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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-10745
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THE CALDOR CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 06-1282044
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
20 GLOVER AVENUE, NORWALK, CT 06856-5620
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 846-1641
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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COMMON STOCK, $.01 PAR VALUE PER SHARE
COMMON STOCK PURCHASE RIGHTS
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. [ ]
The aggregate market value at April 15, 1998 of the Common Stock, based on the
average bid and asked prices of such stock on the OTC Bulletin Board, held by
non-affiliates of the Registrant was $10,756,031.
As of April 15, 1998, there were issued and outstanding 16,902,839 shares of
Common Stock of the Registrant.
Documents incorporated by reference
None
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PART I
ITEM 1. BUSINESS
INTRODUCTION
The Caldor Corporation (the "Registrant"), a Delaware corporation, and
its subsidiaries (collectively, the "Company") operate a leading upscale
discount retail chain offering a diverse line of branded and private-label
merchandise, including hardline products such as housewares, electronics,
furniture and toys and softline products such as apparel, shoes, jewelry,
cosmetics and domestics. As of April 15, 1998, the Company operated 145 stores
in nine East Coast and Mid-Atlantic states, including the key markets of
Connecticut, New York City, Long Island, Westchester County, the Hudson River
Valley of New York State, northern New Jersey and the greater Boston,
Philadelphia and Baltimore areas. The Company's stores are located primarily in
urban/suburban areas with high population densities. For further information,
see "Item 2. Properties."
From time to time, information provided by the Company, statements made
by its employees ("Associates") or information included in its filings with the
Securities and Exchange Commission (the "SEC") (including the Annual Report on
Form 10-K) may contain statements that are not historical facts, so-called
"forward-looking statements," which involve risks and uncertainties. In
particular, statements in "Business" related to the Company's business
strategies and the Company's ability to compete, and in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
relating to the sufficiency of capital to meet working capital and capital
expenditures requirements may be forward-looking statements. The Company's
actual future results may differ significantly from those stated in any
forward-looking statements. Factors that may cause such differences include, but
are not limited to, the factors discussed below. Each of these factors, and
others, are discussed from time to time in the Company's filings with the SEC.
The Company's future results are subject to substantial risks and
uncertainties. As described below, the Company is presently operating its
business as a debtor-in-possession under the Bankruptcy Code and its future
results are subject to the development and confirmation of a plan of
reorganization. The Company's business is seasonal; a majority of its sales and
income from operations are generated during the fourth quarter of the fiscal
year which includes the Christmas selling season. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Selected Quarterly Data (Unaudited)" for additional information concerning
quarterly results. Any substantial decrease in sales during such period would
have a material adverse effect on the financial condition, results of operations
and liquidity of the Company. The Company has working capital needs which are
currently funded largely through borrowings under the post-petition revolving
credit and letter of credit facility (the "DIP Facility"). On June 4, 1997, the
Bankruptcy Court entered a final order approving the Fourth Amendment to the
DIP Facility which extended the DIP Facility to June 15, 1998 (the "Extended
DIP Facility"). The Extended DIP Facility contains financial and other
covenants that restrict, among other things, the ability of the Company and its
subsidiaries to incur additional indebtedness, create liens, pay dividends on
or repurchase shares of capital stock, and make certain loans, investments or
guarantees. Such restrictions may limit the Company's operating and financial
flexibility. The Registrant has received a commitment (the "Commitment") from
BankBoston, N. A. ("BBNA") to provide the Company with separate fully
underwritten and committed senior secured $450 million guaranteed revolving
credit facilities for debtor-in-possession financing (the "New DIP Facility")
and exit financing (the "Exit Facility", and together with the New DIP
Facility, the "New Facilities"). The New DIP Facility will be used for the
working capital and general business needs of the Company as well as to repay
in full the Company's Extended DIP Facility. The Exit Facility will be used to
provide for the working capital and general business needs of the reorganized
Company beyond the effective date of a plan of reorganization (the "Effective
Date") as well as to repay in full the New DIP Facility. For further
information, see "Reorganization Case."
References in this Annual Report on Form 10-K to a particular year mean
the Company's fiscal year; e.g. references to 1997 mean the fiscal year ended
January 31, 1998.
REORGANIZATION CASE
On September 18, 1995, the Registrant and certain of its subsidiaries
(collectively, the "Debtors" or the "Company") filed voluntary petitions (the
"Filing") for relief under Chapter 11 of the United States Bankruptcy Code
("Chapter 11" or "Bankrupcy Code"). The Debtors are presently operating their
business as debtors-in-possession subject to the jurisdiction of the U. S.
Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court"). For further
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information, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and notes to consolidated financial
statements.
In connection with the Filing, on October 17, 1995, the Bankruptcy
Court entered a final order (the "Final Order") approving the DIP Facility as
provided under the Amended and Restated Revolving Credit and Guaranty Agreement
dated as of October 17, 1995, among the Registrant, as the borrower thereunder,
the subsidiaries of the Registrant named therein, as the guarantors thereunder,
and a bank group led by The Chase Manhattan Bank ("Chase"). The DIP Facility
amended and restated, in its entirety, the Registrant's Debtor-In-Possession
Revolving Credit and Guaranty Agreement dated as of September 18, 1995 with
Chase as agent. On June 4, 1997, the Bankruptcy Court entered a final order
approving the Fourth Amendment to the DIP Facility which extended the DIP
Facility to June 15, 1998. The Extended DIP Facility provides for a revolving
credit and letter of credit facility in an aggregate principal amount not to
exceed $450 million, divided into two (2) separate tranches consisting of (i) a
post petition revolving credit and letter of credit facility in an aggregate
principal amount not to exceed $250 million made available by the Tranche A
Banks (the "Tranche A Facility") and (ii) the continued use of the revolving
credit and letter of credit portion of the pre-petition credit facility made
available by the Tranche B Banks (the "Tranche B Facility") in an aggregate
principal amount of $200 million which principal may be borrowed, paid and
reborrowed. The Company's maximum borrowing under the Tranche A Facility, up to
$250 million, may not exceed the lesser of 60% of Eligible Cost Value of
Inventory or 50% of Eligible Retail Value of Inventory (the "Borrowing Base").
At January 31, 1998, the Borrowing Base was $217.4 million. The Extended DIP
Facility has a sublimit of $175 million for the issuance of letters of credit.
The Tranche B Facility must be fully utilized before the Company can borrow
under the Tranche A Facility. In addition, the Extended DIP Facility provides
for, among other things, capital expenditures not to exceed $16 million from
January 31, 1998 through the maturity date, revised earnings before interest,
taxes, depreciation, amortization and reorganization items ("EBITDAR")
thresholds for the fiscal quarter ending May 2, 1998 and revised monthly
inventory amounts through June 15, 1998. The Company was in compliance with the
financial covenants contained in the Extended DIP Facility at January 31, 1998.
The Final Order provides that (i) the Company pay monthly interest
payments on the outstanding principal amount of pre-petition indebtedness under
the term portion of the pre-petition credit facility (the "Term Loan") and the
real estate based loan agreement (the "Real Estate Loan") between the Company
and Chase and (ii) the lenders under such pre-petition facilities be granted a
replacement security interest in and lien upon all of the properties and assets
of the Company. The outstanding principal amounts on the Term Loan and the Real
Estate Loan have been classified as liabilities subject to compromise on the
consolidated balance sheet (see note 6 to consolidated financial statements).
The Registrant has received the Commitment from BBNA to provide the Company
with the separate fully underwritten and committed senior secured $450 million
New Facilities. The New DIP Facility will be used for the working capital and
general business needs of the Company as well as to repay in full the Company's
Extended DIP Facility. The Exit Facility will be used to provide for the working
capital and general business needs of the reorganized Company beyond the
Effective Date as well as to repay in full the New DIP Facility. BBNA intends,
with the Company's consent, to syndicate part of the New Facilities to other
financial institutions (collectively, including BBNA, the "Lenders").
BBNA's commitment to provide the New DIP Facility is subject to certain
conditions precedent including approval by the Bankruptcy Court of the New DIP
Facility. The New DIP Facility will be replaced by the Exit Facility on the
Effective Date provided that the plan is not inconsistent with certain terms of
the Commitment and is otherwise reasonably satisfactory to BBNA and that all
conditions precedent to confirmation of the plan have been met. Among other
things, the plan must provide for repayment in full of the New DIP Facility,
the Company must have had a 12-month rolling EBITDAR on the closing date of the
Exit Facility no less than $60 million (EBITDAR for the 1997 fiscal year was
$53.7 million), and the Company's borrowing availability under the Exit
Facility on the closing date thereof must exceed certain specified minimum
levels.
The New DIP Facility will terminate on the earlier of (i) the Effective
Date or (ii) 18 months after the closing date for the New DIP Facility. The
Exit Facility will terminate four years after the closing date of the New DIP
Facility.
The Company's maximum borrowing under the New DIP Facility may not exceed
the lesser of (a) the sum of (i) 72% (77% for the fiscal months of March through
December of each year (the "Overadvance Rate") provided that the Overadvance
Rate shall not increase the borrowing base by more than $30 million) of the cost
value of the Company's Eligible Inventory and, without duplication, Eligible
Letter of Credit Inventory, Eligible In Transit Inventory and Eligible FOB
Inventory minus applicable Reserves, (ii) 80% of the Company's Eligible Accounts
Receivable minus applicable Reserves (as such terms are defined in the New DIP
Facility) and (iii) the lesser of (A) $45 million and (B) under certain
circumstances, 70% of the agreed upon value of the Company's leasehold interests
in real estate and (b) $450 million(the "New DIP Facility Borrowing Base"). The
Company's maximum borrowing under the Exit Facility may not exceed the lesser of
(a) the sum of (i) 75% (73% for the fiscal months of January and February of
each year) of the cost value of the Company's Eligible Inventory and, without
duplication, Eligible Letter of Credit Inventory, Eligible In Transit Inventory
and Eligible FOB Inventory minus applicable Reserves, (ii) 80% of the Company's
Eligible Accounts Receivable minus applicable Reserves (as such terms are
defined in the New DIP Facility) and (iii) the lesser of (A) $40 million and (B)
under certain circumstances, 60% of the agreed upon value of the Company's
leasehold interests in real estate and (b) $450 million (the "Exit Facility
Borrowing Base").
The New Facilities have a sublimit of $150 million for the issuance of
letters of credit. The New Facilities also contain restrictive covenants,
including, among other things, limitations on the creation of additional liens
and indebtedness, capital leases and annual rents, the sale of assets, and the
maintenance of minimum earnings before interest, taxes, depreciation,
amortization and reorganization items, the maintenance of ratio of accounts
payable to inventory levels, and a prohibition on the payment of dividends.
Advances under the New Facilities will bear interest, at the Company's
option, at BBNA's Alternate Base Rate per annum or the Eurodollar Applicable
Margin (i.e., the fully reserved adjusted Eurodollar Rate plus 2.25% or 2.75%
during any period that the Company is utilizing the Overadvance Rate) for
periods of one, two and three months. The Eurodollar Applicable Margin is
subject to reduction by up to 0.50% if the Company achieves certain specified
EBITDAR levels.
Under the New Facilities, the Company will pay an unused line fee of 0.25%
per annum on the unused portion thereof, a letter of credit fee equal to 1.625%
per annum of average outstanding letters of credit and certain other fees. In
connection with the receipt of the Commitment and the closing of the New DIP
Facility, the Company will pay fees to BBNA of approximately $5.6 million. The
Company will also pay BBNA an annual agency fee of $150,000.
Obligations of the Company under the New DIP Facility will be granted (i)
superpriority administrative claim status pursuant to section 364 (c) (1) of the
Bankruptcy Code, subject only to an exclusion for certain administrative and
professional fees and (ii) secured perfected first priority security interests
in and liens upon all assets of the Company. Obligations of the Company under
the Exit Facility will be granted secured perfected first priority security
interests in and liens upon all assets of the Company.
The United States Trustee for the Southern District of New York has
appointed Official Committees ("Committees") of Unsecured Creditors and Equity
Security Holders for the Chapter 11 case. The role of the Committees includes,
among other things: (a) consultation with the Debtors concerning the
administration of the Chapter 11 case; (b) investigation of the acts, conduct,
assets, liabilities, financial condition and operations of the Debtors, and the
desirability of the continuation of their business and other relevant matters;
and (c) participation in the formulation of a plan of reorganization. In
discharging these responsibilities, the Committees have standing to raise issues
with the Bankruptcy Court relating to the business of the Debtors and the
conduct and course of the Chapter 11 case. The Debtors are required to pay
certain expenses of the Committees and those of the Steering Committee of the
banks participating in the Extended DIP Facility, including professional fees,
to the extent allowed by the Bankruptcy Court.
In the Chapter 11 case, substantially all liabilities as of the date of
the Filing are subject to resolution under a plan of reorganization to be voted
upon by the Debtors' creditors and stockholders and confirmed by the Bankruptcy
Court. Amended and restated schedules were filed by the Debtors with the
Bankruptcy Court setting forth the assets and liabilities of the Debtors as of
the date of the Filing as shown by the Debtors' accounting records. The
Bankruptcy Court fixed August 12, 1996 as the last date by which creditors of
the Debtors could file proofs of claim for claims that arose prior to the
Filing. The Debtors are in the process of reconciling differences between
amounts shown by the Debtors and claims filed by creditors. The amount and
settlement terms for such disputed liabilities are subject to
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allowance by the Bankruptcy Court. Ultimately, the adjustment of the total
liabilities of the Debtors remains subject to a Bankruptcy Court approved plan
of reorganization and, accordingly, the amount of such liabilities is not
presently determinable. The Bankruptcy Court has extended the period in which
the Debtors possess the exclusive right to file a plan of reorganization through
September 1, 1998, and the period in which the Debtors can solicit acceptances
for the plan of reorganization through October 30, 1998. The Debtors have
distributed a term sheet and drafts of their proposed plan of reorganization and
disclosure statement to the professionals representing the Debtors' Creditor,
Bank and Equity Committees. The Debtors are negotiating the terms and timing of
their emergence from Chapter 11 with these Committees. At this time, it is not
expected that such a plan would provide for recovery by equity security holders.
On September 18, 1997, the New York Stock Exchange suspended trading in
the Company's Common Stock and, on November 25, 1997, the SEC delisted the
Company's Common Stock. Subsequent to September 18, 1997, the Company's Common
Stock has been traded on the "OTC Bulletin Board."
On December 6, 1996 the Company presented its Five-Year Business Plan
(the "Business Plan") to the Company's Creditor, Bank and Equity Committees
setting forth its strategy to restore the Company to long-term profitability by
raising customer satisfaction levels, revamping advertising programs, lowering
everyday prices and focusing its promotional activity, narrowing and refocusing
merchandise assortments, and implementing improved operating efficiencies and
cost reductions. In order to raise customer satisfaction levels, the Company has
focused on improving in-stocks and customer service by reducing levels of
promotional activity combined with more efficient product flow as a result of
its regionalized distribution network.
The Company discontinued regular coupon sales and one-day sale events,
reduced the number of circular pages and the number of promotional items in each
circular and eliminated the distribution of midweek circulars, with the
exception of selected weeks. The Company made the determination that the
discontinued marketing programs were neither profitable nor compatible with its
long term marketing strategy. In 1998, the Company plans to continue to reduce
the number of circular pages and promotional items in order to reduce costs and
improve in-stock positions. In order to draw more customers into its stores,
the Company will focus on key items and categories through more compelling
circulars that emphasize value, fashion and quality.
