<PAGE>
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES
EXCHANGE ACT OF 1934
Check the appropriate box:
Preliminary information statement [X]
Confidential, for use of the
Commission only (as permitted
by Rule 14c-5(d)(2))
Definitive information statement [ ]
JG INDUSTRIES, INC.
___________________________________________________
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Not Applicable
___________________________________________________
(2) Aggregate number of securities to which transaction applies:
Not Applicable
___________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
Not Applicable
___________________________________________________
(4) Proposed maximum aggregate value of transaction:
<PAGE>
$7,626,000 (representing the aggregate consideration to be received by the
Registrant)
___________________________________________________
(5) Total fee paid:
$1,525.20
___________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
___________________________________________________
(2) Form, Schedule or Registration Statement No.:
___________________________________________________
(3) Filing Party:
___________________________________________________
(4) Date Filed:
___________________________________________________
<PAGE>
NOTICE OF ACTION BY WRITTEN CONSENT OF MAJORITY SHAREHOLDERS
-----------------------------
JG INDUSTRIES, INC.
5630 West Belmont
Chicago, Illinois 60634
(773) 481-5410
-----------------------------
To the Shareholders of JG Industries, Inc.:
This Information Statement is being furnished to the shareholders of JG
Industries, Inc. (the "Company") pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (the "Exchange Act"). This Information Statement shall
also serve as a notice which is hereby being given pursuant to Section 7.10 of
the Illinois Business Corporation Act of 1983, as amended (the "Act"), prior to
a written consent action of the majority shareholders of the Company. WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
The Company anticipates that on or before March ___, 2000, the holders of a
majority of the issued and outstanding common and preferred shares of the
Company will approve by written consent the following actions:
Action 1: Amend the articles of incorporation to specify that voluntary
dissolution of the Company requires a majority vote of the
outstanding common and preferred shareholders of the Company;
Action 2: Approve the sale of interests in real property (the "Real Property
Interests") which constitutes substantially all the assets of the
Company to Ames Department Stores, Inc. ("Ames"); and
Action 3: Approve the dissolution of the Company and the liquidation of the
Company's assets subsequent to the sale of the Real Property
Interests to Ames.
Under Illinois law and the Company's articles of incorporation, as amended, the
written consent of the holders of a majority of the issued and outstanding
common and preferred shares of the Company, acting together as a single class
(the "Majority Holders"), is the only vote of any class of the Company's capital
stock that is necessary to take the above-listed actions.
Accordingly, the Majority Holders have the right to approve the above-listed
actions without the affirmative vote of the other holders of the Company's
capital stock and have indicated their intentions to vote in favor of the above-
listed actions.
If the sale of the Real Property Interests to Ames is consummated, and such sale
constitutes sale of substantially all the assets of the Corporation, pursuant to
Section 11.65 of the Act, shareholders who did not execute the written consent
will have the right to dissent from such sale of the Corporation's assets
provided that such shareholders comply with all the procedures to dissent set
out in Section 11.70 of the Act.
<PAGE>
Currently, the Company expects that holders of its common stock (including
holders of preferred stock which is convertible into common stock) will receive
in excess of $1.00 in cash for each share of common stock. However, changes
that occur during the course of the Company's liquidation, the inability to sell
assets for anticipated proceeds and/or unanticipated liabilities that arise
during the liquidation could cause the anticipated payments to holders of the
Company's stock to vary significantly. Further, there are customary conditions
to the closing of the sale of the Real Property Interests to Ames. The failure
of this sale to close for any reason would have an adverse effect on the planned
liquidation. The Company does not anticipate distributing any amount to
shareholders in this liquidation prior to October 16, 2000 and the liquidation
could take significantly longer.
This Information Statement was mailed to the shareholders of the Company on or
about February ___, 2000.
By order of the Board of Directors.
--------------------------------------
<PAGE>
JG INDUSTRIES, INC.
5630 West Belmont
Chicago, Illinois 60634
(773) 481-5410
-----------------------------
INFORMATION STATEMENT
-----------------------------
INTRODUCTION
This Information Statement is being furnished to the holders of record at
the close of business on February ___, 2000 (the "Record Date") of the
outstanding shares of (i) common stock, no par value per share (the "Common
Stock") and (ii) Series B convertible preferred stock, no par value per share
(the "Series B Preferred Stock," together with the Common Stock, the "Shares")
in connection with the anticipated sale of Real Property Interests to Ames and
the subsequent dissolution and liquidation of the Company. A copy of the Sale
Purchase Agreement is attached hereto as Annex A.
As of the Record Date, there were 1,061,654 shares of the Company's Common
Stock outstanding and 1,500 shares of the Company's Series B Preferred Stock
issued and outstanding. The holders of outstanding shares of Common Stock are
entitled to one vote per share. The holders of Series B Preferred Stock are
entitled to vote with the holders of Common Stock, with each share of Series B
Preferred Stock having the number of votes equal to the number of shares of
Common Stock into which one share of Series B Preferred Stock may be converted.
As of the date of this Information Statement, each share of Series B Preferred
Stock is entitled to 444.44 votes. HOWEVER, WE ARE NOT ASKING FOR ANY
SHAREHOLDER CONSENT OR PROXY AND YOU ARE REQUESTED NOT TO SEND US YOUR CONSENT
OR PROXY.
THE AMENDMENT
The Majority Holders intend to amend by written consent the Company's
articles of incorporation to provide that a majority vote of the Shares is
necessary for the voluntary dissolution of the Company. Article 7 of the
Company's articles of incorporation provides that a majority vote of the Shares
voting together may amend the articles of incorporation. Therefore, the
Majority Holders may, without soliciting the consent of the other shareholders,
amend the Company's articles of incorporation as described in this Information
Statement. The effect of this amendment is that in connection with the Sale (as
defined below), the Majority Holders may, without soliciting the consent of the
other shareholders of the Company, dissolve and liquidate the Company and
Goldblatt's Department Stores, Inc., a wholly-owned subsidiary of the Company
("Goldblatt's").
<PAGE>
BACKGROUND AND REASONS FOR THE TRANSACTIONS
During the past year, the Company discussed the sale of part or all of the
Company with several parties. From August through October of 1999, the Company
agreed to negotiate exclusively with a party other than Ames for the sale of the
Company. The offer made as a result of these negotiations was rejected by the
Company. Ames first approached the Company in July of 1999. When Ames followed
up on these discussions a few weeks later, the Company had agreed to negotiate
exclusively with the other party. After the exclusivity period ended, the
Company continued to negotiate with the other party and with Ames. In November
of 1999, the Company determined that Ames was willing to pay a higher price than
the other party. Negotiations with Ames continued through December and January.
As a result of these negotiations, Ames delivered a draft of a Sale-Purchase
Agreement to the Company in January of 2000. The Company's Board of Directors
met on Friday, January 28 and Tuesday, February 1 to consider the proposed sale
and the dissolution and liquidation of the Company. On February 1, 2000, the
Company's board (i) determined that the sale of the leasehold interests in the
real estate where seven of the Company's eight stores are located (the "Sale")
for a purchase price of $7,626,000 and the dissolution and liquidation of the
Company were fair to and in the best interest of the Company and its
shareholders; and (ii) recommended and approved such Sale, dissolution and
liquidation. On February 2, 2000, the Company and Ames entered into the Sale-
Purchase Agreement for the Sale.
In making the foregoing determinations, the Company's Board of Directors
considered a number of factors, including, without limitation, the following:
(i) the Company's weak financial condition, including its continuing
operating losses;
(ii) the Company's poor future prospects, including the uncertainty of
whether the Company could continue as a going concern;
(iii) The alternatives to the Sale, dissolution and liquidation after
discussions with interested parties;
(iv) the historical and recent market prices of the shares of Common
Stock and the fact that the Sale, dissolution and liquidation should enable the
holders of shares of Common Stock to realize a premium over the prices at which
such shares traded prior to the execution of the Sale-Purchase Agreement;
(v) the conditions to closing under the Sale-Purchase Agreement as well
as the other terms of this agreement (including the $1,000,000 escrow payment);
(vi) the uncertainty of (A) the amount that shareholders will ultimately
receive in the liquidation, which the Company currently anticipates to be in
excess of $1.00 per share of Common Stock and (B) the timing of payments to
shareholder after the liquidation, which payments the Company currently does not
anticipate making until after October 16, 2000.
The Company's board did not assign relative weights to the above factors.
Rather, the board based its position and recommendation on the totality of
information presented to and considered by it.
-2-
<PAGE>
THE SALE
Pursuant to the Sale-Purchase Agreement, Ames will purchase in the Sale
interests in the leased real estate where seven of the Company's eight stores
are located for a purchase price of $7,626,000 in cash. Included in the Sale
are the leasehold improvements. Excluded from the Sale are the retail inventory
and most of the trade fixtures in those seven stores. Of the purchase price,
$1,000,000 was deposited with and is being held in escrow pursuant to the Sale-
Purchase Agreement. The balance of the purchase price will be paid at closing.
If the Majority Holders approve the Sale and certain conditions are met
(including the ability of the Company to deliver the properties vacant of
tenants and in broom clean conditions), the Company will assign six of its
leases to Ames and terminate one of its leases subject to Ames entering into a
new lease for the same site. The closing of this transaction is conditioned on
the Company delivering certain instruments identified in Section 12.01 of the
Sale-Purchase Agreement by the closing date, which is scheduled for April 14,
2000. Also, under the Sale-Purchase Agreement, the Company will make certain
customary representations and warranties that must be true in order for the
closing to occur, which representations and warranties will survive for a period
of six months after the closing. As a result, none of the proceeds from the
Sale or the liquidation described below will be distributed to the shareholders
prior to October 16, 2000. Moreover, as described below, the distribution of
such proceeds could occur significantly later than October 16, 2000.
In the event that a material part of the properties is destroyed or damaged
by fire or other casualty prior to the closing, Ames will in some cases have the
option to terminate the Sale-Purchase Agreement with respect to some or all of
the leases. There can be no assurances that the Sale will be consummated. The
failure of the Sale to close could have a material adverse effect on the
liquidation.
This section is a summary of the terms of the Sale and is therefore not
complete. You should read the copy of the Sale-Purchase Agreement relating to
the Sale which is attached to this Information Statement as Annex A.
DISSOLUTION AND LIQUIDATION
Because of the Company's continuing operating losses and for the reasons
set forth in "Background and Reasons for the Transactions" above, the Company
began winding-up its operations shortly after the end of its fiscal year on
January 29, 2000. The Company has closed its stores and commenced the process
of selling its inventory and trade fixtures in sales to the public.
Additionally, the Company has begun to solicit purchasers for its sole
owned store site, located at 4700-12 South Ashland Avenue, Chicago, Cook County,
Illinois. Initially, the Sale contemplated that Ames would purchase this
property. Ames, however, decided not to purchase this real property. Thus, in
preparation for dissolution, the Company expects to sell this real property
separately, subsequent to the closing of the Sale. This property is subject to
a mortgage with a current value of approximately $760,000. Four potential
purchasers have expressed interest in purchasing the real property and the
Company is exploring all three possibilities. As yet, the Company has not
entered into any definitive agreements for the sale of the remaining real
property.
-3-
<PAGE>
Although the Company will endeavor to sell the remaining real property for the
highest available price, it cannot make any assurances as to its ability to sell
the real property or as to the sale price. The Company does not anticipate
distributing any amounts to shareholders prior to the completion of the sale of
the remaining real property.
In anticipation of winding-up its operations, the Company offered to settle
a dispute with a minority shareholder of two of its subsidiaries, Sussex Group
Holding, Inc. and Sussex Group, Ltd. Douglas A. Smith owns 5% of the issued and
outstanding stock of Sussex Group Holding, Inc. Mr. Smith also owns 1% of the
issued and outstanding stock of Sussex Group Ltd. Currently, Mr. Smith and the
Company disagree about the value of his minority interest. Accordingly, unless
Mr. Smith and the Company are able to resolve this issue, the Company intends on
filing an action for declaratory judgment in a court of competent jurisdiction
requesting a declaration of its rights and a valuation of Mr. Smith's minority
interest. Although the Company will aggressively pursue its rights in an action
for declaratory judgment, it cannot speculate as to when a court will decide
this issue. The Company does not anticipate distributing any amounts to
shareholders prior to resolving this dispute with Mr. Smith.
In winding up the affairs of the Company and concluding the liquidation
process, the Company shall continue to liquidate its assets, allowing a
reasonable time in an effort to minimize losses attendant on liquidation. Any
stockholder or director may purchase any of the assets at any public or private
liquidation sale. There can be no assurance that the Company will be able to
sell all or any substantial portion of its assets remaining after the Sale or as
to the amount of sale proceeds. In particular, there can be no assurance as to
whether the Company will be able to sell its remaining owned real property or as
to the price at which it will sell such property. Moreover, events such as the
failure of the Sale to close, the inability to sell the assets (or to sell the
assets at favorable prices) and/or unanticipated liabilities that arise during
the winding-up and liquidation make it difficult to predict or give any
assurance as to the payment that the shareholders of the Company will ultimately
receive from the liquidation.
Because of the survival of the representations and warranties made by the
Company in the Sale for six months, the Company's shareholders will not receive
proceeds from its liquidation prior to October 16, 2000, and the distribution of
such proceeds could occur significantly later.
PRIORITY OF DISPOSITION OF PROCEEDS ON LIQUIDATION
On dissolution of the Company, the Company will be liquidated and the
proceeds of liquidation will be applied first to the payment of obligations of
the Company and the expenses of liquidation and to the setting up of any
reserves for contingencies which the Board of Directors may consider necessary.
Any remaining proceeds of liquidation and any other funds will then be
distributed to the shareholders.
Each shareholder of the Company will receive in cash such shareholder's pro
rata share of the liquidation proceeds. Holders of the Company's Series B
Preferred Stock will receive, in lieu of receiving the liquidation value of and
any accrued cumulative dividends with respect to the Company's Series B
Preferred Stock, the amount they would have received if they converted their
-4-
<PAGE>
shares into shares of Common Stock immediately prior to the allocation and
distribution of the liquidation proceeds. Additionally, the holders of any
outstanding options for Common Stock will be deemed for purposes of allocating
liquidation proceeds to have exercised their options immediately prior to the
distribution of the liquidation proceeds and shall receive their pro rata share
of the liquidation proceeds, net of the option exercise price and any applicable
withholdings.
There are no federal or state regulatory requirements that must be complied
with or from which approval must be obtained in connection with the transactions
described in this Information Statement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the Sale and the dissolution and liquidation of the Company and is not
intended to be a complete analysis of all potential tax effects to investors in
the Company. The discussion does not address the tax consequences that may be
relevant to investors subject to special treatment under federal income tax laws
(including, without limitation, dealers in securities, banks, insurance
companies, tax-exempt organizations, foreign individuals and entities, persons
who hold Company stock as a hedge against risk, or a constructive sale, or
conversion transaction). The following summary is not binding on the Internal
Revenue Service. The summary is based on the Internal Revenue Code, laws,
regulations, rulings, and decisions in effect on the date hereof, all of which
are subject to change, possibly with retroactive effect. Tax consequences under
state, local, and foreign laws are not addressed.
INVESTORS IN THE COMPANY ARE STRONGLY URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM FROM THE PROPOSED SALE AND
LIQUIDATION, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL, AND FOREIGN
INCOME AND OTHER TAX LAWS IN PARTICULAR CIRCUMSTANCES.
Consequences to Company
Upon the Sale, the Company will recognize gain or loss for federal income
tax purposes equal to the difference between the amount realized on the sale and
the Company's adjusted tax basis in such assets at the time of the sale. The
amount realized on the sale will equal the consideration paid for the Company's
assets plus any liabilities that Ames assumes (or liabilities the assets are
subject to at the time of the sale). If the Company recognizes a net gain on
the sale of its assets, it anticipates that it will not, because of a net
operating loss of approximately $20,000,000, have any federal income tax
obligation with respect to such gain, except under the alternative minimum tax
rules. The Company expects that its tax liability with respect to the Sale will
be less than five percent of the proceeds.
Prior to the liquidation, the Company will dispose of all of its assets
(other than cash) not sold in connection with the Sale. The Company should
recognize gain or loss on each of these transactions and may be required to pay
taxes as a result. The amount of the Company's tax
-5-
<PAGE>
obligation with respect to these transactions will depend on the terms of the
transaction. As long as the gain from these sales do not exceed the Company's
remaining net operating loss, the only federal income tax liability should be
alternative minimum tax, which should not exceed two percent of the proceeds.
Immediately prior to the liquidation, the Company does not expect to hold
any assets other than cash. Consequently, the actual liquidation should not
create any additional federal income tax obligations for the Company.
Consequences to Investors
Upon the liquidation of the Company, each holder of a Common Share and each
holder of a Series B Preferred Share will recognize gain or loss on each share
equal to the difference between (i) the sum of the cash and other assets, if
any, distributed to them with respect to such share and (ii) their adjusted tax
basis in the share of stock. A holder's adjusted tax basis in each share will
depend upon various factors, including the original cost of the share and the
amount and nature of any distributions subsequently received with respect to the
share. Any gain or loss recognized on the distribution generally will be
capital.
Holders of options to acquire Common Shares who received such options in
connection with their employment, will recognize compensation income equal the
difference between the holder's pro rata share of the liquidation proceeds,
computed assuming that the holder exercised the option immediately prior to the
liquidation and the exercise price for the option. Any compensation income
recognized will be ordinary income and will be subject to applicable withholding
for income taxes and employment taxes.
In the case of individual holders, capital gains are subject to a maximum
tax rate of 20% if the shares were held for more than 12 months on the date of
the liquidation. Ordinary income and short term capital gains (i.e., gains on
sales of shares held less than 12 months on the date of liquidation) are taxed
at the taxpayer's applicable federal marginal income tax rate for both
individuals and corporations. The deductibility of capital losses is subject to
certain limitations under the Internal Revenue Code.
ACCOUNTING TREATMENT
The Company maintains its accounting records on the basis of Generally
Accepted Accounting Principles. As a result of the Sale and subsequent
dissolution and liquidation of the Company, the assets and liabilities will be
adjusted to estimate fair market value as of January 29, 2000. It is not
possible at this time to determine whether a gain or loss will be recognized.
DISSENTER'S RIGHT OF APPRAISAL
In connection with the sale of substantially all of the assets of the
Company, the shareholders of the Company are entitled to dissent and obtain
payment for their shares (also
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<PAGE>
referred to herein as "appraisal rights") under Section 11.65 of the Illinois
Act ("Section 11.65") as to Shares owned by them. The procedure for asserting
such appraisal rights is set forth below and is set forth in detail in Section
11.70 of the Illinois Act ("Section 11.70"). Section 11.70 is reprinted in its
entirety as Annex D to this Information Statement. All references in this
summary to a "shareholder" are to the record holder of the Shares as to which
appraisal rights are asserted. A person having a beneficial interest in Shares
that are held of record in the name of another person, such a broker or nominee,
must act promptly to cause the record holder to follow the steps summarized
below properly and in a timely manner to perfect whatever appraisal rights the
beneficial owner may have.
The following summary is not a complete statement of the law relating to
appraisal rights and is qualified in its entirety by reference to Annex D. If
you wish to exercise your statutory appraisal rights or wish to preserve the
right to do so, you should carefully review this summary and Annex D because
failure to comply strictly with the procedures set forth in the statute will
result in the loss of your appraisal rights.
Because the Majority Holders are taking the actions described in this
Information Statement by written consent, the other shareholders of the Company
are not being asked to vote on such actions. Accordingly, a shareholder does
not need to have voted against such actions in order to exercise its appraisal
rights pursuant to Section 11.70. Moreover, no shareholder is being requested
to vote on such actions. Pursuant to Section 11.65, a shareholder entitled to
dissent and obtain payment for his or her Shares may not challenge the corporate
action creating his or her entitlement unless such action is fraudulent or
constitutes a breach of a fiduciary duty owed to the shareholder.
In accordance with Section 11.70, the Company is obligated to mail to each
holder of Shares as of the record date (other than the Majority Holders) notice
that such shareholder is entitled to appraisal rights for their Shares (the
"Notice"). Prior to or in connection with delivering such notice, the Company
is required to furnish to the shareholders material information with respect to
the transaction that will objectively enable a shareholder to determine whether
or not to exercise his or her appraisal rights. This Information Statement is
intended to provide that information.
You may assert your appraisal rights only if you deliver to the Company
within 30 days from the date of mailing of the Notice a written demand for
payment of your shares (the "Payment Demand"). The Notice will state the date
which begins the 30 day period.
Within 10 days after the date on which the Written Consent is effective or
30 days after the shareholder delivers to the Company the Payment Demand, the
Company shall send each shareholder who has delivered a Payment Demand a
statement setting forth the opinion of the Company as to the estimated fair
value of the Shares, certain financial statements of the Company and either a
commitment to pay for the shares at the estimated fair value upon transmittal to
the Company of the share certificates or instructions to the dissenting
shareholder to sell his or her shares within 10 days after delivery of the
Company's statement to the shareholder. "Fair value", with respect to a
dissenter's shares, means the value of the share immediately before the
consummation of the corporate action to which the dissenter objects excluding
any appreciation or depreciation in anticipation of the corporate action, unless
exclusion would be inequitable. Section
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<PAGE>
11.70 sets forth the procedures to be followed in the event that a shareholder
does not agree with the opinion of the Company as to the estimated fair value of
his or her shares. See Annex D.
DESCRIPTION OF AMES
Ames is a large regional discount retailer that as of February 10, 2000
operates 454 discount department stores in 19 contiguous states in the
Northeast, Midwest and Mid-Atlantic regions, as well as the District of
Columbia. Ames' stores are situated in rural communities, small cities and
suburbs of larger metropolitan areas. Ames' stores offer for sale a range of
brand name and other merchandise for the home and family at discounted prices,
including apparel, housewares, electronics, ready-to-assemble and patio
furniture, jewelry, crafts, pet supplies, health and beauty items, stationery,
sporting goods and seasonal products. The principal executive offices of Ames
are located at 2418 Main Street, Rocky Hill, CT 06067, (860) 257-2000.
BUSINESS
The Company is an Illinois corporation organized on February 27, 1928. The
Company operates in one industry segment of the retail market that is defined as
"Discount Department Stores." The Company's wholly-owned subsidiary,
Goldblatt's, offers customers a diverse assortment of both nationally branded
and private label merchandise, emphasizing a full range of both soft and hard
line goods. The stores frequently feature special promotions of merchandise
purchased on advantageous terms. Soft line merchandise includes men's, women's,
children's and infant's wearing apparel and accessories. Hard line merchandise
includes textiles and domestics, television and electronic, small appliances and
housewares, cosmetics and notions, hardware, toys and sporting goods. Over the
past five years, soft line departments have provided between 51% and 54% of
owned sales. Goldblatt's also licenses jewelry, shoe, millinery and optical
departments for operation at certain of its stores. As of January 31, 2000
Goldblatt's operations were comprised of seven discount department stores
located in the Chicago, Illinois vicinity and one in Indiana. See also Item 1
in the Company's annual report on Form 10-K for the fiscal year ended January
30, 1999 attached as Annex B (the "1999 Annual Report").
PROPERTIES
The Company owns in fee one retail location at 4700-12 South Ashland
Avenue, Chicago, Illinois. This property has gross square footage of 135,000.
