<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-6672
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-2745285
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
</TABLE>
Mailing and
Street Address: 2430 East Del Amo Boulevard, Dominguez, California 90220-6306
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 537-9220
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Former name, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Shares Outstanding at November 26, 1995 25,526,547
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<PAGE> 2
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands except par value)
<TABLE>
<CAPTION>
October 29, January 29,
1995 1995
---------- -----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 17,950 $ 6,674
Merchandise inventories 244,947 182,102
Current deferred income tax asset 19,203 5,377
Other current assets 10,144 9,506
-------- --------
Total current assets 292,244 203,659
-------- --------
Property, Equipment and Improvements:
Land 35,195 33,876
Buildings and improvements 82,638 80,762
Automobiles and trucks 2,988 2,778
Furniture, fixtures and equipment 99,191 89,225
Leasehold improvements 81,358 73,931
Construction in progress 1,508 2,987
-------- --------
302,878 283,559
Less: Accumulated depreciation
and amortization (117,988) (105,339)
-------- --------
184,890 178,220
-------- --------
Deferred Income Tax Asset 782 780
Deferred Financing Costs and Other Assets 2,562 3,717
-------- --------
Total Assets $480,478 $386,376
======== ========
<CAPTION>
October 29, January 29,
1995 1995
----------- -----------
<C> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Checks outstanding $ 11,644 $ 11,098
Loan payable to bank 73,100 80,500
Current portion of long-term debt 67 63
Accounts payable 18,674 9,359
Accrued expenses 36,349 37,096
Income taxes payable 926 12,154
Sales tax payable 6,219 9,377
-------- --------
Total current liabilities 146,979 159,647
-------- --------
Long-Term Debt 120,286 4,491
Deferred Income Taxes 5,357 5,357
Stockholders' Equity:
Preferred stock, $1 par value;
authorized, 500 shares; issued, none
Common stock, $.02778 par value;
authorized, 100,000 shares;
issued 25,571 shares (October 29, 1995)
and 29,854 shares (January 29, 1995) 711 829
Additional paid-in capital 353 3,216
Retained earnings 206,792 294,917
-------- --------
207,856 298,962
Less: Treasury stock, at cost, 4,313 shares
(January 29, 1995) - (82,081)
-------- --------
Total Stockholders' Equity 207,856 216,881
-------- --------
Total Liabilities and Stockholders' Equity $480,478 $386,376
======== ========
</TABLE>
_____________
See Notes to Consolidated Financial Statements.
<PAGE> 3
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
------------------------------ ---------------------------
October 29, October 30, October 29, October 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $152,353 $158,491 $453,357 $434,279
COST OF SALES 114,741 83,793 276,557 230,413
-------- -------- -------- --------
GROSS PROFIT 37,612 74,698 176,800 203,866
-------- -------- -------- --------
Store expenses 46,895 48,769 139,523 132,254
Warehouse and administrative
expenses 13,469 14,918 43,494 44,136
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 60,364 63,687 183,017 176,390
OPERATING INCOME (LOSS) (22,752) 11,011 (6,217) 27,476
INTEREST EXPENSE, NET 3,699 2,288 9,317 4,679
-------- -------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES (26,451) 8,723 (15,534) 22,797
INCOME TAX EXPENSE (BENEFIT) (10,448) 3,489 (6,136) 9,119
-------- -------- -------- --------
NET EARNINGS (LOSS) ($16,003) $5,234 ($9,398) $13,678
======== ======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE ($0.62) $0.19 ($0.36) $0.47
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING 25,798 28,142 25,785 29,042
======== ======== ======== ========
</TABLE>
_____________
See Notes to Consolidated Financial Statements.
<PAGE> 4
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
--------------------- Paid-In Retained --------------------
Shares Amount Capital Earnings Shares Amount Total
------ ------ ------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 29, 1995 29,854 $829 $3,216 $294,917 4,313 ($82,081) $216,881
Exercise of stock options 30 1 308 $309
Non-cash compensation
expense 64 64
Treasury stock retired (4,313) (119) (3,235) (78,727) (4,313) 82,081 0
Net loss for nine months (9,398) (9,398)
------ ----- ------- -------- ------ -------- --------
Balance, October 29, 1995 25,571 $711 $353 $206,792 0 $0 $207,856
====== ===== ======= ======== ====== ======== ========
</TABLE>
_____________
See Notes to Consolidated Financial Statements.
