<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 29, 1994
--------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14900
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PSS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 91-1335798
- ---------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1511 Sixth Avenue, Seattle, WA 98101
- ---------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (206) 621-6938
--------------
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common stock - $1.00 par value
7-1/8% Convertible Debentures due July 15, 2006
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the registrant's voting stock held by nonaffiliates of
the registrant as of December 1, 1994: $270,000.
The number of shares of common stock outstanding as of October 29, 1994:
19,473,728.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Page 1 of 30
<PAGE>
PART I
ITEM 1 - BUSINESS
PSS, Inc. ("PSS"), formerly Pay'n Save, Inc., through its wholly owned
subsidiary, PNS Inc. ("PNS"), owns PSSC Inc. ("PSSC", formerly Pay'n Save
Stores Inc. or "Pay'n Save"); together, PSS, PNS and PSSC are referred to
collectively as the "Company".
The Company owns pass-through and participation certificates issued by the
Federal Home Loan Mortgage Corporation backed by whole pool real estate
mortgages ("Mortgage Certificates"), and as a result, is primarily engaged in
the business of owning mortgages and other liens on and interests in real
estate. At October 29, 1994, the Company owned approximately $11 million of
Mortgage Certificates from which interest income is earned. The Mortgage
Certificates are financed with borrowings, payable on demand, secured by the
Mortgage Certificates (the "Mortgage Financing"). The principal obligations of
the Company are the Mortgage Financing borrowings, the PSS 7-1/8% Convertible
Debentures due July 15, 2006 (the "Debentures"), and the PNS 12-1/8% Senior
Subordinated Notes due July 15, 1996 (the "Senior Notes"), upon which interest
expense is incurred.
From July 1986, when the Company was organized, until June 1988, subsidiaries of
PNS (the "Sellers") operated retail stores that sold a variety of traditional
drugstore and general merchandise items. In June 1988, pursuant to an Agreement
for the Purchase and Sale of Assets the Sellers sold substantially all of their
assets, comprising the Sellers' entire retail operations, to Thrifty Corporation
(a subsidiary of Pacific Enterprises). In consideration for such sale of assets
(the "Asset Sale"), the Sellers received 5.2 million shares of Pacific
Enterprises common stock (the "PET Shares"). During 1990 through 1993, the
Company sold its PET Shares for the purpose of servicing and repurchasing some
of the Debentures and Senior Notes.
ITEM 2 - PROPERTIES
As a result of the Asset Sale, the Company disposed of all its properties.
ITEM 3 - LEGAL PROCEEDINGS
In the opinion of management, there are no material legal proceedings pending to
which the Company is a party or of which any of its assets is the subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
2
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's common stock is traded over-the-counter. The high and low prices
for the stock by quarter for the two years ended October 29, 1994 were as
follows:
Quarter ended High Low
------------- ---- ---
January 30, 1993 .02 .01
May 1, 1993 .03 .01
July 31, 1993 .03 .01
October 30, 1993 .03 .01
January 29, 1994 .03 .01
April 30, 1994 .03 .01
July 30, 1994 .02 .01
October 29, 1994 .02 .01
The high and low prices for each quarter are the high and low bids as reported
by National Quotation Bureau, Incorporated, which are those quoted by dealers to
each other, exclusive of markups, markdowns or commissions, and do not represent
actual transactions.
HOLDERS
As of November 1, 1994, there were 940 holders of record of the Company's common
stock.
DIVIDENDS ON COMMON STOCK
The Company has never paid a dividend and does not anticipate paying dividends
for the foreseeable future. Any determination as to the payment of dividends
will depend upon future earnings, results of operations, capital requirements,
the financial condition of the Company and such other factors as the Board of
Directors of the Company may consider. The indentures governing the Company's
Senior Notes and Debentures contain covenants which restrict the ability of the
Company to pay dividends (see Note 4 to the financial statements).
3
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
Year ended
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October 29, October 30, October 31, November 2, November 3,
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Loss before extraordinary items (1) $ (2,141) $ (1,161) $(32,913) $(78,358) $(15,027)
Net income (loss) (2) 9,568 47,454 27,665 (58,653) (1,280)
Net income (loss) per common share 0.49 2.44 1.42 (3.01) (.06)
BALANCE SHEET DATA:
Total assets $11,383 $136,634 $217,489 $356,405 $524,467
Short-term borrowings 10,192 124,062 171,089 239,096 337,708
Long-term debt 28,159 48,144 126,634 235,248 261,469
Stockholders' deficit (27,675) (37,243) (84,697) (128,048) (91,730)
<FN>
(1) Includes net realized and unrealized losses on Pacific Enterprises common
stock of approximately $37 million and $68 million during the years ended
October 31, 1992 and November 2, 1991, respectively.
(2) Includes pre-tax extraordinary gains on early extinguishment of debt of
approximately $13 million, $49 million, $77 million, $20 million and
$14 million during the years ended October 29, 1994, October 30, 1993,
October 31, 1992, November 2, 1991, and November 3, 1990, respectively.
See Note 4 to the financial statements.
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At October 29, 1994, the Company's principal assets consisted of approximately
$11 million of Mortgage Certificates from which interest income is earned and
its principal obligations consisted of Mortgage Financing borrowings, Debentures
and Senior Notes upon which interest expense is incurred. Principal payments on
the Debentures and Senior Notes are not scheduled to commence until 1996.
The Mortgage Certificates are financed with borrowings payable on demand
provided against the Mortgage Certificates. During the year ended October 29,
1994, the Company utilized approximately $11.2 million cash from the Mortgage
Certificate portfolio to pay interest on Senior Notes and Debentures totaling
approximately $3.55 million and to purchase approximately $14 million of Senior
Notes and $6 million of Debentures having a combined total purchase price of
approximately $8 million (including accrued interest). During the year ended
October 29, 1994, the Company sold most of its Mortgage Certificate portfolio
for approximately $99 million.
4
<PAGE>
During November 1994, the Company sold a portion of its remaining Mortgage
Certificate portfolio for approximately $4.5 million. At October 29, 1994, the
average annual interest rate to be earned on the Mortgage Certificates, as
determined on the basis that interest rates do not change and before
amortization of premiums, approximated 6.2% and the average annual interest rate
on the related borrowings approximated 5.1%. The rates of interest to be
received on the Mortgage Certificates are adjustable based on general interest
rate trends with certain maximums.
