<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------
FOR THE FISCAL YEAR ENDED JANUARY 28, 1995 COMMISSION FILE NUMBER 1-6166
PETRIE STORES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 36-2137966
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
70 ENTERPRISE AVENUE
SECAUCUS, NEW JERSEY 07094
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (201) 866-3600
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $1.00 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 the 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. [X]
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 [_]
As of April 18, 1995, the most recent practicable date prior to the printing
of this report, the number of shares outstanding of the registrant's common
stock, $1.00 par value per share ("Petrie Common Stock"), was 52,350,346; and
the aggregate market value of Petrie Common Stock held by nonaffiliates, based
upon a closing price of $6 1/8 per share as reported on the New York Stock
Exchange Composite Tape on April 18, 1995, was $144,914,052.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement, dated as of November 3, 1994, are
incorporated by reference into Part III of this report.
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<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART 1
Item 1.Business........................................................... 2
Item 2.Properties......................................................... 4
Item 3.Legal Proceedings.................................................. 4
Item 4.Submission of Matters to a Vote of Security Holders................ 5
PART II
Item 5.Market for the Registrant's Common Stock and Related Security
Holder Matters........................................................... 6
Item 6.Selected Financial Data............................................ 7
Item 7.Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations...................................................... 8
Item 8.Financial Statements and Supplementary Data........................ 11
Item 9.Changes in and Disagreements with Accountants on Accounting and Fi-
nancial Disclosure....................................................... 11
PART III
Item 10. Directors and Executive Officers of Petrie....................... 11
Item 11. Executive Compensation........................................... 13
Item 12. Security Ownership of Certain Beneficial Owners and Management... 15
Item 13. Certain Relationships and Related Transactions................... 15
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-
K........................................................................ 16
</TABLE>
1
<PAGE>
PART I
ITEM 1. BUSINESS.
---------
GENERAL
Prior to December 9, 1994, Petrie Stores Corporation, a New York corporation
("Petrie"), and its subsidiaries operated a chain of approximately 1700 women's
specialty stores, principally under the trade names of "Petrie's," "Marianne,"
"M.J. Carroll," "Stuarts," "Hartfield's," "Winkelman's," "Jean Nicole," "G&G,"
"Rave" and ""Plus' Size." Petrie had stores in all 50 states, Puerto Rico, the
U.S. Virgin Islands and the District of Columbia. Approximately 75 percent of
the stores were located in shopping malls and approximately 25 percent of the
stores were located in neighborhood strip centers and downtown shopping areas.
Petrie specialized in the retail sale of a full selection of women's apparel at
moderate prices to teen, junior and contemporary miss customers. Petrie's
former subsidiary, Winkelman Stores, Inc., sold apparel and accessories in the
moderate to better priced lines, and, in most of its stores, shoes through
leased shoe departments. All stores were operated by Petrie's management. A
majority of the stores sold dresses, coats and lingerie, and all stores sold
sportswear, blouses and accessories with the exception of millinery and shoes.
Petrie's stores generally followed the usual pattern of the retail apparel
industry, with sales highest during the Christmas, Easter and back-to-school
periods.
During Petrie's fiscal year ended January 28, 1995, Petrie undertook a
reorganization of its operations in order to separate its investment in Toys
"R" Us, Inc., a Delaware corporation ("Toys "R' Us"), from its retail
operations and, in liquidation, distribute its shares of Toys "R" Us common
stock, $.10 par value per share ("Toys Common Stock"), to Petrie's shareholders
without the incurrence of any significant federal income tax by Petrie or its
shareholders. On April 20, 1994, Petrie and Toys "R" Us entered into an
Acquisition Agreement, amended on May 10, 1994 (the "Toys Acquisition
Agreement"), pursuant to which Petrie and Toys "R" Us agreed to an exchange
(the "Exchange") of all of the shares of Toys Common Stock held by Petrie, plus
up to $250 million in cash, for a number of shares of Toys Common Stock equal
to (i) the number of shares held by Petrie, less approximately 3.3 million
shares of Toys Common Stock, plus (ii) such amount of cash divided by the
market value of a share of Toys Common Stock on the ten trading days next
preceding the second trading day prior to the closing date of the Exchange. The
Toys Acquisition Agreement required that prior to the consummation of the
Exchange Petrie sell its retail operations and, following the consummation of
the Exchange, Petrie liquidate and dissolve and distribute to its shareholders
all of its Toys Common Stock, less an adequate provision for Petrie's actual
and contingent liabilities. On December 9, 1994, Petrie sold its retail
operations to PS Stores Acquisition Corp. (as defined below). See "Sale of
Petrie's Retail Operations."
Petrie was incorporated in 1932 under the laws of the State of New York. The
principal executive offices of Petrie are located at 70 Enterprise Avenue,
Secaucus, New Jersey 07094 (telephone (201) 866-3600).
RECENT DEVELOPMENTS
Pursuant to Petrie's Plan of Liquidation and Dissolution, on March 24, 1995,
Petrie made an initial liquidating distribution (the "Distribution") to its
shareholders of an aggregate of 26,173,718 shares of Toys Common Stock, or
62.2% of the Toys Common Stock held by Petrie. In the Distribution, Petrie
shareholders received 0.5 of a share of Toys Common Stock for every share of
Petrie Common Stock held of record as of the close of business on March 16,
1995. Following the Distribution, Petrie holds 15,902,702 shares of Toys Common
Stock. Petrie has received a favorable private letter ruling from the Internal
Revenue Service (the "IRS") to the effect that Petrie's shareholders will
generally not recognize gain or loss for federal income tax purposes upon the
receipt of Toys Common Stock in the Distribution. Petrie's shareholders should
allocate the tax basis in their shares of Petrie Common Stock between the Toys
Common Stock received in the Distribution and their Petrie Common Stock in
proportion to the fair market values of the two securities on March 24, 1995.
Based upon the averages of the high and low per share prices of Petrie Common
Stock and
2
<PAGE>
Toys Common Stock on the New York Stock Exchange Composite Tape on March 24,
1995, which were $18.13 and $24.56, respectively, a proper basis allocation is
32.27% to shares of Petrie Common Stock and 67.73% to shares of Toys Common
Stock (including any cash received in lieu of fractional shares).
Carroll Petrie and Alan C. Greenberg resigned from Petrie's Board of
Directors on March 10, 1995 and March 15, 1995, respectively. Each resignation
was for personal reasons and neither resignation was due to a disagreement with
Petrie or any of the remaining directors on any matter relating to Petrie's
operations, policies or practices.
SALE OF PETRIE'S RETAIL OPERATIONS
On August 23, 1994, Petrie and WP Investors, Inc., a Delaware corporation and
an affiliate of E.M. Warburg, Pincus & Co., Inc. ("WP Investors"), entered into
a Stock Purchase Agreement, amended on November 3, 1994 (the "Retail Operations
Stock Purchase Agreement"), pursuant to which Petrie agreed to sell (the
"Sale") to WP Investors or its designee all of the stock of Petrie Retail,
Inc., a Delaware corporation and a wholly-owned subsidiary of Petrie to which
all of Petrie's and its subsidiaries' retail operations had been transferred in
connection with the sale of such retail operations ("Petrie Retail").
On December 6, 1994, at the 1994 Annual Meeting of Petrie's Shareholders, the
Sale was approved. On December 9, 1994, Petrie consummated the Sale to PS
Stores Acquisition Corp., a Delaware corporation and the designee of WP
Investors ("PS Stores"). In connection with the closing of the Sale, each of
Allan Laufgraben, Peter A. Left, Jay Galin and Daniel G. Maresca resigned his
position and directorship with Petrie and assumed a similar position with
Petrie Retail.
The purchase price for the Sale was $190 million in cash plus the assumption
of certain liabilities of Petrie. Taking into effect the approximately $12.5
million in expenses incurred by Petrie in connection with the consummation of
the Sale, the net cash purchase price of the retail operations was
approximately $177.5 million.
EXCHANGE OF SHARES WITH TOYS "R" US
On January 24, 1995, at the Reconvened 1994 Annual Meeting of Petrie's
Shareholders, the Exchange was approved. On that same date, Petrie exchanged
with Toys "R" Us 39,853,403 shares of Toys Common Stock, held by Petrie, plus
$165 million in cash derived from the Sale, for 42,076,420 shares of Toys
Common Stock.
THE LIQUIDATION AND DISSOLUTION OF PETRIE
On January 24, 1995, at the Reconvened 1994 Annual Meeting of Petrie's
Shareholders, in addition to approving the Exchange, Petrie's shareholders
approved a proposal to completely liquidate and dissolve Petrie and establish a
liquidating trust (the "Liquidating Trust"). The liquidation and dissolution of
Petrie and the establishment of the Liquidating Trust are hereinafter referred
to collectively as the Liquidation.
Since the closing of the Sale and the Exchange, Petrie's activities have been
limited to winding up its affairs in furtherance of Petrie's Plan of
Liquidation and Dissolution.
EMPLOYEES
Pursuant to the terms of the Retail Operations Stock Purchase Agreement,
following the closing of the Sale, Petrie Retail assumed all employment
arrangements, agreements and other obligations between Petrie and its
employees. Effective December 9, 1994, Hilda Kirschbaum Gerstein was elected
President and Chief Executive Officer of Petrie. On February 7, 1995, Stephanie
R. Joseph and H. Bartlett Brown were elected by
3
<PAGE>
Petrie's Board of Directors as Secretary and Principal Legal Officer and as
Treasurer, Principal Financial Officer and Principal Accounting Officer,
respectively, of Petrie. Accordingly, as of April 18, 1995, Petrie had only
three employees.
ITEM 2. PROPERTIES.
-----------
Pursuant to the terms of the Retail Operations Stock Purchase Agreement,
following the closing of the Sale, Petrie Retail assumed all of Petrie's
outstanding lease obligations. As a result, as of January 28, 1995, Petrie
neither owned nor leased any real property. Petrie, however, remains
contingently liable as a guarantor of certain retail store leases to which
former subsidiaries of Petrie are parties.
See Item 7--"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
------------------
There are no reportable suits or proceedings pending or, to the knowledge of
Petrie, threatened against or affecting Petrie, other than the following:
(a) Two putative class action complaints were filed against Petrie,
certain members of its senior management and the Petrie Board of Directors
in New York County Supreme Court on June 21, 1994. A third putative class
action complaint was filed against the same parties in the Superior Court
of New Jersey on June 21, 1994. On November 23, 1994, a joint stipulation,
endorsed by the Superior Court of New Jersey, was entered in New York
County Supreme Court consolidating the two New York actions and any other
related actions which may be filed in the future (the "Stipulation of
Consolidation"). The New Jersey action is presently stayed pending
resolution of the New York actions.
The complaints in each of the above actions were brought by persons
claiming to be shareholders of Petrie and generally contend that Petrie's
directors and certain members of its senior management violated their
fiduciary duties of loyalty and fair dealing by, among other things,
exclusively negotiating with affiliates of PS Stores for the sale of
Petrie's retail operations at an inadequate price. The complaints further
contend that Petrie's directors failed to adequately explore third-party
interest, and thus did not maximize shareholder value. It is also alleged
that PS Stores was in possession of non-public information which allowed it
to purchase the retail operations at an inadequate price.
Plaintiffs' counsel has notified Petrie's counsel that the plaintiffs
intend to serve a consolidated amended complaint. Pursuant to the
Stipulation of Consolidation, Petrie and the other defendants have not
answered the complaints, pending service of the consolidated amended
complaint.
Among other things, the plaintiffs, on behalf of the class members, seek:
(i) to rescind the sale of the retail operations, (ii) a declaratory
judgment that the individual defendants breached their fiduciary duties
and/or (iii) to recover unspecified damages.
Petrie believes that the claims asserted in these complaints are without
merit and that a material adverse outcome is not probable. Petrie intends
to vigorously contest these complaints.
(b) Petrie's U.S. federal income tax return for its fiscal year 1989 is
presently being audited (the "Tax Audit") by the IRS. In connection with
the Tax Audit, the IRS has raised an issue regarding the manner in which
Petrie computed the basis of the Toys Common Stock transferred pursuant to
the exchange of certain of Petrie's exchangeable subordinated debentures in
1988. Petrie is actively engaged in discussions with the IRS with respect
to this matter. Final resolution of this matter is several months away.
After an extensive review of its records, Petrie believes that the Tax
Audit is not likely to result in tax liabilities (including interest) that
would have a material adverse effect on Petrie's financial position.
4
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
At the 1994 Annual Meeting of Petrie's Shareholders, held on December 6, 1994
(the "Annual Meeting"), the following persons were elected to the board of
directors of Petrie by the number of votes set forth opposite their names:
<TABLE>
<CAPTION>
NUMBER OF SHARES
VOTED
--------------------
WITHHELD
NOMINEES FOR AUTHORITY
- -------- ---------- ---------
<S> <C> <C>
Joseph H. Flom............................................. 43,123,094 95,470
Jay Galin.................................................. 43,124,858 93,706
Hilda Kirschbaum Gerstein.................................. 43,124,006 94,558
Alan C. Greenberg.......................................... 43,124,642 93,922
Allan Laufgraben........................................... 43,124,380 94,184
Peter A. Left.............................................. 43,124,652 93,912
Daniel G. Maresca.......................................... 43,124,514 94,050
Carroll Petrie............................................. 43,123,984 94,580
Jean Roberts............................................... 43,124,748 93,816
Dorothy Fink Stern......................................... 43,124,044 94,520
Laurence A. Tisch.......................................... 43,124,744 93,820
Raymond S. Troubh.......................................... 43,123,744 94,820
</TABLE>
In addition, the following proposals were submitted to a vote of Petrie's
shareholders at the Annual Meeting and were approved by the number of votes set
forth below each proposal:
1. Approval of the Sale:
<TABLE>
<CAPTION>
NUMBER OF SHARES VOTED
----------------------
<S> <C>
FOR................................................ 38,402,429
AGAINST............................................ 91,369
ABSTAIN............................................ 67,522
</TABLE>
2. Approval and ratification of the appointment of Ernst & Young LLP as the
independent auditors of Petrie for the fiscal year ending January 28, 1995:
<TABLE>
<CAPTION>
NUMBER OF SHARES VOTED
----------------------
<S> <C>
FOR................................................ 43,076,090
AGAINST............................................ 62,010
ABSTAIN............................................ 80,464
</TABLE>
At the Reconvened 1994 Annual Meeting of Petrie's Shareholders, held on
January 24, 1995, the following proposals were submitted to a vote of Petrie's
shareholders and were approved by the number of votes set forth below each
proposal:
1. Approval of the Exchange:
<TABLE>
<CAPTION>
NUMBER OF SHARES VOTED
----------------------
<S> <C>
FOR................................................ 39,746,966
AGAINST............................................ 54,310
ABSTAIN............................................ 53,617
</TABLE>
2. Approval of the Liquidation:
<TABLE>
<CAPTION>
NUMBER OF SHARES VOTED
----------------------
<S> <C>
FOR................................................ 39,731,135
AGAINST............................................ 53,928
ABSTAIN............................................ 72,333
</TABLE>
5
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
--------------------------------------------------------------------
MATTERS.
- --------
Petrie Common Stock is listed on the New York Stock Exchange under the symbol
"PST" and is also traded on the Boston, Chicago, Cincinnati, Pacific and
Philadelphia Stock Exchanges. Petrie's Registrar and Transfer Agent is American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005,
telephone: (718) 921-8200. As of April 18, 1995, there were approximately 3,381
holders of record of Petrie Common Stock. The sales price ranges and per share
dividends for each quarterly period in fiscal year 1995 (ended January 28,
1995) and fiscal year 1994 (ended January 29, 1994) are shown below:
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
FISCAL QUARTER HIGH LOW DIVIDEND
- -------------- ------ ------ --------
<S> <C> <C> <C>
Fiscal Year Ended January 29, 1994:
First (ended May 1, 1993).............................. 27 3/8 23 5/8 .05
Second (ended July 31, 1993)........................... 27 7/8 22 3/4 .05
Third (ended October 30, 1993)......................... 29 3/4 24 .05
Fourth (ended January 29, 1994)........................ 30 7/8 26 1/8 .05
Fiscal Year Ended January 28, 1995:
First (ended April 30, 1994)........................... 27 3/4 23 5/8 .05
Second (ended July 30, 1994)........................... 26 1/2 24 1/4 .05
Third (ended October 29, 1994)......................... 26 7/8 23 1/2 .05
Fourth (ended January 28, 1995)........................ 27 1/2 21 1/8 .00
</TABLE>
Petrie's Board of Directors has not declared a cash dividend since the third
quarter of fiscal year 1995 and has no plans for the payment of any future cash
dividends since Petrie is in the process of being liquidated. An initial
liquidating distribution of Toys Common Stock was made on March 24, 1995
pursuant to Petrie's Plan of Liquidation and Dissolution. On March 27, 1995,
the first trading date following the initial liquidating distribution, the
closing price per share of Petrie Common Stock as reported on the New York
Stock Exchange Composite Tape was $5 3/4. On April 18, 1995, the closing price
per share of Petrie Common Stock as reported on the New York Stock Exchange
Composite Tape was $6 1/8.
See Item 7--"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of the plans of Petrie's Board of
Directors with respect to future liquidating distributions.
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
------------------------
Set forth below are selected consolidated financial data of Petrie at and for
each of the five fiscal years in the period ended January 28, 1995.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
-------------------------------------------------------------
JANUARY
28, JANUARY 29, JANUARY 30, FEBRUARY 1, FEBRUARY 2,
1995(1) 1994(1)(2)(3) 1993(1)(4) 1992(1) 1991(1)
---------- ------------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Corporate Overhead...... $ (430)
Interest Expense........ (8,605) $ (10,066) $(10,066) $(10,066) $(10,066)
Investment Income....... 1,293
---------- ---------- -------- -------- --------
Loss from continuing op-
erations before
income taxes........... (7,742) (10,066) (10,066) (10,066) (10,066)
---------- ---------- -------- -------- --------
Loss from continuing op-
erations............... (6,628) (6,543) (6,141) (6,141) (6,141)
(Loss) income from dis-
continued operations,
net of income taxes.... (410,027) (42,140) 20,983 22,146 9,137
Cumulative effect of
changes in accounting
principles............. 10,685
---------- ---------- -------- -------- --------
Net (loss) income..... $ (416,655) $ (37,998) $ 14,842 $ 16,005 $ 2,996
========== ========== ======== ======== ========
Income (loss) per share:
Loss from continuing
operations........... $ (.14) $ (.14) $ (.13) $ (.13) $ (.13)
(Loss) income from
discontinued
operations........... (8.61) (.90) .45 .47 .19
Cumulative effect of
changes in accounting
principles........... .23
---------- ---------- -------- -------- --------
Net (loss) income..... $ (8.75) $ (.81) $ .32 $ .34 $ .06
========== ========== ======== ======== ========
Dividends per share..... $ .15 $ .20 $ .20 $ .20 $ .20
========== ========== ======== ======== ========
Weighted average number
of shares.............. 47,600 46,768 46,758 46,756 46,768
========== ========== ======== ======== ========
Total assets............ $1,274,147 $2,187,807 $906,062 $894,204 $890,717
========== ========== ======== ======== ========
Long-term obligations... $ -- $ 124,952 $124,974 $124,974 $124,995
========== ========== ======== ======== ========
</TABLE>
- --------
(1) Effective December 9, 1994, Petrie sold its retail operations to PS Stores
(Note 2 to Petrie's Consolidated Financial Statements). Accordingly, the
assets related to the retail operations are excluded from the total assets
at January 28, 1995. Operating results for prior years have been restated
to conform to the fiscal year 1995 presentation.
(2) Fiscal year ended January 29, 1994 includes (a) a restructuring charge of
$35,000,000 ($22,225,000 net of taxes or $.48 per share) and (b) the
cumulative effect of changes in accounting for investments and income
taxes, which decreased the net (loss) by $10,685,000 ($.23 per share).
(3) Total assets at January 29, 1994 include an increase of $1,340,462,000 as a
result of carrying investments in common stock at a fair market value of
$1,517,677,000 due to the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
(4) Fiscal year ended January 30, 1993 includes a charge against earnings in
connection with the granting of stock options to two executive officers
amounting to approximately $3,400,000 ($2,100,000 net of taxes or $.04 per
share).
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS.
- --------------
The following discussion should be read in conjunction with Petrie's
Consolidated Financial Statements and the Notes thereto.
RESULTS OF OPERATIONS
As described in Item 1, Petrie sold its retail operations on December 9,
1994. The purchase price for the retail operations was $190 million in cash
plus the assumption of certain liabilities of Petrie and its subsidiaries.
Taking into effect the approximately $12.5 million in expenses incurred by
Petrie in connection with the consummation of the Sale, the net cash proceeds
of the Sale to Petrie were approximately $177.5 million. As also described in
Item 1, Petrie's shareholders approved a Plan of Liquidation on January 24,
1995, and Petrie commenced its liquidation shortly thereafter. As a result,
Petrie has changed its basis of accounting, at January 28, 1995, from a going-
concern basis to a liquidation basis.
Due to the Sale, the results of the retail operations have been accounted for
as discontinued operations in Petrie's Consolidated Statements of Operations.
