UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-2 [^]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
Commission File
Number 0-28410
LOEHMANN'S, INC.
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(Exact name of registration as specified in its charter)
Delaware 22-2341356
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Halsey Street, Bronx, New York 10461
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(Address of principal offices) (Zip Code)
Registrant's telephone number, including Area Code: (718) 409-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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, 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 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 voting stock held by nonaffiliates of
registrant as of April 28, 1998 was $34,245,074.
The Company had 8,976,932 shares of Common Stock and 48,431 shares of
Class B Common Stock outstanding as of April 28, 1998.
EXPLANATORY NOTE
THIS AMENDMENT IS BEING FILED TO AMEND AND RESTATE THE REGISTRANT'S ANNUAL
REPORT ON FORM 10-K IN ITS ENTIRETY.
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PART I.
ITEM 1. BUSINESS
Loehmann's, Inc.[^] ("Loehmann's" or the "Company"), founded in 1921 as
the "Original Designer Outlet," is a leading national specialty retailer of well
known designer and brand name women's fashion apparel, men's furnishings,
accessories, and shoes offered at prices that are typically 30% to 65% below
department store prices. The Company believes it has developed a unique
franchise as the largest national upscale off-price specialty retailer in the
industry. The Company's strong brand name, loyal customer base and long-standing
relationships with leading designers and vendors of quality merchandise has
enabled it to maintain its franchise. The Company's target customers are
relatively affluent women between the ages of 30 and 55 who are attracted to
designer and other high quality merchandise offered at exceptional values. As of
April 28, 1998 the Company operated 69 stores in major metropolitan markets
located in 22 states.
Corporate Structure
Loehmann's is a Delaware corporation with no subsidiaries. As of
January 31, 1998, the Company had 25,000,000 shares of common stock, par value
$0.01 per share (the "Common Stock"), 469,237 shares of Class B common stock,
par value $0.01 per share (the "Class B Common Stock"), and 1,000,000 shares of
preferred stock, par value $0.01 per share (the "Preferred Stock") authorized,
of which 8,976,932 shares of Common Stock and 48,431 shares of Class B Common
Stock were issued and outstanding. In addition, as of January 31, 1998, the
Company had $131,360,000 of long-term indebtedness outstanding, consisting of
$33,771,000 under a revolving credit facility, $95,000,000 aggregate principal
amount of 11 7/8% Senior Notes due 2003 (the "Notes"), and $2,589,000 of revenue
bonds and notes.
In anticipation of the Company's initial public offering on May 7,
1996, in order to effect a reincorporation from Maryland to Delaware, Loehmann's
Holdings, Inc. ("Holdings"), the Company's predecessor, was merged into the
Company (the "Merger"). As a result of the Merger, each share of Holdings common
stock and Class B common stock was converted into approximately 0.22 shares of
the Company's Common Stock and Class B Common Stock, respectively, and the
authorized number of shares of Common Stock was increased to 25,000,000.
On May 10, 1996, the Company issued and sold 3,572,000 shares of Common
Stock in its initial public offering and issued and sold $100 million principal
amount of the Notes in a concurrent debt offering, resulting in net proceeds of
approximately $155 million to the Company. The proceeds received from these
offerings were used to redeem indebtedness and all issued and outstanding shares
of the Company's Series A Preferred Stock.
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Industry Overview
WOMEN'S APPAREL
According to published reports, total retail sales of women's apparel
and accessories in the United States were in excess of $89.0 billion in 1997.
The womenswear industry is served by a variety of distribution channels
including department stores, specialty stores and off-price retailers.
The women's apparel industry is categorized into five product
classifications: designer, bridge, better, moderate and budget. Designer
merchandise is the most expensive product classification and is characterized by
high fashion styling. Designer brands include Donna Karan, Calvin Klein, Ralph
Lauren and Anne Klein. Bridge products are typically brand name merchandise
which may carry designer labels but are less expensive than the designer
classification and allow customers to purchase designer-like merchandise at
below designer prices. Bridge brands include DKNY, Anne Klein II, Adrienne
Vittadini, CK/Calvin Klein, Emanuel Ungaro and Tahari. Apparel in the better
classification carries brand name labels but is less expensive than bridge
apparel. Better brands include Jones New York, Harve Benard and Kenar.
Merchandise in the moderate classification is also generally brand name but is a
less expensive product category. Moderate brands include Oleg Cassini and Leslie
Fay. Budget merchandise is the least expensive product classification.
Designer and bridge merchandise is generally sold in finer department
stores such as Bloomingdale's, Lord & Taylor, Nordstrom and Saks Fifth Avenue.
Because manufacturers of designer and bridge merchandise are very concerned
about maintaining the upscale image of their trademarks, they are typically very
selective about which retailers carry their products. As a result, the Company
believes that most other off-price retailers have limited access to designer and
bridge merchandise.
OTHER PRODUCTS
The men's apparel industry includes tailored apparel (suits,
formalwear, slacks, sportcoats and outer wear), sportswear (casual pants,
sportshirts, sweaters and jackets) and furnishings (dress shirts, ties, belts,
suspenders, underwear, socks, scarves and gloves). Loehmann's offers primarily
men's furnishings to its customers.
The men's furnishings industry is served by a variety of distribution
channels including department stores, specialty menswear stores, off-price
retailers and catalog retailers. The Company offers primarily designer and brand
name men's furnishings, which are generally sold in finer department stores and
specialty stores such as Bloomingdale's, Lord & Taylor, Nordstrom, Saks Fifth
Avenue and Brooks Brothers.
Business Strategy
The Company's strategy is to deliver value to its customers by offering
at substantial discounts a wide selection of high quality in-season merchandise,
including designer and bridge apparel, accessories and shoes. The Company
believes that it differentiates itself from finer department stores by offering
similar merchandise at significantly lower prices and from other
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off-price apparel retailers by offering a broad range of designer and bridge
merchandise. The principal elements of the Company's business strategy are as
follows:
EMPHASIS ON IN-SEASON DESIGNER AND HIGH QUALITY MERCHANDISE
The Company offers a wide selection of in-season apparel, accessories
and shoes, approximately one-third of which is designer and bridge merchandise.
The Company, like finer department stores, is known for carrying designer and
bridge labels, including Donna Karan, Calvin Klein, Ralph Lauren, Adrienne
Vittadini, Tahari, Dana Buchman, Andrea Jovine and Emanuel Ungaro.
VALUE PRICING
The Company provides its customers with exceptional value by offering
its merchandise at prices that are typically 30% to 65% below prices charged by
department stores for the same items and that are comparable to or lower than
prices charged by other off-price retailers.
CAPITALIZE ON LONG-STANDING VENDOR RELATIONSHIPS
Loehmann's believes that it is uniquely positioned among off-price
retailers as a principal choice for well known designers who believe that their
prestige will be preserved by having their merchandise offered by Loehmann's
because of its high quality image and affluent customer base. Loehmann's
long-standing vendor relationships and its ability to sell large quantities of
goods have provided the Company with ready access to a wide selection of
merchandise, often on a preferential basis. The failure of the Company to
maintain its status as a principal choice for well known designers may erode one
of Loehmann's key competitive advantages over its competitors, such as off-price
retailers. Such an increase in competition could materially and adversely affect
the Company's business and results of operations.
BROADEN MERCHANDISE CATEGORIES
The Company continually seeks to broaden its appeal and has over the
past several years expanded its merchandise mix to include gifts, shoes and a
broader range of accessories and intimate apparel. These items, which typically
generate higher gross margins than the Company's traditional apparel categories,
accounted for approximately 20% of the Company's net sales in fiscal 1997, an
increase from 13% in fiscal 1993. In addition, the Company has introduced men's
wear at 19 of its locations with plans to expand to 50 locations in 1998.
FLEXIBLE PURCHASING STRATEGY
The Company relies on a flexible purchasing strategy under which it
enters any given month with a substantial portion of its purchasing requirements
unfulfilled. This strategy enables the Company to react to sales trends, fashion
trends and changing customer preferences while enhancing the Company's ability
to negotiate with its vendors and take advantage of market inefficiencies and
opportunities as they may arise.
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EFFICIENT INVENTORY MANAGEMENT
The Company ships new high quality merchandise to its stores on a daily
basis. The Company believes it is able to constantly replenish its stores
because of its allocation and distribution system, which enables the Company to
distribute merchandise to its stores typically within 48 to 72 hours after
delivery to its distribution center. In addition, the Company utilizes a
cyclical markdown strategy which automatically reduces prices as goods age. As a
result of this inventory management, the Company is able to enhance its gross
margin, maintain a comparatively low investment in inventory, increase its
inventory turn and react more effectively to changing fashion trends and
customer preferences.
LOW-COST STRUCTURE
In order to provide its customers with exceptional value while
maximizing profitability and cash flow, the Company is focused on maintaining an
efficient, low-cost operating structure. Key elements of this focus include the
Company's no-frills store format, lean corporate overhead and disciplined real
estate strategy.
EXPANSION STRATEGY
In fiscal 1997 the Company continued its store expansion program,
opening new stores in existing suburban markets where the Loehmann's franchise
is well established and in other locations which have appealing demographics.
The Company opened seven stores in fiscal 1997, in addition to the seven stores
opened in fiscal 1996. The Company plans to open three stores in fiscal 1998,
two of these stores have already been opened in Long Beach, California, and
Cincinnati, Ohio. The Company closed four stores in fiscal 1997 and converted
one store into a clearance center. As part of the Company's ongoing strategy to
focus on larger, more profitable stores, and to continue to reposition its
merchandise offerings, the Company closed nine stores in March 1998, and expects
to close one additional store during the year.
The Company has retained the services of a retail consulting firm that
has conducted an extensive analysis of the relevant demographics to advise the
Company with respect to its expansion strategy. All decisions as to store
openings are decided on a case by case basis by the Company's Board of Directors
based on the recommendations of management.
Merchandising
SELECTION
The Company offers a wide selection of women's sportswear, dresses,
suits, outerwear, coats, accessories, intimate apparel and shoes, as well as a
selection of gifts, infantwear, kid's wear and men's furnishings. The Company
does not offer budget merchandise in its stores. Most of the Company's
merchandise is in-season and is therefore generally available at Loehmann's
during the same selling season as it is available in department stores. The
following is a list of many of the key brands offered at the Company's stores:
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Adrienne Vittadini Dana Buchman Kenar
Andrea Jovine DKNY Oleg Cassini
A Line by Anne Klein Donna Karan Ralph Lauren
Anne Klein II Emmanuel Ungaro Tahari
Calvin Klein Harve Benard
CK/Calvin Klein Jones NY
The Company continually seeks to broaden its appeal and has over the
past several years expanded its merchandise mix to include shoes and a broader
range of accessories and intimate apparel. These items, which typically generate
higher gross margins than the Company's traditional apparel categories,
accounted for over 20% of the Company's net sales in fiscal 1997, an increase
from 13% in fiscal 1993. The following table shows the percentages of the
Company's net sales attributable to its various product categories for fiscal
1993 through fiscal 1997:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sportswear ......................... 49.6% 48.8% 47.6% 48.1% 47.8%
Dresses and suits .................. 28.6 26.5 26.0 24.6 22.9
Coats and outerwear ................ 5.9 5.2 5.1 5.0 4.7
Accessories/intimate apparel ....... 11.3 13.0 14.5 14.6 13.6
Shoes .............................. 2.1 3.4 5.5 5.8 6.5
Men's .............................. -- -- -- -- 2.5
Other .............................. 2.5 3.1 1.3 1.9 2.0
Total .............................. 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
All Loehmann's stores carry items from each of its merchandise
categories. However, the allocation of merchandise among the stores varies based
upon factors relating to the demographics and geographic location of each store
as well as the size of the store and its ability to adequately display the
merchandise. In a continuing effort to broaden its appeal, both infantwear and
women's large sizes and petite apparel were offered in approximately 40 of the
Company's stores during fiscal 1997 and men's furnishings was introduced in 19
locations.
PRICING
The Company seeks to provide its customers with exceptional value by
offering its merchandise at prices that are typically 30% to 65% below prices
charged by department stores for the same items and that are comparable to or
lower than prices charged by other off-price retailers. The Company's central
buying staff adheres to a disciplined approach to acquiring merchandise that
enables the Company to consistently offer its merchandise at favorable prices.
The Company's buyers will only acquire merchandise at prices which permit the
Company to offer its merchandise for sale initially at a significant discount to
the first marked down price that a department store would charge for the same
item. Each item of merchandise offered by the Company carries a price tag
displaying the Company's price as well as the typical department store's initial
price for the same item.
The Company has historically used a cyclical markdown policy to reduce
prices automatically as goods age. Since the beginning of the current fiscal
year, however, this
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policy has been modified slightly, as the prices of goods that are selling well
are no longer automatically reduced at pre-determined time intervals. The
purpose of this policy is to improve inventory turnover and minimize the amount
of unsold merchandise at the end of the season, while reinforcing the customer's
perception of value and enabling the Company to provide the stores with fresh
merchandise on a regular basis. In addition, the Company closely monitors prices
charged by competitors in each of its markets and adjusts its prices to preserve
its pricing advantage.
Vendor Relationships and Purchasing
The Company believes it is well positioned among off-price retailers as
a principal choice for well known designers who believe that their prestige will
be preserved by having their merchandise offered by Loehmann's because of its
high quality image and affluent customer base. Many of the Company's most active
suppliers have been selling merchandise to the Company for at least 10 years.
Because of these long-standing vendor relationships and its ability to sell
large quantities of goods, the Company has ready access to a wide selection of
merchandise, often on a preferential basis.
The Company does not engage in significant forward purchasing and a
large portion of its purchasing requirements in any given month intentionally
remains unfulfilled at the beginning of the month. This strategy enables the
Company to react to fashion trends and changing customer preferences while
enhancing the Company's ability to negotiate with its vendors and take advantage
of market inefficiencies and opportunities as they may arise. Although the
Company has always been able to fulfill its inventory needs, its opportunistic
purchasing strategy does not always permit Loehmann's to purchase specific types
of goods. For example, certain types of popular merchandise may be unavailable
in certain sizes or colors depending on market conditions.
The Company purchases a majority of its inventory during the
manufacturer's selling season enabling the Company to offer merchandise during
the same selling season as it is available in department stores. The Company
also purchases a portion of its inventory at the end of the season, when the
Company is prepared to purchase a manufacturer's remaining items at an even
steeper discount. Vendors who sell to the Company do not need to build into
their price structure any anticipation of returns, markdown allowances or
advertising allowances, all of which are typical in the department store
industry. In addition, the Company pays for goods within an average of
approximately 25 to 30 days and often picks up the merchandise directly from the
vendors.
The Company purchases its inventory from over 400 suppliers, which in
many cases include separate divisions of a single manufacturer or designer.
These suppliers include a substantial majority of the designer and brand name
apparel manufacturers in the United States. Some purchases are also made in the
European market, primarily Italy. The Company does not have any long-term supply
contracts with its suppliers.
The Company maintains its own central buying staff, comprised of 17
experienced off-priced buyers, many of who also have extensive experience with
traditional department stores. Historically, the Company has had very low
turnover within its buying group, enabling
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Loehmann's to capitalize on an experienced, respected group of buyers capable of
enhancing the Company's already strong vendor relationships.
Store Layout
Loehmann's store format and merchandise presentation are designed to
project the image of deep discount and exceptional value, as well as to
emphasize Loehmann's niche as the off-price equivalent of an upscale specialty
store. Loehmann's stores are divided into two shopping areas: a large, open
selling area with wall-to-wall merchandise and a smaller, separate, and more
intimate area called "The Back Room." The Company presents moderate and better
sportswear, dresses and suits, as well as all outerwear, men's apparel,
accessories, intimate apparel and shoes on the main selling floor. Designer and
bridge merchandise, including gowns, dresses, suits and sportswear, are
displayed in The Back Room.
The Back Room provides a key point of differentiation to the consumer,
as it projects the image of designer goods sold in a no-frills environment and,
therefore, at exceptional values. Although the Company estimates that The Back
Room generally accounts for only approximately 10% to 15% of a typical
Loehmann's store's selling space, The Back Room has generated approximately
one-third of the Company's net sales over the last several years.
All stores are low maintenance, simple, and functional facilities
designed to maximize selling space and contain overhead costs. Store layouts are
flexible in that product groupings can be easily moved or expanded. All stores
have two or more communal fitting rooms. However, in response to customer
preferences, private fitting rooms have been added in most stores. Because the
Company is committed to maintaining virtually all of its in-store inventory on
the selling floor, its stores do not require significant space devoted to
inventory storage.
Distribution
The Company operates a 126,000 square foot centralized distribution
center located at the Company's headquarters and a 32,000 square foot satellite
warehouse for processing shoes located near the main distribution center. In
addition, the Company leases a 150,000 square foot facility in Secaucus, New
Jersey. As merchandise arrives at the distribution center, it is priced,
ticketed, assigned to individual stores by the Company's merchandising systems,
packaged for delivery and transported to the stores. The time from receipt of
goods at the distribution center to placement of merchandise in the stores
typically ranges from 48 to 72 hours.
Advertising and Promotion
Over the years, Loehmann's has built its reputation through
"word-of-mouth" advertising. In the last three fiscal years, the Company has
significantly increased its advertising expenditures. The Company advertises
predominantly through direct mail and to a lesser extent through newspaper
advertising.
A significant portion of the Company's advertising efforts involve
direct mail announcements to members of "The Insider Club," a free membership
program. Members receive notification of special events throughout the year and
a 15% discount on their birthdays. The list of members now includes
approximately 1.6 million active customers. In addition, the
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Company entered into an agreement with First USA Bank and launched a co-branded
Platinum Visa Card in November 1997.
Store Operations
The Company operates its stores to enhance the customer's shopping
experience by creating a friendly shopping environment within a self-service
operation. The Company's stores are organized into eight separate geographic
districts each with a regional manager. Regional managers monitor the financial
performance of the stores in their respective geographic districts and
frequently visit stores to ensure adherence to the Company's merchandising,
operations and personnel standards. The typical staff for a Loehmann's store
consists of a store manager, and a number of associate store and department
managers, sales specialists and additional full and part-time hourly associates
depending upon the store's needs.
Senior management meets with the regional managers on a periodic basis
to maintain a clear line of communication. In addition, "mystery shoppers" shop
the stores to help ensure that sales associates are friendly and helpful and
maintain all of the Company's merchandising, customer service and loss
prevention standards.
Store management personnel currently complete a training program at a
designated training store before assuming management responsibility. Sales
specialists receive product and customer service training at the store level.
All store and regional managers participate in a bonus plan that ties
compensation awards to the achievement of specified store profit goals and
overall Company profits and also are eligible in the Company's stock option
plan.