At October 29, 1994, the Company had tangible assets (total assets less deferred
financing costs) of approximately $11.05 million and liabilities secured by such
assets of approximately $10.23 million, thus having a net difference of
approximately $820,000 available for holders of Senior Notes and Debentures. At
October 29, 1994, approximately $5.26 million of Senior Notes and $22.92 million
of Debentures remain outstanding and, annual interest thereon, in the absence of
additional repurchases, approximates $638,000 and $1.63 million, respectively.
The Company's future operating results, liquidity, capital resources and
requirements are primarily dependent upon payment of interest on and purchases
of Senior Notes and Debentures and, to a lesser extent, interest rate
fluctuations as they relate to the market value of Mortgage Certificates
and to the spread of interest income therefrom over interest expense on
related borrowings. The Company is exclusively invested in Mortgage
Certificates, and, accordingly, is presently relying solely on such as its
source of cash funds. In the absence of additional purchases of Senior Notes
and/or Debentures, based upon the Company's October 29, 1994 assets and
liabilities it is expected that the Company will have sufficient capital
resources and liquidity to meet debt service requirements on the Senior Notes
for the next 12 months; it is not expected that the Company will have sufficient
capital resources to meet debt service requirements on the Debentures for the
next 12 months. It has not been determined what course of action the Company
may pursue with respect to debt service comprising interest payments and future
maturities of Senior Notes and Debentures.
RESULTS OF OPERATIONS
INTEREST INCOME
Interest income for each of the years ended October 29, 1994, October 30, 1993
and October 31, 1992 decreased as compared to the immediate preceding year as a
result of lower balances of investments in Mortgage Certificates and lower
annual interest income rates earned on the adjustable rate Mortgage
Certificates. The weighted average interest income rate earned on the Mortgage
Certificates, net of amortization of premiums, approximated 5.0%, 5.8% and 7.4%
during the years ended October 29, 1994, October 30, 1993 and October 31, 1992,
respectively.
5
<PAGE>
INTEREST EXPENSE
Interest expense for each of the years ended October 29, 1994 and October 30,
1993 decreased as compared to the immediate preceding year primarily due to
lower investments in Mortgage Certificates and related borrowings upon which
interest expense is incurred and lower interest rates. The weighted average
interest expense rate on Mortgage Certificate related borrowings approximated
3.9%, 3.4% and 4.3% during the years ended October 29, 1994, October 30, 1993
and October 31, 1992, respectively. Interest expense also decreased during each
of the years ended October 29, 1994, October 30, 1993 and October 31, 1992 as
compared to the preceding year as a result of having fewer Debentures and Senior
Notes outstanding due to bond repurchases.
REALIZED AND UNREALIZED LOSS
During the year ended October 30, 1993, the Company (i) sold approximately 1.6
million PET Shares and recorded a realized loss of approximately $40 million,
and (ii) recorded a decrease in unrealized loss of approximately $42 million,
representing the previously recognized unrealized loss for PET Shares sold
during the year.
During the year ended October 31, 1992, the Company (i) sold approximately
2.6 million PET Shares and recorded a realized loss of approximately $61 million
and (ii) recorded an increase in unrealized loss on PET Shares of approximately
$16 million for shares owned at October 31, 1992 representing an estimate of the
portion of the decline in market value from its adjusted cost basis, which is
attributable to being other than temporary. Additionally, during the year ended
October 31, 1992, the Company recorded an increase in unrealized loss of
approximately $2 million representing the difference between the adjusted cost
basis and current market value of the investment in PET Shares and a decrease in
unrealized loss of approximately $42 million representing the previously
recognized unrealized loss for PET Shares sold during the year.
WRITE OFF OF RESERVE FOR SALES PRICE ADJUSTMENT
During the year ended October 31, 1992, in connection with a settlement
agreement with Pacific Enterprises, as more fully described in Note 1 to the
financial statements, the Company paid $1 million cash and wrote off the
remaining reserve for sales price adjustments resulting in a $1 million noncash
credit to the consolidated statement of operations.
6
<PAGE>
EXTRAORDINARY ITEMS
During the year ended October 29, 1994, the Company purchased approximately
$14 million and $6 million of its Senior Notes and Debentures, respectively, and
as a result, after the write-off of related deferred financing costs, recorded
an extraordinary gain on early extinguishment of debt, before income taxes, of
approximately $13 million.
During the year ended October 30, 1993, the Company purchased approximately
$65 million and $14 million of its Senior Notes and Debentures, respectively,
and as a result, after the write-off of related deferred financing costs,
recorded an extraordinary gain on early extinguishment of debt, before income
taxes, of approximately $49 million.
During the year ended October 31, 1992, the Company purchased approximately
$65 million and $44 million of its Senior Notes and Debentures, respectively,
and as a result, after the write-off of related deferred financing costs,
recorded an extraordinary gain on early extinguishment of debt, before income
taxes, of approximately $77 million.
7
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS PAGE
Report of Independent Accountants 8
Consolidated Balance Sheets 9
Consolidated Statements of Operations 10
Consolidated Statements of Cash Flows 11
Notes to Financial Statements 12
FINANCIAL STATEMENT SCHEDULES
Financial statement schedule information is presented
in the financial statements.
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of PSS, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of PSS, Inc. and its subsidiaries at
October 29, 1994 and October 30, 1993, and the results of their operations and
their cash flows for each of the three years in the period ended October 29,
1994, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a net capital deficiency that raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PRICE WATERHOUSE LLP
Seattle, Washington
December 15, 1994
8
<PAGE>
PSS, INC.
CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
<TABLE>
<CAPTION>
October 29, October 30,
1994 1993
----------- -----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and short-term investments $ 45 $ 572
Investment in mortgage certificates 10,892 133,837
Accrued interest receivable 112 1,352
-------- --------
Total current assets 11,049 135,761
Deferred Financing Costs 334 873
-------- --------
$ 11,383 $ 136,634
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Borrowings under mortgage certificate
financing agreement $ 10,192 $ 124,062
Accrued interest payable 666 1,420
Accounts payable and accrued liabilities 41 251
-------- --------
Total current liabilities 10,899 125,733
-------- --------
Long-term Debt 28,159 48,144
-------- --------
Stockholders' Deficit:
Preferred stock, $1 par value, authorized
10,000,000 shares; none issued
Common stock, $1 par value, authorized
60,000,000 shares; issued and
outstanding 19,473,728 19,474 19,474
Additional paid-in capital 149,110 149,110
Accumulated deficit (196,259) (205,827)
-------- --------
Total stockholders' deficit (27,675) (37,243)
-------- --------
$ 11,383 $ 136,634
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
9
<PAGE>
PSS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of dollars except per share data)
<TABLE>
<CAPTION>
Year ended
-----------------------------------
October 29, October 30, October 31,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Investment income $ 4,804 $ 9,073 $ 16,550
Interest expense (7,841) (12,076) (29,709)
Realized loss on sale of Pacific
Enterprises common stock (40,209) (60,630)
Decrease in unrealized loss on
Pacific Enterprises common stock 41,836 23,442
General and administrative expense (207) (383) (521)
Write-off of reserve for sales
price adjustment 1,000
------- ------- -------
Loss before income taxes and
extraordinary items (3,244) (1,759) (49,868)
Income tax benefit 1,103 598 16,955
------- ------- -------
Loss before extraordinary items (2,141) (1,161) (32,913)
Extraordinary items:
Gain on early extinguishment of
debt, net of income taxes of $4,356,
$16,732 and $26,361, respectively 8,456 32,481 51,172
Tax benefit resulting from
utilization of net operating
loss carryforwards 3,253 16,134 9,406
------- ------- -------
Net income $ 9,568 $ 47,454 $ 27,665
------- ------- -------
------- ------- -------
Income (loss) per common share:
Loss before extraordinary items $ (0.11) $ (0.06) $ (1.69)
Extraordinary items 0.60 2.50 3.11
------- ------- -------
Net income $ 0.49 $ 2.44 $ 1.42
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
10
<PAGE>
PSS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
<TABLE>
<CAPTION>
Year ended
-------------------------------------------
October 29, October 30, October 31,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,568 $ 47,454 $ 27,665
Adjustments to reconcile net income to net
cash used by operating activities:
Extraordinary gain on early extinguishment of debt (12,812) (49,213) (77,533)
Realized loss on sale of Pacific Enterprises
common stock 40,209 60,630
Amortization 963 1,088 1,552
Decrease in unrealized loss on Pacific
Enterprises common stock (41,836) (23,442)
Payment of interest upon purchase of long-term
debt with Pacific Enterprises common stock 1,209
Write-off of reserve for sales price adjustment (1,000)
Decrease in accrued interest receivable 1,240 672 2,966
Decrease in accrued interest payable (754) (2,728) (3,644)
Other (208) (458) (1,018)
------- ------- -------
Net cash used by operating activities (2,003) (4,812) (12,615)
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of mortgage certificates 98,653 13,220
Principal repayments on mortgage certificates 23,664 33,995 43,226
Proceeds from sale of Pacific Enterprises
common stock 21,893 45,265
------- ------- -------
Net cash provided by investing activities 122,317 69,108 88,491
------- ------- -------
Cash flows from financing activities:
Repayment of borrowings under mortgage
certificates financing agreement (113,870) (47,027) (51,007)
Repurchases of long-term debt (6,971) (18,568) (20,522)
Repayment of notes payable (17,000)
------- ------- -------
Net cash used by financing activities (120,841) (65,595) (88,529)
------- ------- -------
Net decrease in cash and short-term investments (527) (1,299) (12,653)
Cash and short-term investments at
beginning of year 572 1,871 14,524
------- ------- -------
Cash and short-term investments at
end of year $ 45 $ 572 $ 1,871
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
11
<PAGE>
PSS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
OPERATIONS
The financial statements present the consolidated financial position and results
of operations of PSS, Inc. ("PSS", formerly Pay'n Save Inc.), and its
subsidiaries including its direct subsidiary PNS Inc. ("PNS"), collectively, the
"Company". The Company owns pass-through and participation certificates issued
by the Federal Home Loan Mortgage Corporation backed by whole pool real estate
mortgages ("Mortgage Certificates"), and as a result, is primarily engaged in
the business of owning mortgages and other liens on and interests in real
estate. The principal obligations of the Company are borrowings secured by the
Mortgage Certificates, the PNS 12-1/8% Senior Subordinated Notes due July 15,
1996 (the "Senior Notes") and the PSS 7-1/8% Convertible Debentures due
July 15, 2006 (the "Debentures").
OWNERSHIP
The Company is principally owned by Seacorp, Inc. ("Seacorp") and Zimmerman
Retailing Group Limited ("Zimco"). Seacorp and Zimco own approximately 41% and
38%, respectively, of the Company's outstanding common stock, with the remainder
publicly owned. Pursuant to various agreements, as amended, there are numerous
provisions to ensure joint control of the Company by Seacorp and Zimco through
October 31, 1995, with Seacorp having the right to nominate more directors than
nominated by Zimco.
SALE OF RETAIL BUSINESS
In June 1988, pursuant to an Agreement for the Purchase and Sale of Assets (the
"Agreement"), subsidiaries of PNS (the "Sellers") sold substantially all of
their assets, comprising the Sellers' entire retail operations, to Thrifty
Corporation ("Thrifty", a subsidiary of Pacific Enterprises). In consideration
for the sale of such assets, the Sellers received approximately 5.2 million
shares of Pacific Enterprises common stock (the "PET Shares"), a portion of
which were held in escrow, and the right to receive certain contingent cash
payments. During the year ended October 31, 1992, the Company entered into a
settlement agreement (the "Settlement Agreement") with Pacific Enterprises and
Thrifty pursuant to which, among other things, (i) the Company received all PET
Shares previously held in escrow, (ii) the Company was released from any and all
claims, liabilities or obligations which have or may arise in connection with
its sale of retail operations to Thrifty, (iii) the Company paid Thrifty
$1 million cash, and (iv) the Company's right to receive any contingent cash
payments was terminated. The cash payment pursuant to the Settlement Agreement
reduced the reserve for sales price adjustment which was recorded at the time of
the June 1988 sale. In connection with the Settlement Agreement, the Company
wrote off the remaining reserve for sales price adjustment resulting in a $1
million noncash credit to the consolidated statement of operations for the year
ended October 31, 1992.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At October 29, 1994, the Company had tangible assets (total assets less deferred
financing costs) of approximately $11.05 million and liabilities secured by such
assets of approximately $10.23 million, thus having a net difference of
approximately $820,000 available for holders of Senior Notes and Debentures. At
October 29, 1994, approximately $5.26 million of Senior Notes and $22.92 million
of Debentures remain outstanding and, annual interest thereon, in the absence of
additional repurchases, approximates $638,000 and $1.63 million, respectively.