This property is subject to a mortgage with a current balance of approximately
$760,000 in favor of a regional financial institution. Goldblatt's leases the
real property for its other seven retail locations at:
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<PAGE>
7538 Stony Island, Chicago, Illinois
35th Street and Martin Luther King Drive, Chicago, Illinois
1450 North Cicero Avenue, Chicago, Illinois
87th Street and the Dan Ryan Expressway, Chicago, Illinois
Scottsdale Shopping Center, 7975 South Cicero Avenue, Chicago, Illinois
The Village Shopping Center, 3440 Village Court, Gary Indiana
5630 W. Belmont Avenue, Chicago, Illinois
The leased properties have an aggregate gross square footage of over 538,000 and
the lease terms, excluding renewal options, expire between October 2000 and
January 2008. Aggregate minimum rentals with respect to the leases are
approximately $1,840,000 annually.
Upon approval by written consent of the Majority Holders of the Sale, the
Company intends to sell the property owned in fee and pay off the mortgage. See
"Dissolution and Liquidation" for a more detailed description of the current
status of the sale of the owned real property. There can be no assurances as to
the amount of the net proceeds from the sale of the owned real property or that
the Company will be able to sell the owned real property.
LEGAL PROCEEDINGS
As of the date hereof, there are no material legal proceedings pending
against the Company.
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<PAGE>
MARKET FOR THE COMPANY'S COMMON EQUITY
Effective with the close of business on October 7, 1998, the Company's
Common Stock was delisted from the Nasdaq Stock Market because the Company's
Common Stock fell below the Nasdaq requirement of maintaining a $1,000,000
aggregate market value. Since that date, the Company's Common Stock has been
trading over-the-counter. Bid quotations and trading activity are maintained
and reported to the Company by National Quotation Bureau, LLC. The Company has
not paid dividends during the five fiscal year period ending on January 31,
2000. As of the Record Date there were approximately ______ holders of record
of the Common Stock.
<TABLE>
<CAPTION>
Price Range
High Low
<S> <C> <C>
Fiscal 2000
First Quarter $0.75 $0.38
Second Quarter 0.69 0.16
Third Quarter 0.38 0.13
Fourth Quarter 0.50 0.15
Fiscal 1999
First Quarter $1.06 $0.75
Second Quarter 1.06 0.50
Third Quarter 0.75 0.25
Fourth Quarter 0.50 0.13
</TABLE>
FINANCIAL STATEMENTS
See Item 8 in the 1999 Annual Report attached as Annex B. See also Item 1
in the Company's quarterly report on Form 10-Q for the fiscal quarter ended
October 30, 1999 attached as Annex C; See Item 6 in the 1999 Annual Report for
selected financial data.
MANAGEMENT'S DISCUSSION AND ANALYSIS
See Item 7 in the 1999 Annual Report attached as Annex B and Item 2 in the
Company's quarterly report on Form 10-Q for the fiscal quarter ended October 30,
1999 attached as Annex C.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of the Record Date
regarding the beneficial ownership of the Company's Common Stock (on an as-
converted basis) by (i) all persons who owned of record or, to the knowledge of
the Company, beneficially, 5% or more of the outstanding shares of Common Stock
(on an as-converted basis), (ii) each director, (iii) the Chief Executive
Officer and the other three most highly compensated executive officers, and (iv)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
Number of
Shares Approximate
Beneficially Percentage
Owned of Class
Name of Beneficial Owner ----- --------
<S> <C> <C>
Sheldon Collen(1)............................................ 5,333(6) **
Sheldon Harris(1)............................................ 301,158(5)(6)(7) 15.9
Lionel Goldblatt(1)(2)....................................... 60,829(3) 3.2
William Hellman(1)(2)........................................ 357,921(4)(7) 18.9
Philip Rootberg(1)(2)........................................ 251,461(5)(6)(7) 13.3
Noel Goldblatt(1)............................................ 6,000(6) **
Clarence Farrar(1)(2)........................................ 15,574(8) **
------ ----
All current directors and executive officers as a group 998,276(9) 52.6
(seven persons) ======= ====
</TABLE>
_________
**Less than 1%
(1) Director. Mr. Harris and Mr. Lionel Goldblatt are brothers-in-law. Mr.
Lionel Goldblatt and Mr. Noel Goldblatt are cousins.
(2) Executive Officer.
(3) Includes 8,333 shares issuable upon exercise of currently exercisable
employee stock options.
(4) Includes 66,667 shares issuable upon exercise of currently exercisable
employee stock options.
(5) With respect to Mr. Harris, includes (i) 25,780 shares of Common Stock held
by Mr. Harris and (ii) 48,154 shares held in trust for the benefit of
members of Mr. Harris' family, for which Mr. Harris disclaims beneficial
ownership. With respect to Mr. Rootberg, includes 18,739 shares of Common
Stock owned by Mr. Rootberg.
(6) Includes 5,000 shares issuable upon exercise of currently exercisable
employee stock options.
(7) For each of Mr. Harris, Mr. Hellman and Mr. Rootberg, the table above
includes 222,222 of the 666,666 shares of Common Stock into which the 1,500
shares of Series B Preferred Stock held pursuant to a Shareholders
Agreement dated December 13, 1996 (the "Shareholders Agreement"), for which
Messrs. Harris, Hellman and Rootberg are trustees, are convertible. Messrs.
Hellman, Rootberg and Harris each disclaims beneficial ownership of 444,444
of the shares of Common Stock into which the shares of Series B Preferred
Stock held pursuant to the Shareholders Agreement are convertible.
(8) Includes 10,667 shares issuable upon exercise of currently exercisable
employee stock options.
(9) Includes 105,667 shares issuable upon exercise of currently exercisable
employee stock options.
-11-
<PAGE>
As of the Record Date, based on information filed with the Securities and
Exchange Commission, the persons known to the Company to beneficially own 5% or
more of the Company's outstanding Common Stock (on an as-converted basis) are as
follows:
<TABLE>
<CAPTION>
Number of
Shares Approximate
Beneficially Percentage
Owned of Class
Name of Beneficial Owner ----- --------
- ------------------------
<S> <C> <C>
Sheldon Harris................................................ 301,158 15.9
Evanston Property Management
803 1/2 Chicago Avenue
Evanston, IL 60202
William Hellman............................................... 357,921 18.9
JG Industries, Inc.
5630 West Belmont Avenue
Chicago, IL 60634
Philip Rootberg............................................... 251,461 13.3
Rootberg Business Services, Inc.
250 South Wacker Drive
Suite 800
Chicago, IL 60606
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Reports, proxy statements and
other information filed by the Company can be inspected and copied at the public
reference facilities at the SEC's office at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at the SEC's Regional Office at Seven
World Trade Center, Suite 1300, New York, New York 10048 and at the SEC's
Regional Office at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, at prescribed rates. Such material may also be accessed electronically by
means of the SEC's home page on the Internet at http://www.sec.gov.
FORWARD LOOKING STATEMENTS
This Information Statement contains forward-looking statements within the
meaning of the Private Securities Litigations Reform Act of 1995. The words
"estimate," "anticipate," "project," "intend," "expect," and similar expressions
are intended to identify forward-looking statements. All forward-looking
statements involve risks and uncertainties that may cause actual results to
differ materially from anticipated results. Such risks and uncertainties
include, without limitation, risks and uncertainties with respect to (i) the
Sale and the Company's liquidation, (ii) the consummation
-12-
<PAGE>
of the transactions described in this Information Statement, including the Sale
and the sale of the Company's owned real property, (iii) unanticipated
liabilities or proceeds in connection with the liquidation of the Company, (iv)
the outcome of contingencies, including the settlement of the dispute with Mr.
Smith, and (v) the timing of the liquidation and dissolution. Readers are
cautioned not to place undue reliance on these forward-looking statements that
speak only as of the date of this Information Statement. The Company does not
undertake any obligation to publicly release any revisions to these forward-
looking statements to reflect events, circumstances or changes in expectations
after the date of this Information Statement, or to reflect the occurrence of
unanticipated events.
-13-
<PAGE>
Annex A
SALE-PURCHASE AGREEMENT
-----------------------
SALE-PURCHASE AGREEMENT (the "Agreement"), made as of the _____ day of
February, 2000, by and among GOLDBLATT'S DEPARTMENT STORES, INC., an Illinois
corporation ("Seller"), having an office at 5630 West Belmont, Chicago, Illinois
60634, JG INDUSTRIES, INC., an Illinois corporation ("Seller's Guarantor"),
having an office at 5630 West Belmont, Chicago, Illinois 60634, AMES REALTY II,
INC., a Delaware corporation ("Purchaser"), having an office at 2418 Main
Street, Rocky Hill, Connecticut 06067-2598, and AMES DEPARTMENT STORES, INC., a
Delaware corporation ("Purchaser's Guarantor"), having an office at 2418 Main
Street, Rocky Hill, Connecticut 06067-2598.
W I T N E S S E T H:
-------------------
WHEREAS, Seller, as tenant, is the holder of leasehold estates in and
to certain real property and improvements located in Cook County, Illinois, and
Gary, Indiana, which leased real property and improvements are hereinafter
described;
WHEREAS, Seller desires to sell, assign and convey to Purchaser, and
Purchaser desires to purchase from Seller, Seller's interest in and to the
leases described on Schedule I hereto, upon the terms and conditions hereinafter
set forth;
WHEREAS, Seller intends to terminate its interest in and to the lease
described on Schedule II hereto, and Purchaser intends to enter into a new lease
with respect thereto; and
WHEREAS, Seller's Guarantor and Purchaser's Guarantor desire to
guaranty the obligations of Seller and Purchaser, respectively, as set forth
herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements of the parties hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
I. Sale and Purchase of Leasehold Interests.
-----------------------------------------
Seller shall, at the Closing (as hereinafter defined), sell, assign,
transfer, deliver and convey to Purchaser, or its designee, and Purchaser shall
acquire, or cause its designee to acquire, from Seller, at the price, and upon
the terms, provisions, covenants and conditions set forth herein, all of
Seller's right, title and interest in and to the Leased Premises as defined and
listed on Schedule I annexed hereto and made a part hereof, together with all of
Seller' s right, title and interest in and to the following, if any:
<PAGE>
(a) all easements, rights-of-way, reservations, privileges,
appurtenances, and other estates and rights pertaining to the Leased Premises;
(b) all oil, gas and mineral rights of Seller in and to the Leased
Premises;
(c) all rights of ingress and egress to and from the Leased Premises;
(d) the real estate fixtures attached or appurtenant to the Leased
Premises, or used in connection with, and necessary to, the operation of the
Leased Premises, together with the machinery, equipment and personal property
set forth on Exhibit A annexed hereto and made a part hereof (collectively, the
"Leased Personalty");
(e) all strips and gores adjoining or adjacent to the Leased
Premises; all alleys adjoining the Leased Premises; any land lying in the bed of
any street, road or avenue, opened or proposed, in front of or adjoining the
Leased Premises to the center line thereof; and any award made or to be made for
damage to the Leased Premises by reason of change of grade of any street or
otherwise;
(f) all rights to the present or future use of water, wastewater,
wastewater capacity, drainage, water or other utility facilities, to the extent
same pertain to or benefit the Leased Premises;
(g) all right, title, and interest of Seller, as landlord, in any
leases, subleases, licenses, permits, franchises, concessions and occupancy
agreements covering the Leased Premises or any portion thereof, and in all
security deposits made by tenants under such leases;
(h) all written and transferable contracts and agreements pertaining
to the Leased Premises, including, but not limited to, service contracts,
equipment leases, employment, janitorial, cleaning, pest control, waste
disposal, snow removal, landscaping, maintenance or other agreements;
(i) all licenses and permits pertaining to the Leased Properties (as
hereinafter defined) to the extent such licenses and permits are transferable to
Purchaser; and
(j) all other property, if any, owned by Seller, and pertaining to
the Leased Premises, including, without limitation, plans and specifications,
and engineering plans and studies.
The Leased Premises, together with all of the foregoing items listed in (a)
through (j) above, are hereinafter collectively referred to as the "Leased
Properties". The Leased Properties, together with the Belmont Property, as
defined in and set forth on Schedule II annexed hereto and made a part hereof,
are collectively referred to herein as the "Properties".
2
<PAGE>
II. Purchase Price.
---------------
The purchase price payable by Purchaser to Seller for the conveyance of
Seller's right, title and interest in and to the Leased Properties (the
"Purchase Price") is Seven Million Six Hundred Twenty Six Thousand and No/100
Dollars ($7,626,000.00) payable as follows:
(a) One Million Dollars ($1,000,000.00) (the "Downpayment"),
simultaneously with the execution and delivery of this Agreement, by a bank wire
transfer of immediately available funds to an account designated by Weil,
Gotshal & Manges LLP ("Escrow Agent"). The Downpayment shall be held and
disbursed by Escrow Agent in accordance with the terms of Article 19. If the
Closing shall occur, Seller shall, except as otherwise provided herein, be
entitled to receive the Downpayment and all interest accrued thereon, if any,
and such interest shall be credited against the portion of the Purchase Price
payable pursuant to Section 2(b); and
(b) Six Million Six Hundred Twenty Six Thousand and No/100 Dollars
($6,626,000.00), subject to payments, credits and apportionments as hereinafter
provided, at the Closing in cash, by good unendorsed certified or bank check
payable to the order of Seller, or by wire transfer of immediately available
federal funds to an account designated by Seller in writing not less than three
(3) business days prior to the Closing Date (as hereinafter defined).
III. Condition of Title.
-------------------
At the Closing, Seller shall convey, and Purchaser shall accept, good and
valid leasehold interest, as tenant, in and to the Leased Properties, free and
clear of all liens and encumbrances.
IV. Closing Date.
-------------
The consummation of the transactions contemplated by this Agreement (the
"Closing") shall take place at 10:00 a.m. at the offices of Weil, Gotshal &
Manges LLP located at 767 Fifth Avenue, New York, New York (or at such other
place as the parties may designate in writing) on April 14, 2000, or on such
other date and time as Seller and Purchaser may mutually agree in writing. The
date on which the Closing shall be held is referred to in this Agreement as the
"Closing Date".
V. Apportionments and Payments.
----------------------------
5.01 The following amounts paid or payable with respect to the Leased
Properties shall be apportioned between Seller and Purchaser as of 11:59 p.m. on
the day immediately preceding the Closing Date, and the net amount thereof shall
either be added to (if such net amount is in Seller's favor) or deducted from
(if such net amount is in Purchaser's favor) the payment required pursuant to
Section 2(b):
3
<PAGE>
(a) real estate taxes, water rates and charges, sewer taxes and
rents, and vault charges, if any, payable by Seller, on the basis of the
calendar year or fiscal period, as applicable, for which same have been
assessed;
(b) prepaid rents and additional rent and other amounts payable by
tenants under the Subleases (as hereinafter defined);
(c) value of fuel stored on the Leased Premises, if any, at Seller's
cost, including any taxes thereon;
(d) amounts paid or payable by Seller under Service Contracts (as
hereinafter defined) being transferred to Purchaser;
(e) utilities, including, without limitation, telephone, steam,
electricity and gas, payable by Seller, on the basis of the most recently
issued bills therefore, subject to adjustment after the Closing when the
next bills are available;
(f) personal property taxes, if any, payable by Seller, on the basis
of the calendar year or fiscal year, as applicable, for which assessed;
(g) Seller's share, if any, of all revenues for the operation of the
Leased Premises other than rent and additional rent (including, without
limitation, parking charges, and telephone booth and vending machine
revenues), if any;
(h) trade association dues, trade subscriptions and dues to rent
stabilization associations, payable by Seller, if any;
(i) all rent and other charges (including, without limitation, common
area maintenance charges, real estate taxes and other operating expenses)
paid or payable by Seller, as tenant, under the Store Leases (as defined in
and set forth on Schedule I); and
(j) such other items as are customarily apportioned between sellers
and purchasers of real properties of a type similar to the Leased
Properties and located in the city, county, and state where the Leased
Properties are located.
5.02 Purchaser shall receive a credit against the Purchase Price for year
1999 real estate taxes and year 2000 real estate taxes through and including the
Closing Date based upon one hundred fifteen percent (115%) of the actual year
1998 real estate taxes for each of the Properties. For purposes of
clarification, if the Closing Date occurs on April 14, 2000, Purchaser shall
receive a credit against the Purchase Price for 365 days of the year 1999 and
105 days of the year 2000 based upon one hundred fifteen percent (115%) of the
year 1998 real estate taxes. Notwithstanding the foregoing, promptly after the
tax rate for year 2000 is fixed, real estate taxes shall be recomputed and
Purchaser shall refund to Seller the amount, if any, by which the credit
received by Purchaser
4
<PAGE>
pursuant to this Section 5.02 exceeds the actual real estate taxes due and
payable for the year 1999 and the partial year 2000.
5.03 If on the Closing Date any tenant under a Sublease is in arrears in
the payment of rent or has not paid the rent payable by it for the month in
which the Closing occurs (whether or not it is in arrears for such month on the
Closing Date), any rents received by Purchaser or Seller from such tenant after
the Closing shall be applied to amounts due and payable by such tenant during
the following periods in the following order of priority: (x) first to the month
in which the Closing occurred, (y) second, to all time periods following the
month in which the Closing occurred, and (z) third, after Purchaser has been
paid in full for all time periods following the Closing, to Seller). If rents or
any portion thereof received by Seller or Purchaser after the Closing are due
and payable to the other party by reason of this allocation, the appropriate
sum, less a proportionate share of any reasonable attorneys' fees and costs and
expenses expended in connection with the collection thereof, shall be promptly
paid to the other party.
5.04 At the Closing, Seller shall assign to Purchaser all of Seller's
right, title and interest in and to any pending legal actions or proceedings
against any tenant under the Subleases and will deliver to Purchaser any and all
relevant books and records (including any rent or additional rent statements,
receipted bills and copies of tenant checks used in payment of such rent or
additional rent), and any and all consents or other documents necessary for the
collection of such rent and additional rent by Purchaser.
5.05 The parties hereto agree that any errors or omissions in computing
apportionments at the Closing shall be corrected from time to time promptly
after notice from the party discovering such error.
5.06 Notwithstanding anything herein to the contrary, Seller agrees that
in the event that any Landlord Estoppel Certificate delivered to Purchaser at
Closing, as required pursuant to Section 12.01, shall disclose that amounts due
by Seller under the Store Leases, excluding real estate taxes, but including,
without limitation, utility charges, common area maintenance charges, operating
expenses and other types of additional rent (collectively, the "Outstanding
Store Charges") may be outstanding, Seller shall deposit with Purchaser, at
Closing, One Hundred Thousand and No/100 Dollars ($100,000.00) (the "Escrow
Amount"). Such Escrow Amount shall be held by Purchaser, in escrow, in an
interest bearing account, for a period of six (6) months following the Closing
Date (the "Escrow Period"), and shall be applied by Purchaser, if necessary,
against any such Outstanding Store Charges within five (5) business days of
notice to Seller. In the event that the Escrow Amount is insufficient to pay the
Outstanding Store Charges, Seller shall pay to Purchaser, within thirty (30)
days of demand therefore, the amount of any such deficiency. Within five (5)
business days following the termination of the Escrow Period, Purchaser shall
refund to Seller any portion of the Escrow Amount still remaining, together with
any and all interest accrued thereon.
5.07 The provisions of this Article 5 shall survive the Closing for a
period of six (6) months.
5
<PAGE>
VI. Inspections and Information.
----------------------------
6.01 At any time from the date hereof through and including the Closing
Date, Purchaser (or its agents) shall have the right, from time to time, upon
reasonable notice to Seller, and during reasonable hours, to inspect and/or
exhibit the Properties to third parties and to make such non-invasive tests,
surveys and inspections of the Properties as Purchaser deems necessary or
appropriate, including, without limitation, topographical surveys, soil tests,
environmental audits (including asbestos and toxic waste analysis), structural
and foundation surveys and equipment inspections and testing. Purchaser shall
give due regard to the presence and rights of any tenants under the Subleases
and exercise (and cause its agents to exercise) due care and ordinary prudence
in performing such tests, surveys and inspections. At Purchaser's request,
Seller shall promptly furnish Purchaser with any required authorization to make
violation searches.
6.02 In connection with Purchaser's exercise of any of the rights set
forth in Section 6.01, Purchaser hereby agrees to indemnify and save Seller
harmless from and against any and all loss, cost, expense, damages or other
liability that Seller shall suffer arising out of the exercise of such rights by
Purchaser or its contractors or agents. Such indemnity shall survive the Closing
for a period of six (6) months.
6.03 At any time from the date hereof through and including the Closing
Date, Seller shall furnish to Purchaser all information maintained by Seller
pertaining to the Properties reasonably requested by Purchaser or its
representatives.
VII. Seller's Representations and Warranties.
----------------------------------------
7.01 As of the date hereof, Seller represents, covenants and warrants to
Purchaser, its successors and assigns, as follows (all references to the
"Seller's knowledge" shall refer to the actual knowledge of Clarence Farrar and
William Hellman after due inquiry):
(a) Seller has good and valid leasehold title to the tenants'
interest in the Leased Premises, free and clear of all liens and
encumbrances;
(b) to Seller's knowledge, the present condition and use of the
Properties comply in all material respects with all applicable building,
fire, zoning, and other laws, rules, ordinances and regulations applicable
thereto;
(c) to Seller's knowledge, the present condition and use of the
Properties do not violate, in any material respect, any applicable deed
restrictions or other covenants, restrictions or agreements, site plan
approvals, zoning or subdivision regulations or urban redevelopment plans
applicable thereto that would prevent Purchaser from operating the
Properties as such are currently being operated;
6
<PAGE>
(d) the Properties are served by water, sewer, gas, electricity,
telephone and other utilities necessary to operate the Properties as
currently being operated, and are supplied by facilities of public
utilities subject to such utility supplier's customary billing practices,
and, to the extent payable by Seller, all such charges are current and
otherwise not delinquent ;
(e) no written notices of any violations of any applicable federal,
state, county or municipal law, ordinance, regulation, order or rule
relating to the Properties or the construction, management, ownership,
maintenance, operation, use, improvement, acquisition, or sale thereof have
been received by Seller, where such notices are currently pending or
unresolved;
(f) to Seller's knowledge, there is no action or proceeding
(including proceedings to redefine zoning classifications or otherwise) or
governmental investigation pending, threatened against or relating to the
Properties or the transactions contemplated by this Agreement, nor, to
Seller's knowledge, is there any basis for such action;
(g) to Seller's knowledge, there are no (x) current and pending
federal, state, county or municipal plans to change the highway or road
systems in the vicinity of the Properties or to restrict or change access
from any such highway or roads to the Properties, or (y) proposed changes
in street grade or location which may adversely affect access to the
Properties;
(h) to Seller's knowledge, there are no pending or contemplated
condemnation or eminent domain proceedings affecting the Properties or any
part thereof;
(i) all machinery, equipment and other personal property listed on
Exhibit A is owned by Seller, free and clear of any liens and encumbrances.