In the third and fourth quarters of 1996, the Company introduced its
Price Cut Program which lowered everyday prices on selected items in
electronics, health and beauty aids, diapers, household chemicals, furniture,
hardware and housewares. In 1997, the Company extended the Price Cut Program to
basic apparel commodities, paper products, film and cosmetics. The Company
believes that this will reinforce customers' perceptions of Caldor as an
everyday fair price store. The Company plans to extend the Price Cut Program to
other product categories. By lowering everyday prices on a variety of
frequently purchased items, the Company has been able to stimulate regular
priced business. The Company will continue to offer a broad range of products,
but plans to prioritize the family apparel and fashion home categories that it
believes differentiate the Company from the competition and appeal to its
upscale core customer. In addition, the Company has examined each of its
departments and has reallocated selling space to present a more focused value
and quality message to its customers.
The Company believes that the Business Plan sets forth a strategic
direction to take advantage of its strengths and to improve key areas of its
business. The Company will continue to review and refine the Business Plan.
On June 7, 1996, the Bankruptcy Court approved the Debtors' reclamation
program, which authorizes the Debtors to settle the claims of 425 vendors that
submitted reclamation demands at the time of Filing. The program provides for
each reclamation vendor that extends mutually acceptable credit support to
receive both a cash payment of up to 50% of its eligible reclamation claim and,
subject to certain conditions, priority treatment for the remainder of its
claim. Reclamation cash payments of $1.5 million and $11.6 million were made in
1997 and 1996, respectively. To the extent these payments exceed $10 million,
the Debtors are required to apply such excess to pay down the Term Loan in an
equivalent amount (up to $8.5 million). In 1997 and 1996, the Debtors had paid
down $1.4 million per year of the Term Loan related to the reclamation program.
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Under Chapter 11, the Debtors may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts and
other executory pre-petition contracts, subject to Bankruptcy Court approval.
Under Section 502 of the Bankruptcy Code, a lessor's claim for damages resulting
from the rejection of a real property lease is limited to the rent provided
under such lease, without acceleration, for the greater of one year, or 15%, not
to exceed three years, of the remaining term of the lease following the earlier
of the date of the Filing or the date on which the property is returned to the
landlord. Forty-five of the Company's store leases, including three which were
rejected in 1996, are guaranteed by the Company's former parent, The May
Department Stores Company ("May Company"). In 1989 as part of its leveraged
buyout from May Company, the Company agreed to indemnify May Company for any
damages incurred by May Company under its guaranties. The Company's liability to
May Company for amounts paid by May Company under its guaranties of these
leases, if rejected, may not be limited under Section 502 of the Bankruptcy
Code. As a pre-petition claim, however, this liability is subject to compromise
and discharge. A landlord may also have a claim for unpaid pre-petition rent. As
of April 15, 1998, the Debtors had rejected leases for 32 locations, assumed 17
real estate leases (two of which were for warehouses and the balance were for
stores) and had reached agreements with landlords to terminate an additional
seven leases, without liability. Subsequent to assuming these leases, the
Company announced its plans to close the Under-Performing Stores (as hereinafter
defined), including three locations for which leases had been assumed (the
"Previously Assumed Stores"). The claims of the landlords of the Previously
Assumed Stores are treated as administrative expenses under Chapter 11 subject
to both the landlords' obligation to mitigate damages and limitations on damages
agreed upon by the Company and each landlord. The Company is required by an
order of the Bankruptcy Court, subject to the right of both the Company and the
applicable landlord to move to accelerate for due cause shown, to make a
decision to assume or reject 39 leases by August 31, 1998 and the balance of
real property leases on confirmation of its plan of reorganization. The Company
is currently negotiating with landlords regarding rent reductions and lease
restructurings.
As part of the Company's ongoing review process, the Company
identified, and on March 25, 1998 obtained Bankruptcy Court approval to close,
12 under-performing stores (the "Under-Performing Stores"). The Company
completed a liquidation sale at one of the locations and has retained a
liquidator who is currently conducting store closing sales at the other
locations (the "Under-Performing Stores Sales"). The net proceeds of these sales
will be placed in a segregated interest bearing account with Chase, in its
capacity as agent under the Extended DIP Facility, pending agreement between the
Company and the bank group concerning distribution of the proceeds.
On March 12, 1997 the Bankruptcy Court approved the closing of 4
under-performing stores (the "1997 Closed Stores") and the Debtor's retention of
a liquidator to conduct store closing sales (the "1997 Closing Sales"). These
sales were completed and the stores were closed by the end of May 1997.
Concurrently, the Company, the guarantors, and the bank group entered into an
amendment (the "Third Amendment") to the Extended DIP Facility. Pursuant to the
Third Amendment, all of the proceeds of the 1997 Closing Sales were applied to a
prepayment of the Tranche B loans and the Tranche B facility commitment was
reduced by such amount.
On April 2, 1996, the Bankruptcy Court approved the closing of 12
under-performing stores (the "1996 Closed Stores") and the Debtors' retention
of a liquidator to conduct store closing sales (the "1996 Closing Sales").
These sales were completed and the stores were closed by the end of June 1996.
On July 16, 1996, the Bankruptcy Court directed the application of the net
proceeds of such 1996 Closing Sales to the payment of the Term Loan. The
Company paid $2.2 million and $22.5 million to Chase, as agent for the Term
Loan banks, in 1997 and 1996, respectively, for application to the Term Loan.
The Debtors continue to review leases and contracts, as well as other
operational and merchandising changes, and cannot presently determine or
reasonably estimate the ultimate outcome of, or liability resulting from, this
review.
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MERCHANDISING
The Company seeks to position itself as an upscale discount store. To
achieve this objective, the Company emphasizes quality and value in branded
hardline and softline products, seeks to respond quickly to emerging fashion
and product trends and has enhanced its softlines presentation and assortment.
In the third and fourth quarters of 1996, to better balance its promotional and
regular-priced business and to provide fair prices everyday, the Company
introduced its Price Cut Program, which lowered everyday prices on selected
items in electronics, health and beauty aids, diapers, household chemicals,
furniture, hardware and housewares. In 1997, the Company extended the Price Cut
Program to basic apparel commodities, paper products, film and cosmetics. The
Company believes that this will reinforce customers' perceptions of Caldor as
an everyday fair price store. The Company plans to extend the Price Cut Program
to other product categories.
The Company's stores feature nationally branded hardline and softline
merchandise, including KitchenAid, Farberware, Nikko, Westpoint Stevens,
Fieldcrest Cannon, SunBeam, Scotts, Fiesta, Rubbermaid, Springs, Sony, Braun,
Wrangler, Hanes, Fruit of The Loom and Playtex. Softline sales and hardline
sales as a percentage of total sales in 1997 were 39% and 61%, respectively. The
Company's softline merchandise balances quality, fashion and price and its
principal apparel lines consist of casual and weekend wear. Although the Company
relies primarily on purchases from domestic resources, the Company's direct
imports in 1997 totaled approximately 11% of total purchases.
STORES
Management. The management of the Company's stores is regionalized in
order to provide operational and merchandising assistance to the stores. Each of
the Company's store managers reports to one of 12 district managers, who in turn
report to one of two regional vice presidents. The districts are divided into
two geographical regions, each of which is headed by a regional vice president
who reports to the Senior Vice President - Stores. In addition, the store
management team at the corporate level monitors store functions and attempts to
implement improvements to enhance the efficiency and effectiveness of work
processes.
Prototype. From 1991 to 1996 the Company remodeled 31 stores. These
remodeled stores feature a customer-friendly store format with upscale
fixtures, bright color schemes, improved lighting, focal and impact areas (for
electronics, jewelry, domestics and housewares) and wider aisles which are an
integral part of the Company's customer-oriented strategy. In 1997, the Company
remodeled two stores using an updated prototype that incorporated these features
as well as an improved store lay-out. This includes a reallocation of selling
space to reflect merchandise sales volume, better adjacencies, improved
merchandise presentation and displays utilizing innovative fixturing, improved
signing designed to more clearly identify specific as well as major categories
of merchandise and a numbering system for its merchandise displays to help
customers locate goods. The Company plans to remodel 5 stores in 1998. The
Company also plans to continue to refine its model and to develop variations of
its prototype for stores of different sizes.
CUSTOMER DRIVEN
The Company emphasizes a customer-driven culture throughout its
organization in order to improve the shopping experience. The Company provides
management training and incentives to promote and reward customer service in its
stores. A Company-wide Friendliness Program, monitored by customer surveys,
encourages proactive customer service by store Associates. Positive recognition
and performance evaluations are tied to stores' Friendliness ratings and
in-stock performance.
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MARKETING, ADVERTISING AND PROMOTION
Color circulars are the primary components of the Company's advertising
program. Circulars are distributed in major newspapers and by hand delivery in
each of the Company's markets on every weekend of the year and selectively
during midweek. These circulars generally range from 16 to 48 pages and average
28 pages. The Company has taken steps to better focus its advertising and reduce
the number of items featured, which will also simplify ordering and store
handling of merchandise. In 1998, the Company plans to continue to reduce the
number of circular pages and the number of promotional items in order to reduce
costs and improve in-stock positions. In order to draw more customers into its
stores, the Company will focus on key item and categories through more
compelling circulars that emphasize value, fashion and quality. The Company
also participates with vendors in vendor-paid cooperative advertising. In 1997,
1996 and 1995, net advertising costs constituted approximately 2.4%, 2.7% and
2.5%, respectively, of the Company's total sales.
PURCHASING, DISTRIBUTION AND INVENTORY MANAGEMENT
Merchandise is purchased, primarily through the Company's centralized
buying organization, from over 3,000 manufacturers and suppliers. During 1997,
the Company's top 25 domestic vendors accounted for approximately 27% of net
purchases, and no one vendor accounted for more than 4%.
The Company's distribution centers are located in North Bergen, New
Jersey and Westfield, Massachusetts. In September 1996, the Company converted to
a regionalized distribution network by closing its Newburgh, New York facility
and opening a new facility in Westfield, Massachusetts. Under this new
regionalized network, using automated sortation handling systems, each facility
handles the full range of merchandise distribution for its respective region.
The North Bergen facility was expanded in 1989 and upgraded in 1992. The Company
has introduced a comprehensive warehouse management system to enhance
merchandise receiving, inventory management and paperless processing in order to
further increase efficiency and reduce overhead costs. The Company installed the
system at the Westfield, Massachusetts distribution center in January 1998 and
plans to complete implementation of the system at the North Bergen facility in
August 1998.
COMPETITION
The general merchandise discount retail business is highly competitive.
The Company considers merchandise selection, quality, in-stock positions,
pricing, store location, shopping environment, customer service and advertising
to be the most significant competitive factors. Because of the broad range of
merchandise sold, the Company, which on the basis of annual sales volume is the
fourth largest discount department store chain in the U.S., competes with a
variety of national, regional and local discounters, department stores,
specialty stores and retail chains, some of which are larger and better
capitalized than the Company. Among the Company's discount department store
competitors are Bradlees Stores, Inc., Ames Department Stores, Inc., Kmart
Corporation and Wal-Mart Stores, Inc. ("Wal-Mart"). In addition, Target Stores,
a discount department store division of Dayton-Hudson Corporation, has recently
opened stores in some of Caldor's market areas and plans to expand its presence
in the Northeast. Wal-Mart has continued to open additional stores in Caldor's
market areas. The Company's department store competitors include Sears, Roebuck
and Co. and J. C. Penney Company, Inc. Competition will increase as competitors
open additional stores in the Company's market areas and no assurance can be
given that the Company's business and financial performance will not be
adversely affected by future competitive pressures.
TRADEMARKS AND LICENSES
The Company owns the "Caldor" name, which it uses as a tradename and
service mark and as a trademark in connection with various merchandise. The
Company also uses various other registered and common law trademarks
-7-
<PAGE> 8
and trade names pursuant to which it markets certain merchandise. The Company
believes that no individual trademark or tradename, other than "Caldor", is
material to the Company's competitive position in the industry.
ASSOCIATES
As of April 15, 1998, the Company and its subsidiaries employed
approximately 22,000 Associates. Approximately 8,000 additional persons are
employed temporarily during the Christmas season. Substantially all of the
Company's retail store and distribution center Associates are represented by
unions. The Company has never had a strike and believes that its relations with
its Associates and their unions are good.
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Sections of this Annual Report contain various forward looking
statements, within the meaning of the Private Securities Litigation Reform Act
of 1995, with respect to the financial condition, results of operations and
business of the Company. These forward looking statements involve certain risks
and uncertainties, and no assurance can be given that any of such matters will
be realized. Actual results may differ materially from those contemplated by
such forward looking statements. See Introduction, Competition and "Management's
Discussion and Analysis - Statement Regarding Forward Looking Disclosures."
-8-
<PAGE> 9
ITEM 2. PROPERTIES
As of April 15, 1998, the Company and its subsidiaries operated 145
stores in a corridor comprised of nine East Coast and Mid-Atlantic states. The
Company's stores are located in well-established, high-traffic retail corridors,
strip shopping centers and enclosed shopping malls, or operate as free-standing
units, primarily in or near densely populated urban and suburban locations. The
Company's stores average approximately 100,400 square feet. Approximately 75% of
the square footage is used as selling space and the remainder is used for
merchandise processing, temporary storage and store administration.
As of April 15, 1998, the Company operated stores in the following
states: Connecticut (30), Delaware (3), Maryland (8), Massachusetts (22), New
Hampshire (1), New Jersey (26), New York (43), Pennsylvania (10), and Rhode
Island (2).
The Company owns nine stores (five of which include land and building,
and four, the building only) and its MIS facility in Trumbull, Connecticut and
has construction loans on two store locations (including the owned Silver
Spring, Maryland store to be closed in 1998), with the remainder of its
facilities operated under predominantly long-term leases. The typical store
lease has an initial term of 20 years, with renewal options between 10 and 30
years, exercisable at the Company's option. The Company leases a 649,521 square
foot distribution center in Westfield, Massachusetts with an option to add up to
350,500 square feet to the facility. The Company leases a 616,000 square foot
distribution center and a 235,000 square foot warehouse located in North Bergen,
New Jersey. For further information, see "Item 1. Business--Purchasing,
Distribution and Inventory Management." The Company also leases its corporate
headquarters located in Norwalk, Connecticut and an administrative facility
located in North Ridgeville, Ohio. All of these facilities have leases with
terms subject to renewal by the Company. The Company sublets its excess land
parcels and retail space to generate additional revenue. All of the properties
and assets of the Company currently are subject to security interests and liens
under the Company's various credit facilities. In addition, one of the Company's
store locations is subject to a mortgage and another store location is subject
to an industrial revenue bond. For further information, see "Item 1.
Business--Reorganization Case."
On March 25, 1998, the Company obtained Bankruptcy Court approval to
close the twelve Under-Performing Stores, consisting of all of the Company's
seven stores in the Washington, D.C. market, two stores in the Baltimore market,
two stores in the Albany, New York market and one store in the Long Island, New
York market. One of the Under-Performing Stores has been closed and store
closing sales are being conducted currently at the other Under-Performing Stores
by a liquidator retained by the Company. The four 1997 Closed Stores consisted
of two stores in the New York City market; one store in Massachusetts; and one
store in Rhode Island. In 1996, the Company closed the twelve 1996 Closed
Stores. The Company did not open any stores in 1997. In 1996, the Company opened
seven new stores.