The Company's future operating results, liquidity, capital resources and
requirements are primarily dependent upon payment of interest on and purchases
of Senior Notes and Debentures and, to a lesser extent, interest rate
fluctuations as they relate to the market value of Mortgage Certificates
and to the spread of interest income therefrom over interest expense on related
borrowings. The Company is exclusively invested in Mortgage Certificates, and,
accordingly, is presently relying solely on such as its source of cash funds.
In the absence of additional purchases of Senior Notes and/or Debentures, based
upon the Company's October 29, 1994 assets and liabilities it is expected that
the Company will have sufficient capital resources and liquidity to meet debt
service requirements on the Senior Notes for the next 12 months; it is not
expected that the Company will have sufficient capital resources to meet debt
service requirements on the Debentures for the next 12 months. It has not been
determined what course of action the Company may pursue with respect to
debt service comprising interest payments and future maturities of Senior Notes
and Debentures.
NOTE 2 - SUMMARY OF ACCOUNTING PRINCIPLES
CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments, having maturities of three months or less when
purchased, are primarily comprised of interest-bearing short-term bank deposits.
INVESTMENT IN MORTGAGE CERTIFICATES
The investment in Mortgage Certificates is recorded at the lower of amortized
cost or market. Gains and losses realized on sale are determined utilizing the
specific identification method. Premiums paid (the excess of cost over face
value of the Mortgage Certificates) are amortized utilizing the interest method.
Based upon market prices obtained from traders, amortized cost approximates
estimated market value. Gains and losses realized upon sale of Mortgage
Certificates and unrealized losses resulting from mark-to-market adjustments
are included in investment income.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share data have been computed on the basis of
19,473,728 shares outstanding. For purposes of calculating income (loss) per
common share, the conversion of the PSS 7-1/8% Convertible Debentures would be
antidilutive and thus was not assumed.
13
<PAGE>
RECLASSIFICATIONS
Certain reclassifications have been made in prior years' financial statements in
order to conform with October 29, 1994 financial statement classifications.
NOTE 3 - INVESTMENT IN MORTGAGE CERTIFICATES
During the year ended November 3, 1990, PSSC purchased its investment in
Mortgage Certificates with financing provided by an investment bank pursuant to
a letter agreement (the "Financing Agreement"). Borrowings pursuant to the
Financing Agreement (the "Mortgage Financing") are secured by the Mortgage
Certificates. In the event of a decrease in the aggregate market value of the
Mortgage Certificates below the requirements of the Financing Agreement,
additional collateral is required. Principal and interest payments received on
Mortgage Certificates are maintained in an interest earning account and are
released to the Company, at its request, after all interest and any "mark-to-
market" indebtedness then due have been paid. The Mortgage Financing is payable
on demand and generally bears interest at rates approximating LIBOR plus 10
basis points. Mortgage Financing borrowings and related interest rates
approximated $10 million and 5.1% at October 29, 1994 and $124 million and 3.3%
at October 30, 1993, respectively. During the years ended October 29, 1994,
October 30, 1993 and October 31, 1992, the average balance of mortgage related
borrowings outstanding approximated $91 million, $143 million and $196 million,
and the weighted annual average interest expense rates approximated 3.9%, 3.4%,
and 4.3%, respectively.
At October 29, 1994, the average annual interest rate to be earned on the
Mortgage Certificates approximated 6.2% as determined on a basis that interest
rates do not change and before amortization of premiums paid on the Mortgage
Certificates. The rates of interest on the Mortgage Certificates are adjustable
based on general interest rate trends with certain maximums, which vary by pool,
including limits of 2% for annual interest rate changes and interest rate
maximums of approximately 13%. The weighted average interest income rates
earned on the Mortgage Certificates, net of amortization of premiums,
approximated 5.0%, 5.8% and 7.4% during the years ended October 29, 1994,
October 30, 1993 and October 31, 1992, respectively.
The Company sold approximately $99 million and $13 million of Mortgage
Certificates during the years ended October 29, 1994 and October 30, 1993,
respectively.
14
<PAGE>
NOTE 4 - DEBT
Long-term debt is summarized as follows (thousands of dollars):
<TABLE>
<CAPTION>
October 29, October 30,
1994 1993
----------- -----------
<S> <C> <C>
PSS 7-1/8% Convertible Debentures $22,920 $28,670
PNS 12-1/8% Senior Subordinated Notes 5,258 19,583
------ ------
28,178 48,253
Less -
Original issue discount, net of
amortization (19) (109)
------ ------
$28,159 $48,144
------ ------
------ ------
</TABLE>
In July 1986, the Company completed three public securities offerings (the
"Public Offerings"). PNS issued $150 million of Senior Notes (at a price of
98.6%) and PSS sold 3.25 million shares of its common stock and issued at par
$150 million of Debentures convertible to PSS common stock at $19.68 per share
(the conversion price is subject to adjustment in the case of dilution). Debt
financing costs and the discount on the Senior Notes are amortized over the term
of the borrowings. PSS invested the net proceeds from its two offerings in PNS,
in the form of a contribution to capital and an intercompany debenture between
PNS and PSS (the "Intercompany Debenture") in the amount of $150 million with
substantially the same interest rate and redemption provisions as the
Debentures. At October 29, 1994, the Intercompany Debenture approximated
$11 million.
The indenture governing the Senior Notes restricts the ability of PNS and its
subsidiaries to pay dividends or make other payments to PSS. The Senior Notes
indenture permits PNS to pay dividends to PSS in amounts sufficient to enable
PSS to meet its obligations on the Debentures when due (to the extent payments
are not made to PSS when due pursuant to the Intercompany Debenture), provided
that no event of default (as defined in the Senior Notes indenture) has occurred
and is continuing.
The Senior Notes and Debentures provide for semiannual interest payments and are
unsecured. Principal repayment on the Senior Notes is due in full on July 15,
1996. The Debentures require annual principal payments of approximately $11
million commencing July 15, 1996 until July 15, 2006 when the balance is due; by
utilizing Debentures which the Company has previously acquired, there will be no
scheduled maturity payments required before 2006.
The indentures for the Senior Notes and Debentures contain certain restrictive
covenants which, among other things, limit dividends and similar distributions
to stockholders, redemptions and retirements of the Company's equity (in the
aggregate), to 25% of its net income, as defined, after May 3, 1986, essentially
prohibiting such transactions
15
<PAGE>
as of October 29, 1994, limit the Company's ability to incur debt and restrict
action and agreements by the Company that would prohibit dividends and similar
distributions to the Company from its subsidiaries. The indentures pursuant to
which the Debentures and Senior Notes were issued each require, under certain
conditions, accelerated redemption payments of $15 million principal amount
semiannually if the respective Company's Tangible Net Worth (as defined in the
governing indentures) is less than or equal to a defined minimum ("Minimum
Tangible Net Worth") at the end of any two consecutive fiscal quarters. At
October 29, 1994, both PSS's and PNS's Tangible Net Worth exceeded their
respective Minimum Tangible Net Worth. Accelerated redemption payments of the
Debentures and Senior Notes are subject to reduction at the Company's option for
Debentures and Senior Notes previously acquired.
