allows the Company to consistently deliver high value merchandise in
up-to-date basics and current fashion. In an effort to keep the merchandise
offered in the Chadwick's catalog exciting and to seek out the best quality
merchandise, members of the merchandising team travel both abroad and across the
United States several times each year. The Company's merchandising team
continues to identify new fashion trends and new markets and to develop new
products and product classifications to meet customers' needs.
MARKETING
An important element of the Company's marketing strategy is the improved
segmentation of its existing customer files. The Company currently uses customer
file segmentation analyses, based on customers' purchasing histories and other
customer information, to design catalog circulation strategies that increase
customer response rates. As a result, the Company is able to successfully tailor
its catalogs to customer needs by sending different versions of catalogs to
different segments of the customer list. The Company intends to invest in
database and segmentation software to allow it to more efficiently access its
significant customer data bases and to improve its ability to conduct these
analyses.
Chadwick's believes that circulation planning based on more sophisticated
statistical circulation models will increase the effectiveness of catalog
mailings and maximize the productivity of its customer lists. As a result, the
Company is testing increasingly sophisticated statistical circulation planning
models to improve its ability to predict customer purchase behavior based on a
wide range of variables. The Company plans to use these analyses to enhance its
circulation efficiencies.
The Company's catalog is the result of the collaborative effort of its
merchandising, marketing and catalog production teams and outside agencies.
Members of Chadwick's merchandising team select the styles that are to be
included in the catalog and work with outside agencies to select appropriate
fashion models and photo shoot locations. Members of the catalog production team
then work with the outside agencies to determine the ideal size and layout for
each catalog. The Company places great emphasis on page layout because it
believes that appropriate page presentation of its merchandise stimulates
demand. The Company closely manages the catalog production process to control
costs and simultaneously maintain attractive and effective catalog presentation.
The Company has contracts with two printers which cover its production
requirements and afford some protection against certain cost increases.
23
<PAGE> 26
The Company utilizes a catalog mailing strategy which is built around the
key apparel selling seasons: spring, summer, fall, winter and Christmas. Each
season has a large mailing followed by a series of smaller mailings in order to
capture incremental sales from the Company's more active customers.
Additionally, the Company mails two end-of-season clearance catalogs, one each
for winter and summer.
Chadwick's customer name acquisition programs are designed to attract new
customers in a cost effective manner. The Company utilizes various sources to
acquire new names, including list rentals, magazine solicitations, promotional
inserts, friends' name cards inserted in mailed catalogs, direct sell campaigns
and reactivation of previous Chadwick's customers.
The Company views the use of credit as an important marketing tool. The
vast majority of the Company's 1995 sales were charged on customers' major
credit cards. In 1995, the Company began offering its customers a deferred
billing program under which a customer purchases merchandise on credit but the
purchase is not billed to the customer's credit card until a date 90 to 120 days
after the catalog is mailed. The Company assumes the risk that after the
deferral period, the purchase cannot be charged to the customer's credit card.
Chadwick's intends to expand the use of this "buy now, pay later" program. The
Company also is investigating other credit marketing programs as a further
method of increasing sales.
CUSTOMER SERVICE AND TELEMARKETING
Providing superior service to customers is a key element of the Company's
strategy. The Company maintains a toll-free telephone service for orders and
other customer needs, emphasizes customer service and friendliness in training
for its telephone sales representatives, and unconditionally guarantees its
merchandise at any time. The Company's return policy provides that if a customer
is not satisfied with a purchase for any reason, the merchandise can be returned
to the Company for a refund or exchange.
The Company's telemarketing facilities are open 24 hours a day, seven days
a week, and have an aggregate of approximately 800 telemarketing and customer
service representatives. In 1995, Chadwick's telemarketing facilities handled
over 11 million calls. The number of representatives staffing these calls varies
greatly during the hours of each day of each selling season, based on
anticipated call volume. During peak and off hours, the Company also uses
outside service providers to satisfy its telemarketing and customer service
requirements. The Company continues to evaluate the manner in which it receives
and services calls to determine the most efficient manner in which to service
its customers.
The Company is developing a new order taking and customer service system
that is designed to aid telemarketing and customer service representatives by
providing them with on-line catalog information and data on customer orders and
past purchases. This additional information is expected to increase the ability
of the Company's sales representatives to personalize transactions, market
additional products that complement the purchases being made by the customer and
recommend alternatives for items that are back ordered or sold out. The Company
believes the new system will lead to increased productivity by utilizing
"universal agents" to receive both telephone orders and customer service calls.
The Company also expects that such a system will permit the Company to process
orders more efficiently by improving communication between the Company's
telemarketing center and fulfillment center.
FULFILLMENT AND DELIVERY
Through its fulfillment and delivery operations, the Company seeks to
provide excellent customer service within a low cost structure.
The Company's commitment to customer service is supported by its
fulfillment and telemarketing centers, located in approximately 700,000 square
feet of space in West Bridgewater, Massachu-
24
<PAGE> 27
setts. Designed to process and ship customer orders rapidly and in a cost
effective manner, the fulfillment center uses high speed conveyor belts, bar
code scanning and a sophisticated tilt tray sorter. The facility processed over
11 million shipments in 1995, with in-stock items generally being shipped to
customers within 48 hours of their placement. The Company's fulfillment center
has the capacity to process approximately 40% more sales before any capital
expansion of the center will be required.
The Company attempts to minimize order delivery costs without sacrificing
expedient delivery to customers through careful management of its shipping
techniques. The Company's sorting system segregates packages by zip code and
automatically calculates the weight of each parcel to be shipped. The majority
of the Company's packages are shipped through the USPS.
INVENTORY MANAGEMENT
The Company's inventory management strategy is designed to maintain
inventory levels that provide optimum in-stock positions, while maximizing
inventory turnover rates and minimizing the amount of unsold merchandise at the
end of each season. Chadwick's maintains higher inventory levels for basic
apparel items which are not generally fashion sensitive. Inventory levels for
items with greater fashion risk are maintained at lower levels, with the goal of
selling all such merchandise prior to the end of a season. The Company
historically has been successful in selling its overstock through its
twice-yearly, end-of-season clearance catalogs, through its retail outlet stores
located in Nashua, New Hampshire and Brockton, Massachusetts, and to TJX and
other third parties. During 1995, the Company liquidated approximately $10.6
million of its total inventory liquidations through TJX. See "Relationship with
TJX -- Liquidation."
In order to sustain operating profit and customer service, the Company
carefully balances its inventory to minimize overstock, out-of-stock and back
order inventory conditions, all of which are common in catalog retailing.
Because out-of-stock and back order conditions cannot be eliminated, when these
conditions occur, the Company experiences some order cancellations. Initial
fulfillment increased from 57.1% to 72.3% between 1994 and 1995, and final
fulfillment increased from 86.5% to 90.5% during the same period. See "Business
- -- General."
PURCHASING; SUPPLIERS
The Company conducts its purchasing operations through its office in West
Bridgewater, Massachusetts. The Company's merchandising staff actively monitors
the fashion markets and offering of other catalogs and retail stores in an
effort to ensure that the Company's merchandise offering is competitive in
fashion and price. To improve purchasing efficiency, the Company also relies on
pre-mailing surveys to gauge customer demand for its product offerings.
The Company believes that it has been successful in establishing and
maintaining strong relationships with its suppliers both domestically and
internationally. The Company believes that its purchasing power results in lower
product prices than can be obtained by the Company's lower-volume competitors.
In addition, because of the large number of suppliers and the large volume of
the Company's purchases, the Company is able both to secure alternative sources
for its products and to maintain supply relationships on favorable terms. In
order to maintain flexibility, the Company does not enter into long-term
contracts with its suppliers. In 1995, approximately 34% of the Company's
merchandise was directly imported. Approximately 10% of all merchandise
purchased was directly imported from China. In addition, many of the Company's
domestic vendors import a substantial portion of their merchandise from abroad.
See "Risk Factors -- Dependence on Suppliers; Foreign Sourcing."
COMPETITION
All aspects of the retail apparel industry are highly competitive. The
Company competes with all retail sellers of apparel, including T.J. Maxx and
Marshalls. The Company competes primarily with
25
<PAGE> 28
catalog retailers, department stores and specialty retailers, many of which have
greater financial resources than the Company. In the overall women's apparel
market, competing retail catalogs generally include Spiegel, J.C. Penney, Lands'
End, Victoria's Secret and Newport News. The Company does not believe that it
has any significant competition in the off-price segment of the women's apparel
catalog retail market. However, there can be no assurance that other retailers
of apparel will not decide in the future to enter the Company's market.
Chadwick's competes on the basis of its extensive merchandise selection,
price, product quality and customer service. The Company believes that its
extensive customer list and its reputation for providing quality merchandise at
prices lower than its competitors have enabled it to become the largest catalog
retailer of off-price women's apparel. See "Risk Factors -- Competition."
TRADEMARKS, TRADE NAMES AND LICENSES
The Company is the owner of a number of trademarks and trade names,
including Chadwick's, Chadwick's of Boston, Ltd. and Bridgewater. The Company
also licenses certain other marks from TJX and third parties. While certain of
these licensed names are important to the Company's business, management does
not believe that the loss of any of the licensed marks would have a materially
adverse effect upon the Company's business, financial condition and results of
operations. See "Relationship with TJX -- Trademark Licenses."
EMPLOYEES
As of April 27, 1996, the Company had 2,452 associates, of whom 313 were
full-time salaried associates, 1,388 were full-time hourly associates and 751
were part-time hourly associates. Approximately 992 of the Company's associates
are covered under one of TJX's collective bargaining agreements with the Union
of Needletrades, Industrial and Textile Employees. This agreement expires on
December 31, 1997, and it is expected that the Company will commence
negotiations for a new contract at an appropriate time. The Company considers
its labor relations and overall employee relations to be good.
PROPERTIES
The Company's principal executive offices, telemarketing center, warehouse
and fulfillment center are located in the Company-owned facility in West
Bridgewater, Massachusetts containing approximately 580,000 square feet of
space. The Company leases a 126,000 square foot facility in West Bridgewater,
Massachusetts for returns processing and a customer service center. The Company
also leases from TJX approximately 11,000 square feet and 12,500 square feet of
retail space for its outlet stores in Brockton, Massachusetts and Nashua, New
Hampshire, respectively. See "Relationship with TJX -- Leases." The Company
believes that its existing facilities are adequate to meet its current needs,
and will provide capacity sufficient to handle its anticipated growth for the
next several years.
REGULATORY MATTERS
Chadwick's business, and the catalog industry in general, is subject to
regulation by a variety of state and federal laws relating to, among other
things, advertising, imports and sales taxes. The Federal Trade Commission
regulates the Company's advertising and trade practices and the Consumer Product
Safety Commission has issued regulations governing the safety of the products
the Company sells in its catalogs. The Company also is subject to Department of
Treasury customs regulations with respect to goods that it directly imports,
including customs duties, quotas and other import restrictions. United States
customs duties currently are between 6% and 21% (with an average rate of 12%) of
appraised value on certain imported items of inventory. During 1995,
approximately 34% of Chadwick's inventory was directly imported. See "Risk
Factors -- Dependence on Suppliers; Foreign Sourcing."
26
<PAGE> 29
Under current law, catalog retailers are permitted to make sales in states
where they do not have a physical presence without collecting sales tax.
Congress, however, has the power to change these laws. The Company believes that
it collects sales tax in all jurisdictions in which it is currently required to
do so.
LEGAL PROCEEDINGS
The Company is a party to litigation in the ordinary course of business.
The Company does not believe that unfavorable outcomes in such litigation would
have a material adverse effect on its business, financial condition and results
of operations.
27
<PAGE> 30
RELATIONSHIP WITH TJX
The Company's assets are held by Chadwick's, Inc., which prior to the
Offering has been a wholly-owned subsidiary of TJX. In connection with the
Offering, TJX will exchange all of the outstanding shares of common stock of
Chadwick's, Inc. for 15,178,847 shares of Common Stock of the Company pursuant
to the terms of the Transfer Agreement among TJX, Chadwick's, Inc. and the
Company (the "Transfer Agreement").
Upon completion of the Offering, TJX will own approximately 39% of the
Company's outstanding Common Stock (approximately 30% if the Underwriters
exercise their over-allotment option in full), and likely will be the Company's
largest stockholder. As a result of its ownership interest, TJX could have
effective control of the vote on matters submitted to stockholders following
completion of the Offering, including the election of directors and the approval
of extraordinary corporate transactions. TJX has advised the Company that it
expects to reduce its ownership interest in the Company over time, subject to
prevailing market and other conditions. Currently, two of the four members of
the Company's Board of Directors are officers and directors of TJX. Either
simultaneously with the completion of the Offering or within six months
thereafter, the Company anticipates that the Board will be increased to seven
members through the addition of three persons who are neither affiliates of TJX
nor associates or officers of the Company.
Historically, the Company's external financing requirements were provided
by TJX. During 1995, the maximum amount the Company borrowed from TJX on a
short-term basis (based on month end borrowing levels) was $116.0 million. The
average interest rate on such borrowings was approximately 7%. Following the
Offering, TJX will have no obligation, and has no intention, to provide any
additional funding or to take any steps to assist the Company to obtain funding.
The Company's future capital requirements will be funded through internally
generated funds, its credit facilities and, to the extent necessary and
feasible, the incurrence of other indebtedness and the sale of equity
securities.
The discussion below includes summaries of the material provisions of the
Transfer Agreement and certain other agreements affecting the relationship
between the Company and TJX (collectively, the "Transactional Documents"). These
summaries do not purport to be complete. Reference is made to the complete
provisions of, and such summaries are qualified in their entirety by reference
to, such Transactional Documents, forms of which are filed as Exhibits to the
Registration Statement of which this Prospectus is a part.
TRANSFER AGREEMENT
Acquisition of Chadwick's, Inc. and Repayment of Indebtedness to TJX. The
Transfer Agreement provides that: (i) in connection with the Offering TJX will
exchange its shares of Chadwick's, Inc. for 15,178,847 shares of Common Stock of
the Company; and (ii) concurrently with the Closing TJX will contribute $20.0
million to the equity of Chadwick's, Inc. and Chadwick's, Inc. will repay to TJX
the balance of outstanding intercompany indebtedness over such equity
contribution at such time, which balance is currently estimated to be
approximately $52 million. The Company expects to generate the funds for
repayment of this indebtedness entirely from credit facilities which it will
establish prior to the Offering.
Employee Benefit Plans. The Transfer Agreement contains a number of
provisions pertaining to employee benefit plan matters. Effective as of the
Closing, the Company will establish employee benefit plans substantially similar
to certain plans currently maintained by TJX for associates of the Company,
including the plans described under "Executive Compensation," and, in general,
associates of the Company will cease to participate in the TJX plans. The
Company is not obligated by the Transfer Agreement to duplicate all plans
currently maintained by TJX for Company associates. Pursuant to the Transfer
Agreement, the Company will establish a 401(k) savings program and a pension
program, and assets and liabilities relating to Company associates in the TJX
401(k) savings and profit sharing program and the TJX tax-qualified pension plan
will be transferred to
28
<PAGE> 31
corresponding Company-sponsored plans as soon as practicable after the Closing.
In the case of medical and dental benefits, the TJX plans will remain liable for
claims in respect of covered services rendered to Company associates prior to
the Closing, but only if the claims for reimbursable expenses are submitted for
payment to the TJX plan administrator within one year from the Closing. The
Company generally agrees to assume, and to hold TJX harmless against, all other
pre-Closing liabilities with respect to Company associates under the TJX plans.
To the extent TJX makes premium or similar plan payments and contributions to or
on behalf of Company plans in respect of periods of coverage commencing on or
after the Closing, the Company will reimburse TJX for those payments. In
addition, the Transfer Agreement contains provisions for the issuance of
replacement stock options by the Company to persons who are Company associates
on the Closing with respect to the then unvested component of their TJX stock
options, subject to such persons' surrender of their corresponding unvested TJX
stock options. See "Executive Compensation -- Equity Incentive Plan."
Insurance Claims. The Transfer Agreement contains provisions dealing with
the post-Closing settlement of insured claims with respect to claims under
certain insurance policies maintained by TJX for Chadwick's. The Transfer
Agreement requires that Chadwick's reimburse TJX for the actual costs incurred
by TJX in respect of such claims over a 10-year period following the Closing.
The Company and TJX have agreed to cooperate with respect to all aspects of
administering such insured claims.
Indemnification. The Transfer Agreement provides that TJX will indemnify
the Company for liabilities relating to certain obligations that TJX agreed to
assume with respect to employee benefits and insurance matters pursuant to the
Transfer Agreement, as well as for any breach of any representation, warranty,
covenant or agreement contained in any Transactional Document. Similarly, the
Company agrees to indemnify TJX for liabilities that it agreed to assume with
respect to employee benefits and insurance matters pursuant to the Transfer
Agreement, as well as for any breach of any representation, warranty, covenant
or agreement contained in any Transactional Document. The Transfer Agreement
also provides that each of the Company and TJX will indemnify the other in the
event of certain liabilities arising with respect to the Registration Statement
of which this Prospectus is a part.
SERVICES
Historical Services. In the past, TJX provided certain services,
consisting primarily of data and payroll processing, to the Company. The Company
paid $4.4 million in 1995 for such services. The Company also participated in
numerous benefit plans and insurance plans of TJX and was charged its share of
the costs incurred in connection with these plans. Additionally, in 1995, the
Company paid $461,000 to TJX for administrative support, including financial,
treasury, general legal, tax, audit and human resources.
Services Agreement. Immediately prior to the Offering, TJX and the Company
will enter into a Services Agreement (the "Services Agreement") pursuant to
which TJX will provide following the Offering certain services to the Company,
including data processing, employee benefits administration, insurance claims
management, tax reporting, internal audit, treasury management, investor
relations and other administrative services. Such services generally will be
provided at rates equal to TJX's cost of providing these services. The initial
term for certain of the services expires at or before the end of the current
fiscal year. The initial term for other services, however, extends for longer
periods, including the initial term for data processing services, which extends
through January 30, 1999. Extensions of services may only be made upon the
mutual agreement of the Company and TJX as to the renewal term and the fees to
be charged during such renewal term, except for the Company's right to continue
the term of data processing services for up to one year. In order to extend the
provision of data processing services beyond the initial term for such services,
the Company must request such an extension by July 1, 1997. TJX is required to
use all reasonable
29
<PAGE> 32
efforts to perform the services on a timely basis and the Company is required to
use all reasonable efforts to cooperate with TJX in connection with the
provision of services.