-9-
<PAGE> 10
As of April 15, 1998, the Debtors had rejected leases for 32 locations,
assumed 17 real estate leases (two of which were for warehouses and the balance
were for stores) and reached agreements with landlords to terminate an
additional seven leases without liability. Subsequent to assuming these leases,
the Company announced its plans to close the Under-Performing Stores, including
three Previously Assumed Stores. The claims of the landlords of the Previously
Assumed Stores are treated as administrative expenses under Chapter 11 subject
to both the landlords' obligation to mitigate damages and limitations on damages
agreed upon by the Company and each landlord. For further information regarding
"assumption" and "rejection," see "Item 3. Legal Proceedings--Commencement of
Chapter 11 Cases -- Chapter 11 Reorganization Under the Bankruptcy Code."
-10-
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
COMMENCEMENT OF CHAPTER 11 CASE
While the following discussion provides general background information
regarding the Debtors' Chapter 11 case, it is not intended to be an exhaustive
summary.
General. On September 18, 1995, the Debtors filed petitions for relief
under Chapter 11 of the Bankruptcy Code. The individual Chapter 11 cases were
consolidated for procedural purposes only and are being jointly administered by
the Bankruptcy Court. See "Item 1. Business -- Reorganization Case".
Chapter 11 Reorganization Under the Bankruptcy Code. Pursuant to
Section 362 of the Bankruptcy Code, during a Chapter 11 case, creditors and
other parties in interest may not, without Bankruptcy Court approval: (i)
commence or continue judicial, administrative or other proceedings against the
Debtors which were or could have been commenced prior to commencement of the
Chapter 11 case, or recover a claim that arose prior to commencement of the
case; (ii) enforce any pre-petition judgments against the Debtors; (iii) take
any action to obtain possession of or exercise control over property of the
Debtors or their estates; (iv) create, perfect or enforce any lien against the
property of the Debtors; (v) collect, assess or recover claims against the
Debtors that arose before the commencement of the case; or (vi) set off any debt
owing to the Debtors that arose prior to the commencement of the case against a
claim of such creditor or party in interest against the Debtors that arose
before the commencement of the case.
Although the Debtors are authorized to operate their businesses and
manage their properties as debtors-in-possession, they may not engage in
transactions outside of the ordinary course of business without complying with
the notice and hearing provisions of the Bankruptcy Code and obtaining
Bankruptcy Court approval.
An Official Unsecured Creditors' Committee and an Official Committee of
Equity Security Holders have been appointed by the United States Trustee and are
acting in the Chapter 11 case of the Debtors. The Debtors are required to pay
certain expenses of these committees and those of the Steering Committee of the
banks participating in the Extended DIP Facility, including counsel,
accountants' and financial advisors' fees to the extent allowed by the
Bankruptcy Court.
As debtors-in-possession, the Debtors have the right, subject to
Bankruptcy Court approval and certain other limitations, to assume or reject
executory, pre-petition contracts and unexpired leases. In this context,
"assumption" requires the Debtors to perform their obligations and cure all
existing defaults under the assumed contract or lease and "rejection" means that
the Debtors are relieved from their obligations to perform further under the
rejected contract or lease, but are subject to a claim for damages for the
breach thereof subject to certain limitations contained in the Bankruptcy Code.
Any damages resulting from rejection are treated as general unsecured claims in
the reorganization.
Under the Bankruptcy Code, a creditor's claim is treated as secured
only to the extent of the value of such creditor's collateral, and the balance
of such creditor's claim is treated as unsecured. Generally, unsecured and
undersecured debt does not accrue interest after the Filing.
Pre-petition claims which were contingent or unliquidated at the
commencement of the Chapter 11 cases are generally allowable against the Debtors
in amounts to be fixed by the Bankruptcy Court or otherwise agreed upon. These
claims, including, without limitation, those which arise in connection with the
rejection of executory contracts, including leases, are expected to be
substantial. The Company has established a reserve approximating what the
Company believes will be its liability under these claims. The Bankruptcy Court
fixed August 12, 1996 as the last date by which creditors of the Debtors could
file proofs of claim for claims that arose prior to the Filing.
-11-
<PAGE> 12
Plan of Reorganization - Procedures. For 120 days after the date of the
filing of a voluntary Chapter 11 petition, a debtor has the exclusive right to
propose and file a plan of reorganization with the Bankruptcy Court and an
additional 60 days within which to solicit acceptances to any plan so filed (the
"Exclusive Period"). The Bankruptcy Court may increase or decrease the Exclusive
Period for cause shown, and as long as the Exclusive Period continues, no other
party may file a plan of reorganization.
Given the magnitude of the Debtors' operations and the number of
interested parties asserting claims that must be resolved in the Chapter 11
case, the plan formulation process is complex. The Debtors currently retain the
exclusive right to propose and solicit acceptances of a plan or plans of
reorganization until September 1, 1998 and October 30, 1998, respectively.
If a Chapter 11 debtor fails to file its plan during the Exclusive
Period or after such plan has been filed fails to obtain acceptance of such plan
from impaired classes of creditors and equity security holders during the
exclusive solicitation period, any party in interest, including a creditor, an
equity security holder or a committee of creditors or equity security holders,
may file a plan of reorganization for such Chapter 11 debtor.
Inherent in a successful plan of reorganization is a capital structure
which permits the Company to generate sufficient cash flow after reorganization
to meet its restructured obligations and fund the current obligations of the
Company. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time it is not
possible to predict the outcome of the Chapter 11 case, in general, or the
effects of the Chapter 11 case on the business of the Company or on the
interests of creditors. At this time, it is not expected that such a plan would
provide for recovery by equity security holders.
Generally, after a plan has been filed with the Bankruptcy Court, it
will be sent, with a disclosure statement approved by the Bankruptcy Court
following a hearing, to members of all classes of impaired creditors and equity
security holders for acceptance or rejection. Following acceptance or rejection
of any such plan by impaired classes of creditors and equity security holders,
the Bankruptcy Court, after notice and a hearing, would consider whether to
confirm the plan. Among other things, to confirm a plan the Bankruptcy Court is
required to find that (i) each impaired class of creditors and equity security
holders will, pursuant to the plan, receive at least as much as the class would
have received in a liquidation of the debtor and (ii) confirmation of the plan
is not likely to be followed by the liquidation or need for further financial
reorganization of the debtor or any successor to the debtor, unless the plan
proposes such liquidation or reorganization.
To confirm a plan, the Bankruptcy Court generally is also required to
find that each impaired class of creditors and equity security holders has
accepted the plan by the requisite vote. If any impaired class of creditors or
equity security holders does not accept a plan but all of the other requirements
of the Bankruptcy Code are met, the proponent of the plan may invoke the
so-called "cram down" provisions of the Bankruptcy Code. Under these provisions,
the Bankruptcy Court may confirm a plan notwithstanding the non-acceptance of
the plan by an impaired class of creditors or equity security holders if certain
requirements of the Bankruptcy Code are met, including that (i) at least one
impaired class of claims has accepted the plan, (ii) the plan "does not
discriminate unfairly" and (iii) the plan "is fair and equitable with respect to
each class of claims or interests that is impaired under, and has not accepted,
the plan." As used by the Bankruptcy Code, the phrases "discriminate unfairly"
and "fair and equitable" have narrow and specific meanings unique to bankruptcy
law.
-12-
<PAGE> 13
OTHER PENDING LEGAL PROCEEDINGS: CLASS ACTIONS
On or about September 13, 1995, a class action complaint was filed in
the United States District Court for the District of Connecticut (the
"Connecticut District Court") by Joel A. Gerber (the "Gerber Action") against
the Company and certain of its former officers and directors alleging violations
of the provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). A second class action complaint was filed on or about September
21, 1995 in the Connecticut District Court against certain of the Company's
former officers and directors (but not the Company) by Lawrence Cowit and others
(the "Cowit Action"). A third class action complaint was filed by Dominic
Pignetti (the "Pignetti Action") on or about October 27, 1995 in the Connecticut
District Court against certain of the Company's former officers and directors
(but not the Company). A fourth class action complaint was filed on or about
November 30, 1995 in the Connecticut District Court by Ann V. Nelms and others
(the "Nelms Action") against certain of the Company's former officers and
directors (but not the Company).
A consolidated amended complaint was served in the Gerber, Cowit and
Nelms Actions on December 18, 1995 (the "Consolidated Action"). On the same
date, a separate amended complaint was served in the Pignetti Action, which was
not consolidated. The amended complaints in both actions assert claims only
against certain of the Company's former officers and directors.
The Consolidated Action seeks to recover damages on behalf of all
persons who purchased the Company's common stock between February 6, 1995 and
September 15, 1995. The amended complaint in the Consolidated Action alleges
that the defendants made false statements in the Company's annual report and in
the press regarding the Company's continued growth, alleged problems in its
relationships with its factors and lenders, and the sufficiency of available
financing to fund normal business operations and the Company's expansion plan,
all in violation of the provisions of the Exchange Act.
The Pignetti Action seeks to recover damages on behalf of all persons
who purchased the Company's common stock between January 5, 1995 and September
15, 1995. The amended complaint in the Pignetti Action alleges that the
defendants disseminated false and misleading information by misrepresenting the
Company's financial condition and performance and its ability to finance its
normal business operations and expansion plans, all in violation of the
provisions of the Exchange Act. The amended complaint in the Pignetti Action
also asserts claims for negligent misrepresentation and common law fraud, based
upon the same allegations.
Although the Company is not a named defendant in either the
Consolidated Action or the Pignetti Action, a proof of claim was filed in the
Chapter 11 case by the plaintiffs in the Consolidated Action. The amount of
liability, if any, related to these actions is not presently determinable.
On December 18, 1995, the Company commenced an adversary proceeding in
the Bankruptcy Court and brought on, by order to show cause, a motion for a
preliminary injunction to stay proceedings in the Consolidated Action and the
Pignetti Action. The Bankruptcy Court entered an order, dated February 7, 1997,
granting the Company's motion for a preliminary injunction enjoining prosecution
of the class actions until further order of the Bankruptcy Court. On or about
February 24, 1998, the plaintiffs in the Consolidated Action filed a motion with
the Bankruptcy Court seeking to vacate or modify the order granting the
preliminary injunction. A hearing on the motion is presently scheduled to be
held on May 12, 1998.
Although the Company is required to indemnify the defendants to the
extent provided by Delaware law, the Company has directors and officers
liability coverage. As a result of the preliminary injunction, none of the
former officers or directors named as a defendant in any of the actions has been
required to answer any of the foregoing complaints, which actions are believed
by the Company to be without merit and will be vigorously defended.
-13-
<PAGE> 14
OTHER ACTIONS
The Company and certain of its subsidiaries are defendants in various
other actions commenced by vendors, customers, former employees and others that
are incidental to the normal course of its business. Similarly situated persons
have asserted claims against the Company but have not made those claims the
subject of litigation. However, cases that relate to a claim that arose before
the Filing generally were stayed pursuant to Section 362 of the Bankruptcy Code
and are to be dealt with as part of the claims resolution process.
The Company believes that the ultimate outcome of the foregoing actions
and claims pending will not have a material adverse effect on its consolidated
financial position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
-14-
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- -------------------------------------------------------------------------
MATTERS
-------
The Company's Common Stock was listed on the New York Stock Exchange
("NYSE") under the symbol "CLD" until September 18, 1997, at which time it was
suspended. On November 25, 1997, the SEC delisted the Company's Common Stock.
Subsequent to September 18, 1997, the Company's stock has been traded on the
"OTC Bulletin Board" under the symbol "CLDRQ." The high and low sales prices for
the Company's Common Stock on the NYSE (until September 18, 1997) and the high
and low bid prices on the OTC Bulletin Board thereafter for each of the quarters
during 1997 and 1996 were as follows:
COMMON STOCK PRICE
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
1997 ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
High 2-1/2 1-7/8 2 3/4
Low 1-3/8 1 3/8 1/4
1996
High 4-3/4 4-1/4 2-3/8 1-7/8
Low 2-7/8 1-5/8 1-5/8 1
</TABLE>
As of April 15, 1998, the closing bid price on the OTC Bulletin
Board was 5/8 and the approximate number of holders of the Company's Common
Stock was 16,500. The Company has not paid, and has no current plans to pay in
the foreseeable future, dividends on its Common Stock. As detailed in "Item 3.
Legal Proceedings," the Debtors have filed for protection under Chapter 11 of
the Bankruptcy Code and the Company is precluded from paying dividends until
such cases have been concluded. The Extended DIP Facility and the New
Facilities prohibit the declaration of cash dividends on the Company's Common
Stock.
The Debtors have distributed a term sheet and drafts of its
proposed plan of reorganization and disclosure statement to the professionals
representing the Debtors' Creditor, Bank and Equity Committees. The Debtors are
negotiating the terms and timing of its emergence from Chapter 11 with these
Committees. At this time it is not expected that such a plan would provide for
recovery by equity security holders.
-15-
<PAGE> 16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
- ---------------------------------------------
THE CALDOR CORPORATION AND SUBSIDIARIES
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Net sales $ 2,496,747 $ 2,602,456 $ 2,765,525 $2,748,634 $2,414,124
Cost of merchandise sold 1,828,343 1,938,861 2,131,281 1,961,475 1,742,276
------------------------------------------------------------------------------------
Gross margin 668,404 663,595 634,244 787,159 671,848
Selling, general and
administrative expenses
(net of depreciation and
amortization) 619,538 666,073 713,916 631,805 528,913
Depreciation and
amortization 51,209 54,594 59,894 45,819 39,851
Loss on disposition of property
and equipment 671 729 1,187 2,659 650
Interest expense, net 43,864 39,502 40,973 34,948 34,904
------------------------------------------------------------------------------------
Earnings (loss) before
reorganization items,
income taxes, extraordinary
items and cumulative effect
of accounting changes (46,878) (97,303) (181,726) 71,928 67,530
Reorganization items 84,931 87,522 170,731
------------------------------------------------------------------------------------
Earnings (loss) before
income taxes, extraordinary
items and cumulative effect
of accounting changes (131,809) (184,825) (352,457) 71,928 67,530
Income tax provision (benefit) 800 500 (59,825) 27,569 26,152
------------------------------------------------------------------------------------
Earnings (loss) before
extraordinary items and
cumulative effect of
accounting changes (132,609) (185,325) (292,632) 44,359 41,378
Extraordinary items (8,396) (5,378)
Cumulative effect of
accounting changes (2,768)
------------------------------------------------------------------------------------
Net earnings (loss) $ (132,609) $ (185,325) $ (301,028) $ 44,359 $ 33,232
====================================================================================
EARNINGS (LOSS) PER SHARE(1):
Basic net earnings (loss) $ (7.84) $ (10.91) $ (17.81) $ 2.68 $ 2.04
Diluted earnings (loss) before
extraordinary items and
cumulative effect of
accounting changes $ (7.84) $ (10.91) $ (17.31) $ 2.65 $ 2.50
------------------------------------------------------------------------------------
Diluted net earnings (loss) $ (7.84) $ (10.91) $ (17.81) $ 2.65 $ 2.01
------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Merchandise inventories $ 419,682 $ 450,499 $ 499,948 $ 550,932 $ 468,069
Working capital 44,987 102,119 271,365 42,220 80,587
Total assets 949,120 1,050,880 1,174,019 1,149,472 1,006,196
Long-term debt 10,525 18,463 8,640 236,699 272,065
Liabilities subject to
compromise 729,039 719,980 783,102
Stockholders' equity (deficit) (282,676) (148,208) 37,208 337,166 291,757
</TABLE>
(1) In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" and all prior year per share information has been
restated.