<PAGE> 5
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Amounts in thousands)
<TABLE>
<CAPTION>
For the nine months ended
-------------------------------
October 29, October 30,
1995 1994
----------- -----------
<S> <C> <C>
INCREASE IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Cash received from customers $453,357 $434,279
Cash paid to suppliers and employees (503,549) (444,758)
Income taxes paid (18,920) (9,868)
Interest paid (net of amount capitalized) (8,309) (3,868)
Interest received 112 51
-------- --------
Net cash used in operating activities (77,309) (24,164)
Cash flows from investing activities:
Capital expenditures (20,279) (30,212)
Proceeds from sale of fixed assets 156 473
-------- --------
Net cash used in investing activities (20,123) (29,739)
Cash flows from financing activities:
Net borrowings (repayments) of long-term debt 114,854 (82)
Net (repayments) borrowings under line of credit agreements (7,400) 122,700
Proceeds from sale of stock options 309 1,162
Repurchase of treasury stock - (64,237)
Other (net) 945 465
-------- --------
Net cash provided by financing activities 108,708 60,008
-------- --------
Increase in cash and cash equivalents 11,276 6,105
Cash and cash equivalents, beginning of period 6,674 12,445
-------- --------
Cash and cash equivalents, end of period $ 17,950 $ 18,550
======== ========
</TABLE>
_____________
See Notes to Consolidated Financial Statements.
<PAGE> 6
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Amounts in thousands)
(continued)
<TABLE>
<CAPTION>
For the nine months ended
-----------------------------
October 29, October 30,
1995 1994
----------- -----------
<S> <C> <C>
Reconciliation of Net Income (Loss) to Net Cash Used
In Operating Activities:
Net (loss) income ($9,398) $13,678
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 13,487 11,590
Gain on sale of fixed assets (34) (177)
Non-cash compensation expense 64 57
Changes in assets and liabilities:
Increase in inventory (62,845) (51,218)
Increase in current deferred income tax asset (13,826) (45)
Decrease in other assets 517 663
Increase in deferred income tax asset (2) (100)
Increase in checks outstanding, accounts payable, accrued
expenses and sales tax payable 5,956 1,388
Decrease in federal and state income taxes (11,228) -
-------- --------
Total adjustments (67,911) (37,842)
-------- --------
Net cash used in operating activities ($77,309) ($24,164)
======== ========
</TABLE>
_____________
See Notes to Consolidated Financial Statements.
<PAGE> 7
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
PART I - ITEM I - FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Note 1 The condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles by
MacFrugal's Bargains o Close-outs Inc., without audit. Pursuant to
the rules and regulations of the Securities and Exchange Commission,
certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been omitted or
condensed. It is management's belief that the disclosures made are
adequate to make the information presented not misleading and reflect
all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of financial position and results
of operations for the periods presented. The results of operations
of the periods presented should not be considered as necessarily
indicative of operations for the full year. It is recommended that
these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements for the year
ended January 29, 1995 and the notes thereto included in the
Company's 10-K.
Note 2 Earnings per Common Share is based on the weighted average number of
Common Shares outstanding, adjusted for dilutive effects of stock
options, if applicable.
Note 3 The Company's effective tax rate for fiscal 1994 and the first
three quarters of fiscal 1995 was 39.5%. For interim reporting
purposes the entire provision for income tax expense was classified
as current.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The Company had a net deferred tax asset of $14,628 at
October 29, 1995 and $800 at January 29, 1995.
The Company provided no valuation allowance against its deferred tax
assets recorded as of October 29, 1995 and January 29, 1995.
Note 4 At October 29, 1995, the Company classified that portion of its
revolving debt as long-term debt that is not required to be repaid at
its next annual clean-down date of September 30, 1996.
Note 5 The Company has entered into certain purchase contracts in the
ordinary course of business. Associated with these contracts, the
Company receives certain allowances and discounts (primarily related
to retail shelf space and purchase discounts). These allowances are
recognized when earned and, in some cases, the retail shelf space
allowances are recognized upon receipt if the contracts do not
include any future purchase commitments for the Company.
Note 6 Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
<PAGE> 8
PART I - ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND INTERIM RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
RESULTS OF OPERATIONS
THIRTEEN WEEK PERIOD ENDED OCTOBER 29, 1995 ("THIRD QUARTER 1995") COMPARED
WITH THIRTEEN WEEK PERIOD ENDED OCTOBER 30, 1994 ("THIRD QUARTER 1994").