TAX SHARING AND SEPARATION AGREEMENT
In connection with the Offering, the Company, Chadwick's, Inc. and TJX will
enter into a Tax Sharing and Separation Agreement (the "Tax Allocation
Agreement"). Pursuant to the Transfer Agreement and Tax Allocation Agreement,
the net current and deferred income tax obligations of the Company will be
included as a part of the settlement of all other intercompany indebtedness and
the Company will not retain any Federal, state or local income tax liability for
pre-closing tax periods. Accordingly, TJX will be responsible for all federal,
state and local income taxes with respect to the Company for all periods ending
on or prior to the date of consummation of the Offering and for audit
adjustments to such taxes. The Company will be responsible for all other taxes
owing with respect to the Company. The Company and TJX will make an election
under Section 338(h)(10) of the Code to treat the Exchange Transactions as a
taxable asset purchase with the effect that the tax basis of the Company's
assets will be increased to the deemed purchase price of the assets, and TJX
will report as taxable income or gain the amount of the increase. Although TJX's
continuing ownership interest in the Company will prevent the Company from
amortizing that portion of the basis increase allocable to goodwill or going
concern value, it is expected that the amortizable or depreciable portion of the
additional basis will result in increased income tax deductions and,
accordingly, reduced income taxes payable by the Company. Pursuant to the Tax
Allocation Agreement, the Company will pay to TJX on a dollar-for-dollar basis
any cash tax benefits actually received by the Company, as realized on a
quarterly basis, calculated by comparing the Company's actual taxes to the taxes
that would have been owed by the Company had the increase in basis not occurred
in connection with the Exchange Transaction. In the event any deductions
reflected in a tax benefit payment to TJX are successfully challenged by any
taxing authority, TJX will reimburse the Company for the loss of the tax benefit
and any related interest or penalties imposed upon the Company. Subject to the
next sentence, the tax benefit payments to TJX should have no material adverse
effect on the Company's earnings or cash flow, which should be substantially the
same as they would have been in the absence of the Tax Allocation Agreement and
such election. In the event of certain changes in control of the Company or
certain business combinations or other acquisitions involving the Company, the
tax benefit calculation thereafter will be made without giving effect to any
items of income, expense, loss, deduction or credit for businesses other than
the historic businesses of the Company immediately prior to such event if such
calculation would produce a greater payment to TJX. The Tax Allocation Agreement
provides that the Company will not enter into any transaction a significant
purpose of which is to reduce the amount payable by the Company to TJX under the
Tax Allocation Agreement.
REGISTRATION RIGHTS AGREEMENT
In connection with the Offering, the Company and TJX will enter into a
Registration Rights Agreement (the "Registration Rights Agreement"), which
provides that at any time on or after the date which is six months following the
closing of this Offering, TJX will be able to require the Company at the
Company's expense except for underwriting discounts and commissions and fees and
expenses of TJX's separate counsel and accountants, if any, to file up to two
registration statements registering its Common Stock, subject to a right in the
Company to defer such registration if the registration will interfere with a
planned transaction or for certain other reasons. The Registration Rights
Agreement also will entitle TJX, at any time on and after the date which is six
months following the Offering, to include shares of Common Stock owned by TJX in
any public offering of shares of Common Stock by the Company (other than
pursuant to a registration statement on Form S-4 or Form S-8 of the Securities
Act and subject to certain limitations on the number of shares included in such
registration, as determined by the underwriters of such offering, if any).
30
<PAGE> 33
TRADEMARK LICENSES
In connection with the Exchange Transaction, on a royalty-free basis, TJX
will license to Chadwick's certain trademark rights and intends to transfer to
Chadwick's certain trademark license rights. The terms of such licenses vary
from periods of one to five years.
LEASES
TJX currently subleases property in Brockton, Massachusetts and Nashua, New
Hampshire to the Company subject to TJX's master leases for such locations with
West Plaza Limited Partnership and 231 Realty Associates, respectively. See
"Business -- Properties." In 1995, Chadwick's paid TJX $75,007 under the
Brockton sublease and $64,106 under the Nashua sublease. Chadwick's also paid
TJX $99,695 during 1995 with respect to its use of certain office space in New
York City.
LIQUIDATION
To the extent the Company has had excess inventory in the past which it
wished to liquidate in bulk, it has sold this inventory to TJX and others. The
Company received approximately $14.4 million and $10.6 million in 1994 and 1995,
respectively, from inventory transactions with TJX. All transactions with TJX
were effected on an arm's-length basis. In connection with the Offering, TJX and
the Company will enter into an Inventory Purchase Agreement expiring January 29,
2000, pursuant to which TJX will purchase inventory with an original retail
value of at least $50 million per year subject to certain conditions, at a price
equal to TJX's estimate of the price required to yield TJX a reasonable level of
profit (i.e., profit consistent with the T.J. Maxx/Marshalls' gross profit
percentage to sales averages for comparable categories of merchandise). If
Chadwick's elects not to sell merchandise offered to TJX at the price equal to
TJX's estimate of the price required to yield TJX a reasonable level of profit,
the $50 million commitment level will be reduced for the remainder of the
applicable year by the retail price of such merchandise.
31
<PAGE> 34
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
Set forth below is information as of May 24, 1996 regarding individuals who
serve or have agreed to serve as directors and executive officers of the
Company. Officers are appointed by, and serve at the discretion of, the Board of
Directors.
<CAPTION>
POSITIONS WITH DIRECTOR
NAME AGE THE COMPANY TERM EXPIRING
---- --- -------------- -------------
<S> <C> <C> <C>
Bernard Cammarata(1)(2)........... 56 Chairman 1997
Richard G. Lesser(1)(2)........... 61 Director 1998
Dhananjaya K. Rao................. 47 President and Chief 1999
Executive Officer and
Director
Carol Meyrowitz................... 42 Executive Vice 1999
President -- Merchandising
and Director
John W. Tynan..................... 53 Chief Financial Officer
<FN>
- ---------------
(1) Member of Audit Committee
(2) Member of Executive Compensation Committee
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
BERNARD CAMMARATA has been a director of the Company since May 1996. He has
been President and Chief Executive Officer of TJX since 1989 and Chairman of the
T. J. Maxx and Marshalls Division of TJX ("The Marmaxx Group") since 1995. He
was Chairman of the T. J. Maxx Division of TJX from 1986 to 1995 and was
Executive Vice President of TJX from 1986 to 1989, President, Chief Executive
Officer and a director of the former TJX subsidiary of TJX from 1987 to 1989,
and President of TJX's T. J. Maxx Division from 1976 to 1986. Mr. Cammarata is a
director of TJX.
RICHARD G. LESSER has been a director of the Company since May 1996. He has
been Executive Vice President of TJX since 1991, Chief Operating Officer of TJX
since 1994 and President of The Marmaxx Group since 1995. Mr. Lesser was Senior
Vice President of TJX from 1989 to 1991, President of the T. J. Maxx Division of
TJX from 1986 to 1994, Senior Executive Vice President -- Merchandising and
Distribution of the T. J. Maxx Division in 1986, Executive Vice President --
General Merchandise Manager of the T. J. Maxx Division from 1984 to 1986, and
Senior Vice President -- General Merchandise Manager of the T. J. Maxx Division
from 1981 to 1984. Mr. Lesser is a director of Reebok International Ltd., a
worldwide manufacturer and distributor of athletic footwear and apparel, and
TJX.
DHANANJAYA K. RAO has been President and Chief Executive Officer and a
director of the Company since May 1996. He also has been Senior Vice President,
Operations and Marketing of Chadwick's, Inc. since January 1995. Previously, Mr.
Rao worked at the T.J. Maxx Division of TJX from 1978 until 1995. His management
positions during such time included Senior Vice President of Distribution and
Financial Planning and Analysis from November 1994 to January 1995, Senior Vice
President of Distribution, Merchandise Planning and Inventory Management from
1991 to 1994, Senior Vice President and Director of Distribution from 1989 to
1991 and Vice President and Director of Distribution from 1981 to 1989.
CAROL MEYROWITZ has been Executive Vice President -- Merchandising and a
director of the Company since May 1996. She also has been Senior Vice President
and General Merchandise Manager of Chadwick's, Inc. since March 1991.
Previously, Ms. Meyrowitz was General Merchandise Manager at Chadwick's, Inc.
from March 1990 to March 1991, and Vice President and Senior
32
<PAGE> 35
Merchandise Manager from January 1989 to March 1990. Prior to that time, Ms.
Meyrowitz was Vice President and Divisional Merchandise Manager of the Hit or
Miss Division of TJX from 1986 to 1989, and she was a Buyer at the Hit or Miss
Division from 1983 to 1986.
JOHN W. TYNAN has been Chief Financial Officer of the Company since May
1996. He also has been Senior Vice President of Finance, MIS and Administrative
Services of Chadwick's, Inc. since February 1996. Previously, Mr. Tynan was Vice
President of Finance of Chadwick's, Inc. from August 1995 to February 1996.
Prior to that time, Mr. Tynan was Executive Vice President and a director of The
Store 24 Companies, Inc. ("Store 24") from October 1989 to 1995, Chief Financial
Officer of Store 24 from 1984 to 1989, and Controller of Child World, Inc. from
1980 to 1984.
BOARD OF DIRECTORS
Director Compensation
Non-employee directors, except for Messrs. Cammarata and Lesser, will be
paid an annual retainer of $20,000, fees of $1,250 for each Board meeting and
$750 for each Committee meeting attended. In addition, the Chairperson of the
Audit Committee and the Chairperson of the Executive Compensation Committee will
be paid $2,500 per annum for their services as such. Directors may participate
in the Company's General Deferred Compensation Plan.
The Company expects to adopt the 1996 Stock Option Plan for Non-Employee
Directors (the "Non- Employee Director Plan"), pursuant to which directors who
are not present or former employees of the Company receive options to purchase
shares of Common Stock (Mr. Cammarata and Mr. Lesser will be ineligible to
receive options under the Non-Employee Director Plan). The Non-Employee Director
Plan will become effective upon the Closing. Pursuant to the Non-Employee
Director Plan, each individual who becomes an eligible director before the first
annual meeting of stockholders of the Company shall receive on the date such
individual becomes an eligible director an option to purchase 3,000 shares of
Common Stock. Thereafter, on the date of each annual meeting of stockholders of
the Company, beginning with the first such meeting following the Closing, each
continuing eligible director shall receive an option to purchase 1,500 shares of
Common Stock and each newly-elected eligible director (other than an eligible
director referred to in the preceding sentence) shall receive an option to
purchase 3,000 shares of Common Stock. A total of 50,000 shares of Common Stock
will be reserved for issuance under the plan, subject to adjustment for stock
splits and similar events. The Non-Employee Director Plan will expire after the
grants made at the annual meeting in 2006, but options then outstanding will
continue in effect according to their terms.
The exercise price of the options is the fair market value of the Common
Stock on the date of grant. Each option is non-transferable except upon death,
expires 10 years after the date of grant and becomes fully exercisable one year
after the date of grant. If the director dies or otherwise ceases to be a
director prior to the date the option became exercisable, that option will
immediately expire. Any vested options will remain exercisable for a period of
three years following retirement after attaining age 65 with at least 10 years
of service as a director or after attaining age 70, 71 or 72 with 9, 8 or 7
years of service, respectively, or following death or disability or three months
following other termination of the individual's status as a director, but in no
event beyond the tenth anniversary of the date of grant. Upon a merger in which
the Company does not survive or a sale of substantially all of the stock of the
Company or a sale of all or substantially all of the Company's assets, or a
dissolution or liquidation of the Company, all options not at the time
exercisable will become immediately exercisable and will terminate upon the
consummation of the transaction.
For federal income tax purposes, options granted under the Non-Employee
Director Plan will be treated as non-statutory options. For a description of
certain federal income tax consequences associated with non-statutory options,
see below, "Executive Compensation -- Equity Incentive Plan."
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<PAGE> 36
Committees of the Board of Directors
The Company's Board of Directors has established an Audit Committee and an
Executive Compensation Committee.
The Audit Committee will review with management, the internal audit group
and the independent accountants the Company's financial statements, the
accounting principles applied in their preparation, the scope of the audit, any
comments made by the independent accountants upon the financial condition of the
Company and the accounting controls and procedures, and such other matters as
the Committee deems appropriate. The Committee will review with management such
matters relating to compliance with corporate policies as the Committee deems
appropriate.
The Executive Compensation Committee ("ECC") will review salary policies
and compensation of officers and other members of management, approve
compensation plans and compensation of certain officers and other members of
management, and administer certain of the Company's incentive plans. The ECC
also will have responsibility for consideration of the qualifications of and
recommendations to the Board of Directors of nominees to fill Board vacancies
and will consider nominees recommended by stockholders if such recommendations
are in writing and timely filed with the Secretary of the Company.
EXECUTIVE COMPENSATION
The Company's executive officers have participated in TJX's employee
benefit plans. In general, such participation will terminate upon the Closing.
Information contained in the following four tables relates to compensation paid
to the Chief Executive Officer and the other highly compensated executive
officer of the Company for services rendered to the Company when it was a
wholly-owned subsidiary of TJX. Information concerning options and restricted
stock in the tables that follow relate only to TJX's equity incentive plans and
TJX's common stock.
SUMMARY COMPENSATION TABLE
<TABLE>
The following table provides information concerning compensation for the
Company's named executive officers for services to the Company for the fiscal
year ended January 27, 1996.
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
AWARDS GRANTED PAYOUTS
ANNUAL COMPENSATION ----------------------- ---------
------------------------------------- RESTRICTED LONG TERM
NAME AND OTHER STOCK SECURITIES INCENTIVE
PRINCIPAL ANNUAL AWARDS UNDERLYING PLAN ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) ($)(2) OPTIONS PAYOUTS COMPENSATION(3)
- --------- ------ -------- -------- --------------- ---------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dhananjaya K.
Rao........... 1995 $165,000 $ 82,500 $4,824 -- 4,000 $18,242(4) $2,944
President and
Chief
Executive
Officer(5)
Carol
Meyrowitz.... 1995 $228,077 $114,038 $4,824 $64,375 3,000 -- $3,300
Executive Vice
President --
Merchandising(5)
<FN>
- ---------------
(1) Other Annual Compensation includes tax reimbursements associated with car
allowances.
(2) The aggregate number and value (based on $18.875, the closing price of TJX
common stock on the NYSE on January 26, 1996) of shares of restricted stock
held by Ms. Meyrowitz is 5,000 shares and $94,375, respectively. Such shares
will vest immediately prior to the Closing. Upon the Closing Ms. Meyrowitz
will also be paid approximately $16,000 by TJX as a tax equalization payment
in respect of the tax liability that will arise upon the vesting of her
restricted stock.
</TABLE>
34
<PAGE> 37
(3) All other compensation includes (a) 1995 Company contributions to the TJX
General Savings/ Profit Sharing Plan of $1,875 for each of Mr. Rao and Ms.
Meyrowitz, and (b) amounts paid by TJX with respect to executive life
insurance in the amounts of $1,069 for Mr. Rao and $1,425 for Ms. Meyrowitz.
(4) The payouts under TJX's Long Range Management Incentive Plan relate to the
performance portions of the 1993 to 1995 award period with respect to the
performance of another division of TJX for which Mr. Rao also performed
services during that period.
(5) Mr. Rao and Ms. Meyrowitz assumed their respective posts in May 1996.
TJX OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
The following table reports TJX stock option grants awarded between January
28, 1995 and January 27, 1996 to the Company's named executive officers.
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------- ANNUAL RATES OF
NUMBER % OF TOTAL STOCK PRICE
OF SECURITIES OPTIONS GRANTED APPRECIATION FOR
UNDERLYING TO TJX EXERCISE OR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED(1) FISCAL YEAR (PER SHARE)(1) DATE 5% 10%
- ---- ------------- --------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Dhananjaya K. Rao.... 4,000 0.7% $12.875 9/06/05 $32,388 $82,077
Carol Meyrowitz...... 3,000 0.5% $12.875 9/06/05 $24,291 $61,558
<FN>
- ---------------
(1) All options were granted with an exercise price equal to the closing price
of TJX common stock on the NYSE on the day of grant. Options vest in equal
annual installments over three years.
(2) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates required by the Commission, and therefore are not intended
to forecast possible future appreciation of TJX's stock price at the end of
10 years.
</TABLE>
AGGREGATED TJX OPTION EXERCISES IN LAST FISCAL YEAR
AND TJX OPTION VALUES
<TABLE>
The following table sets forth information with respect to 1995 option
exercises and year-end option values for the Company's named executive officers.
<CAPTION>
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT FISCAL-YEAR-END IN-THE-MONEY OPTIONS AT
--------------------------- FISCAL-YEAR-END(1)
SHARES ACQUIRED ON VALUE EXERCISABLE UNEXERCISABLE ---------------------------
NAME EXERCISE (NUMBER) REALIZED ($) # OF SHARES # OF SHARES EXERCISABLE UNEXERCISABLE
- ---- ------------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dhananjaya K.
Rao.......... -- -- 13,680 6,820 $37,625 $24,000
Carol
Meyrowitz.... 5,175 28,178 9,290 5,660 $ 2,728 $18,000
<FN>
- ---------------
(1) The value of unexercised options is the closing price of TJX's common stock
on the NYSE on January 26, 1996 ($18.875), multiplied by the number of
shares underlying the option, less the aggregate exercise price of the
option.
</TABLE>
35
<PAGE> 38
TJX LONG-TERM INCENTIVE PLAN -- PERFORMANCE AWARDS IN LAST FISCAL YEAR
<TABLE>
The following table describes the portion of awards granted to executive
officers under the TJX Long Range Management Incentive Plan ("TJX LRMIP") during
1995 which were subject to performance goals(1).
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE UNDER NON-STOCK PRICE-BASED PLAN
PERIOD ---------------------------------
UNTIL THRESHOLD TARGET MAXIMUM
NAME PAYOUT ($) ($) ($)
- ---- ----------- --------- -------- --------
<S> <C> <C> <C> <C>
Dhananjaya K. Rao........................... 1995-1997 -- $60,000 $60,000
Carol Meyrowitz............................. 1995-1997 -- $50,000 $50,000
<FN>
- ---------------
(1) The TJX LRMIP operates on the basis of three-year periods. For each period,
the TJX Executive Compensation Committee sets target awards and performance
goals. Performance goals (tied to pre-tax income) are based on company-wide
goals for corporate officers and on divisional goals for divisional
officers, such as Mr. Rao and Ms. Meyrowitz. If three year targets are met
or partially met, up to 100% of the target award will be paid. Awards earned
under the TJX LRMIP are paid in cash.
</TABLE>
AGREEMENTS WITH KEY EXECUTIVE OFFICERS
The Company intends to enter into three-year agreements with key executive
officers pursuant to which prorated benefits under the Company's Management
Incentive Plan and Long Range Management Incentive Plan (see below) would be
accelerated and paid in the event of a change of control (as defined) of the
Company occurring after the Closing. The agreements would also provide for
severance equal to at least two years' pay, enhanced retirement benefits and
certain fringe benefits in the event of involuntary termination of employment
(other than for Cause, as defined) or termination for "good reason" (as defined)
within a 24-month period following such a change of control. The agreements
would also include non-competition provisions applicable in certain
circumstances, and would provide for generally lower levels of severance in the
event of involuntary termination other than in connection with a change of
control.
RETIREMENT PLANS
<TABLE>
The Company will provide a tax-qualified Retirement Plan for all eligible
employees and a non tax-qualified Supplemental Executive Retirement Plan
("SERP") for certain key employees, including the named executive officers. The
Retirement Plan will credit prior service with the Company or TJX and will
succeed to an appropriate portion of the assets and liabilities of TJX's
tax-qualified retirement plan. SERP will also credit prior service with the
Company and TJX. The following table shows the estimated annual benefit payable
on a straight life annuity basis at normal retirement (age 65) for all employees
eligible for SERP benefits. Benefits payable under SERP are calculated by
deducting the following: benefits received under the Company's Retirement Plan;
primary Social Security benefits; and benefits associated with the employer
contribution under the Company's savings/profit sharing program.