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<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
-------------
OVERVIEW
The notes to consolidated financial statements are an integral part of
Management's Discussion and Analysis of Financial Condition and Results of
Operations and should be read in conjunction herewith.
On September 18, 1995, the Debtors filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code and are presently
operating their business as debtors-in-possession subject to the jurisdiction of
the United States Bankruptcy Court for the Southern District of New York. For
further discussion of Chapter 11 proceedings, see "Item 1.
Business--Reorganization Case" and note 1 to consolidated financial statements.
The Company's consolidated financial statements have been prepared on a
going concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities and commitments in the normal course of
business. The Filing, related circumstances and the losses from operations,
raise substantial doubt about the Company's ability to continue as a going
concern. The appropriateness of using the going concern basis is dependent upon,
among other things, confirmation of a plan of reorganization, future profitable
operations, and the ability to generate sufficient cash from operations and
financing sources to meet obligations. As a result of the Filing and related
circumstances, however, such realization of assets and liquidation of
liabilities is subject to significant uncertainty. While under the protection of
Chapter 11, the Debtors may sell or otherwise dispose of assets, and liquidate
or settle liabilities, for amounts other than those reflected in the
accompanying consolidated financial statements. Further, a plan of
reorganization could materially change the amounts reported in the accompanying
consolidated financial statements. The consolidated financial statements do not
include any adjustments relating to a recoverability of the value of recorded
asset amounts or the amounts and classification of liabilities that might be
necessary as a consequence of a plan of reorganization.
-17-
<PAGE> 18
RESULTS OF OPERATIONS
The Company's fiscal year ends on the Saturday closest to January 31.
References to 1997, 1996, and 1995 relate to the fiscal years ended January 31,
1998, February 1, 1997 and February 3, 1996, respectively. Each of these fiscal
years included 52 weeks except for 1995 which included 53 weeks. References to
years relate to fiscal years rather than calendar years. The following table
summarizes the Company's operating results for the years 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(dollars in thousands) $ % $ % $ %
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 2,496,747 100.0 2,602,456 100.0 2,765,525 100.0
Cost of merchandise sold 1,828,343 73.2 1,938,861 74.5 2,131,281 77.1
Gross margin 668,404 26.8 663,595 25.5 634,244 22.9
Selling, general and
administrative expenses 670,747 26.9 720,667 27.7 773,810 28.0
Interest expense, net 43,864 1.8 39,502 1.5 40,973 1.5
Loss before reorganization
items, income taxes and
extraordinary item (46,878) (1.9) (97,303) (3.7) (181,726) (6.6)
Net loss (132,609) (5.3) (185,325) (7.1) (301,028) (10.9)
</TABLE>
1997 VS. 1996
Net sales during 1997 decreased by 4.1% from 1996 due to the closing of 16
stores since the first quarter of 1996 (a $102.8 million reduction in sales) and
a 2.1% decrease in comparable store sales, partly offset by sales from the
opening of 7 new stores since mid-April 1996 (incremental sales of $48 million
in 1997). The decrease in comparable store sales was primarily attributable to
the intensely competitive retail environment, unseasonable weather in the
Northeast that negatively impacted the Company's sales of seasonal merchandise
and changes in the Company's marketing strategy including the discontinuance of
one-day sales events, mid-week circulars in May 1996, and coupon sales. The
Company made the determination that the discontinued marketing programs were
neither profitable nor compatible with its long-term marketing strategy.
Hardline sales, exclusive of the stores closed in 1997 and 1996, increased in
1997 primarily due to increased sales of consumables, electronics, housewares
and toys. Sales of these items at regular prices have increased as a result of
the Price Cut Program. Softline sales, exclusive of the stores closed in 1997
and 1996, decreased in 1997 mainly as a result of decreased sales of men's and
boy's, children's and ready-to-wear merchandise.
Gross margin as a percentage of sales increased to 26.8% for 1997 compared
to 25.5% in 1996. The increase was primarily due to reduced markdowns, partially
offset by lower overall initial markups as compared to 1996 due to the change in
the Company's marketing strategy and the Price Cut Program. In the third quarter
of 1996, to better balance its promotional and regular-priced business and to
provide fair prices everyday, the Company introduced the Price Cut Program which
lowered everyday prices on selected items in electronics, health and beauty
aids, diapers, household chemicals, furniture, hardware and housewares. In the
second quarter of 1997, the Company extended the Price Cut Program to certain
other product categories such as basic apparel commodities, paper products, film
and cosmetics. The Company plans to extend the Price Cut Program to other
product categories.
Selling, general and administrative expenses ("SG&A") as a percentage of
sales decreased to 26.9% in 1997 from 27.7% in 1996, primarily attributable to
store closings and initiatives to control and reduce SG&A. These initiatives,
adopted by the Company in the second quarter of 1996, include changes in
marketing strategy, which have reduced advertising expenses, and a reduction of
corporate overhead. The Company continues to evaluate its operating
-18-
<PAGE> 19
procedures and is pursuing additional reductions in SG&A through increased
operating efficiencies at both the corporate and store level.
Interest expense, net, increased in 1997 primarily due to an increase in
average revolving credit borrowings and an increase in the related weighted
average interest rates as compared to 1996. Average revolving credit borrowings
were $210.5 million at a weighted average interest rate of 7.1% in 1997 compared
to $151.8 million at 6.6% in 1996. The weighted average interest rate on the
Term Loan was 6.5% in 1997 compared to 6.3% in 1996.
The Company recorded reorganization charges of $84.9 million and $87.5
million in 1997 and 1996, respectively. The costs primarily include provisions
of $70.5 million and $51.6 million in 1997 and 1996, respectively, related to
the lease rejections and closings of locations, as well as the reduction to net
realizable value of fixed assets in the closed stores. For further information,
see "Item 2. Properties" and note 8 to consolidated financial statements.
On March 25, 1998, the Company obtained Bankruptcy Court approval to close
the Under-Performing Stores. The net proceeds of these liquidation sales will be
placed in a segregated interest-bearing account with Chase, in its capacity as
agent under the DIP Facility, pending agreement between the Company and the bank
group concerning distribution of the proceeds. The Company closed four stores in
1997. The lease obligations and related reserves for closings include rejected
real property leases and amounts for other executory contracts that have been
identified for rejection pursuant to Bankruptcy Code and are reflected at
estimated settlement amounts. The costs relating to these facilities closings
are based on management's best estimates, however actual costs could differ
from those presently recorded in the consolidated financial statements. Also
included in reorganization costs are $1.7 million and $15.0 million related to
employee retention plans and $5.3 million and $13.7 million in professional
fees for 1997 and 1996, respectively. For further information, see note 8 to
consolidated financial statements.
The Company's effective income tax rate was 0.6% and 0.3% in 1997 and 1996,
respectively. A provision of $0.8 million and $0.5 million for certain state
franchise and capital taxes was recorded in 1997 and 1996, respectively. The
Company did not record a tax benefit in 1997 or 1996 since the utilization of
the Company's loss carryforwards is dependent upon sufficient future taxable
income and the Company has established a full valuation allowance against these
carryforward benefits.
1996 VS. 1995
Net sales during 1996 decreased by 5.9% from 1995 due to the closing of 12
stores in 1996 (a $115.5 million reduction in sales), a decrease in same store
sales and one less week of sales, partly offset by sales from the opening of 10
new stores since July 1995 (incremental sales of $116.9 million in 1996). For
1996, same store sales decreased 5.3% on a comparable 52 week basis from 1995.
The decrease in same store sales was primarily attributable to changes in the
Company's marketing strategy, including the discontinuance of one-day sale
events, mid-week circulars in May 1996 and coupon sales, as well as the
intensely competitive retail environment. In addition, same store sales for the
fiscal month of December were lower primarily due to five fewer Christmas
shopping days and unseasonably warm weather in the Northeast. Hardline sales,
exclusive of the 12 stores closed in 1996, decreased in 1996 primarily due to
decreased sales of electronics, cameras, housewares and small electrical
appliances. Softline sales, exclusive of the 12 stores closed in 1996, increased
in 1996 mainly as a result of increased sales of ready-to-wear merchandise.
Additionally, the Price Cut Program lowered everyday prices in the third and
fourth quarters of 1996 on items in electronics, health and beauty aids,
diapers, household chemicals, furniture, hardware and housewares.
Gross margin as a percentage of sales increased to 25.5% for 1996 compared
to 22.9% in 1995. The increase was mainly attributable to reduced promotional
markdowns due to the change in the Company's marketing strategy, partly offset
by an increase in the reserve for shrinkage. In addition, gross margin in 1995
included a provision for vendor claims estimated to result upon reconciliation
of differences between pre-petition liabilities shown by the
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<PAGE> 20
Company and claims filed by creditors in connection with the Filing, and
provision to cover anticipated losses on the liquidation of inventory. For
further information, see note 7 to consolidated financial statements.
Selling, general and administrative expenses ("SG&A") as a percentage of
sales decreased to 27.7% in 1996 from 28.0% in 1995, primarily attributable to
store closings and initiatives to control and reduce SG&A adopted by the Company
in the second quarter of 1996, including changes in marketing strategy, which
have reduced advertising expenses, a reduction of corporate overhead and the
discontinuance of additional accruals related to the pension plan.
Interest expense, net, decreased in 1996 primarily due to a decrease in
average revolving credit borrowings as well as a decrease in the related
weighted average interest rates as compared to 1995. Average revolving credit
borrowings were $151.8 million at a weighted average interest rate of 6.6% in
1996 compared to $160.0 million at 7.2% in 1995. The weighted average interest
rate on the Term Loan was 6.3% in 1996 compared to 6.7% in 1995.
The Company recorded reorganization charges of $87.5 million and $170.7
million in 1996 and 1995, respectively. The costs primarily include provisions
of $51.6 million and $143.7 million in 1996 and 1995, respectively, related to
the lease rejections and closings of locations, as well as the reduction to net
realizable value of fixed assets in the closed stores. For further information,
see "Item 2. Properties" and note 8 to consolidated financial statements.
The Company closed four stores in 1997 and 12 stores in 1996. The lease
obligations and related reserves for closings include numerous real property
leases rejected and amounts for other executory contracts that have been
identified for rejection pursuant to the Bankruptcy Code and are reflected at
estimated settlement amounts. The costs relating to these facilities closings
are based on management's best estimates, however actual costs could differ
from those presently recorded in the consolidated financial statements. Also
included in reorganization costs are $15.0 million and $12.5 million related to
employee retention plans and $13.7 million and $8.8 million in professional
fees for 1996 and 1995, respectively. For further information, see note 8 to
consolidated financial statements.
The Company's effective income tax rate in 1996 was 0.3% primarily due to
the non-recognition by the Company of deferred tax assets related to net
operating loss carryforwards, other credit carryforwards and certain deductible
temporary differences. A provision of $0.5 million for certain state franchise
and capital taxes was recorded in 1996. The Company realized an income tax
benefit of $59.8 million in 1995 as a result of the net losses incurred and the
recognition by the Company of the reduction of previously recorded deferred
income tax liabilities as well as the receipt by the Company of refunds of
previously paid income taxes. The effective income tax rate in 1995 was (17.0)%
primarily due to the non-recognition of operating loss carryforwards in 1995.
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<PAGE> 21
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
The Company's working capital as of January 31, 1998 decreased by $57.1
million from February 1, 1997. This decrease was primarily due to increased
borrowings under the Extended DIP Facility of $35.7 million, which resulted from
a net loss of $132.6 million in 1997, capital expenditures of $29.5 million and
reorganization item payments of $16.9 million. In addition, inventories
decreased by $30.8 million, partly related to the Company's program to reduce
inventories and due to the closure of certain stores. Refundable income taxes
decreased by $13 million due to receipt of federal income tax refunds in 1997
and current maturities of long-term debt increased by $9.4 million due to the
reclassification of the long-term portion of a construction loan related to the
Silver Spring, Maryland store to be closed in 1998. These decreases were
partially offset by a net increase in assets held for disposal of $21.9 million
relating to assets of the Under-Performing Stores partly offset by liquidation
sales of the assets of 1997 Closed Stores.
The Company's working capital as of February 1, 1997 decreased by $169.2
million from February 3, 1996. This decrease was primarily due to increased
borrowings under the DIP Facility of $112.0 million, which resulted from a net
loss of $185.3 million in 1996, capital expenditures of $36.6 million, and
reorganization item payments of $29.9 million. In addition, inventories
decreased by $49.4 million, partly related to the Company's program to reduce
inventories and due to the closure of certain stores. Assets held for disposal
at year-end 1995 were liquidated through 1996 Closing Sales and the proceeds
were applied to the Term Loan, contributing to a decrease in working capital.
Refundable income taxes and deferred income taxes decreased by $9.0 million
primarily due to the receipt of federal income tax refunds in 1996.
Net cash used in operating activities for 1997 was $15.8 million. This use
of cash for operating activities was primarily due to the Company's net loss of
$132.6, a reduction in liabilities subject to compromise of $29 million and
reorganization item payments of $16.9 million. The reduction in liabilities
subject to compromise included application of the 1996 Closing Sales proceeds to
the Term Loan, reclamation payments made to vendors, a reduction in the
liability for vendor claims, payments for rent, real estate taxes and common
area maintenance charges relating to assumed leases and normal amortization of
capital lease obligations.
Net cash used in operating activities for 1996 was $73.0 million as
compared to net cash provided by operating activities of $93.2 million in 1995.
This use of cash for operating activities in 1996 was primarily due to the
Company's net loss of $185.3 million, a reduction in liabilities subject to
compromise of $78.2 million and reorganization items of $29.9 million. The
reduction of liabilities subject to compromise included application of the
1996 Closing Sales proceeds to the Term Loan, reclamation payments made to
vendors, a reduction in the liability for vendor claims, payments for sales and
use tax, the refinancing of the loan related to the Silver Spring, Maryland
store, and normal amortization of capital lease obligations.
Capital expenditures of $29.5 million in 1997 were primarily for management
information systems (mostly related to the implementation of warehouse
management systems at the distribution centers and for merchandising systems)
and store remodels. Capital expenditures of $36.6 million in 1996 were primarily
for conversion to a regionalized distribution network (which included opening a
new facility in Westfield, Massachusetts and updating the facility in North
Bergen, New Jersey to accommodate regionalization) and for costs associated with
opening new stores. Capital expenditures of $81.1 million in 1995 primarily
represented costs associated with opening new stores. The Company opened three
new stores in 1995 and seven new stores in 1996. The decrease in capital
expenditures in 1996 as compared to 1995 was due to a substantial portion of the
expenditures related to the stores that opened in 1996 being incurred in 1995.
In 1995, the Company utilized construction loans to build two of its new store
locations. The Company's capital expenditures for 1998 are projected to be
approximately $34 million to be used primarily for
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<PAGE> 22
management information systems (approximately $15.0 million), store remodeling
(approximately $10.0 million) and distribution center and store upgrades and
improvements (approximately $9.0 million).