During the year ended October 31, 1992, by reducing the Intercompany Debenture
and contemporaneously increasing the Tangible Net Worth of PNS, PNS did not have
any requirement with respect to accelerated redemption payments as a result of
its Tangible Net Worth being less than its Minimum Tangible Net Worth for the
two consecutive fiscal quarters ended November 2, 1991. Additionally, as a
result of PSS's Tangible Net Worth having been less than Minimum Tangible Net
Worth at each of the fiscal quarter ends beginning August 3, 1991 through May 2,
1992, the Company reduced its required accelerated redemption payments relating
to each of the two consecutive fiscal quarters ended November 2, 1991 and May 2,
1992 by utilizing $15 million of Debentures (which the Company had reacquired)
in each of January and June 1992 and, as a result, was not required to utilize
cash resources to fulfill its accelerated redemption obligation. At October 29,
1994, approximately $145 million and $97 million of its Senior Notes and
Debentures, respectively, were available to the Company to reduce future
accelerated redemption requirements, if any. Such available Senior Notes and
Debentures are sufficient in amount to satisfy any redemptions that could
otherwise be required prior to the due date of the Senior Notes.
During the year ended October 29, 1994, the Company purchased approximately
$14 million of Senior Notes and $6 million of Debentures and, as a result, after
the write-off of related deferred financing costs, recorded an extraordinary
gain on early extinguishment of debt of approximately $13 million.
During the year ended October 30, 1993, the Company purchased approximately $64
million of Senior Notes and $14 million of Debentures in exchange for 500,000
PET Shares and approximately $23 million cash (such total price including
accrued interest), and as a result, after the write-off of related deferred
financing costs, recorded an extraordinary gain on early extinguishment of debt
of approximately $49 million.
16
<PAGE>
During the year ended October 31, 1992, the Company purchased approximately $65
million of its Senior Notes and $44 million of its Debentures and, as a result,
after the write-off of related deferred financing costs, recorded an
extraordinary gain on early extinguishment of debt of approximately $77 million.
Approximately $27 million of such Senior Notes and $4 million of Debentures
(together, the "Bonds") were acquired by the Company for an aggregate purchase
price of approximately $13 million, including accrued interest, from an
affiliate of Seacorp at the same price at which such affiliate contemporaneously
acquired the Bonds from an unrelated third party. Approximately $21 million of
Senior Notes purchased during the year ended October 31, 1992, were acquired in
exchange for PET Shares.
At November 2, 1991, pursuant to terms of a line of credit agreement, the
Company had borrowings of $17 million, secured by a pledge of PET Shares and
bearing interest at 8.75%. In November 1991, all line of credit borrowings were
repaid and the security was released.
Interest paid approximated $8 million, $14 million and $31 million during the
years ended October 29, 1994, October 30, 1993 and October 31, 1992,
respectively.
NOTE 5 - INVESTMENT IN PACIFIC ENTERPRISES COMMON STOCK
During the year ended October 30, 1993, the Company disposed of its remaining
PET Shares. During the years ended October 30, 1993 and October 31, 1992, the
Company sold approximately 1.6 million and 2.6 million PET Shares and realized
losses of approximately $40 million and $61 million, respectively.
Approximately 500,000 of the PET Shares sold during the year ended October 31,
1992, were exchanged in consideration for a portion of the Company's debt.
During each of the years ended October 30, 1993 and October 31, 1992, the
Company recorded a decrease in unrealized loss of approximately $42 million
representing the previously recognized unrealized loss for PET Shares sold
during such years. During the year ended October 31, 1992 the Company recorded
an unrealized loss on Pacific Enterprises common stock of approximately $16
million representing an estimate of the portion of decline in market value from
original, or adjusted, cost attributable to being other than temporary.
Additionally, during the year ended October 31, 1992 the Company recorded an
unrealized loss of approximately $2 million representing the difference between
the adjusted cost basis and current market value related to the investment in
PET Shares classified as a current asset in the Company's consolidated balance
sheets.
NOTE 6 - RELATIONSHIP WITH AFFILIATES
Affiliates of Seacorp provide the Company with accounting, legal, tax and other
services. Fees for services approximated $56,000, $167,000 and $189,000 for the
years ended October 29, 1994, October 30, 1993 and October 31, 1992,
respectively.
17
<PAGE>
NOTE 7 - INCOME TAXES
During each of the years ended October 29, 1994, October 30, 1993 and
October 31, 1992, the Company recognized an income tax benefit as a result of
income taxes provided on the extraordinary gain on early extinguishment of debt.
The Company also recorded a provision for income taxes representing a charge in
lieu of income taxes that would have been provided in the absence of net
operating loss carryforwards. The income tax benefit resulting from utilization
of net operating loss carryforwards is presented as an extraordinary item.
For income tax purposes, net operating loss carryforwards, which begin to expire
in 2001, approximate $135 million, and capital loss carryforwards approximate
$120 million, $115 million of which expire in 1997 and 1998. If certain
substantial changes in the Company's ownership should occur, there would be an
annual limitation on the amount of the carryforwards which could be utilized.