Management Information Systems
Each Loehmann's store is linked to the Company's headquarters through a
point-of-sale system that interfaces with an IBM RS6000 computer equipped with
integrated merchandising, distribution and accounting software packages. The
Company's point-of-sale computer system has features that include merchandise
scanning, the capture of customer sales information and on-line credit card
approval. These features improve transaction accuracy, speed and checkout time
as well as increase overall store efficiency.
The Company's management information and control systems enable the
Company's corporate headquarters to promptly identify sales trends, identify
merchandise to be marked down and monitor merchandise mix and inventory levels
at individual stores. The Company believes that the current management
information and control systems are capable of supporting the Company's planned
expansion for the foreseeable future.
The Company has outside service contracts to maintain its computer
software programs and expects that all modifications and conversions will be
completed on a timely basis. The total dollar amount that the Company estimates
will be spent to address the year 2000 issue is not expected to have a material
financial impact.
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Employees
At January 31, 1998, the Company had 2,827 employees, of whom 1,900
were store sales and clerical employees, 202 performed store managerial
functions, and 725 were corporate and warehouse personnel. Except for managerial
employees, professional support staff and the Company's buyers, all employees
are paid on an hourly basis. None of the Company's employees are represented by
a labor union. The Company believes that its employee relations are good.
Trademark and Service Mark
"Loehmann's" has been registered as a trademark and a service mark with
the United States Patent and Trademark Office. The registration of the trademark
and the service mark may be renewed to extend the original 20-year registration
period indefinitely, provided the marks are still in use. The Company intends to
continue to use its trademark and service mark and to maintain their
registrations. The Company believes its trademark and service mark have received
broad recognition and their continued existence is important to the Company's
business.
Competition
All aspects of the off-price fashion apparel business are highly
competitive, and the Company expects competitive pressures to increase in the
future as more factory outlet centers open and department stores continue price
discounting. The Company believes that the principal elements of competition are
the price, quality, selection and presentation of merchandise, store location
and customer service. Management believes that the Company is well positioned to
compete on the basis of each of these factors. The competitive environment may
also be affected by factors beyond a particular retailer's control, such as
shifts in consumer preferences, change in population demographics and traffic
patterns, and fluctuating economic conditions.
Competitive conditions in the men's furnishings industry are comparable
to those in the women's apparel industry. However, as the Company's primary
focus is on women's apparel, the Company's men's offerings are limited to such
items as shirts, belts and ties. These items are intended to complement women's
apparel and are often "impulse" purchases.
The Company competes primarily with finer department stores. The
Company believes it competes successfully with such department stores by
offering a wide selection of comparable quality merchandise at significantly
lower prices. Many department stores have increased their promotional efforts,
although such promotions are typically focused on moderate merchandise. Should
finer department stores continue to price more aggressively, the Company's
margins may be adversely affected. Most of the department stores and some of the
off-price and discount retailers with which the Company competes have access to
substantially greater financial and marketing resources than those available to
the Company.
The Company also faces competition from factory outlet malls and a
variety of off-price and discount retailers, some of which are relatively new
companies, but many of which are established retail chains or divisions thereof.
Such competitors include Burlington Coat Factory, Filene's Basement, Marshall's,
Saks Off 5th, Syms, and T.J. Maxx. The Company believes it
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competes successfully with other off-price and discount retailers by reason of
the quality, selection and price of the designer and other better quality
merchandise available in the Company's stores.
In recent years, some designer and other better quality women's apparel
has been offered through mail order catalogs. While not significant at the
present time, the Company cannot predict the impact of this and other in-home
shopping competition.
Special Note Regarding Forward-looking Statements
Certain statements under the captions "Business," "Management's
Discussions and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-K or incorporated by reference herein, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions;
competition; success of operating initiatives; development and operating costs;
advertising and promotional efforts; brand awareness; the existence or adherence
to development schedules; the existence or absence of adverse publicity;
availability, locations and terms of sites for store development; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; changes
in, or the failure to comply with, government regulations; construction costs
and other factors referenced in this report.
ITEM 2. PROPERTIES
As of April 28, 1998, the Company operated 69 stores in 22 states
including seven stores opened in fiscal 1997 and two stores opened in fiscal
1998. The Company does not own any of its stores and has no manufacturing
facilities.
Indicated below is a listing of the regions in which the Company
operates its stores:
Percent of
Number of Fiscal Year
Region Stores 1997 Sales (1)
- ------ ------ --------------
California ............. 17 26.1%
New York .............. 9 23.4
Other Mid-Atlantic ..... 7 9.1
New Jersey ............. 6 9.0
Florida ................ 5 8.5
Midwest ................ 7 5.6
New England ............ 5 5.4
Texas .................. 4 4.7
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Other Southeast ........ 5 4.3
Other West .......... 4 3.9
----- -----
69 100.0%
===== =====
- --------------
(1) These percentages exclude sales from the Company's 4 stores
closed in fiscal 1997, and the Company's two stores opened and
nine stores closed in fiscal 1998.
Leases
The leases for the Company's stores typically provide for a 15 to
20-year term with three five-year renewals that are automatic unless the Company
elects to terminate the lease. The rental rate is a fixed amount rather than a
contingent payment based on a store's gross sales. The leases typically contain
tax escalation clauses and require the Company to pay insurance, utilities,
repair and maintenance expenses. Increases in the fixed rent payable during the
renewal terms are generally less than 10% to 15% of the base rent (although this
percentage may increase for new stores). The leases have initial or renewal
terms expiring as follows: 1998-1999 (13 stores); 2000-2002 (26 stores);
2003-2005 (9 stores); and 2006 and later (33 stores).
Two of three leases that expire by year-end fiscal 1998 have renewal
options. The Company has generally been successful in renewing its store leases
as they expire.
The Company leases the land for a 153,000 square foot facility located
in an industrial park in the Bronx, New York, which serves as its corporate
headquarters and as the site of its central warehousing and distribution
operations. This facility contains 27,000 square feet of office space and
126,000 square feet of warehouse space. The ground lease with respect to the
land on which the facility is situated provides for aggregate annual base rental
payments of $37,500. The lease expires in 2010, but is renewable at certain
increased rates until 2050. The facility is subject to two mortgages which
relate to New York City Industrial Development Agency Revenue Bonds. In
addition, the Company leases a 32,000 square foot warehouse in the Bronx, New
York, which serves as additional warehouse space. The lease expires on December
31, 1998 and provides for annual rental payments of $198,000. The Company also
leases a 150,000 square foot warehouse in Secaucus, New Jersey, which serves as
additional warehouse space. The lease expires on January 31, 1999, and provides
for annual rental payments of $675,000.
ITEM 3. LEGAL PROCEEDINGS
Management is not aware of any litigation or regulatory proceedings
against the Company which would materially impact its business or financial
position.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None, during the fourth quarter of fiscal 1997.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been traded on the NASDAQ National
Market System since May 7, 1996 under the symbol LOEH. As of April 1, 1998,
there were approximately 100 shareholders of record of the Company's common
stock. The following table shows the high and low sales price for the Company's
common stock for each quarterly period from May 7, 1996, the date of the
Company's initial public offering, through January 30, 1998.
Fiscal Quarter Ended High Low
- -------------------- ---- ---
August 3, 1996 ................................ $28.125 $18.000
November 2, 1996 .............................. $30.000 $20.375
February 1, 1997 .............................. $31.000 $14.625
May 3, 1997 ................................... $19.500 $ 6.250
August 2, 1997 ................................ $ 8.250 $ 6.000
November 1, 1997 .............................. $10.125 $ 5.688
January 31, 1998 .............................. $ 7.875 $ 3.500
On January 30, 1998, the closing market price of the Company's Common
Stock was $3.81. The Company has not paid dividends on its common stock or its
Class B Common Stock since inception and does not anticipate paying a cash
dividend in the foreseeable future. The Indenture for the Notes and the
Company's revolving credit facility contain various covenants which may restrict
the payment of cash dividends. On April 1, 1998, the closing market price of the
Company's Common Stock was $43/8.
During fiscal year 1997, 93,846 shares of Common Stock were issued upon
conversion of the Company's Class B Common Stock in reliance on Section 3(a)(9)
under the United States Securities Act of 1933 (the "Securities Act"). The
exemption provided under Section 3(a)(9) was available because the shares of
Common Stock were issued by the Company to its existing security holders
exclusively, and no commission or other remuneration was paid for soliciting the
conversions.
During fiscal year 1997, the Company issued to its employees 44,500
options to purchase shares of Common Stock in reliance on Section 4(2) under the
Securities Act ("Section 4(2)"). These options are exercisable at prices ranging
from $6.88 to $15.88. Such options were issued pursuant to the Company's New
Stock Incentive Plan and vest over a range of one to five years from the date of
grant, provided that the individuals remain in the employ of the Company. Such
options expire on the tenth anniversary of the date of grant. The exemption
provided under Section 4(2) was available because all of the options were issued
to four members of the Company's senior management, each of whom is financially
sophisticated and highly experienced in business.
14
<PAGE>
During fiscal year 1997, the Company issued to its non-employee
directors 101,000 options to purchase shares of Common Stock in reliance on
Section 4(2) under the Securities Act. The options are exercisable at prices
ranging from $5.75 to $7.0625. Such options were issued pursuant to the
Company's Stock Option Plan For Non-Employee Directors and vest over a range of
one to three years from the date of grant, provided the optionee remains in
service of the Company as a director on such date. Such options expire either on
the tenth anniversary of the date of grant, or the expiration of one year from
the date the optionee's service with the Company terminates. The exemption
provided under Section 4(2) was available because such options were granted to
seven of the Company's directors, each of whom is financially sophisticated and
highly experienced in business. Consequently, the grantees of the options are
"sophisticated investors," and the granting of the options did not involve a
public offering within the meaning of Section 4(2).
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
[^] Selected Financial Data [^] 1997 1996 1995 1994 1993
-------- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales .......................................$ 443,310 $ 417,758 $ 386,090 $ 392,606 $ 373,443
Net loss applicable to common stock .............$ 15,672 $ 1,216 $ 17,019 $ 3,308 $ 13,727
Basic net loss per share applicable to
common stock ..................................$ 1.75 $ 0.15 $ 3.12 $ 0.63 $ 2.18
Diluted net loss per share applicable to
common stock ..................................$ 1.75 $ 0.14 $ 3.12 $ 0.63 $ 2.18
Total Assets ....................................$ 189,226 $ 176,200 $ 163,611 $ 178,612 $ 177,666
Long-term obligations ...........................$ 131,360 $ 107,850 $ 131,733 $ 131,967 $ 130,827
Redeemable Series A preferred stock ............. -- -- $ 15,279 $ 13,223 $ 11,421
</TABLE>
[^]
[^][^]
Financial Highlights
[^]
<TABLE>
<CAPTION>
Percent
1997 1996 Change
------------------ ----------------- -------------
<S> <C> <C> <C>
Operating Results
Net Sales ................................................ $443,310,000 $417,758,000 6.1%
Adjusted EBITDA (1)....................................... $18,032,000 $36,828,000 -51.0%
Non-recurring Charge...................................... 9,300,000 0 N/A
Operating (Loss) Income................................... (2,701,000) 24,980,000 N/A
[^] Net (Loss) Applicable
to Common Stock.................................... (15,672,000) (1,216,000) N/A
Basic Net Loss per Share
Applicable to Common Stock.......................... ($1.75) ($0.15) N/A
Diluted Net Loss per Share
Applicable to Common Stock.......................... ($1.75) ($0.14) N/A
Financial Position
Shareholders Equity....................................... 9,706,000 25,243,000 61.5%
Total Assets ............................................. 189,226,000 176,200,000 7.4%
Working Capital .......................................... 27,092,000 22,278,000 21.6%
Number of Stores at End of Period ........................ 76 73 4.1%
Total Square Footage ..................................... 1,492,000 1,279,000 16.7%
</TABLE>
[^]--------------------
16
<PAGE>
[^](1) Adjusted EBITDA represents earnings before interest expense, income tax
expense, depreciation and a charge for store closings and impairment of
assets. Adjusted EBITDA is presented because management believes it is
a useful financial indicator used by certain investors and securities
analysts to analyze companies on the basis of operating performance.
Adjusted EBITDA is not a term defined in generally accepted accounting
principles, should not be considered as an alternative to net income,
an indicator of the Company's operating performance, or an alternative
to the Company's cash flow from operating activities as a measure of
liquidity, and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally
accepted accounting principles. The Company understands that while
EBITDA is frequently used by securities analysts in the evaluation of
companies, Adjusted EBITDA, as used herein, is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
[^]
[^]
Results of Operations
The table below sets forth certain financial data of the Company
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year (1)
--------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Net sales ............................................ 100.0% 100.0% 100.0%
Gross margin ......................................... 28.4 31.9 [^] 30.2
Selling, general and administrative expenses ......... 25.1 23.0 23.2
Depreciation and amortization ........................ 2.6 2.8 3.1
Charge for store closings and impairment of assets ... 1.3 -- [^] 3.0
Operating income ..................................... (0.6) 6.0 0.9
Interest expense, net ................................ 2.9 3.2 4.7
Income (loss) before income taxes .................... (3.5)% 2.8% (3.8)%
- -------------
(1) Fiscal 1997 and 1996 had 52 weeks, and fiscal 1995 had 53 weeks. Numbers may not
total due to rounding.
</TABLE>
Fiscal 1997 Compared to Fiscal 1996
Net sales increased by approximately $25.6 million, or 6.1%, to $443.3
million during fiscal 1997 as compared to $417.8 million during fiscal 1996.
Comparable store sales (sales at stores that were in operation for both periods)
decreased by 6.8% during fiscal 1997 as compared
17
<PAGE>
to fiscal 1996. The increase in reported net sales for fiscal 1997 is the result
of sales from new stores, offset by the effect of closed stores and the
comparable store sales decrease of 6.8%. The Company opened 7 new stores if
fiscal 1997 and 7 new stores in fiscal 1996, and closed 4 stores in fiscal 1997
and 3 stores in fiscal 1996.
Gross profit decreased by approximately $7.4 million to $125.8 million
during fiscal 1997 as compared to $133.1 million for fiscal 1996. Gross margin
decreased to 28.4% for fiscal 1997 from 31.9% in the prior fiscal year. The
decrease in gross margin is primarily the result of: (i) an increase in
markdowns which represents 2.7% of sales (which resulted from inflated inventory
levels caused by slow selling women's apparel, primarily designer and bridge
lines), and (ii) a one time charge which represents 0.8% of sales, for the
planned liquidation of inventory in ten stores to be closed in 1998, and for the
planned liquidation of inventory as part of the Company's strategy to reposition
its merchandise offerings.
Selling, general and administrative expenses increased by approximately
$15.1 million to $111.4 million during fiscal 1997 as compared to $96.3 million
for fiscal 1996. As a percentage of net sales, selling, general and
administrative expense increased to 25.1% in fiscal 1997 from 23.0% in the prior
year. The dollar increase in selling, general and administrative expenses was
primarily related to: (i) $17.4 million in store operating expenses related to
1996 and 1997 new stores including store payroll, occupancy and advertising
costs partially offset by (ii) $3.4 million primarily related to store closings.
The increase in selling, general and administrative expense as a percentage of
sales is primarily the result of higher relative occupancy costs as a percentage
of sales for new stores and the comparable store expansions.
Included in selling, general and administrative expense are bonus
payments made to the Company's executive officers. The Company's executives
received no bonus payments in fiscal 1997, and were paid an aggregate $942,565
in bonuses in fiscal 1996. Annual bonuses are paid to the Company's executives
in accordance with the Company's Performance Incentive Plan, which is described
more fully under "Report of Compensation Committee - Annual Bonus Incentives" on
page 11 of the Company's Definitive Proxy Statement for its Annual Meeting of
Stockholders held on July 30, 1998 (the "Proxy Statement").
Depreciation and amortization for fiscal 1997 described by
approximately $0.4 million to $11.4 million as compared to $11.8 million for the
prior fiscal year. The reduction in depreciation and amortization is
attributable to: (i) a decrease in amortization of deferred financing fees
related to the refinancing of debt associated with the debt offering in fiscal
1996, (ii) an increase in depreciation related to the opening of the seven new
stores and the expansion and renovation of eight stores in fiscal 1997, (iii) a
lengthening of the estimated depreciable lives of assets for certain stores
whose primary lease terms were extended, and (iv) a decrease in depreciation
associated with the natural retirement of certain assets.
In connection with the Company's ongoing strategy to focus on larger,
more profitable stores, the Company provided for a charge in the amount of $5.7
million for the closing of ten stores during 1998. This charge consists of the
write off of property, plant, and equipment, closing expenses, and costs
associated with net lease obligations of $2.1 million, $0.6 million, and $3.0
million, respectively. See Note 9 to the Consolidated Financial Statements.
18
<PAGE>
Operating (loss) income decreased by $27.7 million to $(2.7) million,
or (0.6)% of sales, in fiscal 1997 as compared to $25.0 million, or 6.0% of
sales, in fiscal 1996. The decrease in operating income as a percentage of sales
from 6.0% to (0.6)% in fiscal 1997 primarily consists of the following: (i) 1.3%
related to the charge for store closings, (ii) 2.1% related to selling, general,
and administrative expenses primarily resulting from higher occupancy costs as a
percentage of sales associated with new and expanded stores, and (iii) 3.5%
related to a decrease in gross profit resulting from higher markdowns and the
planned liquidation of inventory to reposition its merchandise offerings and for
the closing of stores.
Interest expense decreased by $0.5 million to $12.8 million for fiscal
1997 as compared to $13.4 million for fiscal 1996. The reduction in net interest
expense primarily resulted from the effect of the Company's reduction of
approximately $30.0 million of senior notes and a reduction of the average
interest rate paid on the long term debt by approximately 60 basis points on May
7, 1996, partially offset by interest expense incurred on borrowings under the
revolving line of credit. See Note 4 of the Consolidated Financial Statements.
Fiscal 1996 Compared to Fiscal 1995
Net sales increased by approximately $31.7 million, or 8.2%, to $417.8
million during fiscal 1996 as compared to $386.1 million during fiscal 1995. The
reporting period for fiscal 1996 was comprised of 52 weeks while fiscal 1995 had
53 weeks. For the comparable 52 week period, sales increased 9.3%. Comparable
store sales (sales at stores that were in operation for both periods) increased
by 1.6% during fiscal 1996 as compared to fiscal 1995 on a 52 week basis. The
increase in reported net sales for fiscal 1996 was a result of the comparable
store increase of 1.6%, plus sales from new stores offset by the effect of
closed stores and the effect of the fifty third week of fiscal 1995. The Company
closed 11 stores in fiscal 1995 and 3 stores in fiscal 1996, two of which were
replaced by new stores.
Gross profit increased by approximately [^] $16.5 million to $133.1
million during fiscal 1996 as compared to [^] $116.6 million for fiscal 1995.
Gross margin increased to 31.9% for fiscal 1996 from [^] 30.2% in the prior
fiscal year. The increase in margin was primarily a result of (i) a charge of
$3.6 million taken in fiscal 1995 related to store closings, (ii) a continuing
shift in the Company's sales mix towards merchandise with a higher average gross
margin [^], and (iii) a reduction of markdowns as a percentage of sales.