Total sales decreased 3.9% and comparable store sales decreased 11.9% for the
third quarter 1995 compared to the third quarter 1994. The total sales
decrease was driven by the comparable store sales decrease noted above,
partially offset by the opening of 36 net new stores since October 30, 1994.
The comparable sales decrease was due to the weakness in apparel sales and the
current difficult retail environment. At October 29, 1995, 303 stores were in
operation compared to 267 stores at October 30, 1994.
Sales from the 163 California stores open at October 29, 1995, were
approximately 60% of the Company's total sales for the third quarter of the
current year. California stores experienced a comparable store decrease for
the third quarter 1995.
The Company has put forth a new strategic direction in response to the
current difficult retail climate. The Company plans on reducing inventory
levels and increasing inventory turnover by offering more competitive pricing;
increasing assortment in some areas; enhancing store layouts for shopping
convenience; implementing an extensive customer service program and utilizing
more television advertising while maintaining advertising expenses at
approximately 2% of sales. In addition, the Company plans on containing store
expansion to approximately ten stores in fiscal 1996 which will enable the
Company's management to focus on its new strategic initiatives. However, the
success of the Company's strategic initiative will also be somewhat dependent
upon a number of external factors including competition, economic conditions,
any changes in customer shopping behavior and the availability of appropriate
merchandise at reasonable prices.
To implement this change in merchandising direction, the Company has recorded
a $35 million non-cash charge to reduce retail prices in order to hasten the
liquidation of aged inventory. The charge is necessary to clear various
categories of merchandise and provide space for fresh and more competitive
merchandise. This charge decreased the gross profit margin for the third
quarter of 1995 to 24.7%.
The gross profit margin for the third quarter 1995, excluding the $35 million
non-cash charge, compares favorably to the gross profit margin of 47.1% for
the third quarter 1994.
The increase in the gross profit margin for the third quarter 1995 (excluding
the $35 million non-cash charge) versus the third quarter 1994 is due primarily
to a higher initial markup on beginning store inventory in the current year
versus the prior year and certain markdown allowances received from vendors to
clear discontinued merchandise in 1995 but not in 1994. However, these
improvements in gross profit margin were partially offset by an increase in
the accrual rate for inventory shrinkage (which is based upon the Company's
fiscal 1994 year-end results) and a lower initial markup on shipments to the
stores in the third quarter 1995 versus the third quarter 1994.
Operating expenses were 39.6% of sales for the third quarter of 1995 compared
to 40.2% for the third quarter of 1994. The improvement in operating expenses
was the result of a decrease in both warehouse and administrative expenses
while store expenses remained substantially the same as the third quarter of
1994.
<PAGE> 9
General cost containment kept store expenses constant at 30.8% of sales
for the third quarter 1995 and the third quarter 1994. Increases in occupancy
cost, depreciation expense and advertising expense were offset by efficiencies
and expense controls in payroll and workers' compensation. Increases in
occupancy, depreciation and advertising expenses resulted from the opening of
new stores.
Warehouse and administrative expenses were 8.8% and 9.4% of sales for the third
quarter 1995 and the third quarter 1994, respectively. Expense controls in the
warehouses and administrative areas resulted in lower expenses in both dollars
and as a percent of sales for the third quarter 1995 compared to the third
quarter 1994.
Net interest expense was $3,699 and $2,288 for the third quarter 1995 and the
third quarter 1994, respectively. The increase in interest expense resulted
from both an increase in the average amount of debt outstanding and higher
interest rates. The increase in the average amount of debt outstanding is the
combined result of an increase in inventories during the first three quarters
of 1995 compared to the same period in 1994 and the treasury shares repurchased
in the prior year.
The income tax rate for the third quarter 1995 was 39.5% compared to an income
tax rate of 40.0% in the third quarter 1994.
The Company had a net deferred tax asset of $14,628 at October 29, 1995 and
$800 at January 29, 1995. The increase in the net deferred tax asset resulted
primarily from the recording of a current deferred asset relating to the $35
million non-cash charge mentioned previously.
THIRTY-NINE WEEK PERIOD ENDED OCTOBER 29, 1995 ("YEAR-TO-DATE 1995") COMPARED
WITH THIRTY-NINE WEEK PERIOD ENDED OCTOBER 30, 1994 ("YEAR-TO-DATE 1994").