Accordingly, the revenues, cost of goods sold, operating expenses and other
related activities of the retail operations have been presented as discontinued
operations in Petrie's Consolidated Statements of Operations. The results of
Petrie's retail operations provided herein for prior years have been restated
to conform to the fiscal year 1995 presentation. The Sale resulted in a loss on
disposal of approximately $358 million, including estimated operating losses
through the disposal date.
The loss from continuing operations was $6,628,000, $6,543,000 and $6,141,000
for the years ended January 28, 1995, January 29, 1994 and January 30, 1993,
respectively. Corporate overhead of $430,000 for the year ended January 28,
1995 consists primarily of the costs and expenses related to the liquidation
and dissolution of Petrie including, but not limited to, accounting fees, legal
fees, real estate advisory fees, transfer agent fees, exchange listing fees and
printing and shareholder communications expenses. Although certain of these
costs and expenses were also incurred by Petrie in fiscal years 1994 and 1993,
in connection with its public reporting requirements, corporate overhead has
been included in discontinued operations for such periods. Corporate overhead
for fiscal years 1994 and 1993 is not readily available and, in the opinion of
management, was not material to either continuing or discontinued operations.
On December 12, 1994, Petrie redeemed all of its outstanding 8% Convertible
Subordinated Debentures due December 15, 2010 (the "Debentures"), $1,844,000
principal amount, at a redemption price of $1,008 per $1,000 principal amount,
together with accrued and unpaid interest thereon of $39.333 per $1,000
principal amount, from June 15, 1994 to December 12, 1994. Additionally, during
the fiscal year ended January 28, 1995, $123,108,000 principal amount of the
Debentures were converted, at a conversion price of $22.125 per share, into
5,563,829 shares of Petrie Common Stock. The conversion and redemption of the
Debentures resulted in a reduction of interest expense from $10,066,000 in the
fiscal years ended January 29, 1994 and January 30, 1993 to $8,605,000 in the
fiscal year ended January 28, 1995.
Of the $177.5 million net cash proceeds from the sale of the retail
operations, Petrie used $165 million to purchase additional shares of Toys
Common Stock, in accordance with the terms of the Toys Acquisition Agreement,
and $1,931,000 to redeem the Debentures (including accrued interest and
redemption premium). Petrie invested the remaining cash proceeds in short-term
investments and earned $1,293,000 in investment income, from the date of the
disposal of the retail operations to the end of fiscal year 1995. Investment
income in prior years related to the retail operations and is included in
discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
Simultaneously with the consummation of the Sale, Petrie repaid the balance
of $61,705,000 owing pursuant to a short-term borrowing arrangement with a
broker which had been collateralized by Toys Common Stock held in a margin
account with the broker.
8
<PAGE>
During the fiscal year ended January 28, 1995, Petrie paid approximately $7
million in cash dividends. Petrie's Board of Directors has not declared a cash
dividend since the third quarter of fiscal year 1995 and has no plans for the
payment of any future cash dividends since Petrie is in the process of being
liquidated.
On January 24, 1995, Petrie exchanged with Toys "R" Us 39,853,403 shares of
Toys Common Stock, held by Petrie, plus $165 million in cash derived from the
Sale, for 42,076,420 shares of Toys Common Stock.
Simultaneously with the closing of the Exchange, Petrie delivered 3,493,450
shares of the Toys Common Stock that it received in the Exchange into an escrow
account (the "Escrow Account") pursuant to the terms of an Escrow Agreement,
dated as of January 24, 1995, between Petrie and Custodial Trust Company, as
Escrow Agent (the "Escrow Agreement"). The shares of Toys Common Stock placed
into the Escrow Account pursuant to the Escrow Agreement secure the payment of
certain of Petrie's obligations to Toys "R" Us arising (i) under (x) the Toys
Acquisition Agreement, (y) the Seller Indemnification Agreement, dated as of
December 9, 1994 (the "Seller Indemnification Agreement"), among Petrie, Toys
"R" Us, Petrie Retail, PS Stores, and certain subsidiaries of PS Stores and (z)
the Retail Operations Stock Purchase Agreement, and (ii) otherwise.
In addition, on January 24, 1995, Petrie delivered 2,724,406 shares of the
Toys Common Stock that it received in the Exchange into a collateral account
(the "Collateral Account") pursuant to the terms of an Amended and Restated
Cash Collateral and Pledge Agreement, dated as of December 9, 1994 and amended
as of January 24, 1995, among Petrie, PS Stores, certain subsidiaries of PS
Stores, and Custodial Trust Company, as Collateral Agent (the "Amended and
Restated Cash Collateral Agreement"). The shares of Toys Common Stock placed in
the Collateral Account pursuant to the Amended and Restated Cash Collateral
Agreement secure the payment of certain of Petrie's obligations to PS Stores
arising under (i) the Retail Operations Stock Purchase Agreement and (ii) the
Cross-Indemnification and Procedure Agreement, dated as of December 9, 1994,
between Petrie and PS Stores (the "Cross-Indemnification and Procedure
Agreement"). These obligations relate primarily to the Tax Audit and the United
Auto Workers District 65 Security Plan Pension Fund (the "Multiemployer Plan").
Pursuant to the Amended and Restated Cash Collateral Agreement, until the
implementation of a hedge or similar arrangement that protects the value of the
Toys Common Stock in the Collateral Account, Petrie has agreed to maintain a
value in the Collateral Account of at least $74,250,000. Due to recent
fluctuations in the market price of Toys Common Stock, on March 3, 1995, March
10, 1995 and March 14, 1995, Petrie deposited 275,594, 100,000 and 100,000
additional shares of Toys Common Stock, respectively, into the Collateral
Account, increasing the number of shares of Toys Common Stock in the Collateral
Account to 3,200,000 shares. PS Stores can request the Collateral Agent to sell
the Toys Common Stock in the Collateral Account if the value of the Toys Common
Stock in the Collateral Account is not protected, as of May 31, 1995, by a
hedge or similar arrangement.
Petrie has agreed with Toys "R" Us pursuant to a letter agreement, dated as
of January 24, 1995 (the "Side Letter Agreement"), that, until such time as a
hedge or similar arrangement that protects the value of the Toys Common Stock
is in place, Petrie will maintain a reserve (the "Reserve") against certain
liabilities (the "Liabilities"), including, but not limited to (i) guarantees
by Petrie of certain retail store leases to which Petrie's former subsidiaries
are parties and which expire at various times through 2005 (the "Lease
Guarantees"), (ii) liabilities in connection with the Multiemployer Plan, (iii)
assessments made by or settlements negotiated with the IRS relating to the Tax
Audit and (iv) liabilities in connection with the administration of Petrie and
the Liquidating Trust. Petrie is required to fund the Reserve with,
individually or in combination, (i) cash in an amount of at least $177.5
million (the "Reserved Amount") or (ii) shares of Toys Common Stock having a
market value (as of January 20, 1995) of at least twice the Reserved Amount. As
a result, the Reserve currently contains 11,703,056 shares of Toys Common Stock
(including the 3,493,450 shares of Toys Common Stock held in the Escrow Account
and the 3,200,000 shares of Toys Common Stock held in the Collateral Account).
In the event that Petrie desires to make a distribution from the Reserve other
than for Reserve Liabilities, Petrie must notify Toys "R" Us of its intent to
make such a distribution and give Toys "R" Us twenty days within which to
object.
9
<PAGE>
On March 24, 1995, Petrie made an initial liquidating distribution to its
shareholders of an aggregate of 26,173,718 shares of Toys Common Stock, or
62.2% of the Toys Common Stock held by Petrie, pursuant to Petrie's Plan of
Liquidation and Dissolution. In the Distribution, Petrie's shareholders
received 0.5 of a share of Toys Common Stock for every share of Petrie Common
Stock held of record at the close of business on March 16, 1995.
Following the Distribution, Petrie holds 15,902,702 shares of Toys Common
Stock. As of the close of business on April 18, 1995, the shares of Toys Common
Stock held by Petrie had an aggregate market value of approximately $413.5
million.
Petrie expects to make another distribution of Toys Common Stock sometime
later this year as the Liabilities are reduced. The size of the next
distribution has not yet been determined and will depend upon the extent to
which the Liabilities have been reduced and the number of shares of Toys Common
Stock then required to be retained to provide, if necessary, for the payment of
the Liabilities. As of April 18, 1995, the closing price per share of Toys
Common Stock as reported on the New York Stock Exchange Composite Tape was $26
per share, and during the fifty-two weeks prior to April 18, 1995, the price
per share of Toys Common Stock has fluctuated from a high of $39 to a low of
$23 3/4. No assurance can be given as to the future market prices of Toys
Common Stock (and, accordingly, as to the number of shares of Toys Common Stock
required to be retained in light of any particular level of Liabilities) or as
to the extent to which Petrie will be successful in reducing the Liabilities.
As noted above, prior to the next distribution, and in accordance with the
Amended and Restated Cash Collateral Agreement and the Side Letter Agreement,
Petrie is considering entering into a hedge or similar arrangement that
protects the value of its remaining shares of Toys Common Stock in light of its
remaining Liabilities. No assurance can be given as to the effect that a hedge
or similar arrangement would have on the value of the Toys Common Stock
available for distribution to shareholders of Petrie.
Sometime during the second half of Petrie's fiscal year ending February 3,
1996, but not later than January 24, 1996, Petrie will place its then remaining
shares of Toys Common Stock and any other assets it then holds in the
Liquidating Trust, and Petrie's shareholders will become holders of beneficial
interests in the Liquidating Trust. Additional distributions of the shares of
Toys Common Stock held by Petrie will be made from time to time to holders of
beneficial interests in the Liquidating Trust to the extent that such shares
are not needed to satisfy the Liabilities.
As noted above, the Liabilities consist primarily of contingent liabilities
related to the Lease Guarantees, the Tax Audit and the Multiemployer Plan. As
of April 18, 1995, Petrie believes that the aggregate contingent liability
related to the Lease Guarantees, should the lessees thereunder fail to perform
on the underlying lease obligations, has been reduced to approximately $140
million from the approximately $680 million in contingent liability related to
the Lease Guarantees outstanding on April 1, 1994. Of such $140 million in
Lease Guarantees, underlying lease obligations of $26.4 million, $24.2 million,
$21.4 million, $18.7 million, $15.5 million and $33.8 million are payable by
the lessees thereunder during fiscal year 1996, fiscal year 1997, fiscal year
1998, fiscal year 1999, fiscal year 2000 and thereafter, respectively. Petrie
is continuing to seek to negotiate further reductions in its contingent
liability related to the Lease Guarantees. Since the sale of the retail
operations on December 9, 1994, Petrie has not been required to, and is not
currently aware of any existing conditions which would cause it to have to,
make any payments with respect to the underlying lease obligations as a result
of any defaults by the lessees thereunder. As of April 18, 1995, Petrie does
not believe that the amounts that may be payable by it in connection with the
Tax Audit or the Multiemployer Plan would have a material adverse effect on
Petrie's financial position.
As of April 18, 1995, Petrie has approximately $8.4 million in cash (and cash
equivalents). Petrie believes that its cash will be adequate to fund the costs
and expenses related to its liquidation and those of administering the
Liquidating Trust. Such costs and expenses include salaries, accounting fees,
legal fees, transfer agent fees, trustee fees, insurance, exchange listing
fees, Securities and Exchange Commission filing fees, and printing and
shareholder communications expenses. To the extent that there is cash remaining
upon the termination of the Liquidating Trust, such cash will be distributed to
the Liquidating Trust's beneficial owners.
10
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
See pages F-1 through F-17 annexed hereto. The schedule required under
Regulation S-X is included herein on page F-18.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
- ---------------------
On November 6, 1994, David Zack, a retired partner in David Berdon & Co. LLP
("David Berdon"), the independent auditors of Petrie at that time, was
appointed as an executor of the Estate of Milton Petrie, the founder and former
chairman of Petrie. As a result of such appointment, it was determined that
David Berdon may no longer be deemed independent and, on November 14, 1994,
Petrie's Board of Directors and Petrie's audit committee approved the
appointment of Ernst & Young LLP ("Ernst & Young") as Petrie's independent
auditors for the fiscal year ended January 28, 1995 to replace David Berdon.
David Berdon's reports on Petrie's financial statements for the two year
period ended January 29, 1994 did not contain an adverse opinion or disclaimer
of opinion, nor were they qualified or modified as to uncertainty, audit scope
or accounting principles.
During the two year period ended January 29, 1994 and the six month period
ended July 30, 1994, Petrie did not have any disagreements with David Berdon on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement, if not resolved
to the satisfaction of David Berdon, would have caused David Berdon to make
reference thereto in connection with its reports, nor did David Berdon advise
Petrie as to any "reportable events" as such term is defined in Item
304(a)(1)(v) of Regulation S-K.
During the two year period ended January 29, 1994 and the six month period
ended July 30, 1994, Petrie had not consulted with Ernst & Young regarding any
of the matters listed in Item 304(a)(2)(i)-(ii) of Regulation S-K.
Petrie requested that David Berdon furnish a letter addressed to the
Securities and Exchange Commission (the "Commission") stating whether it agrees
with the above statements. A copy of the letter from David Berdon to the
Commission, dated November 17, 1994, was filed as Exhibit 16.1 to Petrie's
Current Report on Form 8-K, filed with the Commission on November 17, 1994, and
is incorporated herein by reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PETRIE.
-------------------------------------------
GENERAL
The following table shows the executive officers and directors of Petrie,
their respective ages, the date each director or officer was first elected and
all positions currently held with Petrie by each such person:
<TABLE>
<CAPTION>
YEAR FIRST ELECTED
A DIRECTOR POSITION WITH
NAME AGE OR OFFICER PETRIE
---- --- ------------------ ----------------------------------
<S> <C> <C> <C>
Hilda Kirschbaum Gerstein....... 84 1956 President; Chief
Executive Officer; Director
H. Bartlett Brown............... 59 1995 Treasurer; Principal Financial
Officer; Principal Accounting
Officer
Stephanie R. Joseph............. 48 1995 Secretary; Principal Legal Officer
Joseph H. Flom.................. 71 1982 Director
Jean Roberts.................... 78 1963 Director
Dorothy Fink Stern.............. 76 1956 Director
Laurence A. Tisch............... 72 1983 Director
Raymond S. Troubh............... 68 1994 Director
</TABLE>
11
<PAGE>
The term of office of each executive officer and director expires upon the
consummation of the dissolution of Petrie in accordance with Section 1006 of
the New York Business Corporation Law.
Hilda Kirschbaum Gerstein became President and Chief Executive Officer of
Petrie following the consummation of the Sale in December 1994. Ms. Gerstein is
also a consultant to Petrie Retail. She was President of Petrie from September
1972 to November 1982 and Treasurer of Petrie from January 1982 to September
1982. Ms. Gerstein was Senior Vice President from 1971 to 1972 and Vice
President of Petrie from 1956 to 1971. She has been employed by Petrie since
1932.
H. Bartlett Brown has been Treasurer, Principal Financial Officer and
Principal Accounting Officer of Petrie since February 1995. Mr. Brown is also a
tax consultant. Mr. Brown was a partner in Ernst & Young LLP, an accounting
firm, from October 1970 until September 1994.
Stephanie R. Joseph has been Secretary and Principal Legal Officer of Petrie
since February 1995. She is the founder and President of The Directors' Network
Inc., a corporate consulting firm that prepares directors for their boardroom
responsibilities, since March 1994. Ms. Joseph is also a member of the Board of
Directors of the American Heart Association--New York City Affiliate. From May
1984 until June 1992, she was employed as the Associate General Counsel of
American Express Company.
Joseph H. Flom has been a partner in Skadden, Arps, Slate, Meagher & Flom, a
law firm and counsel to Petrie and the Estate of Milton Petrie, for more than
the past five years.
Jean Roberts was employed by Petrie from 1937 until December 1993 when she
resigned as Executive Vice President.
Dorothy Fink Stern is a consultant to Petrie Retail. Ms. Stern was employed
by Petrie from 1935 until July 1993 when she resigned as Executive Vice
President.
Laurence A. Tisch is Co-Chairman of the Board and Co-Chief Executive Officer
of Loews Corporation, a diversified holding company. Prior to 1994, Mr. Tisch
had been the Chairman of the Board and Co-Chief Executive Officer of Loews
Corporation. He is also Chairman of the Board, President and Chief Executive
Officer of CBS Inc., a television network and broadcaster since December 1990,
having served as President and Chief Executive Officer of CBS Inc. since
January 1987 and prior thereto as acting Chief Executive Officer since
September 1986. Mr. Tisch has been a Director of CBS Inc. since 1985. He is
also Chief Executive Officer of CNA Financial Corp., an insurance and financial
services company and a publicly-held subsidiary of Loews Corporation; a
Director of Bulova Corporation, a watch manufacturer and a publicly-held
subsidiary of Loews Corporation; a Director of Automatic Data Processing, Inc.,
a provider of payroll and processing services, and a Director of Federated
Department Stores, Inc., an operator of department stores. Mr. Tisch is also
Chairman of the Board of Trustees of New York University; a Trustee of The
Metropolitan Museum of Art, The New York Public Library and the Carnegie
Corporation; and a member of the Council of Foreign Relations.
Raymond S. Troubh was elected a Director in April 1994. He has been a
financial consultant for more than five years. Mr. Troubh is a former governor
of the American Stock Exchange and a former general partner of Lazard Freres &
Co., an investment banking firm. He is a Director of ADT Limited, a security
systems company; American Maize-Products Company, a corn products manufacturer;
Applied Power Inc., a hydraulic and mechanical equipment manufacturer; ARIAD
Pharmaceuticals, Inc., a pharmaceutical company; Becton, Dickinson and Company,
a healthcare products manufacturer; Benson Eyecare Corporation, an eyecare and
eyewear company; Foundation Health Corporation, a healthcare company; General
American Investors Company, an investment and advisory company; Manville
Corporation, a mining and forest products company; Olsten Corporation, a
temporary personnel and healthcare services company; Riverwood International
Corporation, a wood derivative products company; Time Warner Inc., a media and
entertainment company; Wheeling-Pittsburgh Corporation, a holding company;
America West Airlines, Inc., an airline; and Triarc Companies, Inc., a
diversified holding company.
12
<PAGE>
MEETINGS AND STANDING COMMITTEES OF PETRIE'S BOARD OF DIRECTORS
Petrie's Board of Directors met 13 times during the fiscal year ended January
28, 1995. The Board of Directors has audit and compensation committees but has
no nominating committee.
The audit committee is responsible for (i) recommending the selection,
retention or termination of Petrie's independent auditors, (ii) reviewing with
such auditors the overall scope of the audit, (iii) reviewing Petrie's
financial statements and audit results, including communications from the
independent auditors relating to Petrie's accounting practices, procedures and
internal accounting controls, (iv) reviewing the adequacy of internal control
systems, including internal audit activities and the security of electronic
data processing, (v) reviewing such other matters regarding Petrie's financial
and accounting practices as it or Petrie's Board of Directors may deem
advisable and (vi) monitoring Petrie's code of corporate conduct. The current
members of the audit committee are Joseph H. Flom, Raymond S. Troubh and
Dorothy Fink Stern, who have served on the audit committee since September
1992, August 1994 and April 1995, respectively.
The compensation committee was established in April 1994. The compensation
committee reviews and approves the salaries and bonuses of the executive
officers of Petrie. The current members of the compensation committee are
Joseph H. Flom and Raymond S. Troubh, who have both served on the compensation
committee since its inception.
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
GENERAL
The following table sets forth the total annual compensation paid or accrued
by Petrie to or for the account of the current chief executive officer, the
chief executive officer prior to the Sale and two former executive officers for
whom disclosure would have been required if those individuals had been serving
as executive officers of Petrie on January 28, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION AWARDS
------------------------ --------------------------------------
RESTRICTED OPTIONS/SARS
NAME AND PRINCIPAL FISCAL STOCK (NO. OF ALL OTHER
POSITION YEAR SALARY BONUS AWARDS SHARES) COMPENSATION
------------------ ------ -------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Hilda Kirschbaum
Gerstein(3)............ 1995 $600,000
Chief Executive Offi- 1994 575,000 150,494
cer, President 1993 550,000
and Director
Allan Laufgraben(3)..... 1995 367,788 56,187(2) $2,446(4)
Former Vice Chairman, 1994 400,000 $135,000 69,063(2) 1,300
President and Chief 1993 375,000 373,000 61,563(2) 600
Executive Officer
Jay Galin(3)............ 1995 649,038 200,000(2) 5,226(4)
Former Executive Vice 1994 925,000 5,319
President of Petrie 1993 700,000 200,000(2) 5,849
and President of G&G
Shops, Inc., a former
wholly owned subsidiary
of Petrie
Daniel G. Maresca(3).... 1995 367,788 3,759(4)
Former Executive Vice 1994 400,000 600
President of Petrie 1993 375,000 600
and President of
Winkelman Stores, Inc.,
a former wholly owned
subsidiary of Petrie
</TABLE>
13
<PAGE>
- --------
(1) While each of the named individuals received perquisites or other personal
benefits in the years shown, in accordance with the Commission's
regulations, the values of these benefits are not indicated since they did
not exceed in the aggregate the lesser of $50,000 or 10% of the
individual's salary and bonus in any fiscal year.