Selling, general and administrative expenses increased by approximately
$6.8 million to $96.3 million during fiscal 1996 as compared to $89.5 million
for fiscal 1995. As a percentage of net sales, selling, general and
administrative expenses decreased to 23.0% in fiscal 1996 from 23.2% in the
prior year. The dollar increase in selling, general and administrative expenses
was related to: (i) $1.7 million of pre-opening expenses associated with the
seven new stores opened in fiscal 1996; (ii) $3.7 million in store operating
expenses primarily related to new stores including occupancy and advertising
costs and (iii) $2.3 million primarily due to the Company's continued investment
in corporate infrastructure to support the new store program partially offset by
$0.9 million primarily related to cost recoveries associated with occupancy
expense.
Included in selling, general and administrative expense are bonus
payments made to the Company's executive officers under the Company's
Performance Incentive Plan. The Company's executives received an aggregate
$942,565 in bonuses in fiscal 1996, and an
19
<PAGE>
aggregate $287,500 in bonus payments in fiscal 1995. Bonuses were paid to the
Company's executives in fiscal 1995 despite the Company's posting of a net loss
before taxes in such year, because the net loss was largely caused by a special
charge for closing stores, and the Company's Adjusted EBITDA (which is defined
under "Financial Highlights" in Item 6 above) in such year was $30,716,000.
Depreciation and amortization for fiscal 1996 decreased by
approximately $0.3 million to $11.8 million as compared to $12.1 million for the
prior fiscal year. The reduction in depreciation and amortization is
attributable to the closing of 11 stores in fiscal 1995, the effect of a $4.95
million asset impairment charge recorded in fiscal 1995, along with a reduction
in amortization expense resulting from the refinancing of debt associated with
the debt offering. See Note 3 to the Consolidated Financial Statements. This was
partially offset by additional depreciation associated with capital expenditures
in fiscal 1996 related to the opening of the seven new stores and renovations of
the Company's existing store base.
Operating income increased by $21.7 million to $25.0 million for fiscal
1996 as compared to $3.3 million for fiscal 1995. Before the charges for store
closings and impairment of assets in fiscal 1995, operating income increased by
approximately $6.4 million to $25.0 million for fiscal 1996 from $18.6 million
for fiscal 1995. As a percentage of net sales, operating income before the
charges for store closings and impairment of assets increased to 6.0% from 4.8%.
The increase in operating income, before the charge for store closings and
impairment of assets, is primarily a result of new store contribution.
Interest expense decreased by $4.8 million to $13.4 million for fiscal
1996 as compared to $18.2 million for fiscal 1995. The reduction in net interest
expense primarily resulted from the Company's reduction of approximately $30.0
million of senior notes and a reduction of the average interest rate paid on the
senior notes by approximately 60 basis points, partially offset by interest
expense incurred on borrowings under the revolving line of credit. In May 1996,
the Company redeemed its 10-1/2% Senior Secured Notes and 13-3/4% Senior
Subordinated Notes totaling $130.0 million face value and issued $100.0 million
face value of 11-7/8% Senior Notes (the "Redemption"). Additionally, the
reduction in net interest expense resulted from an increase in interest income
earned on invested cash and $0.6 million interest capitalized on fixed asset
additions. As a result of the Redemption, the Company incurred approximately
$4.7 million in extraordinary losses on the early extinguishment of debt and
$2.0 million in losses from the write-off of related deferred financing costs
associated with such indebtedness.
In fiscal 1996, the Company utilized approximately $5.0 million of tax
net operating losses. See Note 2 of the Consolidated Financial Statements.
Quarterly Results and Seasonality
While the Company's net sales do not show significant seasonal
variation, the Company's operating income has traditionally been significantly
higher in its first and third fiscal quarters. The Company believes that its
merchandise is purchased primarily by women who are buying for their own
wardrobes rather than as gifts. As a result, the Company does not experience
increases in net sales during the Christmas shopping season. Results of
operations during the second and fourth quarters are traditionally impacted by
end of season clearance events. In addition, fourth quarter results of
operations can be affected by employee performance bonuses, because
20
<PAGE>
although bonuses are accrued throughout the fiscal year and are estimated on a
quarterly basis, bonus amounts are not definitively known until year-end goals
are achieved.
The following table sets forth certain unaudited operating data for the
Company's eight fiscal quarters ended January 31, 1998. The unaudited quarterly
information includes all normal recurring adjustments which management considers
necessary for a fair presentation of the information shown.
21
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997
-----------------------------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(In thousands, except per share data)
Unaudited
Statement of operations data
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales .....................$ 104,120 $ 90,652 $ 114,393 $ 108,593 $ 112,595 $ 95,292 $ 126,495 $ 108,928
Gross profit .................. 33,734 28,100 37,349 33,938 35,106 25,621 40,465 24,570
Selling, general and
administrative expenses (1). 23,885 20,802 25,528 26,078 28,868 24,393 30,053 28,056
Depreciation and amortization.. 3,148 2,899 2,845 2,956 2,864 2,668 2,946 2,955
Non-recurring charge........... - - - - - - - 5,660
Operating income (loss) ....... 6,702 4,399 8,976 4,903 3,374 (1,440) 7,466 (12,101)
Interest expense .............. 4,231 3,759 2,698 2,673 2,972 3,140 3,278 3,455
Income (loss) before
extraordinary item ......... 2,421 630 6,274 2,228 380 (4,587) 4,122 (15,587)
Extraordinary loss for early
retirement of debt ......... - 7,101 - - - - - -
Net income (loss) .............$ 1,835 $ (11,553)$ 6,274 $ 2,228 $ 380 $ (4,587)$ 4,122 $ (15,587)
Basic earnings (loss) per share
before extraordinary item...$ 0.35 $ (0.51)$ 0.71 $ 0.25 $ 0.04 $ (0.51)$ 0.46 $ (1.73)
Basic earnings (loss) per share
after extraordinary item....$ 0.35 $ (1.33)$ 0.71 $ 0.25 $ 0.04 $ (0.51)$ 0.46 $ (1.73)
Diluted earnings (loss) per
share before extraordinary
item........................$ 0.31 $ (0.51)$ 0.66 $ 0.23 $ 0.04 $ (0.51)$ 0.45 $ (1.73)
Diluted earnings (loss) per
share after extraordinary
item........................$ 0.31 $ (1.33)$ 0.66 $ 0.23 $ 0.04 $ (0.51)$ 0.45 $ (1.73)
- -----------------
(1) Reflects income of $0.5 million of occupancy-related cost recovery
items in the fourth quarter of fiscal 1996.
</TABLE>
Liquidity and Capital Resources
Historically, the Company has used cash to service its indebtedness and
to fund capital expenditures. The Company's primary sources of liquidity are
cash generated from operations and borrowings under its revolving credit
facility (the "Credit Facility").
Net cash used in operating activities totaled $7.5 million for fiscal
1997 of which $9.2 million was for an increase in inventory related primarily to
the opening of seven new stores and the expansion of eight comparable stores
during the year. These new and expanded stores carry a larger selection of
women's apparel. Such stores carry approximately double the store inventory
carried by the average Loehmann's store, and also require increased reserve
inventory levels. In addition, the merchandise inventory at January 31, 1998
included inventory at 10 stores which were planned to be closed by March 1998.
Net cash used in investing activities was $16.7 million in fiscal 1997,
principally related to the new store and expansion store activity during the
year. Net cash used for operating and investing activities was financed
primarily by the increase in borrowings of $23.6 million under the [^] Credit
Facility.
The Company's outstanding long-term indebtedness as at January 31,
1998, February 1, 1997, and February 3, 1996, was $131.36 million, $107.85
million, and $131.733 million, respectively. Interest expense decreased by $0.5
million, to $12.8 million, for fiscal
22
<PAGE>
1997, as compared to $13.4 million for fiscal 1996. The reduction in net
interest expense primarily resulted from the effect of the Company's reduction
of approximately $30.0 million of indebtedness following the Company's initial
public offering in May 1996 and an approximate 60 basis point reduction, on May
7, 1996, of the average interest rate paid on the long term debt, partially
offset by interest expense incurred on borrowings under the Credit Facility.
On May 10, 1996 the Company sold 3,572,000 shares of Common Stock and
$100.0 million principal amount of the Notes in public offerings. The net
proceeds received from such offerings were used to (i) redeem in full $54.1
million of the Company's 10-1/2% Senior Secured Notes, at a redemption price of
103.5%, (ii) redeem in full $77.55 million of the Company's 13-3/4% Senior
Subordinated Notes at a redemption price of 101.0%, and (iii) redeem all issued
and outstanding shares of the Company's Series A Preferred Stock at its
liquidation price of $0.56 per share. In addition, in fiscal 1997, the Company
made principal payments of $70,000 on its long-term indebtedness.
In February 1998, the Company amended [^] the Credit Facility to
provide for: (i) the elimination of all financial covenants [^], (ii) an
increase in the Credit Facility to $50.0 million, and (iii) an extension of the
term of the Credit Facility to June 2001. [^] At January 31, 1998, outstanding
borrowings under the Credit Facility were approximately $33.8 million. See Note
4 of the Consolidated Financial Statements.
In fiscal 1998, the Company's material commitments will include
servicing its indebtedness (primarily interest on the Credit Facility and the
Notes) and capital expenditures. Because indebtedness under the Credit Facility
bears interest at floating rates based on LIBOR, the Company's debt service
costs in fiscal 1998 will fluctuate. However, assuming that interest rates
remain constant, the Company expects that: (i) its total debt service costs in
fiscal 1998 will be somewhat greater than the $12.8 million in fiscal 1997 due
to the Company's increased debt levels, and (ii) the amount of principal
reduction in fiscal 1998 will remain approximately $70,000. The Company has
reduced its capital expenditure requirements for fiscal 1998 to $9.0 million by
decreasing its new store and comparable store expansion program, and has put
special emphasis toward inventory management in order to maintain control over
markdown requirements during fiscal 1998. Although no assurances can be given,
the Company anticipates that these programs will improve the Company's cash
flow. The Company believes that cash generated from operations together with
funds available under the Credit Facility will be sufficient to satisfy its cash
requirements in fiscal 1998. [^] Although the Company fully anticipates that it
will be able to continue meeting its obligations as they come due beyond fiscal
1998, the Company's ability to do so will depend on its ability to successfully
implement its business plans, general economic and business conditions, and the
other factors noted in "Special Note Regarding Forward Looking Statements."
Year 2000
The Company presently believes that the year 2000 issue will not pose
significant operational problems for its computer systems. The Company has
outside service contracts to maintain its computer software programs and expects
that all modifications and conversions will be completed on a timely basis. The
total dollar amount that the company estimates will be spent
23
<PAGE>
to address its year 2000 issues is not expected to have a material financial
impact. However, if such modifications and conversions are not made, or are not
completed in a timely manner, the year 2000 issue could have a material adverse
impact upon Company operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
The Board of Directors and Stockholders
Loehmann's, Inc.
We have audited the accompanying consolidated balance sheets of
Loehmann's Inc. as of January 31, 1998[^] and February 1, 1997, and the related
consolidated statements of operations, changes in common stockholders' equity
(deficit) and cash flows for the fiscal years ended January 31, 1998, February
1, 1997[^] and February 3, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Loehmann's Inc. at January 31, 1998 and February 1, 1997, and the consolidated
results of its operations and cash flows for the fiscal years ended January 31,
1998, February 1, 1997[^] and February 3, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 6, 1998
- --------------------------------------------------------------------------------
25
<PAGE>
Consolidated Balance Sheets
Loehmann's, Inc.
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
-------------------- -------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents................................... $ 1,767 $ 2,292
Accounts receivable and other assets........................ 5,575 4,400
Merchandise inventory....................................... 67,521 58,304
Total current assets................................................. 74,863 64,996
Property, equipment and leaseholds, net.............................. 71,612 66,515
Deferred debt issuance costs and other assets, net................... 3,228 3,870
Purchase price in excess of net assets acquired, net................. 39,523 40,819
-------------------- -------------------
Total assets......................................................... $ 189,226 $ 176,200
-------------------- -------------------
Liabilities and common stockholders' equity
Current liabilities:
Accounts payable............................................ $ 21,570 $ 19,634
Accrued expenses............................................ [^] 11,732 13,262
Accrued interest............................................ 2,496 2,530
Customer merchandise credits................................ 4,710 7,212
Reserve for store closings.................................. 7,190 10
Current portion of long-term debt........................... 73 70
Total current liabilities............................................ 47,771 42,718
Long-term debt:
Revolving line of credit.................................... 33,771 10,188
117/8% senior notes......................................... 95,000 95,000
Revenue bonds and notes..................................... 2,589 2,662
Total long-term debt................................................. 131,360 107,850
Other noncurrent liabilities......................................... 389 389
Common stockholders' equity:
Common stock, 25,000,000 shares authorized; 8,976,932
and 8,756,739 shares issued and outstanding at
January 31, 1998, and February 1, 1997, respectively...... 89 87
Class B convertible common stock, 469,237 shares
authorized, 48,431 and 142,277 at January 31, 1998,
and February 1, 1997, respectively........................ 244 713
Additional paid-in capital.................................. 81,597 80,995
Accumulated deficit......................................... (72,224) (56,552)
Total common stockholders' equity.................................... 9,706 25,243
-------------------- -------------------
Total liabilities and common stockholders' equity.................... $ 189,226 $ 176,200
==================== ===================
- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
26
<PAGE>
Consolidated Statements of Operations
Loehmann's, Inc.
<TABLE>
<CAPTION>
Fiscal year ended
--------------------------------------------------
January 31, February 1, February 3,
1998 1997 1996
---------------- ---------------- ----------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net Sales............................................................ $ 443,310 $ 417,758 $ 386,090
Cost of sales........................................................ 317,548 284,637 [^] 269,489
Gross profit......................................................... 125,762 133,121 [^] 116,601
Selling, general and administrative expenses......................... 111,370 96,293 89,485
Depreciation and amortization........................................ 11,433 11,848 12,120
Charge for store closings and impairment assets...................... 5,660 -- 15,300
Operating income..................................................... (2,701) 24,980 3,296
Interest expense, net................................................ 12,845 13,361 18,153
Income (loss) before income taxes.................................... (15,546) 11,619 (14,857)
Provision for income taxes........................................... 126 66 106
Income (loss) before extraordinary item.............................. (15,672) 11,553 (14,963)
Extraordinary loss on early extinguishment of debt (net of tax)...... -- 7,101 --
Net income (loss).................................................... (15,672) 4,452 (14,963)
Stock dividends on and normal and accelerated accretion of
preferred stock...................................................... -- 5,668 2,056
Net loss applicable to common stock.................................. $ (15,672) $ (1,216) $ (17,019)
Earnings per share:
Basic (loss) earnings per share before extraordinary item............ $ (1.75) $ 0.74 $ (3.12)
Extraordinary Item................................................... $ -- $ (0.89) $ --
---------------- ---------------- ----------------
Basic (loss) per share after extraordinary item...................... $ (1.75) $ (0.15) $ (3.12)
================ ================ ================
Diluted (loss) earnings per share before extraordinary item.......... $ (1.75) $ 0.69 $ (3.12)
Extraordinary Item................................................... $ -- $ (0.83) $ --
--------------- --------------- ---------------
Diluted (loss) per share after extraordinary item.................... $ (1.75) $ (0.14) $ (3.12)
=============== =============== ===============
Weighted average number of common shares outstanding................. 8,961 7,901 5,463
Weighted average number of common shares and common share
equivalents outstanding.............................................. 8,961 8,529 5,463
--------------- --------------- ---------------
- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
27
<PAGE>
Consolidated Statements of Changes in Common Stockholders' Equity (Deficit)
Loehmann's, Inc.
<TABLE>
<CAPTION>
Class B
Common Stock Common Stock
------------------------------------------------------ Additional
Number Number Paid-in Accumulated
(In thousands, except share amounts) of Shares Amount of Shares Amount Capital Deficit Totals
-------------- ----------- -------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of January 28, 1995...... 4,704,089 $ 47 469,237 $ 2,352 $ 23,636 $ (38,317) $ (12,282)
Stock options earned................. -- -- -- -- 199 -- 199
Exercise of stock options............ 21,331 -- -- -- 22 -- 22
Net loss for the fiscal year
ended February 3, 1996............ -- -- -- -- -- (14,963) (14,963)
Dividend on and accretion of
preferred stock................... -- -- -- -- -- (2,056) (2,056)
Balances as of February 3, 1996...... 4,725,420 47 469,237 2,352 23,857 (55,336) (29,080)
Issuance of common stock............. 3,572,000 36 -- -- 55,343 -- 55,379
Exercise of stock options............ 132,359 1 -- -- 159 -- 160
Conversion of Class B common stock... 326,960 3 (326,960) (1,639) 1,636 -- --
Net income for the fiscal year
ended February 1, 1997............ -- -- -- -- -- 4,452 4,452
Dividend on and accretion of
preferred stock................... -- -- -- -- -- (5,668) (5,668)
Balances as of February 1, 1997...... 8,756,739 87 142,277 713 80,995 (56,552) 25,243
Exercise of stock options............ 126,347 1 -- -- 134 -- 135
Conversion of Class B common stock... 93,846 1 (93,846) (469) 468 -- --
Net loss for the fiscal year ended
January 31, 1998.................. -- -- -- -- -- (15,672) (15,672)
-------------- ----------- -------------- ----------- ------------- ------------- -------------
Balances as of January 31, 1998 8,976,932 $ 89 48,431 $ 244 $ 81,597 $ (72,224) $ 9,706
- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
28
<PAGE>
Consolidated Statements of Cash Flows
Loehmann's, Inc.