NOTE 8 - STOCKHOLDERS' DEFICIT
The Company's stockholders' deficit and the changes therein during the three
years ended October 29, 1994, are summarized as follows (thousands of dollars):
<TABLE>
<CAPTION>
Unrealized
loss on
Pacific Total
Additional Enterprises Stock-
Common Paid-in Accumulated Common holders'
Stock Capital Deficit Stock Deficit
------- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C>
Balances at November 2, 1991 $19,474 $149,110 $(280,946) $(15,686) $(128,048)
Net income 27,665 27,665
Decrease in unrealized loss 15,686 15,686
------- ------- -------- ------- -------
Balances at October 31, 1992 19,474 149,110 (253,281) 0 (84,697)
Net income 47,454 47,454
------- ------- -------- ------- -------
Balances at October 30, 1993 19,474 149,110 (205,827) 0 (37,243)
Net income 9,568 9,568
------- ------- -------- ------- -------
Balances at October 29, 1994 $19,474 $149,110 $(196,259) $ 0 $ (27,675)
------- ------- -------- ------- -------
------- ------- -------- ------- -------
</TABLE>
18
<PAGE>
NOTE 9 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data are as follows (thousands of dollars, except
per share data):
<TABLE>
<CAPTION>
Fiscal quarters ended
------------------------------------------------
October 29, July 30, April 30, January 29,
1994 1994 1994 1994
----------- --------- -------- -----------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary items $ 384 $(996) $ (812) $ (717)
Extraordinary items:
Gain on early extinguishment of debt 8,456
Tax benefit resulting from utilization of net
operating loss carryforwards 3,253
Net income (loss) 12,093 (996) (812) (717)
Income (loss) before extraordinary items
per common share .02 (.05) (.04) (.04)
Net income (loss) per common share .62 (.05) (.04) (.04)
<CAPTION>
Fiscal quarters ended
------------------------------------------------
October 30, July 31, May 1, January 30,
1993 1993 1993 1993
----------- --------- -------- -----------
<S> <C> <C> <C> <C>
Loss before extraordinary items $ (328) $(242) $ (12) $ (579)
Extraordinary items:
Gain on early extinguishment of debt 18,064 14,417
Tax benefit resulting from utilization of net
operating loss carryforwards (169) (124) 9,298 7,129
Net income (loss) (497) (366) 27,350 20,967
Loss before extraordinary items per common share (.02) (.01) (.00) (.03)
Net income (loss) per common share (.02) (.02) 1.40 1.08
</TABLE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE COMPANY
The following table sets forth certain information concerning each of the
directors of the Company. All directors will serve until the next Annual
Meeting of Shareholders and until his respective successor is elected or
appointed. Each director of the Company is also a director of PNS.
PRESENT PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME AND POSITION AND FIVE YEAR
WITH THE COMPANY AGE EMPLOYMENT HISTORY
Larry Chroman 43 Director of the Company since July
Director 1991. Co-manages investments for the William
Zimmerman family for more than five years.
James M. Lieb 44 Director of the Company since
Director May 1989. Senior Vice
President of The Trump Group (a private
investment group) for more than five years.
Gerald Nathanson 57 Director of the Company since
Director October 1986. Chief Executive Officer, US
Holographics (marketing company for
holographic products) since April 1992.
Managing Director, C4 Marketing (an import
company) until January 1992.
Eddie Trump 48 Director of the Company since May
Director 1986. President of The Trump Group for more
than five years.
Pursuant to the terms of the Subscription and Stockholders' Agreement, dated
May 7, 1986 (the "Stockholders' Agreement"), as amended as of November 25, 1987
(the "November 1987 Agreement" and, as amended, the "Amended Stockholders'
Agreement"), between the Company's two major stockholders, Zimco and Seacorp,
Seacorp is, subject to certain conditions, entitled to nominate as directors
one-half the Company's Nonindependent Directors (as defined in the Company's
Restated Certificate of Incorporation) plus one, and Zimco is entitled to
nominate one-half the Nonindependent Directors minus one. The Amended
Stockholders' Agreement also provides that each of Zimco and Seacorp will be
present at each meeting of stockholders and vote for each other's nominees for
the Board of Directors. As a result of these arrangements, the election of
Seacorp's and Zimco's nominees for
20
<PAGE>
directors is assured, regardless of any vote of the Company's other
stockholders. Messrs. Lieb and Trump are nominees of Seacorp; Mr. Chroman is
the nominee of Zimco. See the discussion under Item 13 - Certain Relationships
and Related Transactions.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning each of the
executive officers of the Company.
PRESENT PRINCIPAL
OCCUPATION OR EMPLOYMENT
NAME AGE FIVE YEAR EMPLOYMENT HISTORY
Mark Brown 42 President of the Company since
President, Chief Financial January 1993, Secretary, Treasurer,
and Accounting Officer, Chief Financial and Accounting
Secretary and Treasurer Officer since January 1992, Vice President of
the Company from January 1992 until January
1993; Assistant Secretary of the Company from
June 1988 until January 1993. Vice
President, Finance of Seattle Holdings
Corporation, an affiliate of Seacorp, for
more than five years.
It is anticipated that prior to January 1, 1995, Mr. Brown will resign as an
officer and employee of the Company.
The Trump Group, of which Mr. Trump is a director and officer and Mr. Lieb is an
officer, through affiliates controls Seacorp. See the discussion under
Item 12 - Security Ownership of Certain Beneficial Owners and Management.
ITEM 11 - EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Prior to December 31, 1993, the Company had no employees and its officers served
without compensation. Commencing in January 1994, the Company entered into an
agreement to pay directly for the services of its President and Chief Financial
Officer (who serves on a part-time basis) at the rate of $5,000 per month, plus
the cost of medical insurance benefits (prior to January 1994 such services were
provided through an affiliate of Seacorp for which such affiliate received fees
in amounts approximating its costs based upon hours expended.) Other than as
described in the preceding sentence and as described below under Services
Provided by Affiliates, there are currently no arrangements under which any
officer or director of the Company will receive compensation for serving as
such; however, other arrangements may be made in the future.
21
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 1, 1994, information concerning
the beneficial ownership of the common stock of the Company by (i) persons known
by the Company to own beneficially more than 5% of its outstanding common stock,
(ii) each of the directors of the Company and (iii) all directors and executive
officers of the Company as a group. Except as set forth in the footnotes to the
table, the stockholders have sole voting and investment power over such shares.
Unless otherwise specified, the address for all directors is the address of the
Company's executive offices. The address for Messrs. Julius and Eddie Trump is
the address set forth below for Seacorp. The address for Messrs. Larry Chroman
and Christopher Podoll is the address set forth below for Zimmerman Retailing
Group Limited.
Amount and Nature
of Beneficial Percent
Name Ownership of Class
- ---- --------- --------
Christopher Podoll (a) 7,330,284 37.6%
Zimmerman Retailing Group Limited (a) 7,330,284 37.6%
P.O. Box 948
Route 2, Pleasant Plain Road
Fairfield, IA 52556
Seacorp, Inc. (b) 8,014,705 41.1%
1511 6th Avenue
Seattle, WA 98101
Eddie Trump (b,c) 8,014,705 41.1%
Julius Trump (b,c) 8,014,705 41.1%
MBL Life Assurance Corporation (c) 8,014,705 41.1%
520 Broad Street
Newark, NJ 07102
All Directors and Executive Officers as
a Group (5 persons) (d) 8,014,705 41.1%
(a) According to the Schedule 13D, as amended (the "Zimco Amended 13D"), filed
with the Securities and Exchange Commission (the "Commission"), Zimco is an
Iowa limited partnership, the sole general partner of which is Soma 2 L.P.,
a Delaware limited partnership ("Soma 2"). Soma 2 has as its general
partner ZRG Co., Inc., a Delaware corporation ("ZRG"), for which Mr. Podoll
serves as the sole executive officer and director. Mr. Podoll is a manager
of investments of the William Zimmerman family. Amounts include 8,079
shares issuable upon conversion of Debentures beneficially owned by Zimco.