(2) Represents the fair market value on the day prior to the grant of
restricted shares of Petrie Common Stock pursuant to employment agreements.
The aggregate number and fair market value as of January 28, 1995 of
restricted shares awarded since the beginning of fiscal year 1992 are as
follows: (i) Mr. Galin: 16,988 shares ($382,455); (ii) Mr. Laufgraben:
10,000 shares ($225,000); and (iii) Mr. Maresca: 5,000 shares ($112,500).
The restricted shares vest upon award and are entitled to dividends at the
same rate as dividends paid on unrestricted shares of Petrie Common Stock.
(3) Allan Laufgraben, Jay Galin and Daniel G. Maresca resigned from their
positions as executive officers of Petrie effective December 9, 1994. Hilda
Kirschbaum Gerstein was elected President and Chief Executive Officer of
Petrie effective December 9, 1994. Petrie is no longer a party to any
compensation arrangements covering Mr. Laufgraben, Mr. Galin, Mr. Maresca
or Ms. Gerstein.
(4) The amounts shown include (i) for Mr. Galin, Petrie's contribution to his
Profit Sharing Plan account in the amount of $4,626 in fiscal year 1995;
(ii) contributions to Petrie's 401(k) accounts in the following amounts:
$1,846 for Mr. Laufgraben and $3,159 for Mr. Maresca in fiscal year 1995;
and (iii) premiums paid by Petrie with respect to term life insurance in
the following amount: $600 for each of Mr. Laufgraben, Mr. Galin and Mr.
Maresca in fiscal year 1995.
OPTIONS
No options were granted or exercised during fiscal year 1995 nor were any
options outstanding at January 28, 1995.
DIRECTORS' COMPENSATION
Directors receive no meeting attendance fees or any other compensation for
serving on Petrie's Board of Directors or any committee thereof, other than
Raymond S. Troubh, who receives $45,000 per annum.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of Petrie serves: (i) as a member of the compensation
committee, another board committee performing equivalent functions or the board
of directors of another entity, one of whose executive officers serves on the
Board of Directors of Petrie; (ii) as a director of another entity, one of
whose executive officers serves on the Board of Directors of Petrie; or (iii)
as a member of the compensation committee (or other board committee performing
equivalent functions, or in the absence of any such committee, the entire board
of directors) of another entity, one of whose executive officers serve on the
Board of Directors of Petrie.
During the fiscal year ended January 28, 1995, Joseph H. Flom and Raymond S.
Troubh served on Petrie's compensation committee. Mr. Flom is a partner in
Skadden, Arps, Slate, Meagher & Flom ("Skadden, Arps"), counsel to Petrie and
the Estate of Milton Petrie. Mr. Troubh served as Treasurer of Petrie from
December 9, 1994 to February 7, 1995.
Except as described above, no member of Petrie's compensation committee: (i)
was, during the fiscal year ended January 28, 1995, an officer or employee of
Petrie or any of its subsidiaries; (ii) was formerly an officer of Petrie or
any of its subsidiaries; or (iii) had any relationship requiring disclosure by
Petrie under any paragraph of Item 404 of Regulation S-K.
14
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
The following table sets forth, as of March 31, 1995, certain information
with respect to (i) the only persons who, to the best knowledge of Petrie, were
the beneficial owners of more than five percent of the outstanding shares of
Petrie Common Stock, the only class of voting security of Petrie, and (ii) the
number of shares of Petrie Common Stock beneficially owned by each Director of
Petrie.
<TABLE>
<CAPTION>
TOTAL NUMBER OF
SHARES BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED CLASS
- ------------------------ ------------------- ---------------
<S> <C> <C>
The Estate of Milton Petrie................. 28,158,866(1) 53.8%
Joseph H. Flom.............................. 0(2) --
Hilda Kirschbaum Gerstein................... 292,268(2) *
Jean Roberts................................ 58,584 *
Dorothy Fink Stern.......................... 180,191(2) *
Laurence A. Tisch........................... 1,000(2) *
Raymond S. Troubh........................... 0 --
</TABLE>
- --------
*Less than one percent of the outstanding Petrie Common Stock.
(1) Includes 47,592 shares owned by a trust of which Mr. Milton Petrie was the
trustee. The Estate has sole voting and dispositive power over 28,111,274
shares.
(2) Mr. Flom, Ms. Gerstein, Jerome A. Manning, Bernard Petrie, Carroll Petrie,
Ms. Stern, Mr. Tisch and David Zack have been appointed executors of the
Estate of Milton Petrie. The executors share equally the power to dispose
of, and to vote, the shares held by the Estate. Mr. Flom, Ms. Gerstein, Ms.
Stern and Mr. Tisch disclaim beneficial ownership of the shares held by the
Estate.
As of April 18, 1995, all executive officers and directors of Petrie and
Petrie's affiliates, as a group (nine persons), beneficially owned 28,690,909
shares of Petrie Common Stock, which constituted approximately 54.8 percent of
the shares deemed outstanding on that date. Except as otherwise noted in the
footnotes to the above table, each person listed in the above table has sole
voting power and sole investment power with respect to such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The section of the Petrie Proxy Statement, dated as of November 3, 1994,
entitled "The Disposition--Interests of Certain Persons in the Retail
Operations Stock Purchase" is incorporated herein by reference and made a part
hereof.
Bear, Stearns & Co. Inc. ("Bear Stearns"), an investment banking firm, has
provided services to Petrie during the past year in the ordinary course of
business. Until March 15, 1995, Alan C. Greenberg, Chairman of the Board of The
Bear Stearns Companies, Inc., the parent company of Bear Stearns, was a
director of Petrie and a member of Petrie's audit committee.
Skadden, Arps is counsel to Petrie and the Estate of Milton Petrie, and has
provided services to each. Joseph H. Flom, a director of Petrie, a member of
Petrie's audit and compensation committees and an executor of the Estate of
Milton Petrie, is a partner in Skadden, Arps. See Item 12--"Security Ownership
of Certain Beneficial Owners and Management."
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1), (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE.
See Index to Financial Statements and Financial Statement Schedule set
forth herein at page F-1.
(a)(3) LIST OF EXHIBITS.
<TABLE>
<C> <S>
2.1 Form of Plan of Liquidation and Dissolution of Petrie
(incorporated herein by reference to Annex C to Petrie's Proxy
Statement, dated as of November 3, 1994).
3.1 Restated Certificate of Incorporation of Petrie, as amended to
date (incorporated herein by reference to Exhibit 3.1 to
Petrie's Annual Report on Form 10-K for the year ended January
31, 1986).
3.2 By-laws of Petrie, as amended.
10.1 Toys Acquisition Agreement, dated as of April 20, 1994,
between Petrie and Toys "R" Us (incorporated herein by
reference to Annex B to Petrie's Proxy Statement, dated as of
November 3, 1994).
10.2 Amendment No. 1 to the Toys Acquisition Agreement, dated as of
May 10, 1994, between Petrie and Toys "R" Us (incorporated
herein by reference to Annex B to Petrie's Proxy Statement,
dated as of November 3, 1994).
10.3 Retail Operations Stock Purchase Agreement, dated as of August
23, 1994, between Petrie and WP Investors (incorporated herein
by reference to Annex A to Petrie's Proxy Statement, dated as
of November 3, 1994).
10.4 Amendment No. 1 to the Retail Operations Stock Purchase
Agreement, dated as of November 3, 1994, among WP Investors,
PS Stores and Petrie (incorporated herein by reference to
Annex A to Petrie's Proxy Statement, dated as of November 3,
1994).
10.5 Cross-Indemnification and Procedure Agreement, dated as of
December 9, 1994, between PS Stores and Petrie.
10.6 Buyer Indemnification Agreement, dated as of December 9, 1994,
among Toys "R" Us, Petrie, PS Stores, Petrie Retail and all
subsidiaries of PS Stores.
10.7 Seller Indemnification Agreement, dated as of December 9,
1994, among Toys "R" Us, Petrie, PS Stores, Petrie Retail and
all subsidiaries of PS Stores.
10.8 Restated and Amended Cash Collateral Agreement, dated as of
December 9, 1994 as amended as of January 24, 1995, among
Petrie, Custodial Trust Company as Collateral Agent, PS Stores
and certain subsidiaries and directors thereof (incorporated
herein by reference to Exhibit 10.2 to Petrie's Current Report
on Form 8-K, dated as of January 24, 1995).
10.9 Side Letter Agreement, dated as of January 24, 1995, between
Petrie and Toys "R" Us (incorporated herein by reference to
Exhibit 10.3 to Petrie's Current Report on Form 8-K, dated as
of January 24, 1995).
10.10 Escrow Agreement, dated as of January 24, 1995, between Petrie
and Custodial Trust Company (incorporated herein by reference
to Exhibit 10.1 to Petrie's Current Report on Form 8-K, dated
as of January 24, 1995).
10.11 Form of Liquidating Trust Agreement (incorporated herein by
reference to Annex D to Petrie's Proxy Statement, dated as of
November 3, 1994).
16.1 Letter from David Berdon, dated as of November 17, 1994
(incorporated herein by reference to Exhibit 10.1 to Petrie's
Current Report on Form 8-K, dated as of November 14, 1994).
</TABLE>
16
<PAGE>
(b) REPORTS ON FORM 8-K.
(1) Current Report on Form 8-K, dated as of November 17, 1994, reporting
that (a) the Retail Operations Stock Purchase Agreement had been
amended by Amendment No. 1 to the Retail Operations Stock Purchase
Agreement, dated as of November 3, 1994, between Petrie and WP
Investors; (b) Petrie had announced on November 10, 1994 that it was
calling for redemption on December 12, 1994 all of the outstanding
Debentures and (c) the receipt of a private letter ruling from the
IRS.
(2) Current Report on Form 8-K, dated as of November 17, 1994, reporting
the change in Petrie's independent auditors.
(3) Current Report on Form 8-K, dated as of December 21, 1994, reporting
the consummation of the Sale, including pro forma financial
information.
(4) Current Report on Form 8-K, dated as of February 1, 1995, reporting
the consummation of the Exchange.
(5) Current Report on Form 8-K, dated as of March 28, 1995, reporting
the Distribution.
(c) See Item 14(a)(3) above. Petrie will furnish to any shareholder, upon
written request, any exhibit listed in response to Item 14(a)(3) upon payment
by such shareholder of Petrie's reasonable expenses in furnishing any such
exhibit.
(d) See Item 14(a)(2) above.
17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Petrie Stores Corporation
/s/ Hilda Kirschbaum Gerstein
By __________________________________
HILDA KIRSCHBAUM GERSTEIN
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
Dated: April 24, 1995
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: April 24, 1995
/s/ Hilda Kirschbaum Gerstein
By __________________________________
HILDA KIRSCHBAUM GERSTEIN
PRESIDENT, CHIEF EXECUTIVE
OFFICER
AND DIRECTOR
/s/ H. Bartlett Brown
By __________________________________
H. BARTLETT BROWN
TREASURER, PRINCIPAL FINANCIAL
OFFICER
AND PRINCIPAL ACCOUNTING OFFICER
/s/ Stephanie R. Joseph
By __________________________________
STEPHANIE R. JOSEPH
SECRETARY AND PRINCIPAL LEGAL
OFFICER
/s/ Joseph H. Flom
By __________________________________
JOSEPH H. FLOM
DIRECTOR
/s/ Jean Roberts
By __________________________________
JEAN ROBERTS
DIRECTOR
/s/ Dorothy Fink Stern
By __________________________________
DOROTHY FINK STERN
DIRECTOR
/s/ Laurence A. Tisch
By __________________________________
LAURENCE A. TISCH
DIRECTOR
/s/ Raymond S. Troubh
By __________________________________
RAYMOND S. TROUBH
DIRECTOR
18
<PAGE>
PETRIE STORES CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<S> <C>
FINANCIAL STATEMENTS
Reports of Independent Auditors......................................................................... F-2
Statement of Net Assets in Liquidation--January 28, 1995................................................ F-4
Consolidated Balance Sheet--January 29, 1994............................................................ F-5
Consolidated Statements of Operations--For each of the three fiscal
years in the period ended January 28, 1995............................................................. F-6
Consolidated Statements of Shareholders' Equity--For each of the three
fiscal years in the period ended January 28, 1995...................................................... F-7
Consolidated Statements of Cash Flows--For each of the three fiscal
years in the period ended January 28, 1995............................................................. F-8
Notes to Consolidated Financial Statements.............................................................. F-9
FINANCIAL STATEMENT SCHEDULE
VIII. Valuation and Qualifying Accounts................................................................. F-18
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Petrie Stores Corporation
We have audited the accompanying statement of net assets in liquidation of
Petrie Stores Corporation as of January 28, 1995 and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. Our audit also included the financial statement schedule listed at Item
14(a)(2). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the shareholders of
Petrie Stores Corporation approved a plan of liquidation on January 24, 1995,
and the Company commenced liquidation shortly thereafter. As a result, the
Company has changed its basis of accounting, at January 28, 1995, from the
going-concern basis to a liquidation basis.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the net assets in liquidation of
Petrie Stores Corporation and its former subsidiaries as of January 28, 1995
and the consolidated results of their operations and their cash flows for the
year then ended, in conformity with generally accepted accounting principles
applied on the basis described in the preceding paragraph. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
Ernst & Young LLP
MetroPark, New Jersey
April 18, 1995
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Petrie Stores Corporation
We have audited the accompanying consolidated balance sheet of Petrie Stores
Corporation and subsidiaries as of January 29, 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended January 29, 1994 and January 30, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Petrie Stores Corporation and subsidiaries as of January 29, 1994 and the
results of their operations and their cash flows for the years ended January
29, 1994 and January 30, 1993, in conformity with generally accepted accounting
principles.
As discussed in Notes 1, 3, and 6 to the consolidated financial statements,
the Company changed its method of accounting for investments in common stock,
income taxes and postretirement benefits other than pensions in fiscal 1994.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at Item
14(a)(2) is presented for purposes 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 our
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.
David Berdon & Co. LLP
New York, New York
March 24, 1994
F-3
<PAGE>
PETRIE STORES CORPORATION
STATEMENT OF NET ASSETS IN LIQUIDATION (NOTES 1 AND 2)
JANUARY 28, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Cash and cash equivalents........................................... $ 11,854
Investments in common stock......................................... 1,262,293
----------
Total assets.................................................... 1,274,147
<CAPTION>
LIABILITIES
-----------
<S> <C>
Accrued expenses and other liabilities.............................. 9,495
Deferred income taxes............................................... 428,182
----------
Total liabilities............................................... 437,677
Commitments and contingencies.......................................
----------
Net assets in liquidation........................................... $ 836,470
==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PETRIE STORES CORPORATION
CONSOLIDATED BALANCE SHEET (NOTE 2)
JANUARY 29, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets:
Cash and cash equivalents......................................... $ 39,290
Investments in common stock....................................... 35,740
Accounts receivable:
Trade, less allowance for doubtful accounts of $2,450........... 49,999
Other........................................................... 13,745
Merchandise inventories........................................... 187,627
Deferred income taxes............................................. 7,456
Prepaid expenses.................................................. 6,887
----------
Total current assets................................................ 340,744
Investments in common stock......................................... 1,481,937
Property and equipment, at cost:
Land.............................................................. 2,777
Buildings and improvements........................................ 16,157
Leasehold costs, improvements, store fixtures and equipment....... 588,450
----------
607,384
Less accumulated depreciation and amortization...................... 339,409
----------
267,975
Excess of cost over the fair value of net assets acquired, less ac-
cumulated amortization
of $28,176....................................................... 89,602
Other assets:
Debt issuance costs, less accumulated amortization of $574........ 1,155
Other............................................................. 6,394
----------
7,549
----------
Total assets........................................................ $2,187,807
==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities:
Short-term borrowings............................................. $ 20,000
Accounts payable.................................................. 26,993
Accrued expenses and other liabilities............................ 44,917
----------
Total current liabilities........................................... 91,910
Long-term liabilities:
Convertible subordinated debentures............................... 124,952
Deferred income taxes............................................. 600,678
Other............................................................. 5,704
----------
731,334
Commitments and contingencies
Shareholders' equity:
Common stock--$1 par value, authorized 80,000,000 shares; issued
46,770,202 shares................................................ 46,770
Additional paid-in capital........................................ 93,973
Retained earnings................................................. 462,079
Unrealized gain on investments in common stock, net............... 761,777
----------
1,364,599
Less treasury stock--at cost (1,669 shares)....................... 36
----------
Total shareholders' equity...................................... 1,364,563
----------
Total liabilities and shareholders' equity...................... $2,187,807
==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PETRIE STORES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 2)
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994* 1993*
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Corporate overhead......................... $ (430)
Interest expense........................... (8,605) $(10,066) $(10,066)
Investment income.......................... 1,293
--------- -------- --------
Loss from continuing operations before in-
come taxes................................ (7,742) (10,066) (10,066)
Income tax benefit......................... 1,114 3,523 3,925
--------- -------- --------
Loss from continuing operations............ (6,628) (6,543) (6,141)
(Loss) income from discontinued operations,
net of income taxes....................... (410,027) (42,140) 20,983
--------- -------- --------
(Loss) income before cumulative effect of
changes in accounting principles.......... (416,655) (48,683) 14,842
Cumulative effect of changes in accounting
for investments and income taxes, net..... 10,685
--------- -------- --------
Net (loss) income.......................... $(416,655) $(37,998) $ 14,842
========= ======== ========
(Loss) income per share:
Loss from continuing operations............ $ (.14) $ (.14) $ (.13)
Loss (income) from discontinued operations. (8.61) (.90) .45
Cumulative effect of changes in accounting
principles................................ .23
--------- -------- --------
$ (8.75) $ (.81) $ .32
========= ======== ========
Weighted average number of shares.......... 47,600 46,768 46,758
========= ======== ========
</TABLE>
- --------
*Restated to conform to fiscal year 1995 presentation (Note 2).
See accompanying notes.
F-6
<PAGE>
PETRIE STORES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (NOTE 2)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON GAIN ON
STOCK ADDITIONAL INVESTMENT TREASURY STOCK TOTAL
($1 PAR PAID-IN RETAINED IN COMMON --------------- SHAREHOLDERS'
VALUE) CAPITAL EARNINGS STOCK, NET SHARES AMOUNT EQUITY
------- ---------- -------- ---------- ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 2,
1992................... $46,769 $ 93,946 $503,938 16,399 $(356) $ 644,297
Net income for the
year.................. 14,842 14,842
Cash dividends on
common stock--$.20 per
share................. (9,350) (9,350)
Acquisition of treasury
stock................. 6,784 (151) (151)
Fair market value of
treasury stock issued
as compensation....... 6 (21,514) 471 477
------- -------- -------- -------- ------- ----- ----------
Balance at January 30,
1993................... 46,769 93,952 509,430 -- 1,669 (36) 650,115
Net loss for the year.. (37,998) (37,998)
Cash dividends on
common stock--$.20 per
share................. (9,353) (9,353)
Shares issued--
conversion of
debentures............ 1 21 22
Unrealized gain on
investments in common
stock, net............ $761,777 761,777
------- -------- -------- -------- ------- ----- ----------
Balance at January 29,
1994................... 46,770 93,973 462,079 761,777 1,669 (36) 1,364,563
Net loss for the year.. (416,655) (416,655)
Cash dividends on
common stock--$.15 per
share................. (7,021) (7,021)
Shares issued--
conversion of
debentures............ 5,564 121,119 126,683
Common stock issued as
compensation to
officers.............. 18 432 450
Unrealized loss on
investments in common
stock, net............ (231,550) (231,550)
------- -------- -------- -------- ------- ----- ----------
Balance at January 28,
1995................... $52,352 $215,524 $ 38,403 $530,227 1,669 $ (36) $ 836,470
======= ======== ======== ======== ======= ===== ==========
</TABLE>
See accompanying notes.