The Company and its key vendors utilize software and related technologies
that will be affected by the ability of these technologies to distinguish and
properly process date-sensitive information when the year changes to 2000. Many
existing applications, as was common in the market place, were designed to only
accommodate a two-digit date position which represents the year. The Company's
program to address the Year 2000 issue (the "Year 2000 Program") is currently
underway and the Company has identified significant systems requiring
modification or replacement to ensure Year 2000 compliance. In addition, the
Company is initiating communication with its key external suppliers of goods
and services in order to assess their assurance efforts and the Company's
exposure to them.
The Company currently estimates expenditures for the Year 2000 Program to
be approximately $7 million for modification and remediation of existing
software, being expensed as incurred. The costs of the Year 2000 Program are
based on management's current best estimates, including the continued
availability of resources and third party modification plans. However, there
can be no assurance that the Company's systems or the systems of other
companies on which the Company's operations rely will be timely converted and
that the lack of such timely conversion would not have an adverse effect on the
Company's operations.
On October 17, 1995, the Bankruptcy Court entered a final order approving
the DIP Facility as provided under the Amended and Restated Revolving Credit and
Guaranty Agreement dated as of October 17, 1995, among the Registrant, as the
borrower thereunder, the subsidiaries of the Registrant named therein, as the
guarantors thereunder, and a bank group led by Chase. The DIP Facility amended
and restated, in its entirety, the Registrant's Debtor-In-Possession Revolving
Credit and Guaranty Agreement dated as of September 18, 1995 with Chase as
agent. On June 4, 1997, the Bankruptcy Court entered a final order approving the
Fourth Amendment which extended the DIP Facility to June 15, 1998. Pursuant to
the terms of the Extended DIP Facility, the bank group has made available to the
Registrant an aggregate principal amount of up to $450 million consisting of (i)
up to $250 million under the Tranche A Facility and (ii) $200 million under the
Tranche B Facility which principal amount may be borrowed, paid and reborrowed.
The Company's maximum borrowing under the Tranche A Facility, up to $250
million, may not exceed the lesser of 60% of Eligible Cost Value of Inventory or
50% of Eligible Retail Value of Inventory (the "Borrowing Base"). At January 31,
1998, the Borrowing Base was $217.4 million. The Extended DIP Facility has a
sublimit of $175 million for the issuance of letters of credit. The Tranche B
Facility must be fully utilized before the Company can borrow under the Tranche
A Facility. Borrowings under the Extended DIP Facility may be used to fund
working capital and inventory purchases and for other general corporate
purposes. The Extended DIP Facility provides for, among other things, capital
expenditures not to exceed $16 million from January 31, 1998 through the
maturity date and revised EBITDAR thresholds for the fiscal quarter ending May
2, 1998. The Extended DIP Facility also contains restrictive covenants,
including, among other things, limitations on the creation of additional liens
and indebtedness, capital leases and annual rents, the sale of assets, and the
maintenance of minimum earnings before interest, taxes, depreciation,
amortization and reorganization items, the maintenance of inventory levels, and
a prohibition on the payment of dividends. The Company was in compliance with
the financial covenants contained in the Extended DIP Facility at January 31,
1998.
The Extended DIP Facility provides that advances made (i) under the Tranche
A Facility will bear interest at a rate of 0.75% per annum in excess of Chase's
Alternative Base Rate ("ABR"), or, at the Registrant's option, a rate of 1.75%
per annum in excess of LIBOR for the interest periods of one, three or six
months or (ii) under the Tranche B Facility will bear interest at 0.25% per
annum in excess of ABR, or, at the Registrant's option, at a rate of 1.0% per
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<PAGE> 23
annum in excess of LIBOR. The Registrant incurred approximately $3 million in
bank fees associated with the extension of the DIP Facility, which were paid in
1997.
Under the Tranche A Facility, the Company pays a commitment fee of 0.5% per
annum on the unused portion thereof, a letter of credit fee equal to 1.5% per
annum of average outstanding letters of credit and certain other fees. Under the
Tranche B Facility, the Company pays a commitment fee of 0.3125% per annum on
the unused portion thereof, a letter of credit fee equal to 0.75% per annum of
average outstanding letters of credit and certain other fees. Commitment fees
were approximately $0.9 million and $1.2 million in 1997 and 1996, respectively.
Letter of credit fees were approximately $0.7 million, $0.5 million and $0.4
million in 1997, 1996 and 1995, respectively. The Tranche B Facility must be
fully utilized before the Company can borrow under the Tranche A Facility.
The Tranche A Banks and the Tranche B Banks were granted a lien on all of
the assets of the Debtors and a superpriority claim over all obligations of the
Debtors arising under the Tranche A Facility and the Tranche B Facility,
respectively. However, the claim of the Tranche B Banks is subordinate in
priority to the claim of the Tranche A Banks. In addition, Chase, as agent, was
granted a security interest in all of the shares of capital stock now or
hereafter issued to the Registrant by certain of its subsidiaries. The
pre-petition banks have been granted a security interest in all assets of the
Debtors, subordinate to the security interests and liens thereon granted to the
Tranche A Banks and the Tranche B Banks, subject to the conditions of the
financing order of the Bankruptcy Court, dated October 17, 1995.
As of January 31, 1998, the outstanding borrowings under the Extended DIP
Facility were $187.7 million and open letters of credit were $61.8 million. In
addition, the Company had outstanding borrowings of $187.5 million and $191.1
million on its Term Loan as of January 31, 1998 and February 1, 1997,
respectively. The Term Loan was reduced by application of the net proceeds of
the Closing Sales of $2.2 million and $22.5 million in 1997 and 1996,
respectively. The Term Loan was also reduced by $1.4 million per year in
payments related to the reclamation program in 1997 and 1996. The borrowings
outstanding under the Term Loan have been classified as liabilities subject to
compromise in the consolidated balance sheets (see note 6 to consolidated
financial statements).
In February 1995, the Company increased the Term Loan borrowings by $50
million to $215 million. Using the additional $50 million in Term Loan
borrowings and $16 million in revolving credit borrowings, the Company executed
an in-substance defeasance of the outstanding 15% Senior Subordinated Notes (the
"Notes") by depositing $66 million of U.S. Government Securities into an
irrevocable trust to cover the redemption value (including principal, call
premium and interest) of the Notes on June 1, 1995, at which time the Notes were
called.
The Company borrowed $10.9 million in 1996 under a construction loan
relating to the Silver Spring, Maryland store. The proceeds of this loan were
used to refinance an existing construction loan and for capital expenditures for
such store. As of January 31, 1998, the outstanding borrowings under this loan
were $9.9 million and bore interest at a rate of 1.75% per annum in excess of
LIBOR. On March 25, 1998, the Company obtained Bankruptcy Court approval to
close this store.
The Registrant has received the Commitment from BBNA to provide the Company
with the separate fully underwritten and committed senior secured $450 million
New Facilities. The New DIP Facility will be used for the working capital and
general business needs of the Company as well as to repay in full the Company's
Extended DIP Facility. The Exit Facility will be used to provide for the working
capital and general business needs of the reorganized Company beyond the
effective date of a plan of reorganization (the "Effective Date") as well as to
repay in full the New DIP Facility. BBNA intends, with the Company's consent,
to syndicate part of the New Facilities to other Lenders.
BBNA's commitment to provide the New DIP Facility is subject to certain
conditions precedent including approval by the Bankruptcy Court of the New DIP
Facility. The New DIP Facility will be replaced by the Exit Facility on the
Effective Date provided that the plan is not inconsistent with certain terms of
the Commitment and is otherwise reasonably satisfactory to BBNA and that all
conditions precedent to confirmation of the plan have been met. Among other
things, the plan must provide for repayment in full of the New DIP Facility,
the Company must have had a 12-month rolling EBITDAR on the closing date of the
Exit Facility no less than $60 million (EBITDAR for the 1997 fiscal year was
$53.7 million), and the Company's borrowing availability under the Exit
Facility on the closing date thereof must exceed certain specified minimum
levels.
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<PAGE> 24
The New DIP Facility will terminate on the earlier of (i) the Effective
Date or (ii) 18 months after the closing date for the New DIP Facility. The
Exit Facility will terminate four years after the closing date of the New DIP
Facility.
The Company's maximum borrowing under the New DIP Facility may not exceed
the lesser of (a) the sum of (i) 72% (77% for the fiscal months of March through
December of each year (the "Overadvance Rate") provided that the Overadvance
Rate shall not increase the borrowing base by more than $30 million) of the cost
value of the Company's Eligible Inventory and, without duplication, Eligible
Letter of Credit Inventory, Eligible In Transit Inventory and Eligible FOB
Inventory minus applicable Reserves, (ii) 80% of the Company's Eligible Accounts
Receivable minus applicable Reserves (as such terms are defined in the New DIP
Facility) and (iii) the lesser of (A) $45 million and (B) under certain
circumstances, 70% of the agreed upon value of the Company's leasehold interests
in real estate and (b) $450 million (the "New DIP Facility Borrowing Base").
The Company's maximum borrowing under the Exit Facility may not exceed the
lesser of (a) the sum of (i) 75% (73% for the fiscal months of January and
February of each year) of the cost value of the Company's Eligible Inventory
and, without duplication, Eligible Letter of Credit Inventory, Eligible In
Transit Inventory and Eligible FOB Inventory minus applicable Reserves, (ii)
80% of the Company's Eligible Accounts Receivable minus applicable Reserves (as
such terms are defined in the New DIP Facility) and (iii) the lesser of (A) $40
million and (B) under certain circumstances, 60% of the agreed upon value of
the Company's leasehold interests in real estate and (b) $450 million (the
"Exit Facility Borrowing Base").
The New Facilities have a sublimit of $150 million for the issuance of
letters of credit. The New Facilities also contain restrictive covenants,
including, among other things, limitations on the creation of additional liens
and indebtedness, capital leases and annual rents, the sale of assets, and the
maintenance of minimum earnings before interest, taxes, depreciation,
amortization and reorganization items, the maintenance of ratio of accounts
payable to inventory levels, and a prohibition on the payment of dividends.
Advances under the New Facilities will bear interest, at the Company's
option, at BBNA's Alternate Base Rate per annum or the Eurodollar Applicable
Margin (i.e., the fully reserved adjusted Eurodollar Rate plus 2.25% or 2.75%
during any period that the Company is utilizing the Overadvance Rate) for
periods of one, two and three months. The Eurodollar Applicable Margin is
subject to reduction by up to 0.50% if the Company achieves certain specified
EBITDAR levels.
Under the New Facilities, the Company will pay an unused line fee of 0.25%
per annum on the unused portion thereof, a letter of credit fee equal to 1.625%
per annum of average outstanding letters of credit and certain other fees. In
connection with the receipt of the Commitment and the closing of the New DIP
Facility, the Company will pay fees to BBNA of approximately $5.6 million. The
Company will also pay BBNA an annual agency fee of $150,000.
Obligations of the Company under the New DIP Facility will be granted (i)
superpriority administrative claim status pursuant to section 364 (c) (1) of the
Bankruptcy Code, subject only to an exclusion for certain administrative and
professional fees and (ii) secured perfected first priority security interests
in and liens upon all assets of the Company. Obligations of the Company under
the Exit Facility will be granted secured perfected first priority security
interests in and liens upon all assets of the Company.
The Company believes that cash on hand, amounts available under the New
DIP Facility and funds from operations will enable the Company to meet its
current liquidity and capital expenditure requirements through emergence from
Chapter 11. Until a plan of reorganization is approved, the Company's long-term
liquidity and the adequacy of its capital resources cannot be determined.
In August 1995, the Company entered into the Real Estate Loan with Chase
consisting of a $37.1 million non-amortizing term loan. The borrowing is
secured by mortgages on certain real estate. The outstanding borrowings of
$37.1 million for 1997, 1996 and 1995 have been classified as liabilities
subject to compromise in the consolidated balance sheets (see note 6 to
consolidated financial statements).
Inherent in a successful plan of reorganization is a capital structure
which permits the Company to generate sufficient cash flow after reorganization
to meet its restructured obligations and fund the current obligations of the
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<PAGE> 25
Company. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time it is not
possible to predict the outcome of the Chapter 11 case, in general, or the
effects of such case on the business of the Company or on the interests of
creditors and stockholders. The Debtors have distributed a term sheet and drafts
of its proposed plan of reorganization and disclosure statement to the Debtors'
Creditor, Bank and Equity Committees. The Debtors are negotiating the terms and
timing of its emergence from Chapter 11 with these Committees. While no plan of
reorganization has been proposed, it is not expected that such a plan would
provide for recovery by equity security holders.
As a result of the Filing, the prosecution of litigation against the
Debtors involving matters arising prior to the Filing for bankruptcy generally
was stayed. Such stay may be modified by the Bankruptcy Court for cause shown in
appropriate circumstances.
Certain former officers and directors of the Company are defendants in
class actions brought on behalf of all persons who purchased the Company's stock
during specified periods of time. These actions are discussed in "Item 3. Legal
Proceedings." Although the Company is not a named defendant in these actions, a
proof of claim was filed in the Chapter 11 case by the plaintiffs in the
Consolidated Action. The amount of liability, if any, related to these actions
is not presently determinable. The Company is required to indemnify the
defendants to the extent provided by Delaware law and the Company has directors'
and officers' liability coverage. Accordingly, no amounts have been provided for
such liability in the consolidated financial statements.
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<PAGE> 26
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the SEC (including the
Annual Report on Form 10-K) may contain statements that are not historical
facts, so-called "forward-looking statements", which involve risks and
uncertainties. In particular, statements in "Item 1. Business" related to the
Company's business strategies and the Company's ability to compete, and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" relating to the sufficiency of capital to meet working capital and
capital expenditures requirements may be forward-looking statements. The
Company's actual future results may differ significantly from those stated in
any forward-looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below. Each of these factors, and
others, are discussed from time-to-time in the Company's filings with the SEC.
The Company assumes no obligation to update or revise any such forward-looking
statements, even if experience or future events or changes make it clear that
any projected financial or operating results implied by such forward-looking
statements will not be realized.
The Company's future results are subject to substantial risks and
uncertainties. The Company is operating as a debtor-in-possession under the
Bankruptcy Code and its future results are subject to the development and
confirmation of a plan of reorganization. The Company's business is seasonal; a
substantial portion of its sales and income from operations are generated
during the fourth quarter of the fiscal year which includes the Christmas
selling season. Any substantial decrease in sales during such period would have
a material adverse effect on the financial condition, results of operations and
liquidity of the Company. The Company may be adversely affected as competitors
open additional stores in the Company's market areas. The Company has working
capital needs which are expected to be funded largely through borrowings under
the Extended DIP Facility and the New DIP Facility. The Extended DIP Facility
and the New Facilities contain restrictive covenants, including, among other
things, limitations on the creation of additional liens and indebtedness,
limitations on capital expenditures, capital leases and annual rents, the sale
of assets and the maintenance of minimum earnings before interest, taxes,
depreciation, amortization, and reorganization items, the maintenance of
inventory levels, and a prohibition on the payment of dividends. Such
restrictions may limit the Company's operating and financial flexibility. For
further information, see "Item 1. Business--Reorganization Case."
SEASONALITY
The Company's business is highly seasonal with a major portion of its
annual sales occurring in the fourth quarter of the year due to increased
customer buying during the Christmas selling season. As a result, the Company's
operating earnings have historically been concentrated in the fourth quarter. In
1997 and 1996, approximately 32% of the Company's total sales were recorded in
the fourth quarter of each year.