All other Leased Personalty and the Belmont Personalty (as defined in
Schedule II) is owned or leased by Seller free and clear of any liens and
encumbrances;
(j) all components of all improvements included within the
Properties, including, but not limited to, the roofs and structural
elements thereof and the heating, ventilation, air conditioning, plumbing,
electrical, mechanical, sewer, wastewater, storm water, paving and parking
equipment, and systems and facilities included therein, are sound and in
good working order and repair, ordinary wear and tear excepted;
(k) Seller has delivered to Purchaser, or its representatives, copies
of all written communications received by or prepared by Seller or its
representatives in respect of any matter involving material non-compliance
with, or a material violation of, law, where such non-compliance is
currently pending and unresolved;
7
<PAGE>
(l) there are no leases executed by Seller, as tenant, with respect
to the Leased Properties, other than the Store Leases (as defined in and
listed on Schedule I);
(m) (i) each of the Store Leases is in full force and effect in
accordance with its respective terms, has not been modified, amended,
renewed or extended since its original execution except as set forth on
Schedule I, constitutes the entire understanding between the landlords
thereunder and Seller, as tenant, with respect to the Leased Premises, has
been duly executed and delivered on behalf of Seller, and constitutes a
legally valid instrument, binding and enforceable upon Seller according to
its terms; (ii) all work required to be performed by Seller, as tenant
under the Store Leases, up to the date of Closing has been performed; (iii)
there are no existing defaults on the part of Seller, as tenant, or, to
Seller's knowledge, landlord under the Store Leases, Seller has not
received from any landlord under the Store Leases, or delivered to any such
landlord, a notice of default, and no event has occurred that, with the
giving of notice or the passage of time, or both, would constitute a
default on the part of either Seller, as tenant, or to Seller's knowledge,
landlord under the Store Leases; (iv) no rent or additional rent under any
of the Store Leases has been prepaid for more than one (1) month, and all
rent and additional rent due and payable under the Store Leases (including,
but not limited to, common area maintenance charges, real estate taxes, and
operating expenses) up to the date of Closing will be paid prior to the
Closing; (v) the landlords under the Store Leases have no option to
terminate or otherwise modify the terms of and conditions of the Store
Leases other than as specifically provided therein; (vi) no action,
proceeding or arbitration is pending with respect to any Store Lease; and
(vii) all brokerage commissions and other compensation and fees payable by
Seller by reason of the Store Leases have been or will be paid in full
prior to Closing;
(n) there are no leases executed by Seller, as tenant, with respect
to the Belmont Property, other than the Belmont Lease (as defined in and
listed on Schedule II);
(o) there are no leases executed by Seller, as landlord, with respect
to the Leased Properties, other than the leases and occupancy agreements
described on Exhibit B annexed hereto and made a part hereof (the
"Subleases"). True and complete copies of all Subleases, including all
amendments thereto, have been made available to Purchaser for review;
(p) (i) all of the Subleases are in full force and effect in
accordance with their respective terms, and none of the Subleases has been
modified, amended, renewed or extended except as set forth on Exhibit B;
(ii) all work required to be performed by Seller, as landlord under the
Subleases, up to the date of Closing has been performed; (iii) all
construction allowances or other sums to be paid to any of the tenants
under the Subleases up to the date of Closing have
8
<PAGE>
been paid in full; (iv) there is no outstanding and uncured claim of
default under any of the Subleases on the part of Seller, or to Seller's
knowledge, any tenant; (v) none of the tenants under the Subleases has
asserted any defense, setoff or counterclaim with regard to its tenancy or
its Sublease and no action, proceeding or arbitration is pending with any
tenant in respect of its tenancy or its Sublease; (vi) no rent or
additional rent under any of the Subleases has been prepaid for more than
one (1) month, and there are no arrears in the payment of rent or
additional rent for more than one (1) month; (vii) there are no written or
oral promises, understandings or commitments between Seller and any tenant
other than those contained in the Subleases; (viii) all brokerage
commissions and other compensation and fees payable by Seller by reason of
the Subleases (and any renewals, extensions or expansions thereof, whether
or not options therefore have yet been exercised) have been or will be paid
in full prior to Closing; and (ix) in any case where a Sublease requires
that the lessor under the Store Lease or the holder of a mortgage grant a
nondisturbance or similar agreement to the tenant, the requirements of such
Sublease have been complied with and fulfilled or the tenant under such
Sublease has executed and delivered to Seller a written waiver of such
requirements;
(q) to Seller's knowledge, other than the prime leases, ground
leases, mortgages and other superior interests described on Exhibit C
(collectively, the "Ground Leases"), there are no superior interests to
which the Store Leases or the Belmont Lease is subject and subordinate;
(r) other than the Store Leases, the Belmont Lease, the Ground
Leases, and the Subleases, there are no leases, tenancies, licenses or
other occupancy agreements to which Seller is a party or by which Seller
may be bound for any portion of the Leased Premises or the Belmont
Premises;
(s) other than the contracts described on Exhibit D annexed hereto
and made a part hereof (the "Service Contracts"), there are no service
contracts, maintenance contracts, construction contracts, equipment leases,
concession agreements, union or employment contracts and any other such
agreements affecting the Properties to which Seller is a party or pursuant
to which Seller is otherwise obligated. The Service Contracts have not been
modified except as set forth on Exhibit D, and true and complete copies of
all Service Contracts, including all modifications thereto, have been made
available to Purchaser for inspection. There has been no written claim of
default under any of the Service Contracts by an party thereto which has
not been cured; to Seller's knowledge, there exists no event which alone,
or with notice or the passage of time or both would constitute a default
under any of the Service Contracts by any party thereto; and all sums due
and payable under the Service Contracts up to the date of Closing have been
or will be paid in full prior to the Closing;
9
<PAGE>
(t) there are no employees employed by Seller or by any management
company or otherwise at or in connection with the Properties for which
Purchaser shall have any responsibilities or liabilities following the
Closing;
(u) Seller has not retained anyone to file notices of protest
against, or to commence actions to review, real property tax assessments
against the Properties, and to Seller's knowledge, no such action has been
taken by or on behalf of the tenant under any Sublease or by or behalf of
the ground lessor, prime landlord, or landlord under any Store Lease;
(v) to Seller's knowledge, no special or other assessments for public
improvements or otherwise have been levied or imposed with respect to the
Properties which have resulted or could result in a lien against the
Properties, and Seller has not received written notice of any pending or
contemplated change in any applicable legal requirements which may
adversely affect, in any material respect, the use, management or operation
of the Properties;
(w) there are no actions, suits, or proceedings ("Litigation")
pending, being prosecuted or, to Seller's knowledge, threatened before any
court, board, agency, or governmental instrumentality (x) against or
relating to the Properties or any portion thereof, (y) against or relating
to the Subleases, the Store Leases, the Ground Leases, or the Belmont
Lease, or (z) which seek to enjoin or obtain damages with respect to the
transactions contemplated hereby;
(x) Seller is not a "foreign person" as defined in Section 1445 of
the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder;
(y) All certificates of occupancy necessary for the current use and
operation of the Properties have been issued, are in full force and effect,
and true and complete copies thereof have been provided to Purchaser; no
alterations have been made at the Leased Premises or Belmont Premises (as
defined on Schedule II) since the issuance of such certificates of
occupancy which would require any additional approvals of any governmental
authorities; the use of the Properties is in conformity with the
certificates of occupancy; and such certificates are transferable to
Purchaser;
(z) Seller has not received and, to Seller's knowledge, there is no
written notice or request from any insurance company or Board of Fire
Underwriters (or organization exercising functions similar thereto), from
landlord or any ground lessor, prime lessor or superior leaseholder under
the Store Leases or the Belmont Lease or from any mortgagee of the Leased
Premises or the Belmont Premises, requesting the performance of any work or
alteration in respect of the Properties which has not been complied with;
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(aa) the present condition and use of the Properties comply in all
material respects with all applicable Environmental Laws and any permits,
authorizations or licenses required to operate the Properties. Seller is
not aware of any fact, circumstance or condition that could reasonably be
expected to result in Purchaser incurring liability under any Environment
Laws. Seller has and will provide Purchaser with copies of any and all
environmental reports and/or assessments in its possession relating to the
Properties. "Environmental Laws" shall mean any federal, state, county, or
municipal statute, law, regulation or ordinance pertaining to the
protection of the environment, as well as those governing asbestos in
commercial buildings, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
(S) 9601 et. seq., the Solid Waste Disposal Act, 42 U.S.C. (S) 6901, the
Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et. seq., and the
Clean Air Act 42 U.S.C. (S) 7401 et. seq., each as amended;
(bb) all financial data and information contained in any Exchange Act
(as hereinafter defined) filing by Seller's Guarantor relating to the
Properties is true and correct and contains no material omission;
(cc) no filings are required of Seller or Seller's Guarantor in
connection with the transactions contemplated by this Agreement under the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976 and the regulations
promulgated thereunder;
(dd) except for the consent of the shareholders of Seller's
Guarantor, or as otherwise provided for herein, no consent, authorization,
order or appeal, or filing or registration with, or other action by, any
governmental authority or other entity is required in connection with the
execution, delivery and performance by Seller or Seller's Guarantor of this
Agreement and all other documents contemplated hereby, and the consummation
by Seller and Seller's Guarantor of the transactions contemplated hereby;
(ee) Seller is a wholly owned subsidiary of Seller's Guarantor;
(ff) Each of Seller and Seller's Guarantor is a corporation, duly
organized, validly existing and in good standing under the laws of the
State of Illinois; each of Seller and Seller's Guarantor has full power,
right and authority to enter into this Agreement and, at Closing, shall
have full power, right and authority to perform its obligations hereunder;
and the persons signing this Agreement on behalf of Seller and Seller's
Guarantor are authorized to do so;
(gg) the execution and delivery of this Agreement, the consummation
of the transactions herein contemplated, and compliance with the terms of
this Agreement will not (i) violate any provisions of Seller's or Seller's
Guarantor's articles of incorporation or bylaws, or (ii) violate, conflict
with, or, with or without notice or the passage of time, result in a breach
of, constitute a default
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under or accelerate the performance required by, any of the terms or
provisions of any instrument, indenture, contract, agreement, franchise or
permit to which Seller or Seller's Guarantor is a party or by which Seller,
Seller's Guarantor, or the Properties are bound, or any applicable
regulations of any governmental authority, or any judgment, order or decree
of any court having jurisdiction over Seller, Seller's Guarantor and their
property, including, without limitation, the Properties;
(hh) Each of Seller and Seller's Guarantor is solvent; no receiver
has been appointed for Seller or Seller's Guarantor or any their property
nor is any application for receivership pending with respect to Seller or
Seller's Guarantor; and neither Seller nor Seller's Guarantor contemplates
insolvency; no proceedings are pending by or against Seller or Seller's
Guarantor in bankruptcy or reorganization in any federal, state or foreign
court, nor has Seller or Seller's Guarantor committed any act of
bankruptcy; and
(ii) no representation or warranty made by Seller in this Agreement,
in any Schedule or Exhibit annexed hereto, or in any letter or certificate
furnished to Purchaser pursuant to the terms hereof, each of which is
incorporated herein by reference and made a part hereof, contains any
untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained herein or therein not
misleading.
7.02 Seller acknowledges that each of the representations, warranties and
agreements made by it in this Article 7 and elsewhere in this Agreement is
material to Purchaser.
7.03 The representations and warranties of Seller set forth in Section
7.01 and elsewhere in this Agreement shall be true, accurate and correct on the
date of this Agreement and shall be deemed to be repeated on and as of the
Closing Date. If at Closing, any representation or warranty is untrue,
inaccurate or incorrect, then Purchaser shall elect either (x) to waive such
misrepresentations or breaches of warranties and consummate the transaction
contemplated hereby with a reduction of or credit to the Purchase Price to be
implemented in accordance with Section 7.05, or (y) in addition to any other
rights at law or in equity, to terminate this Agreement, by notice given to
Seller on or before the Closing Date. If, prior to Closing, Purchaser becomes
aware that any representation or warranty of Seller set forth in Section 7.01 or
elsewhere in this Agreement would be untrue, inaccurate or incorrect if such
representation or warranty was not qualified as to knowledge with respect
thereto, Purchaser shall give Seller prompt notice thereof, and if Seller shall
not cure such condition prior to Closing, Purchaser shall consummate the
transaction contemplated hereby with a reduction of or credit to the Purchase
Price to be implemented in accordance with Section 7.05. Notwithstanding the
foregoing, in the event that Purchaser becomes aware, prior to Closing, that any
representation or warranty of Seller set forth in Section 7.01(b) or (c) would
be untrue, inaccurate or incorrect with respect to an Operating Store Lease (as
defined in Exhibit A) if such representation or warranty were not qualified as
to knowledge with respect thereto, Purchaser shall give Seller prompt notice
thereof and if
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Seller shall not be able to cure such condition within a reasonable period of
time, Purchaser shall have the option to terminate this Agreement. In the event
that Seller shall attempt to cure such condition, Purchaser shall have the
option to delay the Closing Date and Seller shall indemnify Purchaser for
rentals paid on the Store Leases and the Belmont Lease through and including the
Closing, but in an amount that shall not be less than two (2) months rental with
respect to each of the Store Leases and the Belmont Lease. In the event
Purchaser elects to terminate this Agreement, this Agreement shall be terminated
and neither party shall have any further rights, obligations or liabilities
hereunder, except the obligations specifically stated in this Agreement to
survive termination, and except that Purchaser shall be entitled to the
Downpayment together with any interest accrued thereon subject to Article 19.
7.04 All of the covenants, warranties and representations recited in
Section 7.01 shall inure to the benefit of Purchaser and its successors and
assigns, and shall survive the Closing of this transaction for a period of six
(6) months, except for those regarding the Belmont Property or the Belmont
Lease.
7.05 In the event Purchaser elects to consummate the transaction
contemplated hereby and waive any breaches or deemed breaches of representations
or warranties pursuant to Section 7.03, Purchaser's notice to Seller pursuant to
Section 7.03 shall include the amount by which Purchaser proposes that the
Purchase Price be reduced, together with a justification thereof, reflecting
additional costs to be borne by Purchaser. Purchaser's adjustment will be
determinative as long as Seller is not able to demonstrate manifest error or bad
faith.
VIII. Purchaser's Representations and Warranties
------------------------------------------
As of the date hereof, Purchaser represents and warrants to Seller, its
successors and assigns, as follows:
(a) Each of Purchaser and Purchaser's Guarantor is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Delaware; each of Purchaser and Purchaser's Guarantor has full power, right and
authority to enter into this Agreement and to perform its obligations hereunder;
and the persons signing this Agreement on behalf of Purchaser and Purchaser's
Guarantor are authorized to do so;
(b) the execution and delivery of this Agreement, the consummation of the
transactions herein contemplated, and compliance with the terms of this
Agreement will not (i) violate any provisions of Purchaser's or Purchaser's
Guarantor's articles of incorporation or bylaws, or (ii) violate, conflict with,
or, with or without notice or the passage of time, result in a breach of,
constitute a default under or accelerate the performance required by, any of the
terms or provisions of any instrument, indenture, contract, agreement, franchise
or permit to which Purchaser or Purchaser's Guarantor is a party or by which
Purchaser, Purchaser's Guarantor, or their properties is bound, or any
applicable regulations of any governmental authority, or any judgment, order or
decree of any court having jurisdiction over Purchaser, Purchaser's Guarantor
and their property;
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(c) Each of Purchaser and Purchaser's Guarantor is solvent; no receiver
has been appointed for Purchaser or Purchaser's Guarantor or any of their
property nor is any application for receivership pending with respect to
Purchaser or Purchaser's Guarantor; and neither Purchaser nor Purchaser's
Guarantor contemplates insolvency; no proceedings are pending by or against
Purchaser or Purchaser's Guarantor in bankruptcy or reorganization in any
federal, state or foreign court, nor has Purchaser or Purchaser's Guarantor
committed any act of bankruptcy;
(d) no filings are required of Purchaser or Purchaser's Guarantor in
connection with the transactions contemplated by this Agreement under the Hart-
Scott-Rodino Anti-Trust Improvements Act of 1976 and the regulations promulgated
thereunder; and
(e) no consent, authorization, order or appeal, or filing or registration
with, or other action by, any governmental authority or other entity is required
in connection with the execution, delivery and performance by Purchaser or
Purchaser's Guarantor of this Agreement and all other documents contemplated
hereby, and the consummation by Purchaser and Purchaser's Guarantor of the
transactions contemplated hereby.
IX. Operation of the Properties Prior to Closing.
---------------------------------------------
Between the date hereof and the Closing Date, Seller covenants as follows:
(a) Seller will not modify, cancel, extend or otherwise change in any
manner any of the terms, covenants or conditions of the Store Leases, the Ground
Leases, any Sublease, any Service Contract, the insurance policies maintained by
Seller with respect to the Properties, or any other agreements affecting the
Properties, except with Purchaser's prior written consent, or enter into any new
lease of space in the Properties, any other occupancy agreements affecting the
Properties, or any other agreement affecting the Properties, except with
Purchaser's prior written consent.
(b) Seller will keep all permits in full force and effect and renew any
permits which are due to expire prior to Closing.
(c) Seller will maintain the Properties in at least as good condition and
repair as prevails on the date hereof, reasonable wear and tear excepted.
(d) Seller will not remove or permit the removal from the Properties of
any of the Leased Personalty or the Belmont Personalty.
(e) Seller will perform and observe all of the covenants and conditions
required to be performed and observed by tenant under the Store Leases. Seller
will not waive any of it rights or exercise any of its options under the Store
Leases. Seller will deliver to Purchaser copies of (i) any notices received by
Seller from the landlords or any superior interest holder under the Store
Leases, or (ii) any notices delivered by Seller to such landlords, within five
(5) days after receipt or delivery thereof.
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(f) Seller will perform and observe all covenants and conditions required
to be performed and observed by it as landlord under the Subleases. Seller will
not waive any of it rights or exercise any of its options under the Subleases.
Seller will deliver to Purchaser copies of (i) any notices received by Seller
from any tenants under the Subleases, or (ii) any notices delivered by Seller to
such tenants, within five (5) days after receipt or delivery thereof.
(g) Seller will perform and observe all covenants and conditions required
to be performed and observed by it as a party to the Service Contracts. Seller
will not waive any of it rights or exercise any of its renewal options under the
Service Contracts. Seller will deliver to Purchaser copies of any notices (i)
received by Seller from any contractors under the Service Contracts, or (ii) any
notices delivered by Seller to such contractors, within five (5) days after
receipt or delivery thereof.
(h) Seller will pay, when due, for all goods and supplies delivered to and
services performed at, the Properties. This Section 9(h) shall survive the
Closing.
X. Casualty and Condemnation.
--------------------------
10.01 If, prior to the Closing, a "material" part (as hereinafter defined)
of one (1) or more of the Properties is damaged or destroyed by fire or other
casualty, Seller shall notify Purchaser of such fact and Purchaser shall have
the option to (a) terminate this Agreement with respect to the Property or
Properties so damaged or destroyed, upon notice to Seller given not later than
thirty (30) days after receipt of Seller's notice, or (b) close title as
provided in this Agreement, and, at the Closing, receive an assignment of all
insurance proceeds (including rental and business interruption insurance
proceeds) to which Seller is entitled or can claim, and a reduction to the
Purchase Price equal to the amount of all deductibles. For purposes hereof, a
"material" part of any Property shall be deemed to have been damaged or
destroyed if the cost of repair or replacement thereof shall be greater than Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00), as reasonably estimated
by Seller. Notwithstanding the foregoing, in the event that a "material" part of
two (2) or more of the Operating Store Properties (as defined in Exhibit A) are
damaged or destroyed by fire or other casualty, Seller shall notify Purchaser of
such fact and Purchaser shall have the option to terminate this Agreement in its
entirety upon notice to Seller given not later than thirty (30) days after
receipt of Seller's notice. If, prior to the Closing, an "immaterial" part of
one (1) or more of the Properties is damaged or destroyed by fire or other
casualty ("immaterial" being any damage or destruction which is not "material")
Purchaser shall have the option to (a) postpone the Closing until the damage is
repaired by Seller, or (b) close title as provided in this Agreement, and, at
the Closing, receive an assignment of all insurance proceeds (including rental
and business interruption insurance proceeds) to which Seller is entitled or can
claim, and a reduction to the Purchase Price equal to the amount of all
deductibles.
10.02 If, prior to the Closing, all or any "significant" portion (as
hereinafter defined) of one (1) or more of the Properties is taken by
condemnation or eminent domain (or is the subject of a pending taking which has
not been consummated), Seller
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shall notify Purchaser of such fact and Purchaser shall have the option to
terminate this Agreement with respect to the Property or Properties so taken,
upon notice to Seller given not later than thirty (30) days after receipt of
Seller's notice. Notwithstanding the foregoing, if all or any "significant"
portions of two (2) or more of the Operating Store Properties are taken by
condemnation or eminent domain (or are the subjects of pending takings which
have not been consummated), Seller shall notify Purchaser of such fact and
Purchaser shall have the option to terminate this Agreement in its entirety,
upon notice to Seller given not later than thirty (30) days after receipt of
Seller's notice. If Purchaser does not elect to terminate this Agreement, or if
an "insignificant' portion ("insignificant" being any taking which is not
"significant") of one or more of the Properties is taken, Purchaser shall close
title as provided in this Agreement, and, at the Closing, Seller shall assign to
Purchaser any and all rights it has to compensation and damages with respect to
such taking (and pay over to Purchaser any such compensation and damages already
received). For purposes hereof, a "significant" portion of a Property means (x)
any portion of the improvements with respect thereto, (y) a portion of the
parking areas relating thereto, if the taking reduces the remaining available
number of parking spaces below the number deemed necessary by Purchaser to
operate its business, or (z) any portion of land which adversely affects ingress
or egress to such Property.
10.03 Seller shall promptly notify Purchaser of any casualty or actual or
threatened condemnation affecting the Properties. Seller will not settle any
proceeding relating to a condemnation or taking without Purchaser's prior
written consent.
10.04 In the event Purchaser elects to terminate this Agreement with
respect to less than all of the Properties, Purchaser's notice to Seller
pursuant to Section 10.01 or Section 10.02 shall include the amount by which
Purchaser proposes that the Purchase Price be reduced, together with a
justification therefor, reflecting additional costs to be borne by Purchaser.
Purchaser's adjustment will be determinative so long as Seller is not able to
demonstrate manifest error or bad faith.
XI. Conditions Precedent to Purchaser's Obligation to Close.
--------------------------------------------------------
Purchaser's obligation under this Agreement to consummate the transactions
contemplated hereby is subject to the fulfillment of each of the following
conditions:
(a) The representations and warranties of Seller contained herein shall be
true, accurate and correct as of the Closing Date (subject to the provisions of
Section 7.03);
(b) Definitive copies of the information statement complying with the
requirements of Section 14(c) of the Securities Exchange Act of 1934 (the
"Exchange Act") shall have been sent to Seller's Guarantor's shareholders
pursuant to Rule 14c-2 of the Exchange Act at least twenty (20) days prior to
the approval of the transactions contemplated by this Agreement by Seller's
Guarantor's shareholders; and Seller's Guarantor's shareholders shall have
approved the transactions contemplated by this Agreement and the subsequent
dissolution and liquidation of Seller;
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(c) The landlord under the Belmont Lease shall have executed and delivered
to Purchaser a new lease with respect to the Belmont Property, which lease shall
be in form and substance satisfactory to Purchaser;
(d) Seller shall have delivered all of the documents and other items
required pursuant to Section 12.01, and shall have performed all other
covenants, undertakings and obligations, and complied with all conditions
required by this Agreement to be performed or complied with by Seller at or
prior to Closing; and
(e) Seller shall have delivered the Leased Properties to Purchaser, vacant
of tenancies and other occupancies, and in broom clean condition.