<TABLE>
<CAPTION>
Fiscal year ended
--------------------------------------------------
January 31, February 1, February 3,
1998 1997 1996
--------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)........................................................ $ (15,672) $ 4,452 $ (14,963)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.......................... 11,433 11,848 12,120
Accretion of 10 1/2% senior secured notes.............. -- 510 1,328
Charges for [^] impairment of assets [^] related to
store closings......................................... 2,110 -- 10,538
Loss on early retirement of 10 1/2% senior secured
notes and
13 3/4% senior subordinated notes............. -- 7,101 --
Changes in assets and liabilities:
Accounts receivable and other assets.......... (1,175) (2,678) 678
Merchandise inventory......................... (9,217) (14,583) 417
Accounts payable.............................. 1,936 (1,840) (276)
Accrued expenses.............................. [^](1,530) 3,060 (985)
Customer merchandise credits.................. (2,502) 1,150 537
Reserve for store closings.................... 7,180 (435) 445
Accrued interest.............................. (34) (4,507) 250
--------------- ---------------- ----------------
Net change in current assets and liabilities............................. [^](5,342) (19,833) 1,066
Net change in other noncurrent assets and liabilities.................... (15) 549 (627)
Total adjustments........................................................ 8,186 175 24,425
--------------- ---------------- ----------------
Net cash (used in) provided by operations (7,486) 4,627 9,462
Cash flows from investing activities
Capital expenditures..................................................... (16,687) (16,037) (8,130)
Net cash used in investing activities.................................... (16,687) (16,037) (8,130)
Cash flows from financing activities
Borrowings on revolving credit facilities................................ 23,583 10,188 --
Redemption of 10 1/2% senior secured notes............................... (55,905) (1,584)
Redemption of 13 3/4% senior subordinated notes.......................... (78,325) --
Redemption of 117/8% senior notes........................................ (5,165) --
Sale of 117/8% senior notes, net of issuance costs....................... 95,863 --
Redemption of Series A Preferred Stock................................... (20,947) --
Sale of common stock..................................................... 135 55,379 --
Other financing activities, net.......................................... (70) 102 (58)
--------------- ---------------- ----------------
Net cash provided by (used in) financing activities...................... 23,648 1,190 (1,642)
--------------- ---------------- ----------------
Net (decrease) increase in cash and cash equivalents..................... (525) (10,220) (310)
Cash and cash equivalents at beginning of period......................... $ 2,292 $ 12,512 $ 12,822
Cash and cash equivalents at end of period............................... $ 1,767 $ 2,292 $ 12,512
--------------- ---------------- ----------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Supplemental disclosure of cash flow information
<S> <C> <C> <C>
Cash paid during the fiscal year for interest............................ $ 13,212 $ 18,807 $ 16,845
Cash paid during the fiscal year for income taxes........................ $ 233 $ 218 $ 103
--------------- ---------------- ----------------
- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
30
<PAGE>
Notes to Consolidated Financial Statements
Loehmann's, Inc.
1. Summary of Significant Accounting Policies
Organization
Effective May 7, 1996, the Company effected a reincorporation from
Maryland, to Delaware by Loehmann's Holdings, Inc. ("Holdings"), the Company's
predecessor, merging into the Company (the "Merger"). As a result of the Merger,
each share of Holdings common stock and Class B common stock was converted into
approximately 0.22 shares of the Company's common and Class B common and the
authorized number of common was changed to 25,000,000. Accordingly, the
financial information appearing herein (including all share and per share data)
reflects the retroactive application of the Merger.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany items
have been eliminated.
Fiscal Year
The Company follows the standard fiscal year of the retail industry
which is a 52 or 53 week period ending on Saturday closest to January 31. Fiscal
years ended January 31, 1998, February 1, 1997 and February 3, 1996 had 52
weeks, 52 weeks and 53 weeks, respectively.
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 amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid marketable securities purchased
with an original maturity of three months or less to be cash and cash
equivalents.
Merchandise Inventory
Merchandise inventory is valued at the lower of cost or market as
determined by the retail inventory method. However, certain warehoused inventory
that is not available for sale is valued on a specific cost basis. The
merchandise inventory valued on a specific cost basis at January 31, 1998 and
February 1, 1997 was $20.1 million and $11.9 million, respectively.
31
<PAGE>
Revenue Recognition
The Company records revenue at the point of sale to its customers at
its retail stores.
Advertising Expense
The cost of advertising is expensed as incurred. Advertising costs were
$15.4 million, $14.8 million and $13.0 million during fiscal years 1997, 1996
and 1995, respectively.
Depreciation and Amortization
Building and furniture, fixtures and equipment are depreciated on a
straight-line basis over their estimated useful lives. Leasehold interests
represent the beneficial value of operating leases as determined by an
independent appraisal of the individual leases at the date such leases were
acquired by the Company and such amounts are amortized on a straight-line basis
over the related lease term.
Leasehold improvements are amortized on a straight-line basis over the
shorter of the related lease terms or their useful life.
Pre-opening Costs
[^] The Company's costs incurred in connection with the opening of new
stores are expensed in the fiscal quarter in which the store opens. Due to the
nature of the Company's store openings, the majority of such expenditures are
made within the quarter the store opens. As a result, the Company believes that
Statement of Position ("SOP") 98-5 will have no material impact on the timing of
expense recognition. In fiscal 1997 and 1996 the Company incurred $1.3 million
and $1.7 million respectively in pre-opening costs. No pre-opening costs were
incurred in fiscal 1995.
Purchase Price in Excess of Net Assets Acquired, Net
The purchase price in excess of identifiable net assets acquired is
being amortized on a straight-line basis over 40 years. Amortization for fiscal
years 1997, 1996 and 1995 amounted to $1.3 million annually. Accumulated
amortization at January 31, 1998 and February 1, 1997 was $12.2 million and
$10.9 million, respectively.
Class B Common Stock
Each share of Class B Common Stock is convertible into one share of
Common Stock, subject to adjustment at any time. During fiscal 1997,
approximately 93,846 shares of Class B Common Stock were converted. The
Company's various credit agreements prohibit or restrict any such repurchase.
32
<PAGE>
Capitalized Interest
Interest on borrowed funds is capitalized during construction of
property and is amortized on a straightline basis over the depreciable lives of
the related assets. Interest of $397,000 and $640,000 was capitalized during
fiscal 1997 and fiscal 1996, respectively. Interest capitalized during fiscal
1995 was not material.
Deferred Debt Issuance Costs
Deferred debt issuance costs are amortized over the terms of the
related debt agreements. Deferred debt issuance costs were $4.2 million at
January 31, 1998 and $4.1 million at February 1, 1997. Amortization expenses for
fiscal years 1997, 1996, and 1995 amounted to $0.6 million, $0.8 million and
$1.2 million, respectively. Total accumulated amortization at January 31, 1998
and February 1, 1997 amounted to $1.1 million and $0.5 million respectively.
Income Taxes
Income taxes are provided using the liability method.
Net Loss Per Share of Common Stock
Basic EPS is determined by dividing net income/loss (after deducting
dividends on and accretion of preferred stock) by the weighted average number of
Common and Class B Common shares outstanding during the period. Diluted EPS is
determined by dividing net income/loss (after deducting dividends on and
accretion of preferred stock) by the weighted average number of Common and Class
B Common shares and common stock equivalents outstanding during the period.
Outstanding options to purchase Common Stock were not considered in the
calculation of Diluted EPS for fiscal 1997 and fiscal 1995, as their effects
were antidilutive.
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements (see Note 6). The adoption of Financial Accounting Standards Board
Statement No. 128 did not have a material adverse effect upon the Company's
financial statements.
Other Comments
Certain items in fiscal 1995 have been reclassified to present them on
a basis consistent with fiscal 1997.
2. Income Taxes
33
<PAGE>
The Company's provision for income taxes primarily represents state and
local minimum and alternative minimum taxes.
Significant components of deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
----------------- -----------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ..................... $ 12,251 $ 8,146
Excess book depreciation and amortization ............ 4,365 6,037
Store closing reserve................................. 3,643 4
Compensation ......................................... -- 925
Capitalization of inventory expenses ................. 711 617
Other, net ........................................... 996 429
Total deferred tax assets ..................................... 21,966 16,158
Deferred tax liabilities ...................................... (269) (205)
Net deferred tax assets ....................................... 21,696 15,953
Less valuation allowance ...................................... (21,696) (15,953)
$ -- $ --
----------------- -----------------
</TABLE>
Following is a reconciliation of the statutory Federal income tax rate and the
effective income tax rate application to earnings before income taxes:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
1998 1997 1996
------------------- ------------------ ------------------
<S> <C> <C> <C>
Statutory tax rate ...................................... 35.0% 35.0% 35.0%
Tax effect of extraordinary item ........................ -- (21.4) --
Utilization of net operating loss carry forward ......... -- (17.8)% --
Valuation allowance adjustment .......................... (32.4) -- (31.9)
Goodwill ................................................ (3.0) 3.9 (3.2)
Other, net............................................... (0.4) 0.9 (0.6)
Effective tax rate ...................................... (0.8)% 0.6% (0.7)%
</TABLE>
At January 31, 1998, the Company had net operating loss carryforwards
of approximately $31.3 million and $24.5 million for regular and alternative
minimum tax purposes, respectively. Net operating losses [^] expire in [^] the
years 2003 through 2012.
3. Equity and Debt Offering
On May 10, 1996, the Company sold 3,572,000 shares of Common Stock and
$100.0 million principal amount of 11-7/8% Senior Notes due 2003 (the "Senior
Notes"). The net proceeds received from such offerings (the "Offerings") were
used (i) to redeem in full the Company's 10-1/2% Senior Secured Notes, at a
redemption price of 103.5%, (ii) to redeem
34
<PAGE>
in full the Company's 13-3/4% Senior Subordinated Notes at a redemption price of
101.0%, and (iii) to redeem all issued and outstanding shares of the Company's
Series A Preferred Stock at its liquidation price of $0.56 per share
(collectively, the "Existing Obligations").
As a result of these transactions, the Company incurred approximately
$4.7 million in extraordinary losses on the early extinguishment of debt and
$2.0 million in losses from the write-off of related deferred financing costs
associated with such indebtedness, and a $5.1 million charge to accumulated
deficit from the accelerated accretion of the Series A Preferred Stock to its
liquidation price of $0.56 per share.
4. Long-term Debt
The Company's long-term debt consists of:
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
----------------- -----------------
(In thousands)
<S> <C> <C>
Revolving line of Credit(a) ................................... $ 33,771 $ 10,188
117/8 senior notes, due 2003(b)................................ 95,000 95,000
9 1/2% New York City Industrial Development
Agency revenue bonds, due 2004............................... 2,250 2,250
5 1/2% City of New York note due in varying
installments to 2004......................................... 412 482
----------------- -----------------
131,433 107,920
Less current maturities........................................ 73 70
----------------- -----------------
Long-term debt................................................. $131,360 $107,850
----------------- -----------------
</TABLE>
- ---------------
(a) In February 1998, the Company amended its credit agreement with its
bank (the "Credit Facility") to provide for: (i) the elimination of all
financial covenants under the Credit Facility, (ii) an extension of the
term of the Credit Facility to June 2001, and (iii) an increase in the
Credit Facility to $50.0 million with interest at either the Bank's
prime rate plus 0.75%, or LIBOR plus 2.2% at the Company's option. The
Credit Facility is subject to certain borrowing base limitations, and
imposes certain other limitations on the Company. The Credit Facility
is secured by substantially all of the Company's assets and is not
subject to scheduled repayments, except upon maturity. At January 31,
1998, the Company's outstanding amounts under letters of credit were
$1,719,563.
(b) Interest is payable semiannually on May 15 and November 15 in each
year. The Company is entitled to redeem the Notes commencing May 15,
2000 at redemption prices of 105.938%, 102.969% and 100% of the
principal amount during 2000, 2001 and 2002, respectively.
The Senior Notes Indenture contains certain covenants that,
among other things, limit the ability of the Company to incur
additional indebtedness,
35
<PAGE>
transfer or sell assets, pay dividends or make certain other
restricted payments, incur liens, enter into certain
transactions with affiliates or consummate certain mergers,
consolidations or sales of all or substantially all of its
assets. In addition, subject to certain conditions, the
Company is obligated to make offers to repurchase the Senior
Notes with the net proceeds of certain asset sales. These
covenants are subject to certain exceptions and
qualifications.
Based on a quoted market price of 104.4%, the fair value of
the 11 7/8 senior notes outstanding at January 31, 1998
approximated $99.1 million.
During the second quarter of 1996, the Company purchased and
retired $5.0 million face amount of the 117/8% senior notes on
the open market incurring an extraordinary loss of
approximately $365,000 in connection with this purchase.
5. Property, Equipment and Leaseholds, Net
Property, equipment and leaseholds are recorded at cost less
accumulated depreciation and amortization. The components of property, equipment
and leaseholds are as follows:
<TABLE>
<CAPTION>
Useful January 31, February 1,
Lives 1998 1997
-------------- ------------------ ----------------
(In years) (In thousands)
<S> <C> <C> <C>
Building ............................................... 20 $ 7,879 $ 7,879
Furniture, fixtures and equipment ...................... 3-8 44,246 35,835
Leasehold interests(a).................................. 5-29 45,853 51,781
Leasehold improvements ................................. 5-29 33,332 28,675
Total property, equipment and leaseholds................ 131,010 124,170
Accumulated depreciation and amortization............... (59,698) (57,655)
Property, equipment and leaseholds, net................. $ 71,612 $ 66,515
</TABLE>
(a) "Leasehold interests" represent the allocation to the Company's leases
of the excess of the purchase price of the assets acquired in the
leveraged buy-out that took place in 1988 over the net book value of
such assets.
36
<PAGE>
6. Earnings Per Share
The following table sets forth the computation of basic and diluted
(loss) earnings per share:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Numerator
Net operating (loss) income................................. $ (15,672) $ 11,553 $ (14,963)
Preferred stock dividends on and normal and
accelerated accretion.............................. -- 5,668 2,056
Numerator for basic and diluted (loss) earnings
per share before extraordinary item................ (15,672) 5,885 (17,019)
Extraordinary item.......................................... -- 7,101 --
Numerator for basic and diluted (loss) per share
after extraordinary item........................... (15,672) (1,216) (17,019)
Denominator
Denominator for basic (loss) earnings per share
-- weighted average shares......................... 8,961 7,901 5,463
Effect of dilutive securities:
Employee stock options............................. -- 628 --
Dilutive potential common shares................... -- 628 --
Denominator for diluted (loss) earnings per
share -- adjusted weighted average shares
and assumed conversions............................ $ 8,961 $ 8,529 $ 5,463
Basic (loss) earnings per share before
extraordinary item................................. $ (1.75) $ 0.74 $ (3.12)
Extraordinary Item.......................................... $ -- $ (0.89) $ --
Basic (loss) per share after extraordinary item............. $ (1.75) $ (0.15) $ (3.12)
Diluted (loss) earnings per share before
extraordinary item................................. $ (1.75) $ 0.69 $ (3.12)
Extraordinary Item.......................................... $ -- $ (0.83) $ --
Diluted (loss) per share after extraordinary item........... $ (1.75) $ (0.14) $ (3.12)
</TABLE>
7. Stock Option Plans
On September 30, 1988, the Company adopted the Loehmann's Holdings,
Inc. 1988 Stock Option Plan, as amended on April 2, 1992, pursuant to which a
committee appointed by the Board of Directors is authorized to grant options to
purchase up to 1,077,010 shares of Common Stock to key employees and directors.
On May 7, 1996, the Company adopted the Loehmann's, Inc. New Stock Incentive
Plan (the "New Stock Option Plan") as amended on June 19, 1997. A maximum of
646,892 shares of Common Stock may be delivered by the Company pursuant to
options or other awards authorized by a committee appointed by the Board of
Directors. On June 19, 1997, the Company adopted the Loehmann's, Inc. Director's
Stock Option Plan. A maximum of 250,000 shares of Common Stock may be delivered
by the Company pursuant to options or other awards authorized by a committee
appointed by the Board of Directors.
37
<PAGE>
The following information pertains to the Company's stock option plans:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
1998 1997 1996
--------------------------- ---------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ -------------- ------------ --------------- ------------ --------------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding options,
beginning of year .............. 875 $ 7.00 729 $ 2.77 604 $ 1.37
Granted .......................... 147 8.58 324 17.74 264 4.76
Canceled ......................... (38) 14.86 (46) 17.96 (120) 1.07
Exercised......................... (126) 1.18 (132) 1.20 (19) 1.36
Outstanding options,
end of year .................... 858 $ 7.63 875 $ 7.00 729 $ 2.77
Options exercisable,
end [^] of year ................ 474 $ 4.59 450 $ 3.02 432 $ 2.30
Options available for
future grant .................. 423 N/A 77 N/A 42 N/A
</TABLE>
Stock options are granted to officers and key employees based upon a
price determined by the Board of Directors of the Company. Compensation expense
is recorded in the period that options are earned.
The 858,179 options outstanding at January 31, 1998, vest over a range
of two to five years from the date of grant provided the individuals remain in
the employ of the Company. Options are exercisable at a price ranging from $1.07
to $23.13. Options issued under the 1988 Stock Option Plan generally must be
exercised within five years from the date they are earned. Options issued under
the New Stock Option Plan must be exercised prior to the tenth anniversary of
the grant date.
The Company has elected to follow APB 25 and related interpretations in
accounting for stock options and accordingly has recognized no compensation
expense. Had compensation cost been determined based upon the fair value at
grant date for awards consistent with the methodology prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company would have incurred an additional compensation cost
of $1.0 million or $0.11 per share for fiscal 1997, $0.6 million or $0.07 per
share for fiscal 1996, and $0.1 million or $0.01 per share for fiscal 199[^] 5.
The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions for
fiscal 1997, 1996 and 1995: risk-free interest rate of 6.3%, an expected life of
3 to 7 years and a dividend yield of zero. For fiscal 1997, 1996 and 1995,
volatility was 85.8%, 58.0% and 38.7%, respectivel[^] y.
38
<PAGE>
8. Commitments and Contingenci[^] es
The Company is the lessee under various long-term operating leases for
store locations and equipment rentals for up to 29 years, including renewal
options. The leases typically provide for three five-year renewals that are
automatic unless the Company elects to terminate the lease. Rent expense related
to these leases amounted to $15.4 million, $10.1 million and $8.1 million for
the fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996,
respectively. Future minimum payments under noncancelable operating leases
consisted of the following at January 31, 1998:
(in thousands)
1998 $ 15,993
1999 15,644
2000 14,818
2001 13,969
2002 13,876
Thereafter 154,026
------------
Total $ 228,326
9. Charge for Store Closings
During the fourth quarter of fiscal 1997, the Company implemented a
plan to close ten underperforming stores and, as a result, recorded a $5.7
million charge to continuing operations. These closures are intended to improve
the Company's liquidity and future operating profitability.
The store closures will be materially completed by the end of March
1998. Net sales and store operating income (loss), including certain
specifically allocated charges, for these stores were $21.3 million and $(0.8)
million, respectively, in fiscal 1997, $24.9 million and $1.5 million,
respectively, in fiscal 1996 and, $26.2 million and $1.2 million, respectively,
in fiscal 1995.
The charge for store closings consisted of write-offs of property,
plant and equipment, costs associated with net lease obligations and other
expenses of $2.1 million, $3.0 million and $0.6 million, respectively.
During the second quarter of fiscal 1995, the Company implemented a
plan to close 11 underperforming stores and, as a result, recorded a $10.35
million charge to continuing operations. These closures were intended to improve
overall chain profitability and achieve a more competitive cost structure.
The store closures were completed by the end of August 1995. Reserved
amounts remaining at February 3, 1996 relating to long-term lease commitments
were not material. Net sales and store operating income (loss), including
certain specifically allocated charges, for these stores were $8.2 million and
$0.1 million, respectively, in fiscal 1995.
