SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 25, 1997
-------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
AMES DEPARTMENT STORES, INC.
-------------------------------------------------
(Exact Name of Registrant as Specified In Its Charter)
DELAWARE 04-2269444
------------------------ --------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
2418 Main Street, Rocky Hill, Connecticut 06067
- ----------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (860) 257-2000
---------------
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
Common Stock, $.01 par value NASDAQ
Series B Warrants None
Series C Warrants NASDAQ
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----<PAGE>
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.
As of March 1, 1997, the aggregate market value of voting stock
held by non-affiliates of the Registrant was $188,074,635 based on the
last reported sale price of the Registrant's Common Stock on the NASDAQ
National Market System.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
----- -----
20,741,599 shares of Common Stock were outstanding on March 1, 1997.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the
Registrant's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after the end of the Registrant's fiscal
year are incorporated by reference in Part III.
Page 1 of 76 pages (including Exhibits) Exhibit Index on page 51
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
-----------------------
(a) GENERAL.
Ames Department Stores, Inc. and its subsidiaries
(collectively, "Ames" or the "Company") are retail
merchandisers. As of March 1, 1997, Ames operated 291 discount
department stores under the Ames name in 14 states in the
Northeast, Middle Atlantic and Mid-West regions and the
District of Columbia. The Company's stores are located in
rural communities, some of which are not served by other large
retail stores, high-traffic suburban sites, small cities and
several major metropolitan areas. The stores largely serve
middle and lower-middle income customers.
Ames is a Delaware corporation organized in 1962 as a
successor to a business originally founded in 1958. Ames was
reorganized in December, 1992 under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11"). The principal executive
offices are located at 2418 Main Street, Rocky Hill,
Connecticut 06067, and the telephone number is (860) 257-2000.
FISCAL 1996
The Company continued to improve operations and its long-
term competitive position during the fiscal year ended January
25, 1997 ("Fiscal 1996" or "1996"):
- REMODELING AND NEW STORES
The Company opened thirteen (13) new stores in Fiscal
1996, the largest number of new stores opened by the
Company in a single year since 1989. These feature Ames'
latest "customer-friendly" design format, including "soft
corners" that open up to highlight key departments such as
home electronics, domestics, furniture and seasonal
merchandise; an updated apparel presentation in the center
of the store; and customer service "call boxes" located
throughout the store to summon assistance. In addition,
the Company completed the full remodel of four (4) stores
in Fiscal 1996, incorporating many of the latest design
formats featured in the new stores.
- COST-REDUCTION INITIATIVES TO PURSUE GROWTH OPPORTUNITIES
The Company continued its efforts to reduce costs and
implement growth strategies during Fiscal 1996. The
closing of 17 underperforming stores, announced in
January, 1996, was completed in March, 1996. In August,
1996, the Company opened its state-of-the-art digital in-
house photo studio which is expected to save more than $1
million annually, while providing cutting-edge production
capability for its advertising circulars. In December,
1996, the Company announced several important initiatives
in its information services area for 1997; the addition of
up to ten new stores in 1997, seven of which have been
identified as of the date of this report; and the closing
of twelve (12) stores which was completed in February,
1997. A thirteenth will close in conjunction with the
opening of a new store in mid-summer, 1997. Included in
the information services initiatives will be the
installation of new point-of-sale and back-office hardware
and software in 30 stores in 1997. The new system is
expected to improve customer service as well as employee
productivity.<PAGE>
- ADVERTISING AND MARKETING PROGRAMS
The Company's 55 Gold Savings Card Program, which
provides a 10% discount each Tuesday on all merchandise
purchased by customers aged 55 or older, expanded to 1.6
million card holders. The Ames price-value promotional
strategy continued to be supported by the marketing theme
introduced in the prior year - Bargains By The BagfulSM -
and the merchandise values offered the customer by the
Special Buy program.
The Company believes its operating performance and the
availability of its financing facilities will provide
sufficient liquidity to allow the Company to meet its financial
obligations. The Company continually reviews the profitability
of its stores in the ordinary course of business and closes or
sells stores whose performance is thought to be inadequate.
The Company will consider relocating certain stores and opening
new stores, particularly in selected markets that would
reinforce marketing programs, enhance name recognition, and/or
achieve market penetration. The Company expects to open
between seven and ten new stores in the fiscal year ending
January 31, 1998 ("Fiscal 1997" or "1997").
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Ames operates self-service retail discount department
stores selling a broad range of merchandise. There are no
other reportable industry segments.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
(i) SERVICES, MARKETS AND DISTRIBUTION.
Ames sells primarily brand name general
merchandise, including the following items: family
apparel and accessories, shoes, housewares, home
furnishings, crafts, hardware and automotive
accessories, sporting goods, toys, small appliances
and consumer electronics, pre-recorded tapes and
compact discs, jewelry, health and beauty products,
household products, camera and photographic
supplies, pet products, party and paper products,
and school and office supplies. Although Ames
attempts to be competitive on everyday pricing, the
Company primarily employs a high/low promotional
pricing strategy with an emphasis on quality weekly
circular advertising. The Company will continue to
stress breadth of products in selected merchandise
categories; clean, neat and well-maintained
facilities; appealing merchandise presentation; and
customer service.
Merchandise is purchased centrally for all
stores by Ames associates at the Rocky Hill, CT
headquarters and is shipped by vendors either
directly to individual stores or to Ames'
distribution centers in Massachusetts and
Pennsylvania which then make deliveries to stores.
For the last three fiscal years, women's apparel
has been the only class of product that exceeded 10%
of total sales, accounting for an average of
approximately 13% of total sales. An average of
approximately 25% of sales for the last three fiscal
years were made using third party credit cards and
the remainder were made by cash or check.<PAGE>
The table below sets forth the number of retail stores in
operation in each state at the end of each of the last three fiscal
years.
<TABLE>
<CAPTION>
Stores in Operation at Fiscal Year End
--------------------------------------
1996(a) 1995(b) 1994(c)
--------- --------- --------
<S> <C> <C> <C>
Connecticut 15 15 15
Delaware 4 4 4
District of Columbia 1 1 1
Maine 23 28 28
Maryland 25 25 25
Massachusetts 33 32 31
New Hampshire 18 18 18
New Jersey 9 6 5
New York 75 81 81
Ohio 11 11 11
Pennsylvania 56 53 54
Rhode Island 7 7 7
Vermont 13 13 13
Virginia 6 6 6
West Virginia 7 7 7
--- --- ---
Total 303 307 306
=== === ===
<FN>
(a) Includes thirteen (13) stores to be closed in 1997: Maine
(1), Maryland (2), Massachusetts (1), New Hampshire (1), New
York (3), Ohio (4) and Vermont (1); and includes one (1)
Pennsylvania store closed as a result of flooding in January,
1996. In March, 1997, it was determined that this store
would not be re-opened.
(b) Includes seventeen (17) stores in the process of closing
at year-end.
(c) Includes one Pennsylvania store in the process of closing
at year-end.
</TABLE>
(ii) NEW PRODUCTS.
The introduction of new products was not significant to
the business of the Company for Fiscal 1996.
(iii) RAW MATERIALS.
The Company does not rely on any one or a few suppliers
for a material portion of its purchases, and there is
no current or anticipated problem with respect to the
availability of merchandise.
<PAGE>
(iv) PATENTS, TRADEMARKS AND LICENSES.
The mark "Ames" is registered with the United States
Patent and Trademark Office. The Company considers
this mark and the associated name recognition to be
valuable to its business. The Company has a
significant number of other trademarks, trade names,
and service marks, some of which, such as "Crafts &
More " "Pawsitively Pets and "Party Plaza " are used
in connection with certain of the Company's specialty
departments within the stores. Although the Company
considers these additional marks and its patents and
licenses to be valuable in the aggregate, none of them
individually is currently considered to have a material
impact on the Company's business.
(v) SEASONALITY OF BUSINESS.
The Company's sales are greater during the second half
of the fiscal year as a result of the back-to-school
and Christmas shopping seasons. Sales are highest in
the last fiscal quarter.
(vi) WORKING CAPITAL.
As of January 25, 1997, the Company's current ratio
(current assets divided by current liabilities) was 1.4
to 1.0. See Item 7(b) - Management's Discussion and
Analysis - Liquidity and Capital Resources for
discussion of liquidity and plans to meet future
liquidity needs.
The demand for working capital is heaviest in April and
May, and from August through November, when sufficient
merchandise must be purchased for the spring,
back-to-school and Christmas seasons, respectively.
(vii) CUSTOMERS.
No material part of the Company's business is dependent
upon a single customer or a few customers. During
Fiscal 1996, Ames had no single customer or affiliated
group of customers to whom sales were made in an amount
which accounted for 10% or more of the Company's total
sales for such period.
As is customary in the discount store industry, the
Company's retail operations allow merchandise to be
returned by customers. In addition, the Company has a
program that allows for the matching of its sales
prices to the advertised sales prices of its local
competitors upon presentation of proper proof of the
competitor's advertised price on the same item.
Merchandise may also be purchased under the Ames
layaway plan.
(viii) BACKLOG.
Backlog is not a significant factor in the Company's
business.
(ix) GOVERNMENT CONTRACTS.
Ames has no material contracts with any government
agency.
<PAGE>
(x) COMPETITION.
Ames operates in a highly competitive environment.
Ames competes with other stores, including large
national and regional chains, in the purchase and sale
of merchandise, as well as for store locations. Ames
currently anticipates a further increase in competition
from other national discount store chains.
Many of the Company's stores are located in smaller
communities and are, in some cases, the largest
non-food retail store in their market area. They
compete, however, with many smaller stores offering a
similar range of products. The Company's stores
located in suburban sites and urban areas are in direct
competition with other discount stores, including other
large national and regional chains.
(xi) RESEARCH AND DEVELOPMENT.
Research and development activities are not a material
aspect of the Company's business.
(xii) ENVIRONMENTAL MATTERS.
To date, compliance with federal, state and local laws
and regulations enacted to regulate the discharge of
materials into the environment has not had, and is not
expected to have, a material effect upon the Company's
business. See Note 12 to the Consolidated Financial
Statements included in this Form 10-K for further
discussion on environmental matters.
(xiii) EMPLOYEES.
At March 1, 1997, Ames employed approximately 20,000
people.
(d) FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES.
The information called for by this item is not relevant to
the Company's business.
ITEM 2. PROPERTIES.
----------
As of January 25, 1997, the Company's store lease obligations
covered a total of 19.0 million square feet, including approximately 1.6
million square feet for stores already closed or to be closed in 1997. The
average store size is approximately 60,000 square feet, of which
approximately 82% is selling area.
The construction of one store, located in Monroeville, PA, was
financed with an industrial development bond. Ames has an option to
purchase this location at nominal cost at the expiration of the lease term
in May, 2003. The land and buildings for five other store locations are
owned by Ames. The remainder of the Company's stores are leased, with the
leases expiring at various times between 1997 and 2018. The leases
generally have renewal options permitting extensions for at least five
years. In addition, the leases typically provide for fixed annual rentals,
payment of certain taxes, insurance and other charges, and additional
rentals based on a percentage of sales in excess of certain fixed amounts.
Except for certain point-of-sale equipment that is leased, vendor-owned
greeting card equipment and leased department equipment, Ames owns the
fixtures and equipment in its stores, some of which are subject to various
financing arrangements.
The Company's warehouse and distribution facilities in Leesport,
PA, and Mansfield, MA are owned and occupy an aggregate of approximately
1.7 million square feet. The Mansfield, MA facility is subject to a
mortgage. <PAGE>
Ames leases approximately 386,000 square feet of space in
Rochester, NY under a lease expiring on December 31, 2007, with two
ten-year renewal options. These premises have been subleased to an
unaffiliated tenant for the remainder of the lease term.
Ames owns and occupies its 217,000 square foot corporate office in
Rocky Hill, CT. The Company has a lease for 100,000 square feet of storage
space in East Hartford, CT expiring in July, 1998, and a lease, expiring in
April, 2006, for 33,000 square feet in Rocky Hill, CT for an in-house
photography studio and print shop.
ITEM 3. LEGAL PROCEEDINGS.
-----------------
Ames is involved in various litigation as detailed in Note 12 to
the Consolidated Financial Statements included in this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
-----------------------------------------------------------
There were no matters submitted during the fourth quarter of
Fiscal 1996 to a vote of security holders, through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
----------------------------------------------------
MATTERS CONCERNING SECURITY HOLDERS.
-------------------------------------
The Company's common stock is listed on the NASDAQ National Market
System ("NASDAQ"; symbol: AMES). As of March 1, 1997, Ames had 6,515
registered stockholders of record. Low and high prices of the Company's
common stock for Fiscal 1996 and for the fiscal year ended January 27, 1996
("Fiscal 1995" or "1995"), as reported on NASDAQ, are shown in the table
below:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
Low High Low High
------------------- -------------------
<S> <C> <C> <C> <C>
1st Quarter $1 1/4 $2 7/16 $2 5/16 $3 13/16
2nd Quarter 1 7/8 3 5/8 2 2 13/16
3rd Quarter 2 1/8 5 3/16 1 1/8 3 9/16
4th Quarter 3 11/16 6 1/2 1 5/32 2 1/8
</TABLE>
There were no quarterly dividends paid by Ames to the holders of
its common stock during these periods. Dividends cannot be declared under
the terms of the Company's revolving credit facility. On November 30,
1994, the Company adopted a Stock Purchase Rights Agreement as described in
Note 7 to the Consolidated Financial Statements.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
-----------------------
The following selected financial data of Ames should be read in
conjunction with the Consolidated Financial Statements and related Notes
appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
(in thousands except per share data)
---------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Five Weeks Forty-eight
Ended Ended Ended Ended Ended Weeks Ended
Jan. 25, 1997 Jan. 27, 1996 Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993 Dec. 26, 1992
------------- ------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,161,680 $2,104,231 $2,142,827 $2,123,527 $142,349 $2,284,026
Net income (loss) $17,301 (a) ($1,618) (b) $17,026 (c) $10,823 (d) ($23,892) $718,888 (e)
Net income (loss)
per common sh. $.76 (a) (.08) (b) $.79 (c) $.51 (d) ($1.19) - (e)
Total assets $536,793 $502,582 $533,388 $567,131 $638,046 $725,026
Long-term debt &
capital leases $38,220 $52,531 $77,095 $93,309 $176,239 $176,484
<FN>
(a) Includes charges of $9.7 million for the costs associated with the
closing of thirteen (13) stores and an extraordinary loss, net of
tax, of $1.4 million for the early extinguishment of debt.
(b) Includes charges of $20.9 million for the costs associated with
the closing of seventeen (17) stores and property gains of $9.1
million.
(c) Includes an extraordinary loss, net of tax, of $1.5 million for
the early extinguishment of debt; property gains of $7.5 million;
and a non-recurring gain of $12.0 million for a litigation
settlement.
(d) Includes an extraordinary gain, net of tax, of $0.9 million for
the early extinguishment of debt and property gains of $1.3
million.
(e) Excludes the results of 60 stores after the date of their
announced closings (October 30, 1992), closed as part of the
Company's final restructuring prior to its emergence from Chapter
11. Includes an extraordinary gain of approximately $1.25 billion
on debt discharged pursuant to the plan of reorganization; a
charge for revaluation of assets and liabilities under fresh-start
reporting of $391.2 million; restructuring charges of $88.5
million (for the costs of rejected leases, closing costs
associated with the 60 closed stores, costs for discontinuance of
private-label children's apparel, and certain home office and
field employee severance costs); and bankruptcy expenses of $25.5
million. Net earnings per share was not presented for the
forty-eight week period ended December 26, 1992 because such
presentation would not be meaningful. The old common stock was
canceled under the plan of reorganization and the new common stock
was not issued until December 30, 1992.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
(a) RESULTS OF OPERATIONS.
The following table sets forth the number of stores in operation during
each fiscal year:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
January 25, 1997 January 27, 1996 January 28, 1995
--------------- ---------------- -----------------
<S> <C> <C> <C>
Stores, beginning of period 307 306 308
New stores 13 2 1 (c)
Closed stores (17)(a) (1)(b) (3)(d)
----- ----- -----
Stores, end of period 303 307 306
===== ===== =====
<FN>
(a) Excludes (i) thirteen (13) stores to be closed in 1997 and
(ii) one (1) store closed as a result of flooding in January,
1996. In March, 1997, it was determined that this store
would not be re-opened.
(b) Excludes (i) two (2) stores temporarily closed as a result of
flooding in January, 1996 and (ii) seventeen (17) stores in
the process of closing at year-end.
(c) Represents the Mt. Pocono, PA store that was destroyed by
fire on November 2, 1993, rebuilt by the landlord, and
reopened by the Company in November, 1994.
(d) Does not include one store in the process of closing at year-
end.
</TABLE>
The following discussion and analysis is based on the results of
operations of the Company for Fiscal 1996 and 1995 and for the fiscal year
ended January 28, 1995 ("Fiscal 1994" or "1994"). The financial
information set forth below should be read in conjunction with the
Consolidated Financial Statements of Ames Department Stores, Inc. and its
subsidiaries included elsewhere in this filing.
The Company's business is seasonal in nature, with a large portion
(33% in Fiscal 1996) of its net sales occurring in the fourth quarter,
which includes the Christmas selling season. Total sales, including sales
from leased departments, for the last three fiscal years and the respective
total sales percentage increases/decreases and comparable store sales
percentage increases/decreases over the prior year for stores that have
been open and operated by Ames for at least the prior full fiscal year
were:
<TABLE>
<CAPTION>
(000's omitted) Percentage Increases (Decreases)
--------------- -----------------------------------
Fiscal Year Ended Total Sales Total Sales Comparable Stores
- ------------------- --------------- ------------- ------------------
<S> <C> <C> <C>
January 25, 1997 $2,255,749 2.6% 1.0%
January 27, 1996 $2,199,409 (1.9)% (1.0)%
January 28, 1995 $2,242,270 0.6% 1.7%
<FN>
The rate of inflation did not have a significant effect on sales during these
periods.
</TABLE>
<PAGE>
RESULTS OF OPERATIONS FOR FISCAL 1996 COMPARED TO FISCAL 1995
The Company reported improvements in 1996 in sales and net earnings.
The Company achieved this improvement principally because of the favorable
impact of thirteen (13) new stores, the closing of seventeen (17)
underperforming stores at the beginning of the year and an improvement in the
control of merchandise inventories.
Total sales increased 2.6% from 1995 due to an increase of 1.0% in
comparable store net sales and the opening of new stores cited above,
partially offset by the closing of the stores cited above. Net sales for
Fiscal 1995 have been restated to reflect the effect of recording "55 Gold "
senior citizen discounts as markdowns, which conforms with the 1996 treatment.
The following table sets forth the results of operations for 1996 and
1995 in millions and as a percentage of net sales:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
-------------------- --------------------
$ mil. % of Sales $ mil. % of Sales
------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales 2,161.7 100.0% $2,104.2 100.0%
Costs, expenses and (income):
Cost of merchandise sold 1,569.0 72.6 1,544.0 73.4
Selling, general and administrative expenses 563.4 26.1 552.7 26.3
Leased dept. and other operating income (29.3) (1.4) (29.7) (1.4)
Depreciation and amortization expense 12.5 0.6 12.4 0.6
Amortization of the excess of revalued net assets
over equity under fresh-start reporting (6.2) (0.3) (6.2) (0.3)
Interest and debt expense, net 19.0 0.9 24.1 1.1
Gain on disposition of properties (0.4) --- (9.1) (0.4)
Store closing charge 6.9 0.3 17.6 0.8
------- ------ ------- ----
Income before income taxes
and extraordinary item 26.8 1.2 (1.6) (0.1)
Income tax provision 8.1 0.4 --- ---
------ ---- ------ ------
Income before extraordinary item 18.7 0.9 (1.6) (0.1)
Extraordinary loss, net 1.4 0.1 --- ---
------- ----- ----- -----
Net income (loss) $17.3 0.8% ($1.6) (0.1)%
====== ==== ====== ======
</TABLE>
Gross margin increased $32.5 million or 0.8% as a percentage of
net sales in 1996 compared to 1995. The gross margin rate was favorably
impacted by a higher markup on sales and a reduction in clearance markdowns
due to the improvement in controlling merchandise inventories. These
factors were partially offset by higher "55 Gold " senior citizen
markdowns in 1996 compared to 1995. Cost of merchandise sold for 1996
includes a $2.8 million charge for the inventory write-down incurred in
connection with the 13 stores to be closed in 1997. Approximately $3.3
million for the inventory write-down recorded in 1995 in connection with the
17-store closing has been reclassified to cost of merchandise sold in order to
conform to the 1996 presentation. The inventory write-down had been
classified as part of the store closing charge in 1995.
Selling, general and administrative expenses increased $10.7
million, but decreased by 0.2% as a percentage of net sales in 1996
compared to 1995. The increase in expenses was due primarily to higher
expenses recorded under the Company's various incentive compensation plans
(Note 10) and an increase in pre-opening expenses resulting from the
opening of the 13 new stores. Partially offsetting these increases was a
decrease in the Company's store payroll expense.
Leased department and other operating income declined $0.4 million
and remained flat as a percentage of net sales in 1996 compared to 1995.
This decline was due primarily to the decline in leased department sales.
<PAGE>
.
Depreciation and amortization expense increased by $0.1 million
and remained flat as a percentage of net sales, in 1996 compared to 1995.