XII. Closing Documents and Deliveries.
---------------------------------
12.01 At the Closing, Seller, at its sole cost and expense, shall deliver
to Purchaser, or its designee, the following:
(a) Assignments and assumptions of Seller's right, title and interest
in and to the Store Leases (the "Assignments of Store Leases"),
substantially in the form attached hereto as Exhibit G, conveying to
Purchaser good and valid leasehold title to the Leased Properties, free and
clear of all liens and encumbrances, which Assignment of Store Leases shall
be duly executed and acknowledged by Seller;
(b) Assignments and assumptions of Seller's leasehold interest as
landlord in and to the Subleases and the security deposits thereunder, if
any (the "Sublease Assignments"), in form and substance reasonably
acceptable to Purchaser taking into account customary practices in
Illinois, and duly executed and acknowledged by Seller;
(c) Assignments (the "General Assignments") transferring to Purchaser
all of Seller's right, title and interest in and to the permits and other
property being conveyed to Purchaser under this Agreement, in form and
substance reasonably acceptable to Purchaser taking into account customary
practices in Illinois, and duly executed and acknowledged by Seller;
(d) Original letters, executed by Seller, or its agent, advising
tenants under the Subleases of the assignment to Purchaser of Seller's
interest in the Leased Properties and directing that any rents and other
payments pursuant to the Subleases thereafter be sent to Purchaser or as
Purchaser may otherwise direct;
(e) Written notice to all contractors under the Service Contracts
advising them of the assignment to Purchaser of the Service Contracts and
deposits thereunder;
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(f) Originals of all documents referred to in the Exhibits and
Schedules to this Agreement; to the extent maintained in Seller's files,
complete sets of as-built plans and specifications for the Leasehold
Buildings and the Belmont Buildings and maintenance records and operating
manuals pertaining to the Properties; and all keys to the Leased
Properties;
(g) All assignable guaranties and warranties which Seller has
received in connection with any work or services performed, or to be
performed with respect to, or Leased Personalty installed in the Leased
Premises (to the extent same are in full force and effect), and Seller
shall cooperate with Purchaser in enforcing any such guaranties and
warranties which are not assignable, which obligations shall survive the
Closing;
(h) A Landlord Estoppel Certificate and Consent substantially in the
form of Exhibit E annexed hereto and made a part hereof, from each landlord
under the Store Leases, and any prime landlord, ground lessor, or other
superior interest holder with respect to the Store Leases, dated as of the
Closing Date, and in substance reasonably acceptable to Purchaser;
(i) A Tenant Estoppel Certificate substantially in the form of
Exhibit F annexed hereto and made apart hereof, from each tenant under the
Subleases, dated as of the Closing Date, and in substance reasonably
acceptable to Purchaser;
(j) Certified or official bank checks payable to the order of the
appropriate governmental officials in payment of all applicable transfer
and other such taxes and, and all customary tax documents required as a
result of the transactions contemplated hereby;
(k) Payment to Purchaser of the Escrow Amount if required pursuant to
Section 5.06;
(l) Seller's most recent tax bills relating to each of the
Properties;
(m) Consents and non-disturbance and attornment agreements from each
prime landlord, ground lessor, mortgagee, or other entity or person with a
superior interest in the Leased Properties in form and substance reasonably
satisfactory to Purchaser;
(n) A termination agreement fully executed by Seller and the landlord
under the Belmont Lease, terminating the Belmont Lease, which agreement
shall be in form and substance reasonably satisfactory to Purchaser and
which shall contain a statement from the landlord that all rent and other
sums due and payable under the Belmont Lease (including, without
limitation, common area maintenance charges, real estate taxes and
operating expenses) have been fully paid up to and including the Closing
Date;
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(o) A sworn certificate of the secretary of Seller and Seller's
Guarantor certifying that annexed thereto is (i) a true and correct copy of
Seller's and Seller's Guarantor's by-laws and that they have not been
modified or amended, and are in full force and effect, and (ii) a true and
correct copy of Seller's and Seller's Guarantor's board of directors
resolution authorizing the transaction and the delivery of the documents
required hereby;
(p) A closing settlement statement (the "Closing Statement"), setting
forth the amount due and payable to Seller and Purchaser at Closing, and
fully executed by Seller; and
(r) All other documents Seller is required to deliver pursuant to the
provisions of this Agreement.
12.02 At the Closing, Purchaser, at its sole cost and expense, shall
deliver to Seller the following:
(a) The portion of the Purchase Price payable at Closing pursuant to
Section 2(b), subject to apportionments, credits and adjustments as
provided in this Agreement;
(b) All assignment and assumption agreements with respect to the
Store Leases and the Subleases fully executed by Purchaser;
(c) The Closing Statement, fully executed by Purchaser; and
(d) All other documents Purchaser is required to deliver pursuant to
the provisions of this Agreement.
XIII. Mechanics' Liens.
-----------------
If, subsequent to the Closing Date, any mechanics' or other lien, charge or
order of the payment of money shall be filed against the Properties, or against
Purchaser or Purchaser's assigns, based upon any act or omission, or alleged act
or omission before or after the Closing Date, of Seller, its agents, servants or
employees, or any contractor, subcontractor or materialman connected with the
construction and completion by Seller of improvements at the Properties or
repairs made to the Properties by or on behalf of Seller (whether or not such
lien, charge or order shall be valid or enforceable as such), within ten (10)
days after notice to Seller of the filing thereof, Seller shall take such
action, by bonding, deposit, payment or otherwise, as will remove or satisfy
such lien of record against the Properties. The provisions of this Article 13
shall survive the Closing.
XIV. Expenses.
---------
Seller shall pay all transfer taxes, sales tax and other taxes incurred or
payable with respect to the assignment of Seller's interest in the Leased
Properties to Purchaser, if any, and all fees, costs and expenses associated
with the termination of the Belmont
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Lease. Each party shall pay its own attorney's and accountant's fees. The
provisions of this Article 14 shall survive the Closing or the termination of
this Agreement.
XV. Brokerage.
----------
Purchaser and Seller each warrant and represent to the other that no broker
was involved in the negotiation and consummation of this transaction. Purchaser
and Seller agree to indemnify and hold the other harmless, and defend the others
from and against any claim, loss, damage, liability, cost and expense
(including, without limitation, reasonable attorneys' fees) resulting from the
claims of any broker that shall involve a breach by the indemnifying party of
the foregoing warranty and representation. The provision of this Article shall
survive the Closing or any earlier termination of this Agreement.
XVI. Remedies.
---------
16.01 If the Closing fails to occur by reason of Seller's failure or
refusal to perform its obligations hereunder, Purchaser may (i) terminate this
Agreement by notice to Seller, and/or (ii) avail itself of all rights and
remedies at law or in equity, including without limitation, the remedy of
specific performance. If Purchaser elects to terminate this Agreement, as
provided herein or pursuant to any other provision of this Agreement, then this
Agreement shall be terminated and neither party shall have any further right,
obligations or liabilities hereunder, except for the obligations expressly
stated herein to survive such termination, and except that Purchaser shall be
entitled to a return of the Downpayment together with any interest accrued
thereon subject to Article 19.
16.02 If the Closing fails to occur by reason of Purchaser's failure or
refusal to perform its obligations hereunder, Seller, may (i) terminate this
Agreement by notice to Purchaser, and/or (ii) avail itself of all rights and
remedies at law or in equity. If Seller elects to terminate this Agreement, as
provided herein or pursuant to any other provision of this Agreement, then this
Agreement shall be terminated, and neither party shall have any further rights,
obligations or liabilities hereunder except for the obligations specifically
stated herein to survive such termination, and except that Seller shall be
entitled to the Downpayment together with any interest accrued thereon subject
to Article 19.
XVII. Indemnification.
----------------
17.01 Seller hereby agrees to defend, indemnify and hold Purchaser
harmless from and against all claims, demands, causes of action, losses,
damages, liabilities, costs and expenses, including, without limitation, legal
fees and disbursements, asserted against or incurred by Purchaser, or any of
Purchaser's affiliates, subsequent to the date of this Agreement by reason of
(a) any claims made against Purchaser relating to the Properties and arising
from acts, occurrences or matters that took place or were claimed to have taken
place prior to the Closing, or (b) the breach of any of the representations,
warranties and covenants made by Seller herein.
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17.02 Purchaser hereby agrees to defend, indemnify and hold Seller
harmless from and against all claims, demands, causes of action, losses,
damages, liabilities, costs and expenses, including, without limitation, legal
fees and disbursements, asserted against or incurred by Seller, or any of
Seller's affiliates, subsequent to the Closing Date by reason of (a) any claims
made against Seller relating to the Properties and arising from acts,
occurrences, or matters that take place or are claimed to have taken place after
the Closing Date, (b) and the breach of any of the representations, warranties
and covenants made by Purchaser herein.
17.03 The indemnities provided herein shall survive the Closing for a
period of six (6) months, except for those regarding the Belmont Property or
Belmont Lease which shall terminate as of the Closing Date.
XVIII. Further Assurances.
---------------------
The parties hereto each agree to execute and deliver such other documents
or agreements as may be necessary or desirable for the consummation of the
transactions contemplated by this Agreement. In addition, from time to time
after the Closing Date, at Purchaser's request, Seller will execute and deliver
or cause to be executed and delivered such other instruments of transfer, sale,
conveyance, assignment and confirmation and take such action as Purchaser may
reasonably deem necessary or desirable in order to effectively transfer, sell,
convey and assign the Leased Properties to Purchaser and to otherwise effectuate
the transactions contemplated by this Agreement.
XIX. Escrow.
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19.01 Escrow Agent shall hold the Downpayment in escrow in an interest-
bearing account (the "Escrow Account"), and shall disburse such Downpayment,
together with interest thereon, if any, to Seller at Closing.
19.02 In the event that the Closing does not occur and either party makes
a written demand upon Escrow Agent for payment of the Downpayment and interest
thereon, Escrow Agent shall give written notice to the other party of such
demand. If Escrow Agent does not receive a written objection from the other
party to the proposed payment within ten (10) business days after the giving of
such notice, Escrow Agent is hereby authorized to make such payment. If Escrow
Agent does receive such written objection within such ten (10) day period, or if
for any other reason Escrow Agent in good faith shall elect not to make such
payment, Escrow Agent shall continue to hold such amount until otherwise
directed by written instructions from the parties to this Agreement or a final
judgment of a court of competent jurisdiction. However, Escrow Agent shall have
the right at any time to deposit the Downpayment and interest thereon, if any,
with the clerk of the Supreme Court of the County of New York. Escrow Agent
shall give written notice of such deposit to Seller and Purchaser. Upon such
deposit Escrow Agent shall be relieved and discharged of all further obligations
and responsibilities hereunder.
21
<PAGE>
19.03 The parties acknowledge that Escrow Agent is acting solely as a
stakeholder at their request and for their convenience, and that Escrow Agent
shall not be liable to either of the parties for any act or omission on its part
unless taken or suffered in bad faith, in willful disregard of this Agreement or
involving gross negligence. Seller and Purchaser shall jointly and severally
indemnify and hold Escrow Agent harmless from and against all costs, claims and
expenses, including reasonable attorneys' fees, incurred in connection with the
performance of Escrow Agent's duties hereunder, except with respect to actions
or omissions taken or suffered by Escrow Agent in bad faith, in willful
disregard of this Agreement or involving gross negligence on the part of Escrow
Agent.
19.04 Seller and the Purchaser each agree (a) that Escrow Agent shall be
entitled to rely on such notices or certificates as may be furnished to it
without inquiring into the sufficiency or correctness of the same and without
inquiring as to the application of any funds paid or disbursed pursuant to this
Agreement, (b) that Escrow Agent is discharged and released from any and all
responsibility or liability with respect to the Downpayment except for its
willful misconduct or gross negligence, and (c) that Seller and Purchaser shall
jointly and severally indemnify Escrow Agent and hold it harmless from any
claims made against it with respect to the Downpayment, except for its willful
misconduct or gross negligence.
19.05 In any action arising between Seller and Purchaser, the parties
agree that Escrow Agent shall be entitled to represent Purchaser in such
actions.
19.06 The Downpayment shall secure the performance of Purchaser's
obligations hereunder and shall not be considered part of Seller's estate in the
event of any insolvency or bankruptcy of Seller.
19.07 Any interest earned on the Downpayment shall be paid to the party
entitled thereto, and the party receiving such interest shall pay any income
taxes thereon. The tax identification numbers of the parties shall be furnished
to Escrow Agent upon request.
19.08 Escrow Agent has acknowledged agreement to these provisions by
signing in the place indicated on the signature page of this Agreement.
XX. Miscellaneous.
--------------
20.01 Notices. All notices and other communications under this Agreement
shall be in writing; may be given by personal delivery, telecopy, Federal
Express or similar overnight courier service; and shall be deemed given upon
receipt thereof. Such notices shall be given to the parties at the following
addresses (or to such other address as a party may have specified by notice
given to the other parties pursuant to this provision):
22
<PAGE>
If to Seller or to Seller's Guarantor, to:
Goldblatt's Department Stores, Inc. or
JG Industries, Inc. (as applicable)
Attention: William Hellman
5630 West Belmont
Chicago, Illinois 60634
Telephone: (773) 481-5410
Facsimile: (773) 481-5417
With a copy to:
Winston & Strawn
Attention: Stanford J. Goldblatt, Esq.
35 West Wacker Drive
Chicago, Illinois 60601
Telephone: (312) 558-5600
Facsimile: (312) 558-4700
If to Purchaser or to Purchaser's Guarantor, to:
Ames Realty II, Inc. or
Ames Department Stores, Inc. (as applicable)
Attention: David H. Lissy, Esq.
2418 Main Street
Rocky Hill, Connecticut 06067-2598
Telephone: (860) 257-2578
Facsimile: (860) 257-5160
With a copy to:
Weil, Gotshal & Manges LLP
Attention: Jeffrey J. Weinberg, Esq.
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
23
<PAGE>
If to Escrow Agent, to:
Weil, Gotshal & Manges LLP
Attention: Jeffrey J. Weinberg, Esq.
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
20.02 Entire Agreement. This Agreement contains all of the terms agreed
upon between the parties with respect to the subject matter hereof and
supersedes any and all prior written or oral understandings.
20.03 Amendments. This Agreement may not be changed, modified or
terminated except by an instrument executed by the parties hereto.
20.04 Waiver. No waiver by either party of any failure or refusal of the
other party to comply with any of its obligations shall be deemed a waiver of
any other or subsequent failure or refusal so to comply. To be effective, any
waiver must be in writing and signed by the party to be charged therewith.
20.05 Successors and Assigns.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Seller may not assign this Agreement or all or any part of its rights and
obligations hereunder without the prior written consent of Purchaser.
(b) Purchaser may, without the consent of Seller, assign this
Agreement and its rights and obligations hereunder to any entity (including a
newly formed entity) which is affiliated or associated with Purchaser or any of
Purchaser's direct or indirect beneficial owners. Any obligations of Purchaser
may be performed by Purchaser's assignee, and Seller agrees to accept such
performance as if it were the performance of Purchaser; provided, however, no
such assignment or assumption will release or relieve Purchaser from any of its
obligations or liabilities under this Agreement.
20.06 Article and Section Headings. The headings of the various Articles
and Sections of this Agreement have been inserted only for the purposes of
convenience, and are not part of this Agreement and shall not be deemed in any
manner to modify, explain, qualify or restrict any of the provisions of this
Agreement.
20.07 Governing Law. This Agreement shall be governed by and in accordance
with the laws of the State of New York without giving effect to the conflict-of-
laws principles thereof.
24
<PAGE>
20.08 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an original, but all
of which, when taken together, shall constitute but one instrument.
20.09 No Third Party Beneficiaries. The provisions of this Agreement are
intended to be solely for the benefit of the parties hereto, and their
respective heirs, executors, personal representatives, successors and assigns,
and none of the provisions of this Agreement are intended to be, nor shall they
be construed to be, for the benefit of any third party.
20.10 Severability. Should any clause, section or part of this Agreement
be held or declared by a court of competent jurisdiction to be invalid, void,
illegal or unenforceable for any reason, all other clauses, sections or parts of
this Agreement which can be effected without such illegal clause, section or
part shall nevertheless continue in full force and effect.
20.11 Guaranty. Seller's Guarantor and Purchaser's Guarantor each hereby
absolutely and unconditionally guaranty all of the obligations set forth herein
of Seller and Purchaser, respectively, including, without limitation, the
indemnity obligations set forth in Article 6 and Article 17. Such guaranties
shall survive the Closing or earlier termination of this Agreement for a period
of six (6) months.
[Remainder of page intentionally left blank]
25
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first above written.
SELLER:
GOLDBLATT'S DEPARTMENT STORES, INC.
By:
--------------------------------
Name:
Title:
SELLER'S GUARANTOR:
JG INDUSTRIES, INC.
By:
--------------------------------
Name:
Title:
PURCHASER:
AMES REALTY II, INC.
By:
--------------------------------
Name:
Title:
PURCHASER'S GUARANTOR
AMES DEPARTMENT STORES, INC.
By:
--------------------------------
Name:
Title:
26
<PAGE>
ESCROW AGENT, solely for the purpose of evidencing
its consent to serve as Escrow Agent in accordance
with the provisions of Article 19
WEIL, GOTSHAL & MANGES LLP
By:
--------------------------------
Name: Jeffrey J. Weinberg
Title: Partner
27
<PAGE>
SCHEDULES
---------
I Leased Premises
II Belmont Property
28
<PAGE>
EXHIBITS
--------
A Machinery, Equipment and other Personal Property
B Subleases
C Ground Leases
D Service Contracts
E Form of Landlord Estoppel Certificate
F Form of Tenant Estoppel Certificate
G Form of Assignment of Store Lease
29
<PAGE>
SCHEDULE I
----------
LEASED PREMISES
---------------
Seller's leasehold interest, as tenant, in and to the land (collectively, the
"Leased Land") and the improvements (collectively, the "Leasehold Buildings",
and together with the Leased Land, being hereinafter collectively referred to as
the "Leased Premises") pursuant to the following leases (collectively, the
"Store Leases"):
(a) Lease, dated May 1, 1991, by and between American Real Estate Holdings
Limited Partnership, a Delaware limited partnership, as landlord, and
Seller, as successor-in-interest to The TJX Companies, Inc., as tenant, as
assigned to Seller pursuant to that certain Assignment dated October 10,
1991, relating to property located at 4538 Stoney Island, Chicago, Illinois
(the "Stoney Island Store Lease");
(b) Lease, dated June 30, 1989, by and between Lakes Meadows Association, an
Illinois limited partnership, as landlord, and Seller, as tenant, relating
to property located at 35th Street and Martin Luther King Drive, Chicago,
Illinois (the "35th Street Store Lease");
(c) Lease, dated December 18, 1990, by and between LaSalle National Trust,
N.A., successor trustee to LaSalle National Bank, a national banking
association, as trustee under Trust Agreement Number 52741, as landlord,
and Seller, as successor-in-interest to 159 Properties, Inc., f/k/a The TJX
Companies, Inc., as tenant, as assigned to Seller pursuant to that certain
Assignment and Assumption of Lease dated June 5, 1992, and as amended
pursuant to that certain Amendment One, dated December 18, 1990, relating
to property located at 1450 North Cicero Avenue, Chicago, Illinois (the
"North Cicero Store Lease");
(d) Sublease, dated January 30, 1991, by and between Venture Stores, Inc., a
Delaware corporation, as sub-landlord, and Seller, as successor-in-interest
to The TJX Companies, Inc., as sub-tenant, as assigned to Seller pursuant
to that certain Assignment and Assumption of Sublease dated February 8,
1991, relating to property located at 87th Street and the Dan Ryan
Expressway, Chicago, Illinois (the "87th and Dan Ryan Store Lease");
(e) Lease, dated May 3, 1954, by and between A & R Katz Management, Inc., as
successor-in-interest to Scott Construction, Inc., as landlord, and Seller,
as successor-in-interest to Linn Realty Co., as tenant, relating to the
property located at the Scottsdale Shopping Center, South Cicero and 79th
Street, Chicago, Illinois, and as subsequently amended (the "South Cicero
Store Lease"); and
30
<PAGE>
(f) Lease, dated June 28, 1985, between Pennsylvania Real Estate Investment
Trust, a business trust qualified to do business in the State of Indiana,
as landlord, and Seller, as successor-in-interest to Goldblatt Bros., Inc.,
as tenant, as amended pursuant to that certain First Amendment to Lease,
dated July 19, 1985, and that certain Second Amendment to Lease, dated
April 1, 1986, relating to the property located at The Village Shopping
Center, Gary, Indiana (the "Village Shopping Center Store Lease").
31
<PAGE>
SCHEDULE II
-----------
BELMONT PROPERTY
----------------
Seller's leasehold interest, as tenant, in and to the land (collectively, the
"Belmont Land") and the improvements (the "Belmont Buildings", and together with
the Belmont Land Land, being hereinafter collectively referred to as the
"Belmont Premises") pursuant to the following lease (the "Belmont Lease"):
(a) Indenture, dated January 30, 1957, by and between American National Bank
and Trust Company of Chicago, as Trustee under a certain Trust Agreement
dated the 4th day of November, 1949 and known as Trust Number 7906, as
landlord, and Seller, as successor-in-interest to G. B. Community Stores,
Inc., as tenant, as amended pursuant to that certain Amendment to Lease,
dated March 16, 1977, and that certain Second Amendment to Lease, dated
July 25, 1996, relating to the property located at 5360 West Belmont,
Chicago, Illinois;
together with all of Seller' s right, title and interest in and to the
following, if any:
(i) all easements, rights-of-way, reservations, privileges, appurtenances,
and other estates and rights pertaining to the Belmont Premises;
(ii) all oil, gas and mineral rights of Seller in and to the Belmont Premises;
(iii) all rights of ingress and egress to and from the Belmont Premises;
(iv) the real estate fixtures attached or appurtenant to the Belmont Premises,
or used in connection with, and necessary to, the operation o the Belmont
Premises, together with the machinery, equipment and personal property
set forth on Exhibit A (collectively, the "Belmont Personalty");
(v) all strips and gores adjoining or adjacent to the Belmont Premises; all
alleys adjoining the Belmont Premises; any land lying in the bed of any
street, road or avenue, opened or proposed, in front of or adjoining the
Belmont Premises to the center line thereof; and any award made or to be
made for damage to the Belmont Premises by reason of change of grade of
any street or otherwise;
(vi) all rights to the present or future use of water, wastewater, wastewater
capacity, drainage, water or other utility facilities, to the extent same
pertain to or benefit the Belmont Premises; and
(vii) all right, title, and interest of Seller, as landlord, in any leases,
subleases, licenses, permits, franchises, concessions and occupancy
agreements covering the Belmont Premises or any portion thereof, and in
all security deposits made by tenants under such leases.
32
<PAGE>
The Belmont Premises, together with all of the foregoing items listed in (i)
through (vii) above, is hereinafter referred to as the "Belmont Property".
33
<PAGE>
EXHIBIT A
---------
MACHINERY, EQUIPMENT AND
OTHER PERSONAL PROPERTY
I. With respect to the Operating Store Leases and the Non-Operating Store
Leases (as hereinafter defined):
All alarms, CCTVs, safes, E.A.S. (or similar equipment), fire
extinguishers, and related security equipment (including, but not limited
to, walkie talkies, covert cameras, E.A.S. ceiling domes and mirrors).
II. With respect to the Operating Store Leases only:
Those items set forth in item I above, together with all stock room racks
and shelving, fixtures, rollers, conveyors, overhead motorized rails and
handling equipment, but excluding therefrom all of Seller's trade fixtures.
As used herein and throughout the Agreement, the term "Operating Store Leases"
shall mean the Stoney Island Store Lease, the North Cicero Store Lease, the 87th
and Dan Ryan Store Lease, and the Belmont Lease, and the term "Operating Store
Properties" shall mean the Properties leased to Seller pursuant thereto. The
term "Non-Operating Store Leases" shall mean the 35th Street Store Lease, the
South Cicero Store Lease, and the Village Shopping Center Store Lease, and the
term "Non-Operating Store Properties" shall mean the Properties leased to Seller
pursuant thereto.