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS
FOR YEARS OF SERVICE INDICATED(1)
AVERAGE --------------------------------------
ANNUAL EARNINGS(2) 10 YEARS 15 YEARS 20 YEARS OR MORE
----------------- -------- -------- ----------------
<S> <C> <C> <C>
$ 100,000..................................... $ 25,000 $ 37,500 $ 50,000
150,000.................................... 37,500 56,250 75,000
200,000.................................... 50,000 75,000 100,000
300,000.................................... 75,000 112,500 150,000
400,000.................................... 100,000 150,000 200,000
500,000.................................... 125,000 187,500 250,000
600,000.................................... 150,000 225,000 300,000
800,000.................................... 200,000 300,000 400,000
1,000,000.................................... 250,000 375,000 500,000
<FN>
- ---------------
(1) As of January 27, 1996, the years of service for the following executive
officers under SERP are as follows: Dhananjaya K. Rao, 20; Carol Meyrowitz,
12.5.
(2) Average Annual Earnings includes salary and short term bonuses and is based
on an average of the highest compensation during any five of the last ten
years of employment.
</TABLE>
36
<PAGE> 39
MANAGEMENT INCENTIVE PLAN
The Company's Board of Directors expects to adopt the Management Incentive
Plan ("MIP"). MIP is intended to provide key officers and associates with cash
incentive opportunities based on annual performance goals. MIP will be
administered by the ECC, which has full authority to grant awards, including
selecting the relevant performance criteria thereunder, adjusting performance
goals or award amounts in certain circumstances and amending the terms of the
plan. At the beginning of each fiscal year, the ECC will determine a range of
performance goals from minimum to target to maximum, and determine for each
participant the relative weights of these performance goals and the award
amounts payable upon attainment of the goals. Subject to selection by the ECC,
officers and associates who are key to the annual growth and profitability of
the Company are eligible to participate in MIP. A total of approximately 100
associates are expected initially to participate in MIP. For the Company's
fiscal year ending in 1997, in the case of Company associates currently holding
awards under the TJX Management Incentive Plan, award levels and goals under the
Company's MIP are expected to be the same as those established under the TJX
plan.
LONG RANGE MANAGEMENT INCENTIVE PLAN
The Company's Board of Directors expects to adopt the Long Range Management
Incentive Plan ("LRMIP"). The LRMIP will be administered by the ECC, which has
full authority to grant awards, including selecting the relevant performance
criteria thereunder, to adjust performance criteria or awards in certain
circumstances and to amend the terms of the plan. Awards under LRMIP are
generally made annually for each successive rolling three-year cycle. At the
time of award, the ECC determines a range of performance goals for the
three-year award cycle, from minimum to target to maximum, and for each
participant determines the relative weightings of these performance goals and
the award amounts payable upon attainment of the goals. Subject to selection by
the ECC, officers and associates who are key to the Company's profitable growth
are eligible to participate in LRMIP. A total of approximately 15 officers and
associates are expected to participate initially in LRMIP. For award cycles
ending in 1997, 1998 and 1999, in the case of Company associates currently
holding awards under the TJX LRMIP, award levels and goals under the Company's
LRMIP are expected to be the same as those established under the TJX plan.
DEFERRED COMPENSATION PLAN
The Company's Board of Directors expects to adopt the General Deferred
Compensation Plan (the "Deferred Compensation Plan") to provide directors and
certain select management or highly compensated associates of the Company,
including the named executive officers, an opportunity to defer future
remuneration on a non-qualified basis. In general, under the terms of the
Deferred Compensation Plan participants are permitted to defer future
remuneration through periodic elections that specify the amount to be deferred,
the period of deferral, and the form in which deferred amounts will be paid.
Deferrals are credited to the account of the participant on the books of the
Company and adjusted for notional interest at a rate specified under the
Deferred Compensation Plan. Moneys are not set aside in trust, however, and a
participant's rights to benefits under the Deferred Compensation Plan, prior to
payment, remain those of an unsecured general creditor of the Company.
EQUITY INCENTIVE PLAN
Terms of Equity Incentive Plan
The Company's 1996 Equity Incentive Plan (the "Equity Incentive Plan" or
the "Plan") is expected to be adopted by the Board of Directors prior to the
Closing and approved by TJX, the sole stockholder of the Company having voting
power at the time of adoption. The Plan permits the granting of stock options,
restricted stock, unrestricted stock, and other stock-based awards, including
loans and cash payments intended to facilitate exercise or pay taxes.
37
<PAGE> 40
General. The Plan will be administered by a Committee (which initially
will be the ECC) (the "Committee") which must consist of no fewer than the
minimum number of "disinterested persons" required from time to time under Rule
16b-3, who shall be appointed by the Board of Directors. The Committee will have
full power to select, from among the associates eligible for awards, the
individuals to whom awards will be granted, to make any combination of awards to
any participants and to determine the specific terms of each grant, subject to
the provisions of the Plan.
Subject to adjustment for stock splits and similar events, a total of
800,000 shares of Common Stock may be issued under the Plan. Stock options
granted under the Plan in replacement of certain unvested TJX stock options (see
below) are included in and subject to this limit. Awards and shares which are
forfeited, reacquired by the Company or satisfied by a cash payment or otherwise
without the issuance of Common Stock are not counted toward this limitation. The
limitation on shares that may be issued under the Plan applies only to shares
that have become free of any restrictions under the Plan. Shares delivered under
awards in substitution for awards held by employees of companies or businesses
acquired by the Company or its subsidiaries are in addition to the maximum
number of shares authorized under the Plan to the extent that the substitute
awards: (i) are granted to persons whose relationship to the Company does not
make (and is not expected to make) them subject to Section 16(b) of the Exchange
Act; and (ii) are granted in substitution for awards issued under a plan
approved, to the extent then required under Rule 16b-3, by the stockholders of
the predecessor entity. The Plan also limits to 100,000 the number of shares of
stock as to which stock options, other than Company stock options issued in
replacement of certain TJX stock options (see below), may be granted to any
individual in any year. Any repricing of a stock option is treated as an
additional grant for purposes of this limit.
Persons eligible to participate in the Plan are those full- or part-time
officers and other key associates of the Company or its subsidiaries who are
responsible for or contribute to the management, growth or profitability of the
business of the Company, as selected from time to time by the Committee. Persons
who are not employees of the Company or a parent or subsidiary (as those terms
are used in Section 422 of the Internal Revenue Code (the "Code")) are not
eligible to receive grants of incentive options, as defined below. The Plan
limits the terms of awards to 10 years and prohibits the granting of awards more
than 10 years after the effective date of the Plan.
Stock Options. The Plan permits the granting of non-transferable stock
options that qualify as incentive stock options ("incentive options") under
Section 422(b) of the Code and stock options that do not so qualify
("non-statutory options"). The exercise price of each option is determined by
the Committee but in the case of an incentive option may not be less than 100%
of the fair market value (110% in the case of a person holding 10% or more of
the outstanding voting power of all classes of stock of the Company or any
subsidiary or parent corporation (a "10 percent stockholder")) of the shares on
the date of grant, and in the case of non-statutory options may not be less than
85% of the fair market value of the shares on the date of grant. Notwithstanding
the foregoing, the Committee may award non-statutory options at less than 85%
(but not less than 50%) of fair market value on the date of grant, provided that
the number of all such options, combined with the number of shares of Restricted
Stock (as defined below) granted with restrictive periods of less than three
years, shall not exceed five percent of the shares of Common Stock reserved for
issuance under the Plan at the time. "Fair market value" as used in this
paragraph is defined to be the last sale price at which Common Stock is traded
on such date as reflected in the NYSE Composite Transactions Index or, where
applicable, the value of a share of Common Stock as determined by the Committee
in accordance with the applicable provisions of the Code.
The term of each option is fixed by the Committee but may not exceed 10
years from the date of grant (five years in the case of an incentive option
granted to a 10 percent stockholder). The Committee determines at what time or
times each option may be exercised, and the Committee may accelerate the
exercisability of options. In the event of termination of employment by reason
of normal retirement, disability or death, an option may thereafter be exercised
(to the extent it was then exercisable) for a period of three years, or such
shorter period as may be specified by the
38
<PAGE> 41
Committee at the time of grant, subject to the stated term of the option. In the
event of termination of employment for any reason other than normal retirement,
disability or death, an option may thereafter be exercised, to the extent then
exercisable, for three months (or such longer period of up to three years as the
Committee determines at or after the grant date) following termination, subject
to the stated term of the option. However, options cease to be exercisable upon
termination for Cause (as defined in the Plan).
The exercise price of options granted under the Plan must be paid in full
by certified or bank check or other instrument acceptable to the Committee or,
if the Committee so determines, by delivery of shares of unrestricted Common
Stock, valued at their fair market value on the exercise date. The Plan
authorizes the Committee to permit "pyramiding," which involves the exercise of
an option in successive stages using as the payment at each stage shares which
have been acquired under the option in preceding stages.
Restricted Stock and Unrestricted Stock. The Committee may award shares of
Common Stock subject to such conditions and restrictions as the Committee may
determine ("Restricted Stock"), provided that the duration of overall
restrictions on vesting may not be less than three years (subject to the
Committee's ability to grant limited amounts of Restricted Stock with
restrictions of lesser duration, as described above). The Committee will
determine the purchase price, if any, of shares of Restricted Stock issued under
the Plan.
The Committee may at any time waive such restrictions, including through
accelerated vesting. Shares of Restricted Stock are non-transferable and if a
participant who holds shares of Restricted Stock terminates employment for any
reason (including death) prior to the lapse or waiver of the restrictions, the
Company may require the forfeiture or repurchase of the shares in exchange for
the amount, if any, which the participant paid for them. A holder of Restricted
Stock has all rights of a stockholder with respect to such stock, subject only
to conditions and restrictions generally applicable to Restricted Stock or
specifically set forth in the Restricted Stock award agreement. If so provided
by the Committee, stock options may be settled with shares of Restricted Stock.
The Committee may grant shares (at such purchase price, if any, as the
Committee may determine) which are free from any restrictions under the Plan
("Unrestricted Stock").
Deferred Stock. The Committee may also grant awards entitling the holder
to acquire shares of Common Stock in the future without payment. Holders of
deferred stock awards are not treated as stockholders except as to shares
actually received, but the Committee may provide for payments in lieu of
dividends. Rights to receive Common Stock in the future under a deferred stock
award may be conditioned on the satisfaction of performance conditions. The
Committee may accelerate a deferred stock award or waive conditions at any time.
Except as otherwise determined by the Committee, a participant's rights in a
deferred stock award terminate upon termination of employment. If so provided by
the Committee, stock options may be settled with deferred stock.
Performance Units. The Committee may also award performance units under
the Plan. Performance units entitle the recipient to cash or shares of Common
Stock, or a combination of cash or Common Stock, upon the attainment of
specified performance goals, and may be granted alone or in connection with
other awards. The holder of a performance unit has the rights of a stockholder
only as to shares of Common Stock actually received under the award. Except as
otherwise determined by the Committee, a participant's rights in a performance
unit award terminate upon termination of employment. The Committee may
accelerate payment under a performance unit award or waive conditions at any
time.
Other Awards. The Plan also provides for the grant of other Common
Stock-based awards. These may include securities (including preferred stock of
the Company) convertible into or exchangeable for Common Stock on such
conditions as the Committee may determine. In general, the Committee will
determine the terms of other Common Stock-based awards. The Committee may also
make loans or cash grants to participants in connection with any award under the
Plan to assist
39
<PAGE> 42
in the payment of the exercise price (if any) and the federal income taxes
associated with the grant, vesting or exercise of the award.
Adjustments. The Committee is required to make appropriate adjustments in
connection with outstanding awards to reflect stock dividends, stock splits and
similar events. In the event of a merger, liquidation or similar event, the
Committee in its discretion may provide for substitution or adjustments or may
accelerate or, upon payment or other consideration for the vested portion of any
awards as the Committee deems equitable in the circumstances, terminate such
awards (subject to the provisions described under "Change of Control" below).
Amendment and Termination. The Board of Directors may at any time amend or
discontinue the Plan and the Committee may at any time amend or cancel awards
(or provide substitute awards at the same or reduced exercise or purchase
prices, including lower-priced awards upon the termination of any then
outstanding awards) for the purpose of satisfying changes in the law or for any
other lawful purpose. However, no such action may adversely affect any rights
under outstanding awards without the holder's consent. Moreover, any amendment
that would cause the Plan to fail to satisfy any then applicable incentive stock
option rules under the Code or any stockholder approval requirements of Rule
16b-3 under the Exchange Act, as such Rule is in effect at the time of such
amendment, shall be ineffective unless approved by the stockholders.
Change of Control. The Plan provides that, in the event of a Change of
Control of the Company, unless otherwise expressly provided at the time of
grant, all stock options will become immediately exercisable. Restrictions and
conditions on Restricted Stock awards, including conditions on the vesting of
shares, will automatically be deemed satisfied only to the extent that the
Committee may determine (whether at or after the time of grant). In addition, at
any time prior to or after a Change of Control, the Committee may accelerate
awards and waive conditions and restrictions on any awards to the extent it may
determine to be appropriate.
Certain Federal Income Tax Consequences
The following discussion is a summary of certain federal income tax
consequences associated with stock option awards under the Plan. It does not
purport to summarize the tax consequences associated with other awards, nor does
it deal with other federal, state, or non-U.S. tax consequences.
Incentive Options. The grant of an incentive option does not produce
taxable income to the optionee or a deduction to the Company. If an incentive
option is exercised while the optionee is employed or within three months
following the termination of employment (twelve months in the case of
termination of employment because of permanent disability), or after the
optionee's death if death occurs during the foregoing periods, exercise of the
option will in general also not produce taxable ordinary income to the optionee
or a deduction to the Company. For alternative minimum tax purposes, however,
such exercise will increase the optionee's "alternative minimum taxable income"
and may result in a liability to pay the alternative minimum tax.
If an incentive option is exercised other than as described above, the tax
consequences will be the same as those described below for non-statutory
options. Also, incentive options will be treated as non-statutory options to the
extent they first become exercisable by an individual in any calendar year for
stock having a fair market value (determined at time of grant) in excess of
$100,000.
If stock acquired upon the exercise of an incentive option is not disposed
of by the participant within two years from the date the option is granted or
within one year after the date the option is exercised, any gain or loss
recognized upon a later disposition of the stock will be capital gain or loss.
If these one-year and two-year holding period requirements are not satisfied,
the participant will realize ordinary income at the time of disposition of the
stock. (A disposition giving rise to such ordinary income is referred to as a
"disqualifying disposition.") Upon a disqualifying disposition, in general, a
participant will realize ordinary income equal to the excess of the fair market
value of the
40
<PAGE> 43
stock on the date of exercise over the exercise price and the Company will be
entitled to an equivalent deduction provided it satisfies certain reporting
requirements. Different rules may apply if the stock received upon exercise was
then subject to a substantial risk of forfeiture. Any additional gain recognized
in the disposition will be a capital gain for which no deduction will be
available. If the disqualifying disposition is a sale or exchange with respect
to which loss (if sustained) would be recognized, then the amount of ordinary
income realized upon the disqualifying disposition (and the amount of the
Company's deduction) will not exceed the excess of the amount realized on such
sale or exchange over the adjusted basis of the stock.
If a participant exercises an incentive option in whole or in part by
surrendering previously acquired stock, no gain or loss is recognized on the
exchange of the previously-acquired shares unless the exchange results in a
disqualifying disposition of the shares surrendered. Such a disqualifying
disposition may result in the realization of ordinary income.
Non-statutory Options. The grant of a non-statutory option does not
produce taxable income to the optionee or a deduction to the Company. A
participant exercising a non-statutory option realizes ordinary income in the
amount of the difference between the exercise price and the then market value of
the shares, and the Company is entitled to a corresponding deduction (provided
it satisfies applicable reporting requirements). If the stock acquired upon
exercise is subject to a substantial risk of forfeiture, the recognition of
income and the related deduction, as well as the measurement thereof, will be
deferred until the risk of forfeiture lapses, unless the participant properly
files an election with the Internal Revenue Service under Section 83(b) of the
Code.
If a participant exercises a non-statutory option by surrendering
previously-acquired stock, no gain or loss is recognized on the exchange for an
equivalent number of new shares. The participant will realize ordinary income,
and the Company will be entitled to a corresponding deduction, provided it
satisfies applicable reporting requirements, in general equal to the fair market
value of any new shares received in excess of the number of previously-acquired
shares surrendered in the exchange, subject to the special rules described above
applicable to stock that is subject to a substantial risk of forfeiture.
Miscellaneous. The Code imposes a 20% additional tax and denies a
deduction with respect to certain payments in the nature of compensation that
are contingent upon a corporate change in ownership or control. In general and
subject to a number of exceptions, where such payments equal or exceed three
times an individual's average annual taxable compensation from the corporation
for the five years preceding the change in control, all such payments to the
individual in excess of one times the five-year average are subject to the
additional tax and deduction-disallowance penalty. Accelerated vesting of stock
options granted under the Plan, if occurring in connection with a change in
ownership or control of the Company, could result in amounts that would be
treated as payments taken into account for purposes of these limits. The Code
also denies a deduction for remuneration paid to certain executive officers of a
public corporation to the extent such remuneration exceeds $1 million in any
year. There are a number of exemptions under the $1 million deduction limitation
rule, including an exemption for certain performance-based compensation. It is
expected that stock options awarded under the Plan should qualify for the
performance-based exemption, provided the specific requirements of that Section
are satisfied with respect to the particular award.
Certain Replacement Awards to be Issued Under the Equity Incentive
Plan. As of April 25, 1996, persons who will be employees of the Company as of
the Closing held options to purchase an aggregate of 133,565 shares of TJX
common stock under TJX's 1986 Stock Incentive Plan, 73,605 of which shares
relate to options which were vested. Under such plan, outstanding options will
terminate in accordance with their terms following the Closing. In connection
with the Offering, the Company will issue options to purchase shares of Common
Stock under the Equity Incentive Plan in replacement of outstanding TJX options
which are unvested as of the Closing, subject to the termination or
relinquishment of such TJX options. The exercise price and number of replacement
41
<PAGE> 44
options will vary depending upon the exercise price of the corresponding TJX
options. Replacement options granted under the Equity Incentive Plan will be
subject to the same vesting schedule as the corresponding replaced TJX awards
and will otherwise be subject to the terms of the Equity Incentive Plan.
Certain Option Grants. In connection with the Closing, Mr. Rao and Ms.
Meyrowitz will each receive grants of options under the Equity Incentive Plan to
purchase 50,000 and 40,000 shares of Common Stock, respectively. Such options
will be exercisable at the Offering price and vest with respect to one-third of
the option shares upon each of the first three anniversaries of the date of
grant.
INDEMNIFICATION AGREEMENTS
Prior to the completion of the Offering, the Company will enter into
indemnification agreements with each of its directors and executive officers
indemnifying them against expenses, settlements, judgments and fines incurred in
connection with any threatened, pending or completed action, suit, arbitration
or proceeding, where the individual's involvement is by reason of the fact that
he or she is or was a director or officer or served at the Company's request as
a director of another organization (except that indemnification is not provided
against judgments and fines in a derivative suit unless permitted by Delaware
law). An individual may not be indemnified if he or she is found not to have
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company, except to the extent Delaware
law shall permit broader contractual indemnification. The indemnification
agreements provide procedures, presumptions and remedies designed to
substantially strengthen the indemnity rights beyond those provided by the
Company's Certificate of Incorporation and by Delaware law.