INFLATION
The Company believes that the impact of inflation and changing prices has
not significantly affected the Company's sales or results of operations. The
Company uses the LIFO inventory accounting method for financial reporting
purposes, because it is believed to provide a better matching of current costs
with revenue than does the FIFO method. Therefore, the cost of merchandise sold
included in the results of operations are already adjusted for inflation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which is effective for the Company's fiscal year ending
January 30, 1999 ("Fiscal Year 1998"). SFAS No. 130 establishes standards for
reporting and display of comprehensive income (the change in equity from
transactions and other events except those resulting from investment by
owners). The Company is currently evaluating the impact of this statement on
its financial statements.
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<PAGE> 27
In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which is effective beginning
with Fiscal Year 1998. SFAS No. 131 will require that segment financial
information be publicly reported on the basis that is used internally for
evaluating segment performance. The Company is currently evaluating the effects
of this change on its financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which is
effective beginning with Fiscal Year 1998. SFAS No. 132 standardizes the
disclosure requirements for pension and other postretirement benefits, but does
not change the existing measurement or recognition provisions of previous
standards. The Company is currently evaluating the effects of this change on its
financial statement disclosures.
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<PAGE> 28
SELECTED QUARTERLY DATA (UNAUDITED)
The following quarterly results are determined in accordance with
the same accounting policies used for the annual information, including certain
items based upon estimates for the entire year:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) First Second Third Fourth Year
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Net sales $ 525,635 $ 598,151 $ 562,859 $ 810,102 $2,496,747
Gross margin (LIFO) 140,438 161,150 151,769 215,047 668,404
Selling, general and
administrative expenses 160,088 162,658 170,408 177,593 670,747
Reorganization items 6,274 5,560 4,615 68,482(1) 84,931
Net loss (36,315) (18,024) (35,091) (43,179) (132,609)
PER SHARE AMOUNTS(4):
Basic and diluted loss per share $ (2.14) $ (1.07) $ (2.08) $ (2.55) $ (7.84)
------------------------------------------------------------------------------------
Weighted average number of
shares used in computing basic
and diluted net loss per share 16,936 16,903 16,903 16,903 16,911
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) First Second Third Fourth Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Net sales $ 568,560 $ 622,212 $ 568,596 $ 843,088 $ 2,602,456
Gross margin (LIFO) 145,055 170,823 148,208(2) 199,509 663,595
Selling, general and
administrative expenses 171,179 179,419 179,111 190,958 720,667
Reorganization items 8,761 10,779 5,881 62,101(3) 87,522
Net loss (43,281) (28,420) (47,960) (65,664) (185,325)
PER SHARE AMOUNTS(4):
Basic and diluted loss per share $ (2.57) $ (1.67) $ (2.81) $ (3.86) $ (10.91)
------------------------------------------------------------------------------------------
Weighted average number of
shares used in computing basic
and diluted net loss per share 16,857 17,012 17,062 17,046 16,994
</TABLE>
(1) The 1997 fourth quarter reorganization items included $38.0
million for lease rejection obligations, $32.5 million of provisions for closed
stores, and a $5.6 million reduction to the Employee Retention Plan accrual.
(2) The 1996 third quarter gross margin includes a $15 million
reduction in the provision for vendor claims that was recorded during 1995. In
addition, the Company has refined its practice of capitalizing certain costs in
inventory, resulting in additional cost of merchandise sold, of approximately
$13 million upon liquidation of such inventory.
(3) The 1996 fourth quarter reorganization items included $30.8
million of provisions for closed stores, $20.8 million for lease rejection
obligations, $7.2 million for the Employee Retention Plan and $2.4 million for
professional fees.
(4) In the fourth quarter of 1997, the Company adopted SFAS No.
128. All previously reported share and per share information has been restated.
The sum of the quarterly per share data may not equal the annual amounts due to
changes in the weighted average shares and share equivalents outstanding.
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<PAGE> 29
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
- ---------------------------------------------------
See the consolidated financial statements of The Caldor Corporation
and Subsidiaries attached hereto and listed on the index to consolidated
financial statements set forth in Item 14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURES
---------------------
None.
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<PAGE> 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Directors as of April 29, 1998:
<TABLE>
<CAPTION>
Name Age Election Position
---- --- -------- --------
<S> <C> <C> <C>
Warren D. Feldberg(1) 48 1996 Chairman and Chief Executive Officer
John G. Reen 48 1996 Executive Vice President,
Chief Financial Officer and Director
Bruce Carswell(2) 68 1994 Director
Steven M. Friedman(1)(3) 43 1989 Director
Verna K. Gibson(4) 55 1991 Director
William F. Glavin(4)(5) 66 1991 Director
</TABLE>
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors (the
"Compensation Committee").
(3) Chairman of the Audit Committee of the Board of Directors (the "Audit
Committee").
(4) Member of the Audit Committee.
(5) Chairman of the Compensation Committee.
Executive officers as of April 29, 1998:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Warren D. Feldberg 48 Chairman and Chief Executive Officer
John G. Reen 48 Executive Vice President and Chief Financial Officer
Elliott J. Kerbis 45 Executive Vice President-General Merchandise Manager-Hardlines
Dennis M. Lee 48 Executive Vice President-Human Resources and Merchandise
Logistics
James E. Fothergill 46 Senior Vice President-Human Resources
Bennett S. Gross 46 Senior Vice President-General Counsel and Secretary
Gary A. Maxwell 36 Senior Vice President-Merchandise Distribution and
Replenishment
Mark E. Minsky 48 Senior Vice President-General Merchandise Manager-Softlines
Daniel C. O'Harra 47 Senior Vice President-Operations
John A. Polizzi 51 Senior Vice President - Management Information Systems
Edward F. Sadler 53 Senior Vice President - Stores
Susan V. Sprunk 56 Senior Vice President-Marketing
John Tempesta 49 Senior Vice President-Distribution and Logistics
Brian Woolf 49 Senior Vice President-General Merchandise Manager-Homelines
Daniel L. Anderton 49 Vice President-Treasurer
Bruce A. Caldwell 40 Vice President-Controller
</TABLE>
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<PAGE> 31
Certain information concerning the directors and executive officers of the
Registrant:
WARREN D. FELDBERG has been Chairman of the Board of Directors and Chief
Executive Officer of the Registrant since January 1997. He was President and
Chief Operating Officer of the Registrant and a director of the Registrant from
April 1996 to January 1997. From 1991 to 1995, Mr. Feldberg was Chairman and
Chief Executive Officer of Marshall's, a division of Melville Corporation
("Marshalls"). From December 1990 to October 1991, he served as President of
Target Stores ("Target"), a division of Dayton Hudson Corporation ("Dayton
Hudson"). From October 1988 to November 1990, he served as Executive Vice
President, Merchandising of Target. From March 1988 to November 1988, he was
Senior Vice President, General Merchandise Manager, Softlines of Target. From
1984 to 1988, Mr. Feldberg was Executive Vice President, Marketing of Lechmere,
Inc., a division of Dayton Hudson. From 1976 to 1984, Mr. Feldberg held a
variety of management positions with Bloomingdales, a division of Federated
Department Stores ("Federated"). He is also a director of CompUSA, Inc.
JOHN G. REEN has been Executive Vice President and Chief Financial Officer
of the Registrant and a director of the Registrant since January 1996. From 1991
to 1995, Mr. Reen was Executive Vice President and Chief Financial Officer of
Hills Department Stores ("Hills"). From 1979 to 1991, he held various positions
including Vice President-Controller of Hills. Mr. Reen was also a director and
Chairman of the Finance Committee of Hills from 1993 to 1995. In October 1993,
Hills emerged from reorganization proceedings under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11"). Hills had voluntarily filed a petition
for reorganization under Chapter 11 in February 1991.
BRUCE CARSWELL has been a consultant to GTE Corporation ("GTE") since
April 1995. He was Senior Vice President of Human Resources and Administration
of GTE from 1986 to March 1995, when he retired. He is a director of the
Electronic Industries Association, the Electronic Industries Foundation ("EIF")
and Cornell Center for Advanced Human Resources Studies (and its first Visiting
CAHRS Executive). Mr. Carswell was appointed to the National Skill Standards
Board by the Congress of the United States and currently is Vice Chairman.
STEVEN M. FRIEDMAN was Chairman of the Board and Vice President of the
Registrant from 1989 to 1991 and, prior thereto, in 1989, he was President of
the Registrant. He was a director of Caldor, Inc. ("Caldor") from 1989 to 1993.
Since January 1, 1994, Mr. Friedman has been a General Partner of Eos Partners,
L.P. From 1988 to 1993, he was a General Partner of Odyssey Partners, L.P.
("Odyssey"). From 1983 to 1988, he was a principal of Odyssey. He is also a
director of Eagle Food Centers, Inc.
VERNA K. GIBSON has been a consultant since 1994 to Retail Options, a
business advisory firm founded in June 1993, and has been a retail industry
consultant and President of Outlook Consulting, Inc. since 1991. From 1994 to
1997 she served as Chairman of the Board of Petrie Retail, Inc. ("Petrie").
Petrie filed a voluntary petition for reorganization under Chapter 11 in October
1995. From 1985 to 1991, she was President of The Limited Stores, Inc. and was a
director of the Federal Reserve Board, Cleveland, Ohio, for six years ending
December 31, 1993. Ms. Gibson is currently a director of Today's Man, Inc.,
Chico's FAS Inc. and Mother's Work, Inc.
WILLIAM F. GLAVIN has been President Emeritus of Babson College
(Wellesley, Mass.) since June 1997. From 1989 to May 1997, he was President of
Babson College. From 1985 to 1989, he was Vice Chairman of Xerox Corporation. He
is also a director of Reebok International Ltd., INCO Limited and John Hancock
Mutual Funds, Inc.
ELLIOTT J. KERBIS has been Executive Vice President-General Merchandise
Manager-Hardlines of the Registrant since January 1996. He was Senior Vice
President-General Merchandise Manager-Hardlines for the Registrant and its
predecessors from March 1987 to January 1996. From 1985 to 1987, he was Group
Vice President with Macy's New York, Inc.
DENNIS M. LEE has been Executive Vice President-Human Resources and
Merchandise Logistics of the Registrant since January 1997. He was Executive
Vice President-Human Resources and Merchandise Distribution and Replenishment of
the Registrant from January 1996 to January 1997. He was Senior Vice
President-Human Resources
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<PAGE> 32
and Merchandise Distribution and Replenishment of the Registrant from May 1994
to January 1996. He was Senior Vice President-Human Resources of the Registrant
and its predecessors since 1987. From 1985 to 1987, he was Vice President,
Executive Development for May Company.
JAMES E. FOTHERGILL has been Senior Vice President-Human Resources of the
Registrant since January 1997. He was Vice President-Human Resources of the
Registrant from May 1994 to January 1997. From February 1986 to May 1994, he
held various positions with the Registrant, including Vice
President-Organizational Planning, Field Personnel and Special Businesses.
BENNETT S. GROSS has been Senior Vice President-General Counsel of the
Registrant since January 1997 and Secretary of the Registrant since February
1996. He was Vice President-General Counsel of the Registrant and its
predecessors from May 1993 to January 1997. He held various positions, including
Vice President-General Attorney, with R.H. Macy & Co., Inc. from 1985 to May
1993, prior to which he was an Associate with the law firm of Weil, Gotshal &
Manges.
GARY A. MAXWELL has been Senior Vice President-Merchandise Distribution
and Replenishment of the Registrant since January 1997. Previously, he was Vice
President-Merchandise Distribution and Replenishment of the Registrant from
January 1994 to January 1997. From June 1993 to January 1994, he was Vice
President-Merchandise Planning and Control of the Registrant. From May 1990 to
June 1993, he was a Consultant for Webb and Shirley, a department of KPMG Peat
Marwick LLP.
MARK E. MINSKY has been Senior Vice President-General Merchandise
Manager-Softlines of the Registrant and its predecessors since July 1992.
Previously, he was Operating Vice President, Divisional Merchandise
Manager-Ready to Wear of Caldor from 1991 to July 1992. From 1985 to 1991, he
was Operating Vice President, Divisional Merchandise Manager-Jewelry,
Accessories and Intimate Apparel of Caldor.
DANIEL C. O'HARRA has been Senior Vice President-Operations of the
Registrant and its predecessors since 1987. From 1985 to 1987, he was Senior
Vice President-Facilities Management of Caldor.
JOHN A. POLIZZI has been Senior Vice President-Management Information
Systems of the Registrant since April 1997. He was Senior Vice President of
Horace Small Apparel Company from April 1996 to April 1997. From October 1994 to
April 1996, he was Operating Vice President-Management Information Systems of
the Registrant. From November 1993 to October 1994, he was Senior
Director-Management Information Systems of Finast Supermarkets Inc. From July
1993 to November 1993, he was Project Executive of International Business
Machines Corporation's ISSC Division. From August 1990 to July 1993, he was
Director-Management Information Systems Applications of Rite Aid Corporation.
EDWARD F. SADLER has been Senior Vice President-Stores of the Registrant
since May 1997. Previously, he was Regional Vice President-Stores of the
Registrant from June 1995 until May 1997. From 1976 to February 1995, he held
various positions with Target, including Vice President-Store Operations,
Regional Merchandise Manager and District Manager.
SUSAN V. SPRUNK has been Senior Vice President-Marketing of the Registrant
since August 1996. Previously, she was Vice President-Marketing of Hills from
November 1993 to August 1996. From 1983 to 1993, she held a number of positions
with Mervyn's, a division of Dayton Hudson, including Vice President-Sales
Promotion.
JOHN TEMPESTA has been Senior Vice President-Distribution and Logistics of
the Registrant since November 1993. From 1988 to 1993, he was Senior Vice
President-Operations of Chadwicks of Boston, and from 1983 to 1988 he was Senior
Vice President-Operations of Filene's Basement.
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<PAGE> 33
BRIAN WOOLF has been Senior Vice President-General Merchandise
Manager-Homelines of the Registrant since May 1996. From March 1995 to February
1996, he was Vice President-General Merchandise Manager-Women's Ready-to-Wear
of Marshall's. From 1988 to 1995, he was Senior Vice President-General
Merchandise Manager of Lazarus, a department store division of Federated.
DANIEL L. ANDERTON has been Vice President-Treasurer of the Registrant
since June 1997. From May 1996 to June 1997, he was Vice President-Treasurer of
Petrie. From July 1995 to May 1996, he was principal of RM Outsourcing Company.
He held various positions, including Assistant Treasurer, with Crystal Brands,
Inc., from 1985 to July 1995.
BRUCE A. CALDWELL has been Vice President-Controller of the Registrant
since February 1997 and was Vice President-Treasurer of the Registrant from
February 1996 to February 1997. He held various positions, including Vice
President-Treasurer, with Hills from 1987 to February 1996.
Pursuant to Section 16 of the Exchange Act, officers, directors and
holders of more that 10% of the outstanding shares of the Registrant's Common
Stock are required to file periodic reports of their ownership of, and
transactions involving, the Registrant's Common Stock with the SEC. Based solely
on its review of copies of such reports received by the Registrant or written
representations from certain reporting persons that no Annual Statement of
Changes in Beneficial Ownership on Form 5 was required for those persons, the
Registrant believes that its reporting persons have complied with all Section 16
filing requirements applicable to them with respect to the Registrant's fiscal
year ended January 31, 1997, except the failure by Mr. Glavin to file a
Statement of Changes in Beneficial Ownership on Form 4 (which transaction was
reported in his Form 5 for 1997).