Depreciation and amortization expense includes impairment losses of $2.2
million and $3.4 million in 1996 and 1995, respectively, pursuant to the
adoption of SFAS No. 121 in the fourth quarter of 1995. Depreciation and
amortization also includes depreciation on capital additions subsequent to
December 26, 1992, the date on which the Company wrote off all of the
Company's non-current assets in connection with the adoption of fresh start
accounting. The amortization of the excess of revalued net assets over
equity under fresh-start reporting remained the same in 1996 as in 1995.
The Company is amortizing this amount over a ten-year period.
Interest and debt expense, net of interest income, declined $5.1
million or 0.3% of net sales in 1996 compared to 1995. The reduction was
primarily due to a significant reduction in short term interest expense as
well as the favorable impact of lower outstanding long-term debt and
capital lease balances. The decrease in short term interest expense
reflected a decrease in short term borrowings (from a weighted average of
$101.7 million in 1995 to $86.1 million in 1996) and a decrease in interest
rates under the Company's revolving credit agreement. The Company's
average outstanding long-term debt and capital lease balances decreased to
$56.3 million in 1996 from $78.8 million in 1995 due to certain prepayments
of debt made in connection with the sales of properties in 1995 and
payments made in the normal course of business.
During 1996, the Company sold several leases for a total of $0.7
million in proceeds and recognized gains totaling $0.4 million. During
1995, the Company sold or assigned several properties (Note 15) for a total
of $11.6 million in proceeds and recognized gains totaling $9.1 million.
In the fourth quarter of 1996, the Company recorded charges of
$9.7 million in connection with the closing of thirteen (13) stores. The
$9.7 million is classified in two line items: $6.9 million as store closing
charge and $2.8 million as part of cost of merchandise sold. Twelve of the
stores closed in February, 1997, and the thirteenth store is expected to
close in mid-summer, 1997.
In the fourth quarter of 1995, the Company recorded charges of
$20.9 million in connection with the closing of seventeen (17) stores and
the elimination of 71 positions in the corporate headquarters. The $20.9
million is now classified in two line items: $17.6 million as store closing
charge and $3.3 million as part of cost of goods sold. The 17 stores
closed in March, 1996. The $3.3 million charge, representing the inventory
write-down for the 17 closing stores, had been classified as part of the
store closing charge in the original presentation of the results for 1995.
As a consequence of fresh-start reporting and SFAS No. 109 (Note
9), the Company recorded a non-cash income tax provision of $8.1 million
for 1996 with an associated increase in additional paid-in capital.
As a result of the termination of the Prior Credit Agreement in
December, 1996 (see "Liquidity and Capital Resources" below), the Company
recorded in 1996 a non-cash extraordinary charge of $1.4 million, net of
tax benefit of $0.6 million, which tax benefit was a reduction of
additional paid-in capital. The charge was for the write-off of the
deferred financing costs related to the Prior Credit Agreement.
<PAGE>
RESULTS OF OPERATIONS FOR FISCAL 1995 COMPARED TO FISCAL 1994
Despite a decline in sales in 1995, the Company recorded an
improvement in income before store closing charges, property gains and
litigation settlements. The Company achieved this improvement primarily by
reducing its selling, general and administrative expenses both in amount
and as a percentage of net sales.
Total sales decreased 1.9% from 1994 due to a decrease of 1.0% in
comparable store net sales and a 4.4% decline in leased department (shoes)
comparable store sales. The major causes for the decline in sales were a
weak holiday selling season in the retail industry, additional new
competition as well as a planned de-emphasis in jewelry, partially offset
by the senior citizens discount program (the 55 Gold Savings Card program)
and a continued improvement in the in-stock inventory position.
The following table sets forth the results of operations for 1995
and 1994 in millions and as a percentage of net sales:
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
------------------ ------------------
$ mil. % of Sales $ mil. % of Sales
----- ---------- ------- --------
<S> <C> <C> <C> <C>
Net sales $2,104.2 100.0% $2,142.8 100.0%
Costs, expenses and (income):
Cost of merchandise sold 1,544.0 73.4 1,571.2 73.3
Selling, general and administrative expenses 552.7 26.3 568.8 26.5
Leased dept. and other operating income (29.7) (1.4) (30.3) (1.4)
Depreciation and amortization expense 12.4 0.6 5.3 0.2
Amortization of the excess of revalued net assets
over equity under fresh-start reporting (6.2) (0.3) (6.1) (0.3)
Interest and debt expense, net 24.1 1.1 25.4 1.2
Gain on disposition of properties (9.1) (0.4) (7.5) (0.3)
Store closing charge 17.6 0.8 --- ---
Distribution center closing costs --- --- 1.3 0.1
Nonrecurring gain-litigation settlement --- --- (12.0) (0.6)
------ ----- ------ -----
Income before income taxes
and extraordinary item (1.6) (0.1) 26.7 1.3
Income tax provision --- --- (8.2) (0.4)
------- ------ ------ -----
Income before extraordinary item (1.6) (0.1) 18.5 0.9
Extraordinary loss, net --- --- (1.5) (0.1)
------- ------ ------- -----
Net income(loss) ($1.6) (0.1)% $17.0 0.8%
====== ====== ====== =====
</TABLE>
Gross margin declined $11.4 million or 0.1% as a percentage of net
sales in 1995 compared to 1994. The gross margin rate was negatively
impacted by a lower markup on sales, reflecting a strategy of lowering
prices, and the impact of the discounts related to the senior citizen
discount program. These factors were partially offset by lower advertising
and clearance markdowns in 1995 compared to 1994.
Selling, general and administrative expenses decreased $16.1
million or 0.2% as a percentage of net sales in 1995 compared to 1994.
Reductions in advertising, home office, field support and store non-payroll
expenses were partially offset by an increase in store payroll expense.
The advertising expense decrease reflected a reduction in the distribution
expense for advertising circulars resulting from more effective
distribution and fewer circulars. The decrease in home office expenses was
principally a reduction in home office payroll. The Company's insurance
expense was lower by $5.2 million in 1995 compared to 1994 as a result of a
reduction in the reserves for prior years' claims as well as the continued
improved experience in workers' compensation and general liability claims,
partially offset by an increase in health claims.
<PAGE>
Leased department and other operating income declined $0.6 million
and remained the same as a percentage of net sales in 1995 compared to
1994. This decline was due primarily to the decline in leased department
sales.
Depreciation and amortization expense increased by $7.1 million or
0.4% of net sales in 1995 compared to 1994. The Company elected to adopt
SFAS No. 121 during the fourth quarter of 1995, resulting in the recording
of an impairment loss of $3.4 million which was classified as part of
depreciation and amortization expense. Depreciation and amortization
expense includes depreciation on capital additions subsequent to December
26, 1992, the date on which the Company wrote-off all of the Company's non-
current assets in connection with the adoption of fresh-start accounting.
The amortization of the excess of revalued net assets over equity under
fresh-start reporting remained the same in 1995 as in 1994. The Company is
amortizing this amount over a ten-year period.
Interest and debt expense, net of interest income, declined $1.3
million or 0.1% of net sales in 1995 compared to 1994. The favorable
impact of lower outstanding long-term debt and capital lease balances was
partially offset by an increase in short-term interest expense and a
reduction in interest income. In June, 1994, the Company prepaid
approximately $69 million of debt utilizing a portion of the Prior Credit
Agreement (as defined below, in "Liquidity and Capital Resources") and the
funds that were no longer required to be restricted for the
collateralization of letters of credit. From 1994 to 1995 the Company's
average monthly outstanding long-term debt and capital lease balance
decreased from $121.1 million to $78.8 million due to the June, 1994,
prepayment, certain other prepayments of debt made in connection with the
sales of properties in 1995 and payments made in the normal course of
business. The increase in short-term interest expense reflected an
increase in short-term borrowings (from a weighted average balance of $96.1
million in 1994 to $101.7 million in 1995) as well as an increase in
interest rates. The decrease in interest income in 1995 was the result of
reduced restricted cash balances.
During 1995, the Company sold or assigned several properties (Note
15) for a combined total of $11.6 million in proceeds and recognized gains
totaling $9.1 million.
In the fourth quarter of 1995, the Company recorded charges of
$20.9 million in connection with the closing of seventeen (17) stores and
the elimination of 71 positions in the corporate headquarters. The $20.9
million is now classified in two line items: $17.6 million as store closing
charge and $3.3 million as part of cost of goods sold. The 17 stores
closed in March, 1996. The $3.3 million charge, representing the inventory
write-down for the 17 closing stores, had been classified as part of the
store closing charge in the original presentation of the results for 1995.
(b) LIQUIDITY AND CAPITAL RESOURCES.
CREDIT FACILITIES - FISCAL 1996 AND FISCAL 1995
The Company's principal sources of liquidity are certain available
credit facilities, cash from operations, and cash on hand. On December 27,
1996, the Company entered into an agreement with BankAmerica Business
Credit, Inc., as agent, and a syndicate consisting of seven other banks and
financial institutions, for a secured revolving credit facility of up to
$320 million (the "Credit Agreement"). Prior to this date, the Company had
a $300 million secured revolving credit facility (the "Prior Credit
Agreement") in place with the same financial institutions. The Prior
Credit Agreement terminated on the effective date of the Credit Agreement.
<PAGE>
The Credit Agreement is in effect until June 30, 2000, is
secured by substantially all of the assets of the Company, and requires the
Company to meet certain financial covenants. Ames is in compliance with
the financial covenants through the quarter ended January 25, 1997.
Reference can be made to Note 5 for a further description of the Credit
Agreement.
The Company's peak borrowing level in 1996 under the Prior Credit
Agreement was $161.0 million. Ames repaid all such borrowings by December,
1996, and fulfilled its "clean-up" requirement (Note 5) in January, 1997.
REVIEW OF CASH FLOWS, LIQUIDITY AND FINANCIAL CONDITION
The Company's unrestricted cash position increased $31.9 million
during 1996. This increase was primarily due to $78.0 million in cash from
operations, partially offset by $19.8 million of capital expenditures and
payments of $17.4 million on debt and capital lease obligations. The
Company's unrestricted cash position decreased $14.2 million during 1995.
This decrease was primarily due to $27.2 million of capital expenditures
and payments of $23.8 million on debt and capital lease obligations,
partially offset by $19.2 million in net cash provided by operations and
$11.6 million of proceeds from the sale of certain properties. Please see
below and the Consolidated Financial Statements for further discussions of
activities and details affecting cash and liquidity for 1995.
Merchandise inventories declined $7.9 million and $31.2 million
during 1996 and 1995, respectively. The decrease in 1996 was the result of
planned reductions. The decrease in 1995 was primarily a result of planned
reductions and lower-than-planned merchandise purchases in January, 1996.
The LIFO reserve as of December 26, 1992 was eliminated in connection with
the adoption of fresh-start reporting. Ames remained on the LIFO method
after emergence from Chapter 11, but there has been no LIFO charge or
credit in 1996 and 1995 because inventory levels declined, the Company's
merchandise mix continued to change, and inflation was insignificant during
those periods.
Accounts payable increased $32.6 million during 1996 due to
improved payment terms and an increase in merchandise receipts in January,
1997 over January, 1996. Accounts payable declined $8.2 million during
1995 primarily as a result of the decline in merchandise inventories.
During 1996 and 1995, the Company paid its trade payables within the terms
negotiated with vendors.
The Company and its pre-bankruptcy lenders agreed to a
restructuring of the Company's obligations as part of the Company's plan of
reorganization. The new obligations consisted primarily of secured notes
that certain banks elected to receive, which were prepaid in 1994, and
deferred cash distributions. The major component of the "Current portion
of long-term debt" at January 25, 1997 and January 27, 1996 related
primarily to cash distributions of $7.5 million and $8.0 million paid on
January 31, 1997 and January 31, 1996, respecively, pursuant to the plan of
reorganization.
There were no outstanding borrowings under the Credit Agreement as
of January 25, 1997. The "Note payable" of approximately $4.3 million at
January 27, 1996 was the amount outstanding under the Prior Credit
Agreement. The "Unfavorable lease liability" was recorded as part of
fresh-start reporting.
<PAGE>
No dividends were paid while Ames was under the protection of
Chapter 11, or since its emergence from Chapter 11. The Company is
restricted from declaring dividends under the terms of the Credit
Agreement.
CAPITAL EXPENDITURES
Capital expenditures for 1996 were $19.8 million and included,
among other things, the opening of thirteen (13) new stores, the remodel of
four (4) stores and the opening of an in-house photo studio. Capital
expenditures for 1995 were $27.2 million and included, among other things,
the full scale remodel of 24 stores, the partial remodel of 38 stores and
the opening of two new stores.
Capital spending is expected to be approximately $37.4 million for
1997, primarily for the opening of 7 to 10 new stores, the full scale
remodel of 6 to 10 stores and the upgrade of certain management information
systems, including the installation of new point-of-sale and back-office
hardware and software in 30 stores. The Company expects to finance
equipment purchases, new store fixtures and equipment, and the remodeling
of existing stores through internally-generated funds. The Company adjusts
its plans for making such expenditures depending on the amount of
internally-generated funds available. Land, buildings and improvements are
financed principally through long-term leases.
SUMMARY
The Company believes the ability to meet its financial obligations
and make planned capital expenditures will depend on the Company's future
operating performance, which will be subject to financial, economic and
other factors affecting the industry and operations of the Company,
including factors beyond its control. The Company believes its operating
performance and the availability of its financing facilities will provide
sufficient liquidity to allow the Company to meet its financial
obligations.
Ames currently anticipates the following investment and financing
activities for 1997: capital expenditures as described above, seasonal
borrowings and payments under the Credit Agreement and planned payments of
debt and capital lease obligations.
The Company believes the actions set forth above and the
availability of its financing facilities, together with the Company's
available cash and expected cash flows from 1997 operations and beyond,
will enable Ames to fund its expected needs for working capital, capital
expenditures and debt service requirements. Achievement of expected cash
flows from operations and compliance with the EBITDA covenant (Note 5) is
dependent upon the Company's attainment of sales, gross profit, and expense
levels that are reasonably consistent with its financial projections.
The Company expects from time to time to consider possible capital
market transactions, debt refinancing, and other transactions to further
enhance the Company's financial flexibility.
The significant net operating loss carryforwards remaining after
1996, subject to limitations pursuant to Internal Revenue Code Sec. 382,
should offset income on which taxes would otherwise be payable in future
years.
When used in this Form 10-K, in any future filings by the Company
with the Securities Exchange Commission, in the Company's press releases
and in oral statements made with the approval of an authorized executive
officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "projected," "projections,"
"plans," or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
------------------------------------------------
See Index to Consolidated Financial Statements.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
----------------------------------------------------------
DISCLOSURE.
----------
None.
PART III
ITEM 10. OFFICERS AND DIRECTORS OF THE REGISTRANT.
----------------------------------------
Information as to the directors of the registrant required by Item
10 is incorporated herein by reference from the information set forth under
the caption "ELECTION OF DIRECTORS" of the Company's definitive proxy
statement to be filed pursuant to Regulation 14A within 120 days after the
close of its fiscal year.
The following table indicates the names of all executive officers
of Ames and the offices held by each. Other than the employment contracts
with Mr. Ettore and Mr. Lemire described in the Company's proxy statement,
there are no other arrangements or understandings between any officer below
and any other person pursuant to which he was selected as an officer.
Joseph R. Ettore ................ President, Chief Executive Officer,
and Director
John F. Burtelow ................ Executive Vice President, Chief
Financial Officer
Denis T. Lemire ................. Executive Vice President,
Merchandising
Eugene E. Bankers ............... Senior Vice President, Marketing
Richard L. Carter ............... Senior Vice President,
Human Resources
Gregory D. Lambert .............. Senior Vice President, Finance
Paul Lanham ..................... Senior Vice President, Management
Information Systems
David H. Lissy .................. Senior Vice President, General
Counsel and Corporate Secretary
Alfred B. Petrillo, Jr. ..........Senior Vice President,
Store Planning
Grant C. Sanborn ................ Senior Vice President,
Store Operations
James A. Varhol ................. Senior Vice President,
Asset Protection
JOSEPH R. ETTORE, age 57, joined Ames as President, Chief Executive
Officer and Director in June, 1994. Prior to joining Ames, he was
President, Chief Executive Officer and Director of Jamesway
Corporation("Jamesway") from July, 1993 to June, 1994; President, Chief
Operating Officer and Director of Jamesway in June, 1993; Chairman of the
Board and Chief Executive Officer of Stuarts Department Stores,
Inc.("Stuarts") from October, 1992 to June, 1993; and President, Chief
Operating Officer and Director of Stuarts from October, 1989 to October,
1992. He remained a Director of Stuarts until May, 1994. Jamesway filed
for protection under Chapter 11 of the Bankruptcy Code ("Chapter 11") in
July, 1993; emerged from the Chapter 11 case in January, 1995; and re-filed
for protection under Chapter 11 in October, 1995. Stuarts filed under
Chapter 11 in December, 1990; emerged from the Chapter 11 case in October,
1992; and re-filed for protection under Chapter 11 in May, 1995.
JOHN F. BURTELOW, age 49, joined Ames as Executive Vice President,
Chief Financial Officer in August, 1994. Prior to joining Ames, he was
Senior Vice President, Chief Financial Officer of Venture Stores, Inc. from
March, 1989 to May, 1994. He held a number of increasingly senior
financial positions with The May Department Stores Company between 1979 and
1989.
DENIS T. LEMIRE, age 49, joined Ames as Executive Vice President,
Merchandising in August, 1994. Prior to joining Ames, he was President and
Chief Operating Officer of Stuarts from November, 1993 to August, 1994 and
Senior Vice President, Merchandising for Stuarts from April, 1990 to
November, 1993. Stuarts filed for protection under Chapter 11 in December,
1990; emerged from the Chapter 11 case in October, 1992; and re-filed for
protection under Chapter 11 in May, 1995.
EUGENE E. BANKERS, age 57, joined Ames as Senior Vice President,
Marketing in December, 1993. Prior to joining Ames, he was Vice President,
Communications and Investor Relations at Shopko Stores, Inc. from 1991 to
1993, and Vice President of Advertising, Sales Promotions, Special Events
and Public Relations from 1982 to 1991.
RICHARD L. CARTER, age 48, joined Ames as Senior Vice President, Human
Resources in February, 1993. Prior to joining Ames, he was Senior Vice
President, Human Resources at G. Fox division of The May Department Stores
Company from 1989 to 1993.
GREGORY D. LAMBERT, age 45, joined Ames as Senior Vice President,
Finance in September, 1996. Prior to joining Ames, he was employed at
Homart Development as Vice President-Strategy from 1994 to 1996 and was
employed at The May Department Stores Company as Director of Strategic
Planning from 1989 to 1994.
PAUL LANHAM, age 39, became Senior Vice President, Management
Information Systems, in March, 1996. He joined Ames in October, 1994 as
Vice President, Allocation and Planning. Prior to joining Ames, he was
employed at Brookstone Stores from 1989 in various capacities related to
inventory systems and inventory planning and allocation, most recently as
Director of Inventory Management.
DAVID H. LISSY, age 53, became Senior Vice President, General Counsel
and Corporate Secretary in December, 1992. He began work on the Ames
Chapter 11 cases in June, 1990, and in July, 1990 was named Vice President,
Legal Services. He was appointed Vice President, General Counsel and
Corporate Secretary in October, 1991. He has been owner of Samuel Lehrer &
Co., Inc., a wholesaler of fine quality fabrics, since 1988.
ALFRED B. PETRILLO, JR., age 54, joined Ames as Senior Vice President,
Store Planning in October, 1995. Prior to joining Ames, he was employed at
Jamesway as Vice President, Store Planning, Construction, Maintenance and
Energy from 1976 to 1995 when he was appointed Senior Vice President, Store
Planning, Construction, Visual Merchandising, Planogramming, Maintenance
and Energy.
GRANT C. SANBORN, age 45, became Senior Vice President, Store
Operations in January, 1995. Since joining Ames in 1971, he has served in
a number of store operations positions, including Assistant Regional
Manager from July, 1989 to May, 1991; Regional Director from May, 1991 to
July, 1991; Director, Store Operations from July, 1991 to October, 1993;
and Vice President, Store Operations from October, 1993 to January, 1995.
JAMES A. VARHOL, age 41, joined Ames as Senior Vice President, Asset
Protection in August, 1995. Prior to joining Ames, he was Vice President,
Loss
Prevention at Jamesway from 1987 to 1995.
ITEM 11. EXECUTIVE COMPENSATION
-----------------------
The information required by Item 11 is incorporated herein by reference
from the information set forth under the sections titled "Executive
Compensation," "Board Meetings and Committees," "Compensation of
Directors," "Employment Contracts, Termination, Severance and
Change-of-Control Arrangements," "Additional Information with respect to
Board of Directors Interlocks and Insider Participation in Compensation
Decisions," "The Board of Directors Report on Executive Compensation," and
"Performance Graph" of the Company's definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the close of its fiscal
year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-----------------------------------------------------
MANAGEMENT.
------------
The information required by Item 12 is incorporated herein by reference
from the information set forth under the sections titled "Security
Ownership of Management" and "Security Ownership of Certain Beneficial
Owners" of the Company's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The information required by Item 13 is incorporated herein by reference
from the information set forth under the section titled "Transactions with
Management" of the Company's definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the close of its fiscal
year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM
----------------------------------------------------------
8-K.