42
<PAGE> 45
OWNERSHIP OF SECURITIES
<TABLE>
The following tables set forth certain information as of May 20, 1996
regarding (a) the beneficial ownership of the Company's Common Stock: (i)
immediately prior to the Offering, giving effect to the transactions
contemplated by the Transfer Agreement; and (ii) as adjusted to reflect the sale
of the shares of Common Stock pursuant to the Offering, and (b) the beneficial
ownership of TJX common stock, for each beneficial owner of more than 5% of the
Company's Common Stock, each director of the Company, each named executive
officer of the Company and all directors and executive officers as a group. The
table assumes an Offering price of $15.00 per share of the Company's Common
Stock (the mid-point of the range of the estimated Offering price) and a price
of $34.50 per share for TJX common stock for purposes of adjustments to be made.
<CAPTION>
COMPANY SHARES COMPANY SHARES TJX SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY
PRIOR TO OFFERING AFTER THE OFFERING(1) OWNED(2)
---------------------- ------------------------ -------------------
NAME OF BENEFICIAL OWNER(3) NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
- --------------------------- ----------- ------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
The TJX Companies,
Inc.................. 15,178,847 100% 5,918,847 39%(4) N/A N/A
770 Cochituate Road
Framingham,
Massachusetts 01701
Bernard Cammarata...... -- -- -- -- 427,122 *
Richard G. Lesser(5)... -- -- -- -- 168,714 *
Dhananjaya K. Rao...... -- -- -- -- 14,498 *
Carol Meyrowitz(6)..... -- -- -- -- 15,065 *
All executive officers
and directors as a
group (5 persons).... -- -- -- -- 625,899 *
<FN>
- ---------------
* Less than 1%
(1) Includes options to purchase shares of Common Stock that are currently
exercisable or may be exercisable within 60 days of May 20, 1996 for Mr. Rao
(0) and Ms. Meyrowitz (0).
(2) Includes options to purchase shares of TJX common stock that are currently
exercisable or may be exercisable within 60 days of May 20, 1996 for Messrs.
Cammarata (336,300), Lesser (151,157), Rao (13,680) and Ms. Meyrowitz
(9,290).
(3) Beneficial ownership as reported in the above table has been determined in
accordance with Rule 13d-3 under the Exchange Act.
(4) Assuming the Underwriters' over-allotment option is not exercised.
(5) Includes 17,557 shares held jointly with Mr. Lesser's spouse.
(6) Includes 775 shares held by John deBairos, as to which Ms. Meyrowitz
disclaims beneficial ownership. Also includes 5,000 shares of restricted
stock, the restrictions on which will lapse immediately prior to the
Closing.
</TABLE>
43
<PAGE> 46
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 15,178,847 shares of
Common Stock issued and outstanding. Of the outstanding shares, 9,260,000 shares
sold pursuant to the Offering (or 10,649,000 shares, assuming the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction under the Securities Act, except for any shares purchased by an
"affiliate" (as that term is defined under the rules and regulations of the
Securities Act) of the Company. Sales of shares by affiliates of the Company
will be subject to the resale limitations of Rule 144 of the Securities Act. The
remaining 5,918,847 shares (4,529,847 shares if the Underwriters' over-allotment
option is exercised in full) outstanding upon completion of the Offering, all of
which will be owned by TJX, will be "restricted" securities within the meaning
of Rule 144 and will not be able to be sold unless registered under the
Securities Act or sold pursuant to an applicable exemption from registration,
such as Rule 144.
Under Rule 144 as currently in effect, for so long as TJX remains an
affiliate of the Company, it is entitled to sell within any three-month period a
number of shares of Common Stock that does not exceed the greater of 1% of the
then outstanding shares of Common Stock of the Company or the average weekly
trading volume of the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are subject to certain restrictions relating to
manner of sale, notice and the availability of current public information about
the Company. A person who is not an affiliate of the Company at any time during
the three months preceding a sale, and who has beneficially owned restricted
shares for at least three years (including the holding period of any prior owner
other than an affiliate), would be entitled to sell such shares without regard
to the volume limitations, manner of sale provisions or notice or current public
information requirements of Rule 144.
The Company, its directors and executive officers, and TJX have each agreed
with the Underwriters not to offer, sell, contract to sell or otherwise dispose
of, directly or indirectly, or announce the offering of, or exercise any
registration rights with respect to, or register, cause to be registered or
announce the registration or intended registration of, any shares of Common
Stock or any stock option or other security convertible into, or exchangeable
for, any shares of Common Stock for a period of 180 days from the date of the
Underwriting Agreement without the prior written consent of the Representatives
(as hereafter defined), except for (a) in the case of the Company, Common Stock
issued pursuant to any employee or director benefit plan described herein and
(b) in the case of directors and executive officers, the exercise of stock
options pursuant to benefit plans described herein and shares of Common Stock
disposed of as bona fide gifts.
In connection with the Offering, the Company and TJX will enter into a
Registration Rights Agreement whereby TJX will have certain demand and
incidental registration rights. For a more complete description of the
Registration Rights Agreement, see "Relationship with TJX -- Registration Rights
Agreement."
An additional 50,000 shares of Common Stock will be reserved for issuance
under the Company's Non-Employee Director Plan and 800,000 shares will be
reserved for issuance under the Company's Equity Incentive Plan. The Company
presently intends to file registration statements under the Securities Act to
register Common Stock to be issued pursuant to exercise of options granted or to
be granted under the Company's Non-Employee Director Plan and Equity Incentive
Plan. Common Stock issued after the effective date of such registration
statements upon exercise of outstanding vested options granted pursuant to the
Non-Employee Director Plan and Equity Incentive Plan, other than Common Stock
issued to affiliates of the Company, would be available for immediate resale in
the open market.
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made of the effect, if any, that the
availability of shares for sale or the actual sale of shares will have on market
prices prevailing from time to time.
44
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 35,000,000 shares of
Common Stock, $.01 par value per share, and 5,000,000 shares of Preferred Stock,
$.01 par value per share ("Preferred Stock"). The following summary description
of the Common Stock and the Preferred Stock is qualified in its entirety by
reference to the Company's Certificate of Incorporation included as an exhibit
to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Upon completion of the Exchange Transaction, there will be 15,178,847
shares of Common Stock outstanding. A total of 850,000 shares of Common Stock
will be reserved for issuance under the Non-Employee Director Plan and the
Equity Incentive Plan. Holders of Common Stock are entitled to one vote for each
share held of record on all matters to be submitted to a vote of the
stockholders, and do not have cumulative voting rights. Subject to preferences
that may be applicable to any outstanding shares of Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors of the Company out of funds
legally available therefor. See "Dividend Policy." Upon the completion of the
Exchange Transaction, all shares of Common Stock will be validly issued, fully
paid and nonassessable and the holders thereof will have no preferences or
conversion, exchange or pre-emptive rights. In the event of any liquidation,
dissolution or winding-up of the affairs of the Company, holders of Common Stock
will be entitled to share ratably in the assets of the Company remaining after
payment or provision for payment of all of the Company's debts and obligations
and liquidation payments to holders of outstanding shares of Preferred Stock, if
any.
PREFERRED STOCK
The Preferred Stock, if issued, would have priority over the Common Stock
with respect to dividends and to other distributions, including the distribution
of assets upon liquidation. The Preferred Stock may be issued in one or more
series without further stockholder authorization, and the Board of Directors is
authorized to fix and determine the terms, limitations and relative rights and
preferences of the Preferred Stock, to establish series of Preferred Stock and
to fix and determine the variations as among series. The Preferred Stock, if
issued, may be subject to repurchase or redemption by the Company. The Board of
Directors, without approval of the holders of the Common Stock, can issue
Preferred Stock with voting and conversion rights (including multiple voting
rights) which could adversely affect the rights of holders of Common Stock. In
addition to having a preference with respect to dividends or liquidation
proceeds, the Preferred Stock, if issued, may be entitled to the allocation of
capital gains from the sale of the Company's assets. Although the Company has no
present plans to issue any shares of Preferred Stock following the closing of
the Offering, the issuance of shares of Preferred Stock, or the issuance of
rights to purchase such shares, may have the effect of delaying, deferring or
preventing a change in control of the Company or an unsolicited acquisition
proposal.
CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation and By-laws of the Company provide for the
Board of Directors to be divided into three classes of directors, as nearly
equal in number as is reasonably possible, serving staggered terms so that
directors' initial terms will expire either at the 1997, 1998 or 1999 annual
meeting of the stockholders. Starting with the 1997 annual meeting of the
stockholders, one class of directors will be elected each year for a three-year
term. See "Management."
The Company believes that a classified Board of Directors will help to
assure the continuity and stability of the Board of Directors and the Company's
business strategies and policies as determined by the Board of Directors, since
a majority of the directors at any given time will have had prior experience as
directors of the Company. The Company believes that such continuity and
45
<PAGE> 48
stability, in turn, will permit the Board of Directors to more effectively
represent the interests of its stockholders.
With a classified Board of Directors, at least two annual meetings of
stockholders, instead of one, generally will be required to effect a change in
the majority of the Board of Directors. As a result, a provision relating to a
classified Board of Directors may discourage proxy contests for the election of
directors or purchases of a substantial block of the Common Stock because the
provision could operate to prevent a rapid change in control of the Board of
Directors. The classification provision also could have the effect of
discouraging a third party from making a tender offer or otherwise attempting to
obtain control of the Company. Under the Company's By-laws a director may be
removed by the stockholders of the corporation only for cause.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS
The By-laws establish an advance notice procedure with regard to the
nomination by the stockholders of the Company of candidates for election as
directors (the "Nomination Procedure") and with regard to other matters to be
brought by stockholders before a meeting of stockholders of the Company (the
"Business Procedure").
The Nomination Procedure requires that a stockholder give written notice,
delivered to or mailed and received at the principal executive offices of the
corporation not less than 60 days nor more than 90 days prior to the meeting, in
proper form, of a planned nomination for the Board of Directors to the Secretary
of the Company. Detailed requirements as to the form and timing of that notice
are specified in the By-laws. If the President determines that a person was not
nominated in accordance with the Nomination Procedure, such person will not be
eligible for election as a director.
Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give written notice, delivered to or mailed
and received at the principal executive offices of the corporation not less than
60 days nor more than 90 days prior to the meeting, in proper form, to the
Secretary of the Company. Detailed requirements as to the form and timing of
that notice are specified in the By-laws. If the President determines that the
other business was not properly brought before such meeting in accordance with
the Business Procedure, such business will not be conducted at such meeting.
Although the By-laws do not give the Board of Directors any power to
approve or disapprove stockholder nominations for the election of directors or
of any other business desired by stockholders to be conducted at an annual or
any other meeting, the By-laws: (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular annual meeting if the proper procedures are not followed; or
(ii) may discourage or deter a third party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company, even if the conduct of such solicitation or such attempt
might be beneficial to the Company and its stockholders.
OTHER PROVISIONS
Special Meetings of the Stockholders of the Company. The Company's By-laws
provide that a special meeting of the stockholders of the Company may be called
only by the President, or by order of the Board of Directors. That provision
prevents stockholders from calling a special meeting of stockholders and
potentially limits the stockholders' ability to offer proposals to the annual
meetings of stockholders, if no special meetings are otherwise called by the
President or the Board.
Amendment of the By-laws. The Company's Certificate of Incorporation
provides that the By-laws only may be amended by the Board of Directors or by a
vote of at least 75% of the outstanding shares of the Company's stock entitled
to vote in the election of directors.
46
<PAGE> 49
No Action by Written Consent. The Company's Certificate of Incorporation
does not permit the Company's stockholders to act by written consent. As a
result, any action to be taken by the Company's stockholders must be taken at a
duly called meeting of the stockholders.
DELAWARE ANTI-TAKEOVER STATUTE
The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period of
three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers and
(b) by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or after such date, the
business combination is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (a)
the owner of 15% or more of the outstanding voting stock of the corporation or
(b) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three- year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
NEW YORK STOCK EXCHANGE LISTING
The Company intends to apply for listing of its Common Stock on the NYSE
under the proposed symbol CWK.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be selected
prior to the Offering.
47
<PAGE> 50
UNDERWRITING
<TABLE>
Upon the terms and subject to the conditions set forth in the Underwriting
Agreement, the Company and TJX have agreed that TJX will sell to each of the
Underwriters named below (the "Underwriters"), for whom Salomon Brothers Inc and
Goldman, Sachs & Co. are acting as the Representatives (the "Representatives"),
and each of such Underwriters have severally agreed to purchase from TJX, the
respective number of shares set forth opposite its name below:
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ----------
<S> <C>
Salomon Brothers Inc.............................................................
Goldman, Sachs & Co. ............................................................
---------
Total.................................................................. 9,260,000
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all the
shares of Common Stock offered hereby (other than those subject to the
over-allotment option described below) if any such shares are purchased. In the
event of a default by an Underwriter, the Underwriting Agreement provides that,
in certain circumstances, the purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Representatives have advised the Company and TJX that the several
Underwriters propose initially to offer the shares of Common Stock to the public
at the price to public set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow and such dealers may reallow a concession not
in excess of $ per share to other dealers. After the initial public
offering, the price to public and such concessions may be changed.
TJX has granted the Underwriters an option, exercisable within 30 days of
the date of this Prospectus, to purchase up to 1,389,000 additional shares of
Common Stock from TJX at the same price per share as the initial 9,260,000
shares of Common Stock to be purchased by the Underwriters. The Underwriters may
exercise such option only to cover over-allotments, if any, incurred in
connection with the Offering. To the extent the Underwriters exercise such
option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the same proportion of such additional shares of Common
Stock as the number of shares of Common Stock to be purchased and offered by
such Underwriter in the table above bears to the total number of shares of
Common Stock initially offered by the Underwriters hereby.
The Underwriting Agreement provides that the Company and TJX will indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act, or contribute to payments the Underwriters may be
required to make in respect thereof.
The Company, its directors and executive officers, and TJX have each agreed
with the Underwriters not to offer, sell or contract to sell or otherwise
dispose of, directly or indirectly, or announce the offering of, or exercise any
registration rights with respect to, or register, cause to be registered or
announce the registration or intended registration of, any shares of Common
Stock or any stock option or other security convertible into, or exchangeable
for, any shares of Common Stock for a period of 180 days from the date of the
Underwriting Agreement without the prior written consent of the Representatives
except for (a) in the case of the Company, Common Stock issued pursuant to any
employee or director benefit plan described herein and (b) in the case of
directors and executive officers, the exercise of stock options pursuant to
benefit plans described herein and shares of Common Stock disposed of as bona
fide gifts.
48
<PAGE> 51
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Prior to this Offering, there has been no public market for the Common
Stock. Accordingly, the initial public offering price for the Common Stock will
be determined by negotiations among the Company, TJX and the Representatives.
Among the factors to be considered in determining the initial public offering
price will be the Company's record of operations, its current financial
condition, its future prospects, the market for its products, the experience of
management, the economic conditions of the Company's industry in general, the
general condition of the equity securities market, the demand for similar
securities of companies considered comparable to the Company and other relevant
factors. There can be no assurance, however, that the prices at which the Common
Stock will sell in the public market after this Offering will not be lower than
the price at which the shares of Common Stock are sold by the Underwriters.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Nutter, McClennen & Fish, LLP, Boston, Massachusetts.
Certain legal matters in connection with the sale of the Common Stock offered
hereby will be passed upon for TJX by Ropes & Gray, Boston, Massachusetts, and
for the Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The combined balance sheets as of January 28, 1995 and January 27, 1996 and
the combined statements of income, stockholder's equity and cash flow for the
years ended January 29, 1994, January 28, 1995 and January 27, 1996, included in
this Prospectus, have been included herein in reliance on the report of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
49
<PAGE> 52
CHADWICK'S OF BOSTON, LTD.
<TABLE>
INDEX TO COMBINED FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
Historical Combined Financial Statements............................................. F-2
Report of Independent Accountants.................................................. F-2
Combined Statements of Income for the fiscal years ended January 29, 1994, January
28, 1995 and January 27, 1996; and the thirteen weeks ended April 29, 1995 and
April 27, 1996 (Unaudited)...................................................... F-3
Combined Balance Sheets as of January 28, 1995 and January 27, 1996; and April 27,
1996 (Unaudited)................................................................ F-4
Combined Statements of Cash Flows for the fiscal years ended January 29, 1994,
January 28, 1995 and January 27, 1996; and the thirteen weeks ended April 29,
1995 and April 27, 1996 (Unaudited)............................................. F-5
Combined Statements of Stockholder's Equity for the fiscal years ended January 29,
1994, January 28, 1995 and January 27, 1996; and the thirteen weeks ended April
27, 1996 (Unaudited)............................................................ F-6
Notes to Combined Financial Statements............................................. F-7
Pro Forma Combined Financial Statements (Unaudited).................................. F-13
Pro Forma Combined Statement of Income for the fiscal year ended January 27,
1996............................................................................ F-14
Pro Forma Combined Statement of Income for the thirteen weeks ended April 27,
1996............................................................................ F-15
Pro Forma Condensed Combined Balance Sheet as of April 27, 1996.................... F-16
Notes to Pro Forma Combined Financial Statements................................... F-17
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Chadwick's of Boston, Ltd.:
We have audited the accompanying combined balance sheets of Chadwick's of
Boston, Ltd. and subsidiaries as of January 28, 1995 and January 27, 1996 and
the related combined statements of income, stockholder's equity, and cash flows
for each of the three fiscal years in the period ended January 27, 1996. 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, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Chadwick's of Boston,
Ltd. and subsidiaries as of January 28, 1995 and January 27, 1996 and the
combined results of their operations and their cash flows for each of the three
fiscal years in the period ended January 27, 1996 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 14, 1996, except for
Note I for which the
date is May 24, 1996.
F-2
<PAGE> 54
CHADWICK'S OF BOSTON, LTD.
<TABLE>
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
------------------------------------------- --------------------------
JANUARY 29, JANUARY 28, JANUARY 27, APRIL 29, APRIL 27,
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales..................... $424,276 $432,660 $465,598 $116,611 $131,996
-------- -------- -------- -------- --------
Cost of sales, including
buying and order fulfillment
costs....................... 269,233 271,874 278,868 69,144 73,300
-------- -------- -------- -------- --------
Gross profit............. 155,043 160,786 186,730 47,467 58,696
Selling, general and
administrative expenses,
including catalog and order
processing costs............ 131,439 155,329 160,282 42,387 45,831
-------- -------- -------- -------- --------
Income from operations... 23,604 5,457 26,448 5,080 12,865
Interest expense, net......... 3,378 3,940 6,920 1,542 1,404
-------- -------- -------- -------- --------
Income before income taxes,
extraordinary items and
cumulative effect of
accounting changes.......... 20,226 1,517 19,528 3,538 11,461
Provision for income taxes.... 7,941 255 7,854 1,422 4,764
-------- -------- -------- -------- --------
Income before extraordinary
items and cumulative effect
of accounting changes....... 12,285 1,262 11,674 2,116 6,697
Extraordinary charge, net of
income taxes................ -- (192) (3,338) -- --
Cumulative effect of
accounting changes, net of
income taxes................ 380 -- -- -- --
-------- -------- -------- -------- --------
Net income.................... $ 12,665 $ 1,070 $ 8,336 $ 2,116 $ 6,697
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 55
CHADWICK'S OF BOSTON, LTD.