Total sales increased 4.4% and comparable store sales decreased 6.9% for
year-to-date 1995 as compared to year-to-date 1994. The increase in total
sales was the result of opening 66 net new stores since January 31, 1994,
partially offset by the comparable store sales decrease for the period. The
comparable sales decrease for year-to-date 1995 resulted from a combination of
(1) low inventory positions in the warehouses at the beginning of 1995 (which
impaired fresh merchandise from flowing to the stores early in the first
quarter of the current year), (2) the continuing weakness in apparel sales and
(3) the current difficult retail environment.
Sales from California stores were approximately 62% of the Company's total
sales for year-to-date 1995. California stores experienced a comparable store
decrease for the same period.
The year-to-date 1995 gross profit margin was 39.0% including the $35 million
non-cash charge and 46.7% excluding the charge. The year-to-date 1994 gross
profit rate was 46.9%. The slight decrease in the gross profit margin for the
first three quarters (excluding the $35 million non-cash charge) is due
primarily to a higher level of promotional markdowns, which were taken to
attract customers into the stores and clear selected merchandise, an increase
in the accrual rate for inventory shrinkage (which is based upon the Company's
fiscal 1994 year-end results), and a lower initial markup on shipments to the
stores for year-to-date 1995 versus year-to-date 1994. However, these
decreases in the gross profit margin were partially offset by a higher initial
markup on beginning store inventory in the current year versus the prior year
and certain markdown allowances received from vendors to clear discontinued
merchandise in 1995 but not in the prior year.
<PAGE> 10
Operating expenses were 40.4% of sales for year-to-date 1995 compared to 40.6%
of sales for year-to-date 1994. The improvement was due to a decrease in both
warehouse and administrative expenses, which were partially offset by a slight
increase in store expenses.
Store expenses totaled 30.8% and 30.5% for year-to-date 1995 and year-to-date
1994, respectively. The increase in store expenses as a percent of sales for
year-to-date 1995 versus year-to-date 1994 was largely the result of the higher
occupancy, depreciation and advertising expenses due to the opening of new
stores. The higher occupancy, depreciation and advertising expenses were only
partially offset by efficiencies and expense control in payroll and workers'
compensation expense. Due to payroll expense controls not being implemented
until the end of the first quarter in the current year, the Company did not
begin experiencing meaningful benefits from these controls until the second
quarter of 1995.
Warehouse and administrative expenses totaled 9.6% and 10.2% of sales for
year-to-date 1995 and year-to-date 1994, respectively. Expense controls in the
warehouses and administrative areas resulted in a reduction in most expenses in
both dollars and as a percent of sales.
The year-to-date 1995 interest expense was $9,317 compared to the year-to-date
1994 interest expense of $4,679. The increase in interest expense resulted
from both an increase in the average amount of debt outstanding and higher
interest rates. The increase in the average amount of debt outstanding is the
combined result of higher inventory levels in the first three quarters of 1995
compared to the same period in 1994 and the treasury shares repurchased last
year.
Income taxes were provided at a rate of 39.5% for year-to-date 1995, compared
to an income tax rate of 40.0% for year-to-date 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $11,276 in the first three quarters of
fiscal 1995 compared to an increase of $6,105 in the first three quarters of
fiscal 1994. The major factors influencing the increase of cash and cash
equivalents in the first three quarters of the current year compared to the
same period last year were the repurchase of treasury stock in the prior year
(which did not reoccur in the current year) and a decrease in capital
expenditures, partially offset by an increase in inventories and in cash
outlays for both income taxes and interest.
As of October 29, 1995, the Company's long-term debt was 57.9% of equity and
its total debt was 93.1% of equity compared to 2.1% and 77.9%, respectively, at
October 30, 1994. At January 30, 1995, long-term debt was 2.1% of equity and
total debt was 39.2% of equity. This increase in the level of debt reflects the
Company's higher merchandise inventory level and the repurchases of treasury
stock during fiscal 1994. In addition, the increase in the level of long-term
debt compared to both October 30, 1994 and January 30, 1995, reflects the
reclassification as long-term the portion of the Company's total debt that is
not required to be repaid at its next clean-down date of September 30, 1996.