---
(a) DOCUMENTS FILED AS PART OF THIS FORM 10-K
1. FINANCIAL STATEMENTS
The Financial Statements listed in the accompanying
Index to Consolidated Financial Statements are filed
as part of this
Form 10-K.
2. FINANCIAL STATEMENT SCHEDULE
The Financial Statement Schedule listed in the
accompanying Index to Consolidated Financial
Statements is filed as part of this Form 10-K.
3. EXHIBITS
The Exhibits filed as part of this Form 10-K are
listed on the Exhibit Index immediately preceding such
Exhibits, incorporated herein by reference.
(b) REPORTS ON FORM 8-K
Reports on Form 8-K were filed with the Securities and
Exchange Commission during the fourth quarter as follows:
<TABLE>
<CAPTION>
DATE OF REPORT DATE OF FILING ITEM # DESCRIPTION
------------ ----------------- ------ ---------------------------------
<S> <C> <C> <C>
November 12, 1996 November 12, 1996 5 Disclosure of fiscal October 1996 results.
December 5, 1996 December 5, 1996 5 Disclosure of fiscal November 1996 results.
January 9, 1997 January 9, 1997 5 Disclosure of fiscal December 1996 results.
January 14, 1997 January 14, 1997 5 Disclosure of new credit agreement.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
AMES DEPARTMENT STORES, INC.
(Registrant)
Dated: March 28, 1997 /s/ Joseph R. Ettore
----------------------------------
Joseph R. Ettore,
President, Chief Executive Officer and
Director
Dated: March 28, 1997 /s/ John F. Burtelow
-------------------------
John F. Burtelow,
Executive Vice President,
Chief Financial Officer
Dated: March 28, 1997 /s/ Gregory D. Lambert
------------------------
Gregory D. Lambert,
Senior Vice President, Finance
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 28, 1997 /s/ Paul M. Buxbaum
------------------------
Paul M. Buxbaum, Director and Chairman
Dated: March 28, 1997 /s/ Francis X. Basile
-----------------------
Francis X. Basile, Director
Dated: March 28, 1997 /s/ Alan Cohen
---------------------------
Alan Cohen, Director
Dated: March 28, 1997 /s/ Richard M. Felner
------------------------
Richard M. Felner, Director
Dated: March 28, 1997 /s/ Sidney S. Pearlman
----------------------------
Sidney S. Pearlman, Director
Dated: March 28, 1997 /s/ Laurie M. Shahon
-----------------------
Laurie M. Shahon, Director
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
---------------------------------------------------------
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
(FORM 10-K)
EXHIBITS
For the Fiscal Years Ended January 25, 1997,
January 27, 1996 and January 28, 1995
(With Report of Independent Public Accountants)
-------------------------------------
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
--------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE FOR THE FISCAL YEARS ENDED
JANUARY 25, 1997, JANUARY 27, 1996 AND JANUARY 28, 1995
FINANCIAL STATEMENTS:
- --------------------
Report of Independent Public Accountants.
Consolidated Statements of Operations for the fiscal years ended January
25, 1997, January 27, 1996 and January 28, 1995.
Consolidated Balance Sheets as of January 25, 1997 and January 27, 1996.
Consolidated Statements of Changes in Stockholders' Equity for the fiscal
years ended January 25, 1997, January 27, 1996 and January 28, 1995.
Consolidated Statements of Cash Flows for the fiscal years ended January
25, 1997, January 27, 1996 and January 28, 1995.
Notes to Consolidated Financial Statements.
SCHEDULE:
- ----------
II. Valuation and Qualifying Accounts for the fiscal years ended
January 25, 1997, January 27, 1996 and January 28, 1995.
SCHEDULES OMITTED:
- --------------------
All other schedules are omitted as they are not applicable or the
information is shown in the consolidated financial statements or notes
thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
AMES DEPARTMENT STORES, INC.:
We have audited the accompanying consolidated balance sheets of
Ames Department Stores, Inc. (a Delaware corporation) and subsidiaries as
of January 25, 1997 and January 27, 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows
for the fifty-two weeks ended January 25, 1997, January 27, 1996 and
January 28, 1995. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Ames
Department Stores, Inc. and subsidiaries as of January 25, 1997 and January
27, 1996, and the results of their operations and their cash flows for the
fifty-two weeks ended January 25, 1997, January 27, 1996 and January 28,
1995 in conformity with generally accepted accounting principles.
As discussed in Note 20 to the consolidated financial statements,
in the quarter ended January 27, 1996, the Company changed their method of
accounting for long-lived assets to conform with SFAS No. 121, and in
connection therewith, recorded an impairment loss of $3.4 million for long-
lived assets to be held and used.
Our audits were performed for the purpose of forming an opinion
on the basic financial statements taken as a whole. The schedule listed in
the index to consolidated financial statements is presented for the purpose
of complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 7, 1997
<PAGE>
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
January 25, January 27, January 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
TOTAL SALES $2,255,749 $2,199,409 $2,242,270
Less: Leased department sales 94,069 95,178 99,443
------------ ------------ ------------
NET SALES 2,161,680 2,104,231 2,142,827
COSTS, EXPENSES AND (INCOME):
Cost of merchandise sold 1,568,974 1,543,989 1,571,181
Selling, general and administrative expenses 563,344 552,729 568,874
Leased department and other operating income (29,284) (29,677) (30,296)
Depreciation and amortization expense 12,489 12,360 5,288
Amortization of the excess of revalued net assets
over equity under fresh-start reporting (6,153) (6,153) (6,153)
Interest and debt expense, net 19,043 24,116 25,367
Gain on disposition of properties (395) (9,136) (7,484)
Store closing charge 6,858 17,621 -
Distribution center closing costs - - 1,300
Non-recurring gain - litigation settlement - - (12,001)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 26,804 (1,618) 26,751
Income tax provision (8,149) - (8,208)
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS 18,655 (1,618) 18,543
Extraordinary item - loss on early extinguishment of debt
(net of tax benefit of $571 and $727 in the fiscal years
ended January 25, 1997 and January 28, 1995,
respectively) (1,354) - (1,517)
------------ ------------ ------------
NET INCOME (LOSS) $17,301 ($1,618) $17,026
============ ============ ============
PRIMARY NET INCOME (LOSS) PER COMMON SHARE
Income (loss) before extraordinary item $0.85 ($0.08) $0.86
Extraordinary item (0.06) - (0.07)
------------ ------------ ------------
Net income (loss) $0.79 ($0.08) $0.79
============ ============ ============
Weighted average common and common equivalent shares 21,812 20,127 21,499
============ ============ ============
FULLY DILUTED NET INCOME (LOSS) PER COMMON SHARE
Income (loss) before extraordinary item $0.82 ($0.08) $0.86
Extraordinary item (0.06) - (0.07)
------------ ------------ ------------
Net income (loss) $0.76 ($0.08) $0.79
============ ============ ============
Weighted average common and common equivalent shares 22,715 20,127 21,499
============ ============ ============
<FN>
(The accompanying notes are an integral part of these consolidated
financial statements.)
</TABLE>
<PAGE>
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
<CAPTION>
January 25, January 27,
ASSETS 1997 1996
---------- ----------
<S> <C> <C>
Current Assets:
Cash and short-term investments 46,119 14,185
Receivables:
Trade 7,521 6,900
Other 11,550 7,578
---------- ----------
Total receivables 19,071 14,478
Merchandise inventories 391,076 398,933
Prepaid expenses and other current assets 12,169 12,793
---------- ----------
Total current assets 468,435 440,389
Fixed Assets:
Land and buildings 1,293 1,074
Property under capital leases 4,185 3,809
Fixtures and equipment 63,474 53,259
Leasehold improvements 27,162 20,345
---------- ----------
96,114 78,487
Less - Accumulated depreciation and amortization (32,529) (20,259)
---------- ----------
Net fixed assets 63,585 58,228
Other assets and deferred charges 4,773 3,965
---------- ----------
$536,793 $502,582
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Trade $145,737 $112,682
Other 43,180 43,636
---------- ----------
Total accounts payable 188,917 156,318
Note payable - revolver - 4,284
Current portion of long-term debt 12,884 13,682
Current portion of capital lease obligations 2,694 3,665
Self-insurance reserves 34,177 39,003
Accrued compensation 29,366 20,424
Accrued expenses 36,990 34,519
Store closing reserve 24,438 27,379
---------- ----------
Total current liabilities 329,466 299,274
---------- ----------
Long-term debt 11,134 23,159
Capital lease obligations 27,086 29,372
Other long-term liabilities 7,565 6,322
Unfavorable lease liability 17,029 18,672
Excess of revalued net assets over equity under fresh-start reporting 36,327 42,480
Commitments and contingencies
Stockholders' Equity:
Common Stock (40,000,000 shares authorized; 20,474,469 and 20,472,269
shares outstanding at January 25, 1997 and January 27, 1996,
respectively; par value per share $.01) 205 205
Additional paid-in capital 88,341 80,759
Retained earnings 19,640 2,339
---------- ----------
Total Stockholders' Equity 108,186 83,303
---------- ----------
$536,793 $502,582
========== ==========
<FN>
(The accompanying notes are an integral part of these
consolidated balance sheets.)
<PAGE>
<PAGE>
</TABLE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
<CAPTION>
Priority
Common Stock Common Stock Additional
----------------- ------------- Paid-In Retained Total
Shares Amount Shares Amount Capital Earnings Equity
-------- -------- ------- ----- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Jan. 29, 1994 16,267 $163 3,860 $38 $73,278 ($13,069) $60,410
Conversion of Priority
Common Stock into
Common Stock 3,860 38 (3,860) (38) -
Utilization of Tax
Attributes 7,481 7,481
Net Income 17,026 17,026
-------- -------- ------- ----- ----------- ------------ -----------
Balance, Jan. 28, 1995 20,127 $201 - - $80,759 $3,957 $84,917
Issuance of Common Stock
under 1995 Long Term
Incentive Plan 345 4 4
Net Loss (1,618) (1,618)
-------- -------- ------- ----- ----------- ------------ -----------
Balance, Jan. 27, 1996 20,472 $205 - - $80,759 $2,339 $83,303
Exercise of Stock Options 2 - 4 4
Utilization of Tax
Attributes 7,578 7,578
Net Income 17,301 17,301
-------- -------- ------- ----- ----------- ------------ -----------
Balance, Jan. 25, 1997 20,474 $205 - - $88,341 $19,640 $108,186
======== ======== ======= ===== =========== ============ ===========
<FN>
(The accompanying notes are an integral part of these consolidated
financial statements.)
</TABLE>
<PAGE>
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
January 25, January 27, January 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $17,301 ($1,618) $17,026
Expenses not requiring the outlay of cash:
Extraordinary loss on early extinguishment of debt 1,354 - 1,517
Income tax provision 8,149 - 8,208
Depreciation and amortization of fixed and other assets 12,989 12,713 5,528
Amortization of the excess of revalued net assets over equity (6,153) (6,153) (6,153)
Amortization of unfavorable lease liability (1,635) (1,884) (2,094)
Amortization of debt discounts and deferred financing costs 3,037 4,755 5,843
Gain on disposition of properties (395) (9,136) (7,484)
Other, net 1,145 (315) (939)
----------- ----------- -----------
Cash provided by (used for) operations before changes in working
capital and store closing activities 35,792 (1,638) 21,452
Changes in working capital:
(Increase) decrease in receivables (4,593) 2,329 1,896
Decrease in merchandise inventories 7,857 31,219 12,046
(Increase) decrease in prepaid expenses and other current assets 624 (3,794) 1,131
Increase (decrease) in accounts payable 32,599 (8,213) 54,986
Increase (decrease) in accrued expenses and other current liabilities 6,516 (16,790) (1,050)
Changes due to store closing activities:
Payments of store closing costs (7,621) (1,498) (5,737)
Store closing charge 6,858 17,621 -
----------- ----------- -----------
Net cash provided by operating activities 78,032 19,236 84,724
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from the disposition of properties 690 11,634 7,623
Proceeds from the sale of assets held for disposition - - 1,458
Purchases of fixed assets (19,805) (27,152) (24,470)
Purchases of leases (3,211) - -
Decrease in restricted cash - 2,047 53,933
----------- ----------- -----------
Net cash provided by (used for) investing activities (22,326) (13,471) 38,544
----------- ----------- -----------
Cash flows from financing activities:
Borrowings (payments) under the revolving credit facilities, net (4,284) 4,284 (15,360)
Payments on debt and capital lease obligations (17,388) (23,766) (87,828)
Deferred financing costs (2,100) (500) (8,143)
----------- ----------- -----------
Net cash used for financing activities (23,772) (19,982) (111,331)
----------- ----------- -----------
Increase (decrease) in unrestricted cash and short-term investments 31,934 (14,217) 11,937
Unrestricted cash and short-term investments, beginning of period 14,185 28,402 16,465
----------- ----------- -----------
Unrestricted cash and short-term investments, end of period $46,119 $14,185 $28,402
=========== =========== ===========
<FN>
(The accompanying notes are an integral part of these
consolidated financial statements).
</TABLE>
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------------
(a) NATURE OF OPERATIONS:
Ames Department Stores, Inc. (a Delaware corporation) and
its subsidiaries (collectively, "Ames" or the "Company") are
retail merchandisers. As of March 1, 1997, Ames operated 291
discount department stores under the Ames name in 14 states
in the Northeast, Middle Atlantic and Mid-West regions and
the District of Columbia. The Company's stores are located
in rural communities, some of which are not served by other
large retail stores, high-traffic suburban sites, small
cities and several major metropolitan areas. The stores
largely serve middle and lower-middle income customers.
The Company filed petitions under Chapter 11 of the U.S.
Bankruptcy Code ("Chapter 11") on April 25, 1990. From that
time until December 30, 1992, Ames operated its business as a
debtor-in-possession subject to the jurisdiction of the
United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court"). On December 30, 1992,
Ames emerged from bankruptcy (Note 2).
(b) BASIS OF PRESENTATION:
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Certain prior year items have been reclassified to
conform to the current year presentation.
(c) FISCAL YEAR:
The Company's fiscal year ends on the last Saturday in
January. The fiscal years ended January 25, 1997 (Fiscal
1996 or 1996), January 27, 1996 (Fiscal 1995 or 1995) and
January 28, 1995 (Fiscal 1994 or 1994) each included 52
weeks.
(d) PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the
accounts of Ames and its subsidiaries, all of which are
wholly-owned. All intercompany accounts and transactions
have been eliminated.
(e) CASH AND SHORT-TERM INVESTMENTS:
Ames considers all highly liquid investments with an
original maturity of three months or less when purchased to
be cash and short-term investments.
(f) INVENTORY VALUATION:
Inventories are stated at the lower of cost, using the
retail last-in, first-out (LIFO) method, or market and
include the capitalization of transportation and distribution
center costs.
(g) FIXED ASSETS:
Land and buildings, fixtures and equipment, and leasehold
improvements are recorded at cost. All fixed assets at
December 26, 1992 were written-off under fresh-start
reporting (Note 2). Major replacements and betterments are
capitalized. Maintenance and repairs are charged to earnings
as incurred. The cost of assets sold or retired and the
related amounts of accumulated depreciation are eliminated
from the accounts in the year of disposal, with the resulting
gain or loss included in earnings.
(h) DEPRECIATION AND AMORTIZATION:
Land and buildings, fixtures and equipment are recorded
at cost and are depreciated on a straight-line basis over
their estimated useful lives. Property under capital leases
and leasehold improvements are depreciated over the shorter
of their estimated useful lives or their related lease terms.
The unfavorable lease liability (recorded under
fresh-start reporting) is being amortized on a straight-line
basis over the applicable lease terms.
The excess of revalued net assets over equity under
fresh-start reporting is being amortized over a 10 year
period (Note 2).
(i) DEFERRED CHARGES:
Expenses related to new store openings are expensed in
the fiscal year in which the store opens.
Debt transaction costs and related issue expenses are
deferred and amortized over the term of the associated debt.
Lease acquisition and related costs are deferred and
amortized over the term of the lease.
(j) INCOME TAXES:
Ames files a consolidated Federal income tax return.
Ames adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS No. 109") under
fresh-start reporting. Under this method, any deferred
income taxes recorded are provided for at currently enacted
statutory rates on the differences in the basis of assets and
liabilities for tax and financial reporting purposes. If
recorded, deferred income taxes are classified in the balance
sheet as current or non-current based upon the expected
future period in which such deferred income taxes are
anticipated to reverse.
(k) SELF-INSURANCE RESERVES:
The Company is self-insured for workers' compensation,
general liability, property and casualty, and accident and
health insurance claims, subject to certain limitations. The
Company has insurance coverage for losses that may occur
above certain levels. The Company determines its liability
for claims based on each individual claim's circumstances and
estimates its liability for claims incurred but not yet
reported based on historical experience.
As of January 25, 1997 and January 27, 1996, Ames had
established self-insurance reserves of $34.2 million and
$39.0 million, respectively. Major portions of these
reserves may not be paid within a year and are subject to
changes in estimates as claims are settled or continue to
remain outstanding. The Company's insurance expense was
lower by $5.2 million in Fiscal 1995 compared to Fiscal 1994
as a result of a reduction in the reserves for prior years'
claims as well as the continued improved experience in
workers' compensation and general liability claims, partially
offset by an increase in health claims.
(l) LEASED DEPARTMENT SALES AND INCOME:
Ames has an agreement with an independent contractor that
allows the independent contractor to operate shoe departments
within the Ames stores. Ames receives a percentage of the
sales under the agreement.
(m) EARNINGS PER COMMON SHARE:
Net income (loss) per common share for Fiscal 1996, 1995
and 1994 was determined by using the weighted average number
of common and common equivalent shares outstanding during
each fiscal year. Common equivalent shares represented the
assumed exercise of the outstanding Series B and Series C
Warrants and stock options.
(n) STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123")
encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans
at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB Option
No.25") and related interpretations. Accordingly,
compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's
stock at the date of grant over the exercise price of the
options.
2. REORGANIZATION CASE AND FRESH-START REPORTING:
----------------------------------------------------
REORGANIZATION CASE
As discussed in Note 1, Ames and its subsidiaries filed
petitions for reorganization under Chapter 11 on April 25, 1990
(the "Filing Date"). The Company's disclosure statement relating
to its Third Amended and Restated Joint Plan of Reorganization
dated October 23, 1992 (the "Amended Plan") was approved by the
Bankruptcy Court on October 29, 1992. The Amended Plan was
confirmed by the Bankruptcy Court on December 18, 1992 and
consummated on December 30, 1992 (the "Consummation Date").
The Amended Plan provided for, among other things, the
payment of $303.5 million of cash (including $46.5 million in
deferred cash distributions), $68.9 million in secured notes (the
"POR Term Notes"), the reinstatement of certain obligations, and
the distribution of all of the new common stock of the reorganized
Ames to creditors to settle approximately $1.6 billion of total
estimated claims against the Company that existed as of the Filing
Date.
FRESH-START REPORTING
Pursuant to the guidance provided by the American Institute
of Certified Public Accountants in Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"), the Company adopted fresh-start
reporting and reflected the consummation distributions in the
consolidated balance sheet as of December 26, 1992 (the fiscal
month-end for December, 1992). Under fresh-start reporting, the
reorganization value of the Company was allocated to the emerging
Company's net assets on the basis of the purchase method of
accounting.
The Company's reorganization value was less than the fair
value of the current assets at the Consummation Date. In
accordance with the purchase method of accounting, the excess of
book value over fair value was allocated to reduce proportionately
the values assigned to non-current assets in determining their
fair values. Because this allocation reduced the non-current
assets to zero value, the remainder was classified as a deferred
credit ("Excess of revalued net assets over equity under
fresh-start reporting" or "negative goodwill") and is being
amortized systematically to income over the period estimated to be
benefited (ten years). Depreciation and amortization of fixed
assets is for capital additions after December 26, 1992.
3. CASH AND SHORT-TERM INVESTMENTS:
-------------------------------
Short-term investments as of January 25, 1997 totaled $31.1
million and consisted of time deposits, certificates of deposit,
bankers acceptances, repurchase agreements and high grade
commercial paper. There were no short-term investments as of
January 27, 1996.
4. INVENTORIES:
-----------
Inventories are valued at the lower of cost or market. Cost
is determined by the retail last-in, first-out (LIFO) cost method
for all merchandise inventories and includes the capitalization of
transportation and distribution center costs. No LIFO reserve was
necessary as of January 25, 1997, January 27, 1996 and January 28,
1995.
5. DEBT:
----
THE CREDIT AGREEMENT
On December 27, 1996, the Company entered into an agreement
with BankAmerica Business Credit, Inc., as agent, two financial
institutions as co-agents (together with the agent, the "Agents"),
and a syndicate consisting of five other banks and financial
institutions, for a secured revolving credit facility of up to
$320 million, with a sublimit of $100 million for letters of
credit and a $20 million term loan portion available for capital
expenditures (the "Credit Agreement").
Prior to this date, the Company had a $300 million secured
revolving credit facility (the "Prior Credit Agreement") in place
with the same financial institutions. The Prior Credit Agreement
terminated on the effective date of the Credit Agreement.
The Credit Agreement is in effect until June 30, 2000, is
secured by substantially all of the assets of the Company, and
requires the Company to meet certain financial covenants. The
interest rate per annum on the Credit Agreement is equal to the
Reference Rate (as defined in the Credit Agreement) plus 0.75%
(subject to downward adjustments). Alternatively, the interest
rate per annum may be equal to the Eurodollar Rate (as defined in
the Credit Agreement) plus 2.25% (subject to downward
adjustments).