34
<PAGE>
EXHIBIT B
---------
SUBLEASES
1. Sublease, dated January 1, 1996, by and between Seller, as sublessor, and
Rainbow Apparel Companies, Inc., a Delaware corporation, as sublessee,
relating to property located at 87th Street and the Dan Ryan Expressway,
Chicago, Illinois (the "87th and Dan Ryan Store Sublease").
35
<PAGE>
EXHIBIT C
---------
GROUND LEASES
[Information to be provided by Seller within ten (10) business days
from the date hereof]
36
<PAGE>
EXHIBIT D
---------
SERVICE CONTRACTS
None
37
<PAGE>
EXHIBIT E
---------
FORM OF LANDLORD ESTOPPEL CERTIFICATE
38
<PAGE>
Landlord Estoppel Certificate and Consent
-----------------------------------------
To: Ames Department Stores, Inc., a Delaware corporation ("Purchaser"), its
successors and assigns; and
Goldblatt's Department Stores, Inc., an Illinois corporation ("Tenant"),
its successors and assigns.
Re: Lease dated ____________by and between ______________________, as landlord
("Landlord"), and Tenant (the "Lease").
Ladies/Gentlemen:
Landlord understands that Purchaser is acquiring a leasehold interest in
the premises which are the subject of the Lease (the "Premises") and has
requested certain information from Landlord relative to the Lease.
Therefore, with respect to the Lease, Landlord hereby certifies to
Purchaser, its successors and assigns, as of the date hereof, as follows:
1. The Lease:
(a) is in full force and effect;
(b) has not been modified, changed, altered, supplemented or amended since
its original execution except as set forth above;
(c) constitutes the entire understanding between Landlord and Tenant with
respect to the Premises;
(d) has been duly executed and delivered on behalf of Landlord pursuant to
proper authority therefor and constitutes a legally valid instrument,
binding and enforceable upon Landlord in accordance with its terms;
and
(e) is not subject to any superior leases except for the following (if
none, state "none"): _______________________________________________.
2. There are no existing defaults on the part of Tenant under the Lease,
Landlord has not delivered any notice of default to Tenant, and no event
has occurred that, with the giving of notice or the passage of time or
both, would constitute a default under the Lease except the following (if
none, state "none"):_____________________________________________________.
3. There are no uncured defaults on the part of Landlord under the Lease,
Landlord has not received any notice of default from Tenant, no event has
occurred that,
<PAGE>
with the giving of notice or the passage of time or both, would constitute
a default under the Lease, and Tenant has no offset, defense, deduction or
claim against Landlord except the following (if none, state
"none"):_________________________________________________________________.
4. The commencement date of the Lease was ________________ and the original
term of the Lease expired on ___________________. Tenant has the following
renewal or extension options (if none, state "none"):____________________.
5. The basic annual rent currently payable under the Lease is __________ per
______ and other sums, including, but not limited to, common area
maintenance charges, real estate taxes and additional rent, currently
payable under the Lease are ____________________.
6. Rent and all other sums due and payable under the Lease, including, but not
limited to, basic annual rent, common area maintenance charges, real estate
taxes and additional rent, have been paid in full through and including the
date first written below. No rent due under the Lease has been paid for
more than thirty (30) days in advance of its due date.
7. Tenant's security deposit currently maintained by Landlord under the Lease
is (if none, state "none"): $_________________.
8. Landlord has no option to terminate or otherwise modify the terms and
conditions of the Lease other than as specifically provided in the Lease.
9. Any improvements required by the terms of the Lease to be made by Tenant
have been completed to the satisfaction of Landlord and Landlord will make
no demand upon Tenant for the removal and reinstatement of any existing
improvements or alterations at the end of the term of the Lease.
10. Landlord represents and warrants that, as of the date hereof, there are no
mortgages, deeds of trust or other security instruments (collectively,
"Mortgages") that burden the Premises except the following (if none, state
"none): _________________________________________________________________.
With regard to such Mortgages, no consents are needed from the holders
thereof with respect to the assignment of Tenant's interest in the Lease to
Purchaser.
11. There has been no casualty with respect to the Premises.
12. There does not exist any pending, or to Landlord's knowledge, contemplated,
condemnation or eminent domain proceedings that affect the Premises or any
part thereof, and Landlord has received no notice, oral or written, of the
intention of any governmental body or other entity to take or use all or
any part thereof.
13. Landlord acknowledges and consents to Tenant's assignment of the Lease to
Purchaser and acknowledge that Purchaser will be operating the Premises
under the trade name Ames Department Stores.
2
<PAGE>
The statements contained herein may be relied upon by Purchaser and
Purchaser's successors and assigns. Landlord acknowledges that Purchaser may
show copies of this Certificate to third parties who are interested in the
matters covered by this Certificate and agrees that said third parties may also
rely upon this Certificate.
The undersigned person is duly authorized to execute this Certificate.
DATED this ____ day of February, 2000.
LANDLORD:
--------
By:____________________________
Name:__________________________
Title:_________________________
3
<PAGE>
EXHIBIT F
---------
FORM OF TENANT ESTOPPEL CERTIFICATE
39
<PAGE>
Tenant Estoppel Certificate
---------------------------
To: Ames Department Stores, Inc., a Delaware corporation ("Purchaser"), its
successors and assigns; and
Goldblatt's Department Stores, Inc., an Illinois corporation ("Landlord")
its successors and assigns
Re: Sublease, dated ________________, (the "Sublease") by and between Landlord
as sub-landlord and ________________, as sub-tenant ("Tenant").
Ladies/Gentlemen:
Tenant understands that Purchaser is acquiring Landlord's leasehold estate
in and to the premises which are the subject of the Sublease (the "Premises")
and has requested certain information from Tenant relative to the Sublease.
Therefore, with respect to the Sublease, Tenant hereby certifies to
Purchaser, its successors and assigns, as of the date hereof, as follows:
1. The Sublease:
(a) is in full force and effect;
(b) has not been modified, changed, altered, supplemented or amended since
its original execution except as set forth above;
(c) constitutes the entire understanding between Landlord and Tenant with
respect to the Premises and the subject matter covered in the
Sublease;
(d) has been duly executed and delivered on behalf of Tenant pursuant to
proper authority therefor and constitutes a legally valid instrument,
binding and enforceable upon Tenant in accordance with its terms; and
(e) is not subject to any superior leases except for the following:
_____________________________________________________________________
_____________________________________________________________________
2. The commencement date of the Sublease was ___________ and the original term
of the Sublease expires on ______________. Tenant has the following
renewal or extension options:_____________________________________________.
3. The basic annual rent currently payable under the Sublease is ____________
______________, and other sums, including, but not limited to, common area
maintenance charges, real estate taxes and additional rent currently
payable under the Sublease are
<PAGE>
__________________________________________________________________________
_________________________________________________________________________.
4. The base year for operating expenses and real estate taxes, is (if not
applicable, state "not applicable")_______________________________________
__________________________________________________________________________.
5. Basic annual rent and all other sums due and payable under the Sublease,
including, but not limited to, common area maintenance charges, real estate
taxes and additional rent, have been paid in full through and including
_____________. No basic annual rent or additional rent due under the
Sublease has been paid for more than thirty (30) days in advance of its due
date.
6. All brokerage commissions required to be paid by tenant in connection with
the Sublease have been paid in full.
7. Tenant's security deposit under the Sublease is (if none, state "none"):
$_________________. Except for the security deposit, Tenant has no claim
against Landlord for any deposits or other security. Tenant hereby waives
collection of the security deposit against Purchaser unless Purchaser
actually receives the security deposit from Landlord.
8. Tenant has no right or option to terminate or otherwise modify the terms
and conditions of the Sublease other than as specifically provided in the
Sublease.
9. Any work required by the terms of the Sublease to be performed by Landlord
have been completed to the full satisfaction of Tenant, and any payments,
free rent, partial rent, rebate of rent or other payments, credits,
allowances or abatements required to be given by Landlord to Tenant have
been received by Tenant except (if none, state
"none"):__________________________________________________________________
_________________________________________________________________________.
10. Tenant has not assigned, sublet or transferred its interest in the Sublease
and/or the Premises, or any part thereof.
11. No one other than Tenant and its employees occupies the Premises. Tenant
is currently open for business in the Premises and does not intend to
vacate or abandon actual occupancy of the Premises or to cease conducting
its normal business operations therefrom prior to the expiration of the
current term of the Sublease.
12. Tenant has no right or option to expand the Premises, to lease additional
space from Landlord, or to relocate to different space, except that Tenant
has a right of first refusal to lease the following (if none, state
"none"):__________________________________________________________________
__________________________________________________________________________
_________________________________________________________________________.
2
<PAGE>
13. Neither the Lease, nor any obligations of Tenant thereunder, have been
guaranteed by any person or entity, except as follows (if none, state
"none"):________________________________________________________________
14. There are no existing defaults on the part of Tenant under the Sublease,
Tenant has not received any notice of default from Landlord, and no event
has occurred that, with the giving of notice or the passage of time or
both, would constitute a default by Tenant or its assigns except the
following (if none, state "none"):_______________________________________
_________________________________________________________________________
________________________________________________________________________.
15. There are no existing defaults on the part of Landlord under the Sublease,
Tenant has not delivered any notice of default to Landlord, no event has
occurred that, with the giving of notice or the passage of time or both,
would constitute a default by Landlord or its assigns, and Tenant is
entitled to no credit, offset, or deduction, and has no defense or claim,
against any obligation to pay basic annual rent and other sums due and
payable under the Sublease either by reason of prepayment thereof,
Landlord's acts or omissions, or for any other reason whatsoever except the
following (if none, state "none"):________________________________________
__________________________________________________________________________
_________________________________________________________________________.
16. There has been no casualty with respect to the Premises.
17. No hazardous wastes or toxic substances are being (or have been or will be
during the term of the Sublease) used, handled, stored or disposed of by
Tenant, its employees or agents, on the Premises, or on the property of
which the Premises are a part, in violation of any applicable environmental
laws, rules or regulations or the terms of the Sublease.
18. There does not exist any pending, or to Tenant's knowledge, contemplated,
condemnation or eminent domain proceedings that affect the Premises or any
part thereof, and Tenant has received no notice, oral or written, of the
intention of any governmental body or other entity to take or use all or
any part thereof.
19. Tenant has not received notice of any sale, assignment, mortgage or pledge
of Landlord's interest in the Sublease or the rents or other amounts
payable thereunder, with the exception of the proposed assignment to
Purchaser as contemplated hereby.
3
<PAGE>
20. No bankruptcy or insolvency proceedings are pending by or against Tenant
and no bankruptcy or insolvency proceedings are contemplated by Tenant.
There are no claims or actions pending against Tenant which if decided
adversely to Tenant would materially and adversely affect Tenant's
financial condition or Tenant's ability to perform its obligations under
the Sublease.
21. Tenant acknowledges and consents to Landlord's assignment of the Sublease
and all rents to be paid thereunder to Purchaser.
The statements contained herein may be relied upon by Purchaser and
Purchaser's successors and assigns. Tenant acknowledges that Purchaser may show
copies of this Certificate to third parties who are interested in the matters
covered by this Certificate and agrees that said third parties may also rely
upon this Certificate.
The undersigned person is duly authorized to execute this Certificate.
DATED this ____ day of February, 2000.
TENANT:
------
By:____________________________
Name:__________________________
Title:_________________________
4
<PAGE>
EXHIBIT G
---------
FORM OF ASSIGNMENT OF STORE LEASE
40
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
THIS ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") is made as of
this ______ day of _____________, 2000, by and between GOLDBLATT'S DEPARTMENT
STORES, INC., an Illinois corporation ("Assignor"), and AMES REALTY II, INC., a
Delaware corporation ("Assignee").
WITNESSETH:
-----------
WHEREAS, Assignor is the tenant under that certain lease dated ___________,
______ as more fully described on Schedule I attached hereto and made a part
hereof (the "Lease") with respect to certain premises located at ______________
________________, ___________, ______________ (the "Property");
WHEREAS, Assignor desires to transfer and assign to Assignee its entire
right, title and interest as tenant in, to and under the Lease; and
WHEREAS, Assignee desires to accept the foregoing assignment and assume all
of Assignor's obligations under the Lease, arising from and after the date
hereof, upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
conditions herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Assignor does hereby sell, transfer and assign to Assignee the
Lease and all of the right, title and interest of Assignor as the tenant in, to
and under the Lease, including, without limitation, all rights, privileges,
options and other benefits of Assignor under the Lease. Notwithstanding the
foregoing, Assignor agrees to perform, discharge and observe all of the duties,
obligations, undertakings and liabilities of the tenant in, to and under the
Lease, arising or accruing prior to the date hereof.
2. Assignee hereby accepts the foregoing assignment and assumes and
agrees to perform, discharge and observe all of the duties, obligations,
undertakings and liabilities of the tenant in, to and under the Lease, arising
from and after the date hereof.
3. This Assignment shall be binding upon and inure to the benefit of
the parties hereto and their respective successors in interest and assigns. The
respective agreements herein set forth are for the benefit only of the parties
hereto, their successors and assigns, and no provision of this Assignment is
intended to benefit, nor shall any such provision be enforceable by, any person
or entity other than the parties hereto and their respective successors in
interest and assigns.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Assignor and Assignee have executed this Assignment
the day and year first written above.
ASSIGNOR:
GOLDBLATT'S DEPARTMENT STORES, INC.,
an Illinois corporation
By: _________________________________
Name: _______________________________
Its: ________________________________
ASSIGNEE:
AMES REALTY II, INC.,
a Delaware corporation
By: _________________________________
Name: _______________________________
Its: ________________________________
-2-
<PAGE>
SCHEDULE I
----------
-3-
<PAGE>
Annex B
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
----------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended January 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission File No. 1-258
----------------
JG INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Illinois 36-1141010
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5630 West Belmont Avenue,
Chicago, Illinois 60634
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (773) 481-5410
----------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)(S) .229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
The aggregate market value of Common Stock held by nonaffiliates of the
Registrant on April 23, 1999 was approximately $375,650. On that date there
were 1,060,670 shares of Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and III incorporate by reference certain information to be included
in Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders currently scheduled for July 13, 1999.
Index to Exhibits on Pages 23 through 24.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
Item 1. Business
General Information
JG Industries, Inc. ("JG") is an Illinois corporation organized on February
27, 1928. Effective July 23, 1985 the name of the Company was changed from
Goldblatt Bros., Inc. to JG Industries, Inc. JG and its subsidiaries are
hereinafter collectively referred to as the "Company."
Prior to December 13, 1996, Jupiter Industries, Inc. ("Jupiter")(a
shareholder of the Company) had a 55.2% ownership interest in JG, and held
1,293,258 shares of the Company's Common Stock and all of the Company's issued
and outstanding Series A Preferred Stock. Pursuant to a Stock Purchase
Agreement dated December 13, 1996, the Company purchased from Jupiter all
shares of the Series A Preferred Stock and the Company's Common Stock held by
Jupiter for an aggregate price of $5,510,864, of which $2,500,108 was paid in
cash, $1,264,858 was paid by offset against liabilities of Jupiter to the
Company and $1,745,898 was paid by delivery of a promissory note. Effective
May 15, 1998, the original $1,745,898 promissory note was amended and restated
("Restated Note"). The Restated Note did not bear interest and was payable in
three annual installments of $581,966 each commencing May 15, 1999, with the
last installment due and payable on May 15, 2001. In addition, the accrued and
unpaid interest of approximately $149,000 as of May 15, 1999 was forgiven. On
January 29, 1999, the Company and Jupiter entered into a Cancellation
Agreement whereby the aforementioned $1,745,898 Restated Noted was canceled in
return for a lump-sum payment of $500,000 as full settlement of the
outstanding debt obligation. Subsequent to year-end, the Company made the
$500,000 lump-sum payment to Jupiter.
The Company operates in one industry segment of the retail market that is
defined as Discount Department Stores. Goldblatt's Department Stores, Inc. and
Subsidiaries ("Goldblatt's"), a wholly-owned subsidiary of the Company, offers
customers a diverse assortment of both nationally branded and private label
merchandise, emphasizing a full range of both soft and hard line goods. The
stores frequently feature special promotions of merchandise purchased on
advantageous terms. Soft line merchandise includes men's, women's, children's
and infant's wearing apparel and accessories. Hard line merchandise includes
textiles and domestics, televisions and electronics, small appliances and
housewares, cosmetics and notions, hardware, toys and sporting goods. Over the
past five years, soft line departments have provided between 51% and 54% of
owned sales. Goldblatt's also licenses jewelry, shoe, millinery and optical
departments for operation at certain of its stores.
Goldblatt's continuing operations are comprised of eight discount department
stores located in the Chicago, Illinois vicinity and one in Indiana. The
department stores maintain a centralized purchasing function, buying goods
direct from domestic and international manufacturers and through wholesalers.
No single vendor accounted for more than 4% of total department store
purchases during fiscal 1999. Supplier relationships are considered strong and
Goldblatt's continues to obtain favorable pricing and payment terms on many
purchases.
The department store business is seasonal with approximately 30% of total
sales occurring in the fourth quarter.
<TABLE>
<CAPTION>
Balance at Opened/Purchased Closed/Sold Balance at
Description Beginning of Year Stores Stores End of Year
----------- ----------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Discount department
stores
Fiscal year 1997....... 14 4 10
Fiscal year 1998....... 10 10
Fiscal year 1999....... 10 1 9
</TABLE>
Competition
The Company's discount department stores are highly competitive. The Company
competes with national and local retail establishments, both large and small,
for the patronage of its customers. Some of the largest retail merchandise
companies with substantially greater resources than the Company have outlets
located in the same areas in which the Company's subsidiaries operate. The
Company's overall promotional strategy is to emphasize quality merchandise at
competitive prices.
2
<PAGE>
Employees
The Company employs 670 people, comprised of 4 employees of JG and 666
employees of Goldblatt's. The Company believes that its relationship with its
employees is good.
Item 2. Properties
The Company owns and leases the retail merchandise stores, office and
warehouse locations described below. In the opinion of management, the
properties are suitable and adequate for the conduct of its business.
At April 30, 1999, Goldblatt's owns in fee one retail location in Chicago,
Illinois. This one property has gross square footage of 135,000. This property
is subject to a mortgage in favor of a regional financial institution.
Goldblatt's leases its other eight retail locations, aggregating 580,200 gross
square feet, with expirations, excluding renewal options, ranging from 2000 to
2008. Five stores have renewal options of up to 25 years. Aggregate minimum
rentals with respect to the foregoing leasehold properties are approximately
$1,840,000 annually.
Item 3. Legal Proceedings
No material legal proceedings are currently pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to vote of the company's shareholders during the
last quarter of the fiscal year ended January 30, 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Although the Company's Common Stock was listed on the NASD Automated
Quotation System (trading symbol: JGIN) through the close of business on
October 7, 1998, the volume of shares traded was limited during the years
ended January 30, 1999 (fiscal 1999) and January 31, 1998 (fiscal 1998). The
following table lists the reported high and low bid quotations as quoted on
the NASD Automated Quotation System for each quarterly period during fiscal
1999 and 1998 (through October 7, 1998). Such over-the-counter market
quotations reflect interdealer prices, without retail markup, markdown or
commission and may not necessarily represent actual transactions. Effective
with the close of business on October 7, 1998, the Company's Common Stock was
delisted from the NASDAQ Stock Market, since the Company's Common Stock fell
below the NASDAQ requirement of maintaining a $1,000,000 market value of the
public float, and the Company was unable to raise the market value above this
required level. The Company's Common Stock has been trading over-the-counter
since this date. Bid quotations and trading activity are maintained and
reported to the Company by National Quotation Bureau, LLC. The Company has not
paid dividends in any of the last five years. There were approximately 957
holders of record of Common Stock on April 23, 1999.
<TABLE>
<CAPTION>
Price Range
-----------
High Low
----- -----
<S> <C> <C>
Fiscal 1999
First Quarter.................................................. $1.06 $ .75
Second Quarter................................................. 1.06 .50
Third Quarter.................................................. .75 .25
Fourth Quarter................................................. .50 .13
Fiscal 1998
First Quarter.................................................. $2.00 $1.38
Second Quarter................................................. 2.00 1.50
Third Quarter.................................................. 1.38 1.13
Fourth Quarter................................................. 1.44 .50
</TABLE>
3
<PAGE>
Item 6. Selected Financial Data
Following is selected financial data for the Company for each of the last
five fiscal years.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Net sales from continu-
ing operations......... $ 52,236 $ 53,483 $ 60,198 $ 72,964 $ 77,106
Operating loss.......... (1,883) (2,423) (2,195) (2,871) (68)
Loss from continuing op-
erations............... (2,323) (2,569) (2,101) (4,103) (1,121)
Income (loss) from dis-
continued operations... (49) 6,856 1,608
Income (loss) before ex-
traordinary items...... (2,323) (2,569) (2,150) 2,753 487
Income from extraordi-
nary items............. 1,365
Net income (loss)....... (958) (2,569) (2,150) 2,753 487
Net income (loss)
available to common
shareholders........... (1,093) (2,707) (2,577) 2,472 267
Per share data:
Loss from continuing
operations--basic and
diluted................ (2.32) (2.55) (1.15) (1.86) (.57)
Net income (loss)--
basic.................. (1.03) (2.55) (1.17) 1.05 .11
Net income (loss)--
diluted................ (1.03) (2.55) (1.17) 1.04 .11
Total assets............ 12,134 14,213 15,675 25,315 76,007
Long-term obligations... 1,350 3,343 2,031 2,776 11,269
Redeemable preferred
stock.................. 3,937 3,657
Convertible preferred
stock.................. 1,500 1,500 1,500
Weighted average number
of common shares
outstanding............ 1,060,670 1,060,674 2,194,085 2,353,445 2,351,702
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Approximately $97,000 of net cash was provided by operating activities
during the year ended January 30, 1999 as compared to approximately $1,235,000
of net cash used in operating activities during the preceding year. The
decreased spending stems in large part to a $603,000 reduction in selling,
general and administrative ("SG&A") expenses in fiscal 1999 as compared to
fiscal 1998, due to an expense reduction program implemented early in fiscal
1999. The increase in cash from operating activities is also attributed to the
liquidation of inventory from a store closed during the year, and the decrease
in other current assets stemming from the Company's decision to pay rent when
due, instead of prepaying rent, as was done in the preceding year.
Goldblatt's Department Stores, Inc. spent $293,000 on capital expenditures
during fiscal 1999 related to normal capital maintenance. In addition,
approximately $25,000 of furniture, fixtures and computer equipment previously
put into storage from the four store closings in fiscal 1997 were transferred
out to existing Goldblatt's stores for replacement needs. Goldblatt's expects
to utilize a large portion of the remaining furniture and fixtures in storage
in fiscal 2000 for both major and minor remodeling projects to be undertaken
at its existing store locations.
During fiscal 1998, Goldblatt's executed a $2,000,000 line of credit
agreement with a maturity date of April 15, 1999. The agreement provided a
line of credit of up to $2,000,000 based on availability of a borrowing base
equal to 45% of merchandise inventory. The line was collateralized by
Goldblatt's inventory and cash and cash equivalents. The line of credit
agreement required that Goldblatt's maintain an inventory level of at least
$5,500,000, a tangible net worth of $5,500,000 and imposed net loss
restrictions for fiscal year 1998 and 1999.
4
<PAGE>
Effective January 28, 1999, Goldblatt's entered into a new Loan and Security
Agreement with another financial institution, replacing the aforementioned
line of credit agreement. The new agreement provides a revolving line of
credit of up to $3,000,000 through January, 2001 based on availability of a
borrowing base equal to 50% of merchandise inventory, computed on a first-in,
first-out ("FIFO") basis. The line is collateralized by Goldblatt's inventory
and cash and cash equivalents. The line of credit agreement requires that
Goldblatt's maintain a FIFO inventory cost of at least $5,500,000.