The Company believes its present lines of credit are adequate to meet any
seasonal or temporary liquidity needs that cannot be met with cash flow from
operating activities. At October 29, 1995, the Company had $188,000 of
outstanding revolving debt. Of this outstanding debt, $133,000 was borrowed
under the Company's $200,000 committed credit line and $55,000 was borrowed
<PAGE> 11
under the Company's uncommitted credit lines. During the third quarter of
1995, the maturity date of the Company's committed line of credit was extended
by one year to August 10, 1998, and the permitted use of unsecured, uncommitted
short-term lines of credit was temporarily increased to $60 million from
$40 million through December 15, 1995.
The Company's current ratio as of October 29, 1995 was 1.99 versus 1.28 at
fiscal year end 1994 and 1.19 at October 30, 1994. The improvement in the
Company's current ratio is due primarily to the reclassification of a portion
of the Company's revolving debt as long-term offset in part by the increase in
the Company's borrowings to partially finance the repurchase of treasury stock
during fiscal 1994.
For the nine months ended October 29, 1995, inventory turnover improved to 1.15
from 1.09 for the nine months ended October 30, 1994. This improvement in
inventory turnover reflects the $35 million non-cash charge taken by the
Company in the third quarter of the current year and the Company's commitment
to reduce inventory levels and improve inventory turnover.
It is estimated that the $35 million non-cash charge reduced the quarterly
earnings per share by $0.82. Excluding the non-cash charge, the Company
experienced a third quarter increase in both operating income and earnings
per share.
<PAGE> 12
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits -- Exhibit 10.1 -- Letter dated August 4,
1995 executed by Bank of
America, NT&SA, as
administrative agent, and the
other banks signatory
thereto, amending that
certain Amended and Restated
Credit Agreement dated as of
October 5, 1993, among the
Registrant, certain of its
subsidiaries, Bank of
America, NT&SA, as
administrative agent, and
such banks.
-- Exhibit 10.2 -- Separation Agreement and
Release of Claims dated
September 6, 1995 by and
between Leonard S. Williams
and MacFrugal's Bargains o
Close-outs, Inc.
-- Exhibit 27 -- Financial Data Schedule.
(b) Reports on Form 8-K - No reports on Form 8-K have
been filed during the quarter ended October 29, 1995.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
/s/ Philip L. Carter
-------------------------------------------------
Philip L. Carter
President and Chief Executive Officer
(Principal Executive Officer)
/s/ John D. Branch
-------------------------------------------------
John D. Branch
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
DATE: December 11, 1995
<PAGE> 1
EXHIBIT 10.1
August 4, 1995
Mac Frugal's Bargains o Close-Outs Inc.
Attention:
Re: Mac Frugal's Bargains o Close-Outs Inc.
Amended and Restated Credit Agreement
dated as of October 5, 1993
Gentlemen:
We refer to that certain Amended and Restated Credit Agreement
dated as of October 5, 1993, as amended, among Mac Frugal's Bargains o
Close-Outs Inc., a Delaware corporation, West Coast Liquidators, Inc., a
California corporation, PNS Stores, Inc., a California corporation (the
"Borrowers"), the banks party thereto (the "Lenders"), Bank of America National
Trust and Savings Association, as Administrative Agent, and Bank of America
Illinois, as Co-Agent (the "Agreement").
Section 2.21 of the Agreement provides that the Revolver
Maturity Date may be extended annually by all Lenders consenting to such
extension not later than 45 days after receipt of a written notice from the
Administrative Agent seeking such consent (the "Consent Date"). By July 21,
1995, the Consent Date to extend the Revolver Maturity Date to August 10, 1998,
one Lender had not consented to such extension, and, therefore, by the terms of
said Section 2.21, the Revolver Maturity Date was not extended.
By an assignment effective as of July 31, 1995, the dissenting
Lender has assigned all its right, title and interest in the Agreement and its
Loans and participations in Letters of Credit thereunder to Bank of America
National Trust and Savings Association. After giving effect to such
assignment, all remaining Lenders agreed to extend the Revolver Maturity Date
to August 10, 1998, but not by the Consent Date. The Borrower's have requested
that all Lenders waive the requirement that such consent must have been
obtained by the Consent Date for this year's extension.
<PAGE> 2
Mac Frugal's Bargains o Close-Outs Inc.
August 4, 1995
Page 2
This will confirm that, by signing below, the Administrative
Agent, all Lenders and the Issuing Bank hereby agree to waive the requirement
that such consent be obtained by such Consent Date, and accordingly, agree and
confirm that the Revolver Maturity Date has been extended to August 10, 1998.