Fees required under the Credit Agreement include: (1)
quarterly commitment fees on the unused portion of the facility,
(2) an initial closing fee, (3) two quarterly facility fee
payments due under the Prior Credit Agreement and (4) an annual
syndication fee to the agent.
As of January 25, 1997, the interest rate on the Credit
Agreement was 9.0%. For Fiscal 1996, the weighted average
interest rate on the Company's revolving credit facilities was
9.1%. The peak borrowing level under the Prior Credit Agreement
during Fiscal 1996 was $161.0 million. As of January 25, 1997,
$1.7 and $22.6 million was outstanding in trade and standby
letters of credit, respectively.
The amount of borrowing under the Credit Agreement shall not
exceed the sum of (i) an amount equal to 60% of inventory not
covered by any outstanding letter of credit plus (ii) an amount
equal to 50% of inventory covered by any outstanding letter of
credit. In addition, the Credit Agreement provides for the
potential establishment of other reserves contingent upon the
Company's financial performance. Each Agent, in addition,
reserves the right to adjust the total available to be borrowed by
establishing reserves, making determinations of eligible
inventory, revising standards of eligibility or decreasing from
time to time the percentages set forth above.
The financial covenants under the Credit Agreement are
limited to: capital expenditure and lease obligation limits;
minimum EBITDA (as defined below); and minimum EBITDA to cash
interest expense. The definition of EBITDA is: income before (a)
interest expense, (b) income tax expense or benefit, (c)
depreciation and amortization expense, LIFO expense, stock
appreciation rights accruals, certain restructuring charges and
other noncash charges, (d) gain or losses on sale of properties.
Compliance with the EBITDA covenant will be dependent upon
the Company's attainment of results that are reasonably consistent
with its financial projections reported on Form 8-K dated February
27, 1997. In addition, each year outstanding borrowings under the
Credit Agreement may not exceed any balance due under the term
loan portion plus up to $20 million in revolver loans for a
consecutive 30-day period between November 15th and February 15th
of the following year (the "clean-up" requirement). The Company
is in compliance with the financial covenants through the quarter
ended January 25, 1997.
In June, 1994, the Company utilized the funds that were no
longer restricted for the collateralization of letters of credit,
and funds from the Prior Credit Agreement, to prepay the POR Term
Notes, a $1.2 million term note, and the outstanding borrowings
under the credit agreement in effect immediately prior to the
prepayment. As a result of the refinancing and associated
commitment to prepay the above debt, a non-cash extraordinary
charge of $1.5 million, net of tax benefit of $0.7 million, was
recorded in the quarter ended April 30, 1994, primarily for the
write-off of deferred financing costs and debt discounts related
to the debt to be prepaid.
OTHER DEBT
The Company's outstanding debt as of January 25, 1997 and
January 27, 1996 is listed and described below. Pursuant to the
Amended Plan, the Company and its lenders agreed to a
restructuring of the Company's obligations at December 26, 1992.
New and reinstated debt obligations that carried face
interest rates significantly lower than market rates (for
financing of a similar nature) as of the Consummation Date were
discounted to their present values using estimated market rates.
The discount amounts are being amortized to interest expense over
the terms of the related obligations using the effective interest
method. The market interest rates used to determine the present
values at December 26, 1992 are shown in the table below.
As of January 25, 1997, payments due on long-term debt for
the next five years and thereafter were as follows:
(000's Omitted)
Fiscal Year Ending January Amount
-------------------------- ----------------
1998 12,884
1999 2,000
2000 9,500
2001 -0-
2002 -0-
Thereafter -0-
Outstanding debt at January 25, 1997 and January 27, 1996 is
listed below. Further explanations of certain of the obligations
follow the table.
<TABLE>
<CAPTION>
(000's omitted)
-------------------
1/25/97 1/27/96
-------- ---------
<S> <C> <C>
SECURED DEBT _
REVOLVING CREDIT FACILITY (NOTE PAYABLE):............ $ - $ 4,284
SENIOR DEBT:
Guaranteed First Mortgage Notes, interest rate
of 9.5%, due 3/97 through 3/99. Discount rate 11%.. 12,500 12,500
Real Estate Mortgage, interest rate 6%, due 12/97.
Discount rate 12%................................ 2,900 5,800
Equipment Notes, interest rates at 9% to 10%, due
through 12/97. Discount rate 11% to 12%..... 548 1,887
-------- ------
Total Face Value of Secured Debt..................... $15,948 $ 24,471
-------- --------
UNSECURED DEBT -
----------------
SENIOR DEBT:
Allowed Priority Tax Obligations,
5% interest rate. Discount rate 9%............... $ 150 $1,592
SUBORDINATED DEBT:
Deferred Cash Distributions due through
1/31/97, 5% interest rate beginning 2/94.
Discount rate 12%................................. 7,500 15,500
TJX Expense Note, 10% interest rate,
due 1/98 (Note 11)............................... 786 770
------- ------
TOTAL FACE VALUE OF UNSECURED DEBT............... $ 8,436 $17,862
------- -------
TOTAL FACE VALUE OF DEBT............................. 24,384 42,333
LESS: CURRENT PORTION.................... 12,884 13,682
DEBT DISCOUNTS..................... 366 1,209
NOTE PAYABLE - REVOLVER............ - 4,284
-------- -------
AMOUNT DUE AFTER ONE YEAR............................ $11,134 $23,159
======= ======
</TABLE>
ALLOWED PRIORITY TAX OBLIGATIONS
Allowed priority tax obligations consist of remaining claims
entitled to priority status under the Bankruptcy Code, including
claims based on retail sales made by Ames (the proceeds of which
are deemed to be held in trust by Ames for the benefit of various
state taxing authorities). Unless otherwise agreed to in writing
with Ames, the holder of an allowed priority tax claim receives
deferred cash payments in a principal amount equal to the amount
of such claim over a period not exceeding six years from the date
of assessment of the tax on which the claim is based. The
deferred cash payments may be made in annual installments equal to
10% of the allowed priority tax claim together with simple
interest at the rate of 5% per annum. The remaining unpaid
principal and accrued interest thereon will be paid on the first
business day following the date that is the sixth anniversary of
the date of assessment of the tax on which the claim is based.
DEFERRED CASH DISTRIBUTIONS
The Amended Plan provided that approximately $46.5 million of
cash distributions in respect to several classes of claims would
be paid subsequent to the Consummation Date. On January 31, 1993,
January 31, 1994, January 31, 1995, January 31, 1996 and January
31, 1997 $15.0, $8.0, $8.0, $8.0 and $7.5 million, respectively,
of these deferred cash distributions were paid as scheduled.
6. LEASE COMMITMENTS AND UNFAVORABLE LEASE LIABILITY:
-------------------------------------------------
Ames is committed under long-term leases for various retail
stores, warehouses and equipment expiring at various dates through
2018 with varying renewal options and escalating rent clauses.
Some leases are classified as capital leases under Statement of
Financial Accounting Standards No. 13. Capital lease obligations
were revalued under fresh-start reporting. Ames generally pays
for real estate taxes, insurance, and specified maintenance costs
under real property leases. Most leases also provide for
contingent rentals based on percentages of sales in excess of
specified amounts.
Future minimum lease payments for leases as of January 25,
1997 were as follows:
<TABLE>
<CAPTION>
(000's Omitted)
Lease Payments
--------------------------
Fiscal Year Capital Operating
Ending January Leases Leases
-------------------- ---------- ---------
<S> <C> <C>
1998.................... $ 5,955 43,841
1999........................ 4,855 41,472
2000........................ 4,354 38,126
2001....................... 4,308 34,248
2002....................... 4,308 31,511
Thereafter.................... 33,586 186,332
------ -------
Total minimum lease payments...... 57,366 375,530
=======
Less: amount representing
estimated executory costs... 616
-------
Net minimum lease payments.. 56,750
Less: amount representing
interest 26,970
------
Present value of net
minimum lease payments.... 29,780
Less: currently payable... 2,694
------
Long-term capital
lease obligations......... $27,086
=======
</TABLE>
Total payments have not been reduced by minimum sublease
rentals to be received in the aggregate under noncancellable
subleases of capital leases and operating leases of approximately
$0.8 and $11.8 million, respectively, as of January 25, 1997.
Amortization of capital lease assets was approximately $0.4, $0.2
and $0.1 million for Fiscal 1996, Fiscal 1995, Fiscal 1994,
respectively. Rent expense (income), excluding the benefit from the
amortization of the unfavorable lease liability, was as follows:
<TABLE>
<CAPTION>
(000's Omitted)
------------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Minimum rent on operating leases $43,856 $42,751 $42,913
Contingent rental expense 5,768 5,873 6,214
Sublease rental income (1,988) (2,491) (2,757)
</TABLE>
The unfavorable lease liability in the Consolidated Balance
Sheets was recorded as part of fresh-start reporting and
represents the estimated liability related to lease commitments
that exceeded market rents for similar locations. This liability
is being amortized as a reduction of rent expense in the
Consolidated Statements of Operations over the remaining lease
terms.
7. STOCKHOLDERS' EQUITY:
--------------------
COMMON STOCK
As provided under the Restated Certificate of Incorporation,
the authorized capital stock of the reorganized Ames consisted of
40,000,000 shares of common stock (20,474,469 and 20,472,269
shares outstanding as of January 25, 1997 and January 27, 1996,
respectively), par value $.01 per share (the "Common Stock").
Holders of shares of Common Stock are entitled to one vote
per share on all matters to be voted upon by stockholders and are
entitled to receive dividends when, as and if declared by the
Board of Directors. Dividends cannot be declared under the terms
of the Credit Agreement.
The Common Stock does not have any preemptive right or
subscription or redemption privilege. The Common Stock also does
not have cumulative voting rights, which means the holder or
holders of more than half of the shares voting for the election of
directors can elect all the directors then being elected. All of
the shares of Common Stock are fully paid and nonassessable.
WARRANTS
An aggregate of 200,000 Series B Warrants were issued under
the Amended Plan. Each such warrant entitles the holder to
purchase one share of the Common Stock at any time from June 30,
1993 through December 30, 2000. The exercise price is $5.92 per
share. No Series B Warrants have yet been exercised.
An aggregate of 2,120,000 Series C Warrants were issued
(1,992,715 outstanding as of January 25, 1997) under the Amended
Plan. Each such warrant entitles the holder to purchase one share
of the Common Stock at any time from June 30, 1993 through January
31, 1999. The exercise price is $1.11 per share. There were no
exercises of the Series C Warrants during Fiscal 1996 and Fiscal
1995.
The exercise prices of the above warrants are subject to
adjustment upon the occurrence of certain events, including, among
other things, the payment of a stock dividend, a merger or
consolidation and the issuance for consideration of rights,
options or warrants (other than rights to purchase Common Stock
issued to shareholders generally) to acquire Common Stock of the
Company.
A holder of any of the warrants described above as such will
not be entitled to any rights as a stockholder of the Company,
including, without limitation, the right to vote with respect to
the shares of Common Stock of the Company, until such holder has
exercised the warrants.
STOCK PURCHASE RIGHTS AGREEMENT
On November 30, 1994, the Company adopted a Stock Purchase
Rights Agreement (the "Rights Agreement"). Under the terms of the
Rights Agreement, one purchase right ("Right"), with an exercise
price of $14.00, is attached to each share of the Company's Common
Stock outstanding as of, or issued subsequent to, November 30,
1994 but prior to the occurrence of certain events (as more fully
described in the Rights Agreement). The Rights become exercisable
in the event that a person or group (an "Acquiring Person") either
acquires 15% or more of the Company's outstanding voting stock or
announces an intention to acquire 20% or more of such stock. Once
exercisable, each Right will, depending on the circumstances,
entitle a holder, other than an Acquiring Person, to purchase
shares of either the Company or an acquiring company having a
market value equal to twice the exercise price. The Rights
Agreement was adopted to assure that all of the Company's
stockholders receive full value for their investment in the event
of stock accumulation by an Acquiring Person. Unless previously
redeemed by the Company, the Rights will expire on November 29,
2004.
8. Stock Options:
----------------
Pursuant to the 1994 Management Stock Option Plan (the
"Option Plan") approved by stockholders in June, 1994, the Company
may grant options with respect to an aggregate of up to 1,700,000
shares of Common Stock, with no individual optionee to receive in
excess of 200,000 shares of Common Stock upon exercise of options
granted. The exercise prices of the options are equal to the fair
market value of the Common Stock on the date the options are
granted. The options become exercisable over one to five years
and terminate after five to ten years from the grant date.
Pursuant to the 1994 Non-Employee Directors Stock Option Plan
(the "Non-Employee Plan") approved by stockholders in May, 1995,
the Company may grant options to purchase up to an aggregate of
200,000 shares of Common Stock. The exercise prices of the
options are equal to the fair market value of the Common Stock on
the date the options are granted. The options become exercisable
in full six months after date of grant and terminate ten years
after date of grant. Effective on the date of each annual meeting
of stockholders of the Company commencing with the 1996 Annual
Meeting, each non-employee director of the Company then in office
will be granted an option to purchase 2,500 shares, with the date
of grant to be the date of such meeting. As of January 25, 1997,
60,000 options had been granted under the Non-Employee Plan; all
were exercisable.
The following table sets forth the stock option activity for
both stock option plans for Fiscal 1996, Fiscal 1995 and Fiscal
1994 (shares in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------------- --------------- ---------------
Number Weighted Number Weighted Number Weighted
of Ave Exer of Ave Exer of Ave Exer
Shares Price Shares Price Shares Price
------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beg of year 1,320 $4.15 1,300 $4.63 - -
Granted 538 2.82 275 2.40 1,609 $4.71
Exercised (2) 1.76 - - - -
Forfeited (192) 4.07 (255) 4.67 (309) 5.06
------ ------- ------
Outstanding at
end of year 1,664 3.73 1,320 4.15 1,300 4.63
===== ===== =====
Options exercisable
at year-end 691 4.27 375 4.45 - -
==== ==== =====
Weighted average
fair value of
options granted $1.86 $1.44
==== ====
</TABLE>
The fair value of options granted per the above table was
estimated on the date of grant using the Black-Scholes pricing
model with the following assumptions: no dividend yield, an
expected volatility of 68%, a risk-free interest rate equal to
U.S. Treasury securities with a maturity equal to the expected
life of the option (weighted average interest rate of 6.4% and
6.5% for 1996 and 1995, respectively) and an expected life from
date of grant until option expiration date (weighted average
expected life of 5.6 and 5.1 years for 1996 and 1995,
respectively).
Not included in the 538,000 options granted during 1996 are
300,000 options granted pursuant to an employment agreement. The
grant of these options is subject to shareholder approval. The
Company anticipates seeking shareholder approval no later than its
annual meeting to be held in May, 1998. These options have been
accounted for on a mark-to-market basis and compensation expense
of approximately $1.8 million was recorded in 1996. If
shareholder approval is not obtained, the granted options will
revert to stock appreciation rights.
Had the 300,000 options been included in the 1996 option
grants, the weighted average fair value of options granted in 1996
would have been $1.67 per option.
The following table summarizes information about the stock
options outstanding as of January 25, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- -------------------------
Weighted Ave Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices @ 1/25/97 Life Price @ 1/25/97 Price
-------- -------- ------ ------- --------- -------
<S> <C> <C> <C> <C> <C>
$1.50 - $3.00 616 4.6 $2.48 77 $2.38
$3.13 - $4.38 475 3.7 3.76 232 3.60
$5.06 - $5.12 573 2.1 5.06 382 5.06
-------- ---------
1,664 3.5 3.73 691 4.27
======== =========
</TABLE>
The Company accounts for its stock option plans under APB Opinion
No. 25. Had compensation cost for the Company's 1996 and 1995 stock
option grants been determined in accordance with SFAS No. 123, the
Company's net income (loss) and net income (loss) per common share for
Fiscal 1996 and Fiscal 1995 would have approximated the proforma amounts
below:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
------------------------- ----------------------
As Reported Proforma As Reported Proforma
----------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net income (loss) $17,301 $17,945 ($1,618) ($1,686)
Net income (loss) per
common share-primary $.79 $.82 ($.08) ($.08)
-fully diluted $.76 $.79 ($.08) ($.08)
</TABLE>
SFAS 123 does not apply to stock options granted prior to 1995.
9. INCOME TAXES:
--------------
For Fiscal 1996 and Fiscal 1994, the Company recorded non-
cash income tax provisions of approximately $8.1 and $8.2 million,
respectively. The Company had no income tax provision for Fiscal
1995.
The Company adopted SFAS No. 109 in conjunction with the
adoption of fresh-start reporting. Under SFAS No. 109, deferred
income taxes are recognized by applying the enacted statutory tax
rates in future years to the changes in "cumulative temporary
differences" (the differences between financial statement carrying
values and the tax basis of assets and liabilities).
As a consequence of the adoption of fresh-start reporting and
SFAS No. 109, any tax benefits realized for tax purposes after the
Consummation Date for pre-consummation cumulative temporary
differences, as well as for the pre-consummation net operating
loss carryovers, are reported as additions to paid-in capital (see
Consolidated Statements of Changes in Stockholders' Equity) rather
than as reductions in the tax provisions in the Consolidated
Statements of Operations. Tax benefits or liabilities realized
for book purposes after the Consummation Date will be segregated
from the pre-consummation deferred tax assets. However, the
utilization of post-consummation deferred tax assets may reduce
future income tax provisions. Such income tax provisions have no
impact on the Company's taxes payable or cash flows.
Ames has the following deferred tax assets/(liabilities) from
pre-consummation ("Pre") and post-consummation ("Post") periods,
as of the following dates ($ in millions):
As of As of
January 25, 1997 January 27, 1996
----------------- -------------------
Pre Post Total Pre Post Total
----- ---- ----- ----- ---- -----
Fixed assets............... $40 ($3) $37 $46 ($1) $45
Self insurance reserves.... 7 7 14 11 7 18
Store closing reserves..... 2 13 15 3 20 23
Leases..................... 11 7 18 16 6 22
Vacation pay reserve
and other................ (2) 14 12 (1) 3 2
Net operating loss
carryovers............... 179 - 179 193 - 193
---- ---- ----- ----- ---- -----
Total deferred tax assets.. 237 38 275 268 35 303
Valuation allowances.......(237) (38) (275) (268) (35) (303)
----- ---- ----- ----- ---- -----
Net deferred tax assets... $0 $0 $0 $0 $0 $0
===== ==== ===== ===== ==== =====
The Company has fully reserved for its deferred tax assets
because of the current uncertainty of the future recognition of such
deductions. In subsequent periods, Ames may reduce the valuation
allowances, provided that the possibility of utilization of the
deferred tax asset is more likely than not, as defined by SFAS No.
109. Any such reduction in the pre-consummation valuation allowance
in the near future will result in a corresponding addition to
paid-in-capital.
The Company has treated "pre-emergence net operating losses"
(qualified losses incurred prior to the Consummation Date) under
Section 382(l)(5) of the Internal Revenue Code (hereafter "L-5").
Under "L-5," there is approximately $295 million in pre-emergence net
operating losses currently available as carryovers without any annual
limitation. The Company has filed a $20 million refund claim under
Section 172(f) of the Internal Revenue Code. The claim represents a
10-year carryback of qualified expenses and is currently under review
by the Internal Revenue Service ("IRS"). The claim will reduce net
operating losses by approximately $47 million.
Ames also has a "post-emergence net operating loss" carryover
(incurred after the Consummation Date) of approximately $151 million.
Both pre- and post-emergence net operating loss carryovers, which
together total $446 million, will expire between 2007 and 2012,
except in the event of a change in control of the Company. In
addition, Ames has targeted jobs tax credit carryovers of
approximately $7 million and alternative minimum tax credit
carryovers of approximately $3 million, which will expire in 2007 and
2004, respectively. Federal net operating loss carryovers for fiscal
years subsequent to January 27, 1990 are subject to future
adjustments, if any, by the IRS.
As noted above, in the event of a change of control,
there could be significant limitations on the ability of the
Company to utilize the net operating loss carryover and other tax
benefits.
Ames has substantial potential state net operating loss
carryovers. It is difficult, however, to quantify the utilizable
amounts of such state operating losses because of the uncertainty
related to the mix of future profits in specific states.
10. BENEFIT AND COMPENSATION PLANS:
------------------------------
RETIREMENT AND SAVINGS PLAN
Ames has a defined contribution retirement and savings plan
(the "Retirement and Savings Plan") that is qualified under Sections
401(a) and 401(k) of the Internal Revenue Code of 1986, as amended,
for employees who, after one year of service, have reached the age of
21 and have completed at least 1,000 hours of service in a 12-month
period. For each participant's contribution (up to a maximum of 5%
of such participant's total compensation), the Company contributes to
the Retirement and Savings Plan an amount equal to 50% of such
contribution. Ames funds all administrative costs incurred by the
plan. Ames' expense associated with this plan amounted to
approximately $2.9, $3.0 and $3.1 million, in 1996, 1995 and 1994,
respectively.
RETIREMENT PLAN
Ames has an unfunded Retirement Plan for Officers/Directors
(the "Retirement Plan"). It provides that every person who is
employed by Ames when he or she retires, dies or becomes disabled and
who serves as both a full-time officer and a director of Ames and has
completed five years of service, not necessarily consecutive, in both
of these capacities, is eligible for benefits under the Retirement
Plan.