Additionally, the Company is required to pay down the outstanding line of
credit with any available cash on a daily basis. The line is guaranteed by JG.
As of January 30, 1999, $2,995,000 is available on the line of credit.
Pursuant to a Stock Purchase Agreement dated December 13, 1996, the Company
purchased from Jupiter 445 shares of Series A Preferred Stock and 1,293,258
shares of the Company's Common Stock for an aggregate price of $5,510,864, of
which $2,500,108 was paid in cash, $1,264,858 was paid by offset against
liabilities of Jupiter to the Company and $1,745,898 was paid by delivery of a
promissory note. Effective May 15, 1998, the original $1,745,898 promissory
note was amended and restated ("Restated Note"). The Restated Note did not
bear interest and was payable in three annual installments of $581,966 each
commencing May 15, 1999, with the last installment due and payable on May 15,
2001. In addition, the accrued and unpaid interest of approximately $149,000
as of May 15, 1999 was forgiven. As a result of this transaction, the Company
has recognized an extraordinary gain on debt restructuring of approximately
$124,000, net of related expenses, during fiscal 1999. On January 29, 1999,
the Company and Jupiter entered into a Cancellation Agreement whereby the
aforementioned $1,745,898 Restated Noted was canceled in return for a lump-sum
payment of $500,000 as full settlement of the outstanding debt obligation.
Subsequent to year-end, the Company made the $500,000 lump-sum payment to
Jupiter. As a result of this transaction, the Company has recognized an
additional extraordinary gain on debt restructuring of approximately
$1,241,000, net of related expenses, during fiscal 1999.
The Company believes that Goldblatt's working capital and line of credit
will be adequate to fund current operations and service the Company's debt
through fiscal 2000.
Year 2000 Issue
The Year 2000 issue concerns the inability of information systems to
properly recognize and process date-sensitive information beyond January 1,
2000. Many of our systems and related software are Year 2000 compliant.
However, systems critical to our business which have been identified as non-
Year 2000 compliant are either being replaced or corrected through programming
modifications. The Company is utilizing both internal personnel and outside
vendors to identify the Year 2000 noncompliance problems, modify code as
necessary and test the modifications.
The Company has focused its efforts on maintaining the data integrity of the
existing financial reporting programs and the current store-level operating
systems. The Company utilizes an IBM AS400 mainframe system operating with JDA
software. The Company has already finished initial testing on the financial
reporting applications of the AS400 system. Based upon a thorough review of
the programming code by an outside vendor, the AS400 program will require
minor levels of modification to become Year 2000 compliant. An upgrade to the
AS400 system has been completed and financed through working capital with
minimal cost.
Testing of the store-level operating systems have focused on cash register
sales transactions and other backroom reporting processes. On-site testing was
recently completed. Some programming modifications and new equipment upgrades
are anticipated, but the amounts are not expected to be material and will be
financed through working capital.
The Company is monitoring the progress of its primary suppliers and vendors
regarding their Year 2000 compliance. In general, they have developed or are
in the process of developing plans to address the Year 2000 issues. The
Company is also reviewing its own non-information technology systems to
determine the extent of any changes that may be necessary, and believes that
there will be minimal changes necessary for compliance.
5
<PAGE>
The Company anticipates total spending of approximately $150,000 through
fiscal year 2000 on the Year 2000 issue. Maintenance or modification costs
will be expensed as incurred, while the replacement of certain systems will be
recorded as assets and amortized. The Company does not expect the costs
relating to Year 2000 remediation to have a material effect on its results of
operations or financial condition.
The Company's financial condition or liquidity could be adversely effected
by business disruption and operational problems if needed modifications to the
financial reporting programs and store-level operating systems are not made on
a timely basis. Although not anticipated, the worst-case scenario of failure
by the Company or its business partners to resolve the Year 2000 issue would
be a short-term slowdown in processing credit card transactions. Also, we
anticipate limited disruption in our purchasing function as our internal
purchasing procedures are manually intensive.
While we continue to focus on solutions for the Year 2000 issues, and expect
to be Year 2000 compliant in a timely manner, we are in the process of
developing a contingency plan. We expect to finalize the contingency plan by
September, 1999.
Results of Operations
Year Ended January 30, 1999 (fiscal 1999, 52 weeks)
vs. Year Ended January 31, 1998 (fiscal 1998, 53 weeks)
The net loss decreased by $1,611,000 from $2,569,000 in fiscal 1998 to
$958,000 in fiscal 1999. That improvement came despite a $400,000 store
closing provision for the store closed in November, 1998. During fiscal 1999,
the Company also recognized a $1,365,000 extraordinary gain from debt
restructuring. In addition, the loss from continuing operations decreased from
$2,569,000 in fiscal 1998 to $2,323,000 in fiscal 1999.
Net sales from continuing operations decreased from $53,483,000 to
$52,236,000. This decrease is attributable to both the store closing and
having one less operating week in fiscal 1999 vs. fiscal 1998. The closed
store represented a decrease in sales of approximately $1,155,000, while the
effect of the additional week accounted for a sales decrease of $729,000. As a
result, the Company experienced a $637,000 sales increase on a comparable
store, comparable week basis for fiscal 1999 as compared to fiscal 1998.
The Company's gross profit percentage increased to 32.6% of sales from 32.0%
of sales in the previous year. This improvement is attributable to more
opportunistic purchasing complemented by tightened controls on markdowns.
Due in large part to the expense reduction program implemented early in
fiscal 1999, the Company experienced significant cost savings this year. SG&A
expenses decreased by $603,000 from fiscal 1998. Overall expense control and,
in particular, reductions in maintenance and other outside service-related
expenses, supplies, utilities, general insurance, real estate taxes and
corporate overhead expenditures were at the core of the SG&A expense savings.
As a result, SG&A expenses have improved to 36.2% of sales in fiscal 1999 from
36.5% of sales in fiscal 1998.
Year Ended January 31, 1998 (fiscal 1998, 53 weeks)
vs. Year Ended January 25, 1997 (fiscal 1997, 52 weeks)
The comparison of fiscal years 1998 and 1997 is materially distorted due to
the sale of three stores in July, 1996 and the closing of a fourth store in
November, 1996. In addition, fiscal 1998 includes the results of operations
for 53 weeks as compared to 52 weeks in fiscal 1997.
Net sales from continuing operations decreased from $60,198,000 to
$53,483,000. The closed stores represented a decrease in sales of
approximately $8,850,000, which was partially offset by a comparable store
sales increase of approximately $2,135,000.
6
<PAGE>
While our aggressive promotional and merchandising programs resulted in
comparable store sales increases during fiscal 1998, losses from continuing
operations increased to $2,569,000 as compared to $2,101,000 in the previous
year. The Company's gross profit percentage decreased to 32.0% of sales from
32.7% in the previous year. SG&A increased from 36.3% in fiscal 1997 to 36.5%
in fiscal 1998.
There were three significant factors which negatively impacted our profit
performance during fiscal 1998.
a. The two federal minimum wage increases effective October 1, 1996 and
September 1, 1997 resulted in additional payroll expense of approximately
$400,000.
b. Insurance costs rose by approximately $360,000 driven primarily by
catastrophic illnesses of several of our employees.
c. Inventory shrinkage increased over the preceding year in excess of
$400,000.
Forward - Looking Statements
Except for historical information, the matters discussed or incorporated by
reference in this report are forward-looking statements that involve risks and
uncertainties that may affect the Company's actual results and cause results
to differ materially from such forward-looking statements. Such risks and
uncertainties include, but are not limited to, economic conditions,
seasonality of the Company's business, relationships with suppliers and
financial institutions, computer system enhancements to enable Year 2000
compliance, ability to attract and retain key personnel, competition,
regulation and other factors indicated from time to time in the Company's
filings with the Securities and Exchange Commission.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements are listed in Part IV, Item
14, of this Report and begin on page 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item will be set forth in the Proxy
Statement and such information is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item will be set forth in the Proxy
Statement and such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item will be set forth in the Proxy
Statement and such information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this Item will be set forth in the Proxy
Statement and such information is incorporated herein by reference.
7
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
(1)Consolidated Financial Statements:
Report of Independent Accountants............................... 9
Consolidated Balance Sheets, January 30, 1999 and January 31,
1998........................................................... 10
Consolidated Statements of Operations for the fiscal years ended
January 30, 1999, January 31, 1998 and January 25, 1997........ 11
Consolidated Statements of Common Stock and Other Shareholders'
Equity for the fiscal years ended January 30, 1999, January 31,
1998 and January 25, 1997...................................... 12
Consolidated Statements of Cash Flows for the fiscal years ended
January 30, 1999, January 31, 1998 and January 25, 1997........ 13
Notes to Consolidated Financial Statements...................... 14-21
</TABLE>
(2)The Index to Exhibits is on pages 23 through 24.
(b) Reports on Form 8-K.
Form 8-K dated October 7, 1998 was filed with the Securities and
Exchange Commission to report that the Company's Common Stock was
delisted from the NASDAQ Stock Market effective with the close of
business on October 7, 1998.
8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of JG Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, common stock and other shareholders'
equity, and cash flows present fairly, in all material respects, the financial
position of JG Industries, Inc. and Subsidiaries (the "Company") at January
30, 1999 and January 31, 1998, and the results of their operations and their
cash flows for each of the three years in the period ended January 30, 1999,
in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
April 2, 1999
9
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 30, 1999 and January 31, 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
January 30, January 31,
ASSETS 1999 1998
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 212 $ 630
Receivables, net..................................... 198 281
Merchandise inventories.............................. 5,724 6,242
Other assets--restricted $223 and $0, respectively... 256 304
-------- --------
Total current assets............................... 6,390 7,457
-------- --------
Land, buildings and equipment, at cost:
Land................................................. 478 478
Buildings............................................ 998 998
Leasehold improvements............................... 5,670 6,085
Furniture and fixtures............................... 6,604 7,346
-------- --------
13,750 14,907
Less accumulated depreciation and amortization......... 9,535 9,916
-------- --------
4,215 4,991
-------- --------
Leasehold rights, net.................................. 25 28
Other assets--restricted $1,299 and $1,538,
respectively.......................................... 1,504 1,737
-------- --------
$ 12,134 $ 14,213
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowings................................ $ 5
Current portion of long-term debt.................... 530 $ 28
Accounts payable..................................... 3,084 2,574
Accrued liabilities.................................. 2,210 2,319
Accrued dividends.................................... 7 7
-------- --------
Total current liabilities.......................... 5,836 4,928
-------- --------
Long-term debt, less current portion................... 745 2,518
Other long-term liabilities............................ 605 825
Minority interest...................................... 1,457 1,358
Commitments and contingencies..........................
Common stock and other shareholders' equity:
Common shares: no par value; authorized 10,000,000
shares; issued 2,405,770 shares..................... 11,246 11,246
Paid-in capital...................................... 5,939 5,939
Convertible preferred stock: no par value; authorized
and issued 1,500 shares............................. 1,500 1,500
Accumulated deficit.................................. (11,581) (10,488)
Treasury shares--1,345,100 shares at cost............ (3,613) (3,613)
-------- --------
Total common stock and other shareholders' equity.. 3,491 4,584
-------- --------
$ 12,134 $ 14,213
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the fiscal years ended January 30, 1999,
January 31, 1998 and January 25, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales from continuing operations............. $ 52,236 $ 53,483 $ 60,198
Cost of sales.................................... 35,187 36,371 40,526
-------- -------- --------
Gross profit..................................... 17,049 17,112 19,672
Selling, general and administrative expenses..... 18,932 19,535 21,867
-------- -------- --------
Operating loss from continuing operations........ (1,883) (2,423) (2,195)
-------- -------- --------
Other income (expenses):
Interest income................................ 105 114 313
Interest expense............................... (161) (151) (161)
Gain/(loss) on sale of assets and store
closings, net................................. (400) 44
Minority interest in net income of
subsidiaries.................................. (99) (96) (89)
-------- -------- --------
(555) (133) 107
-------- -------- --------
Loss from continuing operations before income tax
provision....................................... (2,438) (2,556) (2,088)
Income tax (benefit) provision................... (115) 13 13
-------- -------- --------
Loss from continuing operations.................. (2,323) (2,569) (2,101)
Discontinued operations:
Loss on sale of discontinued operations,
including income during phase-out period, less
applicable income taxes....................... (49)
-------- -------- --------
Loss before extraordinary gain................... (2,323) (2,569) (2,150)
-------- -------- --------
Extraordinary item:
Gain on debt restructuring, net of related
expenses...................................... 1,365
-------- -------- --------
Net loss......................................... $ (958) $ (2,569) $ (2,150)
======== ======== ========
Net loss available to common shareholders........ $ (1,093) $ (2,707) $ (2,577)
======== ======== ========
Per share data--basic and diluted:
Loss from continuing operations................ $ (2.32) $ (2.55) $ (1.15)
Loss from discontinued operations.............. (0.02)
Extraordinary gain............................. 1.29
-------- -------- --------
Net loss....................................... $ (1.03) $ (2.55) $ (1.17)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
for the fiscal years ended January 30, 1999,
January 31, 1998 and January 25, 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
Total Common
Stock and Other
Common Paid-in Preferred Accumulated Treasury Shareholders'
Shares Capital Stock Deficit Shares Equity
------- ------- --------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 27,
1996................... $11,246 $4,775 $ (5,204) $ (1,285) $9,532
Net loss, fiscal 1997... (2,150) (2,150)
Forgiveness of preferred
stock dividends by
Jupiter................ 1,164 1,164
Issuance of 1,500 shares
of Series B preferred
stock.................. $1,500 1,500
Purchase of 1,293,258
common shares.......... (2,328) (2,328)
Dividends accrued on
redeemable and
convertible preferred
stock.................. (427) (427)
------- ------ ------ -------- -------- ------
Balances, January 25,
1997................... 11,246 5,939 1,500 (7,781) (3,613) 7,291
Net loss, fiscal 1998... (2,569) (2,569)
Dividends accrued on
convertible preferred
stock.................. (138) (138)
------- ------ ------ -------- -------- ------
Balances, January 31,
1998................... 11,246 5,939 1,500 (10,488) (3,613) 4,584
Net loss, fiscal 1999... (958) (958)
Dividends accrued on
convertible preferred
stock.................. (135) (135)
------- ------ ------ -------- -------- ------
Balances, January 30,
1999................... $11,246 $5,939 $1,500 $(11,581) $ (3,613) $3,491
======= ====== ====== ======== ======== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the fiscal years ended January 30, 1999,
January 31, 1998 and January 25, 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------ -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $ (958) $ (2,569) $ (2,150)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 929 1,007 1,229
Minority interest in net income of
subsidiaries................................... 99 96 89
Net loss (gain) on sale of assets and store
closings....................................... 400 (44)
Extraordinary gain on debt restructuring........ (1,365)
Changes in assets and liabilities:
Accounts receivable............................. 83 9 17
Merchandise inventories......................... 442 63 (458)
Other assets (current).......................... 48 (80) 111
Other assets (noncurrent)....................... 233 (107) (130)
Accounts payable and accrued liabilities........ 406 388 (2,566)
Other liabilities (noncurrent).................. (220) (42) (61)
------ -------- --------
Net cash provided by (used in) operating
activities................................... 97 (1,235) (3,963)
Cash flows from investing activities:
Net proceeds from sale of assets and discontinued
operations....................................... 6 21 6,633
Capital expenditures.............................. (366) (502) (1,061)
Purchase of annuity contracts..................... (32)
------ -------- --------
Net cash (used in) provided by investing ac-
tivities..................................... (360) (513) 5,572
------ -------- --------
Cash flows from financing activities:
Borrowings under line of credit................... 4,155 2,275 8,950
Repayments under line of credit................... (4,150) (2,275) (9,150)
Proceeds from mortgage borrowing.................. 800
Principal payments of long-term debt.............. (25) (2,475)
Redemption of preferred stock from Jupiter........ (3,183)
Proceeds from Due from Jupiter.................... 1,265
Proceeds from issuance of convertible preferred
stock............................................ 1,500
Dividends paid on convertible preferred stock..... (135) (136) (12)
Purchase of treasury shares....................... (582)
------ -------- --------
Net cash (used in) provided by financing
activities................................... (155) 664 (3,687)
------ -------- --------
Net decrease in cash and cash equivalents........... (418) (1,084) (2,078)
Cash and cash equivalents at beginning of year...... 630 1,714 3,792
------ -------- --------
Cash and cash equivalents at end of year............ $ 212 $ 630 $ 1,714
====== ======== ========
Cash paid during the fiscal year for:
Interest.......................................... $ 126 $ 45 $ 147
Income taxes...................................... 13 17 407
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
A) Principles of Consolidation--The consolidated financial statements
include the accounts of JG Industries, Inc. (the "Company" or "JG") and
subsidiary companies that are majority owned or effectively controlled. The
Company's majority owned subsidiaries include Goldblatt's Department Stores,
Inc. ("Goldblatt's") (the Company's discount department store division) and
Sussex Group Holding Company. The Company is engaged in retail merchandising
operations in one continuing business segment consisting of nine discount
department stores primarily located in the Chicago, Illinois vicinity.
Significant intercompany accounts and transactions have been eliminated.
Prior to December 13, 1996, Jupiter Industries, Inc. ("Jupiter") was the
Company's largest shareholder. Jupiter held 1,293,258 shares of the Company's
Common Stock (approximately 55.2% of issued and outstanding Common Stock) and
all of the Company's issued and outstanding Series A Preferred Stock.
Accordingly, the consolidated financial statements of Jupiter included
operations of the Company. Subsequent to December 13, 1996, Jupiter does not
hold any shares of the Company's Common Stock.
B) Cash and Cash Equivalents--The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. As of January 30, 1999 and January 31, 1998, cash and cash
equivalents are concentrated with banks located in the Midwest region of the
United States.
C) Merchandise Inventories--Merchandise inventories are stated at the lower
of cost or market. Cost is determined on the last-in, first-out (LIFO) basis
for approximately 85% and 86% of the inventory using the retail method as of
January 30, 1999 and January 31, 1998, respectively. The remaining inventory
is valued on the first-in, first-out (FIFO) basis using the retail method. If
the FIFO method had been used to value all inventories, cost would have been
$479,000 and $497,000 higher at January 30, 1999 and January 31, 1998,
respectively. During fiscal 1999, 1998 and 1997, certain LIFO inventory levels
were reduced which increased net income by approximately $75,000, $16,000 and
$176,000, respectively, due to the matching of older historical inventory cost
with current sales dollars.
D) Land, Buildings and Equipment--Depreciation is computed using the
straight-line method over the following estimated useful lives of the assets:
buildings--25 to 30 years; leasehold improvements--up to 25 years, depending
on the applicable lease term; and furniture, fixtures and equipment--3 to 12-
1/2 years. Asset costs and related accumulated depreciation are eliminated
from the accounts when the asset is disposed of or at the end of its estimated
useful life. Expenditures for renewals and betterments are capitalized, while
costs of maintenance and repairs are charged to operations when incurred.
E) Leasehold Rights--Leasehold rights represent the value or cost of leases
acquired and improvements. Amortization of the rights is computed using the
straight-line method over the terms of the related leases. Leasehold rights
are shown net of accumulated amortization of $25,000 at January 30, 1999 and
$22,000 at January 31, 1998.
F) Store Pre-Opening Costs--Noncapital expenditures incurred prior to the
opening of a new store are charged to expense in the year the store is opened.
G) Per Share Data--During fiscal 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS
No. 128 requires the presentation of basic earnings per share and, for
companies with potential dilutive securities, such as stock options and
warrants, diluted earnings per share. SFAS No. 128 is effective for annual and
interim periods ending after December 15, 1997 and requires restatement of
earnings per share for prior periods.
14
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For fiscal 1999, 1998 and 1997, basic and diluted per share calculations are
computed based on the weighted average number of common shares outstanding
(after giving effect to the one-for-three reverse stock split in fiscal 1997)
of 1,060,670, 1,060,674 and 2,194,085, respectively. Incremental shares from
assumed conversions of preferred stock of 666,667 in fiscal 1999 and 1998 are
not included as they would be anti-dilutive. Options to purchase 162,167 and
171,167 shares of common stock were outstanding at January 30, 1999 and
January 31,1998, respectively, but were not included in the computation of
diluted earnings per share since the options' exercise prices were greater
than the average market price of the common shares, and they also would be
anti-dilutive.
Loss per share applicable to common shares for fiscal 1999, 1998 and 1997 is
computed after recognition of the dividend requirements of $135,000, $138,000
and $427,000, respectively, on the redeemable and convertible preferred stock.
H) Income Taxes--The Company files a consolidated federal income tax return
with subsidiaries in which its ownership interest is 80% or greater.
The Company provides for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 requires the use of the liability
method of accounting for taxes, under which deferred tax assets and
liabilities are recorded based on the differences between the financial
statement and tax bases of assets and liabilities and the tax rates in effect
when these differences are expected to reverse. The principal assets and
liabilities giving rise to such differences are the different methods of
accounting for inventory, depreciation and certain accrued liabilities for tax
and financial statement purposes and net operating loss carryforwards.
Deferred tax assets are reduced where appropriate by a valuation allowance
which reflects expectations of the extent to which such assets will be
realized.
I) Financial Instruments--The fair value of cash and cash equivalents is
assumed to approximate the carrying value of these assets due to the short
maturity of these instruments. The fair value of the Company's long-term debt
is estimated to approximate the carrying value based upon borrowing rates
currently available to the Company for borrowings with similar terms.
J) Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at January 30,
1999 and January 31, 1998 and the reported amounts of revenues and expenses
during the three years ended January 30, 1999. Actual results could differ
from those estimates.
2. Stock Transactions
On December 13, 1996, the Company, pursuant to the terms of a certain Stock
Purchase Agreement, by and among Jupiter and the Company, purchased from
Jupiter, (i) 1,293,258 shares of the Company's Common Stock, and (ii) 445
shares of the Company's Series A Preferred Stock, for an aggregate purchase
price of $5,510,864 of which $2,500,108 was paid in cash, $1,264,858 was paid
by offset against liabilities of Jupiter to the Company, and $1,745,898 was
paid by delivery of a promissory note.
On December 13, 1996, the Company also declared a one-for-three reverse
stock split. Accordingly, all references in this report to number of shares,
prices per share and per share amounts have been retroactively restated to
reflect the reduced number of common shares outstanding, unless otherwise
noted.
15
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Receivables
Receivables in the consolidated balance sheets are shown net of the
allowances for doubtful accounts and consist of the following at January 30,
1999 and January 31, 1998:
<TABLE>
<CAPTION>
1999 1998
----- -----
(in
thousands)
<S> <C> <C>
Accounts receivable--trade..................................... $ 16 $ 70
Accounts receivable--other..................................... 198 232
----- -----
214 302
Less allowance for doubtful accounts......................... 16 21
----- -----
$ 198 $ 281
===== =====
</TABLE>
An analysis of the allowance for doubtful accounts and the net provision
charged to operations for fiscal 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Allowance for doubtful accounts, beginning of year......... $21 $ 42 $42
Accounts receivable written off............................ (5) (21) --
--- ---- ---
Allowance for doubtful accounts, end of year............... $16 $ 21 $42
=== ==== ===
</TABLE>
4. Accrued Liabilities
Significant components of accrued liabilities consist of accrued real estate
taxes of $1,188,000 and $956,000, and accrued vacation of $274,000 and
$283,000 as of January 30, 1999 and January 31, 1998, respectively.