Amounts do not include the ownership of 6,000 shares and 3,810 shares
issuable upon conversion of Debentures owned by the Surya Financial Inc.
Retirement Plan, a retirement plan for the benefit of various employees of
Surya Financial Inc., an affiliate of Zimco.
(b) According to the Schedule 13D, as amended, filed with the Commission by
Julius Trump, Eddie Trump and Seacorp, Seacorp is,
22
<PAGE>
and Messrs. Julius and Eddie Trump may be deemed to be, the beneficial
owner(s) of 8,014,705 shares of common stock. Such amount includes 8,079
shares issuable upon conversion of Debentures beneficially owned by an
affiliate of Seacorp. As set forth in the Schedule 13D, Seacorp is a
Delaware corporation and does not presently have any business other than
the ownership of shares of common stock of the Company. Seacorp is
indirectly controlled by Messrs. Julius and Eddie Trump, subject to the
option referred to in footnote (c) below.
(c) The MBL Life Assurance Corporation ("MBL") has an option to acquire 50% of
Seacorp for an aggregate exercise price of $100. If MBL were to exercise
its option, Messrs. Julius and Eddie Trump would collectively own
indirectly 50% of the outstanding capital stock of Seacorp and MBL would
own the balance.
(d) Assumes the conversion of all Debentures beneficially owned by an affiliate
of Seacorp. Does not include shares owned by Zimco. Mr. Chroman, who is a
director of the Company, is co-manager of investments for the William
Zimmerman family and Mr. Podoll, who is also such a manager, is, as noted
above, the sole executive officer and director of affiliates of Zimco.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
GENERAL. On May 7, 1986, Zimco, Seacorp and the Company entered into the
Stockholders' Agreement. Under the Stockholders' Agreement, Zimco and Seacorp
exchanged all of their common stock in Pay'n Save for all of the issued and
outstanding Common Stock of the Company. Subsequently, in consideration of
Seacorp causing to be made available short-term borrowing facilities aggregating
$20 million to the Company, Seacorp, Zimco and certain related parties entered
into an agreement amending the Stockholders' Agreement (the "November 1987
Amendment") in certain respects. In connection with the Amended Stockholders'
Agreement, the parent of Seacorp guaranteed Company borrowings by Pay'n Save
under such short-term borrowing facilities (which have since expired) in an
amount up to $15 million.
The Stockholders' Agreement and the November 1987 Amendment were entered into by
Seacorp and Zimco and certain of its related parties on their own behalf and on
behalf of their respective permitted transferees, for the exclusive benefit of
Seacorp and its permitted transferees (the "Seacorp Group"), and Zimco and its
permitted transferees and certain of its related parties (the "Zimco Group").
The Amended Stockholders' Agreement also contains certain indemnities in favor
of (and for the benefit of) the Company. The Amended Stockholders' Agreement
may be amended or waived by Zimco and Seacorp without the consent of the Company
or any other person and is not intended to be enforceable except by the Seacorp
Group and the Zimco
23
<PAGE>
Group.
Pursuant to separate agreements, the Company has granted certain registration
rights to each group and certain of each group's transferees, including Zimco,
with respect to the shares of common stock acquired pursuant to the
Stockholders' Agreement.
NOMINATION OF DIRECTORS. The Stockholders' Agreement had provided that each
group would nominate and vote for an equal number of nominees on the Company's
Board of Directors and vote as stockholders in favor of each matter previously
approved by a majority of the directors nominated by Zimco and Seacorp and vote
against each matter not so approved. However, if at any time one group owned
less than one-third the number of shares of common stock owned by the other, the
group with the greater number of shares of common stock would be entitled to
nominate one additional director and the other group would be entitled to
nominate one less director. The November 1987 Amendment amended the
Stockholders' Agreement to provide that so long as Julius or Eddie Trump or
their affiliates or certain related parties and certain other designated parties
(collectively, the "Trump Group") and/or Mutual Benefit or its affiliates
(collectively, "Mutual") remain the beneficial owners, directly or indirectly,
of at least a majority of the shares of common stock owned by Seacorp as of
November 25, 1987, Seacorp will be entitled to nominate as directors one-half
the number of Nonindependent Directors plus one and Zimco will be entitled to
nominate one-half the number of Nonindependent Directors minus one, and that at
all times at least four seats on the Company's Board of Directors will be
reserved for Nonindependent Directors. At such time as the Trump Group and/or
Mutual is no longer the beneficial owner of a majority of shares of common stock
owned by Seacorp on November 25, 1987, the provision in the Stockholders'
Agreement prior to the November 1987 Agreement relating to the election of
directors would be applicable so that each of Seacorp and Zimco would nominate
and vote for an equal number of nominees on the Company's Board of Directors.
The Company's Certificate of Incorporation provides that actions by the
Company's Board of Directors generally require the affirmative vote of that
number of directors equal to the sum of (i) the number of Independent Directors
(as defined) plus (ii) a majority of the Nonindependent Directors. The voting
agreement in the Amended Stockholders' Agreement with respect to the election of
directors terminates at such time as the Nonindependent Directors cease to
constitute a majority of the Board of Directors.
CERTAIN VOTING ARRANGEMENTS. The Amended Stockholders' Agreement provides that
Seacorp and the Zimco Group will use their best efforts to cause the Seacorp
Directors and the Zimco Directors to vote against any issuance of capital stock
of the Company or its subsidiaries (i) to any affiliate of Seacorp unless the
Zimco Group is first offered the opportunity to purchase a portion of such
shares pro rata in accordance with their then ownership of shares of common
stock, for the same consideration that is to be paid by such affiliate, or (ii)
to any
24
<PAGE>
entity not affiliated with Seacorp without the consent or approval of the
holders of a majority of the outstanding shares of common stock, subject in each
case to waiver by the Zimco Directors.