The maximum annual benefit under the Retirement Plan is
$100,000, reduced by certain of each participant's annual Social
Security benefits. Each participant in the Retirement Plan is
entitled to benefits for a period of 10 years. The Company has a
reserve established for potential payments under the Retirement Plan.
No payments were made under this plan during the periods presented.
THE G.C. MURPHY COMPANY LIFE INSURANCE PLAN
The G.C. Murphy Company Life Insurance Plan granted a flat
dollar amount (defined benefit) of group term life insurance at no
cost to certain retired employees. This plan excludes G.C. Murphy
Co. employees who retired from Ames after January 31, 1986. The
amount of coverage varies by retiree, is payable only upon death, and
has no loan or cash value. There were 2,034 retirees covered by this
plan as of January 25, 1997. The Company has a $2.4 million reserve
as of January 25, 1997 established for the projected payments under
this plan.
ANNUAL INCENTIVE COMPENSATION PLAN
The Company has an Annual Incentive Compensation Plan (the
"Annual Bonus Plan") that is subject to annual review by the Board of
Directors. The Annual Bonus Plan provides annual incentive cash
bonuses based on the achievement of the Company's financial goals for
the year (and customer service goals for store and field management).
There are approximately 1,500 members of management eligible under
the plan. Bonus expense recorded under the plan was $7.9, $1.5 and
$1.6 million for Fiscal 1996, 1995 and 1994, respectively.
LONG TERM INCENTIVE PLAN
Pursuant to the 1995 Long Term Incentive Plan (the "LTIP"),
approved by the stockholders in May, 1995, the Company may make
awards of an aggregate of up to 500,000 shares of Common Stock and
cash payment in an amount up to 50% of the fair market value (as
defined in the LTIP) of the Common Stock awarded, determined as of
and paid on the vesting date. Each award under the LTIP vests in
full on the third anniversary of the date of grant of such award.
Awards may be made to the Chief Executive Officer, any Executive Vice
President and any Senior Vice President of the Company. Other than
for death or disability, awards which have not yet vested are
forfeited upon the termination of the employment of the executive.
As of January 25, 1997, awards aggregating to 345,000 shares of
Common Stock had been made to certain executives of the Company but
have not yet vested. The shares for these awards have been issued
and are being held in custody by the Company on behalf of the
grantees thereof. A portion of the estimated market value of the
awards, including the cash, has been accrued as compensation expense
as of January 25, 1997. The Company recorded as compensation expense
for the LTIP $1.1 and $0.3 million during 1996 and 1995,
respectively.
STOCK APPRECIATION RIGHTS
In connection with the Amended Plan, 1.2 million stock
appreciation rights ("SARs"), exercisable only for cash, were granted
to certain members of management as compensation for their efforts in
restructuring Ames and enabling it to emerge from Chapter 11. After
exercises and terminations, 166,683 SARs were fully vested and
outstanding at January 25, 1997. All unexercised SARs terminate on
December 30, 1997. Each SAR entitles the recipient, upon exercise,
to receive in cash the excess of (i) the average closing price of a
share of Common Stock during the ten trading days prior to the
exercise date, over (ii) $2.96. The average closing price for the
last 10 trading days of Fiscal 1996 was $5.47 per share. During
Fiscal 1996, a total of 16,667 SARs were exercised. The Company
recorded a SARs expense of $0.8 and $0.7 million in 1996 and
1994,respectively. There was no SARs expense in 1995.
INCOME CONTINUATION PLAN
Certain officers of Ames participate in an Income Continuation
Plan ("ICP"), which guarantees up to one year's salary in the event
of termination other than for cause. As of January 25, 1997, the
Company had reserved for its known obligations under the ICP.
KEY EMPLOYEE CONTINUITY BENEFIT PLAN
Ames has a Key Employee Continuity Benefit Plan (the
"Continuity Plan") that covers all officers, Vice President and
above, and certain other employees of Ames. If the employment of any
participant in the Continuity Plan is terminated, other than for
death, disability, cause (as defined in the Continuity Plan) or by
the participant other than for good reason (as defined in the
Continuity Plan), within 18 months after a change of control of Ames,
the participant will receive a lump sum cash severance payment. The
severance payment is 2.99 times Base Compensation for the President
and Executive Vice Presidents, 2 times Base Compensation for Senior
Vice Presidents and selected Vice Presidents and 1 times Base
Compensation for other Vice Presidents. Base Compensation is defined
generally as the sum of the participant's annual base compensation in
effect immediately prior to the participant's termination plus
one-third of the value of the cash and stock bonuses paid to the
participant during the 36 months ending on the date of termination.
For purposes of the Continuity Plan, a change of control includes but
is not limited to the acquisition by any person of beneficial
ownership of 20% or more of Ames outstanding voting securities or the
failure of the individuals who constituted the Board of Directors at
the beginning of any period of 12 consecutive months to continue to
constitute a majority of the Board during such period.
11. COMMITMENTS AND CONTINGENCIES:
------------------------------
As part of the Company's settlement with TJX Companies, Inc.
("TJX") under the Amended Plan, Ames must reimburse TJX for various
obligations, fees, and expenses that may be paid by TJX relating to
various properties that were under leases rejected by Ames. The
obligations, fees, and expenses are subject to certain maximum
amounts and the total reimbursement may not exceed $2.7 million and
will be in the form of an unsecured note payable due on January 31,
1998 (the "TJX Expense Note"). TJX provides Ames with the amounts
paid, if any, during each quarter and those amounts, after
appropriate review, become the principal due under the TJX Expense
Note. As of January 25, 1997, the amount claimed as due by TJX and
recorded by Ames as the TJX Expense Note was approximately $.8
million (see Note 5). Interest is being accrued on the principal
amounts due at 10% per annum and will be payable on January 31, 1998.
The Amended Plan states that portions of any "Excess cash flow
amount" must be distributed to holders of claims in certain classes
in the order set forth in the Amended Plan. "Excess cash flow
amount" is defined as, with respect to the fiscal years ending
January 27, 1996 and January 25, 1997, 50% of the excess of (i)
EBITDA (as defined in the Company's credit agreement in effect on
Consummation Date) of reorganized Ames for such fiscal year over
(ii)(a) $99.1 million with respect to the fiscal year ending January
27, 1996 and (b) $114.7 million with respect to the fiscal year
ending January 25, 1997; provided, however, that excess cash flow
amounts shall not be paid with respect to any fiscal year after the
fiscal year ending January 25, 1997. There were no excess cash
flow amounts payable through January 25, 1997.
12. LITIGATION:
----------
WAGE AND HOUR LITIGATION
On March 21, 1995, a Class Action Complaint (the "Abrams
Complaint") was filed against the Company in the Superior Court
Department of the Trial Court, Suffolk County, Massachusetts entitled
DAVID W. ABRAMS, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS
SIMILARLY SITUATED V. AMES DEPARTMENT STORES, INC. The Complaint
alleged that Ames violated Massachusetts wage and hour law by failing
to pay Abrams, and other similarly situated Assistant Managers in
Massachusetts, time and one-half their regular rates of pay for hours
worked in excess of 40 hours a week. The Complaint sought injunctive
relief, treble damages, costs and attorney's fees. On April 21,
1995, the case was removed to the United States District Court for
the District of Massachusetts. The Company has denied the claims on
the basis that Abrams and other similarly situated Assistant Managers
were exempt employees not entitled to overtime pay. The Company
further denied that the action was properly maintainable as a class
action and that the plaintiff was a proper representative of the
purported class.
On March 14, 1996, Abrams amended his Complaint to include
Richard Serrano as name representative of all Replenishment Assistant
Managers located throughout Massachusetts. On November 22, 1996, the
Court remanded the claims of Serrano and the putative class of
Replenishment Assistant Managers to State Court because Serrano
failed to satisfy the amount in controversy requirement for federal
jurisdiction. On January 3, 1997, the United States District Court
for the District of Massachusetts certified a class of Hardlines and
Softlines Assistant Managers employed by Ames in any Ames store in
Massachusetts on or after March 21, 1993, but limited the class to
those Assistant Managers whose claim satisfied the amount in
controversy requirement for federal jurisdiction as of April 21,
1995, the date of removal. Abrams will cause notice to be sent to
the class apprising them of the pending action and their right to
opt-out of the action if they do not wish to participate in the
litigation after which time the parties will proceed to substantive
discovery on the class's alleged claims and damages.
On December 13, 1995, a Class Action Complaint was filed and on
January 23, 1996 an Amended Class Action Complaint was filed (the
"Second Complaint") in the United States District Court for the
District of Massachusetts entitled COLLEEN AUSTIN, ON BEHALF OF
HERSELF AND OTHERS SIMILARLY SITUATED V. AMES DEPARTMENT STORES, INC.
ET AL. The factual allegations in the Second Complaint are
essentially the same as those in the A Complaint referenced above.
However, the Second Complaint also includes claims against the
Company and certain of its officers and directors under the Fair
Labor Standards Act, ERISA and the wage and hours laws of each state
where Ames does business, and purports to state claims on behalf of
Assistant Managers in each of those states. The Company believes,
among other things, that the case is not properly maintainable as a
class action suit and that the plaintiff is not a proper class
representative. The Company also denied liability on the basis that
Austin and other similarly situated Assistant Managers were exempt
employees and moved to dismiss the claims under ERISA and the laws of
all states except Massachusetts. Discovery has not yet commenced in
this matter.
On June 26, 1996, a Class Action Complaint was filed (the
"Third Complaint") in the United States District Court for the
District of Massachusetts entitled DAVID ROOT, ON BEHALF OF HIMSELF
AND ALL OTHER PERSONS SIMILARLY SITUATED V. AMES DEPARTMENT STORES,
INC. The factual allegations in the Third Complaint are essentially
the same as in the ABRAMS Complaint referenced above. However, the
Third Complaint pertains only to Replenishment Assistant Managers who
worked at any Ames Store throughout the United States and is brought
solely under the Fair Labor Standards Act. The Complaint sought
injunctive relief, damages, costs and attorneys' fees. The Company
denied the claims on the basis that Root and other similarly situated
Replenishment Assistant Managers were exempt employees and, thus, not
entitled to time and one-half pay for hours worked in excess of 40
hours per week. The Company further denied that the action was
properly maintainable as a class action and that the plaintiff was a
proper representative for the purported class. In the Fall of 1996,
the parties reached an agreement to settle the action whereby each
putative class member opting-in to the settlement will receive a
calculated sum based on the number of weeks worked and individual
weekly salary levels in exchange for a release of all claims against
the Company. The total of the settlement cannot exceed $1 million in
cash and $500,000 in scrip usable in Ames stores. The Court approved
the settlement on January 31, 1997 and notices of the class action
settlement were sent to all potential members on February 3, 1997.
Individuals wishing to opt-in to the settlement must do so by April
4, 1997.
On December 6, 1996, the remand referenced above from the
United States District Court for the District of Massachusetts of
ABRAMS V. AMES DEPARTMENT STORES, INC. as to Richard Serrano and the
putative class of Replenishment Assistant Managers was docketed in
the Superior Court Department of the Trial Court, Suffolk County,
Commonwealth of Massachusetts (the "Fourth Complaint"). The Fourth
Complaint alleged that Ames violated General Laws, Chapter 151, 1A
by failing to pay Serrano and other similarly situated Replenishment
Assistant Managers located throughout Massachusetts time and one-half
their regular rates of pay for hours worked in excess of 40 hours per
week. Serrano has agreed to dismiss the action on behalf of himself
and other similarly situated Replenishment Assistant Managers
pursuant to the settlement reached between Ames and David Root
described above. Serrano and other former or current Replenishment
Assistant Managers employed by Ames in Massachusetts will have the
option to opt-in to the settlement.
On March 18, 1997, the Fourth Complaint was amended to add
Kristen Gould as a named plaintiff to represent the putative class of
Hardlines and Softlines Assistant Managers employed by Ames in the
Ames Store in Massachusetts whose claim failed to satisfy the amount
in controversy requirement for federal jurisdiction in the ABRAMS
case. Gould's substantive claims mirror those currently pending in
the ABRAMS case for Massachusetts Hardlines and Softlines Assistants.
Also, on March 18, 1997, the Court dismissed Serrano's action on
behalf of himself and other similar situated Replenishment Assistant
Managers pursuant to the settlement reached between Ames and David
Root described above. This case will hereafter go forward solely on
behalf of the Hardlines and Softlines Assistant Managers under the
caption KRISTEN GOULD V. AMES DEPARTMENT STORES, INC. in the Superior
Court Department of the Trial Court, Suffolk County, Commonwealth of
Massachusetts. The Company has not yet responded to the GOULD
Complaint, but when it does, it will assert the same defenses as it
did with regard to the ABRAMS Complaint.
On February 18, 1997, a Class Action Complaint (the "Fifth
Complaint") was filed in the United States District Court for the
Northern District of New York entitled MICHELLE MOSCHELLE,
INDIVIDUALLY, AND ON BEHALF OF HERSELF AND OTHERS SIMILARLY SITUATED
V. AMES DEPARTMENT STORES, INC. ET AL. The Fifth Complaint is
substantially identical to the Second Complaint except for the name
of the plaintiff. The Company has not yet responded to the Fifth
Complaint, but when it does, it will assert the same defenses as it
did with regard to the Second Complaint, plus other grounds, as may
be appropriate, for dismissing the Complaint.
As to the ABRAMS, AUSTIN, GOULD and matters referenced above,
the Company intends to defend each of them vigorously and believes it
should prevail.
ARGONAUT LITIGATION
On September 15, 1995, the Company commenced an adversary
proceeding in the Bankruptcy Court entitled AMES DEPARTMENT STORES,
INC. V. ARGONAUT INSURANCE COMPANY (the "Adversary Proceeding"). The
reason for this filing was a September 1995 assertion by Argonaut
Insurance Company ("Argonaut") that an evergreen letter of credit
issued to the benefit of Argonaut at the
request of Ames in May 1990 (the "Letter of Credit") could be drawn
upon to satisfy Argonaut's pre-petition bankruptcy claim against Ames
under an insurance policy issued by Argonaut to Ames in October 1989
(the "Insurance Policy"). The Letter of Credit was in the amount of
$5 million and Ames had an obligation to reimburse the issuing bank
for any draw down on the Letter of Credit.
The Adversary Proceeding against Argonaut sought, among other
things, to enjoin Argonaut from drawing down the Letter of Credit to
satisfy its pre-petition claims. The Company asserted, among other
things, that the Letter of Credit was not intended to cover pre-
petition claims and, in any event, could not do so under relevant
bankruptcy law. The Company also asserted that in the event Argonaut
was permitted to draw down on the Letter of Credit, the proper
interpretation of the aggregate deductible provision in the Insurance
Policy means that the maximum draw down amount was substantially less
than $5 million.
In October 1996, the Company and Argonaut agreed to a
settlement of the dispute which involved Argonaut agreeing to the
cancellation of the Letter of Credit and Ames agreeing to pay $1
million to Argonaut. The pending litigation has now been dismissed.
WERTHEIM PROCEEDING
On October 13, 1992, Ames commenced an adversary proceeding
against Wertheim Schroder & Co., Inc. ("Wertheim") and James A.
Harmon ("Harmon") (Wertheim & Harmon, collectively the "Defendants").
In this proceeding (the "Wertheim Proceeding"), Ames sought damages
and equitable relief for breach of fiduciary duty, professional
malpractice, fraudulent conveyance and transfer pursuant to the
Bankruptcy Code and New York law, and other improper conduct relating
to Ames' acquisition from Zayre Corporation ("Zayre") of Zayre's
discount stores division in October 1988.
On March 31, 1994, Ames entered into a settlement agreement
with the Defendants (the "Settlement Agreement"), which was
subsequently approved by the Bankruptcy Court. In summary, the
Settlement Agreement provided for a $19 million settlement payment by
the Defendants and dismissal of all claims and counterclaims in the
Wertheim Proceeding. The closing on the Wertheim Settlement
Agreement took place in June 1994. At that time, the Company
recorded a nonrecurring gain for its $12 million portion of the
settlement. The Class AG-6A Trust received $7 million for its
portion of the settlement.
OTHER MATTERS
Ames has owned and/or leased current and former facilities that
are subject to several environmental laws relating to the operation
and maintenance of those facilities, particularly with respect to any
underground storage tanks currently or previously located at those
facilities. The Company believes the vast majority of those tanks
have already been cleanly removed. Some residual contamination
exists at a limited number of facilities, the extent of which has not
been determined at this time. Environmental liabilities associated
with these facilities may be shared with facility landlords, tenants,
subtenants, or other third parties. In some states, clean-ups may be
eligible for financing from state funds. Based on currently
available information, no liabilities material to the Company will
result from any underground storage tank residual contamination. The
Company believes that adequate liabilities have been recorded related
to any potential costs.
Under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("Superfund"), liability may be imposed
on waste generators, site owners and operators, and others regardless
of fault or the legality of the original waste disposal activity.
Ames may be liable for costs at several sites under Superfund or
similar state laws either for generating wastes, including waste oils
disposed of at those sites, or in connection with the assumption by
Ames of certain Zayre Discount Division liabilities. Ames believes
that it has been connected to most of these sites based on relatively
small amounts of wastes and that many other parties are involved at
these sites and may share in the ultimate liability. Ames does not
have sufficient information to determine its relative responsibility
for, or contribution to (if any), all of these sites at this time.
The Company is a party to various claims and legal proceedings
covering a wide range of matters that arise in the ordinary course of
its business activities. The Company believes that its likely
liability as to these matters will not have a material adverse effect
on the consolidated financial position or results of operations of
the Company.
13. SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
Cash paid for interest and income taxes were as follows:
(000's Omitted)
---------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
------- -------- -------
Interest............................ $15,149 $19,217 $19,953
Income taxes........................ 2 2 7
Ames entered into other non-cash investing and financing
activities as follows:
(000's Omitted)
---------------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
------ ------- -------
New capital lease obligations....... $ 375 $3,203 $ 687
Conversion of Priority Common
Stock into Common Stock........... - - 38
Issuance of Common Stock under
1995 Long Term Incentive Plan..... - 4 -
14. FAIR VALUES OF FINANCIAL INSTRUMENTS:
------------------------------------
The Financial Accounting Standards Board requires disclosure of
the fair value of financial instruments under Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" ("SFAS No. 107"). The following
methods and assumptions were used by the Company in estimating the
fair value disclosures for its financial instruments.
The Company's financial instruments as of January 25, 1997 and
January 27, 1996 were cash and short-term investments, long-term
debt, and the Series C Warrants. For cash and short-term
investments, the carrying amounts reported in the Consolidated
Balance Sheets approximated fair values. For long-term debt
obligations, the fair values were estimated using a discounted
cash flow analysis (based upon the Company's incremental borrowing
rates for similar types of borrowing arrangements). The fair
value of the Series C Warrants was based on the market trading
price at year-end times the number of such warrants that were
outstanding.
The carrying amounts and fair values of the Company's financial
instruments at January 25, 1997 and January 27, 1996 were as
follows:
<TABLE>
<CAPTION>
(000's Omitted)
--------------------------------------------
January 25, 1997 January 27, 1996
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------- ------- --------- -------
<S> <C> <C> <C> <C>
Cash and short-term investments.... $46,119 $46,119 $14,185 $14,185
Long-term debt
Secured debt..................... 15,574 15,737 19,404 19,782
Unsecured debt................... 8,444 8,442 17,437 17,495
Series C Warrants.................. - 10,462 - 1,619
</TABLE>
15. GAIN ON DISPOSITION OF PROPERTIES:
---------------------------------
The following is a summary of the major components of the
"Gain on disposition of properties":
<TABLE>
<CAPTION>
(000's Omitted)
-----------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
------- -------- ---------
<S> <C> <C> <C>
Gain on:
Sales of closed distribution centers. $ - $5,099 $ -
Sales/assignment of lease
interests at closed locations.... 395 991 2,965
Sale of office building................ - - 2,870
Sales of shopping centers.......... - 3,046 1,649
----- ----- -----
$ 395 $9,136 $7,484
====== ======= ======
</TABLE>
16. DISTRIBUTION CENTER CLOSING COSTS:
---------------------------------
In Fiscal 1994, the Company announced it would close the
distribution center in Clinton, Massachusetts in June, 1995 and
recorded a provision of $1.3 million for the estimated costs
associated with closing the facility. Transfer of the Clinton
operations to the Company's distribution center in Leesport,
Pennsylvania and the sale of the Clinton facility were completed
in June, 1995. In conjunction with the sale of the Clinton
facility, the Company was required to prepay the 8.5% Industrial
Development Bonds which had secured the facility.
The following items represent the major components (in
thousands) of the total provision for the Clinton closing costs:
Termination benefits and other
human resources costs $776
Asset write-off 145
Other closing costs 379
------
$1,300
======
Through January 25, 1997, $1.3 million of costs have been
charged to the reserve and no future expenses are expected.
17. STORE CLOSING CHARGES:
---------------------
In the fourth quarter of 1996, the Company recorded charges
of $9.7 million in connection with the closing of thirteen (13)
stores. The $9.7 million is classified in two line items: $6.9
million as store closing charge and $2.8 million as part of cost
of merchandise sold. Twelve of the stores closed in February,
1997, and the thirteenth store is expected to close in mid-summer,
1997.