This waiver is specific in time and in intent and does not
constitute, nor should it be construed as, a waiver of any other right,
power or privilege under the Agreement, or under any agreement, contract,
indenture, document or instrument mentioned in the Agreement; nor does it
preclude other or further exercise hereof or the exercise of any other right,
power or privilege, nor shall any waiver of any right, power, privilege or
default hereunder, or under any agreement, contract, indenture, document or
instrument mentioned in the Agreement, constitute a waiver of any other default
of the same or of any other term or provision.
Capitalized terms not otherwise defined herein shall have the
meanings specified in the Agreement. This waiver may be signed in any number
of counterparts, each of which when so executed and delivered shall be deemed
an original, but all such counterparts together shall constitute but one and
the same instrument.
Very truly yours,
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as
Administrative Agent
By: /s/ L. Chenevert
--------------------------------
L. Chenevert, Jr.
Vice President
<PAGE> 3
Mac Frugal's Bargains o Close-Outs Inc.
August 4, 1995
Page 3
BANK OF AMERICA ILLINOIS, as Co-Agent
By: /s/ L. Chenevert
---------------------------------
L. Chenevert, Jr.
Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Yvonne Dennis
---------------------------------
Yvonne Dennis
Vice President
By: /s/ Sabur Moini
---------------------------------
Sabur Moini
Assistant Vice President
BANK OF AMERICA ILLINOIS
By: /s/ Yvonne Dennis
---------------------------------
Yvonne Dennis
Vice President
By: /s/ Sabur Moini
---------------------------------
Sabur Moini
Assistant Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Ted A. Dunn
---------------------------------
Title: Assistant Vice President
(Signatures continue)
<PAGE> 4
Mac Frugal's Bargains o Close-Outs Inc.
August 4, 1995
Page 4
THE BANK OF CALIFORNIA, N.A.
By: /s/ Lynn E. Vine
--------------------------
Title: Vice President
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD. LOS ANGELES AGENCY
By: /s/ Y. Kamisawa
--------------------------
Title: Deputy General Manager
UNITED STATES NATIONAL BANK OF
OREGON
By: /s/ Janet Jordan
--------------------------
Title: Vice President
MELLON BANK, N.A.
By: /s/ Harry F. Kusick, Jr.
--------------------------
Title: First Vice President
UNION BANK
By: /s/ Ann M. Yasuda
--------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 10.2
SEPARATION AGREEMENT AND RELEASE OF CLAIMS
This Separation Agreement and Release of Claims (the
"Agreement") is entered into by and between Leonard S. Williams ("Williams")
and MacFrugal's Bargains o Close-Outs, Inc. (the "Company") to resolve all
matters between Williams and the Company concerning Williams' employment with
the Company and termination of that employment.
RECITALS
WHEREAS, Williams served as President and Chief Executive
Officer of the Company for more than four years; and
WHEREAS, Williams and the Company were parties to an
Employment Agreement dated November 12, 1990, as amended (the "Employment
Agreement"), which Employment Agreement was terminated as of the Company's
Annual Meeting of Stockholders on June 14, 1995 by mutual agreement of the
parties; and
WHEREAS, the parties hereto desire to resolve all matters
relating to Williams' employment with the Company and set forth solely in this
document all continuing understandings and agreements between them.
NOW, THEREFORE, the parties hereby agree as follows:
AGREEMENT
1. Termination of Employment Agreement. Williams and
the Company agree and confirm that (a) the Employment Agreement was terminated
on June 14, 1995; (b) Williams ceased performing services for the Company as a
director and as an employee on June 14, 1995; and (c) neither party has any
remaining obligations or responsibilities thereunder except as otherwise set
forth in this Agreement.
2. Cash Payments. Williams will be paid weekly by the
Company at the rate of $45,000 per month, with the last such payment to be made
with respect to the last week of September, 1996. Williams will also be
entitled to receive from the Company an additional cash payment equivalent to
the amount of the "Performance Bonus" to which he would have been entitled
under the terms of the Employment Agreement with respect to the Company's
fiscal year ending on or about January 31, 1996. This cash bonus, if any, will
be paid to Williams at the same time comparable performance bonus payments are
made to executive officers of the Company.
<PAGE> 2
3. Benefits. The Company will, through September 30,
1996, provide to Williams either (a) the same medical, dental, and life
insurance benefits as those which were provided to him while he was an active
executive of the Company, or (b) substantially equivalent coverage. As of
August 1, 1995, payments made by the Company with respect to William's
medical and dental insurance coverages will be COBRA continuation of group
health benefits.