The charge for store closings consisted of write-offs of property,
plant and equipment, markdowns associated with store closings, costs associated
with net lease
39
<PAGE>
obligations and other expenses of $5.5 million, $3.6 million, $0.95 million and
$0.3 million, respectively.
10. Charge for Impairment of Assets
During the second quarter of fiscal 1995, the Company completed certain
market analyses as part of its overall strategic plan. As an outcome of these
analyses, the Company shortened the period of time in which it intended to
occupy certain stores and as a consequence the undiscounted cash flows estimated
to be generated from the revised intended use was not sufficient to recover the
assets' carrying amount. Based on these indicators, the primary intangible
assets associated with these locations were determined to be impaired as defined
by Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("FAS No. 121").
Accordingly, the Company recorded an impairment loss of approximately
$4.95 million to continuing operations, representing the excess net book value
of these assets over their fair value. Fair value was based on appraisal value.
The impairment charge consisted of leasehold interests, furniture,
fixtures and equipment and leasehold improvements of $4.45 million, $0.25
million and $0.25 million, respectively.
11. Employee Benefit Plans
In October 1996, the Company established a defined contribution
retirement savings plan (401(k)) covering all eligible employees. This plan
succeeds the previously discretionary profit sharing plan with all prior
individual account balances and vesting terms transferred to the new plan. The
plan allows participants to defer a portion of their annual compensation and
receive a matching employer contribution on a portion of that deferral. During
fiscal 1997 and fiscal 1996, the Company recorded contributions of $209,000 and
$71,000, respectively, to the 401(k) plan. The Company recorded a contribution
of $500,000 to the profit sharing plan in fiscal 1995.
40
<PAGE>
<TABLE>
<CAPTION>
[^] [^] SCHEDULE II
[^] LOEHMANN'S, INC.
[^] VALUATION AND QUALIFYING ACCOUNTS
[^](in thousands)
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------
Additions
Balance at Charged Charged Balance at
Beginning to Cost to Other end of
Description of Period and Accounts Deductions Period
Expense
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended January 31,
1998 $10 $7,190 $70 (a) $7,130
Reserve for Store Closings
Year ended February 1,
1997 $445 $435 (a) $10
Reserve for Store Closings
Year ended February 3,
1996 $0 $4,850 $4,405 (a) $445
Reserve for Store Closings
(a) Payments for leasehold obligation expenses and other store closing expenses.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
41
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons are the executive officers and directors of the
Company.
Name Age Position
- ---- --- --------
Norman S. Matthews ......... 65 Chairman of the Board and Director
Robert N. Friedman ......... 57 Chairman, Chief Executive Officer
and Director
Robert Glass................ 51 President, Secretary, Chief Operating
Officer and Director
Anthony D'Annibale.......... 37 Senior Vice President Merchandising
Jan Heppe................... 46 Senior Vice President and Director of
Stores
Dennis R. Hernreich......... 42 Vice President Finance, Chief Financial
Officer, Treasurer and Assistant
Secretary
Philip Kaplan (1) .......... 67 Director
Janet A. Hickey ............ 53 Director
Richard E. Kroon ........... 55 Director
Christina A. Mohr .......... 42 Director
Arthur E. Reiner............ 57 Director
Cynthia R. Cohen ........... 45 Director
Lorrence T. Kellar.......... 60 Director
- -----------
(1) Until April 1, 1998, Mr. Kaplan was President, Secretary and Chief
Operating Officer of the Company.
Set forth below are the biographies of the directors of the Company.
The term of the Class A Directors expires at the first annual meeting of the
Company's stockholders following the end of the Company's fiscal year ending
January 30, 1999. The term of the Class B Directors expires at the first annual
meeting of the Company's stockholders following the end of the Company's fiscal
year ending January 29, 2000. The term of the Class C Directors expires at the
first annual meeting of the Company's stockholders following the end of the
Company's fiscal year ending January 31, 1998.
Class A Directors
Robert N. Friedman has been Chairman, Chief Executive Officer and a
Director of the Company since November 1995 and was President, Chief Executive
Officer and a Director of the Company from September to November 1995. Mr.
Friedman was President and Chief Executive Officer of Loehmann's Holdings, Inc.,
a predecessor of the Company
42
<PAGE>
("Holdings") from April 1992 until May 1996. Prior to joining the Company, Mr.
Friedman was employed by R.H. Macy Co., Inc. for 28 years in various capacities,
including President and Vice Chairman, Merchandising, at Macy's East from
1990-1992, Chairman and C.E.O. of Macy's Bamberger Division and Chairman and
C.E.O. of Macy's South/Bullocks. He serves on the Board of Trustees of The
Fashion Institute of Technology.
Robert Glass has been a Director of the Company since February 1998 and
has served as President, Chief Operating Officer and Secretary since April 1998.
From September 1994 to March 1998, Mr. Glass served as Senior Vice President,
Chief Financial Officer, Treasurer and Assistant Secretary of the Company. From
1992 to 1994, Mr. Glass served as a retail consultant. Prior to that time, he
held a number of senior retail management positions, including Chief Financial
Officer and later President of Gold Circle Stores, a division of Federated
Department Stores, Inc., and Executive Vice President of Thrifty Drug from 1990
to 1992.
Philip Kaplan has been a Director of the Company since September 1988
and served as President, Chief Operating Officer and Secretary of the Company
from November 1995 to March 1998. He was Chairman and Chief Operating Officer of
the Company from September to November 1995 and served as Chairman, Chief
Operating Officer, Secretary and Treasurer from September 1988 to September
1995. Mr. Kaplan was Vice Chairman, Treasurer and a Director of Holdings from
February 1987 until May 1996. Mr. Kaplan was president of Verdi International, a
manufacturer of luggage, from 1983 to 1987, Senior Vice President of Abraham and
Strauss, a division of Federated Department Stores, Inc., from 1979 until 1983
and Executive Vice President-Chief Financial Officer of E.J. Korvette's from
1971 until 1979.
Norman S. Matthews has been Chairman of the Board and a Director of the
Company since September 1995. Mr. Matthews served as Chairman of the Board of
Holdings from December 1993 until May 1996 and as a Director of Holdings from
October 1988 until May 1996. Mr. Matthews currently serves as a consultant to
various retailers. He was President of Federated Department Stores from March
1987 until April 1988 and served in other executive capacities with Federated
Department Stores prior to that date. He is a Director of Progressive Corp., an
insurance holding company, Lechters, Inc., a housewares chain, Finlay
Enterprises, Inc. and its subsidiary, Finlay Fine Jewelry Corporation, a jewelry
lessee in major department stores, Toys "R" Us, a children's specialty retailer,
and Eye Care Centers of America, Inc.
Class B Directors
Lorrence T. Kellar has been a Director of the Company since September
1997. Mr. Kellar has been Vice President of Real Estate for the Kmart
Corporation since April 1996. Prior to that, Mr. Kellar had been Vice President
of Real Estate and Finance of The Kroger Co., a supermarket retailer, from 1988
to April 1996.
Richard E. Kroon has been a Director of the Company since September
1995 and was a Director of Holdings from 1988 until May 1996. Mr. Kroon has been
Managing Partner of the Sprout Group, the venture capital affiliate of Donaldson
Lufkin & Jenrette, Inc. ("DLJ"), since 1981. Mr. Kroon is President, Director
and Chief Executive Officer of
43
<PAGE>
DLJ Capital Corporation, a subsidiary of DLJ. He is a Director of Educational
Medical, Inc., the National Venture Capital Association, and several private
companies.
Christina A. Mohr has been a Director of the Company since September
1995 and was a director of Holdings from January 1994 until May 1996. Ms. Mohr
has been Managing Director at Salomon Smith Barney (formerly Salomon Brothers,
Inc.), an investment banking firm, since February 1997. Prior to that, Ms. Mohr
had been Managing Director, Banking Group of Lazard Freres & Co. LLC, an
investment banking firm, from 1990 to February 1997. She was a Vice President,
Banking Group, from 1984 to 1990. She is a Director of United Retail Group,
Inc., a retail chain.
Class C Directors
Cynthia R. Cohen has been a Director of the Company since September
1995 and was a Director of Holdings from January 1994 until May 1996. Since
1990, Ms. Cohen has been President of Strategic Mindshare, a retail marketing
and strategy consulting firm. Prior to that, Ms. Cohen was a partner of Touche
Ross (a predecessor of Deloitte & Touche LLP). Ms. Cohen is a Director of One
Price Clothing, Inc., an apparel retail chain, Office Depot, an office products
retailer, the Mark Group and Capital Factors, Inc., a factoring company.
Janet A. Hickey has been a Director of the Company since September 1995
and was a Director of Holdings from 1988 until May 1996. Ms. Hickey has been
Senior Vice President and General Partner of the Sprout Group, a shareholder of
the Company and the venture capital affiliate of DLJ, and a Divisional Senior
Vice President of DLJ Capital Corporation, a subsidiary of DLJ, since June 1985.
Ms. Hickey is a director of Corporate Express, Inc. and several private
companies.
Arthur E. Reiner has been a Director of the Company since August 1996.
Mr. Reiner has been President and Chief Executive Officer of Finlay Enterprises,
Inc. the parent of Finlay Fine Jewelry Corporation, since January 1996, Vice
Chairman of Finlay Enterprises, Inc. since January 1995 and Chairman and Chief
Executive Officer of Finlay Fine Jewelry Corporation since January 1995. Prior
to that, he was employed by R.H. Macy Co., Inc., serving as Chairman and Chief
Executive Officer of Macy's East from January 1992 to October 1994 and Chairman
and Chief Executive Officer of Macy's Northeast from April 1988 to January 1992.
Set forth below are biographies of the executive officers of the
Company who are not also directors.
Anthony D'Annibale has been Senior Vice President Merchandising of the
Company since 1996. From 1994 to 1996 he was Vice President of Merchandising and
from 1989 to 1994 he served in various merchandising capacities of the Company.
Prior to 1989, Mr. D'Annibale held various buying positions at Steinbach
Department Stores - a division of the Amcena Corporation.
Jan Heppe has been Senior Vice President and Director of Stores of the
Company since September 1995. Prior to that time, she held a number of senior
retail management
44
<PAGE>
positions including Senior Vice President/General Manager of the John Wanamaker
Department Store in Philadelphia, Pennsylvania from 1992 through 1995,
Divisional Vice President/ General Manager of the John Wanamaker Department
Store in Moorestown, New Jersey from 1991 to 1992 and a senior management retail
position at Henri Bendel in 1991. Prior to 1991, Ms. Heppe was General Manager
of On Course, a catalog and wholesale operation and also held various executive
positions at Gimbels, New York.
Dennis R. Hernreich has been Vice President Finance, Chief Financial
Officer, Treasurer and Assistant Secretary of the Company since April 1998. From
June 1996 to March 1998, Mr. Hernreich served as Vice President Finance and
Controller of the Company. From 1991 to 1996 he served as Director, Executive
Vice President and Chief Financial Officer of Gibson's Discount Centers. Mr.
Hernreich's other positions have included Senior Vice President for Finance and
Administration for Associated Agencies and Chief Financial Officer for Nucorp,
Inc./Equity Group.
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon a review of Forms 3 and 4 and amendments thereto furnished
to the Company during and with respect to its most recent fiscal year and upon
written representations from persons known to the Company to be subject to
Section 16 of the Exchange Act (a "reporting person"), no one, except Lorrence
T. Kellar, Christina A. Mohr and Philip Kaplan did not file when due reports
required by Section 16(a) of the Exchange Act during the fiscal year ended
January 31, 1998. Lorrence T. Kellar filed his Form 3 late, Christina Mohr will
file her Form 5 late, and Philip Kaplan will file his Form 5 late.
45
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by
or paid to the named executive officers for services rendered to the Company
during the fiscal years ended January 31, 1998, February 1, 1997 and February 3,
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Other Annual Securities All Other
Fiscal Compensation Underlying Compensation ($)
Name and Principal Position Year Salary($) Bonus($) ($) Options (#) (1)
--------------------------- ---- --------- -------- --- ----------- ---
Annual Compensation
<S> <C> <C> <C> <C> <C> <C>
Robert N. Friedman............... 1997 575,000 -- (2) -- 2,406
Chairman and Chief 1996 550,000 550,000 (2) 63,614 2,750
Executive Officer 1995 475,000 135,000 (2) 187,639 3,471
Philip Kaplan.................... 1997 375,000 -- (2) -- 2,375
President and Chief 1996 374,400 240,000 (2) 25,170 1,875
Operating Officer 1995 356,250 105,000 (2) 14,657 3,471
Robert Glass..................... 1997 257,500 -- (2) -- 2,388
Senior Vice President and 1996 232,500 56,870 (2) 31,172 1,213
Chief Financial Officer 1995 211,250 17,500 (2) -- 574
Jan Heppe(3)..................... 1997 240,000 -- (2) -- 2,400
Senior Vice President and 1996 198,875 50,000 (2) 31,172 1,125
Director of Stores 1995 62,327 10,000 (2) -- --
Bonnie Dexter-Wolterstorff(4) ... 1997 186,500 -- (2) -- 2,375
Senior Vice President, 1996 180,000 45,695 (2) 31,172 925
Merchandising 1995 165,000 20,000 (2) -- 3,471
</TABLE>
- -----------
(1) Consists of (i) Company contributions in fiscal 1997 under the
Loehmann's Inc. 401(k) Savings and Investment Plan of $2,406 for Mr.
Friedman, $2,375 for Mr. Kaplan, $2,388 for Mr. Glass, $2,400 for Ms.
Heppe and $2,375 for Ms. Dexter; (ii) Company contributions in fiscal
1996 under the Loehmann's 401(k) Savings and Investment Plan of $2,750
for Mr. Friedman, $1,875 for Mr. Kaplan, $1,213 for Mr. Glass, $1,125
for Ms. Heppe and $925 for Ms. Dexter-Wolterstorff; and (iii) Company
contributions in fiscal 1995 under the Loehmann's, Inc. Deferred Profit
Sharing Plan of $3,471 for each
46
<PAGE>
of Mr. Friedman, Mr. Kaplan and Ms. Dexter-Wolterstorff and
reimbursement of moving expenses in fiscal 1995 of $574 for Mr. Glass.
(2) For each named executive officer, the aggregate amount of other annual
compensation is less than the lesser of 10% of such officer's total
salary and bonus for such year or $50,000.
(3) Ms. Heppe became an executive officer of the Company in October 1995.
(4) Ms. Dexter-Wolterstorff resigned from her position with the Company in
February 1998.
The following table sets forth information concerning the value of
unexercised options as of January 31, 1998 held by the executives named in the
Summary Compensation Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Value of Unexercised
Acquired Value Unexercised Options In-the-Money Options
On Exercise Realized at Fiscal Year End(#) at Fiscal Year End ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- --- --- ------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Friedman 252,235 53,992 $ 151,076 --
Philip Kaplan 118,458 $ 719,514 102,716 0 $ 213,096 --
Robert Glass 11,170 31,174 $ 18,417 $ 12,284
Jan Heppe 4,468 26,704 -- --
Bonnie Dexter-
Wolterstorff 3,796 2,234 -- --
</TABLE>
- -------------------------------------------------------
(1) Based on a stock price at January 30, 1998 of $3 13/16.
Employment and Severance Agreements
MR. FRIEDMAN
Mr. Friedman's employment agreement, as amended (the "Friedman
Agreement"), provides that he will serve as Chairman and Chief Executive Officer
of the Company from November 1, 1995 through January 31, 1999, for an annual
base salary of not less than $550,000 for fiscal 1996, $575,000 for fiscal 1997
and $600,000 for fiscal 1998. Mr. Friedman also is eligible to receive an annual
bonus equal to 100% of his base salary in effect for each of fiscal 1996 and
fiscal 1997 and 60% of his base salary in effect for fiscal 1998 if, for each
such fiscal year, the Company attains its targeted financial goals (as defined
by the Compensation Committee). The Friedman Agreement also provides for certain
insurance and other benefits to be maintained and paid by the Company.
47
<PAGE>
The Friedman Agreement provided for a grant to Mr. Friedman on November
1, 1995, of options to purchase up to 187,638 shares of Common Stock at an
exercise price of $5.01 per share. Of such options, 71,474 vested in fiscal
1996, 71,474 vested in fiscal 1997 and 44,690 vest automatically at the end of
fiscal 1998. In addition, on February 23, 1996, the Company granted Mr. Friedman
options to purchase up to 35,707 shares of Common Stock at an exercise price of
$8.06. One-half of such options vested automatically at the end of fiscal 1996
and the remainder vested at the end of fiscal 1997. In addition, on April 5,
1996 the Company granted Mr. Friedman options to purchase 27,907 shares of
Common Stock at an exercise price of $8.06. Of such options, 9,302 vested in
fiscal 1996, 9,303 vested in fiscal 1997 and 9,302 will vest in fiscal 1998. As
of April 1, 1998, 383,484 of Mr. Friedman's options had vested and, of these
vested options, 131,245 had been exercised.
The Friedman Agreement provides that if Mr. Friedman's employment is
terminated by the Company without Cause or by Mr. Friedman with Good Reason (as
such terms are defined in the Friedman Agreement), the Company will be required
to pay his base salary then in effect for the greater of 12 months following his
termination or the remainder of his term of employment. Mr. Friedman also will
be entitled to receive any bonus earned with respect to any previously completed
fiscal year which remains unpaid as of the date of termination. If Mr.
Friedman's employment is terminated, either by the Company or by Mr. Friedman
for Good Reason, coincident with or within one-year after a Change of Control
(as defined in the Friedman Agreement), the Company will be required to pay Mr.
Friedman a lump sum, in cash, equal to two times his base salary then in effect
and all unvested options will vest in full. If Mr. Friedman's employment is
terminated by the Company without Cause, Mr. Friedman for Good Reason or as a
result of a Change of Control, the Company also, with certain exceptions, will
be required to continue to maintain life insurance for Mr. Friedman for the
remainder of his life or until he attains the age of 70 with a death benefit
equal to his base salary at the date of termination and medical insurance for
Mr. Friedman and his spouse until their respective deaths. The Company also will
be required to maintain life insurance for Mr. Friedman and medical insurance
for Mr. Friedman and his spouse, as described in the foregoing sentence, upon
Mr. Friedman's retirement or voluntary termination from the Company after the
period of employment provided for in the Friedman Agreement.
The Friedman Agreement provides that the Company has certain rights to
purchase shares of the Common Stock and/or vested options held by Mr. Friedman
upon termination of his employment. Finally, the Friedman Agreement provides
that Mr. Friedman will not, with certain exceptions, "engage or be engaged in a
competing business" (as defined in the Friedman Agreement) for a period of two
years following termination of his employment (unless he is terminated without
Cause or he resigns with Good Reason).