In the fourth quarter of 1995, the Company recorded charges
of $20.9 million in connection with the closing of seventeen (17)
stores and the elimination of 71 positions in the corporate
headquarters. The $20.9 million is now classified in two line
items to conform with the 1996 presentation: $17.6 million as
store closing charge and $3.3 million as part of cost of
merchandise sold. The 17 stores closed in March, 1996. The $3.3
million charge, representing the inventory write-down for the 17
closing stores, had been classified as part of the store closing
charge in the original presentation of the results for 1995.
The following items represent the major components of the
total charges recorded in January, 1997 and January, 1996 in
connection with store closings:
(OOO's Omitted)
------------------------
Fiscal Fiscal
Item 1996 1995
---- ----- ------
Lease costs $3,535 $12,926
Net fixed asset write-down 1,149 2,094
Severance costs 773 1,857
Other 1,401 744
------ -----
Store closing charge 6,858 17,621
Inventory write-down 2,860 3,244
------- -------
Total charges $9,718 $20,865
======= =======
The lease costs provided for in the store closing charge
include all projected occupancy costs from date of closing until
estimated lease disposition date.
18. LEASED DEPARTMENT AND OTHER OPERATING INCOME:
---------------------------------------------
(000's Omitted)
-----------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
------ ------ ------
Leased department income........... $16,932 $17,132 $17,900
Concession and vending income...... 1,148 1,291 1,342
Layaway service fees............... 2,382 2,386 3,163
Various other...................... 8,822 8,868 7,891
------- ----- -------
$29,284 $29,677 $30,296
======= ======= =======
19. EXTRAORDINARY ITEMS:
-------------------
In December, 1996, the Company terminated the Prior Credit
Agreement (Note 5) and recorded a non-cash extraordinary charge of
$1.4 million, net of tax benefit of $0.6 million, for the write-
off of deferred financing costs.
The Company prepaid certain debt (Note 5) during Fiscal 1994
and recorded a non-cash extraordinary charge of $1.5 million, net
of tax benefit of $0.7 million, primarily for the write-off of
deferred financing costs and debt discounts.
20. ACCOUNTING FOR LONG-LIVED ASSETS:
--------------------------------
Effective January 27, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." As a result, the Company recorded an impairment
loss of $3.4 million in the quarter ended January 27, 1996.
During Fiscal 1996, the Company recorded an additional impairment
loss of $2.2 million. The impairment loss, classified as part of
"Depreciation and amortization expense," was equivalent to the
current carrying value of fixtures and equipment and leasehold
improvements for specific stores where estimated undiscounted
future operating cash flows were less than the current carrying
value of the assets. The Company will continue to operate these
stores until such time the estimated closing costs are less than
any projected cash losses.
21. RECENTLY ISSUED ACCOUNTING STANDARDS:
------------------------------------
In February, 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128"). Under SFAS No. 128 the
presentation of Primary and Fully Diluted Earnings per Share will
be replaced by Basic and Diluted Earnings per Share. Adoption of
SFAS No. 128 is required for periods ending after December 15,
1997, at which time restatement for prior periods will be
necessary.
22. QUARTERLY FINANCIAL DATA (UNAUDITED):
------------------------------------
Summarized unaudited quarterly financial data (in thousands
except for per share amounts) for the last three fiscal years are
shown below. The quarterly sales for Fiscal 1995 have been
restated to reflect the effect of recording "55 Gold " senior
citizen discounts as markdowns, which conforms with the Fiscal
1996 treatment.
<TABLE>
<CAPTION>
First Second Third Fourth
------- ------ ------ -------
<S> <C> <C> <C> <C>
FISCAL 1996:
-----------
Net sales $438,667 $499,107 $516,876 $707,030
Gross margin 117,402 139,725 141,224 194,355
Income (loss) before extraordinary item (6,998) 4,514 421 20,718 (a)
Income (loss) per share before extaordinary item (0.34) 0.21 0.02 0.93
Net income (loss) (6,998) 4,514 421 19,364 (a)
Net income (loss)per share - primary (0.34) 0.21 0.02 0.87
- fully diluted (0.34) 0.21 0.02 0.85
FISCAL 1995:
-----------
Net sales $438,312 $500,188 $501,550 $664,181
Gross margin 115,345 136,000 134,137 174,760 (b)
Income (loss) before extraordinary item (11,141) 3,188 (4,884) 11,219 (c)
Income (loss) per share before extaordinary item (0.55) 0.15 (0.24) 0.54
Net income (loss) (11,141) 3,188 (4,884) 11,219 (c)
Net income (loss)per share (e) (0.55) 0.15 (0.24) 0.54
FISCAL 1994:
-----------
Net sales $435,755 $491,300 $511,268 $704,504
Gross margin 116,039 136,210 137,136 182,261
Income (loss) before extraordinary item (13,624)(d) 6,609 (5,102) 30,660
Income (loss) per share before extaordinary item (0.68) 0.31 (0.25) 1.44
Net income (loss) (15,141)(d) 6,609 (5,102) 30,660
Net income (loss)per share (e) (0.75) 0.31 (0.25) 1.44
<FN>
(a) Includes charges of $9.7 million related to the closing of 13
stores (Note 17).
(b) Restated by $3.3 million for the inventory write-down incurred in
connection with the 17-store closing (Note 17).
(c) Includes charges of $20.9 million related to the closing of 17
stores (Note 17).
(d) Includes the nonrecurring gain of $12.0 million for a litigation
settlement (Note 12).
(e) Primary and fully diluted earnings per share were the same for
each quarter.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Balance at Charged to Balance at
Beginning of Cost and End of
Description Period Expense Reclassifications(a) Deductions Period
- ----------- ----------- --------- ------------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
FISCAL 1996
- -----------
Store Closing Reserve $27,379 $ 6,858 ($2,178) ($7,621) $24,438
Distribution Center
Closing Reserve
included in Accrued
Expenses 123 - ($ 122) ($ 1) -
FISCAL 1995
- -----------
Store Closing Reserve $ 2,878 $17,621 $8,378 ($1,498) (b) $27,379
Distribution Center
Closing Reserve
included in Accrued
Expenses $ 1,567 - ($194) ($1,250) (c) $ 123
FISCAL 1994
- -----------
Store Closing Reserve $ 6,992 - $1,623 ($5,737) (b) $2,878
Distribution Center
Closing Reserve
included in Accrued
Expenses - $2,500 $267 ($1,200) (d) $1,567
<FN>
(a) Represents reclassifications of liabilities associated with
closed stores and other reclassifications.
(b) Represents payments of restructuring costs.
(c) Represents payments related to the closing of the distribution
center.
(d) Represents reduction of amount charged to cost and expense to
eliminate the amounts established for real estate taxes and other
estimated property holding costs due to the earlier-than-expected
sale.
</TABLE>
<PAGE>
E X H I B I T I N D E X
CROSS-REFERENCE
EXHIBIT OR PAGE NUMBER
NUMBER EXHIBIT IN FORM 10-K
- ------ ------- --------------
2(a) Third Amended and Restated Plan of Reorganization
of the Ames Department Stores, Inc. and other
members of the Ames Group, Citibank, N.A. as
Agent, the Parent Creditor's Committee, the
Subsidiaries Creditor's Committee, the Bond-
holders' Committee and the Employees' Committee
dated October 23, 1992 (incorporated herein by
reference to Exhibit 2 of the Company's Report
on Form 8-K dated December 29, 1992 and filed
December 31, 1992).
2(b) Statement of Ames Group with respect to conditions
to Consummation of Third Amended and Restated
Joint Plan of Reorganization of Ames Department
Stores, Inc. other members of Ames Group,
Citibank, N.A., Parent Creditors' Committee,
Subsidiaries Creditors' Committee, Bondholders'
Committee and Employees' Committee dated
December 28, 1992 (incorporated herein by
reference to Exhibit 2B of the Company's Report
on Form 8-K dated December 29, 1992 and filed
December 31, 1992).
2(c) Ames Department Stores, Inc. Information
Supplementing Disclosure Statement dated
December 29, 1992 (incorporated herein by
reference to Exhibit 2C of the Company's
Report on Form 8-K dated December 29, 1992
and filed December 31, 1992).
3(a) Amended and Restated Certificate of Incorporation
of Ames Department Stores, Inc.
(incorporated herein by reference to
Form 8 dated and filed December 29, 1992).
3(b) Form of By-laws of Ames Department Stores, Inc.
as amended February 23, 1995 (incorporated
herein by reference to Exhibit 3(b) of the
Company's Annual Report on Form 10-K dated
January 28, 1995 and filed on April 10, 1995).
4(a) Series B Warrant Certificate for Purchase of New
Common Stock of Ames Department Stores, Inc.
(incorporated herein by reference to Form 8-A
dated and filed December 11, 1992).
4(b) Series C Warrant Certificate for Purchase of New
Common Stock of Ames Department Stores, Inc.
(incorporated herein by reference to Form 8-A
dated and filed December 11, 1992).
<PAGE>
E X H I B I T I N D E X
CROSS-REFERENCE
EXHIBIT OR PAGE NUMBER
NUMBER EXHIBIT IN FORM 10-K
- ------ ------- ---------------
4(c) Rights Agreement, dated as of November 30, 1994,
between Ames Department Stores, Inc. and
Chemical Bank, as Rights Agent (incorporated
herein by reference to Exhibit 4 of the
Company's Quarterly Report on Form 10-Q for
the quarterly period ended October 29, 1994
filed on December 13, 1994).
10(a) Retirement and Savings Plan as restated
December 27, 1984, and Amendment No. 1
(incorporated herein by reference to Exhibit
10(n) of the Company's 1985 Annual Report on
Form 10-K dated January 26, 1985 and filed
April 24, 1985).
10(b) Settlement Agreement, dated March 31, 1994, between
Ames Department Stores, Inc. and Subsidiaries
and Wertheim Schroder & Co. Incorporated and
James A. Harmon (incorporated herein by reference
to Exhibit 10 of the Company's Report on Form 8-K
dated and filed April 8, 1994).
10(c) 1994 Management Stock Option Plan (incorporated herein
by reference to the Company's definitive proxy
statement filed on May 5, 1994).
10(d) 1994 Non-Employee Directors Stock Option Plan
(incorporated by reference to the Company's
definitive proxy statement filed April 10, 1995).
10(e) 1995 Long Term Incentive Plan (incorporated by
reference to the Company's definitive proxy
statement filed on April 10, 1995).
10(f) Credit Agreement, dated as of December 27, 1996, among
BankAmerica Business Credit, Inc., as Agent, the
lenders party thereto and Ames Department Stores, Inc.
(incorporated herein by reference to Exhibit 10 of the
Company's Report on Form 8-K dated and filed
January 14, 1997).
<PAGE>
E X H I B I T I N D E X
CROSS-REFERENCE
EXHIBIT OR PAGE NUMBER
NUMBER EXHIBIT IN FORM 10-K
- ------ ------- ---------------
10(g) Employment Agreement, dated June 1, 1996, between Ames 54
Department Stores, Inc. and Joseph Ettore.
10(h) Employment Agreement, dated August 1, 1996, between Ames 64
Department Stores, Inc. and Denis Lemire.
11 Schedule of computation of primary and fully diluted 75
net earnings per share.
22 Subsidiaries of the Registrant. 76
Exhibit 10(g)
EMPLOYMENT AGREEMENT
---------------------
Agreement, dated as of June 1, 1996, between AMES DEPARTMENT STORES,
INC., a Delaware corporation (the "Company"), and JOSEPH ETTORE (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Company is engaged in the business of operating self-service
retail discount department stores (the "Business"); and
WHEREAS, the Company desires to retain the services of the Executive in
the capacities of Chief Executive Officer and President of the Company, and
the Executive desires to provide such services in such capacities to the
Company, on the terms and subject to the conditions set forth in this Agree-
ment;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT AND TERM. The Company hereby employs the Executive, and
the Executive hereby accepts employment by the Company, in the capacities and
on the terms and subject to the conditions set forth herein, for the period
commencing on June 1, 1996 and ending on May 31, 1999, unless terminated
earlier as provided herein (the "Term of Employment"). The Company hereby
agrees to notify the Executive not later than January 1, 1999, whether the
Company intends to seek to negotiate an extension of the Term of Employment.
2. DUTIES. During the Term of Employment, the Executive shall serve as
the Company's Chief Executive Officer and President. In addition, while it is
understood that the right to elect directors of the Company is by law vested
in the stockholders of the Company, it is nevertheless contemplated, subject
to such right, that the Executive shall, at all times during the Term of
Employment, be a member of the Board of Directors of the Company; PROVIDED
that the failure of the Executive to be elected a director or to retain a
directorship of the Company shall not constitute a breach of this Agreement by
the Company. As chief executive officer, the Executive shall be the most
senior officer of the Company, with all supervisory authority and power over
the other senior officers of the Company, including principal responsibility
for recommendations to the Board of Directors of the Company regarding the
hiring and termination of other senior officers and with such other powers,
duties and responsibilities with respect to the business of the Company as are
customary to his offices and positions or as the Board of Directors of the
Company may reasonably request consistent therewith.
The Executive shall serve the Company faithfully and to the best of his
ability in such capacities, devoting substantially all of his business time,
attention, knowledge, energy and skills to such employment.
The Executive shall reside during the business week and be based at the
Company's offices in Rocky Hill, Connecticut or in the same geographic region,
but the Executive shall travel as reasonably required in connection with the
performance of his duties hereunder. If elected, the Executive also shall
serve during any part of the Term of Employment as any other officer of the
Company or as an officer or director of any of the Company's subsidiaries
without any additional compensation other than as specified in this Agreement.
3. COMPENSATION AND BENEFITS. As full and complete compensation to the
Executive for his execution and delivery of this Agreement and performance of
the services required hereunder, the Company shall pay, grant or provide the
Executive, and the Executive agrees to accept, the following salary and other
compensation and benefits (all such amounts to be calculated in United States
dollars):
(a) a base salary, payable in accordance with the Company's
standard payroll practices for senior executive officers, of $850,000 per
annum ("Base Salary");
(b) an annual bonus, payable with respect to each full fiscal year
of the Company during the Term of Employment, or pro rata portion
thereof, in each case based upon the performance of the Company for each
applicable full fiscal year of the Company and otherwise in accordance
with the Company's Annual Incentive Compensation Plan, in effect from
time to time;
(c) a one-time, non-refundable lump-sum cash payment of $150,000,
which shall be deemed to be earned in full upon the execution and
delivery of this Agreement and which shall be payable in full upon such
execution and delivery;
(d) an option (the "Option"), granted as of July 11, 1996, to
acquire up to 300,000 shares (the "Option Shares") of common stock, par
value $.01 per share, of the Company (the "Common Stock") in accordance
with the Company's 1994 Management Stock Option Plan (the "1994 Plan") or
any other plan pursuant to which the Option may be granted (the
"Alternative Plan"), subject to amendment or approval, as the case may
be, of such plan by the stockholders of the Company at its annual meeting
to be held no later than May, 1998; PROVIDED, HOWEVER, that in the event
that the Company neither amends the 1994 Plan nor adopts the Alternative
Plan, the Company shall make a payment to the Executive of an amount
equal to (x) 300,000, MULTIPLIED by (y) the difference between the
Average Stock Price (as hereinafter defined) and $2.00 (the "Option
Alternative Amount"). For purposes of this Agreement, the "Average Stock
Price" means the average closing sale price per share on any national
securities exchange or on the National Association of Securities Dealers
Automated Quotation System - National Market System ("NASDAQ-NMS") on
which the Common Stock is listed or reported through, as the case may be,
for the 20 trading days prior to the end of the Term of Employment. The
Option Alternative Amount will be payable at the end of the Term of
Employment, unless, prior to such date, the Executive terminates his
employment other than for Good Reason (as hereinafter defined) or his
employment is terminated by the Company for Cause (as hereinafter
defined), in which case no payments will be made pursuant to this
paragraph (d);
(e) reimbursement to the Executive of $12,000 per year for the
cost of maintaining $500,000 of life insurance, plus additional life
insurance underwritten by the Company's present insurer (or another
insurer reasonably acceptable to the Company and the Executive) in the
face amount of $500,000; PROVIDED that the Executive shall assist the
Company in procuring such insurance by submitting to reasonable medical
examinations and by filling out, executing and delivering such
applications and other instruments in writing as may reasonably be
required by any insurer to which the Company may apply;
(f) the right to participate in any savings and stock option plans
or programs and in any medical, dental, disability, retirement,
insurance, savings, vacation, holiday, paid sick leave or other plans as
in effect from time to time for the benefit of the Company's senior
executive officers;
(g) the right to participate in any long-term incentive program as
in effect from time to time for the benefit of senior executive officers
implemented by the Company or any of its subsidiaries;
(h) a one-time, lump-sum cash payment of $450,000, which shall be
payable at the end of the Term of Employment, unless, prior to such date,
the Executive terminates his employment other than for Good Reason or his
employment is terminated by the Company for Cause, in which case no
payments will be made pursuant to this paragraph (h);
(i) an annual automobile allowance, payable in equal monthly
installments during the Term of Employment, in an amount in accordance
with the policies and procedures of the Company as in effect from time to
time for senior executive officers, but not less than $1,800 per month;
(j) prompt reimbursement for all reasonable business-related
expenses incurred by the Executive, in accordance with the policies and
procedures of the Company as in effect from time to time for senior
executive officers;
(k) paid vacation in accordance with the policies and procedures
of the Company as in effect from time to time for senior executive
officers; and
(l) a living allowance of $48,000 per year during the Term of
Employment, payable in equal monthly installments of $4,000
4. TERMINATION.
-----------
(a) PERMANENT DISABILITY. During the Term of Employment
hereunder, the Company shall maintain a disability insurance policy which
shall pay to the Executive 60% of his Base Salary during any period of
disability up to Executive's age 65; PROVIDED that the Executive shall
assist the Company in procuring such insurance by submitting to
reasonable medical examinations and by filling out, executing and
delivering such applications and other instruments in writing as may
reasonably be required by any insurer to which the Company may apply; and
PROVIDED, FURTHER, that the Executive shall be insurable at standard
rates. In the event of the permanent disability (as hereinafter defined)
of the Executive during the Term of Employment, the Company shall have
the right, upon written notice to the Executive, to terminate the
Executive's employment hereunder, effective upon the giving of such
notice (or such later date as shall be specified in such notice). Upon
such termination, the Company shall have no further obligations
hereunder, except to pay the Executive any amounts or provide the
Executive any benefits to which the Executive may otherwise have been
entitled under the Company's permanent disability insurance referred to
above, and the Executive shall continue to have the obligations provided
for in Sections 6 and 7. For purposes of this paragraph, "permanent
disability" means any disability as defined under the Company's
disability insurance policy referred to Section 3(f).
(b) DEATH. In the event of the death of the Executive during the
Term of Employment, this Agreement shall automatically terminate and the
Company shall have no further obligations hereunder, except to pay the
Executive's beneficiary or legal representative any amounts or provide
any benefits to which the Executive may otherwise have been entitled
prorated to the date of death.
(c) CAUSE. The Company shall have the right, upon written notice
to the Executive, to terminate the Executive's employment under this
Agreement for Cause, effective upon the giving of such notice (or such
later date as shall be specified in such notice), and the Company shall
have no further obligations hereunder, except to pay the Executive any
amounts or provide the Executive any benefits to which the Executive may
otherwise have been entitled prorated to the effective date of
termination.
For purposes of this Agreement, "Cause" means:
(i) fraud or embezzlement on the part of the Executive or
material breach by the Executive of his obligations under Section 6
or 7;
(ii) conviction of the Executive for any felony;
(iii) a material breach of, or the willful failure or refusal
by the Executive to perform and discharge, his duties, responsibili-
ties or obligations under this Agreement without Good Reason (other
than under Sections 6 and 7 hereof, which shall be governed by
clause (i) above, and other than by reason of permanent disability
or death) that is not corrected within 30 days of written notice
thereof to the Executive by the Company, such notice to state with
specificity the nature of the breach, failure or refusal; PROVIDED
that if such breach, failure or refusal cannot reasonably be
corrected within 30 days of written notice thereof, correction shall
be commenced by the Executive within such period and may be
corrected within a reasonable period thereafter; or
(iv) any substantiated, willful act by the Executive intended
to result in substantial personal enrichment of the Executive at the
expense of the Company or any of its affiliates or which has a
material adverse impact on the business or reputation of the Company
or any of its affiliates.
(d) WITHOUT CAUSE. The Company shall have the right to terminate
the Executive's employment under this Agreement without Cause and upon
written notice, in which case the Executive's employment under this
Agreement shall terminate on the date specified in such notice (except
that the Executive shall continue to have the obligations provided for in
Sections 6 and 7(a)) and the Company shall have no further obligations
hereunder, except (i) to pay the Executive, promptly following such
termination, an amount equal to (A) his Base Salary when it would
otherwise be payable and (B) the annual bonus payable to the Executive
under Section 3(b) prorated to the effective date of termination, (ii) to
cause the Option to vest in full as of the date of termination and to
remain exercisable until the end of the option period set forth in the
Option, and (iii) to maintain coverage of the Executive in the Company's
medical plan for a period of one (1) year after the date of termination,
as such plan is in effect during such period for the benefit of the
Company's senior executive officers, in lieu of any other compensation,
payment or other benefits to which the Executive may otherwise be
entitled under this Agreement. There shall be no mitigation for any
amounts payable by the Company pursuant to this Section 4(d).