F-7
<PAGE>
PETRIE STORES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 2)
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income......................... $(416,655) $(37,998) $ 14,842
Adjustments to reconcile net (loss) in-
come to net cash (used in) provided by
operating activities:
Cumulative effect of changes in ac-
counting for investments and income
taxes, net............................ (10,685)
Loss on disposal of discontinued opera-
tions................................. 303,660
Gain on sale of investments in common
stock................................. (336)
Depreciation and amortization of prop-
erty and equipment.................... 45,905 56,804 57,803
Other amortization..................... 2,506 3,208 3,120
Loss on disposal of property and equip-
ment.................................. 28,452 6,433
Provision for doubtful accounts........ 5,450 2,244 1,061
Compensation in connection with stock
options............................... 339 3,386
Fair market value of stock issued as
compensation.......................... 450 477
Loss from investment in common stock... 13,661
Deferred income taxes.................. (23,196) (2,171)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable.................. (9,132) (27,517) (811)
Merchandise inventories.............. (32,080) 65 (35,396)
Prepaid expenses..................... (3,676) 1,158 (821)
Other assets......................... 25 (113) (377)
Increase (decrease) in:
Accounts payable..................... 10,731 (2,578) 2,225
Accrued expenses and other liabili-
ties................................ 25,360 7,603 2,526
Income taxes......................... (2,030) (9,231) 134
Other long-term liabilities.......... (480) 2,104
--------- -------- --------
Net cash (used in) provided by operating
activities............................... (70,302) 4,320 52,431
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of retail operations,
net of cash sold of $37,950.............. 139,550
Additions to property and equipment....... (42,172) (63,935) (73,244)
Proceeds on disposition of property and
equipment................................ 802 588
Sale of investments in common stock....... 36,076 5,186
Purchase of investments in common stock... (165,000) (5,030)
--------- -------- --------
Net cash used in investing activities..... (31,546) (57,947) (77,686)
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings................. 83,277 20,000
Cash dividends............................ (7,021) (9,353) (9,350)
Redemption of principal amount of convert-
ible subordinated debentures............. (1,844)
Acquisition of treasury stock............. (151)
--------- -------- --------
Net cash provided by (used in) financing
activities............................... 74,412 10,647 (9,501)
--------- -------- --------
Net decrease in cash and cash equivalents. (27,436) (42,980) (34,756)
Cash and cash equivalents, beginning of
year..................................... 39,290 82,270 117,026
--------- -------- --------
Cash and cash equivalents, end of year.... $ 11,854 $ 39,290 $ 82,270
========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW IN-
FORMATION
Cash paid during the year for:
Interest................................. $ 6,475 $ 12,042 $ 10,701
Income taxes............................. 1,573 7,744 13,792
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANC-
ING ACTIVITIES
39,853,403 shares of Toys "R" Us common
stock held by the Company were exchanged
for 36,526,704 shares of Toys "R" Us com-
mon stock held by Toys "R" Us in its
treasury.
$123,108,000 of convertible subordinated
debentures were exchanged for 5,563,829
shares of the Company's common stock dur-
ing the fiscal year ended January 28,
1995. At the date of conversion, accrued
interest of $4,731,000 payable on the De-
bentures was contributed to additional
paid-in capital.
$22,000 of convertible subordinated deben-
tures were exchanged for 983 shares of
the Company's common stock during the
fiscal year ended January 29, 1994.
</TABLE>
See accompanying notes.
F-8
<PAGE>
PETRIE STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Prior to December 9, 1994, Petrie Stores Corporation operated a chain of
retail stores specializing in women's apparel and located throughout the United
States (including Puerto Rico and the U.S. Virgin Islands). Hereafter, the
"Company" or "Petrie Stores Corporation" refers to Petrie Stores Corporation
and its consolidated subsidiaries unless the context requires otherwise. At the
Company's Annual Meeting, held on December 6, 1994, the Company's shareholders
approved the sale of the Company's retail operations (Note 2). At the Company's
Reconvened Annual Meeting, held on January 24, 1995, the Company's shareholders
approved (i) an exchange of shares of Toys "R" Us, Inc. ("Toys R Us") common
stock with Toys "R" Us (Note 3) and (ii) the liquidation and dissolution of the
Company and the establishment of a liquidating trust. For financial statement
presentation purposes, a liquidation basis of accounting was implemented as of
January 28, 1995. The application of a liquidation basis had no effect on the
Company's net assets as of January 28, 1995. The statement of net assets in
liquidation at January 28, 1995 does not distinguish between current and long-
term balances as would be reflected if such statement had been prepared on a
going-concern basis. The accompanying consolidated balance sheet as of January
29, 1994 and the consolidated statements of operations, shareholders' equity
and cash flows for each of the three fiscal years in the period ended January
28, 1995 are presented on a going-concern basis.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its former subsidiaries, all of which were wholly-owned. All significant
intercompany transactions have been eliminated in consolidation.
In December 1994, as part of the reorganization of the Company's retail
operations in connection with their sale (Note 2), all of the Company's former
subsidiaries with retail operations were transferred to Petrie Retail, Inc.,
then a wholly-owned subsidiary of the Company ("Petrie Retail"), and all of the
shares of Toys "R" Us common stock held by Petrie's former subsidiaries were
transferred to the Company. Thereafter, Petrie Retail was sold to PS Stores
Acquisition Corp. (hereafter, including its subsidiaries and affiliates unless
the context requires otherwise, "PS Stores"). As a result, the Company had no
subsidiaries at January 28, 1995.
CASH EQUIVALENTS
Cash equivalents consist of commercial paper, government securities,
repurchase agreements and other income producing securities of less than ninety
days maturity. These investments are carried at cost plus accrued interest,
which approximates fair value.
DEBT ISSUANCE COSTS
Debt issuance costs were amortized by the straight-line method over the term
of the Company's 8% Convertible Subordinated Debentures due December 15, 2010
(the "Debentures") (Note 4).
INVESTMENTS IN COMMON STOCK
Effective January 29, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which requires the Company's
investments in common stock to be classified as either "trading" (securities
the Company expects to sell in the near term) or "available for sale" and to be
carried at market value with the unrealized gain or loss associated with
trading securities to be included in the current year's statement of
operations, and the unrealized gain or loss associated with available for sale
securities to be presented as a separate component of shareholders' equity, net
of applicable deferred taxes. Prior to the adoption of SFAS No. 115, the
Company's investments in common stock were being accounted for by the cost
method.
F-9
<PAGE>
PETRIE STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAXES
Effective January 31, 1993, the Company adopted the provisions of SFAS No.
109, "Accounting for Income Taxes," which requires a change from the deferred
method to the liability method of accounting for income taxes. Under this
approach, tax assets and liabilities are determined based on differences
between financial reporting and the tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
POSTRETIREMENT BENEFITS
Effective January 31, 1993, the Company adopted the provisions of SFAS No.
106, "Employers Accounting for Postretirement Benefits Other Than Pensions."
SFAS No. 106 requires that the projected future costs of providing
postretirement benefits, such as healthcare and life insurance, be recognized
as an expense as employees render service instead of when benefits are paid, as
the Company historically had done. The adoption of this standard had no
material effect on either the Company's operations or financial position in the
year of adoption or prior years. Obligations under the Company's postretirement
benefit plan were assumed by PS Stores in connection with the purchase of the
Company's retail operations (Note 2).
EARNINGS PER SHARE
Primary earnings per share has been computed based on the weighted average
number of shares outstanding. Shares issuable upon the exercise of stock
options have not been included in the primary earnings per share computation
because the effect of such would not be material or would be anti-dilutive.
2. DISCONTINUED OPERATIONS
On December 9, 1994, pursuant to the terms of a Stock Purchase Agreement, as
amended, the Company completed the sale of the stock of Petrie Retail. The
stock of Petrie Retail was sold to PS Stores for $190 million and the
assumption by PS Stores of various liabilities, including but not limited to,
all of the leases to which the Company or any of its subsidiaries was a party
(Note 7). Taking into effect the approximately $12.5 million in expenses
incurred by the Company in connection with such sale, the net cash purchase
price was approximately $177.5 million.
The results of the retail operations are accounted for as discontinued
operations in the accompanying consolidated statements of operations. Amounts
in the consolidated statements of operations and notes to the consolidated
financial statements for the years ended January 29, 1994 and January 30, 1993
have been restated to conform to the fiscal year 1995 discontinued operations
presentation.
Significant accounting policies of discontinued operations were as follows:
INVENTORIES
Merchandise inventories were valued at the lower of cost or market as
determined by the retail method (average cost basis) and consisted of finished
goods.
PROPERTY AND EQUIPMENT
Property and equipment were recorded at cost. Depreciation and amortization
of property and equipment were computed principally by the straight-line method
based on the estimated useful lives of the assets. Leasehold improvements were
amortized over the term of the lease or estimated useful life, whichever was
shorter. Store opening costs were charged to earnings in the year the store was
opened.
F-10
<PAGE>
PETRIE STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intangibles
The excess of cost over the fair value of net assets acquired was amortized
using the straight-line method over 40 years.
Components of (loss) income from discontinued operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------
JANUARY JANUARY JANUARY
28, 1995 29, 1994 30, 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................. $1,024,865 $1,480,071 $1,438,160
========== ========== ==========
(Loss) income from discontinued retail
operations before income taxes ........... (58,290) (67,386) 33,108
Income taxes............................... 6,631 25,246 (12,125)
---------- ---------- ----------
(Loss) income from discontinued retail op-
erations.................................. (51,659) (42,140) 20,983
Loss on disposal........................... (358,368) -- --
---------- ---------- ----------
$ (410,027) $ (42,140) $ 20,983
========== ========== ==========
</TABLE>
The loss on disposal represents a provision for estimated operating losses
through the disposal date and the excess of the net assets of the retail
operations over the net cash proceeds received.
3. INVESTMENTS IN COMMON STOCK
Effective January 29, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Accordingly, investments in
common stock, classified as trading securities and included in current assets
in the accompanying Consolidated Balance Sheet at January 29, 1994, are being
carried at a market value of $35,740,000, with an unrealized gain of
$13,685,000, net of deferred income taxes of $5,800,000 included in the
Consolidated Statement of Operations for the fiscal year ended January 29, 1994
as "Cumulative effect of changes in accounting for investments and income
taxes, net." Investments in common stock classified as available for sale
securities are being carried at a market value of $1,262,293,000 and
$1,481,937,000 with unrealized gains of $942,380,000 and $1,326,777,000, net of
deferred income taxes of $412,153,000 and $565,000,000, being credited to
shareholders' equity at January 28, 1995 and January 29, 1994, respectively.
The Company's investments in common stock classified as available for sale at
January 28, 1995 and January 29, 1994 consist of shares of Toys "R" Us, a chain
of specialty retail stores principally engaged in the sale of toys and
children's clothing in the U.S. and abroad. On January 24, 1995, pursuant to
the terms of an Acquisition Agreement, as amended, the Company exchanged (the
"Exchange") with Toys "R" Us all of its shares of Toys "R" Us common stock
(39,853,403 shares), plus $165 million in cash, for 42,076,420 shares of Toys
"R" Us common stock (approximately 15.0% of Toys "R" Us outstanding common
shares at January 28, 1995). In accordance with the Acquisition Agreement, the
number of Toys "R" Us shares received by the Company in the Exchange was
approximately 3.3 million shares less than the sum of the number of shares
transferred by the Company plus the number of shares purchased with the $165
million cash payment. The market value of these shares retained by Toys "R" Us
was approximately $100 million at January 28, 1995, and is reflected as a
reduction to the unrealized gain on investments in common stock in the
accompanying Consolidated Balance Sheet.
Simultaneously with the closing of the Exchange, the Company placed 3,493,450
and 2,724,406 shares of Toys "R" Us common stock into an escrow account and a
collateral account, respectively. These shares of
F-11
<PAGE>
PETRIE STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Toys "R" Us common stock were placed into these accounts to secure the payment
of the Company's contingent liabilities pursuant to the terms of the
Acquisition Agreement, the Stock Purchase Agreement and other agreements with
Toys "R" Us and/or PS Stores. The Company has agreed to maintain a value in the
collateral account of at least $74,250,000 until a hedge or similar arrangement
that protects the value of the Toys "R" Us common stock is in place. Due to
recent fluctuations in the market price of Toys "R" Us common stock, on March
3, 1995, March 10, 1995 and March 14, 1995, the Company deposited 275,594,
100,000 and 100,000 additional shares of Toys "R" Us common stock,
respectively, in the collateral account increasing the number of Toys "R" Us
shares in the collateral account to 3,200,000 shares. Pursuant to the terms of
an Amended and Restated Cash Collateral Agreement between the Company and PS
Stores, PS Stores can request the collateral agent to sell the Toys "R" Us
common stock in the collateral account if a hedge or similar arrangement that
protects the value of the Toys "R" Us common stock in the collateral account is
not implemented by May 31, 1995. In addition, the Company has agreed with Toys
"R" Us pursuant to a letter agreement, dated as of January 24, 1995, that until
such time as a hedge or similar arrangement is in place, the Company will
retain, either individually or in combination, (i) cash in an amount of at
least $177.5 million (the "Reserved Amount") or (ii) shares of Toys "R" Us
common stock having a market value (as of January 20, 1995) of at least twice
the Reserved Amount, to secure the payment of the Company's contingent
liabilities (Note 7). Accordingly, at January 28, 1995, the Company is required
to retain at least 11,703,056 shares of Toys "R" Us common stock (including the
3,493,450 shares of Toys "R" Us common stock held in an escrow account and the
3,200,000 shares of Toys "R" Us common stock held in a collateral account).
As approved by the Company's shareholders on January 24, 1995, the Company
will be liquidated and dissolved and the Toys "R" Us shares held by the Company
will be distributed to its shareholders. In this regard, on March 24, 1995,
26,173,718 shares of Toys "R" Us common stock held by the Company were
distributed to the Company's shareholders. During the second half of the
Company's fiscal year ending February 3, 1996, but not later than January 24,
1996, the Company will place the then remaining shares of Toys "R" Us common
stock in a liquidating trust established to provide for the Company's
contingent liabilities (Note 7). The Company's shareholders will receive pro
rata interests in the liquidating trust. Prior to making further distributions
of shares of Toys "R" Us common stock to shareholders of the Company or
establishing the liquidating trust, the Company is considering entering into a
hedge or other similar arrangement that protects the value of the shares of
Toys "R" Us common stock required to be retained to provide, if necessary, for
the payment of the Company's contingent liabilities. The price per share of the
Toys "R" Us common stock, as reported on the New York Stock Exchange Composite
Tape, declined from $30 per share at January 28, 1995 to $26 per share at April
18, 1995.
The Company has received a favorable private letter ruling from the Internal
Revenue Service ("IRS") to the effect that the Exchange and the subsequent
distribution of Toys "R" Us common stock to the Company's shareholders will
qualify as a tax-free reorganization under the Internal Revenue Code of 1986,
as amended. The ruling further provides that the Company will not recognize any
gain on these transactions. The Company's deferred tax liability was reduced by
approximately $266 million as a result of the March 24, 1995 distribution. As
future distributions are made, the deferred tax liability will be further
reduced.
F-12
<PAGE>
PETRIE STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Condensed financial information of Toys "R" Us is presented below:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29,
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Balance sheet data:
Current assets....................................... $2,530,713 $2,708,396
Current liabilities.................................. 2,136,943 2,075,051
---------- ----------
Working capital...................................... 393,770 633,345
Property and equipment--net (including leased prop-
erty under capital leases).......................... 3,668,805 3,184,467
Other assets......................................... 371,675 256,746
Long-term liabilities and deferred taxes............. (1,005,375) (926,276)
---------- ----------
Shareholders' equity................................. $3,428,875 $3,148,282
========== ==========
Company's investment in Toys "R" Us.................... $1,262,293 $1,499,942
========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Income statement data:
Net sales................................. $8,745,586 $7,946,067 $7,169,290
Cost of sales............................. 6,007,958 5,494,766 4,968,333
Net earnings.............................. 531,767 482,953 437,824
</TABLE>
Through April 30, 1988, the Company accounted for its investment in the
common stock of Toys "R" Us using the equity method of accounting. The
Company's equity in undistributed earnings of Toys "R" Us, net of deferred
taxes, included in retained earnings, amounted to $112,164,000, $113,590,000
and $117,636,000 at January 28, 1995, January 29, 1994 and January 30, 1993,
respectively.
In May 1993, the Company's Board of Directors authorized appropriate officers
of the Company to sell, from time to time, if they consider market conditions
suitable, all or a portion of the Company's investment in Deb Shops, Inc. ("Deb
Shops"). The Board also determined that, to the extent the Company realized
losses on the sale of its Deb Shops stock, the Company would sell Toys "R" Us
shares in an amount sufficient to offset such loss. These investments are
classified as trading securities at January 29, 1994. The Company wrote down
its investment in Deb Shops as of May 1, 1993 to market value pursuant to the
provisions of SFAS No. 12, which resulted in a loss of $13,661,000 for the
fiscal year ended January 29, 1994. On April 4, 1994, the Company sold all of
its shares of Deb Shops for $6.05 per share or an aggregate price of
$16,708,890.
4. CONVERTIBLE SUBORDINATED DEBENTURES
During the fiscal year ended January 28, 1995, $123,108,000 principal amount
of the Company's outstanding Debentures, including $104,499,000 principal
amount of Debentures during December 1994, were converted into 5,563,829 shares
of the Company's common stock. In connection with such conversions, unpaid
interest of $4,731,000 at December 16, 1994 on the converted Debentures, net of
related unamortized debt issuance and other conversion costs of $1,156,000, was
credited to additional paid-in capital. The remaining $1,844,000 principal
amount of Debentures was redeemed at a redemption price of $1,008 per $1,000
principal amount of Debentures, together with accrued and unpaid interest
thereon.
5. SHAREHOLDERS' EQUITY
In May 1992, shareholders approved the Company's 1992 Stock Option Plan (the
"Option Plan"). The Option Plan was terminated in connection with the sale of
the retail operations.
F-13
<PAGE>
PETRIE STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In August 1992, pursuant to the Option Plan, the Company granted two
executive officers of the Company nonqualified stock options in tandem with
stock appreciation rights to acquire 150,494 shares of the Company's common
stock at $14 per share (300,988 shares in the aggregate), exercisable until
August 2002. The grant of these options resulted in a charge against earnings
in fiscal year 1993 amounting to approximately $3,400,000, which represented
the excess of the market value of the shares at January 30, 1993 over the
exercise price of $14 per share. These options replaced options that had been
granted in November 1982, for a similar amount of shares at the same exercise
price, which expired on August 31, 1992. No charge against earnings had been
taken in connection with the expired options.
In April 1993, the two executive officers exercised their stock options and
each received approximately $1,900,000 in cash under the stock appreciation
right feature of the Option Plan. The charge against earnings in connection
with the Option Plan amounted to approximately $339,000 in fiscal year 1994,
which represented the excess of the market value of the shares at the date of
exercise over the January 30, 1993 market value.
6. INCOME TAXES
Effective January 31, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," resulting in the recording of a deferred tax benefit of
$2,800,000, which amount represents the decrease in the net deferred tax
liability as of such date. Such amount is included in the accompanying
Consolidated Statement of Operations for the fiscal year ended January 29, 1994
as "Cumulative effect of changes in accounting for investments and income
taxes, net." The effect of this change on the fiscal year 1994 loss from
discontinued operations before cumulative effect of changes in accounting
principles was not material. Financial statements of prior years have not been
restated.
The benefit for income taxes for continuing operations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................... $1,114 $1,510 $3,422
State..................................... 503
------ ------ ------
1,114 1,510 3,925
Deferred:
Federal................................... 2,013
------ ------ ------
$1,114 $3,523 $3,925
====== ====== ======
</TABLE>
A reconciliation of the benefit for income taxes and the amount computed by
applying the statutory federal income tax rate to the loss from continuing
operations before income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit computed at federal statutory
rate...................................... $2,632 $3,523 $3,422
Unpaid interest accrued on Debentures...... 1,518
State tax benefit.......................... 503
------ ------ ------
Total...................................... $1,114 $3,523 $3,925
====== ====== ======
</TABLE>
F-14
<PAGE>
PETRIE STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of the significant components of the Company's
deferred tax liabilities and assets at January 28, 1995 and January 29, 1994:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 29,
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Investments in common stock (Note 3)................. $428,182 $581,498
Difference between tax and book depreciation......... 10,040
Difference between the tax and book basis of certain
assets, including those of acquired subsidiaries.... 13,731
Undistributed earnings of Puerto Rican subsidiaries.. 12,596
Other................................................ 2,362
-------- --------
Total.............................................. 428,182 620,227
Deferred tax assets:
Merchandise inventories.............................. 4,795
Restructuring charge................................. 8,001
Alternative minimum tax credit carryforward.......... 5,518
Net operating loss and tax credit carryforwards...... 8,321
Other................................................ 3,870
-------- --------
-- 30,505
Valuation allowance.................................... (3,500)
-------- --------
Total.............................................. -- 27,005
-------- --------
Net deferred tax liability......................... $428,182 $593,222
======== ========
</TABLE>
The valuation allowance related principally to tax credit carryforwards, as
well as various states' net operating loss carryforwards. Under the provisions
of SFAS No. 109, the valuation allowance has been allocated between current and
noncurrent deferred tax assets on a pro rata basis. At January 28, 1995, the
Company has no available net operating loss carryforwards.
7. COMMITMENTS AND CONTINGENCIES
The Company is a guarantor of certain retail store leases to which former
subsidiaries of the Company are parties. These leases expire at various times
through 2005. Since December 1994, the Company has not been required to, and is
not currently aware of any existing conditions which would cause the Company to
have to, make any payments with respect to the underlying leases as a result of
any defaults by the lessees thereunder. As of April 18, 1995, the Company
believes that its aggregate contingent lease guarantee liability, should there
be a default with respect to the underlying leases, is approximately $140
million. Of such $140 million in Lease Guarantees, the remaining underlying
lease obligations of $26.4 million, $24.2 million, $21.4 million, $18.7
million, $15.5 million and $33.8 million are payable by the lessees thereunder
during fiscal year 1996, fiscal year 1997, fiscal year 1998, fiscal year 1999,
fiscal year 2000 and thereafter, respectively. The Company is continuing to
seek to negotiate further reductions in its contingent liability related to the
Lease Guarantees.