<TABLE>
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
JANUARY 28, JANUARY 27, APRIL 27,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................ $ 1,420 $ 1,406 $ 953
Accounts receivable, net of allowance for doubtful
accounts of $479, $2,582 and $3,516,
respectively...................................... 10,056 41,444 63,006
Current deferred taxes and income taxes
recoverable....................................... 9,534 2,624 1,872
Merchandise inventories.............................. 93,993 82,612 69,022
Prepaid expenses, including catalog costs............ 9,499 18,829 13,674
-------- -------- --------
Total Current Assets......................... 124,502 146,915 148,527
-------- -------- --------
Property at Cost:
Land and buildings................................... 29,586 30,563 30,759
Leasehold improvements............................... 4,232 5,873 6,008
Furniture, fixtures and equipment.................... 38,193 41,458 41,605
-------- -------- --------
72,011 77,894 78,372
Less accumulated depreciation and amortization....... 18,888 25,594 27,251
-------- -------- --------
53,123 52,300 51,121
-------- -------- --------
Total Assets........................................... $177,625 $199,215 $199,648
======== ======== ========
Current Liabilities:
Accounts payable..................................... $ 41,961 $ 36,889 $ 34,005
Accrued expenses and other current liabilities....... 38,132 32,183 39,382
-------- -------- --------
Total Current Liabilities.................... 80,093 69,072 73,387
Long-term debt......................................... 45,000 -- --
Loans and advances from TJX............................ 2,391 70,769 60,277
Deferred income taxes.................................. 1,802 2,699 2,612
Commitments (see Note B)
Stockholder's Equity (see Note H)
Common stock, par value $.01, authorized 35,000,000
shares, issued and outstanding 15,178,847 shares..... 152 152 152
Additional paid-in capital........................... -- -- --
Retained earnings.................................... 48,187 56,523 63,220
-------- -------- --------
Total Stockholder's Equity................... 48,339 56,675 63,372
-------- -------- --------
Total Liabilities and Stockholder's Equity............. $177,625 $199,215 $199,648
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 56
CHADWICK'S OF BOSTON, LTD.
<TABLE>
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
------------------------------------------------- ---------------------------
JANUARY 29, JANUARY 28, JANUARY 27, APRIL 29, APRIL 27,
1994 1995 1996 1995 1996
------------- ------------- ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $ 12,665 $ 1,070 $ 8,336 $ 2,116 $ 6,697
Adjustments to reconcile net income
to net cash provided from
operating activities:
Extraordinary charge.............. -- 192 3,338 -- --
Depreciation and amortization..... 4,505 5,699 6,712 1,637 1,659
Other............................. (380) -- 297 225 9
Changes in assets and liabilities:
(Increase) in accounts
receivable................... (2) (4,645) (31,388) (32,850) (21,562)
(Increase) decrease in federal
and state income taxes
recoverable and current
deferred income taxes........ (3,206) (3,310) 9,258 4,810 752
(Increase) decrease in
merchandise inventories...... (14,995) (7,187) 11,381 2,397 13,590
(Increase) decrease in prepaid
expenses..................... (4,020) (1,159) (9,330) (5,921) 5,155
Increase (decrease) in accounts
payable...................... (10,407) 13,503 (5,072) 1,377 (2,884)
Increase (decrease) in accrued
expenses and other current
liabilities.................. 1,973 11,134 (5,949) (6,919) 7,200
Increase (decrease) in deferred
income taxes................. 1,133 621 897 102 (87)
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities................ (12,734) 15,918 (11,520) (33,026) 10,529
-------- -------- -------- -------- --------
Cash flows from investing activities:
Property additions.................. (16,203) (10,586) (6,338) (1,623) (490)
-------- -------- -------- -------- --------
Net cash (used in) investing
activities.......................... (16,203) (10,586) (6,338) (1,623) (490)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings of long-
term debt......................... -- 45,000 -- -- --
Principal payments on long-term
debt.............................. (19) (32) -- -- --
Prepayment of long-term debt........ -- (5,774) (50,534) -- --
Increase (decrease) in borrowings
from TJX, net..................... 30,036 (44,317) 68,378 34,321 (10,492)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities................ 30,017 (5,123) 17,844 34,321 (10,492)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents.................... 1,080 209 (14) (328) (453)
Cash and cash equivalents at beginning
of year............................. 131 1,211 1,420 1,420 1,406
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
period.............................. $ 1,211 $ 1,420 $ 1,406 $ 1,092 $ 953
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 57
CHADWICK'S OF BOSTON, LTD.
<TABLE>
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<CAPTION>
COMMON
STOCK, ADDITIONAL
PAR VALUE PAID-IN RETAINED
$.01 CAPITAL EARNINGS TOTAL
------------ ---------- -------- --------
<S> <C> <C> <C> <C>
Balance, January 30, 1993................... $152 $-- $34,452 $34,604
Net income................................ -- -- 12,665 12,665
---- --- ------- -------
Balance, January 29, 1994................... 152 -- 47,117 47,269
Net income................................ -- -- 1,070 1,070
---- --- ------- -------
Balance, January 28, 1995................... 152 -- 48,187 48,339
Net income................................ -- -- 8,336 8,336
---- --- ------- -------
Balance, January 27, 1996................... 152 -- 56,523 56,675
Net income (Unaudited).................... -- -- 6,697 6,697
---- --- ------- -------
Balance, April 27, 1996 (Unaudited)......... $152 $-- $63,220 $63,372
==== === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 58
CHADWICK'S OF BOSTON, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION: Chadwick's, Inc., which holds the assets of the
Chadwick's of Boston catalog, is a wholly-owned subsidiary of The TJX Companies,
Inc. ("TJX"). Just prior to the planned stock offering (see Note I), TJX intends
to exchange its ownership in Chadwick's, Inc. for all of the outstanding shares
of Chadwick's of Boston, Ltd. (the "Company"). These combined financial
statements include the operating results of the Chadwick's of Boston catalog and
its related trademark subsidiary.
The preparation of the 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 liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
DESCRIPTION OF BUSINESS: The Company is an off-price catalog operator
which sells primarily women's career, casual and social apparel through its
Chadwick's of Boston catalog.
FISCAL YEAR: The Company's fiscal year ends on the last Saturday in
January. The fiscal years ended January 29, 1994, January 28, 1995 and January
27, 1996 each included 52 weeks.
REVENUE RECOGNITION: The Company recognizes sales and the related cost of
sales at the time the merchandise is shipped to customers. The Company allows
for merchandise returns at the customer's discretion, and provides an allowance
for returns based on projected merchandise returns. The Company does not record
proceeds received from merchandise liquidations in its net sales. The Company
received $29.7 million, $21.9 million and $20.2 million, for the fiscal years
ended January of 1994, 1995 and 1996, respectively, with respect to liquidated
merchandise.
CASH AND CASH EQUIVALENTS: The Company generally considers highly liquid
investments with a maturity of three months or less at time of purchase to be
cash equivalents. The Company's investments are primarily time deposits with
major banks. Fair value of cash equivalents approximates carrying value.
MERCHANDISE INVENTORIES: Inventories are stated at the lower of cost or
market. The Company primarily uses the retail method for valuing inventories on
the first-in first-out basis.
PREPAID CATALOG EXPENSES: Catalog costs are capitalized as incurred and
amortized over the period the catalog generates revenue which generally does not
exceed four months. Prepaid catalog expenses were $7.9 million and $16.7 million
as of January 28, 1995 and January 27, 1996, respectively.
DEPRECIATION AND AMORTIZATION: For financial reporting purposes, the
Company provides for depreciation and amortization of property principally by
the use of the straight-line method over the estimated useful lives of the
assets. Leasehold costs and improvements are generally amortized over the lease
term or their estimated useful life, whichever is shorter. Maintenance and
repairs are charged to expense as incurred. Upon retirement or sale, the cost of
disposed assets and the related depreciation are eliminated and any gain or loss
is included in net income.
NEW ACCOUNTING STANDARDS: During 1995, the Financial Accounting Standards
Board (FASB) issued FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Assets to be Disposed of " and FASB Statement No. 123,
"Accounting for Stock Based Compensation." The Company will implement the new
standards in its fiscal year ending January 25, 1997 and it expects that the
impact of implementation will be immaterial. The Company plans to adopt the
disclosure only provisions of FASB Statement No. 123.
F-7
<PAGE> 59
CHADWICK'S OF BOSTON, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING CHANGES: Effective January 31, 1993, TJX adopted Statement of
Financial Accounting Standards (SFAS) No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The Company recorded its share of
a one-time implementation charge of $79,000, net of taxes of $51,000, as a
cumulative effect of accounting change.
In addition, effective January 31, 1993, TJX also implemented Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes." The
amount applicable to the Company resulted in an after-tax gain of $459,000 which
was also recorded as a cumulative effect of accounting change.
INTERIM FINANCIAL INFORMATION: The combined financial statements for the
thirteen weeks ended April 29, 1995 and April 27, 1996 are unaudited but include
all adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the results for
the interim period.
A. RELATED PARTY TRANSACTIONS
TJX loans funds to the Company on an as needed basis. The Company pays
interest to TJX on its intercompany balance, net of its cash balance, on a
monthly basis. At the beginning of a fiscal year, the intercompany balance is
determined to be long-term and interest is charged on that balance at a rate
determined annually by TJX. The long-term intercompany balance was $16.7 million
for the fiscal year ended January 29, 1994, $46.7 million for the fiscal year
ended January 28, 1995 and $2.4 million for the fiscal year ended January 27,
1996. The long-term interest rate was 9.0%, 8.0% and 8.5%, in the fiscal years
ended January of 1994, 1995 and 1996, respectively.
In addition to the above, interest is charged or credited to the Company
each month on the difference between its long-term intercompany balance and the
intercompany balance, net of cash at the end of the month. Interest income on
this portion of the intercompany balance which represents funds invested with
TJX is credited at a rate which approximates TJX's short-term investment rate.
Interest expense on this portion of the intercompany balance which represents
borrowings from TJX is charged at a rate which approximates TJX's short-term
borrowing rate. During the past three years, the maximum amounts the Company has
borrowed from TJX on a short-term basis (based on month end borrowing levels)
were $66.2 million in the fiscal year ended January 29, 1994, $18.6 million in
the fiscal year ended January 28, 1995 and $116.0 million in the fiscal year
ended January 27, 1996. The average short-term interest rate on its borrowings
was approximately 4%, 5% and 7% in the fiscal years ended January of 1994, 1995
and 1996, respectively.
TJX provides certain services to the Company, primarily data processing and
payroll processing. The Company pays a charge which it believes approximates the
costs incurred by TJX. The Company paid $2.6 million, $3.3 million and $4.4
million in the fiscal years ended January of 1994, 1995 and 1996, respectively,
for these services. The Company also participates in numerous benefit plans and
insurance plans of TJX and is charged its share of the costs incurred in
connection with the plans.
Additionally, the Company pays a charge to TJX for administrative support,
including financial, treasury, general legal, tax, audit and human resources.
The Company pays an annual fee equal to 0.1% of its budgeted sales for these
services. The Company paid $409,000, $504,000 and $461,000 for the fiscal years
ended January of 1994, 1995 and 1996, respectively.
The Company also enters into several transactions with other operating
divisions of TJX. In the fiscal years ended January of 1994, 1995 and 1996, TJX
purchased liquidated merchandise from the Company of $24.2 million, $14.4
million, and $10.6 million, respectively. Accounts receivable as of
F-8
<PAGE> 60
CHADWICK'S OF BOSTON, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
January 28, 1995 and January 27, 1996 includes $2.5 million and $1.2 million,
respectively due from TJX with respect to liquidated merchandise. Also, the
Company leased certain buying, warehouse and distribution space and two outlet
locations from TJX for which the Company paid $206,000, $251,000 and $289,000 in
the fiscal years ended January of 1994, 1995 and 1996, respectively.
B. COMMITMENTS AND CONTINGENCIES
<TABLE>
The Company is committed for a limited number of leases, primarily for the
rental of real estate. The real estate leases range up to five years and have
variable renewal options. In addition, the Company is generally required to pay
insurance, real estate taxes and other operating expenses. The following is a
schedule of future minimum lease payments for the Company as of January 27,
1996:
<CAPTION>
FISCAL YEARS ENDED JANUARY, OPERATING LEASES
--------------------------- ----------------
<S> <C>
1997................................................................ $ 497,000
1998................................................................ 523,000
1999................................................................ 135,000
2000................................................................ 66,000
2001................................................................ 66,000
Later years......................................................... 44,000
----------
Total minimum lease payments........................................ $1,331,000
==========
</TABLE>
Rental expense under operating leases amounted to $1,174,000, $996,000 and
$1,147,000 for the fiscal years ended January of 1994, 1995 and 1996,
respectively.
The Company had outstanding letters of credit in the amount of $19.1
million as of January 27, 1996. The letters of credit are issued for the
purchase of inventory.
C. INCOME TAXES
The Company is included in the consolidated federal income tax return of
TJX and, where applicable, is consolidated for state reporting purposes. The
current income tax provision charged to the Company by TJX is based on the cost
or benefits the Company provides in the consolidated tax returns. The deferred
tax provision is computed based upon the differences between the tax basis of
the Company's assets and liabilities and the reported amounts in the financial
statements. The Company believes the income tax provision is representative of
the Company's tax provision as if it was a stand-alone company.
<TABLE>
The provision for income taxes includes the following:
<CAPTION>
FISCAL YEAR ENDED JANUARY,
-------------------------------
1994 1995 1996
------ ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $5,947 $ 336 $1,793
State.............................................. 1,959 (162) 542
Deferred:
Federal............................................ 41 62 4,212
State.............................................. (6) 19 1,307
------ ----- ------
Provision for income taxes........................... $7,941 $ 255 $7,854
====== ===== ======
</TABLE>
F-9
<PAGE> 61
CHADWICK'S OF BOSTON, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The Company has a net deferred tax (asset) liability as follows:
<CAPTION>
JANUARY 29, JANUARY 28, JANUARY 27,
1994 1995 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Inventory.................................... $ 3,712 $ 5,825 $ 3,371
Reserve for customer returns................. 3,622 3,419 3,632
All other.................................... 4,072 2,825 3,000
------- ------- -------
Total deferred tax assets...................... 11,406 12,069 10,003
------- ------- -------
Deferred tax liabilities:
Property and equipment....................... 2,419 3,071 3,074
Capitalized catalog costs.................... 3,434 3,091 6,924
Other........................................ 770 1,204 821
------- ------- -------
Total deferred tax liabilities................. 6,623 7,366 10,819
------- ------- -------
Net deferred tax (asset) liability............. $(4,783) $(4,703) $ 816
======= ======= =======
</TABLE>
<TABLE>
The following is a reconciliation of the federal statutory income tax rate
to the effective income tax rate:
<CAPTION>
FISCAL YEAR ENDED JANUARY,
--------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.......................... 35% 35% 35%
Permanent differences, primarily charitable
contributions of inventory.......................... (2) (12) (1)
State income taxes, net of federal benefit............ 6 (6) 6
-- --- --
Effective income tax rate.................................. 39% 17% 40%
== === ==
</TABLE>
D. PENSION PLANS AND OTHER RETIREMENT BENEFITS
The Company participates in TJX's non-contributory defined benefit
retirement plan. The TJX plan covers the majority of full-time employees who
have attained 21 years of age and have completed one year of service. Benefits
are based on compensation earned in each year of service. TJX also has an
unfunded supplemental retirement plan which covers certain key employees of the
Company and provides additional retirement benefits based on average
compensation. Pension expenses paid by the Company to TJX amounted to $101,000,
$195,000 and $256,000 in the fiscal years ended January of 1994, 1995 and 1996,
respectively. TJX does not segregate plan assets or liabilities by participating
subsidiary company, and as a result, disclosure concerning plan assets and
liabilities are not presented.
The Company also participates in TJX's 401(k) plans which match a portion
of employee contributions. The Company's match for employee contributions was
$158,000, $191,000 and $186,000 in the fiscal years ended January of 1994, 1995
and 1996, respectively.
The TJX postretirement benefit plan is unfunded and provides limited
postretirement medical and life insurance benefits to associates who participate
in TJX's retirement plan and who retire at age 55 or older with 10 years or more
of service. The postretirement expense paid by the Company was $28,000, $75,000
and $81,000 in the fiscal years ended January of 1994, 1995 and 1996,
respectively.
F-10
<PAGE> 62
CHADWICK'S OF BOSTON, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
E. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
The major components of accrued expenses and other current liabilities are as follows:
<CAPTION>
JANUARY 28, JANUARY 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Employee compensation and benefits............................ $ 2,314 $ 3,727
Reserve for customer returns.................................. 8,266 8,780
Customer prepayments.......................................... 13,495 8,372
All other..................................................... 14,057 11,304
------- -------
Accrued expenses and other current liabilities................ $38,132 $32,183
======= =======
</TABLE>
F. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
The Company's cash payments for interest expense and income taxes are as follows:
<CAPTION>
FISCAL YEAR ENDED JANUARY,
---------------------------------
1994 1995 1996
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for:
Interest expense................................ $ 3,378 $3,657 $7,247
Income taxes.................................... 11,196 3,204 3,078
</TABLE>
G. DEBT
During the fiscal year ended January 28, 1995, the Company secured a
10-year $45 million real estate mortgage on its fulfillment center (guaranteed
by TJX), at 8.73% annual interest. The proceeds were used to prepay the $5.4
million outstanding mortgage on the facility, with the balance of the proceeds
used to repay advances from TJX. The early retirement of the $5.4 million
mortgage resulted in an after-tax extraordinary charge of $192,000 ($325,000
pre-tax) in the fiscal year ended January 28, 1995. In the fiscal year ended
January 27, 1996, the Company prepaid its $45 million real estate mortgage on
the fulfillment center in connection with TJX's purchase of Marshalls and
incurred an extraordinary after-tax charge of $3.3 million ($5.6 million
pre-tax) on the early retirement of this debt.
Information relating to the Company's borrowings from TJX is described in
Note A.
H. CAPITAL STOCK
The historical capitalization of the Company has been retroactively
restated to reflect the anticipated issuance of 15,178,847 shares of Common
Stock for all periods presented in order to reflect the equity of the Company on
an ongoing basis as a result of a planned initial public offering of Common
Stock (See Note I). The Company's authorized capital stock also includes
5,000,000 shares of Preferred Stock, $.01 par value per share.
I. SUBSEQUENT EVENT
In May 1996 the Company filed a registration statement with the Securities
and Exchange Commission with respect to an initial public offering (the
"Offering") of its Common Stock. The Offering contemplates the sale by TJX of
approximately 61% of the outstanding Common Stock (approximately 70% if the
Underwriters exercise their over-allotment option in full) of the Company.
F-11
<PAGE> 63
CHADWICK'S OF BOSTON, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a commitment from two banks to provide to the Company a
three-year term loan for $30 million and a three-year revolving credit facility
of up to $120 million to meet its ongoing working capital needs. In addition,
the Company is also negotiating with several banks to sell certain deferred
billing accounts receivable.
The Company intends to adopt a 1996 Equity Incentive Plan (the "1996
Plan"). This plan permits the granting of stock options, restricted stock,
unrestricted stock and other stock-based awards. The Company intends to reserve
800,000 shares of Common Stock for issuance under this plan. The Company also
intends to adopt a Non-Employee Director Plan and intends to reserve 50,000
shares of Common Stock for issuance under this plan.
Certain members of management also participate in the TJX stock option
plan. As of April 25, 1996, these individuals held a total of 133,565 options to
purchase TJX stock (of which 73,605 were exercisable). Upon completion of the
Offering, the Company intends to issue options of equal value under the 1996
Plan to replace unvested options held by management under the TJX stock option
plan.