(e) GOOD REASON. The Executive shall have the right to terminate
his employment under this Agreement for Good Reason upon at least three
months' prior written notice thereof to the Company given within 30 days
of the first occurrence of any event constituting Good Reason, in which
case the Executive's employment under this Agreement shall terminate on
the date specified in such notice. In the event of any termination of
employment by the Executive for Good Reason, the Executive shall have no
further obligations under this Agreement other than the obligations
provided for in Sections 6 and 7(a). The failure by the Executive to
give such written notice in such 30-day period shall preclude the
Executive from terminating his employment for Good Reason with respect to
such occurrence. In the event of any termination of employment by the
Executive for Good Reason, the Company shall have no further obligations
hereunder, except (i) to pay the Executive, promptly following such
termination, an amount equal to (A) his Base Salary when it would
otherwise be payable and (B) the annual bonus payable to the Executive
under Section 3(b) prorated to the effective date of termination, (ii) to
cause the Option to vest in full as of the date of termination and to
remain exercisable until the end of the option period set forth in the
Option, and (iii) to maintain coverage of the Executive in the Company's
medical plan for a period of one (1) year after the date of termination,
as such plan is in effect during such period for the benefit of the
Company's senior executive officers, in lieu of any other compensation,
payment or other benefits to which the Executive may otherwise be
entitled under this Agreement. There shall be no mitigation for any
amounts payable by the Company pursuant to this Section 4(e). It is
understood and agreed that, during the three-month period following the
Executive's delivery of notice of termination for Good Reason to the
Company, the Executive shall cooperate fully with the Company to effect
the orderly transfer of the Executive's duties to another person or
persons. Notwithstanding anything to the contrary contained herein, upon
receipt of the Executive's notice of termination for Good Reason, the
Company shall have the right to cause the Executive's termination to
become effective prior to the end of the three-month period or the date
specified in the notice therefor by giving at least two business days'
notice thereof to the Executive; PROVIDED that the Company shall continue
to pay the Executive's Base Salary until the end of the third month after
such notice is given and such amount shall not be offset against any
other amounts payable under this Section 4(e).
For purposes of this Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's positions
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section 2
of this Agreement; or
(ii) the termination of employment of the Executive without
Cause or the occurrence of any of the circumstances constituting
Good Reason under clause (i) of this definition after a Change in
Control (as hereinafter defined).
For purposes of this Agreement, a "Change in Control" means:
the occurrence of any one of the following events: (a) any
person or other entity (other than any of the Company's
subsidiaries), including any person as defined in Section
13(d)(3) of the Exchange Act, becoming the beneficial owner,
as defined in Rule 13d-3 of the Exchange Act, directly or
indirectly, of more than fifty percent (50%) of the total
combined voting power of all classes of capital stock of the
Company ordinarily entitled to vote for the election of
directors of the Company, (b) the sale of all or substantially
all of the property or assets of the Company (other than a
sale to any of the Company's subsidiaries), (c) the
consolidation or merger of the Company with another
corporation (other than with any of the Company's subsidiaries
or in which the Company is the surviving corporation), the
consummation of which would result in the occurrence of an
event described in clause (a) above or (d) a change in the
Board of Directors of the Company occurring with the result
that the members of the Board of Directors of the Company on
the date hereof (the "Incumbent Directors") no longer
constitute a majority of such Board of Directors, provided
that any person becoming a director whose election or
nomination for election was supported by a majority of the
Incumbent Directors shall be considered an Incumbent Director
for purposes hereof.
5. RESIGNATION UPON TERMINATION. Upon the termination of the
Executive's employment hereunder for any reason the Executive agrees that he
shall be deemed to have resigned from all offices and directorships held by
him in the Company or any of its subsidiaries immediately.
6. CONFIDENTIALITY; OWNERSHIP. (a) During the Term of Employment and
thereafter, the Executive shall keep secret and retain in strictest confidence
and not divulge disclose, discuss, copy or otherwise use or suffer to be used
in any manner, except in connection with the Business of the Company and the
businesses of any of its subsidiaries or affiliates, any Protected Information
in any Unauthorized manner or for any Unauthorized purpose (as such terms are
hereinafter defined
(i) "Protected Information" means trade secrets, confidential
or proprietary information and all supplier and customer lists,
market research, databases, computer programs and software,
operating procedures, knowledge of the organization, products
(including prices, costs, sales or content), machinery, contracts,
financial information or measures, business plans, details of
consultant contracts, new personnel acquisition plans, business
acquisition plans, business relationships and other information
owned, developed or possessed by the Company or its subsidiaries or
affiliates, except as required in the course of performing duties
hereunder; PROVIDED that Protected Information shall not include
information (a) that is considered by law, custom or otherwise to be
generally known in the industry of the Company; (b) developed by the
Executive individually or jointly with others prior to the
commencement of employment under Section 2; and (c) that becomes
generally known to the public or the trade without violation of this
Section 6.
(ii) "Unauthorized" means: (A) in contravention of the
policies or procedures of the Company or any of its subsidiaries or
affiliates; (B) otherwise inconsistent with the measures taken by
the Company or any of its subsidiaries or affiliates to protect
their interests in any Protected Information; (C) in contravention
of any lawful instruction or directive, either written or oral, of
an employee of the Company or any of its subsidiaries or affiliates
empowered to issue such instruction or directive; or (D) in
contravention of any duty existing under law or contract.
Notwithstanding anything to the contrary contained in this Section
6, the Executive may disclose any Protected Information to the
extent required by court order or decree or by the rules and
regulations of a governmental agency or as otherwise required by
law; PROVIDED that the Executive shall provide the Company with
prompt notice of such required disclosure in advance thereof so that
the Company may seek an appropriate protective order in respect of
such required disclosure.
(b) The Executive acknowledges that all developments, including,
without limitation, inventions, patentable or otherwise, discoveries,
improvements, patents, trade secrets, designs, reports, computer
software, flow charts and diagrams, procedures, data, documentation,
ideas and writings and applications thereof relating to the Business or
planned business of the Company or any of its subsidiaries or affiliates
that, alone or jointly with others, the Executive may conceive, create,
make, develop, reduce to practice or acquire during the Term of
Employment (collectively, the "Developments") are works made for hire and
shall remain the sole and exclusive property of the Company and the
Executive hereby assigns to the Company all of his right, title and
interest in and to all such Developments. The Executive shall promptly
and fully disclose all future material Developments to the Board of
Directors of the Company and, at any time upon request and at the expense
of the Company, shall execute, acknowledge and deliver to the Company all
instruments that the Company shall prepare, give evidence and take all
other actions that are necessary or desirable in the reasonable opinion
of the Company to enable the Company to file and prosecute applications
for and to acquire, maintain and enforce all letters patent, trademark
registrations or copyrights covering the Developments in all countries in
which the same are deemed necessary by the Company. All memoranda,
notes, lists, drawings, records, files, computer tapes, programs,
software, source and programming narratives and other documentation (and
all copies thereof) made or compiled by the Executive or made available
to the Executive concerning the Developments or otherwise concerning the
Business or planned business of the Company or any of its subsidiaries or
affiliates shall be the property of the Company or such subsidiaries or
affiliates and shall be delivered to the Company or such subsidiaries or
affiliates promptly upon the expiration or termination of the Term of
Employment.
(c) The provisions of this Section 6 shall, without any limitation
as to time, survive the expiration or termination of the Executive's
employment hereunder, irrespective of the reason for any termination.
7. COVENANT NOT TO COMPETE. Subject to the last sentence of this
Section 7, the Executive agrees that until May 31, 1999, the Executive shall
not, directly or indirectly, without the prior written consent of the Company:
(a) solicit, entice, persuade or induce any employee, consultant,
agent or independent contractor of the Company or of any of its
subsidiaries or affiliates to terminate his or her employment with the
Company or such subsidiary or affiliate, to become employed by any
person, firm or corporation other than the Company or such subsidiary or
affiliate or approach any such employee, consultant, agent or independent
contractor for any of the foregoing purposes, or authorize or assist in
the taking of any such actions by any third party (for purposes of this
Section 7(a), the terms "employee," "consultant," "agent" and
"independent contractor" shall include any persons with such status at
any time during the six months preceding any solicitation in question);
or
(b) directly or indirectly engage, or participate, or make any
financial investment in, or become employed by or render consulting,
advisory or other services to or for any of the following business
enterprises (or their respective successors-in-interest, including,
without limitation, by change of name): Kmart; Wal-Mart; Hills; Rose's;
Target; Caldor; and Bradlees; PROVIDED that nothing in this Section 7(b)
shall be construed to preclude the Executive from making any investments
in the securities of any such business enterprise to the extent that such
enterprise's securities are actively traded on a national securities
exchange or in the over-the-counter market in the United States or on any
foreign securities exchange and represent, at the time of acquisition,
not more than 3% of the aggregate voting power of such business
enterprise.
Notwithstanding the foregoing, the Executive shall not be subject to
the terms and provisions of paragraph (b) of this Section 7 in the case
of a termination of employment of the Executive by the Company without
Cause or by the Executive for Good Reason.
8. SPECIFIC PERFORMANCE. The Executive acknowledges that the services
to be rendered by the Executive are of a special, unique and extraordinary
character and, in connection with such services, the Executive will have
access to confidential information vital to the Company's Business and the
businesses of its subsidiaries and affiliates. By reason of this, the
Executive consents and agrees that if the Executive violates any of the
provisions of Section 6 or 7 hereof, the Company and its subsidiaries and
affiliates would sustain irreparable injury and that money damages will not
provide adequate remedy to the Company and that the Company shall be entitled
to have Section 6 or 7 specifically enforced by any court having equity
jurisdiction. Nothing contained herein shall be construed as prohibiting the
Company or any of its subsidiaries or affiliates from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages from the Executive.
9. INDEMNIFICATION. To the fullest extent permitted or required by the
laws of the State of Delaware, the Company shall indemnify and hold harmless
the Executive, in accordance with the terms of such laws, if the Executive is
made a party, or threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that the Executive is or was an
officer or director of the Company or any subsidiary or affiliate of the
Company, in which capacity the Executive is or was serving at the Company's
request and in furtherance of the Company's best interests, against expenses
(including
reasonable attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding, which indemnification shall include the protection of the
applicable indemnification provisions of the Amended and Restated Certificate
of Incorporation and the Amended and Restated By-laws of the Company from time
to time in effect.
10. DEDUCTIONS AND WITHHOLDING; EXPENSES. The Executive agrees that the
Company or its subsidiaries or affiliates, as applicable, shall
withhold from any and all compensation paid to and required to be paid to the
Executive pursuant to this Agreement, all Federal, state, local and/or other
taxes which the Company determines are required to be withheld in accordance
with applicable statutes or regulations from time to time in effect and all
amounts required to be deducted in respect of the Executive's coverage under
applicable employee benefit plans. For purposes of this Agreement and
calculations hereunder, all such deductions and withholdings shall be deemed
to have been paid to and received by the Executive.
11. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of
the parties with respect to the Executive's employment and supersedes any
other prior oral or written agreements, arrangements or understandings between
the Executive and the Company. This Agreement may not be changed or
terminated orally but only by an agreement in writing signed by the parties
hereto.
12. WAIVER. The waiver by the Company of a breach of any provision of
this Agreement by the Executive shall not operate or be construed as a waiver
of any subsequent breach by him. The waiver by the Executive of a breach of
any provision of this Agreement by the Company shall not operate or be
construed as a waiver of any subsequent breach by the Company.
13. GOVERNING LAW; JURISDICTION. (a) This Agreement shall be subject
to, and governed by, the laws of the State of New York applicable to contracts
made and to be performed therein.
(b) Any action to enforce any of the provisions of this Agreement
shall be brought in a court of the State of New York located in the
Borough of Manhattan of the City of New York or in a Federal court
located within the Southern District of New York. The parties consent to
the jurisdiction of such courts and to the service of process in any
manner provided by New York law. Each party irrevocably waives any
objection which it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding brought in such court and any
claim that such suit, action or proceeding brought in such court has been
brought in an inconvenient forum and agrees that service of process in
accordance with the foregoing sentences shall be deemed in every respect
effective and valid personal service of process upon such party.
14. ASSIGNABILITY. The obligations of the Executive may not be
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company's written consent thereto, assign,
transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any interest therein. Any such attempted delegation or disposi-
tion shall be null and void and without effect. The Company and the Executive
agree that this Agreement and all of the Company's rights and obligations
hereunder may be assigned or transferred by the Company to and shall be
assumed by and binding upon any successor to the Company. The term
"successor" means, with respect to the Company or any of its subsidiaries, any
corporation or other business entity which, by merger, consolidation, purchase
of the assets or otherwise, including after a Change in Control, acquires all
or a material part of the assets of the Company.
15. SEVERABILITY. If any provision of this Agreement or any part
thereof, including, without limitation, Sections 6 and 7, as applied to
either party or to any circumstances shall be adjudged by a court of competent
jurisdiction to be void or unenforceable, the same shall in no way affect any
other provision of this Agreement or remaining part thereof, which shall be
given full effect without regard to the invalid or unenforceable part thereof,
or the validity or enforceability of this Agreement.
If any court construes any of the provisions of Section 6 or 7, or any
part thereof, to be unreasonable because of the duration of such provision or
the geographic scope thereof, such court may reduce the duration or restrict
or redefine the geographic scope of such provision and enforce such provision
as so reduced, restricted or redefined.
16. NOTICES. All notices to the Company or the Executive permitted or
required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service providing for next-day delivery or sent by
registered or certified mail, return receipt requested, to the following
addresses:
The Company:
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, Connecticut 06067
Tel: (860) 257-2000
Attn: Chairman of the Board of Directors
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Tel: (212) 310-8000
Fax: (212) 310-8007
Attn: Jeffrey J. Weinberg, Esq.
The Executive:
Joseph Ettore
Either party may change the address to which notices shall be sent by
sending written notice of such change of address to the other party. Any such
notice shall be deemed given, if delivered personally, upon receipt; if
telecopied, when telecopied; if sent by courier service providing for next-day
delivery, the next business day following deposit with such courier service;
and if sent by certified or registered mail, 3 days after deposit (postage
prepaid) with the U.S. mail service.
17. NO CONFLICTS. The Executive hereby represents and warrants to the
Company that his execution, delivery and performance of this Agreement and any
other agreement to be delivered pursuant to this Agreement will not (i)
require the consent, approval or action of any other person or (ii) violate,
conflict with or result in the breach of any of the terms of, or constitute
(or with notice or lapse of time or both, constitute) a default under, any
agreement, arrangement or understanding with respect to the Executive's
employment to which the Executive is a party or by which the Executive is
bound or subject. The Executive hereby agrees to indemnify and hold harmless
the Company, its directors, officers, employees, agents, representatives and
affiliates (and such affiliates' directors, officers, employees, agents and
representatives) from and against any and all losses, liabilities or claims
(including, interest, penalties and reasonable attorneys' fees, disbursements
and related charges) based upon or arising out of the Executive's breach of
any of the foregoing representations and warranties.
18. EFFECTIVE DATE. This Agreement shall be effective as of the date
first written above.
19. PARAGRAPH HEADINGS. The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.
21. EXPENSES. All reasonable attorneys' fees and expenses incurred by
the Executive in connection with the negotiation, execution and delivery of
this Agreement up to $7,000 shall be borne by the Company.
22. ATTORNEYS' FEES. In the event any litigation or controversy arises
out of or in connection with this Agreement between the parties hereto, the
non-prevailing party in such litigation or controversy shall be responsible
for the attorneys' fees, expenses and suit costs of both parties, including
those associated with any applicable or post-judgment collection proceedings.
23. OFFICERS' AND DIRECTORS' INSURANCE. During the Term of Employment,
the Company shall maintain customary directors' and officers' liability
insurance if such insurance is available to the Company at reasonable costs.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
AMES DEPARTMENT STORES, INC.
By /s/ Paul M. Buxbaum
--------------------
Paul M. Buxbaum
Chairman of the Board
of Directors
/s/ Joseph Ettore
------------------
Joseph Ettore
Exhibit 10(h)
EMPLOYMENT AGREEMENT
Agreement, dated as of August 1, 1996, between AMES DEPARTMENT STORES,
INC., a Delaware corporation (the "Company"), and DENIS LEMIRE (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Company is engaged in the business of operating self-service
retail discount department stores (the "Business"); and
WHEREAS, the Company desires to retain the services of the Executive in
the capacities of Executive Vice President-Merchandising of the Company, and
the Executive desires to provide such services in such capacities to the
Company, on the terms and subject to the conditions set forth in this Agree-
ment;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT AND TERM. The Company hereby employs the Executive, and
the Executive hereby accepts employment by the Company, in the capacities and
on the terms and subject to the conditions set forth herein, for the period
commencing on August 1, 1996 and ending on July 31, 1999, unless terminated
earlier as provided herein (the "Term of Employment").
2. DUTIES. During the Term of Employment, the Executive shall serve as
the Company's Executive Vice President-Merchandising. As such officer, the
Executive shall report to the Company's President and Chief Executive Officer
and shall have such powers, duties and responsibilities with respect to the
business of the Company as are customary to his offices and positions or as
the President and Chief Executive Officer or the Board of Directors of the
Company may reasonably request consistent therewith.
The Executive shall serve the Company faithfully and to the best of his
ability in such capacities, devoting substantially all of his business time,
attention,knowledge, energy and skills to such employment.
The Executive shall reside during the business week and be based at the
Company's offices in Rocky Hill, Connecticut or in the same geographic region,
but the Executive shall travel as reasonably required in connection with the
performance of his duties hereunder. If elected, the Executive also shall
serve during any part of the Term of Employment as any other officer of the
Company or as an officer or director of any of the Company's subsidiaries
without any additional compensation other than as specified in this Agreement.
3. COMPENSATION AND BENEFITS. As full and complete compensation to the
Executive for his execution and delivery of this Agreement and performance of
the services required hereunder, the Company shall pay, grant or provide the
Executive, and the Executive agrees to accept, the following salary and other
compensation and benefits (all such amounts to be calculated in United States
dollars):
(a) a base salary, payable in accordance with the Company's
standard payroll practices for senior executive officers, of (i) $350,000
for the period from August 1, 1996 through and including July 31, 1997,
(ii) $375,000 for the period from August 1, 1997 through and including
July 31, 1998, and (iii) $400,000 for the period from August 1, 1998
through and including July 31, 1999 (with respect to each period, the
"Base Salary" for such period);
(b) an annual bonus, payable with respect to each full fiscal year
of the Company during the Term of Employment, or pro rata portion
thereof, in each case based upon the performance of the Company for each
applicable full fiscal year of the Company and otherwise in accordance
with the Company's Annual Incentive Compensation Plan, in effect from
time to time, up to 40% of Executive's Base Salary for each such fiscal
year;
(c) a one-time, lump-sum cash payment of $75,000, which shall be
payable at the end of the Term of Employment, unless, prior to such date,
the Executive terminates his employment or his employment is terminated
by the Company for Cause, in which case no payments will be made pursuant
to this paragraph (c);
(d) an option (the "Option") to acquire 50,000 shares (the "Option
Shares") of common stock, par value $.01 per share, of the Company (the
"Common Stock") of which 16,666 shares, 16,667 shares and 16,667 shares
are exercisable on August 1st of 1997, 1998 and 1999, respectively, at a
price of $2.32 per share in accordance with the Company's 1994 Management
Stock Option Plan and as more particularly described in Schedule 3(d)
hereto;
(e) the right to participate in any savings and stock option plans
or programs and in any medical, dental, disability, retirement,
insurance, savings, vacation, holiday, paid sick leave or other plans as
in effect from time to time generally available for the benefit of the
Company's senior executive officers;
(f) the right to participate in any long-term incentive program as
in effect from time to time and generally available for the benefit of
senior executive officers implemented by the Company or any of its
subsidiaries;
(g) an annual automobile allowance in an amount and payable in
accordance with the policies and procedures of the Company as in effect
from time to time for senior executive officers, but not less than
$15,200 per year;
(h) prompt reimbursement for all reasonable business-related
expenses incurred by the Executive, in accordance with the policies and
procedures of the Company as in effect from time to time for senior
executive officers;
(i) three (3) weeks paid vacation per year in accordance with the
policies and procedures of the Company as in effect from time to time for
senior executive officers; and
(j) a living allowance of $18,000 per year during the Term of
Employment, payable in equal monthly installments of $1,500.
4. TERMINATION.
-----------
(a) PERMANENT DISABILITY. In the event of the permanent disability
(as hereinafter defined) of the Executive during the Term of Employment,
the Company shall have the right, upon written notice to the Executive,
to terminate the Executive's employment hereunder, effective upon the
giving of such notice (or such later date as shall be specified in such
notice). Upon such termination, the Company shall have no further
obligations hereunder, except to pay the Executive any amounts or provide
the Executive any benefits to which the Executive may otherwise have been
entitled under the Company's permanent disability insurance referred to
in Section 3(e), and the Executive shall continue to have the obligations
provided for in Sections 6 and 7. For purposes of this paragraph,
"permanent disability" means any disability as defined under the
Company's disability insurance policy referred to Section 3(e).
(b) DEATH. In the event of the death of the Executive during the
Term of Employment, this Agreement shall automatically terminate and the
Company shall have no further obligations hereunder, except to pay the
Executive's beneficiary or legal representative any amounts or provide
any benefits to which the Executive may otherwise have been entitled
prorated to the date of death.