4. Stock Options. The terms of all stock options held
by Williams which were vested and exercisable as of March 15, 1995 pursuant to
the Company's Incentive Stock Plan are modified and extended to permit exercise
by Williams of such currently exercisable stock options through and until
December 15, 1996. An itemization of Williams' stock options is attached
herewith as Schedule A. Williams acknowledges his understanding that this
modification and extension will result in such options being treated for tax
purposes as "nonqualified" stock options rather than "incentive" stock options.
All other stock options held by Williams which were not vested and exercisable
as of March 15, 1995 are terminated and of no further force and effect.
5. Return of Company Property. Williams confirms that
all items of property of the Company possessed by him which were utilized in
connection with his employment have been returned to the Company, except for an
automobile and cellular telephone issued to him by the Company. Williams
agrees to return the automobile and cellular telephone to the Company in good
condition and repair on or before September 30, 1995.
6. Noncompetition and Prohibited Solicitation. In
consideration for the payments and benefits provided by the Company to Williams
hereunder, Williams agrees that for a period of two years from the date hereof,
he will not compete against the Company, directly or indirectly, alone or as a
member of a partnership or group, or as an officer, director, stockholder,
employee, consultant, representative or affiliate of any company involved in a
close-out merchandise business in any county of any state in the United States
in which the Company is now conducting business. Williams also agrees that for
the same two year period, he will not, without the written consent of the
Company, solicit, entice or persuade any employee of the Company or any
affiliate of the Company to leave the services of the Company or such affiliate
for any reason.
7. Protected Information. Williams recognizes and
acknowledges that during the course of his employment, (a) the Company
disclosed and furnished to him confidential and proprietary information
related to the Company's business, including without limitation, supplier and
vendor lists, ideas, processes, inventions and devices; (b) such confidential
information constitutes trade secrets of the Company; and (c) such information
was to be used by Williams for the purpose of carrying out his duties under the
Employment Agreement and was not to be disclosed for any other purpose. In
furtherance of the foregoing, Williams agrees not to misappropriate, disclose
or make available to anyone outside of the Company at any time any such
confidential information without the prior written consent of the Company,
which consent may be withheld for any reason or no reason at all. Williams
confirms he has returned to the Company copies of all confidential information
in his possession relating to the Company's business or prospects.
2
<PAGE> 3
8. No Disparagement and Business References. Williams
agrees to refrain from making disparaging remarks about the Company or its
officers or employees to any person or business entity, and the Company agrees
to use its best efforts to ensure that its officers and employees refrain from
making disparaging remarks to any person or business entity about Williams.
The Company agrees to provide Williams with a positive, truthful letter of
recommendation signed by Peter S. Willmott, its Chairman of the Board, on
Company letterhead, and the Company will use its best efforts to channel any
employment inquiry concerning Williams to Mr. Willmott.
9. Confidentiality of this Agreement. This Agreement and
the terms hereof will remain strictly confidential and shall not be disclosed
to any person or entity, except (a) for Williams' spouse, financial, legal or
tax advisor, (b) response to inquiry by federal or state tax authorities, (c)
as required to enforce this Agreement or (d) as required by law. The Company
and Williams specifically agree that this Agreement is not citable for any
purpose in any other legal or administrative proceeding (except a proceeding to
enforce this Agreement).
10. Mutual General Release. As a material provision of
this Agreement, Williams, on behalf of himself, his heirs and assigns, does
hereby release the Company, its shareholders, subsidiaries, and affiliated
companies and each of their respective officers, directors and employees from
any and all claims, liabilities, demands, rights and interests of whatsoever
kind and character, including, but not limited to, those arising from or
attributable to Williams' employment with the Company or arising from, or in
any way attributable to, the Employment Agreement including claims for breach
of contract, breach of implied covenant, breach of oral or written promise,
wrongful termination, race, age, sex, national origin or other discrimination,
including any claims under the federal Age Discrimination in Employment Act of
1967, and any claims for additional payment or reimbursement in the event that
any taxing authority should determine that monies or benefits allocated or paid
to compromise his claims constitute taxable income in whole or in part. The
Company, on behalf of itself, its shareholders, subsidiaries, and affiliated
companies and each of their respective officers, directors and employees, does
hereby release Williams and his heirs and assigns from any and all claims,
liabilities, demands, rights and interests of whatsoever kind and character,
including but limited to, those arising from or attributable to Williams'
employment with the Company or arising from, or in any way attributable to, the
Employment Agreement including claims for breach of contract, breach of implied
covenant and breach of any oral or written promise. The Company further agrees
to defend and indemnify Williams and hold him harmless with respect to any
claims, liabilities or demands made against Williams by any persons based upon
actions taken, or alleged to have been taken, by Williams during the course and
scope of his employment service as President and Chief Executive Officer of the
Company. Williams and the Company specifically and expressly waive and release
all rights under the provisions of Section 1542 of the California Civil Code,
which provides as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor.