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<PAGE> 34
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
SUMMARY OF CASH AND CERTAIN OTHER INFORMATION. The following table shows, for
the fiscal years ended 1997, 1996 and 1995, the compensation paid or accrued by
the Registrant and its subsidiaries to those persons who were at January 31,
1998 (i) the persons who served as Chief Executive Officer and (ii) the other
four most highly compensated executive officers of the Registrant (the "Named
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL ----------------------
COMPENSATION (1) RESTRICTED SECURITIES
NAME & PRINCIPAL FISCAL ------------------------ STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY (2) BONUS AWARDS OPTIONS/SARs COMPENSATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Warren D. Feldberg 1997 $950,000 $450,000 .-- -- $ 2,000(3)
Chairman and Chief 1996 681,923 405,000 120,621(4) -- 796,731(5)
Executive Officer (6)
John G. Reen 1997 517,500 206,250 -- -- 14,985(7)
Executive Vice President 1996 472,500 145,500 -- -- 219,108(8)
and Chief Financial 1995 5,308 -- -- -- --
Officer (9)
Dennis M. Lee 1997 395,000 129,874 -- -- 6,924(10)
Executive Vice President- 1996 371,618 112,500 50,928(4) -- 1,875(3)
Human Resources and 1995 330,370 50,160 417,994(11) 20,000 1,875(3)
Merchandise Logistics (12)
Elliott J. Kerbis 1997 410,163 103,956 -- -- 4,664(10)
Executive Vice President- 1996 401,674 121,530 52,404(4) -- 2,186(13)
General Merchandise 1995 387,600 58,710 403,688(11) 20,000 1,889(13)
Manager-Hardlines(14)
Susan V. Sprunk 1997 346,666 102,647 -- -- 250,854(15)
Senior Vice President- 1996 125,000 -- -- -- 92,849(16)
Marketing (17)
</TABLE>
- ---------------------
1. Perquisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of reported annual salary and bonus for any of the Named
Officers.
2. The table reflects salary paid or deferred during the respective fiscal
years shown.
3. Consists of matching contribution credited to the 401(k) plan.
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<PAGE> 35
4. Consists of 30,634, 13,309 and 12,934 shares of restricted stock for
Messrs. Feldberg, Kerbis and Lee, respectively. These restricted stock
awards vest the later of 3 years from the date of grant or 6 months
following the date of reorganization. The value of the restricted stock
awards at fiscal year end for Messrs. Feldberg, Kerbis and Lee was
$16,274, $7,070 and $6,871, respectively. Amounts in the Restricted Stock
Awards column reflect the value of the restricted stock awards at the date
of grant.
5. Consists of $750,000 signing bonus and $46,731 relocation allowance paid
to Mr. Feldberg.
6. Mr. Feldberg served as President and Chief Operating Officer of the
Company from April 1996 to January 1997. Mr. Feldberg has been Chairman of
the Board of Directors and Chief Executive Officer of the Company since
January 31, 1997.
7. Consists of $2,000 matching contribution credited to the 401(k) plan, with
the balance representing reimbursement of miscellaneous relocation
expenses.
8. Consists of $200,000 relocation bonus and $19,108 relocation allowance
paid to Mr. Reen.
9. Since January 1996 Mr. Reen has been Executive Vice President, Chief
Financial Officer and Director of the Company.
10. Consists of $2,000 matching contribution credited to the 401(k) plan with
the balance representing an increase in the executive's share of the cash
value of the split dollar plan.
11. Consists of 21,530 and 22,293 shares of restricted stock for Messrs.
Kerbis and Lee, respectively. These restricted stock awards vest one-third
on each of the 3rd, 4th and 5th anniversaries of the grant date. The value
of the restricted stock awards at fiscal year-end for Messrs. Kerbis and
Lee was $11,438 and $11,843, respectively. Amounts in the Restricted Stock
Awards column reflect the value of the restricted stock awards at the date
of grant.
12. Since January 1997 Mr. Lee has been Executive Vice President-Human
Resources and Merchandise Logistics. From January 1996 to January 1997 Mr.
Lee was Executive Vice President-Human Resources and Merchandise
Distribution and Replenishment. From May 1994 to January 1996 Mr. Lee was
Senior Vice President-Human Resources and Merchandise Distribution and
Replenishment.
13. Consists of $1,875 matching contribution credited to the 401(k) plan, with
the balance representing an increase in the executive's share of the cash
value of the split dollar plan.
14. Prior to January 1996 Mr. Kerbis was Senior Vice President-General
Merchandise Manager-Hardlines.
15. Consists of $854 matching contribution credited to the 401(k) plan, with
the balance representing a one-time payment to Ms. Sprunk.
16. Consists of an upfront bonus of $75,000 and reimbursement of relocation
expenses of $17,849 paid to Ms. Sprunk.
17. Since August 1996 Ms. Sprunk has been Senior Vice President-Marketing.
STOCK OPTIONS. During the 1997 fiscal year, there were no grants to Named
Officers of stock options or of performance-based Stock Appreciation Rights
("SARs"). No stock option or SAR was exercised by a Named Officer during the
1997 fiscal year and no Named Officer held an unexercised stock option or SAR at
the end of the 1997 fiscal year.
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<PAGE> 36
RETIREMENT AND CERTAIN OTHER BENEFIT PLANS
The following table shows the estimated pension benefits payable to a
covered participant at normal retirement age under the Company's qualified
defined benefit pension plan ("Caldor, Inc. Retirement Plan") as well as the
Company's non-qualified supplemental pension plan ("Supplemental Executive
Retirement Plan") based on covered compensation and years of service with the
Company. All future benefits accruals for the Caldor, Inc. Retirement Plan and
the Supplemental Executive Retirement Plan have been frozen as of July 31, 1996.
<TABLE>
<CAPTION>
Highest Average Annual
Covered Compensation for Annual Benefits for Years of
Consecutive 36 Months (1) Credited Service After January 1, 1990(2)
- ------------------------------------------ ---------------------------------------------------
5 Years 10 Years
-------- --------
<S> <C> <C>
$ 100,000 $ 6,000 $ 12,000
200,000 12,000 24,000
300,000 18,000 36,000
400,000 24,000 48,000
500,000 30,000 60,000
600,000 36,000 72,000
700,000 42,000 84,000
800,000 48,000 96,000
900,000 54,000 108,000
1,000,000 60,000 120,000
1,100,000 66,000 132,000
1,200,000 72,000 144,000
</TABLE>
- -----------------------------
(1) A participant's covered compensation (base salary plus bonus) is his or her
highest average annual compensation for 36 consecutive months prior to August 1,
1996. Benefits shown on the table include benefits from the qualified plan plus
100% of the estimated Social Security benefits.
(2) The target benefit has been 25% to 35% (depending upon Company performance
and prorated for less than 25 years of credited service since January 1, 1990
and prior to August 1, 1996) of the highest average annual compensation for 36
consecutive months prior to August 1, 1996. Benefits are reduced if they begin
prior to age 60. Annual benefits, for participants in the Supplemental Executive
Retirement Plan as of January 1, 1993 are 125% of the above amounts. Messrs. Lee
and Kerbis have each been credited with six years of service. None of the other
Named Officers has been credited with years of service.
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<PAGE> 37
DIRECTOR COMPENSATION
Directors who are members of management receive no compensation or
fees for service as directors. All other directors receive annual retainers of
$25,000 and meeting fees of $1,000 for each Board of Directors meeting attended.
The Chairmen of the Compensation and Audit Committees each receive an additional
annual retainer of $5,000.
EMPLOYMENT CONTRACTS, TERMINATION, SEVERANCE AND CHANGE-OF-CONTROL ARRANGEMENTS
Each of the Named Officers was during fiscal 1997 and is currently a
party to an employment agreement with the Company.
On June 7, 1996, the Bankruptcy Court approved the employment
agreement dated as of April 15, 1996, as amended on June 7, 1996, between the
Company and Warren D. Feldberg, pursuant to which Mr. Feldberg was appointed
President and Chief Operating Officer of the Company and was designated a
director of the Company, subject to continued election by its stockholders. The
agreement provides for an initial three year term of employment and continues
for successive periods of one year each, unless terminated by the Company or Mr.
Feldberg upon not less than 180 days written notice prior to the expiration of
the then applicable term of employment. Since January 1997, Mr. Feldberg has
served as Chairman of the Board of Directors and Chief Executive Officer of the
Company.
The agreement provides for an annual base salary of $900,000 per
annum with increases at the discretion of the Board of Directors. Mr. Feldberg
received a lump sum cash bonus of $750,000. In addition, on the date the
Company's plan of reorganization (the "Plan of Reorganization") becomes
effective in accordance with its terms (the "Effective Date"), Mr. Feldberg will
be paid an amount equal to (i) 35% of his annual base salary then in effect plus
(ii) up to 52.5% of his annual base salary depending upon the level of the
Company's achievement as determined under the Company's Performance Retention
Program approved by the Bankruptcy Court by order dated March 27, 1996; and six
months following the Effective Date, Mr. Feldberg will be paid an additional
amount equal to the amount paid on the Effective Date (the "Feldberg Retention
Payments"). The Feldberg Retention Payments will be made only if, at the time
that they are payable, Mr. Feldberg is employed by the Company, or, if not then
employed, Mr. Feldberg's employment was terminated (i) by the Company without
cause (as defined in the agreement) or (ii) by Mr. Feldberg for Good Reason for
Resignation (as defined in the agreement). Mr. Feldberg will be entitled to
participate in any cash bonus arrangements, including the Performance Incentive
Plan ("PIP"), applicable to his position during the term of his employment.
However, notwithstanding any limitations contained in the PIP, Mr. Feldberg will
receive a minimum annual amount each year, from the date on which he commenced
employment with the Company through the Effective Date, equal to 50% of the
maximum amount payable to him under the PIP for any fiscal year irrespective of
the financial performance of the Company, and will have the opportunity to be
paid up to the additional 50% depending upon the attainment of certain financial
performance goals by the Company under the PIP.
If the Company elects not to renew the agreement, Mr. Feldberg will
be entitled to receive, within 30 days after termination, a lump sum severance
payment equal to twelve (12) multiplied by the sum of (i) 1/12 of his annual
base salary in effect at the time of such expiration plus (ii) 1/12 of 100% of
his Target Bonus Opportunity (as defined in the agreement) for the fiscal year
of the Company in which such expiration occurs (the sum of (i) plus (ii), as
measured as of the time of the applicable expiration or termination under the
agreement, the "Monthly Severance Amount"). Upon termination by the Company
without cause (as defined in the agreement) or by Mr. Feldberg for Good Reason
for Resignation (as defined in the agreement), the severance payment would be
equal to (i) the Monthly Severance Amount as of the date of such termination,
multiplied by (ii) the greater of (a) the number of full calendar months
remaining in his then current term of employment and (b) twelve (12); provided
that if he terminates his employment by virtue of a Good Reason for Resignation
relating to failure of the Company to maintain officer and director insurance,
the severance payment will be reduced by one-half. If Mr. Feldberg terminates
his employment (or, in certain circumstances, is dismissed) following the
occurrence of certain "change
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<PAGE> 38
in control" events specified in the agreement, then he will be entitled to
receive, within 30 days after termination, in cash, as severance, a lump sum
payment equal to the excess of 2.99 times (or in certain circumstances 1.50
times) his "base amount" over the "present value" of any other "parachute
payments" that he has received or to which he is entitled ("base amount,"
"present value," and "parachute payments" have the meanings set forth in Section
280G of the Code except that "parachute payments" is determined without regard
to whether or not they equal or exceed three times Mr. Feldberg's "base
amount"). The obligations of the Company under the agreement are secured by a
$3.9 million standby letter of credit.
On March 6, 1996, the Bankruptcy Court approved the employment
agreement dated as of January 29, 1996, as amended on March 5, 1996, between the
Company and John G. Reen, pursuant to which Mr. Reen serves as an Executive Vice
President and Chief Financial Officer of the Company and was designated a
director of the Company, subject to continued election by its stockholders. The
agreement provides for an initial term of employment expiring on March 6, 1999
and continuing for successive periods of one year each unless terminated by the
Company or the employee upon not less than 120 days written notice prior to the
expiration of the then applicable term of employment.
The agreement provides for an annual base salary of $460,000 per
annum with increases at the discretion of the Board of Directors. In addition
Mr. Reen received a lump sum cash bonus of $200,000 upon his relocation. On the
Effective Date of the Company's Plan of Reorganization, Mr. Reen will be paid an
amount equal to 60% of his annual base salary then in effect; and, six months
following the Effective Date, Mr. Reen will be paid an additional amount equal
to the greater of (i) $600,000 minus the amount paid at the Effective Date or
(ii) 60% of his base salary in effect on such subsequent date (the "Reen
Retention Payments"). The Reen Retention Payments will be made only if, at the
time that they are payable, Mr. Reen is employed by the Company, or, if not then
employed, Mr. Reen's employment was terminated (i) by reason of Mr. Reen's
death, (ii) by the Company other than for cause (as defined in the Agreement),
(iii) by Mr. Reen for Good Reason for Resignation (as defined in the Agreement)
or (iv) as a result of non-renewal of the agreement by the Company. Mr. Reen
will be entitled to participate in any cash bonus arrangements, including the
PIP, applicable to his position during the term of his employment. However,
notwithstanding any limitations contained in the PIP, Mr. Reen will receive a
minimum annual bonus each year, from the date on which he commenced employment
with the Company through the date the Court enters an order confirming the
Company's Plan of Reorganization ("Confirmation"), equal to 30% of his annual
base salary (as in effect on May 1 of the fiscal year for which the bonus is to
be paid) and will have the opportunity to be paid up to an additional 30% of his
annual base salary depending upon the attainment of achievable financial
objectives determined by the Company and applicable to all senior executives who
participate in the PIP. Mr. Reen will also be entitled to participate on a level
immediately below that of "Principal" in any equity or cash bonus program
included or contemplated by any Plan of Reorganization confirmed by the
Bankruptcy Court.
If the Company elects not to renew the agreement, then he will be
entitled to receive, within 30 days after termination, a lump sum severance
payment equal to the sum of (i) 100% of his annual base salary in effect at the
time of such termination plus (ii) 100% of his target bonus opportunity (the
bonus payable upon the Company achieving, but not exceeding, its business plan)
for the fiscal year in which such termination occurs. Upon termination of the
agreement by the Company without cause (as defined in the agreement) or by Mr.
Reen for Good Reason for Resignation (as defined in the agreement), the
severance payment would be equal to the sum of (i) 1/12 of the annual base
salary plus 1/12 of the target bonus opportunity for the fiscal year of the
Company in which such termination occurs multiplied by the greater of (a) the
number of full calendar months remaining in his then current term of employment
and (b) twelve (12). If Mr. Reen terminates his employment (or, in certain
circumstances, is dismissed) pursuant to certain "change in control" provisions
(as described in the agreement), then he will be entitled to receive, within 30
days after termination, in cash, as severance, a lump sum payment equal to the
excess of 2.99 times his "base amount" over the "present value" of any other
"parachute payments" that he has received or to which he is entitled ("base
amount," "present value," and "parachute payments" have the meanings set forth
in Section 280G of the Code, except that "parachute payments" is determined
without regard to whether or not they equal or exceed three times Mr. Reen's
"base amount").
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<PAGE> 39
The employment agreements of each of Mr. Kerbis, Mr. Lee and Ms.