F-12
<PAGE> 64
CHADWICK'S OF BOSTON, LTD.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following Unaudited Pro Forma Combined Financial Statements of
Chadwick's of Boston, Ltd. give effect to: (i) the contribution of $20 million
to the equity of Chadwick's, Inc., by TJX through forgiveness of intercompany
indebtedness and (ii) the repayment by Chadwick's, Inc. to TJX of the balance of
its outstanding intercompany indebtedness in excess of such equity contribution.
Proceeds for repayment of the intercompany indebtedness and subsequent
working capital needs will be funded by the Company's new financing
arrangements. The Company has received a commitment from two banks to provide
the Company with a three-year credit facility composed of a $30 million term
loan and a revolving line of credit of up to $120 million. The Company has
received and is reviewing proposals for a long-term deferred billing facility
which would allow the Company to periodically sell its deferred billing
receivables rather than finance them with short-term borrowings. In the interim,
the Company has received a commitment from one of such banks to provide a $30
million loan to finance the Company's deferred billing program. The Pro Forma
Combined Financial Statements assume that the deferred billing facility is in
place. In addition, the repayment of the April 27, 1996 intercompany
indebtedness is assumed to be funded first by the $30 million term loan and then
by the sale of receivables under the deferred billing facility.
The Pro Forma Combined Financial Statements assume that these transactions
occurred at the beginning of the fiscal year ending January 27, 1996 for the Pro
Forma Combined Statements of Income and as of April 27, 1996 for the Pro Forma
Combined Balance Sheet. In the opinion of management of the Company, all
adjustments necessary to present fairly such Pro Forma Combined Financial
Statements have been made.
The Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the historical financial statements and the notes thereto
included elsewhere in this Prospectus. The Unaudited Pro Forma Combined
Statements of Income are not necessarily indicative of what actual results of
operation would have been had these transactions occurred at the beginning of
the respective periods nor do they purport to indicate the results of future
operations of the Company.
F-13
<PAGE> 65
CHADWICK'S OF BOSTON, LTD.
<TABLE>
PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS)
<CAPTION>
FISCAL YEAR ENDED
JANUARY 27, 1996
------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales.............................................. $465,598 $465,598
-------- --------
Cost of sales, including buying and order fulfillment
costs................................................ 278,868 278,868
-------- --------
Gross profit...................................... 186,730 186,730
Selling, general and administrative expenses, including
catalog and order processing costs................... 160,282 1,700 (2) 161,982
-------- --------
Income from operations............................ 26,448 24,748
Interest expense, net.................................. 6,920 (1,120)(1) 5,800
-------- --------
Income before income taxes and extraordinary item...... 19,528 18,948
Provision for income taxes............................. 7,854 (238)(3) 7,616
-------- --------
Income before extraordinary item....................... 11,674 11,332
Extraordinary charge, net of income taxes.............. (3,338) (3,338)
-------- --------
Net income............................................. $ 8,336 $ 7,994
======== ========
Pro forma earnings per share amounts:
Income before extraordinary item.................. $.74
====
Net income........................................ $.52
====
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Combined
Statement of Income.
F-14
<PAGE> 66
CHADWICK'S OF BOSTON, LTD.
<TABLE>
PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS)
<CAPTION>
THIRTEEN WEEKS ENDED
APRIL 27, 1996
------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales.............................................. $131,996 $131,996
-------- --------
Cost of sales, including buying and order fulfillment
costs................................................ 73,300 73,300
-------- --------
Gross profit...................................... 58,696 58,696
Selling, general and administrative expenses, including
catalog and order processing costs................... 45,831 400(2) 46,231
-------- --------
Income from operations............................ 12,865 12,465
Interest expense, net.................................. 1,404 (344)(1) 1,060
-------- --------
Income before income taxes............................. 11,461 11,405
Provision for income taxes............................. 4,764 (23)(3) 4,741
-------- --------
Net income............................................. $ 6,697 $ 6,664
======== ========
Pro forma net income per common share.................. $.44
====
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Combined
Statement of Income.
F-15
<PAGE> 67
CHADWICK'S OF BOSTON, LTD.
<TABLE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
APRIL 27, 1996
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents....................... $ 953 18,878(4) $ 19,831
Accounts receivable............................. 63,006 (34,200)(4) 28,806
Current deferred taxes.......................... 1,872 1,872
Merchandise inventories......................... 69,022 69,022
Prepaid expenses................................ 13,674 13,674
-------- --------
Total Current Assets.................... 148,527 133,205
Property, net of depreciation..................... 51,121 51,121
Other assets...................................... -- 2,075(3) 2,075
-------- --------
Total Assets...................................... $199,648 $186,401
======== ========
Current Liabilities:
Short-term debt................................. $ -- $ --
Accounts payable................................ 34,005 34,005
Accrued expenses and other current
liabilities.................................. 39,382 (2,970)(2) 36,412
-------- --------
Total Current Liabilities............... 73,387 70,417
Long-term debt.................................... -- 30,000(3) 30,000
(20,000)(1)
Loan from TJX..................................... 60,277 2,970(2) --
(27,925)(3)
(15,322)(4)
Deferred income taxes............................. 2,612 2,612
Stockholder's Equity:
Common stock, par value $.01, authorized
35,000,000 shares, issued and outstanding
15,178,847 shares............................... 152 152
Additional paid-in capital........................ -- 20,000(1) 20,000
Retained earnings................................. 63,220 63,220
-------- --------
Total Stockholder's Equity.............. 63,372 83,372
-------- --------
Total Liabilities and Stockholder's Equity........ $199,648 $186,401
======== ========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Combined
Condensed Balance Sheet.
F-16
<PAGE> 68
CHADWICK'S OF BOSTON, LTD.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
(1) To record TJX's contribution of $20 million to the equity of
Chadwick's, Inc. through the forgiveness of $20 million of
intercompany indebtedness.
(2) To record transfer to TJX of current income taxes payable through
the intercompany balance.
(3) To record borrowings under the $30 million three year term loan
and reflect payments of $2,075,000 for estimated deferred
financing fees on new banking agreements and of $27,925,000 as
partial repayment of the outstanding intercompany indebtedness.
(4) To record the sale of a portion of the Company's outstanding
deferred billing accounts receivable (limited to 60% of the
outstanding balance based on current bank proposals) with
$15,322,000 of the proceeds used to repay the remaining balance of
the intercompany indebtedness and the remaining proceeds of
$18,878,000 added to cash.
NOTES TO PRO FORMA COMBINED STATEMENTS OF INCOME
(1) Adjustment to reflect interest expense and amortization of
deferred financing costs of $5,800,000 for the fiscal year ended
January 27, 1996 and $1,060,000 for the thirteen weeks ended April
27, 1996 in connection with the $30 million term loan and the $120
million revolving credit facility. Interest on these facilities is
expected to be LIBOR plus 1 1/2%, and is assumed to be 7 1/2% in
the Pro Forma Combined Statements of Income.
(2) Adjustment to selling, general and administrative expenses,
including catalog and order processing costs of $1,700,000 for the
fiscal year ended January 27, 1996 and $400,000 for the thirteen
weeks ended April 27, 1996 to record the estimated loss on the
sale of a portion of the Company's deferred billing receivables.
Loss on sale of the receivables is recorded at the time the
receivables are sold and, under current bank proposals, equals a
fee based on outstanding receivables sold times a LIBOR-based
index, assumed to be 6.5% for the Pro Forma Combined Statements of
Income.
(3) Adjustment to income tax provision for the estimated income tax
effect of the Pro Forma Adjustments at a marginal tax rate of 41%.
Pro Forma net income per common share is based on 15,178,847 shares of
common stock outstanding plus 63,326 shares for the assumed conversion, using
the treasury stock method, of outstanding stock options.
Management believes the Company's historical financial statements reflect
its historical costs of doing business. As a public entity the Company will
likely incur additional costs. Such additional costs, estimated to be
approximately $1.5 million on an annual basis and approximately $400,000 on a
quarterly basis, are not reflected in the Pro Forma Combined Statements of
Income.
F-17
<PAGE> 69
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, TJX OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
-------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Company........................... 12
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 20
Relationship with TJX................. 28
Management............................ 32
Executive Compensation................ 34
Ownership of Securities............... 43
Shares Eligible For Future Sale....... 44
Description of Capital Stock.......... 45
Underwriting.......................... 48
Legal Matters......................... 49
Experts............................... 49
Index to Combined Financial
Statements.......................... F-1
</TABLE>
-------------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
9,260,000 SHARES
[LOGO] CHADWICKS
OF BOSTON LTD.
COMMON STOCK
($.01 PAR VALUE)
SALOMON BROTHERS INC
GOLDMAN, SACHS & CO.
PROSPECTUS
DATED , 1996
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
The estimated fees and expenses incurred by the Registrant and by TJX,
other than underwriting discounts and commissions, in connection with the
Offering will be borne by TJX and are estimated to be as follows:
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee............... $58,753
National Associates of Securities Dealers, Inc. filing fee........ 17,538
NYSE listing fee.................................................. *
Blue Sky fees and expenses........................................ *
Accounting fees and expenses...................................... *
Legal fees and expenses........................................... *
Transfer agent fees and expenses.................................. *
Printing and engraving fees....................................... *
Miscellaneous..................................................... *
-------
Total...................................................
=======
<FN>
- ---------------
* To be completed by amendment to the Registration Statement
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any such
person serving in any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor, against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent that the Delaware
Court of Chancery or such other court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnify for such expenses which the Court of Chancery
or such other court shall deem proper.
The Registrant has entered into indemnification agreements with each of its
directors and officers indemnifying them against expenses, settlements,
judgments and fines incurred in connection with any threatened, pending or
completed action, suit, arbitration or proceeding, where the individual's
involvement is by reason of the fact that such person is or was a director or
officer or
II-1
<PAGE> 71
served at the Company's request as a director of another organization (except
that indemnification is not provided against judgments and fines in a derivative
suit unless permitted by Delaware law). An individual may not be indemnified if
such person is found not to have acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant, except to the extent Delaware law permits broader contractual
indemnification. These indemnification agreements provide procedures,
presumptions and remedies which substantially strengthen the indemnification
rights beyond those provided by the Registrant's Certificate of Incorporation
(the "Certificate") and by Delaware law.
The Certificate provides that each person who was or is made a party to, or
is involved in, any action, suit, preceding or claim by reason of the fact that
he or she is or was a director, officer or employee of the Registrant (or is or
was serving at the request of the Registrant as a director, officer, trustee,
employee or agent of any other enterprise including service with respect to
employee benefit plans) shall be indemnified and held harmless by the
Registrant, to the full extent permitted by Delaware law, as in effect from time
to time, against all expenses (including attorneys' fees and expenses),
judgments, fines, penalties and amounts to be paid in settlement incurred by
such person in connection with the investigation, preparation to defend or
defense of such action, suit, proceeding or claim.
The rights to indemnification and the payment of expenses provided by the
Certificate do not apply to any action, suit, proceeding or claim initiated by
or on behalf of a person otherwise entitled to the benefit of such provisions.
Any person seeking indemnification under the Certificate shall be deemed to have
met the standard of conduct required for such indemnification unless the
contrary shall be established. Any repeal or modification of such
indemnification provisions shall not adversely affect any right or protection of
a director or officer with respect to any conduct of such director or officer
occurring prior to such repeal or modification.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of the Delaware General Corporation Law (relating to
unlawful payment of dividend and unlawful stock purchase and redemption) or (iv)
for any transaction from which the director derived an improper personal
benefit. The Registrant has provided in the Certificate that its directors shall
be exculpated from liability as provided under Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Offering, the Company will issue 15,178,847 shares
of Common Stock to TJX in exchange for all outstanding shares of Chadwick's,
Inc. held by TJX in reliance upon the exception provided by Section 4(2) under
the Securities Act.
II-2
<PAGE> 72
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
Unless otherwise indicated, the following exhibits will be filed by
Amendment to this Registration Statement:
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ----------
<S> <C> <C> <C>
1 -- Form of Underwriting Agreement....................................
*3.1 -- Certificate of Incorporation of the Company.......................
*3.2 -- By-Laws of the Company............................................
4 -- Specimen Common Stock Certificate of the Company..................
5 -- Opinion of Nutter, McClennen & Fish, LLP..........................
10.1 -- Form of Agreement with Key Executive Officers.....................
10.2 -- Form of Management Incentive Plan.................................
10.3 -- Form of Long Range Management Incentive Plan......................
10.4 -- Form of 1996 Equity Incentive Plan................................
10.5 -- Form of Supplemental Executive Retirement Plan....................
10.6 -- Form of 1996 Stock Option Plan for Non-Employee Directors.........
10.7 -- Form of General Deferred Compensation Plan........................
10.8 -- Form of Transfer Agreement between the Company, Chadwick's, Inc.
and TJX...........................................................
10.9 -- Form of Services Agreement between the Company and TJX............
10.10 -- Form of Tax Sharing and Separation Agreement between the Company
and TJX...........................................................
10.11 -- Form of Registration Rights Agreement between the Company and
TJX...............................................................
10.12 -- Form of Inventory Purchase Agreement between the Company and
TJX...............................................................
10.13 -- Form of Trademark License and Assignment Agreement between the
Company and TJX...................................................
10.14 -- Form of Trademark License Agreement between the Company and TJX...
10.15 -- Form of Trademark License Agreement between the Company
and TJX...........................................................
10.16 -- Form of Indemnification Agreement.................................
*21 -- Subsidiaries of the Company.......................................
*23.1 -- Consent of Coopers & Lybrand L.L.P. ..............................
23.2 -- Consent of Nutter, McClennen & Fish, LLP (contained in
Exhibit 5)........................................................
*24 -- Power of Attorney (contained in the signature page to this
Registration Statement)...........................................
*27 -- Financial Data Schedule...........................................
99 -- [Additional Exhibits]
<FN>
- ---------------
* Filed herewith.
</TABLE>
II-3
<PAGE> 73
(B) FINANCIAL STATEMENT SCHEDULES
<TABLE>
The following financial schedules of the Company are filed herewith.
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................... S-1
Schedule II -- Chadwick's of Boston, Ltd. -- Valuation and Qualifying
Accounts............................................................ S-2
</TABLE>
All other schedules are inapplicable or the information required is
included in the Company's Consolidated Financial Statements and the notes
thereto.
II-4
<PAGE> 74
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(c) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at this
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, The Commonwealth
of Massachusetts, on this 24th day of May, 1996.
CHADWICK'S OF BOSTON, LTD.
By /s/ Dhananjaya K. Rao
-----------------------------------
Name: Dhananjaya K. Rao
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on May 24, 1996 by the following
persons in the capacities and on the dates indicated. Each person whose
signature appears below hereby constitutes and appoints Dhananjaya K. Rao,
Bernard Cammarata and Donald G. Campbell, and each of them singly, his or her
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including any post-effective
amendments) to this Registration Statement and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby satisfying and
confirming all that said attorney-in-fact and agents, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Dhananjaya K. Rao President, Chief Executive May 24, 1996
- ----------------------------------- Officer and Director
Dhananjaya K. Rao
/s/ John W. Tynan Chief Financial Officer and May 24, 1996
- ----------------------------------- Principal Accounting Officer
John W. Tynan
/s/ Carol Meyrowitz Executive Vice President, May 24, 1996
- ----------------------------------- Merchandising and Director
Carol Meyrowitz
/s/ Bernard Cammarata Chairman of the Board of Directors May 24, 1996
- -----------------------------------
Bernard Cammarata
/s/ Richard G. Lesser Director May 24, 1996
- -----------------------------------
Richard G. Lesser
</TABLE>
II-6
<PAGE> 76
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Board of Directors of Chadwick's of Boston, Ltd.:
- --------------------------------------------------------
In connection with our audits of the combined financial statements of
Chadwick's of Boston, Ltd. and subsidiaries as of January 28, 1995 and January
27, 1996, and for each of the three years in the period ended January 27, 1996,
which financial statements are included in the Prospectus, we have also audited
the financial statement schedule listed in Item 16 herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 14, 1996 except for
Note I for which the date
is May 24, 1996.
S-1
<PAGE> 77
CHADWICK'S OF BOSTON, LTD.
<TABLE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Fiscal Year ended January 27, 1996................. $ 479 $ 2,717 $ (614) $ 2,582
Fiscal Year ended January 28, 1995................. $ 0 $ 479 $ 0 $ 479
Fiscal Year ended January 29, 1994................. $ 0 $ 0 $ 0 $ 0
RESERVE FOR INVENTORY LIQUIDATIONS:
Fiscal Year ended January 27, 1996................. $14,945 $ 34,696 $ (39,978) $ 9,663
Fiscal Year ended January 28, 1995................. $12,148 $ 39,144 $ (36,347) $14,945
Fiscal Year ended January 29, 1994................. $ 7,624 $ 34,668 $ (30,144) $12,148
RESERVE FOR CUSTOMER RETURNS:
Fiscal Year ended January 27, 1996................. $ 8,266 $157,920 $(157,406) $ 8,780
Fiscal Year ended January 28, 1995................. $ 8,756 $210,779 $(211,269) $ 8,266
Fiscal Year ended January 29, 1994................. $ 9,116 $220,897 $(221,257) $ 8,756
</TABLE>
S-2
<PAGE> 78
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C> <C>
1 -- Form of Underwriting Agreement........................................
*3.1 -- Certificate of Incorporation of the Company...........................
*3.2 -- By-Laws of the Company................................................
4 -- Specimen Common Stock Certificate of the Company......................
5 -- Opinion of Nutter, McClennen & Fish, LLP..............................
10.1 -- Form of Agreement with Key Executive Officers.........................
10.2 -- Form of Management Incentive Plan.....................................
10.3 -- Form of Long Range Management Incentive Plan..........................
10.4 -- Form of 1996 Equity Incentive Plan....................................
10.5 -- Form of Supplemental Executive Retirement Plan........................
10.6 -- Form of 1996 Stock Option Plan for Non-Employee Directors.............
10.7 -- Form of General Deferred Compensation Plan............................
10.8 -- Form of Transfer Agreement between the Company, Chadwick's, Inc. and
TJX...................................................................
10.9 -- Form of Services Agreement between the Company and TJX................
10.10 -- Form of Tax Sharing and Separation Agreement between the Company and
TJX...................................................................
10.11 -- Form of Registration Rights Agreement between the Company and TJX.....
10.12 -- Form of Inventory Purchase Agreement between the Company and TJX......
10.13 -- Form of Trademark License and Assignment Agreement between the Company
and TJX...............................................................
10.14 -- Form of Trademark License Agreement between the Company and TJX.......
10.15 -- Form of Trademark License Agreement between the Company and TJX.......
10.16 -- Form of Indemnification Agreement.....................................
*21 -- Subsidiaries of the Company...........................................
*23.1 -- Consent of Coopers & Lybrand L.L.P. ..................................
23.2 -- Consent of Nutter, McClennen & Fish, LLP (contained in Exhibit 5).....
*24 -- Power of Attorney (contained in the signature page to this
Registration Statement)...............................................
*27 -- Financial Data Schedule...............................................
99 -- [Additional Exhibits]
<FN>
- ---------------
* Filed herewith.
</TABLE>
<PAGE> 1
EXHIBIT 3.1
-----------
CERTIFICATE OF INCORPORATION
OF
CHADWICK'S OF BOSTON, LTD.
FIRST: The name of the corporation is Chadwick's of Boston, Ltd. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the
"GCL").