TERMINATION. The Amended Stockholders' Agreement terminates upon the earliest
to occur of: (a) October 31, 1995, (b) the time when both the Zimco Group and
the Seacorp Group own fewer than 1,050,000 shares of the Company's common stock,
or (c) the time when either the Zimco Group or the Seacorp Group owns fewer than
700,000 shares of the Company's common stock.
SERVICES PROVIDED BY AFFILIATES
Affiliates of Seacorp provide the Company with accounting, tax, legal, treasury
and other services. Fees for such services approximated $56,000 for the year
ended October 29, 1994 and are based upon hours expended by such affiliates'
employees at rates approximating such affiliates' cost.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a compensation or similar committee. Employees of
Seacorp's affiliates on account of whose services such affiliates received fees
included Mark Brown (President, Chief Financial and Accounting Officer,
Secretary and Treasurer of the Company) and James M. Lieb (a director of the
Company), each of whom may, from time to time, have had involvement in the
Board's consideration of such fees.
25
<PAGE>
PART IV. OTHER INFORMATION
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) See the section entitled "Index to Financial Statements" appearing
under Item 8 of this Annual Report on Form 10-K.
(b) During the fiscal quarter ended October 29, 1994, the Company filed a
Form 8-K, the date of such report being August 12, 1994, with respect
to the purchase of Senior Notes and sale of Mortgage Certificates.
(c) Exhibits:
3.1 Restated Certificate of Incor- Incorporated by
poration of Pay'n Save Inc. reference from Exhibit 3.1 to
the Registration Statement on
Form S-1 (File No. 33-5560) of
the Company (the "Registration
Statement").
3.2 Certificate of Amendment of Incorporated by
Certificate of Incorporation reference from
of Pay'n Save Inc. Exhibit 3.2 to the
Registration Statement.
3.3 Certificate of Amendment of Incorporated by
Certificate of Incorporation reference from
of Pay'n Save Inc. Exhibit 3.1 to Quarterly
Report on Form 10-Q for
the quarter ended July 30,
1988.
3.4 Certificate of Amendment of Incorporated by
Certificate of Incorporation reference from
of PSS, Inc. Exhibit 3.4 to the Annual
Report on Form 10-K for the
year ended October 31, 1992.
3.5 By-Laws of Pay'n Save Inc. Incorporated by reference from
Exhibit 3.3 to the
Registration Statement.
26
<PAGE>
4.1 Indenture between Pay'n Save Incorporated by
Inc. and United States Trust reference from
Company of New York, as Trustee, Exhibit 4.1 to the
relating to the 7-1/8% Con- Registration State-
vertible Debentures due July 15, ment.
2006 (including the form of
Convertible Debenture).
4.2 First Supplemental Indenture be- Incorporated by
tween Pay'n Save Inc., and reference from
United States Trust Company of Exhibit 4.1 to the
New York as Trustee, relating Quarterly Report on
to the 7-1/8% Convertible De- Form 10-Q for the
bentures due July 15, 2006. quarter ended
April 30, 1988.
4.3 Indenture between PNS Inc. and Incorporated by
Norwest Bank Minneapolis, Nat- reference from
ional Association as Trustee, Exhibit 4.1 to the
relating to the 12-1/8% Senior Registration State-
Subordinated Notes due July 15, ment on Form S-1
1996 (including the form of (File No. 33-5591)
Senior Subordinated Note). of PNS Inc.
4.4 First Supplemental Indenture be- Incorporated by
tween PNS Inc., and Norwest Bank reference from
Minnesota, National Association Exhibit 4.2 to the
as Trustee, relating to the Quarterly Report on
12-1/8% Senior Subordinated Form 10-Q for the
Notes due July 15, 1996. quarter ended
April 30, 1988.
10.1 Subscription and Stockholders' Incorporated by
Agreement, dated as of May 7, reference from
1986, by and among Zimmerman Exhibit 2.3 to
Retailing Group Limited, the Registration
Seacorp, Inc. and Pay'n Save Inc. Statement.
10.2 Amended Stockholders' Agreement Incorporated by
between Pay'n Save Inc., Seacorp, reference from
Inc., Zimmerman Retailing Group Exhibit 10.25 to
Limited and related parties dated the Annual Report
November 25, 1987. on Form 10-K for
the year ended October 31,
1987.
10.3 Registration Rights Agreement, Incorporated by
dated as of May 7, 1986, by reference from
and among Pay'n Save Inc., Exhibit 10.7 to
Seacorp, Inc. and Zimmerman the Registration
Retailing Group Limited. Statement.
27
<PAGE>
10.4 Agreement for purchase and sale Incorporated by
of assets by and among Pay'n reference from
Save Stores, Inc., The Bi-Mart Exhibit 2.1 to
Company, Pay'n Save Drugs Inc. Form 8-K dated
and Thrifty Corporation, dated May 13, 1988.
as of May 12, 1988.
10.5 Letter Agreement dated Incorporated by
February 9, 1990 by and among reference from
PSSC Inc. and Bear Stearns & Exhibit (i) to
Co., Inc. for the purchase and the Quarterly
financing of adjustable-rate Report on Form
mortgages. 10-Q for the quarter ended
February 3, 1990.
10.6 Agreements dated as of Incorporated by
January 14, 1993 with respect reference from
to the acquisition by PSS, Inc. Exhibit 10.7 to the
and PNS Inc. of up to $64.475 Annual Report on
million of Senior Notes and Form 10-K for
$14 million of Debentures. the year ended
October 31, 1992.
22.1 Subsidiaries of the Registrant. Incorporated by
reference from
Exhibit 22.1 to
the Annual Report on
Form 10-K for
the year ended
October 31, 1992.
27 Financial Data Schedules Included as Exhibit 27
28
<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.
PSS, INC.
(Registrant)
Date: December 16, 1994 By: /s/ Mark Brown
----------------- ---------------------------
Mark Brown
President and Chief
Executive Officer
29
<PAGE>
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.
Date Title Signature
---- ----- ---------
December 16, 1994 Director By: /s/ Larry Chroman
- ----------------- -------------------------
Larry Chroman
December 16, 1994 Director By: /s/ James M. Lieb
- ----------------- -------------------------
James M. Lieb
December 16, 1994 Director By: /s/ Gerald Nathanson
- ----------------- -------------------------
Gerald Nathanson
December 16, 1994 Director By: /s/ Eddie Trump
- ----------------- -------------------------
Eddie Trump
December 16, 1994 President and By: /s/ Mark Brown
- ----------------- Treasurer; Chief -------------------------
Executive, Financial Mark Brown
and Accounting Officer
30
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