MR. GLASS
Mr. Glass's employment agreement (the "Glass Agreement"), provides that
he will serve as President and Chief Operating Officer of the Company from April
1, 1998 through March 31, 2000 for an annual base salary of $300,000. The annual
base salary shall be reviewed each April 1 except that no such review shall
result in any reduction of the annual base salary then in effect. Mr. Glass also
is eligible to receive an annual bonus equal to 60% of his annual base salary in
effect, if, for each such fiscal year, the Company attains its
48
<PAGE>
targeted financial goals (as defined by the Compensation Committee). The Glass
Agreement also provides for certain insurance and other benefits to be
maintained and paid by the Company.
The Glass Agreement provided for a grant to Mr. Glass on March 4, 1998
of options to purchase 100,000 shares of Common Stock at an exercise price of
$3.50 per share. The options vest and become exercisable on the fifth
anniversary of the date of the grant and expire on the tenth anniversary of the
date of the grant.
The Glass Agreement provides that if Mr. Glass's employment is
terminated by the Company without Cause or by Mr. Glass with Good Reason (as
such terms are defined in the Glass Agreement), the Company will be required to
pay his base salary then in effect for the greater of 12 months following his
termination or the remainder of his term of employment. Mr. Glass also will be
entitled to receive any bonus earned with respect to any previously completed
fiscal year which remains unpaid as of the date of termination. If Mr. Glass's
employment is terminated, either by the Company or by Mr. Glass for Good Reason,
coincident with or within one-year after a Change of Control (as defined in the
Glass Agreement), the Company will be required to pay Mr. Glass a lump sum, in
cash, equal to two times his base salary then in effect and all unvested options
will vest in full. If Mr. Glass's employment is terminated by the Company
without Cause, Mr. Glass for Good Reason or as a result of a Change of Control,
the Company also, with certain exceptions, will be required to continue to
maintain life insurance for Mr. Glass for the remainder of his life or until he
attains the age of 70 with a death benefit equal to his base salary at the date
of termination and medical insurance for Mr. Glass and his spouse until their
respective deaths. The Company also will be required to maintain life insurance
for Mr. Glass and medical insurance for Mr. Glass and his spouse, as described
in the foregoing sentence, upon Mr. Glass's retirement or voluntary termination
from the Company after the period of employment provided for in the Glass
Agreement.
The Glass Agreement provides that if Mr. Glass's employment is
terminated for any reason, Mr. Glass will not for a period of two years
following termination of his employment directly or indirectly (i) solicit or
encourage any member of senior management to leave the employment of the Company
or (ii) hire any member of senior management who was an employee of the Company
during Mr. Glass's employment under the Glass Agreement or the two year period
after Mr. Glass's employment is terminated.
MS. DEXTER-WOLTERSTORFF
The Company is a party to a severance agreement with Ms.
Dexter-Wolterstorff. The severance agreement provides for contingent payment of
base salary from date of separation through August 7, 1998.
Compensation of Members of the Board of Directors
For serving as a director of the Company, each non-employee director
receives, $15,000 per year, $1,000 per Board of Directors meeting attended in
person, $500 per Board
49
<PAGE>
of Directors meeting attended by telephone, and $500 per Board of Directors
committee meeting attended. Certain directors who are not employees of the
Company will be entitled to receive benefits under the Directors Stock Option
Plan and all directors of the Company will be entitled to receive benefits under
the Directors Deferred Compensation Plan. Under the terms of the Directors Stock
Option Plan, each person, who is not an employee of the Company, and who is
first elected, appointed or otherwise first becomes a Director (an "Eligible
Director") will be granted an option to purchase 6,000 shares of Common Stock as
of the date on which such person first becomes an Eligible Director (an "Initial
Option"). Each person who is an Eligible Director on February 1st of each year
will receive an option to purchase 3,000 shares of Common Stock (an "Annual
Option"). The Directors Stock Option Plan also provides that the Board of
Directors shall have discretionary authority to award options to acquire up to
an aggregate of 100,000 shares of Common Stock to one or more Eligible Directors
("Discretionary Options"). All options granted under the Directors Stock Option
Plan are "nonqualified" stock options subject to the provisions of Section 83 of
the Internal Revenue Code of 1986, as amended.
Each Initial Option and Special Option vests and becomes exercisable in
1/3 increments on each of the first, second and third anniversaries of the date
of grant; provided that the Eligible Director is in the service of the Company
as a director on such date. Each Annual Option vests and becomes exercisable in
full on the one year anniversary of the date of grant, provided that the
Eligible Director is in the service of the Company as a director on such date.
In the event of the termination of the Eligible Director's service as a director
prior to the time all or any portion or an Initial Option, a Special Option, or
an Annual Option vests, such option, to the extent not yet vested, terminates.
Discretionary Options are subject to vesting conditions established by the Board
of Directors and provided in a separate award agreement evidencing the award of
such Discretionary Option. Any unexercised portion of an option automatically
becomes null and void at the time of the earliest to occur of (i) the expiration
of 10 years from the grant date, and (ii) the expiration of one year from the
date the Eligible Director's service terminates. The Directors Stock Option Plan
provides that the option exercise price for the options shall be the "fair
market value" (as defined in the Directors Stock Option Plan) of the Common
Stock on the date of grant.
In addition, the Company has a consulting agreement with Mr. Kaplan.
Mr. Kaplan will act as a director and consultant to the Company. Under the
agreement, he is paid a retainer of $75,000 per year and is entitled to a
$15,000 per year auto allowance. This consulting agreement became effective in
April 1998 and extends for a five-year period.
Compensation of Chairman of the Board
The Company has a consulting agreement with Mr. Matthews, pursuant to
which he is currently paid $75,000 per annum. In addition, in connection with
Mr. Matthews' agreement to serve as Chairman of the Board, Mr. Matthews was
granted options pursuant to the 1988 Stock Option Plan (the "1988 Stock Plan")
to purchase up to 91,232 shares of the Common Stock, 24,197 exercisable at $1.07
per share, 22,345 exercisable at $4.48 per share, 22,345 exercisable at $2.24
per share and 22,345 exercisable at $8.95 per share. In addition, on July 1,
1995 Mr. Matthews was granted options pursuant to the 1988 Stock Plan to
purchase 44,689 shares of the Common Stock at $5.01 per share. Within 180 days
upon termination, depending on the cause of termination, the Company has the
right to purchase
50
<PAGE>
Mr. Matthews' shares and unexercised vested options. The Company also has a
right of first refusal upon notice of proposed sale of shares by Mr. Matthews.
In addition, on June 19, 1997, Mr. Matthews was granted options
pursuant to the Directors Stock Option Plan to purchase 65,000 shares at $7.0625
per share. Such options shall vest in full on the earlier of (i) June 19, 2001
or (ii) a Change of Control (as defined in the Directors Stock Option Plan) of
the Company, and expire at the earlier of (i) 10 years from the grant date and
(ii) one year from the date Mr. Matthews' service terminates.
Compensation Committee Interlocks and Insider Participation
During fiscal 1997, Mr. Kroon, Mr. Matthews and Ms. Cohen served as
members of the Compensation Committee of the Board of Directors.
51
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 28, 1998
with respect to beneficial ownership of shares of the Common Stock by (i) all
stockholders known by the Company to be beneficial owners of more than 5% of
such class, (ii) each director, (iii) each executive officer named in the
Summary Compensation Table and (iv) all directors and executive officers as a
group. Unless otherwise indicated in the notes below, the address of each
beneficial owner is in care of Loehmann's, Inc., 2500 Halsey Street, Bronx, New
York 10461.
Name and Address of Beneficial Owner Shares of Common Stock Percentage
- ------------------------------------ ---------------------- ----------
Sprout Capital V(1)............................ 200,779 2.2%
Sprout Growth, L.P.(1)......................... 242,769 2.7%
Sprout Growth, Ltd.(1)......................... 27,025 *
DLJ Venture Capital Fund II, L.P.(1)........... 12,065 *
Donaldson, Lufkin & Jenrette Securities
Corporation(1)........................ 126,161 1.4%
Alliance Capital Management L.P.(1)............ 1,000 *
J&W Seligman & Co. Incorporated(2)............. 1,072,000 11.9%
Putnam Investments, Inc.(3).................... 1,006,430 11.2%
Goldman, Sachs & Co.(4)........................ 1,004,400 11.2%
AIM Management Group Inc.(5)................... 663,400 7.4%
Wellington Management Company, LLP(6).......... 571,000 6.4%
Norman S. Matthews(7).......................... 129,562 1.4%
Robert Friedman(8)............................. 252,235 2.7%
Philip Kaplan(9)............................... 147,174 1.7%
Robert Glass(10)............................... 11,170 *
Jan Heppe(11).................................. 4,468 *
Bonnie Dexter-Wolterstorff (12)................ 9,264 *
Janet A. Hickey(1)(13)......................... 2,000 *
Lorrence T. Kellar (14)........................ 3,000 *
Richard E. Kroon(1)(13)........................ 2,000 *
Christina A. Mohr(13).......................... 2,000 *
Arthur E. Reiner(13)........................... 2,000 *
Cynthia R. Cohen(13)........................... 2,000 *
All directors and executive officers
as a group (12 persons)(15)........... 566,873 6.0%
- -----------
* Less than 1%
(1) Based in part upon information provided in a Schedule 13G filed with
the Commission. Sprout Capital V, Sprout Growth, L.P., Sprout Growth,
Ltd., DLJ Venture Capital II, L.P., Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ" and, collectively with the other entities
named above, the "Sprout Group") are all affiliates. Ms. Hickey and Mr.
Kroon are general partners of, or executive officers in (1) certain of
the affiliates of DLJ that own shares of Common Stock or (2) entities
that control such
52
<PAGE>
affiliates. The business address of all such Sprout Group entities is
277 Park Avenue, New York, New York 10172. Ms. Hickey and Mr. Kroon
disclaim beneficial ownership of such shares. Because of their direct
and indirect ownership of a majority of the capital stock of DLJ, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha
Assurances I.A.R.D. Mutuelle, Alpha Assurances Vie Mutuelle, AXA
Courtage Assurance Mutuelle, AXA, Alliance Capital Management L.P. and
The Equitable Companies Incorporated may be deemed to beneficially own
all of the shares of Common Stock beneficially owned by the Sprout
Group. The business address of Alpha Assurances I.A.R.D. Mutuelle and
Alpha Assurances Vie Mutuelle is 100-101 Terrasse Boieldien, 92042
Paris La Defense France. The business address of AXA Assurances
I.A.R.D. Mutuelle and AXA Assurances Vie Mutuelle is 21, rue de
Chateaudun, 75009 Paris France. The business address of AXA Courtage
Assurance Mutuelle is 26, rue Louis le Grand, 75002 Paris France. The
business address of AXA is 23, avenue Matignon, 75008 Paris France. The
business address of The Equitable Companies Incorporated is 787 Seventh
Avenue, New York, New York 10019. The business address of Alliance
Capital Management L.P. is 1345 Avenue of the Americas, New York, New
York 10105.
(2) Based upon information provided in a Schedule 13G filed with the
Commission. The holdings of J.&W. Seligman & Co. Incorporated ("JWS")
include all shares of Common Stock beneficially owned by Seligman Value
Fund Series, Inc. - Seligman Small-Cap Value Fund (the "Fund"). JWS, as
investment adviser for the Fund, may be deemed to beneficially own the
shares of the Fund. Accordingly, the shares owned by JWS include those
shares owned by the Fund. In addition, William C. Morris, as the owner
of a majority of the outstanding voting securities of JWS, may be
deemed to beneficially own the shares reported herein by JWS. The
business address of JWS, the Fund and William C. Morris is 100 Park
Avenue, New York, NY 10017.
(3) Based upon information provided in a Schedule 13G filed with the
Commission. The holdings of Putnam Investments, Inc. include all shares
of Common Stock beneficially owned by Putnam Investment Management,
Inc. and The Putnam Advisory Company, Inc., investment advisors which
are subsidiaries of Putnam Investments, Inc. Because of its ownership
of all of the capital stock of Putnam Investments, Inc., Marsh &
McLennan Companies, Inc. may be deemed to beneficially own all of the
shares of Common Stock beneficially owned by Putnam Investments, Inc.
The business address of Putnam Investments, Inc., Putnam Investment
Management, Inc. and the Putnam Advisory Company, Inc. is One Post
Office Square, Boston, Massachusetts 02109. The business address of
Marsh & McLennan Companies, Inc. is 1166 Avenue of the Americas, New
York, New York 10036.
(4) Based upon information provided in a Schedule 13G filed with the
Commission. The holdings of The Goldman Sachs Group, L.P. include all
shares of Common Stock beneficially owned by Goldman, Sachs & Co. and
Goldman Sachs Trust on behalf of GS Small Cap Value Fund, both of which
are subsidiaries of Goldman, Sachs & Co. The business address for the
Goldman Sachs Group, L.P. and Goldman, Sachs & Co. is 85 Broad Street,
New York, NY 10004 and the business address of Goldman Sachs Trust is 1
New York Plaza, New York, NY 10004.
(5) Based upon information provided in a Schedule 13G filed with the
Commission. The holdings of AIM Management Group Inc. include all
shares of Common Stock beneficially owned by AIM Advisors, Inc. and AIM
Capital Management, Inc., investment advisors which are subsidiaries of
AIM Management Group Inc. The business address of all such entities is
11 Greenway Plaza, Suite 1919, Houston, Texas 77046.
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(6) Based upon information provided in a Schedule 13G filed with the
Commission. The holdings of Wellington Management & Company, LLP
include all shares of Common Stock beneficially owned by Wellington
Trust Company, NA, a wholly-owned subsidiary of Wellington Management
Company. The business address of all such entities is 75 State Street,
Boston, Massachusetts 02109.
(7) Includes 22,345 shares of Class B Common Stock which are convertible
into Common Stock and options to purchase 89,378 shares of Common Stock
which are exercisable within sixty (60) days of the date hereof. Does
not include options to purchase 65,000 shares of Common Stock which are
not exercisable within sixty (60) days of the date hereof. Includes
17,839 shares owned.
(8) Includes options to purchase 252,235 rounded shares of Common Stock
which are exercisable within sixty (60) days of the date hereof. Does
not include options to purchase 53,992 shares of Common Stock which are
not exercisable within sixty (60) days of the date hereof.
(9) Includes options to purchase 102,716 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Includes 44,458
shares owned.
(10) Includes options to purchase 11,170 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Does not include
options to purchase 31,174 shares of Common Stock which are not
exercisable within sixty (60) days of the date hereof.
(11) Includes options to purchase 4,468 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Does not include
options to purchase 26,704 shares of Common Stock which are not
exercisable within sixty (60) days of the date hereof.
(12) Includes options to purchase 6,030 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof, and 3,234 shares
owned. Does not include options to purchase 28,266 shares of Common
Stock which are not exercisable within sixty (60) days of the date
hereof.
(13) Includes options to purchase 2,000 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Does not include
options to purchase 7,000 shares of Common Stock which are not
exercisable within sixty (60) days of the date hereof.
(14) Includes 3,000 shares owned. Does not include options to purchase 9,000
shares of Common Stock which are not exercisable within sixty (60) days
of the date hereof.
(15) Includes 22,345 shares of Class B Common Stock which are convertible
into Common Stock and options to purchase 475,997 shares of Common
Stock which are exercisable within sixty (60) days of the date hereof.
Does not include options to purchase 249,136 shares of Common Stock
which are not exercisable within sixty (60) days of the date hereof.
Includes 68,531 shares owned.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
According to filings made with the Commission, during fiscal 1997,
Putnam Investors, Inc. and its affiliates beneficially owned more than 5% of the
Company's Common Stock. The Company believes that Putnam Investors, Inc. and its
affiliates own Notes.
56
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PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the report.
(1) List of Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) List of Financial Statement Schedules
Schedule II, Valuation and Qualifying Accounts
Other schedules are omitted because they are either not
applicable or the required information is shown in the
financial statements or notes thereto.
(3) List of Exhibits
3.1 Amended and Restated Certificate of Incorporation of
Loehmann's, Inc., filed as Exhibit 3.1 to Loehmann's,
Inc.'s Registration Statement on Form S-1
(Registration No. 33-97100) and incorporated hereby
by reference.
3.2 By-Laws of Loehmann's, Inc., filed as Exhibit 3.2 to
Loehmann's, Inc.'s Registration Statement on Form S-1
(Registration No. 33-97100) and incorporated herein
by reference.
4.1 11 7/8% Senior Note Indenture, dated as of May 10,
1996, between Loehmann's, Inc. and United States
Trust Company of New York, as Trustee, filed as
Exhibit 4.1 to Loehmann's, Inc.'s Quarterly Report on
Form 10-Q for the quarterly period ended May 4, 1996
(Comm. File No. 0-28410), and incorporated herein by
reference.
4.2 Second Amended and Restated Credit Agreement, dated
as of May 6, 1996, between Loehmann's, Inc.,
BankAmerica Business Credit, Inc., as Agent, and
certain Banks party thereto, filed as Exhibit 4.2 to
Loehmann's, Inc.'s Registration Statement on Form S-1
(Registration No. 333-12881) and incorporated herein
by reference.
4.3 A letter from Loehmann's, Inc. to the Securities and
Exchange Commission agreeing to furnish copies of
certain debt instruments.+
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4.4 First Amendment to Credit Agreement, dated as of July
23, 1997, between Loehmann's, Inc., and BankAmerica
Business Credit, Inc., as Agent and sole lender,
filed as Exhibit 4.1 to Loehmann's, Inc.'s Quarterly
Report on Form 10-Q for the quarterly period ended
August 2, 1997 (Comm. File No. 0-28410), and
incorporated herein by reference.
4.5 Second Amendment to Credit Agreement, dated as of
August 15, 1997, between Loehmann's, Inc., and
BankAmerica Business Credit, Inc., as Agent and sole
lender, filed as Exhibit 4.2 to Loehmann's, Inc.'s
Quarterly Report on Form 10-Q for the quarterly
period ended August 2, 1997 (Comm. File No. 0-28410),
and incorporated herein by reference.
4.6 Third Amendment to Credit Agreement, dated as of
December 30, 1997, between Loehmann's, Inc., and
BankAmerica Business Credit, Inc., as Agent and sole
lender.+
10.1 Lease Agreement between the New York City Industrial
Development Agency and Loehmann's, Inc. dated as of
December 1, 1983, filed as Exhibit 10.3 to Loehmann's
Holdings, Inc.'s Registration Statement on Form S-1
(Registration No. 33-25718) and incorporated herein
by reference.
10.2 Amended and Restated Agreement among Loehmann's
Holdings, Inc., Loehmann's, Inc. and Philip Kaplan
dated as of September 19, 1988 and Memorandum dated
March 1, 1993 amending such Agreement, filed as
Exhibit to Loehmann's Holdings, Inc.'s Registration
Statement on Form S-4 (Registration No. 33-71922) and
incorporated herein by reference.