5. Notes Payable and Long-Term Debt
Long-term debt at January 30, 1999 and January 31, 1998 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Balance
---------------
Description 1/30/99 1/31/98 Interest Rate
----------- ------- ------- -------------
<S> <C> <C> <C>
JG:
Jupiter promissory note...................... $ 500 $1,746 6.0%*
Goldblatt's:
Mortgage loan................................ 775 800 8.5%
----- ------
1,275 2,546
Less current maturities....................... 530 28
----- ------
$ 745 $2,518
===== ======
</TABLE>
- --------
*On May 15, 1998, the original $1,746,000 Jupiter promissory note was amended
and restated to a non-interest bearing status, as of that date.
Long-term debt maturing within each of the five fiscal years subsequent to
January 30, 1999 is as follows (in thousands):
<TABLE>
<S> <C>
2000................................ $530
2001................................ 33
2002................................ 36
2003................................ 39
2004................................ 42
</TABLE>
16
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Jupiter promissory note was originally payable in three installments
commencing December 13, 1997. The Company did not make the first installment
payment of $581,966 due to pending debt restructuring negotiations. Effective
May 15, 1998, the original $1,745,898 promissory note obligation was amended
and restated. The amended and restated promissory note was non-interest
bearing unless an event of default occurred, as defined in the agreement, at
which time interest would be accrued at 9% per annum from the date of default.
The note was payable in three annual installments of $581,966 each commencing
May 15, 1999, with the last installment due and payable on May 15, 2001. As a
result of the amendment and restatement, the obligation was reported as a non-
current liability as of January 31, 1998. In addition, the accrued and unpaid
interest of approximately $149,000 as of May 15, 1999 was forgiven. As a
result of this transaction, the Company recognized an extraordinary gain on
debt restructuring of approximately $124,000, net of related expenses, during
fiscal 1999. On January 29, 1999, the Company and Jupiter entered into a
Cancellation Agreement whereby the amended and restated $1,745,898 promissory
obligation was canceled upon a lump-sum payment of $500,000 to Jupiter.
Subsequent to year-end, the Company made the $500,000 lump-sum payment to
Jupiter. As a result of this transaction, the Company recognized an additional
extraordinary gain on debt restructuring of approximately $1,241,000, net of
related expenses, during fiscal 1999.
Effective January 30, 1998, Goldblatt's entered into a mortgage loan
agreement for $800,000 with an 8.5% fixed rate of interest from a regional
financial institution. The mortgage is secured by a parcel of owned real
estate housing a Goldblatt's store, and is guaranteed by JG. The loan
agreement stipulates monthly principal and interest payments of $7,878 and a
final principal payment of approximately $547,000 due on January 31, 2005. The
loan agreement requires that no default exists under the line of credit
agreement.
During fiscal 1998, Goldblatt's executed a line of credit agreement, which
provided a line of credit of up to $2,000,000 through May 1, 1998 based on
availability of a borrowing base equal to 45% of merchandise inventory. The
line was collateralized by Goldblatt's inventory and cash and cash
equivalents. The line of credit agreement required that Goldblatt's maintain
an inventory level of at least $5,500,000, a tangible net worth of $5,500,000
and imposed net loss restrictions for fiscal years 1998 and 1999. Interest was
payable at the prime rate plus 1%. At January 31, 1998, Goldblatt's was in
violation of the net loss covenant. Subsequent to year-end, the financial
institution granted Goldblatt's a waiver of this covenant effective January
31, 1998 and, in addition, amended the line of credit maturity date to April
15, 1999. There were no outstanding borrowings on the line on January 31,
1998.
Effective January 28, 1999, Goldblatt's entered into a new Loan and Security
Agreement ("Loan Agreement") with another financial institution, replacing the
aforementioned line of credit agreement. The Loan Agreement provides a
revolving line of credit of up to $3,000,000 through January, 2001 based on
availability of a borrowing base equal to 50% of merchandise inventory
computed on a FIFO basis. The line is collateralized by Goldblatt's inventory
and cash and cash equivalents. The line of credit agreement requires that
Goldblatt's maintain a FIFO inventory cost of at least $5,500,000.
Additionally, the Company is required to pay down the outstanding line of
credit with any available cash on a daily basis. Interest is payable at the
prime rate plus 1%. The line is guaranteed by JG. There was $5,000 in
outstanding borrowings on the line as of January 30, 1999. At January 30,
1999, the Company had $2,995,000 available on the line of credit.
The weighted average interest rate on short-term borrowings for fiscal 1999,
1998 and 1997 was 9.28%, 9.50% and 6.44%, respectively.
17
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Preferred Stock
The Redeemable Preferred Stock consisting of 445 shares of Series "A" 9%
Cumulative Preferred Stock with a face and liquidation value of $3,183,000 was
acquired by the Company and canceled on December 13, 1996. In connection with
this acquisition, Jupiter also waived accrued dividends of $1,164,000. The
gain related to the waiver was recorded as an increase to paid-in capital.
On December 13, 1996, the Company, pursuant to the terms of a certain Series
B Convertible Preferred Purchase Agreement (the "Series B Preferred Stock
Purchase Agreement"), by and among certain officers and a director of the
Company (collectively, the "Purchasers") and the Company, issued and sold to
the Purchasers, through a private placement, 1,500 shares of Series B
Convertible Preferred Stock of the Company, no par value per share (the
"Series B Preferred Shares"), for an aggregate purchase price of $1,500,000.
Holders of Series B Preferred Shares are entitled to vote with the holders of
Common Stock on all matters submitted to a vote of the Company's shareholders
as a single class. Currently, each share of Series B Preferred Stock is
entitled to 444.44 votes. After giving effect to the purchase of the Jupiter
shares previously described, the Purchasers control approximately 47.9% of the
Company's voting rights.
Dividends on Series B Preferred Stock accrue daily at a rate equal to 9% per
annum. Dividends accumulate until paid, and are paid when and as declared by
the Board of Directors. At any time prior to the fifth anniversary of issuance
(automatic conversion), holders of Series B Preferred Stock may convert such
shares into a number of shares of the Company's Common Stock. The current
conversion price is $2.25 per share.
7. Income Taxes
The income tax provision before minority interest is comprised of current
state taxes of $13,000 for fiscal 1999, offset by a tax benefit related to the
reversal of previously recorded tax liability of $128,000. For fiscal 1998 and
1997, the income tax provision before minority interest is comprised of
current state taxes of $13,000.
At January 30, 1999, the Company has net operating loss carryforwards of
approximately $23,348,000 available to offset future taxable income for
federal income tax purposes. These carryforwards expire principally in fiscal
2000 through 2014. The amount of carryforwards which expired in fiscal 1999
was $414,551.
The components of the net deferred tax assets and liabilities as of January
30, 1999 and January 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Inventory............................................. $ 126 $ 163
Accruals and other liabilities........................ 236 271
Alternative Minimum Tax credit........................ 398 398
Net operating loss carryforwards...................... 9,106 8,639
------- -------
9,866 9,471
Valuation allowance................................... (9,085) (8,604)
------- -------
781 867
------- -------
Deferred tax liabilities:
Property, plant and equipment......................... 781 867
------- -------
781 867
------- -------
Net deferred tax liabilities........................ $ -- $ --
======= =======
</TABLE>
18
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Lease Commitments
The following table presents the future minimum lease commitments for all
operating leases that have initial or remaining noncancelable terms in excess
of one year. The leases expire in fiscal 2000 to 2008 and have various renewal
options.
<TABLE>
<CAPTION>
Fiscal Year Operating Leases
----------- ----------------
(in thousands)
<S> <C>
2000................................................. $ 1,840
2001................................................. 1,806
2002................................................. 1,725
2003................................................. 1,741
2004................................................. 1,390
Thereafter........................................... 2,217
-------
Total minimum lease payments....................... $10,719
=======
</TABLE>
Certain store leases contain contingent rental provisions based on retail
sales. Rent expense, net of insignificant sublease income, for fiscal years
1999, 1998 and 1997 was $1,894,000, $1,873,000 and $1,962,000, respectively,
including contingent rentals of $223,000, $228,000 and $209,000, respectively.
Straight-line rent obligations of $605,000 and $694,000 are included in other
long-term liabilities at January 30, 1999 and January 31, 1998, respectively.
9. Sale of Assets and Store Closings
During fiscal 1999, the Company closed one of its underperforming
Goldblatt's store locations in Chicago and recorded a store closing provision
of $400,000. During fiscal 1997, the Company sold three stores and recorded a
gain of $908,000. The gain was offset in part by a loss of $864,000 resulting
from a store closing that year. The furniture, fixtures and computer equipment
from the five closed stores (with net book values of approximately $331,000
and $382,000 as of January 30, 1999 and January 31, 1998, respectively) were
retained and placed into storage. During fiscal 1999 and 1998, furniture,
fixtures and computer equipment with a net book value of approximately $25,000
and $56,000, respectively, were transferred to existing Goldblatt's stores for
replacement needs. Goldblatt's expects to utilize a large portion of the
remaining furniture and fixtures in storage in fiscal 2000 for both major and
minor remodeling projects to be undertaken at its existing store locations.
10. Pension, Profit-Sharing and Employee Benefit Plans
The Company has a defined contribution plan which substantially all non-
union employees may join after completing one year and 1,000 hours of service.
Annually, the Company contributes a discretionary amount determined by the
Board of Directors and participants may voluntarily contribute varying
percentages of their compensation.
Approximately $120,000, $117,000 and $134,000 of expenses relating to these
plans are included in the consolidated statements of operations in fiscal
1999, 1998 and 1997, respectively. All plans are qualified under provisions of
the Internal Revenue Code.
19
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Stock Option Plan
Effective fiscal 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation". As provided by SFAS No. 123, the Company has
elected to continue to account for its stock-based compensation programs
according to the provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees".
The Company currently has stock options granted under two stock option
plans. Under the 1983 Stock Option and Stock Appreciation Rights Plan ("1983
Plan"), 100,000 shares are authorized and 7,833 shares are outstanding as of
January 30, 1999. Under the 1988 Stock Option Plan ("1988 Plan"), 306,667
shares are authorized and 154,334 shares are outstanding as of January 30,
1999. All options vest immediately once granted. All options are exercisable
for a 10-year period beginning on the date of the grant. The weighted-average
remaining contractual life of options outstanding at January 30, 1999 is
approximately 7 years.
Information for the fiscal years ended January 25, 1997, January 31, 1998
and January 30, 1999 with respect to options under the Company's 1983 and 1988
Plans is as follows:
<TABLE>
<CAPTION>
Weighted-Average
Number of Exercise Price Exercise Price
Shares Per Share Per Share
--------- -------------- ----------------
<S> <C> <C> <C>
Shares under Option:
January 27, 1996................. 49,500 $1.50 to $4.88 $2.75
Granted........................ 58,000 1.38 1.38
Expired/Canceled............... (18,333) 4.88 4.88
-------
January 25, 1997................. 89,167 1.38 to 1.50 1.42
Granted........................ 85,000 1.50 1.50
Expired/Canceled............... (3,000) 1.50 1.50
-------
January 31, 1998................. 171,167 1.38 to 1.50 1.46
Expired/Canceled............... (9,000) 1.50 1.50
-------
January 30, 1999................. 162,167 1.38 to 1.50 1.46
=======
</TABLE>
No compensation expense has been recognized by the Company as all options
were granted at the market price of the stock on the day of the grants. Had
compensation expense for the Company's stock based compensation plans been
determined based on the fair market value at the grant dates consistent with
the method of SFAS 123, the Company's pro forma net loss and net loss per
basic and diluted share would have been approximately $2,644,000 and $2.62,
and $2,200,000 and $1.20 for fiscal 1998 and 1997, respectively. No options
were granted during fiscal 1999.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for fiscal 1998 and 1997. Adjustments for forfeitures are made as
they occur.
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Risk free interest rate................................... 6.26% 6.16%
Expected dividend yield................................... 0.00% 0.00%
Expected volatility factor................................ 86.32 94.24
Expected option term (years).............................. 3 3
</TABLE>
The weighted-average fair value per option at the date of grant for options
granted in fiscal 1998 and 1997 was $.88 and $.86, respectively.
20
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Fourth Quarter Adjustments
Results of continuing operations in the fourth quarter of fiscal 1999, 1998
and 1997 were increased by year-end adjustments of approximately $44,000,
$66,000 and $170,000, respectively, which related primarily to adjustments to
inventory and certain miscellaneous accruals.
13. Supplementary Information
Charges to selling, general and administrative expenses for fiscal 1999,
1998 and 1997 include the following:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Advertising costs................................... $1,102 $1,091 $1,252
Real estate and personal property taxes............. 751 811 1,106
</TABLE>
Advertising costs are expensed when incurred.
14. Related Party Transactions
The Company purchased a certain annuity contract from a former affiliate to
secure consulting payments to the chief executive officer ("Executive"), as
required by the Employment Agreement and Consulting Agreement. Pursuant to the
Consulting Agreement, the Executive has agreed to provide certain services to
the Company for which he (or his estate) will be paid $223,000 per year for
ten years. The obligations of the Company, pursuant to the Consulting
Agreement, are secured by the annuity contract, pursuant to a Pledge and
Security Agreement dated as of January 25, 1991. The total account value of
the contract as of January 30, 1999 and January 31, 1998 is $1,522,000 and
$1,538,000, respectively, and is included in other assets and designated as
"restricted". During fiscal 1999, the Executive commenced providing consulting
services and, as a result, the Company entered into a settlement option for a
fixed payout schedule on the annuity contract. The current portion of the
annuity contract is $223,000 as of January 30, 1999.
The Company earned interest of $95,000, $86,000 and $118,000 on this annuity
contract during fiscal 1999, 1998 and 1997, respectively.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
JG Industries, Inc.
Dated: April 29, 1999 By: /s/ William Hellman
----------------------------------
William Hellman
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
</TABLE>
Signature Title Date
Chief Executive Officer:
/s/ William Hellman Chairman and Chief April 29, 1999
- ----------------------------------- Executive Officer
William Hellman
Directors:
/s/ Sheldon Collen Director April 29, 1999
- -----------------------------------
Sheldon Collen
/s/ Clarence Farrar Director, and Chief April 29, 1999
- ----------------------------------- Operating Officer
Clarence Farrar
/s/ Lionel Goldblatt Director April 29, 1999
- -----------------------------------
Lionel Goldblatt
/s/ Sheldon Harris Director April 29, 1999
- -----------------------------------
Sheldon Harris
/s/ William Hellman Director April 29, 1999
- -----------------------------------
William Hellman
/s/ Philip Rootberg Director April 29, 1999
- -----------------------------------
Philip Rootberg
/s/ Wallace W. Schroeder Director April 29, 1999
- -----------------------------------
Wallace W. Schroeder
22
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.1 Amended and Restated Employment Agreement dated, June 1, 1983, between
the Company and William Hellman. (Previously filed as Exhibit 10.1 to
the 1984 10-K and is incorporated herein by reference.)
10.2 First Amendment to Amended and Restated Employment Agreement, dated
August 8, 1985, between the Company and William Hellman. (Previously
filed as Exhibit 10.2 to the 1986 10-K and is incorporated herein by
reference.)
10.3 Guaranty of The Jupiter Corporation, dated as of June 1, 1983 relative
to the Amended and Restated Employment Agreement, dated as of June 1,
1983, by and between the Company and William Hellman. (Previously
filed as Exhibit 10.2 to the 1985 10-K and is incorporated herein by
reference.)
10.4 Second Amendment to Amended and Restated Employment Agreement,
including a Stock Purchase and Sale Agreement, dated July 23, 1986,
between the Company and William Hellman. (Previously filed as Exhibit
10.4 to the Company's July 26, 1986 10-Q and is incorporated herein by
reference.)
10.7 Incentive Stock Option and Non-Statutory Stock Option Agreement.
(Previously filed as Exhibit 4.2 to the Company's Registration
Statement on Form S-8, dated September 29, 1984, and is incorporated
herein by reference.)
10.8 1983 Stock Option and Stock Appreciation Rights Plan. (Previously
filed as Exhibit 10.4 to the 1984 10-K and is incorporated herein by
reference.)
10.9 1988 Stock Option Plan (Previously filed as Exhibit 10.9 to the 1989
10-K and is incorporated herein by reference.)
10.10 Third Amendment to Amended and Restated Employment Agreement, dated
October 3, 1988, between the Company and William Hellman.(Previously
filed as Exhibit 10.10 to the 1989 10-K and is incorporated herein by
reference.)
10.11 Fourth Amendment to Amended and Restated Employment Agreement, dated
March 28, 1989, between the Company and William Hellman. (Previously
filed as Exhibit 10.11 to the 1989 10-K and is incorporated herein by
reference.)
10.14 Fifth Amendment to Amended and Restated Employment Agreement, dated
January 25, 1991 between the Company and William Hellman. (Previously
filed as Exhibit 10.14 to the 1991 10-K and is incorporated herein by
reference.)
10.17 Sixth Amendment to Amended and Restated Employment Agreement, dated
April 27, 1992, between the Company and William Hellman. (Previously
filed as Exhibit 10.17 to the April 25, 1992 10-Q and is incorporated
herein by reference.)
10.19 Eighth Amendment to Amended and Restated Employment Agreement, dated
May 26, 1994, between the Company and William Hellman. (Previously
filed as Exhibit 10.19 to the April 30, 1994 10-Q and is incorporated
herein by reference.)
10.21 Ninth Amendment to Amended and Restated Employment Agreement, dated
June 12, 1995, between the Company, Goldblatt's Department Stores,
Inc. and William Hellman. (Previously filed as Exhibit 10.21 to the
July 28, 1995 Form 10-Q and is incorporated herein by reference.)
10.22 Stock Purchase Agreement, dated December 13, 1996, by and among
Jupiter Industries, Inc. and the Registrant. (Incorporated by
reference from the Registrant's definitive proxy statement filed with
the Securities and Exchange Commission on November 22, 1996.)
10.24 Thirteenth Amendment to Amended and Restated Employment Agreement,
dated February 1, 1997, between the Company, Goldblatt's Department
Stores, Inc. and William Hellman. (Previously filed as Exhibit 10.24
to the January 25, 1997 Form 10-K and is incorporated herein by
reference.)
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.25 Employment Agreement, dated February 1, 1997, between the Company and
Clarence Farrar. (Previously filed as Exhibit 10.25 to the January 25,
1997 Form 10-K and is incorporated herein by reference.)
10.26 Employment Agreement, dated February 1, 1997, between Goldblatt's
Department Stores, Inc. and Lionel Goldblatt. (Previously filed as
Exhibit 10.26 to the January 25, 1997 Form 10-K and is incorporated
herein by reference.)
10.27 Fourteenth Amendment to Amended and Restated Employment Agreement,
dated August 31, 1997, between the Company, Goldblatt's Department
Stores, Inc. and William Hellman. (Previously filed as Exhibit 10.27
to the January 31, 1998 Form 10-K and is incorporated herein by
reference.)
10.28 Fifteenth Amendment to Amended and Restated Employment Agreement,
dated November 12, 1998, between the Company, Goldblatt's Department
Stores, Inc. and William Hellman.
21 List of Subsidiaries.
27 Financial Data Schedule.
</TABLE>
24
<PAGE>
Annex C
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 1999
--------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission File number 1-258
-------------------------------------------------
JG INDUSTRIES, INC.
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1141010
- ----------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5630 WEST BELMONT AVENUE CHICAGO, IL 60634
- ------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(773) 481-5410
- ------------------------------------------------------------------------
(Registrant's telephone number, including area code)
________________________________________________________________________
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
Yes X No__
---
Common Stock outstanding as of October 30, 1999 - 1,061,654 shares
- ------------------------------------------------------------------
1
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
Company or group of companies for which report is filed:
JG INDUSTRIES, INC. AND SUBSIDIARIES (Company)
----------------------------------------------
In the opinion of management, all adjustments necessary to fairly present the
condensed consolidated financial position of the Company as of October 30, 1999,
January 30, 1999, and October 31, 1998 and the results of its operations and its
cash flows for the thirteen and thirty-nine week periods ended October 30, 1999
(fiscal 2000) and October 31, 1998 (fiscal 1999) have been included. These
adjustments consist solely of normal recurring accruals. The results of
operations for such interim periods are not necessarily indicative of results
for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, although the Company believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto in the
Company's latest Annual Report on Form 10-K.