FOURTH: The aggregate number of shares of stock which the Corporation
shall have authority to issue is Forty Million (40,000,000) shares, consisting
of Thirty-Five Million (35,000,000) shares of common stock, $.01 par value (the
"Common Stock"), and Five Million (5,000,000) shares of preferred stock, $.01
par value (the "Preferred Stock"). Except as otherwise provided by law, the
shares of stock of the Corporation, regardless of class, may be issued by the
Corporation from time to time in such amounts, for such consideration and for
such corporate purposes as the Board of Directors may from time to time
determine. A description of the different classes and series of the
Corporation's capital stock and a statement of the designations and the relative
rights, preferences and limitations of the shares of each class and series of
capital stock are as follows:
A. Common Stock
------------
1. VOTING RIGHTS. Except as otherwise provided by the GCL or in this
Article FOURTH (or in any certificate of designation establishing a series of
Preferred Stock), the holders of Common Stock shall exclusively possess all
voting power. Each holder of record of issued and outstanding Common Stock shall
be entitled to one (1) vote on all matters for each share so held.
2. DIVIDENDS. Subject to the rights and preferences, if any, of the
holders of Preferred Stock, each issued and outstanding share of Common Stock
shall entitle the record holder thereof to receive an equal portion of cash
dividends and distributions out of funds legally available therefor, when, as
and if declared by the Board of Directors, in such amounts and at such times as
the Board of Directors shall determine.
3. LIQUIDATION. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, after there shall have been paid
to or set aside for the holders of any class of capital stock having preference
over the Common Stock in such circumstances the full preferential amounts to
which they are respectively entitled, the holders of the Common Stock, and of
any class or series of capital stock entitled to participate in whole or in part
therewith as to the distribution of assets, shall be entitled, after payment or
provision for
<PAGE> 2
payment of all debts and liabilities of the Corporation, to receive the
remaining assets of the Corporation available for distribution, in cash or in
kind, in proportion to their holdings.
B. Preferred Stock
---------------
The Board of Directors of the Corporation is authorized by resolution
or resolutions, from time to time adopted, to provide for the issuance of
Preferred Stock in one or more series and to fix and state the voting powers,
designations, preferences and relative participating, optional or other special
rights of the shares of each series and the qualifications, limitations and
restrictions thereof, including, but not limited to, determination of one or
more of the following:
(i) the distinctive designations of each such series and the
number of shares which shall constitute such series, which number may
be increased (except where otherwise provided by the Board of Directors
in creating such series) or decreased (but not below the number of
shares thereof then outstanding) from time to time by the Board of
Directors;
(ii) the annual rate or amount of dividends payable on shares of
such series, whether such dividends shall be cumulative or
non-cumulative, the conditions upon which and the dates when such
dividends shall be payable, the date from which dividends on cumulative
series shall accrue and be cumulative on all shares of such series
issued prior to the payment date for the first dividend of such series,
the relative rights of priority, if any, of payment of dividends on
shares of that class or series, and the participating or other special
rights, if any, with respect to such dividends;
(iii) whether such series will have any voting rights in addition to
those prescribed by law and, if so, the terms and conditions of the
exercise of such voting rights;
(iv) whether the shares of such series shall be redeemable or
callable and, if so, the price or prices at which, and the terms and
conditions on which, such shares may be redeemed or called, which price
may vary under different conditions and at different redemption or call
dates;
(v) the amount or amounts payable upon the shares of such series
in the event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, and the relative rights of priority, if
any, of payment of shares of such series;
(vi) whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase
or redemption of such shares, and if so entitled, the amount of such
fund and the manner of its application, including the price or prices
at which such shares may be redeemed or purchased through the
application of such fund;
-2-
<PAGE> 3
(vii) whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes or of any
other series of the same or any other class or classes of stock of the
Corporation, and if so convertible or exchangeable, the conversion
price or prices, or the rate or rates of exchange, and the adjustments
thereof, if any, at which such conversion or exchange may be made, and
any other terms and conditions of such conversion or exchange;
(viii) whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
Preferred Stock and whether such shares may be reissued as shares of
the same or any other series of stock;
(ix) the conditions and restrictions, if any, on the payment of
dividends or on the making of other distributions on, or the purchase,
redemption or other acquisition by the Corporation, or any subsidiary
thereof, of the Common Stock or of any other class (or other series of
the same class) ranking junior to the shares of such series as to
dividends or upon liquidation, dissolution or winding up; and
(x) the conditions and restrictions, if any, on the creation of
indebtedness of the Corporation, or any subsidiary thereof, or on the
issue of any additional stock ranking on parity with or prior to the
shares of such series as to dividends or upon liquidation, dissolution
or winding up.
All shares within each series of Preferred Stock shall be alike in every
particular, except with respect to the dates from which dividends, if any, shall
commence to accrue.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(i) The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. No director need
be a stockholder.
(ii) The Board of Directors shall have the power to make, alter,
amend, change, add to or repeal the By-Laws of the Corporation, subject
to the right of the stockholders to make, alter, amend, change, add to
or repeal the By-Laws, provided that any such action by the
stockholders shall require the affirmative vote of the holders of at
least seventy-five percent (75%) of the then combined voting power of
all outstanding shares of stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single
class.
(iii) Except as otherwise fixed pursuant to the provisions of
Article FOURTH hereof relating to the rights of the holders of any
class or series of stock having a preference over the Common Stock as
to dividends or upon liquidation to elect additional directors under
specified circumstances, the number of directors of the
-3-
<PAGE> 4
Corporation shall be as from time to time fixed by, or in the manner
provided in, the By-Laws of the Corporation. Election of directors need
not be by written ballot unless the By-Laws so provide. The nominees
for director, other than those who may be elected by the holders of any
class or series of stock having preference over the Common Stock as to
dividends or upon liquidation, shall initially be divided into three
classes, as nearly equal in number as may be, the term of office of
those of the first class to expire at the first annual meeting of
stockholders after their election, the term of office of those of the
second class to expire at the second annual meeting of stockholders
after their election, and the term of office of those of the third
class to expire at the third annual meeting of stockholders after their
election. At each annual election held after the initial election of
directors, the directors to succeed those whose terms expire shall be
elected for a term of office to expire upon the third annual meeting of
stockholders after their election. In all events, the members of each
class of directors shall hold office until their successors are duly
elected and qualified.
(iv) Except as otherwise fixed pursuant to the provisions of Article
FOURTH hereof relating to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect directors under specified
circumstances, newly created directorships resulting from any increase
in the number of directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or other
cause shall be filled solely by the affirmative vote of a majority of
the remaining directors then in office, even though less than a quorum
of the Board of Directors, or by a sole remaining director. Any
director elected in accordance with the preceding sentence shall hold
office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified.
No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(v) Except as otherwise fixed pursuant to the provisions of Article
FOURTH hereof relating to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect directors under specified
circumstances, any director may be removed from office without cause
only by the affirmative vote of the holders of at least 75% of the then
combined voting power of all outstanding shares of stock of the
Corporation entitled to vote generally in the election of directors,
voting together as a single class.
(vi) No director shall be personally liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that such exemption from
liability or limitation thereof is not permitted under the GCL as the
same exists or may hereafter be amended. Any repeal or modification of
this Article FIFTH by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal
-4-
<PAGE> 5
or modification with respect to acts or omissions occurring prior to
such repeal or modification.
(vii) The Corporation shall indemnify any officer or director who,
as the result of his or her acting as an officer or director of the
Corporation, was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, and upon
request shall pay any expense incurred by any director in connection
with any such action, suit or proceeding in advance of the final
disposition of such matter, all to the fullest extent permitted by
Delaware law.
(viii) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the GCL, this Certificate of Incorporation and any
By-Law adopted by the stockholders; provided, however, that no By-Laws
hereafter adopted by the stockholders shall invalidate any prior act of
the directors which would have been valid if such By-Laws had not been
adopted.
(ix) Meetings of stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the
Corporation may be kept (subject to any provisions contained in the
GCL) outside the State of Delaware at such places as may be designated
from time to time by the Board of Directors or in the By-Laws of the
Corporation.
(x) If at any time the Corporation shall have a class of stock
registered pursuant to the provisions of the Securities Exchange Act of
1934, for so long as such class is so registered, any action by the
stockholders of such class must be taken at an annual or special
meeting of stockholders and may not be taken by written consent.
SIXTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the GCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of the GCL, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class or creditors, and/or stockholders or class of stockholders of
the Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been
-5-
<PAGE> 6
made, be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
SEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 75% of the then combined voting
power of all outstanding shares of the Corporation entitled to vote generally in
the election of directors, voting together as a single class, shall be required
to alter, amend or adopt any provision inconsistent with, or repeal, paragraphs
(i), (ii), (iii), (iv), (v), (viii) or (x) of Article FIFTH or this Article
SEVENTH or any provision hereof or thereof.
The undersigned incorporator of the Corporation, Daniel S. Shore, whose
mailing address is Nutter, McClennen & Fish, LLP, One International Place,
Boston, Massachusetts 02110, hereby executes this Certificate of Incorporation
on this 15th day of May, 1996.
/s/ Daniel S. Shore
-----------------------------
Daniel S. Shore, Incorporator
-6-
<PAGE> 1
EXHIBIT 3.2
-----------
BY-LAWS OF
CHADWICK'S OF BOSTON, LTD.
ARTICLE I
Offices
The registered office shall be in the City of Wilmington, County of New
Castle, State of Delaware, and the name of the resident agent in charge thereof
is the Corporation Trust Company.
The corporation may also have offices at such other places within or
without the State of Delaware as the Board of Directors may from time to time
appoint or the business of the corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders for any
purpose shall be held at such place, within or without the State of Delaware, as
shall be designated by the Board of Directors and stated in the notice of the
meeting.
SECTION 2. ANNUAL MEETING. An annual meeting of the stockholders of the
corporation, for the election of Directors to succeed those whose terms expire
and for the transaction of such other business as may properly come before the
meeting, shall be held on such date and at such time as shall be fixed from time
to time by the Board of Directors and stated in the notice of the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders may
be called by the President or by order of the Board of Directors. Business
transacted at any special meeting shall be confined to the purpose or purposes
stated in the notice of such meeting.
SECTION 4. NOTICE OF MEETING. Notice of the time and place of holding
each annual meeting and each special meeting of stockholders shall be given by
the Secretary, not less than ten nor more than sixty days before the meeting, to
each stockholder of record entitled to vote at such meeting. Notices of all
meetings of stockholders shall state the purposes for which the meetings are
held.
SECTION 5. LIST OF STOCKHOLDERS. At least ten days before every meeting
of stockholders a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder,
shall be prepared by the Secretary, who shall have charge of the stock ledger.
Such list shall be open for said ten days to the examination
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of any stockholder, for any purpose germane to the meeting, during ordinary
business hours, either at a place specified in the notice of the meeting (which
place shall be within the city where the meeting is to be held) or, if no such
other place has been so specified, at the place where the meeting is to be held.
Such list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder present
at the meeting.
SECTION 6. QUORUM. At any meeting of stockholders, the holders of
issued and outstanding shares of capital stock which represent a majority of the
votes entitled to be cast thereat, present in person or represented by proxy,
shall constitute a quorum for the transaction of business. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time until a
quorum shall be present or represented. Unless the adjournment is for more than
thirty days or a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting need not be given if the time and place thereof are
announced at the meeting at which the adjournment is taken. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 7. VOTING. At any meeting of the stockholders, every
stockholder having the right to vote shall be entitled to vote in person, or by
proxy appointed by an instrument in writing subscribed by such stockholder and
bearing a date not more than eleven months prior to said meeting. When a quorum
is present at any meeting, the holders of shares of stock present in person or
represented by proxy, which shares represent a majority of votes cast on any
question before the meeting, shall decide the question unless the question is
one upon which by express provision of law or of the certificate of
incorporation or of these By-laws a different vote is required, in which case
such express provision shall govern and control the decision of such question.
SECTION 8. FIXING OF RECORD DATE. (a) In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action other than stockholder action by
written consent, the Board of Directors may fix a record date, which shall not
precede the date such record date is fixed and shall not be more than sixty nor
less than ten days before the date of such meeting, nor more than sixty days
prior to any such other action. If no record date is fixed, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given. The record date for any other purpose other than
stockholder action by written consent shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply
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to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors.
SECTION 9. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the procedures set forth in the By-laws shall be eligible to
serve as Directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders (a) by or
at the direction of the Board of Directors or (b) by any stockholder of the
corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 9, who shall be entitled to vote for the election
of directors at the meeting and who complies with the notice procedures set
forth in this Section 9. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting or such public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a Director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a Director if elected); and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
corporation's books, of such stockholder and (ii) the class and number of shares
of the corporation which are beneficially owned by such stockholder. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director shall furnish to the Secretary of the
corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be eligible to
serve as a Director of the corporation unless nominated in accordance with the
procedures set forth in this By-law. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the procedures prescribed by the By-laws, and if he or
she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded. Notwithstanding the foregoing
provisions of this Section 9, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Section.
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SECTION 10. NOTICE OF BUSINESS. At any meeting of the stockholders,
only such business shall be conducted as shall have been brought before the
meeting (a) by or at the direction of the Board of Directors or (b) by any
stockholder of the corporation who is a stockholder of record at the time of
giving of the notice provided for in this Section 10, who shall be entitled to
vote at such meeting and who complies with the notice procedures set forth in
this Section 10. For business to be properly brought before a stockholder
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received no later
than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
A stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the corporation which are beneficially owned by the
stockholder and (d) any material interest in the stockholder in such business.
Notwithstanding anything in the By-laws to the contrary, no business shall be
conducted at a stockholder meeting except in accordance with the procedures set
forth in this Section 10. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of the By-laws,
and if he or she should so determine, he or she shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing provisions of this Section 10, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section.
ARTICLE III
Directors
SECTION 1. DIRECTORS AND THEIR TERMS OF OFFICE. There shall be a Board
of Directors consisting of not less than three nor more than fifteen persons,
the exact number of Directors to be determined from time to time by resolution
adopted by affirmative vote of a majority of the number of Directors required at
the time to constitute a full board as fixed in or determined pursuant to these
By-laws as then in effect. The Directors shall, except as otherwise provided in
Section 3 of this Article, be elected at the annual meeting or at any meeting of
the stockholders held in lieu of such annual meeting, which meeting, for the
purposes of these By-laws, shall be deemed the annual meeting, and each Director
so elected shall hold office until his or her successor is elected and
qualified. A Director need not be a
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stockholder. Within the limits above specified, the number of Directors may at
any time be increased or decreased by vote of the Directors at any meeting of
the Directors provided that no decrease in the number of Directors shall affect
the term of any Director in office.
The Directors, other than those who may be elected by the holders of
any class or series of stock having preference over the Common Stock as to
dividends or upon liquidation, shall be classified, with respect to the time for
which they severally hold office, into three classes, designated Class I, Class
II and Class III, as nearly equal in number as possible, with the term of office
of one Class expiring each year. Directors of Class I shall be initially elected
to hold office for a term expiring at the next succeeding annual meeting of
stockholders, Directors of Class II shall be initially elected to hold office
for a term expiring at the second succeeding annual meeting of stockholders and
Directors of Class III shall be initially elected to hold office for a term
expiring at the third succeeding annual meeting of stockholders, with the
members of each Class to hold office until their successors are elected and
qualified. At each subsequent annual meeting of the stockholders of the
corporation, the successors to the Class of directors whose term expires at such
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election.
SECTION 2. POWERS OF DIRECTORS. The affairs, property and business of
the corporation shall be managed by the Board of Directors which may exercise
all such powers of the corporation and do all such lawful acts and things as are
not by law or by the certificate of incorporation or these By-laws directed or
required to be exercised or done by the stockholders.
SECTION 3. VACANCIES. If any vacancies occur in the Board of Directors
caused by death, resignation, retirement, disqualification or removal from
office of any Directors or otherwise, or any new Directorship is created by any
increase in the authorized number of Directors (except as otherwise fixed
pursuant to the provisions of Article FOURTH of the Certificate of Incorporation
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances), Directors to fill the vacancy or
vacancies or to fill the newly created Directorship shall be elected solely by a
majority vote of the Directors then in office, whether or not a quorum, at any
meeting of the Board and the Directors so chosen shall hold office until their
successors, if any, are duly elected and qualified. Any Director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the Class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been elected and qualified. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
SECTION 4. ANNUAL MEETING OF DIRECTORS. The first meeting of each newly
elected Board of Directors may be held without notice immediately after an
annual meeting of stockholders (or a special meeting of stockholders held in
lieu of an annual meeting) at the
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same place as that at which such meeting of stockholders was held; or such first
meeting may be held at such place (within or without the State of Delaware) and
time as shall be fixed by the consent in writing of all the Directors, or may be
called in the manner hereinafter provided with respect to the call of special
meetings.
SECTION 5. REGULAR MEETINGS OF DIRECTORS. Regular meetings of the Board
of Directors may be held at such times and at such place or places (within or
without the State of Delaware) as the Board of Directors may from time to time
prescribe. No notice need be given of any regular meeting and a notice, if
given, need not specify the purposes thereof.
SECTION 6. SPECIAL MEETINGS OF DIRECTORS. Special meetings of the Board
of Directors may be called at any time by or under the authority of the
President and shall be called by him or her or by the Secretary on written
request of any two Directors or, if the Secretary fails to do so, by two
Directors in the name of the Secretary, to be held in each instance at such
place (within or without the State of Delaware) as the person calling the
meeting may designate in the call thereof. Notice of each special meeting of the
Board of Directors, stating the time and place thereof, shall be given to each
Director by the Secretary not less than twenty-four hours before the meeting.
Such notice need not specify the purposes of the meeting.
SECTION 7. QUORUM; VOTING. At any meeting of the Board of Directors a
majority of the number of Directors required to constitute a full Board, as
fixed in or determined pursuant to these By-laws as then in effect, shall
constitute a quorum for the transaction of business, but if a quorum shall not
be present at any meeting of Directors, the Directors present thereat may
adjourn the meeting from time to time without notice other than announcement at
the meeting, until a quorum shall be present. Except as otherwise provided by
law or by the certificate of incorporation or by the By-laws, the affirmative
vote of at least a majority of the Directors present at a meeting at which there
is a quorum shall be the act of the Board of Directors.
SECTION 8. MEETINGS BY TELEPHONE. Members of the Board of Directors or
of any committee thereof may participate in meetings of the Board of Directors
or of such committee by means of conference telephone or similar communications
equipment by means of which all person participating in the meeting can hear
each other, and such participation shall constitute presence in person at such
meeting.
SECTION 9. ACTION WITHOUT MEETING. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board of Directors or of such committee,
as the case may be, consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or of such
committee.
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SECTION 10. COMPENSATION. By resolution of the Board of Directors, the
Directors, as such, may receive stated salaries for their services, and may be
allowed a fixed sum and expenses of attendance, if any, for attendance at each
regular or special meeting of the Board. Members of committees may also be
allowed a fixed sum and expenses of attendance, if any, for attending committee
meetings. Nothing herein contained shall preclude any Director from serving the
corporation in any other capacity and receiving compensation for such services.
ARTICLE IV
Executive and Other Committees
The Board of Directors, by the affirmative vote of a majority of the
number of Directors required at the time to constitute a full board as fixed in
or determined pursuant to these By-laws as then in effect, may designate two or
more of its members to constitute an Executive Committee, which committee shall,
when the Board of Directors is not in session, have and may exercise, to the
extent provided by resolution of the Board of Directors, from time to time, all
the powers of the Board of Directors (including all action which may be taken by
the Board of Directors as by law, by the certificate of incorporation or by the
By-laws) insofar as such powers may be lawfully delegated, and may have power to
authorize the seal of the corporation to be affixed to all papers which may
require it.