Effective January 31, 1995, PS Stores withdrew from the United Auto Workers
District 65 Security Plan Pension Fund (the "Multiemployer Plan"). Due to the
underfunding of the Multiemployer Plan, PS Stores has incurred withdrawal
liability pursuant to the Employee Retirement Income Security Act of 1974, as
amended. Based upon preliminary discussions with the administrators and
trustees of the Multiemployer Plan, the Company believes that the total
withdrawal liability allocated to PS Stores will be approximately
F-15
<PAGE>
PETRIE STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$12 million, with an additional liability allocated to PS Stores of
approximately $2 million in excise taxes for the Multiemployer Plan's failure
to meet certain Internal Revenue Code minimum funding standards. Pursuant to
the Stock Purchase Agreement between the Company and PS Stores, PS Stores is
responsible for the first $10 million in withdrawal and related liabilities,
with the next $50 million of such liabilities allocated 75 percent to the
Company and 25 percent to PS Stores. Accordingly, the Company believes that the
ultimate resolution of this matter will not have a material adverse effect on
the Company's financial position.
The Company is being audited by the IRS for fiscal year 1989. The IRS has
raised an issue regarding the manner in which the Company computed the basis of
the Toys "R" Us common stock transferred pursuant to the exchange of certain of
its exchangeable subordinated debentures. The Company is actively engaged in
discussions with the IRS concerning this matter. Final resolution of this
matter is several months away. After an extensive review of its records, the
Company believes that any additional taxes (including interest) resulting from
the ultimate resolution of this matter will not have a material adverse effect
on the Company's financial position.
The Company believes that adequate accruals have been established in the
accompanying financial statements to provide for any losses that may be
incurred with respect to the aforementioned contingencies.
The Company, its directors and certain former members of its senior
management are defendants in a consolidated class action brought on behalf of
the Company's shareholders. The plaintiffs in the action have alleged (i) that
the Company's directors violated their fiduciary duties of loyalty and fair
dealing by exclusively negotiating with PS Stores for the sale of the retail
operations, (ii) that the Company's directors failed to adequately explore
third-party interest and thus did not maximize shareholder value and (iii) that
PS Stores was in possession of non-public information which allowed it to
purchase the retail operations at an inadequate price. The plaintiffs seek,
among other things, (i) to rescind the sale of the retail operations (Note 2),
(ii) a declaratory judgment that the individual defendants breached their
fiduciary duties and/or (iii) to recover unspecified damages. The Company
believes that the claims asserted in such complaints are without merit and not
probable of resulting in a material adverse effect on the Company's financial
position. The Company plans to contest this suit vigorously.
8. RESTRUCTURING CHARGE
In May 1993, the Company adopted a restructuring plan, pursuant to which
management identified approximately 290 stores it expected to close. In fiscal
year 1994, the Company recorded a restructuring charge amounting to $35,000,000
which related primarily to the write-down of property and equipment
(approximately $27,600,000) and lease settlements (approximately $3,700,000)
associated with these expected store closings, with the balance representing
severance payments. A restructuring reserve amounting to approximately
$4,100,000 is included in "Accrued expenses and other liabilities" in the
accompanying Consolidated Balance Sheet at January 29, 1994. This reserve
related primarily to anticipated lease settlements (approximately $3,200,000)
associated with these expected store closings, with the balance representing
scheduled severance payments. An additional $2,100,000 related to severance
payments. These liabilities were assumed by PS Stores.
F-16
<PAGE>
PETRIE STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal years 1995 and 1994 are as
follows:
Fiscal Year ended January 28, 1995:
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------
FIRST SECOND THIRD FOURTH
------- -------- --------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Loss from continuing opera-
tions....................... $(1,510) $ (1,509) $ (2,492) $(1,117)
Income (loss) from discontin-
ued operations.............. 2,412 (13,336) (391,079) (8,024)
------- -------- --------- -------
Net income (loss)............ 902 (14,845) (393,571) (9,141)
======= ======== ========= =======
Income (loss) per share:
Loss from continuing opera-
tions....................... (.03) (.03) (.05) (.02)
Income (loss) from discontin-
ued operations.............. .05 (.29) (8.36) (.16)
------- -------- --------- -------
Net income (loss)............ $ .02 $ (.32) $ (8.41)(4) $ (.18)
======= ======== ========= =======
Fiscal Year Ended January 29, 1994:
<CAPTION>
QUARTER
----------------------------------------------
FIRST SECOND THIRD FOURTH
------- -------- --------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Loss from continuing opera-
tions....................... $(1,535) $ (1,535) $ (1,485) $(1,988)
Loss from discontinued opera-
tions....................... (4,943) (30,860) (3,666) (2,671)
Cumulative effect of changes
in accounting principles.... 2,800 7,885
------- -------- --------- -------
Net income (loss)............ (3,678)(1) (32,395)(2) (5,151) 3,226(3)
======= ======== ========= =======
Income (loss) per share:
Loss from continuing opera-
tions....................... (.03) (.03) (.03) (.05)
Loss from discontinued opera-
tions....................... (.11) (.66) (.08) (.05)
Cumulative effect of changes
in accounting principles.... .06 .17
------- -------- --------- -------
Net income (loss)............ $ (.08)(1) $ (.69)(2) $ (.11) $ .07(3)
======= ======== ========= =======
</TABLE>
- --------
(1) The first quarter of fiscal year 1994 includes a deferred tax benefit of
$2,800,000, or $.06 per share, as a result of the adoption of SFAS No. 109,
"Accounting for Income Taxes." In addition, the quarter was adversely
affected by the write-down of the Company's carrying value of its
investment in Deb Shops, amounting to $8,261,000 (net), or $.18 per share,
after taxes.
(2) The second quarter of fiscal year 1994 includes a restructuring charge
amounting to $20,383,000 (net), or $.44 per share, after taxes.
(3) The fourth quarter of fiscal year 1994 includes a net gain of $7,885,000,
or $.17 per share, after taxes as a result of the adoption of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." A
decrease in the Company's annual effective tax rate reduced fourth quarter
earnings by $.04 per share and was associated with prior quarters.
(4) The third quarter of fiscal year 1995 includes a loss on disposal of
discontinued operations of $358,368,000, or $7.66 per share, as a result of
the Company's sale of its retail operations.
10. SUBSEQUENT EVENT
On April 5, 1995, the Company's Board of Directors cancelled 1,669 shares of
the Company's common stock held by the Company as treasury shares.
F-17
<PAGE>
SCHEDULE VIII
PETRIE STORES CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994 AND JANUARY 30,
1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ ---------- ----------- ----------
ADDITIONS
(1)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS* PERIOD
----------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Fiscal Year ended January 28,
1995......................... $2,450 $5,450 $7,900 $ -0-
Fiscal Year ended January 29,
1994......................... $1,365 $2,244 $1,159 $2,450
Fiscal Year ended January 30,
1993......................... $1,215 $1,061 $ 911 $1,365
</TABLE>
- --------
*Write-offs of specific uncollectible accounts for the fiscal year ended
January 28, 1995 include an adjustment due to the disposal of the retail
operations.
Column C (2) not applicable.
F-18
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
2.1 Form of Plan of Liquidation and Dissolution of Petrie (incorporated
herein by reference to Annex C to Petrie's Proxy Statement, dated as
of November 3, 1994)
3.1 Restated Certificate of Incorporation of Petrie, as amended to date
(incorporated herein by reference to Exhibit 3.1 to Petrie's Annual
Report on Form 10-K for the year ended January 31, 1986)
3.2 By-laws of Petrie, as amended
10.1 Toys Acquisition Agreement, dated as of April 20, 1994, between
Petrie and Toys "R" Us (incorporated herein by reference to Annex B
to Petrie's Proxy Statement, dated as of November 3, 1994)
10.2 Amendment No. 1 to the Toys Acquisition Agreement, dated as of May
10, 1994, between Petrie and Toys "R" Us (incorporated herein by
reference to Annex B to Petrie's Proxy Statement, dated as of Novem-
ber 3, 1994)
10.3 Retail Operations Stock Purchase Agreement, dated as of August 23,
1994, between Petrie and WP Investors (incorporated herein by refer-
ence to Annex A to Petrie's Proxy Statement, dated as of November 3,
1994)
10.4 Amendment No. 1 to the Retail Operations Stock Purchase Agreement,
dated as of November 3, 1994, among WP Investors, PS Stores and
Petrie (incorporated herein by reference to Annex A to Petrie's
Proxy Statement, dated as of November 3, 1994)
10.5 Cross-Indemnification and Procedure Agreement, dated as of December
9, 1994, between PS Stores and Petrie
10.6 Buyer Indemnification Agreement, dated as of December 9, 1994, among
Toys "R" Us, Petrie, PS Stores, Petrie Retail and all subsidiaries
of PS Stores
10.7 Seller Indemnification Agreement, dated as of December 9, 1994,
among Toys "R" Us, Petrie, PS Stores, Petrie Retail and all subsidi-
aries of PS Stores
10.8 Restated and Amended Cash Collateral Agreement, dated as of December
9, 1994 as amended as of January 24, 1995, among Petrie, Custodial
Trust Company as Collateral Agent, PS Stores and certain subsidiar-
ies and directors thereof (incorporated herein by reference to Ex-
hibit 10.2 to Petrie's Current Report on Form 8-K, dated as of Janu-
ary 24, 1995)
10.9 Side Letter Agreement, dated as of January 24, 1995, between Petrie
and Toys "R" Us (incorporated herein by reference to Exhibit 10.3 to
Petrie's Current Report on Form 8-K, dated as of January 24, 1995)
10.10 Escrow Agreement, dated as of January 24, 1995, between Petrie and
Custodial Trust Company (incorporated herein by reference to Exhibit
10.1 to Petrie's Current Report on Form 8-K, dated as of January 24,
1995)
10.11 Form of Liquidating Trust Agreement (incorporated herein by refer-
ence to Annex D to Petrie's Proxy Statement, dated as of November 3,
1994)
16.1 Letter from David Berdon, dated as of November 17, 1994 (incorpo-
rated herein by reference to Exhibit 10.1 to Petrie's Current Report
on Form 8-K, dated as of November 14, 1994)
</TABLE>
<PAGE>
Exhibit 3.2
BY-LAWS
-------
OF
--
PETRIE STORES CORPORATION
-------------------------
1. Meetings of Shareholders
1.1 Annual Meeting. The annual meeting of shareholders shall be held
--------------
on the third Wednesday of May, or as soon thereafter as practicable, in each
year, commencing in 1969, at a place and time determined by the board of
directors (the "Board").
1.2 Special Meetings. Special meetings of the shareholders may be
----------------
called by resolution of the Board or by the Chairman or Chief Executive Officer,
and shall be called by the Chief Executive Officer or Secretary upon the written
request (stating the purpose or purposes of the meeting) of a majority of the
directors. Only business related to the purposes set forth in the notice of the
meeting may be transacted at a special meeting.
1.3 Place of Meetings. Meetings of the shareholders may be held in
-----------------
or outside New York State.
1.4 Notice of Meetings; Waiver of Notice. Written notice of each
------------------------------------
meeting of shareholders shall be given to each shareholder entitled to vote at
the meeting, except that (a) it shall not be necessary to give notice to any
shareholder who submits a signed waiver of notice before or after the meeting,
and (b) no notice of an adjourned meeting need be given except when required by
law. Each notice of meeting shall be given, personally or by mail, not less
than 10 nor more than 50 days before the meeting and shall state the time and
place of the meeting, and unless it is the annual meeting, shall state at whose
direction the meeting is called and the purposes for which it is called. If
mailed, notice shall be considered given when mailed to a shareholder at his
address on the Corporation's records.
1.5 Quorum. The presence in person or by proxy of the holders of a
------
majority of the shares entitled
<PAGE>
to vote shall constitute a quorum for the transaction of any business. In the
absence of a quorum a majority in voting interest of those present or in the
absence of all the shareholders, any officer entitled to preside at or to act as
secretary of the meeting, may adjourn the meeting until a quorum is present. At
any adjourned meeting at which a quorum is present any action may be taken
which might have been taken at the meeting as originally called.
1.6 Voting; Proxies. Each shareholder entitled to vote shall be
---------------
entitled to one vote for every share registered in his name and may attend
meetings and vote either in person or by proxy. Corporate action to be taken by
shareholder vote, other than the election of directors, shall be authorized by a
majority of the votes cast at a meeting of shareholders at which a quorum is
present, except as otherwise provided by law or by Section 1.5 of these by-laws.
Directors shall be elected in the manner provided in Section 2.1 of these by-
laws. Voting need not be by ballot unless requested by a shareholder at the
meeting or ordered by the chairman of the meeting. Every proxy must be signed
by the shareholder or his attorney-in-fact. No proxy shall be valid after
eleven months from its date unless it provides otherwise.
2. Board of Directors.
2.1 Number, Qualification. Election and Term of Directors. The Board
-----------------------------------------------------
shall consist of ten directors. The number of directors may be increased or
decreased by amendment of these by-laws or by resolution adopted by a majority
of the entire Board or by the shareholders, but no decrease may shorten the term
of any incumbent director. Directors shall be elected at each annual meeting of
the shareholders by a plurality of the votes cast and shall hold office until
the next annual meeting of shareholders and until the election of their
respective successors. As used in these by-laws, "entire Board" means the total
number of directors which the Corporation would have if there were no vacancies.
2.2 Quorum and Manner of Acting. A majority of the directors then in
---------------------------
office (provided they constitute at least one-third of the entire Board) shall
constitute a quorum for the transaction of business at any meeting, except as
provided in Section 2.8 of these by-laws. Ac-
2
<PAGE>
tion of the Board shall be authorized by the vote of a majority of the directors
present at the time of the vote if there is a quorum, unless otherwise provided
by law or these by-laws. In the absence of a quorum a majority of the
directors present may adjourn any meeting from time to time until a quorum is
present.
2.3 Place of Meetings. Meetings of the board may be held in or
-----------------
outside New York State.
2.4 Annual and Regular meetings. Annual meetings of the Board, for
---------------------------
the election of officers and consideration of other matters, shall be held
either (a) without notice immediately after the annual meeting of shareholders
and at the same place, or (b) as soon as practicable after the annual meeting of
shareholders, on notice as provided in Section 2.6 of these by-laws. Regular
meetings of the Board may be held without notice at such times and places as the
Board determines.
2.5 Special Meetings. Special Meetings of the Board may be called by
----------------
the Chairman of the Board, the Chief Executive Officer or any two of the
directors. Only business related to the purposes set forth in the notice may be
transacted thereat.
2.6 Notice of Meetings; Waiver of Notice. Notice of the time and
------------------------------------
place of each special meeting of the Board, and of each annual meeting not held
immediately after the annual meeting of shareholders and at the same place,
shall be given to each director by mailing it to him at his residence or usual
place of business at least three days before the meeting, or by delivering or
telephoning or telegraphing it to him at least two days before the meeting.
Notice of a special meeting shall also state the purpose or purposes for which
the meeting is called. Notice need not be given to any director who submits a
signed waiver of notice before or after the meeting, or who attends the meeting
without protesting the lack of notice to him, either before the meeting or when
it begins. Notice of any adjourned meeting need not be given, other than by
announcement at the meeting at which the adjournment is taken.
2.7 Resignation and Removal of Directors. Any director may resign at
------------------------------------
any time by delivering his resignation in writing to the Chief Executive Officer
or Sec-
3
<PAGE>
retary of the Corporation, to take effect at the time specified therein; the
acceptance of such resignation, unless required by the terms thereof, shall not
be necessary to make it effective. Any or all directors may be removed at any
time, either with or without cause, by vote of the shareholders, and any of the
directors may be removed for cause by the Board.
2.8 Vacancies. Any vacancy in the Board, including one created by
---------
an increase in the number of directors, may be filled for the unexpired term by
a majority vote of the remaining directors, though less than a quorum.
2.9 Compensation. Directors shall receive such compensation as the
------------
Board determines, together with reimbursement of their reasonable expenses in
connection with the performance of their duties. A director may also be paid for
serving the Corporation, its affiliates or subsidiaries in other capacities.
2.10 Action Without Meeting. Any action required or permitted to be
----------------------
taken by the Board or by any committee of the Board may be taken without a
meeting if all of the members of the Board or of the committee consent in
writing to the adoption of a resolution authorizing the action. The resolution
and the written consents by the members of the Board or the committee shall be
filed with the minutes of the proceeding of the Board or of the committee.
2.11 Participation in Board or Committee Meetings by Conference
----------------------------------------------------------
Telephone. Any or all members of the Board or of any committee of the Board may
- ---------
participate in a meeting of the Board or of the committee by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at the meeting.
3. Committees.
3.1 Executive Committee. The Board, by resolution adopted by a
-------------------
majority of the entire Board, may designate an Executive Committee of three or
more directors, which during intervals between meetings of the
4
<PAGE>
Board shall have all the authority of the Board except as otherwise provided in
the resolution designating the Committee, or in Section 712 of the New York
Business Corporation Law, or other applicable law, and which shall serve at the
pleasure of the Board. All action of the Executive Committee shall be reported
to the Board at its next meeting. The Executive Committee shall adopt rules of
procedure and shall meet as provided by those rules or by resolutions of the
Board.
3.2 Other Committees. The Board, by resolution adopted by a majority
----------------
of the entire Board, may designate other committees of directors, to serve at
the Board's pleasure, with such powers and duties as the Board determines.
4. Officers.
4.1 Number. The executive officers of the Corporation shall be the
------
Chairman of the Board, the Vice Chairman of the Board, the Chief Executive
officer, President one or more Vice Presidents, a Secretary and a Treasurer.
The executive officers may also include a chief operating officer and a chief
financial officer. Any two or more offices may be held by the same person,
except the officers of Chief Executive Officer and Secretary.
4.2 Election; Term of Office. The executive officers of the
------------------------
Corporation shall be elected annually by the Board, and each such officer shall
hold office until the next annual meeting of the Board and until the election of
his successor.
4.3 Subordinated Officers. The Board may appoint subordinate
---------------------
officers (including Assistant Secretaries and Assistant Treasurers), agents or
employees, each of whom shall hold office for such period and have such powers
and duties as the Board determines. The Board may delegate to any executive
officer or to any committee the power to appoint and define the powers and
duties of any subordinate officers, agents or employees.
4.4 Resignation and Removal of Officers. Any officer may resign at
-----------------------------------
any time by giving written notice to the Board of Directors or to the Chief
Executive Officer or the Secretary of the Corporation; any such
5
<PAGE>
resignation shall take effect at the time specified therein and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. Any officer elected or appointed by the Board
or appointed by an executive officer or by a committee may be removed by the
Board either with or without cause.
4.5 Vacancies. A vacancy in any office may be filled for the
---------
unexpired term in the manner prescribed in Sections 4.2 and 4.3 of these by-laws
for election or appointment to the office.
4.6 Chairman and Vice Chairman. The Chairman shall preside at all
--------------------------
meetings of the Board of Directors and of the shareholders and shall have such
powers and duties as the Board assigns to him. Subject to the control of the
Board, the Vice Chairman shall have such powers and duties as the Chief
Executive Officer assigns to him.
4.7 Chief Executive Officer, President and Chief Operating Officer.
--------------------------------------------------------------
Subject to the control of the Board, the Chief Executive officer shall have the
general supervision over the business of the Corporation and shall have such
other powers and duties as the Board assigns to him. Subject to the control of
the Board, the President shall have such powers and duties as the Board or the
Chief Executive officer assigns to him. If the President shall not also be the
Chief Executive officer, subject to the control of the Board, the President
shall have general supervision over the daily operations and administration of
the Company and shall have such other powers and duties as the Board assigns to
him. If the President shall also be the Chief Executive Officer, subject to the
control of the Board, the Chief Operating Officer shall have general supervision
over the daily operations and administration of the Company and shall have such
other powers and duties as the Board assigns to him. If the President shall not
also be the Chief Executive Officer, the Chief Operating Officer shall have such
powers and duties as the Board, the President or the Chief Executive Officer
assigns to him.
4.8 Vice President. Each Vice President shall have such designation,
--------------
powers and duties as the Board or Chief Executive Officer assigns to him.
6
<PAGE>
4.9 Treasurer and Chief Financial Officer. The Treasurer and Chief
-------------------------------------
Financial Officer shall be the chief financial officers of the Corporation and
shall be in charge of the Corporation's books and accounts. Subject to the
control of the Board, they shall have such other powers and duties as the Board
or the Chief Executive Officer assigns to them.
4.10 Secretary. The Secretary shall be the secretary of, and keep
---------
the minutes of, all meetings of the Board and of the shareholders, shall be
responsible for giving notice of all meetings of shareholders and of the Board,
shall keep the seal and, when authorized by the Board, shall apply it to any
instrument requiring it. Subject to the control of the Board, he shall have such
other powers and duties as the Board or the Chief Executive Officer assigns to
him. In the absence of the Secretary from any meeting, the minutes shall be
kept by the person appointed for that purpose by the presiding officer.
4.11 Salaries. The board may fix the officers' salaries, if any, or
--------
it may authorize the Chief Executive Officer to fix the salary of any other
officer.