2
<PAGE>
JG INDUSTRIES, INC AND SUBSIDIARIES
-----------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
October 30 January 30, October 31
1999 1999 1998
----------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7 $ 212 $ 213
Receivables, net 538 198 697
Merchandise inventories 9,486 5,724 9,221
Other current assets - restricted $223,
$223 and $0, respectively 343 256 110
--------- --------- ---------
Total current assets 10,374 6,390 10,241
--------- --------- ---------
Land, buildings and
equipment, at cost 13,263 13,750 14,538
Less accumulated depreciation
and amortization 9,397 9,535 10,115
--------- --------- ---------
3,866 4,215 4,423
--------- --------- ---------
Leasehold rights, net 22 25 26
Other assets - restricted $1,214,
$1,299 and $1,549, respectively 1,421 1,504 1,739
--------- --------- ---------
$ 15,683 $ 12,134 $ 16,429
========= ========= =========
LIABILITIES, COMMON STOCK AND
OTHER SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 2,366 $ 5 $ 1,600
Current portion of long-term debt
and capitalized lease obligations 42 530 611
Accounts payable 6,831 3,084 5,323
Accrued liabilities 1,720 2,210 2,176
Accrued dividends 7 7 7
--------- --------- ---------
Total current liabilities 10,966 5,836 9,717
--------- --------- ---------
Long-term debt and capitalized lease
obligations, less current portion 732 745 1,914
Other long-term liabilities 539 605 693
Minority interest 1,523 1,457 1,432
Common stock and other shareholders' equity
Common shares; no par value; authorized
10,000,000 shares; issued 2,406,770,
2,405,770 and 2,405,770 shares, respectively 11,246 11,246 11,246
Paid-in Capital 5,939 5,939 5,939
Convertible preferred stock; no par
value; authorized and issued 1,500 shares 1,500 1,500 1,500
Accumulated deficit (13,149) (11,581) (12,399)
Treasury shares - 1,345,116, 1,345,100 and
1,345,100 shares at cost, respectively (3,613) (3,613) (3,613)
--------- --------- ---------
1,923 3,491 2,673
--------- --------- ---------
$ 15,683 $ 12,134 $ 16,429
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED OCTOBER 30, 1999 AND
OCTOBER 31, 1998
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
---------------------------- -----------------------------
October 30 October 31 October 30 October 31
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 12,402 $ 13,725 $ 36,042 $ 38,145
Cost of sales 7,985 8,919 23,731 25,372
---------- ---------- ---------- ----------
Gross profit 4,417 4,806 12,311 12,773
Selling, general and
administrative expenses 4,431 4,828 13,354 14,172
---------- ---------- ---------- ----------
Operating loss from continuing operations (14) (22) (1,043) (1,399)
Interest (expense) income, net (47) 25 (110) (52)
Gain on sale of assets 3
Provision for store closing (222) (380) (222) (380)
Minority interest in net income
of subsidiary (23) (27) (66) (74)
---------- ---------- ---------- ----------
Loss from operations before
income tax provision (306) (404) (1,438) (1,905)
Income tax provision (10) (9) (29) (29)
---------- ---------- ---------- ----------
Loss before extraordinary gain (316) (413) (1,467) (1,934)
Extraordinary item:
Gain on debt restructuring,
net of related expenses 124
---------- ---------- ---------- ----------
Net loss $ (316) $ (413) $ (1,467) $ (1,810)
========== ========== ========== ==========
Net loss applicable to common
shareholders $ (350) $ (447) $ (1,568) $ (1,911)
========== ========== ========== ==========
Basic and diluted earnings
per common share:
Loss before extraordinary gain $ (0.33) $ (0.42) $ (1.48) $ (1.92)
Extraordinary gain 0.12
---------- ---------- ---------- ----------
Net loss per common share $ (0.33) $ (0.42) $ (1.48) $ (1.80)
========== ========== ========== ==========
Weighted average number of common
shares outstanding 1,061,221 1,060,670 1,060,853 1,060,670
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
for the fiscal year ended January 30, 1999
and the thirty-nine week period ended October 30, 1999
(in thousands)
(unaudited)
------------------------------
<TABLE>
<CAPTION>
Total Common
Stock and Other
Common Paid-In Preferred Accumulated Treasury Shareholders'
Shares Capital Stock Deficit Shares Equity
--------- ----------- ------------ ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 31, 1998 $11,246 $ 5,939 $ 1,500 $ (10,488) $ (3,613) $ 4,584
Net loss, fiscal 1999 (958) (958)
Dividends accrued on
convertible preferred stock (135) (135)
-------- --------- --------- ----------- ---------- ----------
Balances, January 30, 1999 11,246 5,939 1,500 (11,581) (3,613) 3,491
Net loss, thirty-nine week
period ended October 30, 1999 (1,467) (1,467)
Dividends accrued on
convertible preferred stock (101) (101)
-------- --------- --------- ----------- ---------- ----------
Balances, October 30, 1999 $11,246 $ 5,939 $ 1,500 $ (13,149) $ (3,613) $ 1,923
======== ========= ========= =========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
5
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE THIRTY-NINE WEEK PERIODS ENDED OCTOBER 30, 1999 AND OCTOBER 31, 1998
----------------------------------------------------------------------------
(in thousands)
--------------
(unaudited)
-----------
<TABLE>
<CAPTION>
39 Weeks Ended
---------------------------
October 30 October 31
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,467) $ (1,810)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 623 703
Minority interest 66 74
Gain on sale of assets, net (3)
Provision for store closing 222 380
Changes in assets and liabilities:
Accounts receivable (340) (416)
Merchandise inventories (3,860) (3,054)
Other assets (current) (87) 194
Other assets (noncurrent) 82 (3)
Accounts payable and accrued liabilities 3,196 2,512
Other liabilities (noncurrent) (66) (132)
---------- ----------
Net cash used in operating activities (1,634) (1,552)
---------- ----------
Cash flows from investing activities:
Capital expenditures (302) (343)
Proceeds from sale of assets 3
---------- ----------
Net cash used in investing activities (299) (343)
---------- ----------
Cash flows from financing activities:
Net borrowings under line of credit 2,361 1,600
Redemption of promissory note to Jupiter (500)
Principal payments of long-term debt
and capital lease obligations (32) (21)
Dividends paid on convertible preferred stock (101) (101)
---------- ----------
Net cash provided by financing activities 1,728 1,478
---------- ----------
Net decrease in cash and cash equivalents (205) (417)
Cash and cash equivalents at beginning of year 212 630
---------- ----------
Cash and cash equivalents at end of thirty-nine week period $ 7 $ 213
========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
1) Merchandise inventories are stated at the lower of cost or market. Cost is
determined on the last-in, first-out ("LIFO") basis for approximately 88%,
85% and 88% of the inventory as of October 30, 1999, January 30, 1999 and
October 31, 1998, respectively, using the retail method. The remaining
inventory is valued on the first-in, first-out ("FIFO") basis using the
retail method. If the FIFO method had been used to value all inventories,
cost would have been $524,000, $479,000 and $542,000 higher at October 30,
1999, January 30, 1999 and October 31, 1998, respectively.
2) Receivables are presented net of allowances for doubtful accounts of
approximately $16,000 at October 30, 1999 and January 30, 1999, and $17,000
at October 31, 1998.
3) Leasehold rights are shown net of accumulated amortization of $28,000 at
October 30, 1999, $25,000 at January 30, 1999 and $24,000 at October 31,
1998.
4) The Company entered into a capital lease for computer equipment during
fiscal year 2000. Future minimum lease payments at October 30, 1999 for the
following fiscal years are as follows:
Fiscal Year Amount
----------- ------
2000 $ 2,969
2001 11,874
2002 11,877
--------
Total minimum lease payments 26,720
Less amount representing interest 2,547
--------
24,173
Less current portion of capital lease
obligation 10,159
--------
Long-term capital lease obligations $ 14,014
--------
The accumulated depreciation on the capital lease was approximately $3,000
as of October 30, 1999.
5) On January 29, 1999, the Company and Jupiter Industries, Inc. ("Jupiter")
entered into a Cancellation Agreement whereby the $1,745,898 amended and
restated promissory note was canceled in return for a lump-sum payment of
$500,000 as full settlement of the outstanding debt obligation. During the
first quarter of fiscal 2000, the Company made the $500,000 lump-sum
payment to Jupiter. As a result of the negotiated settlement, the $500,000
obligation was reported as a current liability as of January 30, 1999.
7
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
-----------
6) Effective January 28, 1999, Goldblatt's entered into a new Loan and
Security Agreement with a national financial institution. The new agreement
provides a revolving line of credit of up to $3,000,000 through January,
2001 based on availability of a borrowing base equal to 50% of merchandise
inventory, computed on a FIFO basis. The line is collateralized by
Goldblatt's inventory and cash and cash equivalents. The line of credit
agreement requires that Goldblatt's maintain a FIFO inventory cost of at
least $5,500,000. Additionally, the Company is required to pay down the
outstanding line of credit with any available cash on a daily basis. The
line is guaranteed by the Company. As of October 30, 1999, there was
approximately $2,366,000 in outstanding borrowings on the line and, as of
that date, approximately $634,000 was available on the line of credit.
7) On July 13, 1999, the Company's shareholders approved the authorization for
issuance of 2,000 shares of Series C Preferred Stock, no par value per
share (the "Series C Preferred Stock"). The Liquidation Value of the Series
C Preferred Stock is initially set at $1,000 per share. Dividends upon each
Series C Preferred Share will accrue daily at a rate equal to 9% per annum.
Dividends will accumulate until paid, and will be paid when and as declared
by the Board of Directors.
The holders of Series C Preferred Stock will not be entitled to vote on any
matters submitted to the vote of the Company's shareholders. Shares of the
Company's Common Stock are subordinated to the Series C Preferred Stock.
The Series C Preferred Stock will rank equally with the Series B
Convertible Preferred Stock, no par value per share, with respect to
priority of payment of dividends and Liquidation Value.
As of October 30, 1999, no shares of the Series C Preferred Stock had been
issued.
8) On August 24, 1999, the Company canceled substantially all of the
outstanding stock options previously granted under prior stock option
plans, and then granted a comparable number of new stock options under the
1999 Amendment and Restatement of the 1988 Stock Option Plan. No
compensation expense was recognized at the date of grant by the Company as
all options were granted at the market price of the stock on the date of
the grant. However, these options will be subject to a variable plan
treatment once the FASB Interpretation of Opinion 25, "Accounting for
Certain Transactions Involving Stock Compensation" becomes effective. Under
this proposed interpretation, the Company will measure compensation expense
at each reporting date. The effects of applying this proposed
interpretation would be recognized on a prospective basis from the
effective date, and currently cannot be estimated.
8
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
9) On November 1, 1999, the Company closed one of its underperforming
Goldblatt's store locations in the Chicagoland area. All store merchandise
was purchased by a professional liquidator, who has been contracted to
liquidate the merchandise over a ten-week time frame in the present
location. As a result of this store closing, the Company has recorded store
closing costs of approximately $222,000, which are comprised of a write-
down of merchandise of approximately $98,000, a write-off of the furniture
and fixtures of approximately $62,000 and a store closing provision of
approximately $62,000. The store closing provision includes fixed operating
expenses for rent and insurance costs during the liquidation time period.
The lease for this store expires on January 31, 2000 and the store location
will be vacated by this time; thus, there will be no additional financial
obligations to the landlord beyond the current fiscal year-end.
10) For the third quarters of fiscal 2000 and 1999, basic and diluted per share
calculations are computed based on the weighted average number of common
shares outstanding of 1,061,221 and 1,060,670, respectively. For the first
39-week periods of fiscal 2000 and 1999, basic and diluted per share
calculations are computed based on the weighted average number of common
shares outstanding of 1,060,853 and 1,060,670, respectively. Incremental
shares from assumed conversions of preferred stock and stock options of
700,253 and 666,667 in the third quarters of fiscal 2000 and 1999,
respectively, and 677,862 and 666,667 for the first 39-week periods of
fiscal 2000 and 1999, respectively, are not included as they would be anti-
dilutive. Options to purchase 6,167 and 162,167 shares of common stock were
outstanding at October 30, 1999 and October 31, 1998, respectively, but
were not included in the computation of diluted earnings per share since
the options' exercise prices were greater than the average market price of
the common shares, and they would also be anti-dilutive.
Loss per share applicable to common shares is computed after recognition of
the dividend requirements on the convertible preferred stock of $101,000 in
fiscal 2000 and in fiscal 1999.
9
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash and cash equivalents decreased by $205,000 during the nine months ended
October 30, 1999, which included approximately $1,634,000 of net cash used in
operating activities. Accounts receivable increased by $340,000 due primarily to
a normal seasonal increase in layaway receivables during the fall shopping
season. In addition, merchandise inventory levels increased by approximately
$3,860,000 as the Company stocked up for the very busy holiday shopping season.
Accordingly, Goldblatt's trade accounts payable increased by $3,759,000 to
coincide with the increased inventory levels.
Goldblatt's spent approximately $302,000 on capital expenditures during the
first nine months of fiscal 2000. These expenditures were for normal capital
maintenance as well as certain upgrades to existing equipment related to Year
2000 compliance. Capital expenditures for the remainder of fiscal 2000 will
focus on a minimal amount of leasehold improvement renovations and additional
computer equipment pertaining to Year 2000 compliance.
Effective January 28, 1999, Goldblatt's executed a new Loan and Security
Agreement with a national financial institution. The new agreement provides a
revolving line of credit of up to $3,000,000 through January, 2001 based on
availability of a borrowing base equal to 50% of merchandise inventory, computed
on a FIFO basis. The line is collateralized by Goldblatt's inventory and cash
and cash equivalents. The line of credit agreement requires that Goldblatt's
maintain a FIFO inventory cost of at least $5,500,000. Additionally, the Company
is required to pay down the outstanding line of credit with any available cash
on a daily basis. The line is guaranteed by the Company. As of October 30, 1999,
there was approximately $2,366,000 in outstanding borrowings on the line and, as
of that date, $634,000 was available on the line of credit.
On January 29, 1999, the Company and Jupiter entered into a Cancellation
Agreement whereby the $1,745,898 amended and restated promissory note was
canceled in return for a lump-sum payment of $500,000 as full settlement of the
outstanding debt obligation. During the first quarter of fiscal 2000, the
Company made the $500,000 lump-sum payment to Jupiter.
On November 1, 1999, the Company closed one of its underperforming Goldblatt's
store locations in the Chicagoland area. All store merchandise was purchased by
a professional liquidator, who has been contracted to liquidate the remaining
inventory over a ten-week time frame in the present location. As a result of
this store closing, the Company has recorded store closing costs of
approximately $222,000. This includes a write-down of merchandise of
approximately $98,000, a write-off of the furniture and fixtures of
approximately $62,000 and fixed operating expenses of approximately $62,000. As
a result of this store closing, the Company anticipates generating cash proceeds
of approximately $503,000 from the sale of the inventory. Net cash proceeds of
approximately $441,000 are expected after consideration of the $62,000 in fixed
operating expenses. The lease for this store expires on January 31, 2000 and the
store location will be vacated by this time; thus, there will be no additional
financial obligations to the landlord beyond the current fiscal year-end.
The Company believes that Goldblatt's working capital and line of credit, in
addition to the cash infusion generated from the sale of the closed store's
inventory, will be adequate to fund current operations and service the Company's
debt through fiscal 2000.
10
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
YEAR 2000 ISSUE
---------------
The Year 2000 issue concerns the inability of information systems to properly
recognize and process date-sensitive information beyond January 1, 2000. Many of
our systems and related software are Year 2000 compliant. However, systems
critical to our business which have been identified as non-Year 2000 compliant
are either being replaced or corrected through programming modifications. The
Company is utilizing both internal personnel and outside vendors to identify the
Year 2000 noncompliance problems, modify code as necessary and test the
modifications.
The Company has focused its efforts on maintaining the data integrity of the
existing financial reporting programs and the current store-level operating
systems. The Company utilizes an IBM AS400 mainframe system operating with JDA
software. The Company has already finished testing on the financial reporting
applications of the AS400 system. Based upon a thorough review of the
programming code by an outside vendor, the AS400 program is undergoing minor
levels of modification to become Year 2000 compliant. An upgrade to the AS400
system has been completed and financed through working capital with minimal
cost.
Testing of the store-level operating and cash register systems has been
completed. It was determined that no Year 2000 compliance issues threaten the
stores' ability to process transactions. Credit card authorization software
upgrades have been performed by our credit card processing company. Although we
are confident about our ability to operate on January 1, 2000, we have developed
a set of contingency procedures to utilize in the event that forces outside our
control impact our normal operations. Some programming modifications and new
equipment upgrades have been completed and financed through working capital with
minimal cost.
The Company is monitoring the progress of its primary suppliers and vendors
regarding their Year 2000 compliance. In general, they have developed plans to
address the Year 2000 issues. The Company is also reviewing its own non-
information technology systems to determine the extent of any changes that may
be necessary, and believes that there will be minimal changes necessary for
compliance.
The Company anticipates total spending of approximately $150,000 through fiscal
year 2000 on the Year 2000 issue. The Company has already spent approximately
$100,000 through October 30, 1999. Maintenance or modification costs are being
expensed as incurred, while the replacement of certain systems are being
capitalized. The Company does not expect the costs relating to Year 2000
remediation to have a material effect on its results of operations or financial
condition.
The Company's financial condition or liquidity could be adversely effected by
business disruption and operational problems if needed modifications to the
financial reporting programs and store-level operating systems are not completed
on a timely basis. Although not anticipated, the worst-case scenario of failure
by the Company or its business partners to resolve the Year 2000 issue would be
a short-term slowdown in processing credit card transactions. Also, we
anticipate limited disruption in our purchasing function as our internal
purchasing procedures are manually intensive.
11
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
YEAR 2000 ISSUE - CONTINUED
---------------------------
While we continue to focus on solutions for the Year 2000 issues, and expect to
be Year 2000 compliant in a timely manner, we have developed a contingency plan.
As a contingency to ensure uninterrupted processing of accounts payable and
financial reporting applications, the Company has retained the older AS400
mainframe system to operate in tandem during the first fiscal period of
operation in the new calendar year.
RESULTS OF OPERATIONS
---------------------
Thirteen Weeks Ended October 30, 1999 (fiscal 2000) vs.
- -------------------------------------------------------
Thirteen Weeks Ended October 31, 1998 (fiscal 1999)
- ---------------------------------------------------
The loss from operations before extraordinary gain decreased by approximately
$97,000 as compared to the third quarter of fiscal 1999.
Net sales for the quarter were $12,402,000 as compared to last year's comparable
store sales of $12,743,000. Unseasonably mild weather experienced at the onset
of the fall put a temporary setback on the sales of fall and winter clothing
during the early fall shopping season. Since then, sales have rebounded well and
for the month of November, the Company's sales increased by approximately 3.2%
over last year on a comparable store basis.
Despite the reduced sales volume, the Company's gross profit percentage improved
to 35.6% of sales from 35.0% of sales in the third quarter of fiscal 1999. This
improvement is attributable to more opportunistic purchasing complemented by
tighter controls on markdowns.
Selling, general and administrative ("SG&A") expenses decreased by $397,000 for
the quarter as compared to the previous year. Savings in store-level operating
expenses were attained this quarter in part from operating one less store
location versus last year. Reductions in outside service-related expenses,
health insurance and corporate overhead expenditures were also experienced this
quarter as compared to the third quarter of fiscal 1999. SG&A expenses were
35.7% of sales versus 35.2% of sales during the same period last year.
On November 1, 1999, the Company closed one of its underperforming Goldblatt's
store locations in the Chicagoland area. All store merchandise was purchased by
a professional liquidator, who has been contracted to liquidate the merchandise
over a ten-week time frame in the present location. As a result of this store
closing, the Company has recorded store closing costs of approximately $222,000,
which are comprised of a write-down of merchandise of approximately $98,000, a
write-off of the furniture and fixtures of approximately $62,000 and a store
closing provision of approximately $62,000. The store closing provision includes
fixed operating expenses for rent and insurance costs during the liquidation
time period. The lease for this store expires on January 31, 2000 and the store
location will be vacated by this time; thus, there will be no additional
financial obligations to the landlord beyond the current fiscal year-end.
12
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
---------------------
Thirty-nine Weeks Ended October 30, 1999 (fiscal 2000) vs.
- ----------------------------------------------------------
Thirty-nine Weeks Ended October 31, 1998 (fiscal 1999)
- ------------------------------------------------------
The net loss for the first 39 weeks of fiscal 2000 decreased approximately
$343,000 as compared to the first 39 weeks of fiscal 1999. Last year's net loss
is inclusive of a $124,000 extraordinary gain on debt restructuring.
Consequently, the Company's loss from operations before extraordinary gain has
improved by $467,000 so far this year as compared to the first 39 weeks of last
year.
Net sales for the nine month period were $36,042,000 versus comparable store
sales of $35,287,000 for the same period last year. Additional promotional
efforts made during the Easter selling season spurred a positive sales trend
attained during the spring season. Unseasonably mild weather experienced during
the early fall season slightly tempered the sales increase, but through nine
months, year-to-date comparable store sales have increased by 2.1% over the
previous year.
The Company's gross profit percentage increased to 34.2% of sales from 33.5% of
sales for the same period last year. This improvement is attributable to more
opportunistic purchasing along with less markdowns and a reduced level of
inventory shrinkage.
SG&A expenses decreased by $818,000 for the nine month period as compared to
fiscal 1999. Savings in store-level operating expenses were achieved this year
from operating one less store location versus last year. Reductions in supplies,
utilities, outside service-related expenses, corporate overhead expenditures
and, particularly, health insurance have also been experienced so far this year.
As a result, SG&A expenses have improved to 37.1% of sales versus 37.2% of sales
for the comparable nine month period last year.
On November 1, 1999, the Company closed one of its underperforming Goldblatt's
store locations in the Chicagoland area. All store merchandise was purchased by
a professional liquidator, who has been contracted to liquidate the merchandise
over a ten-week time frame in the present location. As a result of this store
closing, the Company has recorded store closing costs of approximately $222,000,
which are comprised of a write-down of merchandise of approximately $98,000, a
write-off of the furniture and fixtures of approximately $62,000 and a store
closing provision of approximately $62,000. The store closing provision includes
fixed operating expenses for rent and insurance costs during the liquidation
time period. The lease for this store expires on January 31, 2000 and the store
location will be vacated by this time; thus, there will be no additional
financial obligations to the landlord beyond the current fiscal year-end.
13
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORWARD - LOOKING STATEMENTS
----------------------------
Except for historical information, the matters discussed or incorporated by
reference in this report are forward-looking statements that involve risks and
uncertainties that may affect the Company's actual results and cause results to
differ materially from such forward-looking statements. Such risks and
uncertainties include, but are not limited to, economic conditions, seasonality
of the Company's business, relationships with suppliers and financial
institutions, computer system enhancements to enable Year 2000 compliance,
ability to attract and retain key personnel, competition, regulation and other
factors indicated from time to time in the Company's filings with the Securities
and Exchange Commission.
PART II - OTHER INFORMATION
- ---------------------------
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the under-
signed thereunto fully authorized.
JG INDUSTRIES, INC.
-------------------
(Registrant)
Date: December 14, 1999 /s/ Clarence Farrar
----------------- -------------------
CLARENCE FARRAR
President
/s/ Clifford Gutmann
--------------------
CLIFFORD GUTMANN
Chief Financial Officer
14
<PAGE>
Annex D
(S) 805 ILCS 5/11.70. Procedure to Dissent
Sec. 11. 70. Procedure to Dissent. (a) If the corporate action giving
rise to the right to dissent is to be approved at a meeting of shareholders, the
notice of meeting shall inform the shareholders of their right to dissent and
the procedure to dissent. If, prior to the meeting, the corporation furnishes
to the shareholders material information with respect to the transaction that
will objectively enable a shareholder to vote on the transaction and to
determine whether or not to exercise dissenters' rights, a shareholder may
assert dissenters' rights only if the shareholder delivers to the corporation
before the vote is taken a written demand for payment for his or her shares if
the proposed action is consummated, and the shareholder does not vote in favor
of the proposed action.
(b) If the corporate action giving rise to the right to dissent is not to
be approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 [805 ILCS 5/11.30 or 805
ILCS 5/7. 10] shall inform the shareholders of their right to dissent and the
procedure to dissent. If, prior to or concurrently with the notice, the
corporation furnishes to the shareholders material information with respect to
the transaction that will objectively enable a shareholder to determine whether
or not to exercise dissenters' rights, a shareholder may assert dissenter's
rights only if he or she delivers to the corporation within 30 days from the
date of mailing the notice a written demand for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as of
the end of a fiscal year ending not earlier than 16 months before the delivery
of the statement, together with the statement of income for that year and the
latest available interim financial statements, and either a commitment to pay
for the shares of the dissenting shareholder at the estimated fair value thereof
upon transmittal to the corporation of the certificate or certificates, or other
evidence of ownership, with respect to the shares, or instructions to the
dissenting shareholder to sell his or her shares within 10 days after delivery
of the corporation's statement to the shareholder. The corporation may instruct
the shareholder to sell only if there is a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within that 10
day period after being so instructed by the corporation, for purposes of this
Section the shareholder shall be deemed to have sold his or her shares at the
average closing price of the shares, if listed on a national exchange, or the
average of the bid and asked price with respect to the shares quoted by a
principal market maker, if not listed on a national exchange, during that 10 day
period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled or
modified by the consummation of the proposed corporate action. Upon
consummation of that action, the corporation shall pay to each dissenter who
transmits to the corporation the certificate or other evidence of ownership of
the shares the amount the corporation estimates to be the fair value of the
shares, plus accrued interest, accompanied by a written explanation of how the
interest was calculated.
<PAGE>
(e) If the shareholder does not agree with the opinion of the corporation
as to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and amount of interest due and demand payment for the difference
between the shareholder's estimate of fair value and interest due and the amount
of the payment by the corporation or the proceeds of sale by the shareholder,
whichever is applicable because of the procedure for which the corporation opted
pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay the
difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an action against
their shares and all parties shall be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law. Failure of the corporation to commence an action pursuant to
this Section shall not limit or affect the right of the dissenting shareholders
to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced
under subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power described
in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under subsection (g),
but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court, then
all or any part of the costs may be assessed against that dissenter. The court
may also assess the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
<PAGE>
(2) Against either the corporation or a dissenter and in favor of any other
party if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to that counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who are benefited. Except as otherwise provided in this Section,
the practice, procedure, judgment and costs shall be governed by the Code of
Civil Procedure [735 ILCS 5/1-101 et seq.].
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the consummation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action, unless exclusion would be inequitable.
(2) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(Source: P.A. 86-1156.)