10.3 Amendment No. 1 to Employment Agreement among
Loehmann's Holdings, Inc., Loehmann's, Inc. and
Philip Kaplan dated as of November 1, 1995, filed as
Exhibit 10.9 to Loehmann's Holdings, Inc.'s
Registration Statement on Form S-1 (Registration No.
33-97100) and incorporated herein by reference.
10.4 Amendment No. 2 to Employment Agreement among
Loehmann's Holdings, Inc., Loehmann's, Inc. and
Philip Kaplan dated as of April 5, 1996, filed as
Exhibit 10.10 to Loehmann's Holdings, Inc.'s
Registration Statement on Form S-1 (Registration No.
33-97100) and incorporated herein by reference.
10.5 Agreement among Loehmann's Holdings, Inc.,
Loehmann's, Inc. and Robert N. Friedman dated as of
November 1, 1995, filed as Exhibit 10.11 to
Loehmann's Holdings, Inc.'s Registration Statement on
Form S-1 (Registration No. 33-97100) and incorporated
herein by reference.
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<PAGE>
10.6 Amendment No. 1 to Employment Agreement among
Loehmann's Holdings, Inc., Loehmann's, Inc. and
Robert N. Friedman dated as of April 5, 1996, filed
as Exhibit 10.12 to Loehmann's Holdings, Inc.'s
Registration Statement on Form S-1 (Registration No.
33-97100) and incorporated herein by reference.
10.7 Compensation/Consultation Agreement between
Loehmann's Holdings, Inc. and Norman Matthews, filed
as Exhibit 10.8 to Loehmann's Holdings, Inc.'s
Registration Statement on Form S-1 (Registration No.
33-25718) and incorporated herein by reference.
10.8 Loehmann's, Inc. Amended and Restated Deferred Profit
Sharing Plan, effective January 31, 1993, filed as
Exhibit 10.15 to Loehmann's Holdings, Inc.'s
Registration Statement on Form S-1 (Registration No.
33-97100) and incorporated herein by reference.
10.9 Loehmann's Holdings, Inc. 1988 Stock Option Plan,
filed as Exhibit 10.10 to Loehmann's Holdings, Inc.'s
Registration Statement on Form S-1 (Registration No.
33-25718) and incorporated herein by reference.
10.10 Non-Qualified Stock Option Agreement dated September
30, 1988 between Loehmann's Holdings, Inc. and Philip
Kaplan, filed as Exhibit 10.11 to Loehmann's
Holdings, Inc.'s Registration Statement on Form S-1
(Registration No. 33-25718) and incorporated herein
by reference.
10.11 Loehmann's, Inc. New Stock Incentive Plan, filed as
Exhibit 10.18 to Loehmann's, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-97100) and
incorporated herein by reference.
10.12 Executive Incentive Compensation Plan, filed as
Exhibit 10.13 to Loehmann's Holdings, Inc.'s
Registration Statement on Form S-1 (Registration No.
33-25718) and incorporated herein by reference.
10.13 Non-Qualified Stock Option Agreement dated as of
December 10, 1993 between Loehmann's Holdings, Inc.
and Norman S. Matthews, filed as Exhibit 10.15 to
Loehmann's Holdings, Inc.'s Registration Statement on
Form S-4 (Registration No. 33-71922) and incorporated
herein by reference.
10.14 Employment Agreement between Loehmann's, Inc. and
Robert Glass, dated as of February 27, 1998.+
10.15 Consulting Agreement between Loehmann's, Inc. and
Philip Kaplan, dated as of April 3, 1998.+
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10.16 Severance Agreement between Loehmann's, Inc. and
Bonnie Dexter-Wolterstorff, dated January 9, 1998.*
10.17 Form of Agency Agreement between Loehmann's, Inc. and
a joint venture of Gordon Brothers Retail Partners,
LLC and The Ozer Group, LLC, dated February 27,
1998.*
[^]
23 Consent of Independent Auditors.+
24 Powers of Attorney.+
27 Financial Data Schedule.+
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended January 31, 1998.
- --------------
* Filed herewith
+ Previously filed
59
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SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to its
Annual Report on Form 10-K to be signed on its behalf by the undersigned
thereunto duly authorized.
LOEHMANN'S, INC.
Dated: February 11, 1999 By: /s/ Robert Glass
--------------------
Robert Glass, President, Chief
Operating Officer, Secretary and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
- --------- ----- ----
* Chairman of the Board and Director
- ----------------------
Norman S. Matthews
* Chairman, Chief Executive Officer and
- ---------------------- Director
Robert N. Friedman
/s/ Robert Glass Director
- ----------------------
Robert Glass
* Senior Vice President, Finance, Chief
- ---------------------- Financial Officer, and Chief Accounting
Dennis R. Hernreich Officer
* Director
- ----------------------
Philip Kaplan
* Director
- ----------------------
Janet A. Hickey
* Director
- ----------------------
Richard E. Kroon
Director
- ----------------------
Christina A. Mohr
* Director
- ----------------------
Arthur E. Reiner
* Director
- ----------------------
Cynthia R. Cohen
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<PAGE>
* Director
- ----------------------
Lorrence T. Kellar
* By: /s/ Robert Glass
--------------------
Robert Glass
Attorney-in-fact
Dated: February 11, 1999
EXHIBIT 10.16
January 9, 1998
TO: BONNIE DEXTER-WOLTERSTORFF
FROM: LINDA NASH MERKER
This letter is to confirm our mutual understanding of the arrangement you have
discussed and agreed upon with respect to your Separation from Loehmann's Inc.
The following provisions represent both your benefit entitlement and the
additional considerations which have been agreed upon in order to reach this
agreement. As agreed, neither the specific terms nor the existence of this
agreement will be disclosed by you to anyone except as required by law or for
the purpose of obtaining advice as provided for herein.
1. Your employment with Loehmann's will be final on February 3, 1998. All verbal
or written inquiries made of either Loehmann's, Inc. or members of the Senior
Management team, will be responded to with a confirmation of Voluntary
Resignation versus Termination.
2. If the terminated member of senior management has not obtained other
employment at the end of her severance, Loehmann's agrees to pay, on a month to
month basis, her salary for a period of up to and including six (6) months.
During this time, severance will be terminated if she accepts other employment
and will be mitigated if employment is of a non-permanent nature. These
payments, unless otherwise terminated by acceptance of other employment, will
continue even if the Company is sold or enters into any form of Bankruptcy
(Chapter 11 or 7).
3. For the period 3/l/98 through 2/28/99, if Ms. Dexter-Wolterstorff has not
obtained other employment with available coverage, she will continue to have
group medical insurance at no cost to her. Beginning on 3/l/99, if she has not
obtained other employment which entities her to benefits, she will be eligible
to continue
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health coverage in accordance with COBRA, for the remaining six (6) months or
until otherwise eligible for health care coverage, whichever occurs first.
4. Your regular 401K benefits will be payable to you in accordance with the
terms of the 401K Plan. These payments will be made in accordance with the terms
of the 401K Plan for a resignation or retirement, not termination.
5. All of your vested stock options, including vested 1997 options, will be made
available to you to purchase and sell after 2/3/98.
6. You understand that any and all payments, encompassed within items 1 through
5 above, will be subject to such tax treatment as applies, and to such
deductions, if any, as may be required under applicable tax laws.
7. Upon completion of all severance payments, if you have not accepted other
employment, Loehmann's, Inc. will not contest any claim made for unemployment
benefits.
8. You agreed that you will take no action which is intended, or would
reasonably be expected, to harm Loehmann's Inc., the officers or employees of
each ("the Company"), impair the Company's reputation, or lead to unwanted or
unfavorable publicity to the Company, nor will you disclose any confidential or
proprietary information obtained by you in the course of your employment.
Nothing herein shall preclude you from accepting any other employment, including
employment with a competing retailer.
9. Loehmann's, Inc., the officers or employees of each ("The Company") agree
that they will take no action which is intended, or would reasonably be
expected, to harm Bonnie Dexter-Wolterstorff, impair her reputation, or lead to
unwanted or unfavorable publicity concerning her.
10. You agree that the terms, existence and circumstances surrounding this
Agreement shall be and remain confidential and shall not be disclosed to anyone
except as required by law or for the purpose of obtaining advice as provided for
herein.
11. In consideration for the Company's commitment to the various arrangements
described in the preceding paragraphs, and in lieu of any other benefits of
payments, as a full and final mutual settlement, you hereby release and
discharge Loehmann's Inc., and the current and former directors, officers,
shareholders, agents and employees of each, and each of their predecessors,
successors and assigns, (herein "The Loehmann's Entity") from any and all claims
and causes of action (except for the payments and benefits specifically set
forth in this Agreement) arising out of or related to your employment or
separation from employment,
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including, but not limited to, any claims for severance pay, vacation pay, or
other compensation, race, color, national origin, ancestry, religion, marital
status, sexual orientation, pregnancy, disability (as defined by the Americans
with Disabilities Act, or any other federal, state or local law), age or other
unlawful discrimination (under the Age Discrimination in Employment Act, as
amended by the Older Workers Benefit Protection Act of 1990, Title VII of the
Civil Rights Act, as amended, or any other federal, state, or local laws),
breach of implied or express contracts, breach of promises, misrepresentation,
fraud, estoppel or wrongful discharge, that you, your heirs, executors,
administrators, successors, and assigns now have, ever had or may hereafter
have, whether known or unknown, suspected or unsuspected, up to and including
the date of this Agreement. It is further agreed that you have not and will not
institute any complaint, lawsuit, or action at law or otherwise against the
Loehmann's Entity and shall hold the Loehmann's Entity harmless against such
actions (except, of course, for the right to the various payments and benefits
specified in this Agreement which describes the complete arrangements to which
we agree).
12. It is expressly understood and agreed that this settlement and the
effectuation of its terms do not constitute an admission or statement by any
party that Loehmann's has acted unlawfully or is otherwise liable. It is further
agreed that evidence of this settlement, its terms or the circumstances
surrounding the parties entering into this Agreement, shall be inadmissible in
any action or lawsuit of any kind, except an action for alleged breach of this
Agreement.
13. This agreement contains the entire understanding of the parties hereto and
supersedes and revokes any and all prior agreements, discussions, negotiations
or understandings between the parties.
14. You agree to return to Loehmann's all documents, software, equipment, and
all other materials belonging to Loehmann's, including but not limited to, your
Loehmann's computer, modem, printer, identification, keys, etc., wherever such
items may be located, together with all copies (in whatever form they exist) of
all materials related to your employment or obtained or created in the course of
your employment with Loehmann's.
15. If any section of this Agreement should be held invalid by operation of law
or by any tribunal of competent jurisdiction, or if compliance with or
enforcement of any section is restrained by such tribunal, the application of
any and all other sections, other than those which have been held invalid, shall
not be affected.
16. You have the right to consult with an attorney to review this Agreement and
are encouraged to do so.
4
<PAGE>
17. You have twenty-one (21) days to consider this Agreement from the date it
was first given to you although you may accept it anytime within those
twenty-one (21) days.
18. You have seven (7) days after signing this Agreement to revoke it by
notifying Loehmann's, in writing, of such revocation within the seven (7) day
period. However, if you do not revoke your signature, the Agreement will become
effective on the eighth day after you sign it ("Effective Date").
If the arrangements we have discussed and agreed upon are accurately set forth
above, please confirm your approval and acceptance of our agreement by signing
the enclosed copy of this Agreement, and returning the copy to me.
Linda Nash Merker
Vice President-Human Resources
I acknowledge that I have carefully read this agreement and understand
all of its terms including the full and final release of claims set
forth above. I further acknowledge that I have voluntarily entered into
this agreement, that I have not relied upon any representation or
statement, written or oral, not set forth in this agreement and that I
have been given the opportunity and encouraged to have this agreement
reviewed by my attorney and tax advisor. I also acknowledge that I have
been afforded 21 days to consider this agreement and that I, or
Loehmann's, have 7 days after signing this agreement to revoke it by
notifying the other party, in writing, of such revocation. If neither
party has revoked this agreement, the agreement will become effective
on the eighth day after I have signed it (the "effective date").
- ---------------------------------
- ---------------------------------
DATE
5
EXHIBIT 10.17
AGENCY AGREEMENT
This Agency Agreement is made this 27th day of February, 1998 by and
between a joint venture of Gordon Brothers Retail Partners, LLC, a Massachusetts
limited liability company with a principal place of business at 40 Broad Street,
Boston, Massachusetts 02109 and The Ozer Group, LLC, a Massachusetts limited
liability company with a principal place of business at 75 Second Avenue,
Hillsite Office Building, Needham, MA 02194 (the "Agent") and Loehmann's, Inc.
(the "Merchant.")
WHEREAS, the Merchant operates and desires that the Agent act as the
Merchant's exclusive sales agent for the limited purpose of conducting the Sale
at the Stores (as such terms are hereinafter defined.)
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth hereinafter and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Agent and the Merchant
hereby agree as follows:
1. Agency Appointment
(a) The Agent shall serve as the Merchant's exclusive agent to
conduct "store closing" or similar sales (the "Sales") of all inventory assets
as further defined in subsection 2(c) hereof (the "Merchandise") from Merchant's
eight (8) stores located at the locations set forth on Exhibit 1(a) hereto and
Merchants store located in Sawgrass Mills ("Sawgrass") as described in Exhibit 1
(b) hereto (collectively, the "Stores.") It is expressly agreed that Agent shall
be entitled to advertise the Sale consistent with the preceding sentence. All
such advertising will be submitted to the Merchant for approval, which approval
shall not be unreasonably withheld. Absent a response from the Merchant with
regard to Agent's request for such approval within one business day of
Merchant's receipt of Agent's request, such advertising will be deemed approved.
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<PAGE>
(b) Merchant and Agent agree that the Sale at Sawgrass shall
be governed by the terms of Exhibit 1(b) attached hereto, and that (i) except to
the extent specifically referenced in Exhibit 1(b), all of the terms of this
Agreement shall control as to Sawgrass, and (ii) in the event of a conflict
relating to the terms of Sale at Sawgrass, the provisions of Exhibit 1(b) shall
control as to Sawgrass only.
2. Merchandise
(a) Inventory
The Agent shall cause to be taken a "Retail Price" and SKU
physical inventory (as hereinafter defined) of the Merchandise, as defined in
subsection 2(c), to be conducted beginning at the close of business at the
Stores on March 5, 1998 ("Inventory Date") and no sales shall be transacted
during the taking of the inventory. Merchant and Agent shall jointly employ RGIS
or Washington Inventory Service to conduct such inventory, and Merchant and
Agent each shall pay 50% of the costs and fees of such inventory taking service.
Other than such costs and fees, each of Merchant and Agent shall bear their own
costs relative thereto. Merchant and Agent shall each have representatives
present during the inventory taking and each shall have the right to review and
verify the listing and tabulation of the inventory count as provided by the
inventory taking service. The procedures to perform the inventory taking and its
verifications are set forth in Exhibit 2(a). Prior to the inventory taking,
Agent shall have full access to all pricing files and all documents and files of
Merchant relative to the actual costs and Retail Prices of the Merchandise.
(b) Valuation
For purposes of this Agreement "Retail Price" shall mean the
lowest ticketed price offered to the public as of the physical inventory taking,
subject to a verification that (a) no tickets have been marked up since February
6, 1998; (b) all ticketing, including ticketing of on-order inventory received
from today to the date of the physical inventory, will be done in accordance
with Merchant's customary, historic and ordinary ticketing practices and
consistent with current ticketing (subject to Sections 2(c) and 2(d) hereof);
and (c) all normal course hard markdowns
2
<PAGE>
have been taken consistent with past and customary practices (subject to
Sections 2(c) and 2(d) hereof.)
(c) Merchandise Subject to this Agreement
For purposes hereof, Merchandise shall mean all Merchandise
inventory that is located at the Stores from today, including goods received at
the Stores prior to and during the inventory taking in the ordinary course of
business; inventory transferred from Merchant's remaining operating stores, as
"clearance" goods, as herein defined; and "defective" goods. "Clearance" goods
are goods which prior to the Inventory Date are being transferred to the Stores
(at Merchant's cost and expense but with Agent's oversight and direction) from
Merchant's other ongoing stores, all of which either shall reflect at least a
25% hard markdown or shall be valued as if at least a 25% markdown were taken,
if such hard markdown is not so reflected. If such hard markdown is not so
reflected on any item within a given SKU, then the markdown to be applied shall
be consistent with the hard markdown on other items within such "Clearance"
Merchandise is more particularly described in Exhibit 2(b) hereto as to
quantity, mix and category. "Defective" goods are goods agreed upon and
identified by Merchant and Agent as defective or otherwise not salable in the
ordinary course during the inventory taking process because they were dented,
scratched, torn, worn, part of a set, dated, mismatched, has broken parts or
contain other characteristics making them not "first quality." Display
Merchandise shall not be deemed defective per se. If Merchant and Agent cannot
agree on the value of an item that is Defective, then such item shall be
excluded from Merchandise for purposes of this Agreement and shall be subject to
Section 2(e) hereof. On the Inventory Date, as a consequence of transfer and
ordinary course sale activity, no more than 90% of the Merchandise at Retail
Price shall be Clearance and no less than 10% of the Merchandise will be regular
price, non-Clearance items (representing items received from vendors after
December, 1997 and January, 1998.) Merchandise shall not include goods held by
Merchant on consignment; goods retained by Merchant as bailee; furnishings,
fixtures and equipment; goods subject to "special order"; and goods on layaway
or held for repair. Merchant shall remain
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<PAGE>
responsible for processing and handling all goods referred to in the preceding
sentence, and contracts relating thereto, and Agent shall have no cost, expense
or responsibility in connection therewith.
(d) Supplies
Supplies (e.g. boxes, bags) shall not be redirected or
directed by Merchant between or among Stores prior to the Inventory Date so as
to alter the relative supplies levels of the Stores from that existing on the
date hereof. Merchant does not represent that adequate stocks of supplies are or
will be available at the Stores as of the Sale Commencement Date, but additional
supplies will be made available to the Sale as needed, with Merchant's cost to
provide the additional supplies being an Expense (as defined in Section 3(c)(ii)
herein.)
(e) Defective Goods
If, at the time of the inventory taking, Merchant and Agent
cannot agree on the value of an item that is defective goods, Merchant shall
retain title to any defective goods not included as "Merchandise" as defined in
Section 2(d). Agent shall accept these goods from Merchant for sale as "Merchant
Consignment Goods" at prices established by the Agent. The Agent shall receive
30% of the sale price for all sales of Merchant Consignment Goods, and Merchant
shall retain 70% of the sales prices thereof. Agent shall pay to Merchant such
70% amount on each Wednesday during the Sale Term on account of sales of
Merchant Consignment Goods during the Prior week (Sunday through Saturday.)