4.12 Indemnification of Directors, Officers, Employees and Agents in
---------------------------------------------------------------
Actions by or in the Right of the Corporation.
- ---------------------------------------------
(a) Subject to Section 4.14 of the by-laws, the Corporation
shall indemnify any person, made a party to an action by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he,
his testator or intestate, is or was a director, officer, employee or agent of
the Corporation, against the reasonable expenses, including attorneys' fees,
actually and necessarily incurred by him in connection with the defense of such
action, or in connection with an appeal therein, except in relation to matters
as to which a director or officer is adjudged to have breached his duty to the
Corporation under the Business Corporation Law of New York, or in which an
employee or agent is adjudged to have breached his duty to the Corporation, as
that duty may from time to time be defined.
(b) The indemnification authorized under paragraph (a) shall in
no case include: (1) amounts paid
7
<PAGE>
in settling or otherwise disposing of a threatened action, or a pending action
with or without court approval, or (2) expenses incurred in defending a
threatened action, or pending action which is settled or otherwise disposed of
without court approval.
4.13 Indemnification of Directors, Officers, Employees and Agents in
---------------------------------------------------------------
Other Actions or Proceedings
- ----------------------------
(a) Subject to Section 4.14 of these by-laws, the Corporation
shall indemnify any person, made, or threatened to be made, a party to an action
or proceeding other than one by or in the right of the Corporation to procure a
judgment in its favor, whether civil or criminal, including an action by or in
the right of any other corporation of any type or any kind, domestic or foreign,
of any partnership, joint venture, trust, employee benefit plan or other
enterprise, which any director, officer, employee or agent of the Corporation
served in any capacity at the request of the Corporation, by reason of the fact
that he, his testator or intestate, was a director, officer, employee or agent
of the Corporation, or served such other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees actually and necessarily incurred as a result of such
action or proceeding, or any appeal therein, if such director, officer, employee
or agent of the Corporation acted, in good faith, for a purpose which he
reasonably believed to be in, or in the case of service for any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise not opposed to, the best interests of the Corporation and, in
criminal actions or proceedings, in addition, had no reasonable cause to believe
that his conduct was unlawful.
(b) The termination of any such civil or criminal action or
proceeding by judgment, settlement, conviction or upon a plea of nolo
----
contendere, or its equivalent, shall not in itself create a presumption that any
- ----------
such director, officer, employee or agent of the Corporation did not act, in
good faith, for a purpose which he reasonably believed to be in, or in the case
of service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other
8
<PAGE>
enterprise not opposed to, the best interests of the Corporation or that he had
reasonable cause to believe that his conduct was unlawful.
(c) For the purpose of this Section, the Corporation shall be
deemed to have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the Corporation also imposes duties
on, or otherwise involves services by, such person to the plan or participants
or beneficiaries of the plan; excise taxes assessed on a person with respect to
an employee benefit plan pursuant to applicable law shall be considered fines;
and action taken or omitted by a person with respect to an employee benefit plan
in the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the Corporation.
4.14 Payment of Indemnification Other than by Court Award.
----------------------------------------------------
(a) Any person who has been wholly successful, on the merits or
otherwise, in the defense of a civil or criminal action or proceeding of the
character described in Section 4.12 or 4.13 of these by-laws shall be entitled
to indemnification as authorized in such sections.
(b) Except as provided in paragraph (a), any indemnification
under Section 4.12 or 4.13 of these by-laws, unless ordered by a court under
Section 725 of the Business Corporation Law of New York, shall be made by the
Corporation only if authorized in the specific case:
(1) by the Board acting by a quorum consisting of directors who are not
parties to such action or proceeding upon a finding that the director,
officer, employee or agent has met this standard of conduct set forth in
Section 4.12 or 4.13 of these by-laws, as the case may be, or,
(2) if a quorum under subparagraph (1) is not obtainable with due
diligence: (A) by the
9
<PAGE>
Board upon the opinion in writing of independent legal counsel that
indemnification is proper in the circumstances because the applicable
standard of conduct set forth in such sections has been met by such
director, officer, employee or agent, or (B) by the shareholders upon a
finding that the director, officer, employee or agent had met the
applicable standard of conduct set forth in such sections.
It is the policy of the Corporation that indemnification of the persons
specified in Sections 4.12 and 4.13 of these by-laws shall be made to the
fullest extent permitted by law.
(c) Expenses incurred in defending a civil or criminal action
or proceeding may be paid by the Corporation in advance of the final disposition
of such action or proceeding if authorized under paragraph (b).
4.15 Other Provisions Affecting Indemnification of Directors,
--------------------------------------------------------
Officers, Employees and Agents.
- ------------------------------
(a) All expenses incurred in defending a civil or criminal
action or proceeding which are advanced by the Corporation under paragraph (c)
of Section 4.14 or allowed by a court shall be repaid in case the person
receiving such advancement or allowance is ultimately found, under the procedure
set forth in this Article IV or in Section 725 of the Business Corporation Law
of New York, not to be entitled to indemnification or, where indemnification is
granted, to the extent the expenses so advanced by the Corporation or allowed by
the court exceed the indemnification to which he is entitled.
(b) No indemnification, advancement or allowance shall be made
under the indemnification provisions of this Article IV in any circumstance
where it appears: (1) that the indemnification would be inconsistent with a
provision of the Certificate of Incorporation, a by-law, a resolution of the
Board or of the shareholders, an agreement or other proper corporate action, in
effect at the time of the accrual of the alleged cause of action asserted in the
threatened or pending action or proceeding in which the expenses were incurred
or other amounts were paid, which prohibits or
10
<PAGE>
otherwise limits indemnification or (2) if there has been a settlement approved
by the court, that the indemnification would be inconsistent with any condition
with respect to indemnification expressly imposed by the court in approving the
settlement.
(c) If, under the indemnification provisions of this Article
IV, any expenses or other amounts are paid by way of indemnification, otherwise
than by court order or action by the shareholders, the Corporation shall, not
later than the next annual meeting of shareholders unless such meeting is held
within three months from the date of such payment, and, in any event, within
fifteen months from the date of such payment, mail to its shareholders of record
at the time entitled to vote for the election of directors a statement
specifying the persons paid, the amounts paid, and the nature and status at the
time of such payment of the litigation or threatened litigation.
4.16 Non-Exclusivity and Survival of Indemnification.
-----------------------------------------------
The indemnification provisions of this Article IV shall not be deemed
to preclude the indemnification of any person who is not specified in Section
4.12 or 4.13 of these by-laws but whom the Corporation has the power or
obligation to indemnify under the provisions of the Business Corporation Law of
New York, or otherwise. The indemnification provided by this Article IV shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such person. The indemnification provided in this Article IV shall not be
deemed exclusive of any other right to which employees or agents (other than
officers or directors) of the Corporation seeking indemnification may be
entitled under any by-law, agreement, contract, vote of shareholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to actions in their
official capacity and as to actions in another capacity while serving this
Corporation.
11
<PAGE>
4.17 Meaning of "Corporation".
------------------------
For purposes of this Article IV, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation of any type or
kind, domestic or foreign, partnership, joint venture, trust, employee benefit
plan or other enterprise, shall stand in the same position under the
indemnification provisions of this Article IV with respect to the resulting or
surviving corporation as he would with respect to such constituent corporation
if its separate existence had continued.
5. Shares.
5.1 Certificates. The shares of the Corporation shall be represented
------------
by certificates in the form approved by the Board. Each certificate shall be
signed by the Chairman of the Board, the President or Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
and shall be sealed with the corporate seal or a facsimile of the seal.
5.2 Facsimile Signatures. The signatures of the officers of the
--------------------
Corporation upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before the certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at the
date of its issue.
5.3 Transfer. Shares shall be transferable on the Corporation's
--------
books, upon the surrender of the cer-
12
<PAGE>
tificate for the shares, properly endorsed. The Board may require satisfactory
surety before issuing a new certificate to replace a certificate claimed to have
been lost or destroyed.
5.4 Determination of Shareholders of Record. The Board may fix, in
---------------------------------------
advance, a date as the record date for the determination of shareholders
entitled to notice of or to vote at any meeting of the shareholders, or to
express consent to or dissent from any proposal without a meeting, or to receive
payments of any dividend or the allotment of any rights, or for the purpose of
any other action. The record date may not be more than 50 nor less than 10 days
before the date of the meeting, nor more than 50 days before any other action.
6. Miscellaneous.
6.1 Seal. The Board shall adopt a corporate seal, which shall be in
----
the form of a circle and shall bear the Corporation's name and the year and
State in which it was incorporated.
6.2 Fiscal Year. The Board may determine the Corporation's fiscal
-----------
year.
6.3 Voting of Shares in Other Corporations. Shares in other
--------------------------------------
corporations which are held by the Corporation may be represented and voted by
the Chairman of the Board, the Chief Executive Officer, the President or a Vice
President of this Corporation or by proxy or proxies appointed by one of them.
The Board may, however, appoint some other person to vote the shares.
6.4 Amendments. By-laws may be amended, repealed or adopted by the
----------
shareholders or by a majority of the entire Board, but any by-law adopted by the
Board may be amended or repealed by the shareholders. If a by-law regulating
elections of directors is adopted, amended or repealed by the Board, the notice
of the next meeting of shareholders shall set forth the by-laws so amended,
repealed or adopted, together with a concise statement of the changes made.
13
<PAGE>
Petrie Stores Corporation
Amendments to Bylaws
Section 4.1 has been amended to read in its entirety as follows:
4.1 Number. The executive officers of the Corporation shall be the
------
Chairman of the Board, the Vice Chairman of the Board, the Chief Executive
Officer, President, one or more Vice Presidents, a Secretary and a Treasurer.
The executive officers may also include a chief operating officer and a chief
financial officer. Any two or more offices may be held by the same person,
except the offices of Chief Executive Officer and Secretary.
Section 4.7 has been amended to read in its entirety as follows:
4.7 Chief Executive Officer, President and Chief Operating Officer.
--------------------------------------------------------------
Subject to the control of the Board, the Chief Executive Officer shall have
general supervision over the business of the Corporation and shall have such
other powers and duties as the Board assigns to him. Subject to the control of
the Board, the President shall have such powers and duties as the Board or the
Chief Executive Officer assigns to him. If the President shall not also be the
Chief Executive Officer, subject to the control of the Board, the President
shall have general supervision over the daily operations and administration of
the Company and shall have such other powers and duties as the Board assigns to
him. If the President shall also be the Chief Executive Officer, subject to the
control of the Board, the Chief Operating Officer shall have general supervision
over the daily operations and administration of the Company and shall have such
other powers and duties as the Board assigns to him. If the President shall not
also be the Chief Executive Officer, the Chief Operating Officer shall have such
powers and duties as the Board, the President or the Chief Executive Officer
assigns to him.
14
<PAGE>
Petrie Stores Corporation
Amendments to Bylaws
Section 2.1 has been amended to read in its entirety as follows:
2.1 Number, Qualification. Election and Term of Directors. The Board
-----------------------------------------------------
shall consist of twelve directors.
15
<PAGE>
Petrie Stores Corporation
Amendments to Bylaws
Section 2.1 has been amended to read in its entirety as follows:
2.1 Number, Qualification. Election and Term of Directors. The Board
-----------------------------------------------------
shall consist of eight directors.
16
<PAGE>
Petrie Stores Corporation
Amendments to Bylaws
Section 2.1 has been amended to read in its entirety as follows:
2.1 Number, Qualification. Election and Term of Directors. The Board
-----------------------------------------------------
shall consist of six directors.
17
<PAGE>
EXHIBIT 10.5
CROSS-INDEMNIFICATION AND PROCEDURE AGREEMENT
---------------------------------------------
CROSS-INDEMNIFICATION AND PROCEDURE AGREEMENT, dated as of December 9,
1994, between PS Stores Acquisition Corp., a Delaware corporation (the "Buyer"),
and Petrie Stores Corporation, a New York corporation (the "Seller").
WP Investors, Inc., a Delaware corporation ("WP Investors") and the
Seller have entered into a Stock Purchase Agreement, dated as of August 23,
1994, as amended as of November 3, 1994 (the "Purchase Agreement"), pursuant to
which, among other things, the Buyer (as assignee of WP Investors) is acquiring
on the date hereof all of the issued and outstanding shares of capital stock of
Petrie Retail, Inc., a Delaware corporation formerly known as The Miller-Wohl
Company, Inc. (the "Company") (the "Acquisition"). All capitalized terms used
herein without definition shall have the respective meanings assigned to them in
the Stock Purchase Agreement.
Subject in each case to certain terms and conditions, pursuant to
Section 5.4 of the Stock Purchase Agreement, Buyer has agreed to enter into an
indemnification agreement (a "Seller Indemnification Agreement") to provide Toys
with certain indemnities, and pursuant to the Toys Agreement, Seller has also
agreed to enter into a Seller Indemnification Agreement to provide Toys with
certain indemnities. In addition, pursuant to the Stock Purchase Agreement,
subject to certain terms and conditions, each of Buyer and Seller has agreed to
indemnify the other with respect to certain matters. The parties hereto wish to
more fully set forth the procedures with respect to their indemnities of each
other and to provide for certain cross-indemnities with respect to the
indemnities such parties have agreed to provide to Toys. The parties also wish
to set forth more fully certain arrangements with respect to the arrangements
contemplated by Section 5.17 of the Stock Purchase Agreement.
Accordingly, in consideration of the premises and the agreements set
forth herein and for other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereby agree as follows:
<PAGE>
1. Buyer Indemnification.
---------------------
(a) Obligation of the Buyer to Indemnify. Pursuant to the Stock
------------------------------------
Purchase Agreement, each of the Company and its subsidiaries agreed to release,
indemnify and hold Seller and the Liquidating Trust and each nonemployee
director, other director in his capacity as such, and trustee thereof
(collectively, the "Seller Indemnified Parties") harmless from all obligations
or liabilities whatsoever relating to the business, properties, assets,
liabilities or obligations of the Company and its subsidiaries, including, but
not limited to, obligations or liabilities relating to the Leases, but not
including the Excluded Liabilities (including the costs of defense thereof and
reasonable attorneys' fees and expenses) that are alleged or asserted against or
might otherwise be imposed on or incurred by any of the Seller Indemnified
Parties (collectively, "Covered Seller Losses"). Without limiting the
foregoing, the parties agree that a Covered Seller Loss shall include any Loss
(as such term is defined in the Seller Indemnification Agreement) that any
Seller Indemnified Party may incur pursuant to any Seller Indemnification
Agreement executed and delivered by such Seller Indemnified Party to the extent
that Buyer is required to indemnify any Seller Indemnified Party for such
Covered Seller Loss pursuant to Section 5.5 of the Stock Purchase Agreement.
2. Seller Notice and Buyer Opportunity to Defend.
---------------------------------------------
(a) Notice of Asserted Liability. Subject to Section 4(c),
----------------------------
promptly after receipt by any Seller Indemnified Party of notice of any demand,
claim or other circumstances which, with the lapse of time, would give rise to a
claim or the commencement (or threatened commencement) of any action, proceeding
or investigation (a "Seller Asserted Liability") that may result in a Covered
Seller Loss, the Seller or such Seller Indemnified Party shall give notice
thereof (the "Seller Claims Notice") to the Buyer in accordance with Section 7
hereof. The Seller Claims Notice shall describe the Seller Asserted Liability in
reasonable detail, and shall indicate the amount (estimated, if necessary and to
the extent feasible) of the Covered Seller Loss that has been or may be suffered
by the Seller Indemnified Party.
2
<PAGE>
(b) Opportunity to Defend. Subject to Section 4(c), the Buyer
---------------------
may elect to compromise or defend, at its own expense and by its own counsel,
any Seller Asserted Liability. If the Buyer elects to compromise or defend such
Seller Asserted Liability, it shall within 10 days after receipt of the Seller
Claims Notice (or sooner, if the nature of the Seller Asserted Liability so
requires) notify the Seller Indemnified Party of its intent to do so, and the
Seller Indemnified Party shall cooperate, at the expense of the Buyer, in the
compromise of, or defense against, such Seller Asserted Liability. The selection
of counsel by the Buyer shall be subject to reasonable approval of the Seller
Indemnified Party. If the Buyer elects not to compromise or defend the Seller
Asserted Liability or fails to notify the Seller Indemnified Party of its
election as herein provided, the Seller Indemnified Party shall have the right
to engage counsel, at the Buyer's expense, to compromise or defend such Seller
Asserted Liability. Notwithstanding the foregoing, (i) neither any Seller
Indemnified Party nor the Buyer may settle or compromise any claim without the
written consent of the other, such consent not to be unreasonably withheld;
provided, however, that consent of a Seller Indemnified Party shall not be
- -------- -------
required if the settlement or compromise of a claim involves solely the payment
of monetary damages to be paid entirely by the Buyer and an express release of
all liability is delivered to each Seller Indemnified Party and (ii) prior to
assuming the defense or compromise of any Seller Asserted Liability, the Buyer
shall acknowledge in writing its responsibility to indemnify the Seller
Indemnified Party to the extent such defense is not successful. In any event,
each of the Buyer and the Seller Indemnified Party may participate, at its own
expense, in the defense of such Seller Asserted Liability. If the Buyer chooses
to defend any claim, each Seller Indemnified Party shall make available to the
Buyer any books, records or other documents within its control that are
necessary or appropriate for such defense.
3. Seller Indemnification.
----------------------
(a) Obligation of the Seller to Indemnify. Pursuant to the
-------------------------------------
Stock Purchase Agreement, the Seller or the Liquidating Trust, as the case may
be, agrees to release, indemnify and hold harmless each of
3
<PAGE>
Buyer and the Company and its subsidiaries and each of their respective
nonemployee directors and each other director in his capacity as such
(collectively, the "Buyer Indemnified Parties") from all Excluded Liabilities
(including the costs of defense thereof and reasonable attorneys' fees and
expenses) that are alleged or asserted against or might otherwise be imposed on
or incurred by any of the Buyer Indemnified Parties (collectively, "Covered
Buyer Losses"). Without limiting the foregoing, the parties agree that a
Covered Buyer Loss shall include any Loss that any Buyer Indemnified Party may
incur pursuant to any Seller Indemnification Agreement (as such term is defined
in the Toys Agreement as in effect on the date hereof) executed and delivered by
such Buyer Indemnified Party to the extent that Seller is required to indemnify
any Buyer Indemnified Party for such Loss pursuant to Section 5.5, 5.14 or
Article VI of the Stock Purchase Agreement.
4. Buyer Notice and Seller Opportunity to Defend.
---------------------------------------------
(a) Notice of Asserted Liability. Subject to Section 4(c),
----------------------------
promptly after receipt by any Buyer Indemnified Party of notice of any demand,
claim or other circumstances which, with the lapse of time, would give rise to a
claim or the commencement (or threatened commencement) of any action, proceeding
or investigation (a "Buyer Asserted Liability") that may result in a Covered
Buyer Loss, the Buyer or such Buyer Indemnified Party shall give notice thereof
(the "Buyer Claims Notice") to the Seller in accordance with Section 7 hereof.
The Buyer Claims Notice shall describe the Buyer Asserted Liability in
reasonable detail, and shall indicate the amount (estimated, if necessary and to
the extent feasible) of the Covered Buyer Loss that has been or may be suffered
by the Buyer Indemnified Party.
(b) Opportunity to Defend. Subject to Section 4(c), the Seller
---------------------
may elect to compromise or defend, at its own expense and by its own counsel,
any Buyer Asserted Liability. If the Seller elects to compromise or defend such
Buyer Asserted Liability, it shall within 10 days after receipt of the Buyer
Claims Notice (or sooner, if the nature of the Buyer Asserted Liability so
requires) notify the Buyer Indemnified Party of its intent to do so, and the
Buyer Indemnified Party
4
<PAGE>
shall cooperate, at the expense of the Seller, in the compromise of, or defense
against, such Buyer Asserted Liability. The selection of counsel by the Seller
shall be subject to reasonable approval of the Buyer Indemnified Party. If the
Seller elects not to compromise or defend the Buyer Asserted Liability or fails
to notify the Buyer Indemnified Party of its election as herein provided, the
Buyer Indemnified Party shall have the right to engage counsel, at the Seller's
expense, to compromise or defend such Buyer Asserted Liability. Notwithstanding
the foregoing, (i) neither any Buyer Indemnified Party nor the Seller may settle
or compromise any claim without the written consent of the other, such consent
not to be unreasonably withheld; provided, however, that consent of a Buyer
-------- -------
Indemnified Party shall not be required if the settlement or compromise of a
claim involves solely the payment of monetary damages to be paid entirely by the
Seller and an express release of all liability is delivered to each Buyer
Indemnified Party and (ii) prior to assuming the defense or compromise of any
Buyer Asserted Liability, the Seller shall acknowledge in writing its
responsibility to indemnify the Buyer Indemnified Party to the extent such
defense is not successful. In any event, each of the Seller and the Buyer
Indemnified Party may participate, at its own expense, in the defense of such
Buyer Asserted Liability. If the Seller chooses to defend any claim, each Buyer
Indemnified Party shall make available to the Seller any books, records or other
documents within its control that are necessary or appropriate for such defense.