3
<PAGE> 4
11. Arbitration. All claims or controversies of any type
between Williams and the Company regarding matters pertaining to this Agreement
or Williams' employment relationship with the Company (except the Company's
right to seek injunctive relief as contemplated by the last sentence of this
paragraph 11) will be settled and finally determined by one arbitrator in Los
Angeles County, California in accordance with the Employment Dispute Resolution
Rules of the American Arbitration Association, and judgment by the arbitrator
may be entered in any court having jurisdiction thereof. This agreement to
arbitrate includes any claims for breach of contract, wrongful termination,
discrimination of any type and all other claims of any type to the maximum
extent permissible. In the event of breach or threatened breach of paragraph 6
or 7 above, the Company may, either with or without pursuing any potential
damage remedies, immediately seek to obtain and enforce an injunction
prohibiting Williams from violating the provisions of said paragraphs 6 and 7.
12. No Admissions. Nothing contained herein shall be
construed as an admission of wrongdoing or liability by any party hereto.
13. California Law. This Agreement is to be interpreted
pursuant to California substantive law.
14. Invalid Provisions. Should any of this Agreement for
any reason be declared invalid, the validity and binding effect of any
remaining portion will not be affected, and the remaining portion of this
Agreement will remain in full force and effect as if this Agreement had been
executed with the invalid provision eliminated.
15. Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the legal relationship of
Williams and the Company and supersedes all prior and contemporaneous
agreements, representations and understandings of the parties. No
modification, amendment or waiver of any of the provisions of this Agreement
will be effective unless in writing and signed by both parties.
16. Counterparts. This Agreement is being executed in
more than one counterpart, each of which is legally binding and enforceable.
17. Waiting Period And Right Of Revocation. WILLIAMS
ACKNOWLEDGES THAT HE IS HEREBY ADVISED THAT HE HAS THE RIGHT TO CONSIDER THE
AGREEMENT FOR TWENTY-ONE DAYS BEFORE SIGNING IT AND THAT IF HE SIGNS THIS
AGREEMENT PRIOR TO THE EXPIRATION OF TWENTY-ONE DAYS, HE IS WAIVING THIS RIGHT
FREELY AND VOLUNTARILY AND UPON ADVICE OF HIS COUNSEL. HE ALSO ACKNOWLEDGES
THAT HE IS HEREBY ADVISED OF HIS RIGHTS TO REVOKE THIS AGREEMENT FOR A PERIOD
OF SEVEN DAYS FOLLOWING THE SIGNING OF THIS AGREEMENT AND THAT IT SHALL NOT
BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED. TO
REVOKE THIS AGREEMENT, HE MUST NOTIFY THE COMPANY WITHIN SEVEN DAYS OF SIGNING
IT.
4
<PAGE> 5
18. Attorney Advice. Williams acknowledges that he is
aware of his right to consult an attorney, that he has been hereby advised to
consult with an attorney, and that he has consulted with an attorney prior to
signing this agreement.
19. Understanding of Agreement and Acknowledgments.
Williams acknowledges that he has carefully read this Agreement, that he fully
understands its final and binding effect, that the only promises made to him to
sign this Agreement are those stated above, and that he is signing this
Agreement voluntarily. Williams acknowledges and agrees that no monies or
benefits are owing to him, other than those specifically provided for or
referenced herein. The Company acknowledges and agrees that from and after
June 14, 1995, Williams will have no further obligation whatsoever to provide
services to the Company as an officer, director or employee.
DATED: September 6, 1995
/s/ LEONARD S. WILLIAMS
-------------------------------------
Leonard S. Williams
MACFRUGAL'S BARGAINS o CLOSE-OUTS, INC.
By: /s/ PETER S. WILLMOTT
----------------------------------------
____________________________ Peter S. Willmott, Chairman of the Board
5
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<PERIOD-START> JAN-30-1995
<PERIOD-END> NOV-26-1995
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