The Board of Directors, by the affirmative vote of a majority of the
number of Directors required at the time to constitute a full board as fixed in
or determined pursuant to these By-laws as then in effect, may also appoint
other committees, the members of which may, but need not, be Directors, the
number composing such committees not less than two, and the powers (to be
advisory only if all the members are not Directors) conferred upon them to be
determined by resolution of the Board of Directors.
No committee shall have power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the By-laws; and unless the resolution shall expressly so provide,
no committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Vacancies in the membership of committees shall be filled by the Board
of Directors at a regular meeting or at a special meeting.
At any meeting of any committee a majority of the whole committee shall
constitute a quorum and except as otherwise provided by statute or by the
certificate of incorporation or
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by the By-laws the affirmative vote of at least a majority of the members
present at a meeting at which there is a quorum shall be the act of the
committee.
The Secretary of the corporation, or in his or her absence, an
Assistant Secretary, or other person designated by a committee, shall act as
secretary of such committee.
The Executive Committee and each of the other committees, except as
otherwise provided by resolution of the Board of Directors, shall fix the time
and place of its meetings within or without the State of Delaware, shall adopt
its own rules and procedure, and shall keep a record of its acts and proceedings
and report the same from time to time to the Board of Directors.
ARTICLE V
Officers
SECTION 1. OFFICERS AND THEIR ELECTION, TERM OF OFFICE AND VACANCIES.
The officers of the corporation shall be a President, a Secretary, a Treasurer
and such Executive Vice Presidents, Vice Presidents, Assistant Secretaries,
Assistant Treasurers and other officers as the Board of Directors may from time
to time determine and elect or appoint. All officers shall be elected annually
by the Board of Directors at their first meeting following the annual meeting of
stockholders or any special meeting held in lieu thereof and shall hold office
until their successors are duly elected and qualified. The Chairman of the Board
must be a Director. All other officers may, but need not be, members of the
Board of Directors. Two or more offices may be held by the same person. Any
officer elected by the Board of Directors may be removed at any time by the
Board of Directors. If any vacancy shall occur among the officers, it shall be
filled by the Board of Directors.
SECTION 2. PRESIDENT. The President shall be the chief executive
officer of the corporation with full control and responsibility for management
decisions, subject to the supervision and control of the Board of Directors and
such limitations as the Board of Directors may from time to time impose. The
President when present shall preside at all meetings of the stockholders. It
shall be his or her duty and he or she shall have the power to see that all
orders and resolutions of the Board are carried into effect. The President shall
perform such additional duties and have such additional powers as the Directors
shall designate. In the absence or disability of the President, his or her
powers and duties shall be performed by such officer of the corporation as the
Board shall designate.
SECTION 3. EXECUTIVE VICE PRESIDENTS. In the absence or disability of
the President, his or her powers and duties shall be performed by the Executive
Vice President, if only one, or, if more than one, by the one designated for the
purpose by the Board. Each Executive Vice President shall have such other powers
and perform such other duties as the Board shall from time to time designate.
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SECTION 4. TREASURER. The Treasurer shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositaries as shall be designated by the
Board or in the absence of such designation in such depositaries as he or she
shall from time to time deem proper. He or she shall disburse the funds of the
corporation as shall be ordered by the Board, taking proper vouchers for such
disbursements. He or she shall promptly render to the President and to the Board
such statements of his or her transactions and accounts as the President and
Board respectively may from time to time require. The Treasurer shall perform
such duties and have such powers additional to the foregoing as the Board may
designate.
SECTION 5. ASSISTANT TREASURERS. In the absence or disability of the
Treasurer, his or her powers and duties shall be performed by the Assistant
Treasurer, if only one, or if more than one, by the one designated for the
purpose by the Board. Each Assistant Treasurer shall have such other powers and
perform such other duties as the Board shall from time to time designate.
SECTION 6. THE SECRETARY. The Secretary shall issue notices of all
meetings of stockholders and Directors and of the executive and other committees
where notices of such meetings are required by law or these By-laws. He or she
shall keep the minutes of meetings of stockholders and of the Board of Directors
and of the executive and other committees, respectively, unless such committees
appoint their own respective secretaries and be responsible for the custody
thereof. Unless the Board shall appoint a transfer agent and/or registrar, the
Secretary shall be charged with the duty of keeping, or causing to be kept,
accurate records of all stock outstanding, stock certificates issued and stock
transfers. He or she shall sign such instruments as require his or her signature
and shall perform such other duties and shall have such powers as the Board of
Directors shall designate from time to time, in all cases subject to the control
of the Board of Directors. The Secretary shall have custody of the corporate
seal, shall affix and attest such seal on all documents whose execution under
seal is duly authorized. In his or her absence at any meeting, an Assistant
Secretary or the Secretary pro tempore shall perform his or her duties thereat.
SECTION 7. ASSISTANT SECRETARIES. In the absence or disability of the
Secretary, his or her powers and duties shall be performed by the Assistant
Secretary, if only one, or, if more than one, by the one designated for the
purpose by the Board. Each Assistant Secretary shall have such powers and
perform such other duties as the Board shall from time to time designate.
SECTION 8. SALARIES. The salaries of officers, agents and employees
shall be fixed from time to time by or under authority from the Board of
Directors.
ARTICLE VI
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Resignations and Removals
SECTION 1. OFFICERS, AGENTS, EMPLOYEES AND MEMBERS OF COMMITTEES. Any
officer, agent or employee of the corporation may resign at any time by giving
written notice to the Board of Directors or to the Chairman of the Board or to
the Secretary of the corporation; and any member of any committee may resign by
giving written notice either as aforesaid or to the committee of which he or she
is a member or to the chairman thereof. Any such resignation shall take effect
at the time specified therein, or if the time be not specified, upon receipt
thereof, and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. The Board of Directors
may at any time, with or without cause, remove from office or discharge or
terminate the employment of any officer, agent, employee or member of any
committee.
SECTION 2. DIRECTORS. Any Director of the corporation may resign at any
time by giving written notice to the Board of Directors or to the Chairman of
the Board or to the Secretary of the corporation. Any such resignation shall
take effect at the time specified therein, or if the time be not specified, upon
receipt thereof; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. When one or more
Directors shall resign from the Board of Directors, effective at a future date,
a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office as provided in these By-laws in the
filling of other vacancies. The stockholders of the corporation entitled to vote
upon the election of Directors may, at any time, remove from office any one or
more Directors only with cause, and his or her successor or their successors
shall be elected by the remaining Directors as provided in these By-laws with
respect to the filling of other vacancies. A Director may be removed for cause
only after reasonable notice and opportunity to be heard before the body
proposing to remove him or her.
ARTICLE VII
Indemnification of Directors, Officers and Others
SECTION 1. The corporation shall indemnify, to the fullest extent
permitted by the General Corporation Law of the State of Delaware as presently
in effect or as hereafter amended:
(a) Subject to the provisions of Section 10, any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether external or
internal to the corporation (other than by action by or in the right of
the corporation) by reason of the fact that he or she is or was a
Director or officer
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of the corporation, or is or was serving at the request of the
corporation as a Director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection
with such suit, action or proceeding if he or she acted in good faith
and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe
that his or her conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of NOLO CONTENDERE or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any
criminal action or proceeding, that the person had no reasonable cause
to believe that his or her conduct was lawful.
(b) Any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a Director or officer of
the corporation, or is or was serving at the request of the corporation
as a Director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorneys' fees) and amounts paid in settlement actually and reasonably
incurred by him or her in connection with the defense or settlement of
such action or suit if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
SECTION 2. The Board of Directors, in its discretion, may authorize the
corporation to indemnify to the fullest extent permitted by the General
Corporation Law of the State of Delaware (as presently in effect or as hereafter
amended):
(a) Subject to the provisions of Section 10, any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he or she
is or was an employee or agent of the corporation, or is or was serving
at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees),
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judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such suit, action or
proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding,
that the person had no reasonable cause to believe that his or her
conduct was lawful.
(b) Any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by
reason of the fact that he or she is or was an employee or agent of the
corporation, or is or was serving at the request of the corporation as
an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorneys' fees) and amounts paid in settlement actually and reasonably
incurred by him or her in connection with the defense or settlement of
such action or suit if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
SECTION 3. Any indemnification under this Article VII (unless required
by law or ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
Director, officer, employee or agent is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in Sections 1 and 2
of this Article VII. Such determination shall be made (i) by a majority vote of
the Directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (ii) if there are no such Directors, or if such
Directors so direct, by independent legal counsel in a written opinion, or (iii)
by the stockholders of the corporation.
SECTION 4. Expenses incurred by a Director or officer in defending a
civil or criminal action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the Director or officer to repay such
amount if it shall ultimately be determined that he or she is
-12-
<PAGE> 13
not entitled to be indemnified by the corporation as authorized in this Article
VII. Any advance under this Section 4 shall be made promptly, and in any event
within ninety days, upon the written request of the person seeking the advance.
SECTION 5. The indemnification and advancement of expenses provided by,
or granted pursuant to, the other Sections of this Article VII shall not be
deemed exclusive of any other rights to which any person, whether or not
entitled to be indemnified under this Article VII, may be entitled under any
statute, by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office. Each person who is or becomes a
Director or officer as described in Section 1 shall be deemed to have served or
to have continued to serve in such capacity in reliance upon the indemnity
provided for in this Article VII. All rights to indemnification under this
Article VII shall be deemed to be provided by a contract between the corporation
and the person who serves as a Director or officer of the corporation at any
time while these By-laws and other relevant provisions of the General
Corporation Law of the State of Delaware and other applicable law, if any, are
in effect. Any repeal or modification thereof shall not affect any rights or
obligations then existing.
SECTION 6. The Board of Directors may at any time and from time to time
cause the corporation to purchase and maintain insurance on behalf of any person
who is or was a Director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
the State of Delaware (as presently in effect or hereafter amended), the
Certificate of Incorporation of the corporation or these By-laws.
SECTION 7. The corporation's indemnification under Sections 1 and 2 of
this Article VII of any person who is or was a Director, officer, employee or
agent of the corporation, or is or was serving, at the request of the
corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall be reduced by any
amounts such person receives as indemnification (i) under any policy of
insurance purchased and maintained on his or her behalf by the corporation, (ii)
from such other corporation, partnership, joint venture, trust or other
enterprise, or (iii) under any other applicable indemnification provision.
SECTION 8. In the discretion of the Board of Directors of the
corporation, for the purposes of this Article VII, references to "the
corporation" may also include any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its Directors or officers, so that any person who is or was a Director
or officer of such constituent corporation, or is or was serving at the request
of such constituent
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<PAGE> 14
corporation as a Director or officer of another corporation, partnership, joint
venture, trust or other enterprise, would stand in the same position under the
provisions of this Article VII with respect to the resulting or surviving
corporation as he or she would have with respect to such other constituent
corporation if its separate existence had continued.
SECTION 9. In addition to and without limiting the foregoing provisions
of this Article VII and except to the extent otherwise required by law, any
person seeking indemnification under or pursuant to Section 1 of this Article
VII shall be deemed and presumed to have met the applicable standard of conduct
set forth in Section 1 unless the contrary shall be established.
SECTION 10.
(a) In addition to and without limiting the foregoing provisions of
this Article VII and except to the extent otherwise required by law, (a) it
shall be a condition of the corporation's obligation to indemnify under Sections
1(a) and 2(a) of this Article VII (in addition to any other condition in these
By-laws or by law provided or imposed) that the person asserting, or proposing
to assert, the right to be indemnified, promptly after receipt of notice of
commencement of any action, suit or proceeding in respect of which a claim for
indemnification is or is to be made against the corporation, notify the
corporation of the commencement of such action, suit or proceeding, including
therewith a copy of all papers served and the name of counsel retained or to be
retained by such person in connection with such action, suit or proceeding, and
thereafter to keep the corporation timely and fully apprised of all developments
and proceedings in connection with such action, suit or proceeding or as the
corporation shall request, and (b) the fees and expenses of any counsel retained
by a person asserting, or proposing to assert, the right to be indemnified under
Section 1(a) or 2(a) of this Article VII shall be at the expense of such person
unless the counsel retained shall have been approved by the corporation in
writing.
(b) If a claim for indemnification or advancement of expenses under
this Article VII is not paid in full by the corporation within 90 days after a
written claim therefor has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expenses of prosecuting such claim.
SECTION 11. For purposes of this Article VII, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service by a Director or officer of the corporation which
imposes duties on, or involves services by, such person with respect to any
employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he or she reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Article VII.
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<PAGE> 15
SECTION 12. To the extent that a Director, officer, agent or employee
of the corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Section 1 or in Section 2, or in
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection therewith.
SECTION 13. The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article VII shall continue as to a person who
has ceased to be a Director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 14. If any term or provision of this Article VII or the
application thereof to any person, property or circumstance shall to any extent
be invalid or unenforceable, the remainder of this Article VII or the
application of such term or provision to persons, property or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby, and each term and provision of this Article VII shall be valid
and enforced to the fullest extent permitted by law.
ARTICLE VIII
Capital Stock
SECTION 1. STOCK CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates representing in the aggregate the shares owned by
him or her and certifying the number and class thereof, which shall be in such
form as this Board shall adopt. Each certificate of stock shall be signed by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary. Any of or all the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
has ceased to be such officer, transfer agent or registrar before the
certificate is issued, such certificate may nevertheless be issued by the
corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
SECTION 2. TRANSFER OF STOCK. Shares of stock shall be transferable on
the books of the corporation pursuant to applicable law and such rules and
regulations as the Board of Directors shall from time to time prescribe.
SECTION 3. HOLDERS OF RECORD. Prior to due presentment for registration
of transfer the corporation may treat the holder of record of a share of its
stock as the complete owner thereof exclusively entitled to vote, to receive
notifications and otherwise entitled to all the rights and powers of a complete
owner thereof, notwithstanding notice to the contrary.
-15-
<PAGE> 16
SECTION 4. TRANSFER AGENT AND REGISTRAR. The Board of Directors may at
any time appoint a transfer agent or agents and/or registrar or registrars for
the transfer and/or registration of shares of stock.
SECTION 5. LOST, STOLEN, DESTROYED OR MUTILATED STOCK CERTIFICATES. The
Board of Directors may direct a new stock certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, destroyed or mutilated, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen, destroyed or mutilated. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, destroyed or mutilated certificate or certificates, or his or her
legal representative, to (a) advertise the same in such manner as it shall
require and/or (b) give the corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, destroyed or
mutilated and/or (c) comply with any other reasonable requirements prescribed by
the Board.
ARTICLE IX
Securities of Other Corporations
Subject to any limitations that may be imposed by the Board of
Directors, the Chairman of the Board of Directors, the President or any person
or persons authorized by the Board may in the name and on behalf of the
corporation (i) act or appoint any other person or persons (with or without
powers of substitution) to act in the name and on behalf of the corporation (as
proxy or otherwise), at any meeting of the holders of stock or other securities
of any corporation or other organization, securities of which shall be held by
this corporation, or (ii) express consent or dissent, as a holder of such
securities, to corporate or other action by such other corporation or
organization.
ARTICLE X
Checks, Notes, Drafts and Other Instruments
Checks, notes, drafts and other instruments for the payment of money
drawn or endorsed in the name of the corporation may be signed by any officer or
officers or person or persons authorized by the Board of Directors to sign the
same. No officer or person shall sign any such instrument as aforesaid unless
authorized by the Board to do so.
ARTICLE XI
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<PAGE> 17
Dividends and Reserves
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
corporation may, subject to any provisions of the certificate of incorporation,
be declared pursuant to law by the Board of Directors. Dividends may be paid in
cash, in property or in shares of the capital stock.
SECTION 2. RESERVES. Before payment of any dividend there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
thinks proper as a reserve fund to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the Directors shall think conducive to the interest of
the corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE XII
Corporate Seal
The corporate seal shall be in such form as the Board of Directors may
from time to time prescribe and the same may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE XIII
Fiscal Year
The fiscal year of the corporation shall end on the last Saturday of
January of each year.
ARTICLE XIV
Books and Records
The books, accounts and records of the corporation, except as may be
otherwise required by the laws of the State of Delaware, may be kept outside of
the State of Delaware, at such place or places as the Board of Directors may
from time to time appoint. Except as may otherwise be provided by law, the Board
of Directors shall determine whether and to what extent the books, accounts,
records and documents of the corporation, or any of them, shall be open to the
inspection of the stockholders, and no stockholder shall have any right to
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<PAGE> 18
inspect any book, account, record or document of the corporation, except as
conferred by law or by resolution of the stockholders or Board of Directors.
ARTICLE XV
Notices
SECTION 1. MANNER OF GIVING OF NOTICE. Whenever the provisions of a
law, the certificate of incorporation, the By-laws or rules of a committee
require notice to be given to any Director, officer, stockholder or member of a
committee, they shall not be construed to mean personal notice; such notice may
be given by telegram or by depositing such notice in a post office or letter
box, in a postage paid, sealed wrapper, addressed to such Director, officer,
stockholder or member of a committee at his or her address as the same appears
in the books or records of the corporation (unless he or she shall have filed
with the Secretary a written request that notice intended for him or her be sent
to some other address, in which case it shall be sent to the address designated
in the most recent such request); and the time when such telegram shall be
transmitted or notice deposited shall be deemed to be the time of the giving of
such notice.
SECTION 2. WAIVER OF NOTICE. Whenever notice is required by law, the
certificate of incorporation, the By-laws, or as otherwise provided by law, a
written waiver thereof, signed by the person entitled to notice, shall be deemed
equivalent to notice, whether signed before or after the time required for such
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, Directors or members of a committee of directors need be
specified in any written waiver of notice.
ARTICLE XVI
Severability
If any term or provision of the By-laws, or the application thereof to
any person or circumstance or period of time, shall to any extent be invalid or
unenforceable, the remainder of the By-laws, or the application of such term or
provision to persons or circumstances or periods of time other than those as to
which it is invalid or unenforceable, shall not be affected thereby and each
term and provision of the By-laws shall be valid and enforced to the fullest
extent permitted by law.
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<PAGE> 19
ARTICLE XVII
Amendments
The Board of Directors and the stockholders shall each have the power
to adopt, alter, amend and repeal these By-laws; and any By-laws adopted by the
Directors or the stockholders under the powers conferred hereby may be altered,
amended or repealed by the Directors or by the stockholders; provided, however,
that these By-laws shall not be altered, amended or repealed by action of the
stockholders, and no By-law shall be adopted by action of the stockholders,
without the affirmative vote of the holders of at least 75% of the then combined
voting power of all the shares of the corporation entitled to vote generally in
the election of directors, voting together as a single class.
-19-
<PAGE> 1
EXHIBIT 21
----------
SUBSIDIARIES OF THE COMPANY
---------------------------
SUBSIDIARY PERCENTAGE OWNED BY THE COMPANY
- ---------- -------------------------------
Chadwick's, Inc. 100%
CDM Corp. *
- ----------
* 100% of outstanding shares owned by Chadwick's, Inc.
<PAGE> 1
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 (File
No. 333- ) of our report dated May 14, 1996 (except for Note I for which the
date is May 24, 1996), on our audits of the combined financial statements and
financial statement schedule of Chadwick's of Boston, Ltd. We also consent to
the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
-----------------------------
Boston, Massachusetts
May 24, 1996
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