(c) Notwithstanding anything in this Agreement to the contrary,
the provisions of Sections 2 and 4 shall not apply in the case of any Covered
Buyer Loss or any Covered Seller Loss arising pursuant to Section 5.14 or
Article VI of the Stock Purchase Agreement. The provisions of Article VI shall
govern regarding the "Control of Contest" and other matters set forth therein
and Buyer shall be entitled to assume the defense of, and to elect to compromise
or defend, any matter relating to Section 5.14 of the Stock Purchase Agreement.
5
<PAGE>
5. Certain Matters Relating to the Cash Collateral Agreement.
---------------------------------------------------------
(a) Simultaneously with the execution and delivery hereof,
Seller, Buyer, on behalf of itself and the other Buyer Indemnified Parties, and
Bear Stearns & Co., Inc., as Collateral Agent (the "Collateral Agent"), are
entering into a Cash Collateral Agreement, dated as of the date hereof (the
"Cash Collateral Agreement"), pursuant to which the Seller is depositing $67.5
million in cash to secure the Obligations (as such term is defined therein).
(b) Seller agrees that Buyer may deliver a Withdrawal Notice (as
defined in the Cash Collateral Agreement) if either (i) Buyer shall have given
Seller 20 days notice of its intention to deliver such Withdrawal Notice and
Seller shall not have objected thereto or (ii) Buyer shall have obtained a
final, nonappealable order of a court of competent jurisdiction providing that
any of the Buyer Indemnified Parties is entitled to indemnification for the
amount set forth in the Withdrawal Notice. Buyer will not otherwise deliver a
Withdrawal Notice. Any notice delivered to the Collateral Agent not in
compliance with the procedures set forth in this Section 5(b) shall be invalid
and of no force and effect and shall not be deemed to result in an Event of
Withdrawal (as defined in the Cash Collateral Agreement) under the Cash
Collateral Agreement. In the event that Seller shall object to the delivery of
any Withdrawal Notice and it shall be judicially determined that Seller had no
reasonable basis to so object, Buyer shall be entitled to be reimbursed for its
costs and expenses (including reasonable attorneys' fees and expenses) paid or
incurred in connection with seeking any order or decision contemplated by clause
(ii) above. In the event that Buyer shall deliver any Withdrawal Notice and it
shall be judicially determined that Buyer had no reasonable basis to do so,
Seller shall be entitled to be reimbursed for its costs and expenses (including
reasonable attorneys' fees and expenses) paid or incurred in connection with
seeking any order or decision contemplated by clause (ii) above.
(c) Buyer will cooperate with Seller to amend the Cash Collateral
Agreement to add shares of common stock of Toys ("Permitted Toys Shares") as a
"Cash
6
<PAGE>
Collateral Permitted Investment" provided that (i) such Permitted Toys Shares
are purchased pursuant to Sections 2 and 3 of the Toys Agreement, (ii)
simultaneously with such purchase Seller delivers to the Collateral Agent, as
additional security for the Obligations, a number of shares of Toys Common Stock
equal to 2 times the number of the Permitted Toys Shares (the "Additional Toys
Shares", and, together with the Permitted Toys Shares, the "Toys Share
Collateral"), (iii) the Cash Collateral Agreement is amended and Seller and the
Collateral Agent take such other action as necessary to provide the Buyer
Indemnified Parties with a first priority perfected lien in the Toys Share
Collateral (which such Toys Share Collateral shall be registered in the name of
the Collateral Agent, as Collateral Agent for the Buyer Indemnified Parties,
pursuant to the Collateral Agreement), and (iv) such new collateral agreements
provide that the Buyer Indemnified Parties are entitled to foreclose on their
collateral (and to cause such collateral to be immediately sold) if the
agreements contemplated by Exhibit A hereto are not in full force and effect in
a manner reasonably acceptable to the Buyer on or prior to April 30, 1995, if
Buyer would have been entitled to deliver a Withdrawal Notice or if the value of
the Toys Share Collateral (plus the value of any further additional shares of
Toys Common Stock in which Seller shall have elected to grant to Buyer a first
priority perfected lien and which shares Seller shall have added to the Toys
Share Collateral), in each case based on the trading price on the date of
determination, is less than $74.25 million. If upon any such sale, the net
proceeds to Buyer are less than $67.5 million, Seller will immediately deliver
cash to Buyer in the amount of any such shortfall.
(d) As long as the Account Collateral (as defined below) is
comprised exclusively of Cash Equivalents (as defined in the Cash Collateral
Agreement), Buyer will deliver to the Collateral Agent a certificate in
accordance with Section 8 of the Collateral Agreement providing for the release
to Seller of (x) if a Satisfaction Event (as defined below) shall occur, any
portion of the Account Collateral (as defined in the Cash Collateral Agreement)
that exceeds the then applicable Threshold Amount (as defined below) (except
that in the case that the Threshold Amount equals $67.5 million, only the
proviso to Section 8 of the Cash
7
<PAGE>
Collateral Account shall control any release) or (y), at such time as the
arrangements contemplated by Exhibit A are in full force and effect in a manner
reasonably acceptable to Buyer (including without limitation that Buyer be
reasonably satisfied that it will not incur any tax liability or lose any tax
benefit by virtue thereof), any of the shares of Toys common stock held therein
and not contemplated by Exhibit A to be held therein. A "Satisfaction Event"
shall be deemed to occur if Buyer and Seller shall agree either (x) that none of
Seller, the Liquidating Trust or any of their respective successors or assigns
has any remaining liability or obligation whatsoever to any Buyer Indemnified
Party pursuant to Section 5.14 of the Purchase Agreement (a "Satisfaction Event
with respect to a MEPA Claim") or (y) that none of Seller, the Liquidating Trust
or any of their respective successors or assigns has any remaining liability or
obligation whatsoever to any Buyer Indemnified Party pursuant to Section
6.1(b)(y)(ii)(B) of the Purchase Agreement (a "Satisfaction Event with respect
to a Tax Basis Claim"). The term "Threshold Amount" shall mean (x) following a
Satisfaction Event with respect to a MEPA Claim, if a Statutory Notice (as
defined below) has been received, the amount specified in any Statutory Notice
of Proposed Deficiency with respect to the matters contemplated by Section
6.1(b)(y)(ii)(B) (a "Statutory Notice") including any applicable interest and
penalties through the fifth anniversary of the date of the Statutory Notice, or,
if no such Statutory Notice has been received, $67.5 million, (y) following a
Satisfaction Event with respect to a Tax Basis Claim, $37,500,000, and (z)
following the occurrence of both a Satisfaction Event with respect to a MEPA
Claim and a Satisfaction Event with respect to a Tax Basis Claim, zero.
(e) At such time as the Account Collateral is not comprised
exclusively of cash as contemplated by Section 5(c) and prior to the
establishment of the arrangements contemplated by Exhibit A, in the event that
any Satisfaction Event shall occur, Buyer shall only be required to release any
collateral to the extent the value of the Toys Share Collateral (based on the
average closing price on the New York Stock Exchange over the three trading days
preceding the date of the Satisfaction Event) would exceed 1.2 times the
applicable Threshold Amount.
8
<PAGE>
(f) Seller agrees that it will not enter into a swap or similar
arrangement with respect to any shares of Toys Common Stock materially prior to
the time the arrangements contemplated by Exhibit A are in effect.
6. Miscellaneous.
-------------
(a) Binding Effect; No Assignment. This Agreement shall be
-----------------------------
binding upon and inure solely to the benefit of the parties hereto and their
respective successors and legal representatives. This Agreement may not be
assigned by any of the parties hereto without the consent of the other parties.
Seller agrees that Seller will not liquidate unless it causes the Liquidating
Trust to assume the obligations of Seller under this Agreement in a manner
reasonably acceptable to Buyer.
(b) Entire Agreement; Modification and Waiver. This Agreement,
-----------------------------------------
the Stock Purchase Agreement and the Cash Collateral Agreement (and the
respective exhibits and schedules thereto and the respective agreements
expressly referred to therein) constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements, representations and understandings of the parties,
both written and oral. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by the parties hereto. The
waiver by a party of a breach of any provision of this Agreement shall not
operate as or be construed as a waiver of any subsequent breach thereof. Seller
confirms that neither the Account Collateral nor the Toys Share Collateral will
constitute the exclusive remedy available to Buyer in respect of the Obligations
(as defined in the Cash Collateral Agreement).
7. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been given if
delivered personally or sent by cable, telegram, telecopier or telex to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
9
<PAGE>
(a) if to the Seller, to:
Petrie Stores Corporation
Attention:
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Alan C. Myers, Esq.
Facsimile: (212) 735-2000
(b) if to the Buyer, to:
PS Stores Acquisition Corp.
70 Enterprise Avenue
Secaucus, New Jersey 07094
Attention: Chief Operating Officer
Facsimile: (201) 866-2355
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019-6150
Attention: Stephanie Seligman, Esq.
Facsimile: (212) 403-2000
8. Governing Law. This Agreement shall be governed in all respects,
-------------
including validity, interpretation and effect, by the laws of the State of New
York applicable to agreements made and to be performed entirely within such
State.
9. Counterparts. This Agreement may be executed by the parties
------------
hereto in one or more counterparts which together shall constitute a single
agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
PS STORES ACQUISITION CORP.
By: /s/ Erroll M. Cook
------------------
Name: Erroll M. Cook
Title: President
PETRIE STORES CORPORATION
By: /s/ Hilda Kirschbaum Gerstein
-----------------------------
Name: Hilda Kirschbaum Gerstein
Title: Vice Chairman
11
<PAGE>
Exhibit A
Swap Arrangement on ISDA form with appropriate Schedule and related documents
(the "Swap") will be in place with Bear Stearns International Limited, and fully
guaranteed by The Bear Stearns Companies Inc. (jointly, "Bear").
Buyer will at all times and regardless of any potential price decline of the
Toys Common Stock have a first priority, perfected lien pursuant to a pledge
agreement with a Collateral Agent not affiliated with Bear or Buyer in a
sufficient number of shares of Toys Common Stock (the "Shares") so that at all
times the sum of the market value of the Shares (based on the then current
trading price) covered by such lien and the net amount payable to Buyer under
the Swap will be at least equal to $67.5 million (as may be reduced as
contemplated by Section 5(c) of the Agreement).
The Swap will give full price protection to Buyer so that, after giving effect
to cost of arrangements, price declines, dividends, distributions, changes in
Toys Common Stock and the like, the sum of (a) the readily marketable value of
the Toys shares under the Security Agreement and (b) the net amounts payable to
Buyer under the Swap will at all times be at least $67.5 million (as may be
reduced as contemplated by Section 5(c) of the Agreement).
Term of the Swap will be a minimum of 5 years. Bear will have no obligation to
extend the Swap after such date. If at end of term Buyer asserts that there are
any remaining obligations covered by the Account, escrowed property must be
either converted to cash or Swap extended (with Bear or another party reasonably
acceptable to Buyer) on comparable terms reasonably acceptable to Buyer.
Buyer will have all the rights of a Swap counterparty.
If the market value of the Shares (based on the trading price of the Shares on
the valuation date) declines below $67.5 million by more than a threshold amount
of $7 million, Bear will deliver collateral to the collateral agent. The
threshold amount shall equal $0 if the S&P rating classification assigned to any
outstanding long-
12
<PAGE>
term unsecured, unsubordinated debt of Bear Parent declines below A-.
Collateral shall consist of cash, treasury bills with no more than 3 months
maturity and other collateral mutually acceptable to the parties. The
collateral agent will deliver to Bear as collateral Toys Common Stock but only
to the extent that the market value of the remaining Shares (based on the
trading price of the Shares on the valuation date) exceeds $75 million (subject
to agreement upon collateral return requirements reasonably acceptable to
Buyer), subject to certain conditions.
13
<PAGE>
EXHIBIT 10.6
BUYER INDEMNIFICATION AGREEMENT
-------------------------------
BUYER INDEMNIFICATION AGREEMENT, dated as of December 9, 1994, among
(i) TOYS "R" US, INC., a Delaware corporation (the "Buyer"), (ii) PETRIE STORES
CORPORATION, a New York corporation (the "Seller"), and (iii) PS STORES
ACQUISITION CORP., a Delaware corporation ("PS Stores"), PETRIE RETAIL, INC., a
Delaware corporation ("Petrie Retail"), and PS Stores' other direct and indirect
subsidiaries listed on Schedule I attached hereto (collectively, the "Petrie
Business Indemnitors").
The Buyer and the Seller have entered into an Acquisition Agreement,
dated as of April 20, 1994, as amended on May 10, 1994 (the "Acquisition
Agreement"), pursuant to which, among other things, the Buyer will acquire the
Closing Date Petrie Block Shares and cash from the Seller (the "Acquisition").
As a condition to the obligation of the Seller to effect the
Acquisition, the Seller is requiring that the Buyer execute and deliver this
Agreement for the benefit of the Seller and the Petrie Business Indemnitors.
The Buyer desires to indemnify the Indemnified Parties (as defined
below) on the terms set forth below.
Capitalized terms used but not defined herein shall have the meanings
specified in the Acquisition Agreement.
Accordingly, in consideration of the premises and the agreements set
forth herein and for other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. Indemnification.
---------------
1.1 Obligation of the Buyer to Indemnify. The Buyer agrees to
------------------------------------
indemnify, defend and hold harmless the Seller and its Subsidiaries and
Affiliates, the Petrie Business Indemnitors, and their respective directors,
officers, employees, agents, representatives, successors and assigns
(collectively, the "Indemnified Parties") from and against any and all losses,
liabilities, obligations, damages, deficiencies, demands, claims, actions,
causes of action, judgments, Taxes,
<PAGE>
assessments, settlement costs, court costs or other costs or expenses
(including, without limitation, interest, penalties, reasonable costs of
investigation, discovery, case preparation, defense or appeal, expert witness
fees and expenses and reasonable attorneys and paralegal fees and disbursements)
relating to, arising out of or in connection with any breach or inaccuracy of
any representation, warranty or agreement of or relating to the Buyer contained
in the Ruling Request (collectively, "Losses").
1.2 Notice and Opportunity to Defend.
--------------------------------
1.2.1 Notice of Asserted Liability. Promptly after receipt by
----------------------------
any Indemnified Party of notice of any demand, claim or other circumstances
which, with the lapse of time, would give rise to a claim or the commencement
(or threatened commencement) of any action, proceeding or investigation (an
"Asserted Liability") that may result in a Loss, the Seller or such Indemnified
Party shall give notice thereof (the "Claims Notice") to the Buyer in accordance
with Section 3.3. The Claims Notice shall describe the Asserted Liability in
reasonable detail, and shall indicate the amount (estimated, if necessary and to
the extent feasible) of the Loss that has been or may be suffered by the
Indemnified Party.
1.2.2 Opportunity to Defend. The Buyer may elect to compromise
---------------------
or defend, at its own expense and by its own counsel, any Asserted Liability. If
the Buyer elects to compromise or defend such Asserted Liability, it shall
within 10 days (or sooner, if the nature of the Asserted Liability so requires)
notify the Indemnified Party of its intent to do so, and the Indemnified Party
shall cooperate, at the expense of the Buyer, in the compromise of, or defense
against, such Asserted Liability. The selection of counsel by the Buyer shall be
subject to reasonable approval of the Indemnified Party. If the Buyer elects not
to compromise or defend the Asserted Liability or fails to notify the
Indemnified Party of its election as herein provided, the Indemnified Party
shall have the right to engage counsel, at the Buyer's expense, to compromise or
defend such Asserted Liability. Notwithstanding the foregoing, (i) neither any
Indemnified Party nor the Buyer may settle or compromise any claim without the
written consent of the other, such consent not to be unreasonably withheld;
provided, however, that consent of an Indemnified Party shall not
- -------- -------
2
<PAGE>
be required if the settlement or compromise of a claim involves solely the
payment of monetary damages to be paid entirely by the Buyer and an express
release of all liability is delivered to each Indemnified Party and (ii) prior
to assuming the defense or compromise of any Asserted Liability, the Buyer shall
acknowledge in writing its responsibility to indemnify the Indemnified Party to
the extent such defense is not successful. In any event, each of the Buyer and
the Indemnified Party may participate, at its own expense, in the defense of
such Asserted Liability. If the Buyer chooses to defend any claim, each
Indemnified Party shall make available to the Buyer any books, records or other
documents within its control that are necessary or appropriate for such defense.
2. Effectiveness. Notwithstanding anything to the contrary herein,
-------------
this Agreement shall become effective only upon the consummation of the
Acquisition.
3. Miscellaneous.
-------------
3.1 Binding Effect; No Assignment. This Agreement shall be
-----------------------------
binding upon and inure solely to the benefit of the parties hereto and their
respective successors and legal representatives. This Agreement may not be
assigned by any of the parties hereto without the consent of the other parties.
3.2 Entire Agreement; Modification and Waiver. This Agreement
-----------------------------------------
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
representations and understandings of the parties, both written and oral. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by the parties hereto. The waiver by a party of a breach of
any provision of this Agreement shall not operate as or be construed as a waiver
of any subsequent breach thereof.
3.3 Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed to have been
given if delivered personally or sent by cable, telegram, telecopier or telex to
the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
3
<PAGE>
(i) if to the Seller, to:
Petrie Stores Corporation
70 Enterprise Avenue
Secaucus, New Jersey 07094
Attention: Peter A. Left
Chief Operating Officer
Facsimile: (201) 866-2355
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Alan C. Myers, Esq.
Facsimile: (212) 735-2000
(ii) if to the Petrie Business Indemnitors, to:
c/o E.M. Warburg, Pincus & Co.
466 Lexington Avenue
New York, New York 10017
Attention: Errol M. Cook
Facsimile: (212) 878-9351
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Stephanie J. Seligman, Esq.
Facsimile: (212) 403-2000
(iii) if to the Buyer, to:
Toys "R" Us, Inc.
395 W. Passaic Street
Rochelle Park, New Jersey 07662
Attention: Louis Lipschitz
Chief Financial Officer
Facsimile: (201) 845-0973
4
<PAGE>
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Andre Weiss, Esq.
Facsimile: (212) 593-5955
3.4 Governing Law. This Agreement shall be governed in all respects,
-------------
including validity, interpretation and effect, by the laws of the State of New
York applicable to agreements made and to be performed entirely within such
State.
3.5 Counterparts. This Agreement may be executed by the parties
------------
hereto in one or more counterparts which together shall constitute a single
agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
TOYS "R" US, INC.
By: /s/ Louis Lipschitz
-------------------
Name: Louis Lipschitz
Title: Senior Vice President -
Finance and Chief
Financial Officer
PETRIE STORES CORPORATION
By: /s/ Hilda Kirschbaum Gerstein
-----------------------------
Name: Hilda Kirschbaum Gerstein
Title: Vice Chairman
PETRIE RETAIL, INC.
By: /s/ Peter A. Left
-----------------
Name: Peter A. Left
Title: Vice Chairman and Chief
Operating Officer
PS STORES ACQUISITION CORP.
By: /s/ Erroll M. Cook
------------------
Name: Erroll M. Cook
Title: President
6
<PAGE>
SUBSIDIARIES OF PS STORES ACQUISITION
CORP. LISTED ON SCHEDULE I HERETO
By: /s/ Peter A. Left
-----------------
Name: Peter A. Left
Title: President
and
By: /s/ Barton Heminover
--------------------
Name: Barton Heminover
Title: Treasurer
7
<PAGE>
SCHEDULE I
----------
Bangor Apparel Corporation
Brockwood Apparel Corporation
Burlington Apparel Corporation
Pyramid-Burlington Apparel Corporation
Central Park Apparel Corporation
Hoboken Apparel Corporation
Hartfield Stores, Inc.
Heritage Apparel Corporation
Las Vegas Apparel Corporation
Marianne Clearwater Corporation
Marianne Columbia Corporation
Paulding Apparel Corporation
Midland Apparel Corporation
Matteson Apparel Corporation
Mundelein Apparel Corporation
Peoria Apparel Corporation
Peru Ladies Apparel Corporation
New Hampshire Apparel Corporation
Ozark Apparel Corporation
Petrie's Arkansas Corporation
Petrie Hawaiian Apparel Corp.
Petrie Island Corp.
<PAGE>
PSL, Inc.
Ranch Stores, Inc.
Mayfield Apparel Corporation
Regency Apparel Corporation
Rio West Apparel Corporation
Rosedale Apparel Corporation
Bunyan Apparel Corporation
Shelby Apparel Corporation
Stuarts Apparel, Inc.
Stuarts Tupelo Apparel Corporation
Stuarts Westroads Apparel Corporation
Sunny Isle-Lockhart Corp.
Tucson Ladies Apparel Corporation
Vancouver Apparel Corporation
Tacoma Apparel Corporation
Vernon Park Apparel Corporation
Circle Apparel Corporation
West Acres Apparel Corporation
West Virginia Apparel Corporation
Huntington Apparel Corporation
Wichita Falls Apparel Corporation
Davids Woodbridge, Inc.
Airport of Perimeter Mall, Inc.
Davids Columbia Mall Inc.
2
<PAGE>
Davids Fayetteville Mall Inc.