3. Sale
(a) Term
The Sale shall commence as soon as those conditions set forth
in Section 6 hereto are satisfied or met (the "Sale Commencement Date") but in
no event later than March 6, 1998 so that the advertised portion of the Sale can
commence by March 6, 1998. The Agent shall complete the Sale no later than
eighty (80) days (after the Sales Commencement Date, and shall have the
discretion to terminate the Sale as to any Store at any time within that time
frame, unless the Sale is extended by mutual written agreement of Agent and
Merchant (the "Sale
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Termination Date.") If Agent terminates the Sale as to any particular Store
prior to the Sale Termination Date, Agent may consolidate goods remaining
therein in other Stores. The period from the Sale Commencement Date to the Sale
Termination Date at a Store shall be hereinafter referred to as the "Sale Term."
(b) Rights of Agent
The Agent shall conduct the Sale during the Sale Term in the
name of and on behalf of the Merchant in a commercially reasonable manner. The
Agent, in the exercises of its sole discretion, however, shall be entitled (i)
to establish and implement advertising and promotion programs subject to Section
1, (ii) to establish Sale prices, (iii) to use, during the Sale Term and for
purposes of selling the Merchandise, and Merchant Consignment Goods, without
charge, all customer lists, credit card facilities, computer hardware and
software, furniture, fixtures, equipment, advertising materials, supplies,
intangible assets (including Merchant's name, logo, and tax I.D. numbers) and
other assets of Merchant whether owned, leased, or licensed which will be
returned to Merchant at the end of the Sale Term, and have not been used (e.g.
supplies) or otherwise disposed of through no fault of Agent, (iv) to use the
Merchant's personnel, to the extent that the Agent, in the exercise of its sole
discretion, shall deem appropriate, (v) to have access to the Stores upon the
execution of this Agreement to prepare for the Sale and to prepare for the Sale
in a manner so as not to disrupt Merchant's on going business operations, and
thereafter, and to use all Store keys, case keys, security codes, and safe and
lock combinations to gain access to and to operate the Stores, and (vi) to
transfer Merchandise between Stores. All sales of Merchandise and Merchant
Consignment Goods will be "final sales" and "as is" and all advertisements and
sales receipts will reflect the same. Agent shall not warrant the Merchandise or
Merchant Consignment Goods in any manner, but will pass to the customers,
manufacturers; warranties to the extent transferable. Merchant shall indemnify
and hold harmless Agent for all liabilities and costs of whatever kind related
to or resulting from any consumer warranty or products liability claims
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relating to the Merchandise and Merchant Consignment Goods, and at Agent's cost,
Agent shall be added as an insured on Merchant's product liability insurance
coverage.
(c) Obligations of Agent
(i) During the Sale Term, the Agent shall collect from Sales
at the Stores all Salerelated sales, excise and gross receipts taxes payable to
any taxing authorities having jurisdiction, which taxes shall be added to the
sales price and shall be paid by the customer. The Agent shall reimburse
Merchant for sales taxes collected as part of the weekly reconciliation between
Merchant and Agent. Agent agrees to cooperate with the Merchant at Merchant's
request as it relates to questions from taxing authorities. So long as Agent
complies with the provisions of this subsection, the Merchant shall indemnify
and hold harmless the Agent from and against any and all costs including, but
not limited to, reasonable attorneys' fees, assessments, fines or penalties
which the Agent sustains or incurs as a result or consequence of the failure by
the Merchant to promptly pay such taxes to the proper taxing authorities and/or
the failure by the Merchant to promptly file with such taxing authorities any
and all reports and other documents required, by applicable law, to be filed
with or delivered to such taxing authorities.
(ii) The Agent shall pay, or if paid by Merchant, reimburse
Merchant for, Storelevel operating expenses of the Sales which arise during the
Sale Term at the Stores, but not limited to the following: base payroll
(including on average $1,500 per Store to be funded by Agent to pay bonuses to
Store level employees), payroll related expenses (excluding Merchant providing
central administrative services for the Sale, including, home office payroll
processing, sales audit, cash reconciliation, data processing and other
services, as needed by Agent and which Merchant shall provide to Agent during
the Sale Term) and benefits (not to exceed 20% of payroll); inventory insurance;
Agent's sale supervisors' fees and travel costs; in-store signage; credit card
fees and discounts (at Merchant's customary rates) and chargebacks; costs of
Merchandise transfers among the Stores during the Sale Term; advertising and
signage; and long-distance telephone expenses (collectively, the "Expenses.")
"Expenses" shall also include Occupancy (which
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is limited to rent, percentage rent, CAM, utilities, real estate and use taxes,
Merchant's Associations dues and charges, trash removal, cash register
maintenance, building insurance, utilities, HVAC, building and store maintenance
and structural repair during the Sale Term on a per store per diem basis per
Exhibit 3(a) based upon actual charges.) Expenses specifically excludes any
other costs and expenses payable by Merchant (including but not limited to costs
resulting from administration of matters such as layaways, store credits and
gift certificates, which shall be the responsibility of Merchant); employee
benefit costs (such as but not limited to pension, health, sick pay or leave,
maternity or other leaves of absence, ERISA coverage, vacation or severance
benefits except as they fall under the 20% cap) other costs and expenses not
enumerated above; labor, handling and freight to transfer Merchandise to the
Stores prior to the Inventory Date; central administrative services necessary
for the Sale; and rental for furniture, fixtures and equipment except as such
rental's are ordered by Agent. All Expenses shall be paid to or on behalf of
Merchant by Agent on each Wednesday for the prior week's (i.e. Sunday through
Saturday) Expenses including the Wednesday following the Sale Termination Date.
(iii) During the Sale Term, the Merchant shall process the
base payroll for all Merchant employees utilized by the Agent. Such employees
will be identified by Agent prior to the Sale Commencement Date. Agent may
terminate such employees at any time during the Sale, and will use best efforts
to notify any employee to be terminated at least seven (7) days prior to
termination, except for a termination "for cause" such as dishonesty, fraud or
breach of employee duties. Each week during the Sale Term the Agent shall pay to
Merchant, or shall deposit to an account designated by the Merchant, the base
payroll plus related payroll taxes. Base payroll and related payroll taxes of
employees are designated on Exhibit 3(b) hereto. Merchant shall not transfer
employees from or between Stores without Agent's consent. The Agent shall not be
responsible for reimbursement or payment of any other compensation or costs due
to employees, including but not limited to vacation pay, severance pay, sick
pay, leaveofabsence pay, or pension benefits or amounts
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required to be paid by statute or law. Nothing herein shall make Agent liable
under any collective bargaining or employment agreement, nor shall Agent be
deemed a joint or successor employer.
(iv) Except as specifically set forth in this Agreement, the
Agent shall not assume, nor shall its actions be construed as an assumption of,
any of the Merchant's liabilities or obligations. The Merchant shall indemnify
and hold the Agent harmless in respect to all claims, if any, for those
obligations and liabilities not specifically assumed by Agent hereunder. The
Agent shall indemnify and hold the Merchant harmless in respect to all claims,
if any, for those obligations and liabilities specifically assumed by Agent
hereunder.
4. Proceeds
(a) For purposes of this Agreement, Proceeds shall mean the
total amount (in dollars) of all sales of Merchandise made under this Agreement
(exclusive of sales excise and gross receipt taxes; credit card fees; and,
returns, allowances and customer credits). All sales will be made only for cash
and by credit cards currently accepted by Merchant. The Agent shall accept
Merchant gift certificates, store credits and due bills issued in accordance
with Merchants historic policy prior to the Sale Commencement Date but the
amount thereof will not be Proceeds. Agent also shall accept returns of goods
sold within fourteen (14) days prior to the Sale Commencement Date in accordance
with Merchant's historic return policy, but the amount thereof will not be
proceeds. Merchant shall reimburse Agent for all gift certificates, stores
credits, due bills and returns which are honored pursuant to this Agreement. All
such reimbursement shall be applied as offset to the weekly payment of Expenses
provided for in Section 3(c)(ii) hereof. If requested by Merchant, Agent shall
purchase such returned goods that are resalable, from Merchant, at that Retail
Price (applicable to that category of Merchandise as if such returned item were
"Merchandise" hereunder) multiplied by the inverse of the applicable discount at
the time of the return, multiplied by twenty-four percent (24%).
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(b) All Proceeds shall be deposited in special agency
accounts, but the Agent shall have sole signatory authority and control over
such accounts. Merchant shall execute and deliver all necessary documents to
open and maintain the accounts.
5. Payment
(a) Payment Amount
The Merchant shall receive from Agent the sum of twenty four
percent (24%) of the Retail Price of the Merchandise based upon the inventory
taking (the "Guaranteed Amount.")
(b) Time of Payment
Agent shall pay 90% of the estimated Guaranteed Amount to
Merchant by wire funds transferred on March 6, 1998 which shall be the Sale
Commencement Date and the day following the inventory taking by the inventory
taking service and the balance of the actual Guaranteed Amount upon
reconciliation of the inventory by Merchant and Agent which shall be no later
than March 11, 1998, which shall be five (5) days following completion of the
inventory taking.
(c) Agent's Payments
The Merchant shall not be entitled to the payment of any other
monies from the Sale or otherwise, except as specified in this Agreement. The
remaining Proceeds (after payment of sales taxes, credit card fees and Expenses)
shall belong to Agent in consideration of goods and services provided by Agent
hereunder. All Merchandise remaining at the conclusion of the Sale shall become
the property of Agent, free and clear of all liens, claims and encumbrances of
any kind or nature whatsoever.
6. Conditions
The Agent's and Merchant's willingness to enter into the transaction
contemplated hereunder and Agent's and Merchant's obligations hereunder are
directly conditioned upon the satisfaction, compliance, and completion of the
following:
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(a) The Merchant having obtained all government permits and
consents necessary to conduct the Sale and any other necessary governmental
approvals.
(b) The Merchant having obtained all other consents and
approvals, whether required by contract or otherwise (including those of
landlords for the Stores) necessary to consummate and perform the transaction
herein contemplated.
(c) The Merchant having executed and delivered to Agent a
Security Agreement in the form of Exhibit 6 hereto and accompanying Uniform
Commercial Code financing statements sufficient to grant to Agent a valid and
perfected, first priority security interested in the Merchandise.
(d) The Merchant possessing and the Agent having the right to
the undisturbed and unencumbered use and occupancy of, and the peaceful and
quiet possession of, the Stores and assets currently located thereat and the
services provided thereto.
(e) The Merchant continuing to operate the Stores in the
ordinary course of business from the date hereof to the Sale Commencement Date,
selling Merchandise during said period at prices currently charged therefor, not
promoting or advertising any "sales" or instore promotions to the public, and
not making any management personnel moves or changes. If any casualty or act of
God substantially inhibits the conduct of business in the ordinary course at any
Store, such Store and Merchandise thereat shall be deleted from this Agreement.
All Clearance Merchandise shall have been identified either on the tickets or
otherwise, and any other Merchandise at the Stores which are the same
SKU/category as Clearance Merchandise also shall have been identified as
Clearance Merchandise for purposes of this Agreement.
(f) Prior to and during the Sale Term, Merchant shall not
issue any communications about or concerning the Sale without Agent's prior
consent, which will not be unreasonably withheld.
(g) The inventory taking shall have been completed at each
Store, and the inventory taking service shall have issued its final report to
Merchant and Agent.
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7. Representations and Warranties
(a) The Merchant hereby makes the following representations
and warranties to the Agent, which shall survive the execution and delivery of
this Agreement:
(i) The Merchant is a corporation, duly organized
validly existing and in good standing under the laws of Delaware and has the
corporate power and authority to own, lease and operate its assets, properties
and business and to carry on its business as now being conducted.
(ii) The Merchant has the right, power and authority
required to execute, deliver and perform fully its obligations hereunder. This
Agreement has been duly executed and delivered by the Merchant and constitutes
the valid and binding obligation of the Merchant enforceable in accordance with
its terms. No court order or decree of any federal, state, or local government
authority or regulatory body is in effect that would prevent or impair
consummation of the transactions contemplated by this Agreement, and no consent
of any third party other than that obtained by Merchant is required therefor.
(iii) The Merchant has operated the Stores in the
ordinary course of business consistent with historical operations and has not
conducted any promotions or advertised sales except promotions and sales in the
ordinary course of business prior to the Inventory Date consistent with historic
promotions and sales for comparable periods last year described in the
promotional calendar provided to Agent as Exhibit 7(a).
(iv) The Merchant is authorized to conduct business
in all States in which the Stores are located and has all licenses, permits and
authorizations of governmental bodies necessary therefor.
(v) The Merchandise is owned free and clear of liens,
claims and encumbrances, except for the liens listed on Exhibit 7(b) hereof.
(vi) Since February 6, 1998, Merchant has maintained
its pricing files of the Merchandise of the Stores in the ordinary course and
prices charged to the public for the
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Merchandise (whether in-store, by advertisement or otherwise) are the same as
set forth in the said pricing files as of and for the periods indicated, except
for the promotions and sales described in Section 7(a)(iii). Merchant shall
identify and provide, as requested by Agent, copies of all pricing files and
records since September 1, 1997 as to all Merchandise in the Stores, and same
are true and accurate as to the actual cost to Merchant for purchasing the said
Merchandise and as to the selling price to the public therefor as of the dates
and for the periods of such files and records.
(vii) As of the Inventory Date, the levels of
Merchandise (as to quantity) and the mix of Merchandise (as to the type,
category, style, brand and description) at the Stores (except Sawgrass Mills)
will be no less than $9.0 million or more than $9.5 million per Exhibit 2(b)
attached.
(viii) There has been since September 1, 1997, and
currently is, no threatened or pending legal, administrative or other proceeding
with respect to the Stores or any inventory transferred to the Stores pursuant
to Section 2(d) hereof which would in any way impact Merchant's responsibilities
hereunder. There has not been since September 1, 1997, and there is, no event,
report, proceeding or matter concerning or affecting the business of Merchant or
its assets which had, has or may have a material adverse impact on the business
of Merchant.
(b) The Agent represents and warrants to Merchant as follows,
which representations and warranties shall survive the execution of this
Agreement:
(i) The Agent is a joint venture, duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts and has the power and authority to consummate the transactions
contemplated hereby.
(ii) The Agent has the right, power and authority to
execute and deliver this Agreement and perform its obligations hereunder and has
taken all necessary action required to authorize the execution, delivery and
performance of this Agreement and no further approval is required for the Agent
to enter into and deliver this Agreement and to perform its obligations
hereunder.
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(iii) This Agreement has been duly executed and
delivered by the Agent and constitutes the legal, valid and binding obligation
of the Agent enforceable against the Agent in accordance with its terms subject
only to any applicable bankruptcy, insolvency or similar laws affecting the
rights of creditors generally. No court order or decree of any federal, state,
or local governmental authority or regulatory body is in effect that would
prevent or impair or is required for the Agent's consummation of the
transactions contemplated by this Agreement and no consent of any third party is
required therefor. No contract or other agreement to which the Agent is a party
or by which the Agent is otherwise bound will prevent or impair the consummation
of the transactions contemplated by this Agreement.
(iv) The Agent does not hold or represent any
interest adverse to, or have any relationship with the Company, its agents or
employees.
(v) To the Agent's knowledge, no actions or
proceedings have been instituted by or against the Agent, or have been
threatened, which question the validity of this Agreement or any action taken or
to be taken by the Agent in connection with this Agreement or that, if adversely
determined, would have a material adverse effect upon the Agent's ability to
perform its obligations under this Agreement.
(vi) No actions or proceedings (including, but not
limited to, bankruptcy or other insolvency proceedings) have been instituted
against the Agent or, to its knowledge, are threatened or are likely to be
instituted against the Agent.
8. Insurance
(a) Until the expiration of the Sale Term, the Merchant shall
continue in force all insurance in such amounts as it currently has in effect
which the Merchant represents is accurately shown on Exhibit 8(a) attached
hereto. The Agent shall be named as an additional insured and loss payee, as its
interests may appear, on all such insurance policies, as applicable. The Agent
shall reimburse the Merchant for costs of inventory insurance (which is defined
as an Expense) during the Sale Term upon receipt of an invoice therefor from the
Merchant.
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(b) During the Sale Term, the Agent shall maintain, at its
cost, comprehensive public liability insurance for injury to property and
persons in amounts per Exhibit 8(b) hereto, naming Merchant as an additional
insured, as its interests may appear. Agent shall be liable for any deductibles
on Agent's property and general liability insurance policy.
9. Furniture, fixtures and equipment
At the Merchant's request, Agent either shall offer to purchase
furniture, fixtures and equipment at the Stores, or, if mutually agreeable terms
cannot be reached, shall arrange for the sale or disposition of furniture,
fixtures and equipment, in which case, in consideration of the Agent's efforts,
Agent shall retain 7.5% of the sales price received therefor, less sales taxes.
10. Defaults
The following shall be "Events of Default" hereunder:
(a) The Merchant or Agent shall fail to perform any material
obligation hereunder if such failure remains uncured seven days after written
notice thereof; or
(b) Any representation or warranty made by Merchant or Agent
proves untrue when made; or
(c) The Sale is terminated at a Store for reasons other than a
default, breach or action by Agent not authorized hereunder.
Any party's damages or entitlement to equitable relief on
account of an Event of Default shall be determined by a Court in the State of
New York.
11. Miscellaneous
(a) All communications provided for pursuant to this Agreement
must be in writing, and mailed by Federal Express or other overnight delivery
service, as follows:
If to the Agent: 40 Broad Street
Boston, MA 02109
Attn: Gary M. Kulp
75 Second Avenue
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Hillsite Office Building
Needham, MA 02194
Attn: Stephen Miller
If to the Merchant: 2500 Halsey St.
Bronx, New York 10461
Attn: Robert Glass
(b) This Agreement shall be construed and enforced in
accordance with the laws of the State of New York .
(c) This Agreement contains the entire agreement between the
parties hereto, and no variations shall be binding upon any party unless set
forth in a document duly executed by and on behalf of such party.
(d) No consent or waiver, express or implied, by any party, to
or of any breach or default by the other in the performance by the other of its
obligations hereunder shall be deemed or construed to be a consent or a waiver
to or of any other breach or default in the performance by such other party of
the same or any other obligations of such party. Failure on the part of any
party to complain of any act or failure to act by the other party or to declare
the other party in default, irrespective of how long such failure continues,
shall not constitute a waiver by such party of its rights hereunder.
(e) This Agreement upon execution shall inure to the benefit
of and be binding upon the undersigned, all parties in interest and their
respective successors and assigns.
(f) This Agreement may be executed in several counterparts,
each of which when so executed shall be deemed to be an original and such
counterparts, together, shall constitute one and the same instrument. Delivery
by facsimile of this Agreement or an executed counterpart hereof shall be deemed
a good and valid execution and delivery hereof.
IN WITNESS WHEREOF, the Agent and Merchant hereby execute this
Agreement by their duly authorized representative as a sealed instrument as of
the day and year first written above.
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GORDON BROTHERS RETAIL PARTNERS, LLC
By:
Its:
THE OZER GROUP, LLC
By:
Its:
LOEHMANN'S, INC.
By:
Its:
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