(c) CAUSE. The Company shall have the right, upon written notice
to the Executive, to terminate the Executive's employment under this
Agreement for Cause (as hereinafter defined), effective upon the giving
of such notice (or such later date as shall be specified in such notice),
and the Company shall have no further obligations hereunder, except to
pay the Executive any amounts or provide the Executive any benefits to
which the Executive may otherwise have been entitled prorated to the
effective date of termination.
For purposes of this Agreement, "Cause" means:
(i) fraud or embezzlement on the part of the Executive or
material breach by the Executive of any of his obligations under
this Agreement;
(ii) Executive shall have committed any act of gross
negligence in the performance of his duties or obligations hereunder
or any material act of malfeasance, disloyalty, dishonesty or breach
of trust against the Company;
(iii) conviction of the Executive for any felony;
(iv) a material breach of, or the willful failure or refusal
by the Executive to perform and discharge, his duties, responsibili-
ties or obligations under this Agreement (other than under Sections
6 and 7 hereof, which shall be governed by clause (i) above, and
other than by reason of permanent disability or death) that is not
corrected within 30 days of written notice thereof to the Executive
by the Company, such notice to state with specificity the nature of
the breach, failure or refusal; PROVIDED that if such breach,
failure or refusal cannot reasonably be corrected within 30 days of
written notice thereof, correction shall be commenced by the
Executive within such period and may be corrected within a
reasonable period thereafter; or
(v) any substantiated, willful act by the Executive intended
to result in substantial personal enrichment of the Executive at
the expense of the Company or any of its affiliates or which has a
material adverse impact on the business or reputation of the
Company or any of its affiliates.
(d) WITHOUT CAUSE. The Company shall have the right to terminate
the Executive's employment under this Agreement without Cause and upon
written notice, in which case the Executive's employment under this
Agreement shall terminate on the date specified in such notice (except
that the Executive shall continue to have the obligations provided for in
Sections 6 and 7(a)) and the Company shall have no further obligations
hereunder, except (i) to pay the Executive, promptly following such
termination, an amount equal to (A) his Base Salary when it would
otherwise be payable and (B) the annual bonus payable to the Executive
under Section 3(b) prorated to the effective date of termination, (ii) to
cause the Option to vest in full as of the date of termination and to
remain exercisable until the end of the option period set forth in the
Option, and (iii) to maintain coverage of the Executive in the Company's
medical plan for a period of one (1) year after the date of termination,
as such plan is in effect during such period for the benefit of the
Company's senior executive officers, in lieu of any other compensation,
payment or other benefits to which the Executive may otherwise be
entitled under this Agreement. There shall be no mitigation for any
amounts payable by the Company pursuant to this Section 4(d).
5. RESIGNATION UPON TERMINATION. Upon the termination of the
Executive's employment hereunder for any reason the Executive agrees that he
shall be deemed to have resigned from all offices and directorships held by
him in the Company or any of its subsidiaries immediately.
6. CONFIDENTIALITY; OWNERSHIP. (a) During the Term of Employment and
thereafter, the Executive shall keep secret and retain in strictest confidence
and not divulge disclose, discuss, copy or otherwise use or suffer to be used
in any manner, except in connection with the Business of the Company and the
businesses of any of its subsidiaries or affiliates, any Protected Information
in any Unauthorized manner or for any Unauthorized purpose (as such terms are
hereinafter defined).
(i) "Protected Information" means trade secrets, confidential
or proprietary information and all supplier and customer lists,
market research, databases, computer programs and software,
operating procedures, knowledge of the organization, products
(including prices, costs, sales or content), machinery, contracts,
financial information or measures, business plans, details of
consultant contracts, new personnel acquisition plans, business
acquisition plans, business relationships and other information
owned, developed or possessed by the Company or its subsidiaries or
affiliates, except as required in the course of performing duties
hereunder; PROVIDED that Protected Information shall not include
information (a) that is considered by law, custom or otherwise to be
generally known in the industry of the Company; (b) developed by the
Executive individually or jointly with others prior to the
commencement of employment under Section 2; and (c) that becomes
generally known to the public or the trade without violation of this
Section 6.
(ii) "Unauthorized" means: (A) in contravention of the
policies or procedures of the Company or any of its subsidiaries or
affiliates; (B) otherwise inconsistent with the measures taken by
the Company or any of its subsidiaries or affiliates to protect
their interests in any Protected Information; (C) in contravention
of any lawful instruction or directive, either written or oral, of
an employee of the Company or any of its subsidiaries or affiliates
empowered to issue such instruction or directive; or (D) in
contravention of any duty existing under law or contract.
Notwithstanding anything to the contrary contained in this Section
6, the Executive may disclose any Protected Information to the
extent required by court order or decree or by the rules and
regulations of a governmental agency or as otherwise required by
law; PROVIDED that the Executive shall provide the Company with
prompt notice of such required disclosure in advance thereof so that
the Company may seek an appropriate protective order in respect of
such required disclosure.
(b) The Executive acknowledges that all developments, including,
without limitation, inventions, patentable or otherwise, discoveries,
improvements, patents, trade secrets, designs, reports, computer
software, flow charts and diagrams, procedures, data, documentation,
ideas and writings and applications thereof relating to the Business or
planned business of the Company or any of its subsidiaries or affiliates
that, alone or jointly with others, the Executive may conceive, create,
make, develop, reduce to practice or acquire during the Term of
Employment (collectively, the "Developments") are works made for hire and
shall remain the sole and exclusive property of the Company and the
Executive hereby assigns to the Company all of his right, title and
interest in and to all such Developments. The Executive shall promptly
and fully disclose all future material Developments to the Board of
Directors of the Company and, at any time upon request and at the expense
of the Company, shall execute, acknowledge and deliver to the Company all
instruments that the Company shall prepare, give evidence and take all
other actions that are necessary or desirable in the reasonable opinion
of the Company to enable the Company to file and prosecute applications
for and to acquire, maintain and enforce all letters patent, trademark
registrations or copyrights covering the Developments in all countries in
which the same are deemed necessary by the Company. All memoranda,
notes, lists, drawings, records, files, computer tapes, programs,
software, source and programming narratives and other documentation (and
all copies thereof) made or compiled by the Executive or made available
to the Executive concerning the Developments or otherwise concerning the
Business or planned business of the Company or any of its subsidiaries or
affiliates shall be the property of the Company or such subsidiaries or
affiliates and shall be delivered to the Company or such subsidiaries or
affiliates promptly upon the expiration or termination of the Term of
Employment.
(c) The provisions of this Section 6 shall, without any limitation
as to time, survive the expiration or termination of the Executive's
employment hereunder, irrespective of the reason for any termination.
7. COVENANT NOT TO COMPETE. Subject to the last sentence of this
Section 7, the Executive agrees that until July 31, 1999 the Executive shall
not, directly or indirectly, without the prior written consent of the Company:
(a) solicit, entice, persuade or induce any employee, consultant,
agent or independent contractor of the Company or of any of its
subsidiaries or affiliates to terminate his or her employment with the
Company or such subsidiary or affiliate, to become employed by any
person, firm or corporation other than the Company or such subsidiary or
affiliate or approach any such employee, consultant, agent or independent
contractor for any of the foregoing purposes, or authorize or assist in
the taking of any such actions by any third party (for purposes of this
Section 7(a), the terms "employee," "consultant," "agent" and
"independent contractor" shall include any persons with such status at
any time during the six months preceding any solicitation in question);
or
(b) directly or indirectly engage, or participate, or make any
financial investment in, or become employed by or render consulting,
advisory or other services to or for any of the following business
enterprises (or their respective successors-in-interest, including,
without limitation, by change of name): Kmart; Wal-Mart; Hills; Rose's;
Target; Caldor; and Bradlees; PROVIDED that nothing in this Section 7(b)
shall be construed to preclude the Executive from making any investments
in the securities of any such business enterprise to the extent that such
enterprise's securities are actively traded on a national securities
exchange or in the over-the-counter market in the United States or on any
foreign securities exchange and represent, at the time of acquisition,
not more than 3% of the aggregate voting power of such business
enterprise. Notwithstanding the foregoing, the Executive shall not be
subject to the terms and provisions of paragraph (b) of this Section 7 in
the case of a termination of employment of the Executive by the Company
without Cause.
8. SPECIFIC PERFORMANCE. The Executive acknowledges that the services
to be rendered by the Executive are of a special, unique and extraordinary
character and, in connection with such services, the Executive will have
access to confidential information vital to the Company's Business and the
businesses of its subsidiaries and affiliates. By reason of this, the
Executive consents and agrees that if the Executive violates any of the
provisions of Section 6 or 7 hereof, the Company and its subsidiaries and
affiliates would sustain irreparable injury and that money damages will not
provide adequate remedy to the Company and that the Company shall be entitled
to have Section 6 or 7 specifically enforced by any court having equity
jurisdiction. Nothing contained herein shall be construed as prohibiting the
Company or any of its subsidiaries or affiliates from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages from the Executive.
9. INDEMNIFICATION. To the fullest extent permitted or required by the
laws of the State of Delaware, the Company shall indemnify and hold harmless
the Executive, in accordance with the terms of such laws, if the Executive is
made a party, or threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that the Executive is or was an
officer or director of the Company or any subsidiary or affiliate of the
Company, in which capacity the Executive is or was serving at the Company's
request and in furtherance of the Company's best interests, against expenses
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, which indemnification shall include the protection
of the applicable indemnification provisions of the Amended and Restated
Certificate of Incorporation and the Amended and Restated By-laws of the
Company from time to time in effect.
10. DEDUCTIONS AND WITHHOLDING; EXPENSES. The Executive agrees that the
Company or its subsidiaries or affiliates, as applicable, shall withhold from
any and all compensation paid to and required to be paid to the Executive
pursuant to this Agreement, all Federal, state, local and/or other taxes which
the Company determines are required to be withheld in accordance with
applicable statutes or regulations from time to time in effect and all amounts
required to be deducted in respect of the Executive's coverage under
applicable employee benefit plans. For purposes of this Agreement and
calculations hereunder, all such deductions and withholdings shall be deemed
to have been paid to and received by the Executive.
11. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of
the parties with respect to the Executive's employment and supersedes any
other prior oral or written agreements, arrangements or understandings between
the Executive and the Company. This Agreement may not be changed or
terminated orally but only by an agreement in writing signed by the parties
hereto.
12. WAIVER. The waiver by the Company of a breach of any provision of
this Agreement by the Executive shall not operate or be construed as a waiver
of any subsequent breach by him. The waiver by the Executive of a breach of
any provision of this Agreement by the Company shall not operate or be
construed as a waiver of any subsequent breach by the Company.
13. GOVERNING LAW; JURISDICTION. (a) This Agreement shall be subject
to, and governed by, the laws of the State of New York applicable to contracts
made and to be performed therein.
(b) Any action to enforce any of the provisions of this Agreement
shall be brought in a court of the State of New York located in the
Borough of Manhattan of the City of New York or in a Federal court
located within the Southern District of New York. The parties consent to
the jurisdiction of such courts and to the service of process in any
manner provided by New York law. Each party irrevocably waives any
objection which it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding brought in such court and any
claim that such suit, action or proceeding brought in such court has been
brought in an inconvenient forum and agrees that service of process in
accordance with the foregoing sentences shall be deemed in every respect
effective and valid personal service of process upon such party.
14. ASSIGNABILITY. The obligations of the Executive may not be
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company's written consent thereto, assign,
transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any interest therein. Any such attempted delegation or disposi-
tion shall be null and void and without effect. The Company and the Executive
agree that this Agreement and all of the Company's rights and obligations
hereunder may be assigned or transferred by the Company to and shall be
assumed by and binding upon any successor to the Company. The term
"successor" means, with respect to the Company or any of its subsidiaries, any
corporation or other business entity which, by merger, consolidation, purchase
of the assets or otherwise, including after a Change in Control, acquires all
or a material part of the assets of the Company.
15. SEVERABILITY. If any provision of this Agreement or any part
thereof, including, without limitation, Sections 6 and 7, as applied to
either party or to any circumstances shall be adjudged by a court of competent
jurisdiction to be void or unenforceable, the same shall in no way affect any
other provision of this Agreement or remaining part thereof, which shall be
given full effect without regard to the invalid or unenforceable part thereof,
or the validity or enforceability of this Agreement.
If any court construes any of the provisions of Section 6 or 7, or any
part thereof, to be unreasonable because of the duration of such provision or
the geographic scope thereof, such court may reduce the duration or restrict
or redefine the geographic scope of such provision and enforce such provision
as so reduced, restricted or redefined.
16. NOTICES. All notices to the Company or the Executive permitted or
required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service providing for next-day delivery or sent by
registered or certified mail, return receipt requested, to the following
addresses:
The Company:
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, Connecticut 06067
Tel: (860) 257-2000
Attn: Chairman of the Board of Directors
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Tel: (212) 310-8000
Fax: (212) 310-8007
Attn: Jeffrey J. Weinberg, Esq.
The Executive:
Either party may change the address to which notices shall be sent by
sending written notice of such change of address to the other party. Any such
notice shall be deemed given, if delivered personally, upon delivery; if
telecopied, when telecopied; if sent by courier service providing for next-day
delivery, the next business day following deposit with such courier service;
and if sent by certified or registered mail, 3 days after deposit (postage
prepaid) with the U.S. mail service.
17. NO CONFLICTS. The Executive hereby represents and warrants to the
Company that his execution, delivery and performance of this Agreement and any
other agreement to be delivered pursuant to this Agreement will not (i)
require the consent, approval or action of any other person or (ii) violate,
conflict with or result in the breach of any of the terms of, or constitute
(or with notice or lapse of time or both, constitute) a default under, any
agreement, arrangement or understanding with respect to the Executive's
employment to which the Executive is a party or by which the Executive is
bound or subject. The Executive hereby agrees to indemnify and hold harmless
the Company, its directors, officers, employees, agents, representatives and
affiliates (and such affiliates' directors, officers, employees, agents and
representatives) from and against any and all losses, liabilities or claims
(including, interest, penalties and reasonable attorneys' fees, disbursements
and related charges) based upon or arising out of the Executive's breach of
any of the foregoing representations and warranties.
18. EFFECTIVE DATE. This Agreement shall be effective as of the date
first written above.
19. PARAGRAPH HEADINGS. The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.
21. Expenses. All attorneys' fees and expenses incurred by the
Executive in connection with the negotiation, execution and delivery of this
Agreement shall be borne by the Executive.
22. ATTORNEYS' FEES. In the event any litigation or controversy arises
out of or in connection with this Agreement between the parties hereto, the
non-prevailing party in such litigation or controversy shall be responsible
for the attorneys' fees, expenses and suit costs of both parties, including
those associated with any applicable or post-judgment collection proceedings.
23. OFFICERS' AND DIRECTORS' INSURANCE. During the Term of Employment,
the Company shall maintain customary directors' and officers' liability
insurance if such insurance is available to the Company at reasonable costs.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
AMES DEPARTMENT STORES, INC.
By /s/ Joseph Ettore
---------------------------
Joseph Ettore
President and Chief Executive
Officer
/s/ Denis Lemire
----------------------------
Denis Lemire
<PAGE>
SCHEDULE 3(d)
-------------
OPTION TERMS
- ------------
EXPIRATION DATE: Ten years from the date of issuance thereof (the "Expiration
Date"), unless terminated earlier as provided below (the "Option Term").
EXERCISABILITY: Subject to the provisions on termination below, each Option
shall be exercisable on a cumulative basis during the relevant Option Term.
In no event may any Option be exercised for less than one hundred Option
Shares (unless the number being purchased is the total balance).
TERMINATION: If the Executive's employment is terminated prior to the
Expiration Date, each Option shall, to the extent not theretofore exercised,
terminate and become null and void, except to the extent described below;
PROVIDED that none of the events described below shall extend the period of
exercisability of each Option beyond the Expiration Date:
(a) if the Executive dies while employed by the Company and its subsidiaries
or during either the thirty (30) day or three (3) month period, whichever is
applicable, specified in clauses (b), (c) and (d) below, each Option shall be
exercisable for all Option Shares that the Executive is entitled to purchase
at the time of the Executive's death, at any time up to and including one (1)
year after his death, by the Executive's legatee, distributee, guardian or
legal or personal representative;
(b) if the Executive's employment with the Company and its subsidiaries is
terminated by reason of "permanent disability" (as defined in the Employment
Agreement), each Option shall be exercisable for all Option Shares that the
Executive is entitled to purchase at the effective date of termination of
employment by reason of permanent disability, at any time up to and including
thirty (30) days after such effective date;
(c) if the Executive's employment with the Company and its subsidiaries is
terminated by reason of voluntary retirement after retirement age in
accordance with the Company's practices or by reason of the expiration of the
Employment Agreement, each Option shall be exercisable for all remaining
Option Shares, whether or not then exercisable for such Option Shares, at any
time up to and including three (3) months after the effective date of
termination of employment;
(d) if the Executive's employment with the Company and its subsidiaries is
terminated by the Company without Cause (as defined in the Employment
Agreement), each Option shall, to the extent not theretofore exercised,
immediately become exercisable and shall remain exercisable until expiration
of the Option Term; and
(e) if the Executive's employment with the Company and its subsidiaries is
terminated for any reason other than as provided in clauses (a), (b), (c) or
(d) above, each Option shall be exercisable for all Option Shares that the
Executive is entitled to purchase at the effective date of termination of
employment, at any time up to and including thirty (30) days after the
effective date of such termination.
OTHER RESTRICTIONS:
In order to comply with applicable securities laws, the Option Shares, when
issued, will bear appropriate legends giving notice of applicable restrictions
on transfer under such laws.
NON-TRANSFERABLE:
Each Option is not transferable, except by will or the laws of descent and
distribution, and may not be pledged or hypothecated in any manner.
<PAGE>
<PAGE>
<TABLE>
Exhibit 11
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED
NET EARNINGS PER SHARE
(Amounts in thousands, except per share amounts)
<CAPTION>
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
January 25, January 27, January 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) before extraordinary item $18,655 ($1,618) $18,543
Extraordinary loss, net (1,354) - (1,517)
----------- ---------- ------------
Primary and fully diluted net income (loss) $17,301 ($1,618) $17,026
=========== ========== ============
For Primary Earnings Per Share
Weighted average number of common shares outstanding
during the period 20,467 20,127 20,127
Add: Common stock equivalents represented by
- Series B Warrants (a) (b) (a)
- Series C Warrants 1,191 (b) 1,372
- Options under 1994 Management Stock Option Plan 147 (b) (a)
- Options under 1995 Non-Employee Director Stock
Option Plan 7 (b) -
---------- ----------- -----------
Weighted average number of common and common equivalent shares
used in the calculation of primary earnings per share 21,812 20,127 21,499
========== =========== ===========
Primary earnings per share:
Primary income (loss) per share befor extraordinary item $0.85 ($0.08) $0.86
Extraordinary loss (0.06) - (0.07)
---------- ----------- -----------
Primary net income (loss) per share $0.79 ($0.08) $0.79
========== =========== ===========
For Fully Diluted Earnings Per Share:
Weighted average number of common shares outstanding
during the period 20,467 20,127 20,127
Add: Common stock equivalent shares represented by
- Series B Warrants 14 (b) (a)
- Series C Warrants 1,646 (b) 1,372
- Options under 1994 Management Stock Option Plan 559 (b) (a)
- Options under 1995 Non-Employee Director Stock
Option Plan 29 (b) -
---------- ----------- -----------
Weighted average number of common and common equivalent shares
used in the calculation of fully diluted earnings per share 22,715 20,127 21,499
========== =========== ===========
Fully diluted earnings per share:
Fully diluted net income (loss) per share before extraordinary item $0.82 ($0.08) $0.86
Extraordinary loss (0.06) - (0.07)
---------- ----------- ------------
Fully diluted net income (loss) per share $0.76 ($0.08) $0.79
========== ============ ============
<FN>
(a) These options/warrants were not condsidered common stock equivalent shares because
the exercise price exceeded the market price of the common stock for all or
substantially all of the period.
(b) Common stock equivalents have not been included because the effect would be
anti-dilutive.
</TABLE>
EXHIBIT 22
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION
- ------------------------------- --------------------------
Ames Transportation Systems, Inc. Delaware
Ames Realty II, Inc. Delaware
AMD, Inc. Delaware
Zayre New England Corp. * Delaware
a subsidiary of AMD, Inc.
Zayre Central Corp.* Delaware
a subsidiary of AMD, Inc.
*Holds a 50% interest in Ames Stores, a partnership.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-END> JAN-25-1997
<CASH> 15019
<SECURITIES> 31100
<RECEIVABLES> 19071
<ALLOWANCES> 0
<INVENTORY> 391076
<CURRENT-ASSETS> 468435
<PP&E> 96114
<DEPRECIATION> 32529
<TOTAL-ASSETS> 536793
<CURRENT-LIABILITIES> 329466
<BONDS> 38220
0
0
<COMMON> 205
<OTHER-SE> 107981
<TOTAL-LIABILITY-AND-EQUITY> 536793
<SALES> 2161680
<TOTAL-REVENUES> 2190964
<CGS> 1568974
<TOTAL-COSTS> 1568974
<OTHER-EXPENSES> 569680
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19366
<INCOME-PRETAX> 26804
<INCOME-TAX> 8149
<INCOME-CONTINUING> 18655
<DISCONTINUED> 0
<EXTRAORDINARY> (1354)
<CHANGES> 0
<NET-INCOME> 17301
<EPS-PRIMARY> .79
<EPS-DILUTED> .76
</TABLE>