Davids of Ithaca, Inc.
Davids Lake Forest Corporation
Davids Livingston Corp.
Davids Lycoming Mall Corporation
Davids Pittsford Corp.
Davids Prince Georges Corp.
Davids Security Square Corp.
Davids Springfield Corp.
Davids Springfield Mall, Inc.
Davids Summit Park Mall, Inc.
Davids Transit Road Corp.
Davids Tysons Corner Corp.
Davids Wheaton Corp.
Frank Georgetown Corp.
Landmark, Inc.
PSC Holding Corp.
G.&G. Shops, Inc.
78 Nassau Street Corp.
458 Seventh Avenue Corporation
G&G Island Corp.
G&G of Nanuet, Inc.
G&G Shops of Brooklyn, Inc.
G&G Shops of Maryland, Inc.
3
<PAGE>
G&G Shops of Mid-Island Corp.
G&G Shops of New England, Inc.
G.&G. Shops of New York, Inc.
G&G Shops of North Carolina, Inc.
G&G Shops of Pennsylvania, Inc.
G&G Shops of Woodbridge, Inc.
Sco-Jef Mercantile Corp.
Clotheseteria, Inc.
Petrie Acquisition Corp.
Franklin Stores Corporation
Franklin 145 Corp.
Franklin 228 Corp.
Petrie Holding (Texas) Corp.
Franklin Stores Holding Corporation
Franklin Stores Texas Corporation
Franklin North Mesa Corporation
Mayfair of Houston, Inc.
Petrie Holding P.R. Corp.
Franklin Stores Corporation P.R.
Franklin 187 Corp.
Franklin 193 Corp.
Franklin 197 Corp.
Franklin 198 Corp.
Franklin 201 Corp.
4
<PAGE>
Franklin 203 Corp.
Franklin 205 Corp.
Franklin 206 Corp.
Franklin 211 Corporation
Franklin 212 Corp.
Franklin 213 Corp.
Franklin 214 Corp.
Franklin 215 Corp.
Franklin 218 Corp.
Franklin 220 Corp.
Franklin 221 Corp.
Franklin 251 Corp.
Franklin 253 Corp.
Franklin Center Corp.
Franklin Fortaleza Corp.
Franklin Four Winds Corp.
Franklin Metro Corp.
Franklin Plaza Corp.
Franklin St. Augustin Corp.
Franklin Stores Corp. of Bayamon
Franklin Stores Corp. of Caguas
Franklin Stores Corp. of Rio Piedras
Franklin Stores Corp. of Ponce
Franklin Stores Corp. of Santurce
5
<PAGE>
Franklin Thirty-Four Rio Corp.
Mayfair 207 Corp.
Hollywood Shops Corporation
Rosaine's, Inc.
Whitney Stores, Inc.
The Miller-Wohl Company, Inc.
Miller-Wohl Investments, Inc.
Jean-Nicole, Inc.
Anita Shops, Inc.
Bayamon Apparel Corporation
Canas Apparel Corporation
Carraizo Alto Apparel Corporation
Ensenada Apparel Corporation
Palmas Atlas Apparel Corporation
El Canton Apparel Corporation
Fajardo Apparel Corporation
Guanajibo Apparel Corporation
Ponce de Leon Apparel Corporation
Manati Apparel Corporation
Marianne Estrella Corporation
Marianne Plaza Apparel Corporation
14 San Carlos Corporation
19 Plaza Munoz Corporation
58 Once De Agosto Corporation
6
<PAGE>
61 Dr. Veve Corporation
157 De Diego Corporation
183 Jose De Diego Corporation
305 De Diego Corporation
Atlantico MPA Corporation
Bayamon MPA Corporation
Caguas Apparel Corporation
Caribe Apparel Corporation
Centro Apparel Corporation
Corollera Apparel Corporation
Cruz-Ponce Corporation
Cumbres Apparel Corporation
Del Carmen Hondo Corporation
Fajardo-MPA Corporation
Las Americas MPA Corporation
Mayaguez MPA Corporation
Munoz MPA Corporation
McKinley-Rosa Corporation
Noya-Carolina Corporation
N. Calimano MPA Corporation
Plaza Carolina MPA Corporation
Progreso Corchado Corporation
San Patricio MPA Corporation
Trujillo MPA Corporation
7
<PAGE>
Veve-Americas Corporation
Vidal Georgetty Corporation
Ponce Apparel Corporation
Trujillo Alto Apparel Corporation
Rave Apparel of Bayamon Corporation
Cristina's El Senorial Corporation
Dayson Carolina, Inc.
Daysons Cupey Corporation
Daysons Las Americas Corporation
Daysons of Ponce, Inc.
Daysons Puerto Rico Corporation
Rave Apparel Corporation of Arecibo
Rave Apparel Corporation of Humacao
Morrisons & Arthurs, Inc.
Morrisons Castelton Square, Inc.
N Bro, Inc.
Winkelman Stores, Incorporated
Winkelman Stores Credit Corporation
Halsted Apparel Corporation
8
<PAGE>
EXHIBIT 10.7
SELLER INDEMNIFICATION AGREEMENT
--------------------------------
SELLER INDEMNIFICATION AGREEMENT, dated as of December 9, 1994, among
(i) TOYS "R" US, INC., a Delaware corporation (the "Buyer"), (ii) PETRIE STORES
CORPORATION, a New York corporation (the "Seller"), and (iii) PS STORES
ACQUISITION CORP., a Delaware corporation ("PS Stores"), PETRIE RETAIL, INC., a
Delaware corporation ("Petrie Retail"), and PS Stores' other direct and indirect
subsidiaries listed on Schedule I attached hereto (collectively, the "Petrie
Business Indemnitors") (the Seller and the Petrie Business Indemnitors being
referred to hereinafter as the "Indemnifying Parties").
The Buyer and the Seller have entered into an Acquisition Agreement,
dated as of April 20, 1994, as amended on May 10, 1994 (the "Acquisition
Agreement"), pursuant to which, among other things, the Buyer will acquire the
Closing Date Petrie Block Shares and cash from the Seller (the "Acquisition").
As a condition to the obligation of the Buyer to effect the
Acquisition, the Buyer is requiring that the Seller and the Petrie Business
Indemnitors execute and deliver this Agreement for the benefit of the Buyer.
The Indemnifying Parties desire to indemnify the Indemnified Parties
(as defined below) on the terms set forth below.
Capitalized terms used but not defined herein shall have the meanings
specified in the Acquisition Agreement.
Accordingly, in consideration of the premises and the agreements set
forth herein and for other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. Indemnification.
---------------
1.1 Obligation of the Indemnifying Parties to Indemnify.
---------------------------------------------------
(a) Each of the Indemnifying Parties, jointly and
severally, agrees to indemnify, defend and hold harmless the Buyer and its
Subsidiaries and Affiliates, and their respective directors, officers,
<PAGE>
employees, agents, representatives, successors and assigns (collectively, the
"Indemnified Parties") from and against any and all losses, liabilities,
obligations, damages, deficiencies, demands, claims, actions, causes of action,
judgments, Taxes, assessments, settlement costs, court costs or other costs or
expenses (including, without limitation, interest, penalties, reasonable costs
of investigation, discovery, case preparation, defense or appeal, expert witness
fees and expenses and reasonable attorneys and paralegal fees and disbursements)
relating to, arising out of or in connection with any liabilities or obligations
or alleged liabilities or obligations of any of the Indemnifying Parties
(collectively, "Losses"), including, without limitation, any Losses relating to,
arising out of or in connection with the Transactions, the conduct or operation
by the Seller of its businesses or the ownership of its properties and assets or
the conduct or operation by any of the Petrie Business Indemnitors of its
businesses or the ownership of its properties and assets.
(b) The Seller agrees to indemnify, defend and hold
harmless the Indemnified Parties from and against any Losses relating to,
arising out of or in connection with any breach or inaccuracy of any
representation, warranty or agreement of or relating to the Seller or any
Subsidiary thereof, any Petrie Business Acquiror or the Named Party contained in
the Ruling Request.
1.2 Notice and Opportunity to Defend.
--------------------------------
1.2.1 Notice of Asserted Liability. Promptly after receipt
----------------------------
by an Indemnified Party of notice of any demand, claim or other circumstances
which, with the lapse of time, would give rise to a claim or the commencement
(or threatened commencement) of any action, proceeding or investigation (an
"Asserted Liability") that may result in a Loss, the Buyer or such Indemnified
Party shall give notice thereof (the "Claims Notice"), in the case of an
Asserted Liability under Section 1.1(a) above, to the Indemnifying Parties, and,
in the case of an Asserted Liability under Section 1.1(b) above, to the Seller,
in accordance with Section 3.3 (in each case, the "Applicable Indemnifying
Parties"). The Claims Notice shall describe the Asserted Liability in reasonable
detail, and shall indicate the amount (estimated, if
2
<PAGE>
necessary and to the extent feasible) of the Loss that has been or may be
suffered by the Indemnified Party.
1.2.2 Opportunity to Defend. Except as provided below, the
---------------------
Applicable Indemnifying Parties may elect to compromise or defend, at their own
expense and by their own counsel, any Asserted Liability. If the Applicable
Indemnifying Parties elect to compromise or defend such Asserted Liability, they
shall within 10 days (or sooner, if the nature of the Asserted Liability so
requires) notify the Indemnified Party of their intent to do so, and the
Indemnified Party shall cooperate, at the expense of such Applicable
Indemnifying Parties, in the compromise of, or defense against, such Asserted
Liability. The selection of counsel by the Applicable Indemnifying Parties shall
be subject to the reasonable approval of the Indemnified Party. If the
Applicable Indemnifying Parties elect not to compromise or defend the Asserted
Liability or fail to notify the Indemnified Party of their election as herein
provided, the Indemnified Party shall have the right to engage counsel, at the
Applicable Indemnifying Parties' expense, to compromise or defend such Asserted
Liability. Notwithstanding the foregoing, (i) neither any Indemnified Party nor
any Applicable Indemnifying Party may settle or compromise any claim without the
written consent of the other, such consent not to be unreasonably withheld;
provided, however, that consent of an Indemnified Party shall not be required if
- -------- -------
the settlement or compromise of a claim involves solely the payment of monetary
damages to be paid entirely by the Applicable Indemnifying Party and an express
release of all liability is delivered to each Indemnified Party and (ii) prior
to assuming the defense or compromise of any Asserted Liability, the Applicable
Indemnifying Party shall acknowledge in writing its responsibility to indemnify
the Indemnified Party to the extent such defense is not successful. In any
event, each of the Applicable Indemnifying Parties and the Indemnified Party may
participate, at its own expense, in the defense of such Asserted Liability. If
the Applicable Indemnifying Parties choose to defend any claim, each Indemnified
Party shall make available to the Applicable Indemnifying Parties any books,
records or other documents within its control that are necessary or appropriate
for such defense.
3
<PAGE>
2. Effectiveness. Notwithstanding anything to the contrary herein,
-------------
this Agreement shall become effective only upon the consummation of the
Acquisition.
3. Miscellaneous.
-------------
3.1 Binding Effect; No Assignment. This Agreement shall be
-----------------------------
binding upon and inure solely to the benefit of the parties hereto and their
respective successors and legal representatives. With respect to the Seller,
its successor shall include, without limitation, any liquidating trust
established, and any assets placed in escrow, in connection with the liquidation
and dissolution of the Seller. This Agreement may not be assigned by any of the
parties hereto without the consent of the other parties.
3.2 Entire Agreement; Modification of Waiver. This Agreement
----------------------------------------
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties, both written and oral. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by the parties hereto. The waiver by a party of a breach of
any provision of this Agreement shall not operate as or be construed as a waiver
of any subsequent breach thereof.
3.3 Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed to have been
given if delivered personally or sent by cable, telegram, telecopier or telex to
the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
(i) if to the Seller, to:
Petrie Stores Corporation
70 Enterprise Avenue
Secaucus, New Jersey 07094
Attention: Peter A. Left
Chief Operating Officer
Facsimile: (201) 866-2355
4
<PAGE>
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Alan C. Meyers, Esq.
Facsimile: (212) 735-2000
(ii) if to the Petrie Business Indemnitors, to:
c/o E.M. Warburg, Pincus & Co.
466 Lexington Avenue
New York, New York 10017
Attention: Errol M. Cook
Facsimile: (212) 878-9351
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Stephanie J. Seligman, Esq.
Facsimile: (212) 403-2000
(iii) if to the Buyer, to:
Toys "R" US, Inc.
395 W. Passaic Street
Rochelle Park, New Jersey 07662
Attention: Louis Lipschitz
Chief Financial Officer
Facsimile: (201) 845-0973
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Andre Weiss, Esq.
Facsimile: (212) 593-5955
3.4 Governing Law. This Agreement shall be governed in all
-------------
respects, including validity, interpretation and effect, by the laws of the
State of New York applicable to agreements made and to be performed entirely
within such State.
5
<PAGE>
3.5 Counterparts. This Agreement may be executed by the parties
------------
hereto in one or more counterparts which together shall constitute a single
agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
TOYS "R" US, INC.
By: /s/ Louis Lipschitz
-------------------
Name: Louis Lipschitz
Title: Senior Vice President -
Finance and Chief
Financial Officer
PETRIE STORES CORPORATION
By: /s/ Hilda Kirschbaum Gerstein
-----------------------------
Name: Hilda Kirschbaum Gerstein
Title: Vice Chairman
PETRIE RETAIL, INC.
By: /s/ Michael J. Jackson
----------------------
Name: Michael J. Jackson
Title: Senior Vice President and
Controller
PS STORES ACQUISITION CORP.
By: /s/ Erroll M. Cook
------------------
Name: Erroll M. Cook
Title: President
7
<PAGE>
SUBSIDIARIES OF PS STORES ACQUISITION
CORP. LISTED ON SCHEDULE I HERETO
By: /s/ Michael J. Jackson
----------------------
Name: Michael J. Jackson
Title: Vice President and
Secretary
and
By: /s/ Peter A. Left
-----------------
Name: Peter A. Left
Title: President
and
By: /s/ Barton Heminover
--------------------
Name: Barton Heminover
Title: Treasurer
8
<PAGE>
SCHEDULE I
----------
Bangor Apparel Corporation
Brockwood Apparel Corporation
Burlington Apparel Corporation
Pyramid-Burlington Apparel Corporation
Central Park Apparel Corporation
Hoboken Apparel Corporation
Hartfield Stores, Inc.
Heritage Apparel Corporation
Las Vegas Apparel Corporation
Marianne Clearwater Corporation
Marianne Columbia Corporation
Paulding Apparel Corporation
Midland Apparel Corporation
Matteson Apparel Corporation
Mundelein Apparel Corporation
Peoria Apparel Corporation
Peru Ladies Apparel Corporation
New Hampshire Apparel Corporation
Ozark Apparel Corporation
Petrie's Arkansas Corporation
Petrie Hawaiian Apparel Corp.
Petrie Island Corp.
<PAGE>
PSL, Inc.
Ranch Stores, Inc.
Mayfield Apparel Corporation
Regency Apparel Corporation
Rio West Apparel Corporation
Rosedale Apparel Corporation
Bunyan Apparel Corporation
Shelby Apparel Corporation
Stuarts Apparel, Inc.
Stuarts Tupelo Apparel Corporation
Stuarts Westroads Apparel Corporation
Sunny Isle-Lockhart Corp.
Tucson Ladies Apparel Corporation
Vancouver Apparel Corporation
Tacoma Apparel Corporation
Vernon Park Apparel Corporation
Circle Apparel Corporation
West Acres Apparel Corporation
West Virginia Apparel Corporation
Huntington Apparel Corporation
Wichita Falls Apparel Corporation
Davids Woodbridge, Inc.
Airport of Perimeter Mall, Inc.
Davids Columbia Mall Inc.
2
<PAGE>
Davids Fayetteville Mall Inc.
Davids of Ithaca, Inc.
Davids Lake Forest Corporation
Davids Livingston Corp.
Davids Lycoming Mall Corporation
Davids Pittsford Corp.
Davids Prince Georges Corp.
Davids Security Square Corp.
Davids Springfield Corp.
Davids Springfield Mall, Inc.
Davids Summit Park Mall, Inc.
Davids Transit Road Corp.
Davids Tyson Corner Corp.
Davids Wheaton Corp.
Frank Georgetown Corp.
Landmark, Inc.
PSC Holding Corp.
G. & G. Shops, Inc.
78 Nassau Street Corp.
458 Seventh Avenue Corporation
G&G Island Corp.
G&G of Nanuet, Inc.
G&G Shops of Brooklyn, Inc.
G&G Shops of Maryland, Inc.
3
<PAGE>
G&G Shops of Mid-Island Corp.
G&G Shops of New England, Inc.
G&G Shops of New York, Inc.
G&G Shops of North Carolina, Inc.
G&G Shops of Pennsylvania, Inc.
G&G Shops of Woodbridge, Inc.
Sco-Jef Mercantile Corp.
Cotheseteria, Inc.
Petrie Acquisition Corp.
Franklin Stores Corporation
Franklin 145 Corp.
Franklin 228 Corp.
Petrie Holding (Texas) Corp.
Franklin Stores Holding Corporation
Franklin Stores Texas Corporation
Franklin North Mesa Corporation
Mayfair of Houston, Inc.
Petrie Holding P.R. Corp.
Franklin Stores Corporation P.R.
Franklin 187 Corp.
Franklin 193 Corp.
Franklin 197 Corp.
Franklin 198 Corp.
Franklin 201 Corp.
4
<PAGE>
Franklin 203 Corp.
Franklin 205 Corp.
Franklin 206 Corp.
Franklin 211 Corporation
Franklin 212 Corp.
Franklin 213 Corp.
Franklin 214 Corp.
Franklin 215 Corp.
Franklin 218 Corp.
Franklin 220 Corp.
Franklin 221 Corp.
Franklin 251 Corp.
Franklin 253 Corp.
Franklin Center Corp.
Franklin Fortaleza Corp.
Franklin Four Winds Corp.
Franklin Metro Corp.
Franklin Plaza Corp.
Franklin St. Augustin Corp.
Franklin Stores Corp. of Bayamon
Franklin Stores Corp. of Caguas
Franklin Stores Corp. of Rio Piedras
Franklin Stores Corp. of Ponce
Franklin Stores Corp. of Santurce
5
<PAGE>
Franklin Thirty-Four Rio Corp.
Mayfair 207 Corp.
Hollywood Shops Corporation
Rosaine's, Inc.
Whitney Stores, Inc.
The Miller-Wohl Company, Inc.
Miller-Wohl Investments, Inc.
Jean-Nicole, Inc.
Anita Shops, Inc.
Bayamon Apparel Corporation
Canas Apparel Corporation
Carraizo Alto Apparel Corporation
Ensenada Apparel Corporation
Palmas Altas Apparel Corporation
El Canton Apparel Corporation
Fajardo Apparel Corporation
Guanajibo Apparel Corporation
Ponce de Leon Apparel Corporation
Manati Apparel Corporation
Marianne Estrella Corporation
Marianne Plaza Apparel Corporation
14 San Carlos Corporation
19 Plaza Munoz Corporation
58 Once De Agosto Corporation
6
<PAGE>
61 Dr. Veve Corporation
157 De Diego Corporation
183 Jose De Diego Corporation
305 De Diego Corporation
Atlantico MPA Corporation
Bayamon MPA Corporation
Caguas Apparel Corporation
Caribe Apparel Corporation
Centro Apparel Corporation
Corollera Apparel Corporation
Cruz-Ponce Corporation
Cumbres Apparel Corporation
Del Carmen Hondo Corporation
Fajardo-MPA Corporation
Las Americas MPA Corporation
Mayaguez MPA Corporation
Munoz MPA Corporation
McKinley-Rosa Corporation
Noya-Carolina Corporation
N. Calimano MPA Corporation
Plaza Carolina MPA Corporation
Progreso Corchado Corporation
San Patricio MPA Corporation
Trujillo MPA Corporation
7
<PAGE>
Veve-Americas Corporation
Vidal Georgetty Corporation
Ponce Apparel Corporation
Trujillo Alto Apparel Corporation
Rave Apparel of Bayamon Corporation
Cristina's El Senorial Corporation
Dayson Carolina, Inc.
Daysons Cupey Corporation
Daysons Las Americas Corporation
Daysons of Ponce, Inc.
Daysons Puerto Rico Corporation
Rave Apparel Corporation of Arecibo
Rave Apparel Corporation of Humacao
Morrisons & Arthurs, Inc.
Morrisons Castleton Square, Inc.
N Bro, Inc.
Winkleman Stores, Incorporated
Winkleman Stores Credit Corporation
Halsted Apparel Corporation
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's statement of net assets in liquidation at January 28, 1995 and the
Company's consolidated statement of operations for the year ended January 28,
1995, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<CASH> 11,854
<SECURITIES> 1,262,293
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,274,147
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 836,470
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,605
<INCOME-PRETAX> (7,742)
<INCOME-TAX> 1,114
<INCOME-CONTINUING> (6,628)
<DISCONTINUED> (410,027)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (416,655)
<EPS-PRIMARY> (8.75)
<EPS-DILUTED> 0.00
</TABLE>