Sprunk are substantially identical and expire on October 31, 1998, October 31,
1998 and September 3, 1998, respectively. Each such agreement continues for
successive periods of one year unless terminated by either party upon not less
than two months' written notice prior to the expiration of the then applicable
term of employment. Such agreements provide for an annual salary during their
respective terms (the base salary for the fiscal year ended January 31, 1998 is
the amount set forth for 1997 in the above Summary Compensation Table), with
increases subject to the discretion of the Board of Directors. On October 3,
1997, the Company and Ms. Sprunk entered into an agreement providing for a
one-time payment of $250,000 to her by the Company.
If the Company elects not to renew the employment agreement of Mr.
Kerbis, Mr. Lee or Ms. Sprunk, then such employee would receive, within 30 days
after termination, a lump sum payment equal to the sum of (i) 1/12 of the
employee's annual base salary in effect at the time of such termination plus
(ii) 1/12 of 100% of the employee's target bonus opportunity for the fiscal year
in which such termination occurs, which sum is multiplied by nine. Such
agreements also provide for the continuation of health and insurance benefits
for a period of nine months following termination. If, during the term of any
such employment agreement, the Company terminates the employment of the employee
other than for "cause" (as defined below), or the employee terminates his or her
employment because the Company, upon 30 days' prior written notice by the
employee specifying a material breach of any of its obligations to the employee
under such agreement, has failed to cure such material breach (within such
30-day notice period), then such employee is entitled to receive, within 30 days
after termination, a lump sum payment equal to (X) the sum of (i) 1/12 of his or
her annual base salary in effect at the time of such termination plus (ii) 1/12
of 100% of the employee's target bonus opportunity for the fiscal year in which
such termination occurs, multiplied by (Y) the greater of (a) the number of
calendar months remaining in the employee's term of employment and (b) nine.
Such agreements also provide for the continuation of health and insurance
benefits for the number of months determined under clause (Y) above. ("Cause" is
defined as (i) the willful failure to perform any material obligations under the
employment agreement, (ii) an act of fraud, theft or dishonesty likely to result
in financial harm to the Company, (iii) the conviction of any felony or (iv) the
conviction of any misdemeanor involving moral turpitude which might cause
embarrassment to the Company.)
In addition, Mr. Kerbis, Mr. Lee and Ms. Sprunk each has the right
to terminate his or her employment within 12 months after (i) the employee has
obtained actual knowledge that a "change in control" (as defined) of the Company
has occurred and (ii) an assignment to the employee of any duties inconsistent
with the status of his or her office and/or position with the Company as
constituted immediately prior to the change in control or a significant adverse
change in the nature or scope of his or her authorities, powers, functions or
duties as constituted immediately prior to the change in control. The employment
agreements of each of Mr. Kerbis, Mr. Lee and Ms. Sprunk provide that if the
employee terminates his or her employment following a change in control, then
the employee is entitled to receive, within 30 days after termination, in cash,
as severance, a lump sum payment equal to the salary and bonus amounts paid by
the Company to the employee during the 24 month period immediately preceding the
termination (the "Payment Period"), but not to exceed 2.99 times the employee's
"base amount" (as defined below).
In each of the foregoing employment agreements, a "change in
control" is deemed to have occurred (i) if there has occurred a change in
control as provided under certain rules or regulations under the federal
securities laws, (ii) when any person or entity becomes a beneficial owner of
20% or more of the Company's securities, (iii) if the stockholders of the
Company approve a plan of complete liquidation; or (iv) if there occurs a change
in ownership or effective control of the Company or a substantial portion of its
assets. The term "base amount" as used in each of the foregoing employment
agreements has the meaning ascribed to such term in Section 280G of the Code.
-39-
<PAGE> 40
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During fiscal 1997, the Compensation Committee consisted of Steven
M. Friedman, Bruce Carswell and William F. Glavin. Steven M. Friedman was an
officer of the Registrant from 1989 to 1991.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------------
(a) To the best of the Registrant's knowledge, there were no beneficial owners
of more than 5% of the issued and outstanding shares of Common Stock as of March
15, 1998.
(b) The following table sets forth information regarding the beneficial
ownership at March 15, 1998 of the issued and outstanding shares of Common Stock
of (a) each of the current directors of the Registrant, (b) each of the Named
Officers and (c) all 19 current directors and executive officers of the
Registrant as a group:
<TABLE>
<CAPTION>
Name of Beneficial Owner Number of Shares Percent of Total Common Stock(1)
- ------------------------ ---------------- --------------------------------
<S> <C> <C>
Warren D. Feldberg 30,634(2) *
John G. Reen 0 *
Bruce Carswell 4,943 *
Steven M. Friedman 0 *
Verna K. Gibson 0 *
William F. Glavin 2,000 *
Elliott J. Kerbis 34,839(2) *
Dennis M. Lee 35,227(2) *
Susan V. Sprunk 0 *
All current directors and executive
officers as a group (19 persons) 217,036(3)(4) 1%
</TABLE>
* Ownership does not exceed 1% of the outstanding shares.
(1) Unless otherwise noted, each beneficial owner has sole voting and investment
power with respect to the shares attributable to such owner. The percent of
total stock owned is based on 16,902,839 shares issued and outstanding at the
close of business on March 15, 1998.
(2) Consists of shares of restricted stock subject to cancellation if the
employee leaves the employ of the Company prior to vesting.
(3) Includes an aggregate of 183,718 shares of restricted stock held by officers
subject to cancellation if such executive officers leave the employ of the
Company prior to vesting.
(4) Includes an aggregate of 25,875 shares which may be acquired within 60 days
of March 15, 1998 upon exercise of options or SARs.
(c) The Registrant is not aware of any arrangements, including any pledge by any
person of securities of the Registrant, the operation of which may at a
subsequent date result in a change of control of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
None
-40-
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) Documents filed as part of this annual report:
(1) Financial Statements:
The Consolidated Financial Statements are
set forth in the Index to Consolidated Financial
Statements on page F-1 hereof.
(2) Financial Statement Schedules:
None.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
(1) Exhibits are set forth in the "Exhibits to Form
10-K" on page E-1.
-41-
<PAGE> 42
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.
THE CALDOR CORPORATION
By: /s/ Warren D. Feldberg
------------------------------------
Warren D. Feldberg
Dated April 29, 1998 Chairman and Chief Executive
Officer
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 date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Warren D. Feldberg Chairman, Chief Executive Officer April 29, 1998
- ------------------------------------------ and Director (Principal Executive
Warren D. Feldberg Officer)
/s/ John G. Reen Executive Vice President, April 29, 1998
- ------------------------------------------ Chief Financial Officer and Director
John G. Reen (Principal Financial and Accounting
Officer)
/s/ Bruce Carswell Director April 29, 1998
- ------------------------------------------
Bruce Carswell
/s/ Steven M. Friedman Director April 29, 1998
- ------------------------------------------
Steven M. Friedman
/s/ Verna K. Gibson Director April 29, 1998
- ------------------------------------------
Verna K. Gibson
/s/ William F. Glavin Director April 29, 1998
- ------------------------------------------
William F. Glavin
</TABLE>
-42-
<PAGE> 43
THE CALDOR CORPORATION
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Independent Auditors' Report F-2
Consolidated Financial Statements
Consolidated Statements of Operations F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The Caldor Corporation
Norwalk, Connecticut
We have audited the accompanying consolidated balance sheets of The
Caldor Corporation (Debtor-in-Possession) and subsidiaries (the "Company") as of
January 31, 1998 and February 1, 1997, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for each of the
three years in the period ended January 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of The Caldor
Corporation (Debtor-in-Possession) and subsidiaries as of January 31, 1998 and
February 1, 1997, and the results of their operations and their cash flows for
each of the three years in the period ended January 31, 1998 in conformity with
generally accepted accounting principles.
As discussed in Note 1, the Company and certain of its subsidiaries
filed for reorganization under Chapter 11 of the United States Bankruptcy Code
in September 1995. The accompanying consolidated financial statements do not
purport to reflect or provide for the consequences of the bankruptcy
proceedings. In particular, such financial statements do not purport to show (a)
as to assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to pre-petition liabilities, the
amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the capitalization of the Company; (d) as to operations, the
effect of any changes that may be made in its business; or (e) as to the
litigation, claims and contingencies discussed in Note 16, the amounts that may
be allowed for such matters. The eventual outcome of these matters is not
presently determinable.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 1, the bankruptcy filings and related circumstances and the
recurring losses from operations raise substantial doubt about its ability to
continue as a going concern. The continuation of its business as a going concern
is contingent upon, among other things, future profitable operations, the
ability to generate sufficient cash from operations and financing sources to
meet its obligations, and the development and confirmation of a plan of
reorganization. Management's plans concerning these matters are also discussed
in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of the uncertainties referred to herein and
in the preceding paragraph.
DELOITTE & TOUCHE LLP
New York, New York
April 24, 1998
F-2
<PAGE> 45
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
(in thousands, except per share data) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 2,496,747 $ 2,602,456 $ 2,765,525
Cost of merchandise sold (note 7) 1,828,343 1,938,861 2,131,281
Selling, general and administrative
expenses (notes 2, 13 and 15) 670,747 720,667 773,810
Loss on disposition of property and equipment 671 729 1,187
Interest expense, net (note 14) 43,864 39,502 40,973
----------- ----------- -----------
Loss before reorganization items, income
taxes and extraordinary item (46,878) (97,303) (181,726)
Reorganization items (note 8) 84,931 87,522 170,731
----------- ----------- -----------
Loss before income taxes and extraordinary item (131,809) (184,825) (352,457)
Provision (benefit) for income taxes (note 11) 800 500 (59,825)
----------- ----------- -----------
Loss before extraordinary item (132,609) (185,325) (292,632)
Extraordinary loss on early retirement of debt (note 12) -- -- (8,396)
----------- ----------- -----------
Net loss $ (132,609) $ (185,325) $ (301,028)
=========== =========== ===========
BASIC AND DILUTED PER SHARE AMOUNTS (NOTE 2):
Loss per share before extraordinary item $ (7.84) $ (10.91) $ (17.31)
Extraordinary loss -- -- (0.50)
----------- ----------- -----------
Loss per share $ (7.84) $ (10.91) $ (17.81)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES USED IN
COMPUTING BASIC AND DILUTED PER SHARE AMOUNTS 16,911 16,994 16,902
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 46
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands, except share and per share data) JANUARY 31, 1998 FEBRUARY 1, 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,561 $ 27,477
Restricted cash (note 2) 1,023 5,254
Accounts receivable 12,853 12,573
Merchandise inventories (note 2) 419,682 450,499
Assets held for disposal, net (note 2) 30,076 8,177
Refundable income taxes (note 11) 13,040
Prepaid expenses and other current assets 20,987 17,422
----------- -----------
Total current assets 506,182 534,442
----------- -----------
Property and equipment, net (notes 2 and 3) 436,658 508,071
Debt issuance costs (note 2) 1,086 2,516
Other assets 5,194 5,851
----------- -----------
Total $ 949,120 $ 1,050,880
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 149,659 $ 152,508
Accrued expenses 60,360 62,787
Other accrued liabilities (note 4) 53,542 64,478
Current maturities of long-term debt (note 5) 9,936 550
Borrowings under revolving credit agreement (note 5) 187,698 152,000
----------- -----------
Total current liabilities 461,195 432,323
----------- -----------
Long-term debt (note 5) 10,525 18,463
Other long-term liabilities 31,037 28,322
Liabilities subject to compromise (note 6) 729,039 719,980
Commitments and contingencies (notes 6,8,13,15 and 16)
Stockholders' deficit (notes 9,10 and 15):
Preferred stock, par value $.01-
authorized, 10,000,000 shares;
issued and outstanding, none
Common stock, par value $.01-
authorized, 50,000,000 shares;
issued and outstanding, 16,902,839
and 16,939,106 shares, respectively 169 169
Additional paid-in capital 201,334 201,823
Deficit (481,419) (348,810)
Unearned compensation (616) (1,390)
Minimum pension liability adjustment (2,144) --
----------- -----------
Total stockholders' deficit (282,676) (148,208)
----------- -----------
Total $ 949,120 $ 1,050,880
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 47
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
OUTSTANDING
COMMON STOCK ADDITIONAL RETAINED
------------ PAID-IN EARNINGS
(in thousands, except share data) SHARES AMOUNT CAPITAL (DEFICIT)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 28, 1995 16,697,467 $ 167 $ 199,456 $ 137,543
Exercise of stock options
and warrants 2,725 43
Issuance of common stock 5,053 117
Shares issued under restricted
stock plan 216,188 2 5,432
Amortization of unearned
compensation
Net loss (301,028)
----------- --------- ------------------ ------------------
BALANCE, FEBRUARY 3, 1996 16,921,433 169 205,048 (163,485)
Cancellation of restricted stock (187,372) (2) (4,030)
Shares issued under director
stock plan 13,876 42
Shares issued under restricted
stock plan 191,169 2 763
Amortization of unearned
compensation
Net loss (185,325)
----------- --------- ------------------ ------------------
BALANCE, FEBRUARY 1, 1997 16,939,106 169 201,823 (348,810)
Cancellation of restricted stock (36,267) (489)
Amortization of unearned
compensation
Minimum pension liability adjustment
Net loss (132,609)
----------- --------- ------------------ ------------------
BALANCE, JANUARY 31, 1998 16,902,839 $ 169 $ 201,334 $(481,419)
=========== ========= ================== ==================
<CAPTION>
MINIMUM
UNEARNED PENSION STOCKHOLDERS'
(in thousands, except share data) COMPENSATION LIABILITY EQUITY (DEFICIT)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 28, 1995 $ $ $ 337,166
Exercise of stock options
and warrants 43
Issuance of common stock 117
Shares issued under restricted
stock plan (5,434)
Amortization of unearned
compensation 910 910
Net loss (301,028)
--------------- ----------------- --------------------
BALANCE, FEBRUARY 3, 1996 (4,524) 37,208
Cancellation of restricted stock 2,974 (1,058)
Shares issued under director
stock plan 42
Shares issued under restricted
stock plan (765)
Amortization of unearned
compensation 925 925
Net loss (185,325)
--------------- ----------------- --------------------
BALANCE, FEBRUARY 1, 1997 (1,390) (148,208)
Cancellation of restricted stock 312 (177)
Amortization of unearned
compensation 462 462
Minimum pension liability adjustment (2,144) (2,144)
Net loss (132,609)
--------------- ----------------- --------------------
BALANCE, JANUARY 31, 1998 $ (616) $ (2,144) $ (282,676)
=============== ================= ====================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 48
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------------------------
(in thousands) JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(132,609) $(185,325) $(301,028)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Amortization of debt issuance costs 4,061 1,778 900
Depreciation and other amortization 51,209 54,594 59,894
Loss on disposition of property and equipment 671 729 1,187
Extraordinary loss on early retirement of debt -- -- 3,471
Amortization of unearned compensation 462 925 910
Reorganization items 84,931 87,522 170,731
Working capital and other 21,361 74,894 160,274
--------- --------- ---------
Net cash provided by operating activities
before reorganization items 30,086 35,117 96,339
Reorganization items:
Reduction in liabilities subject to compromise (28,977) (78,182) --
Reorganization items paid (16,936) (29,890) (3,090)
--------- --------- ---------
Net cash (used in) provided by operating activities (15,827) (72,955) 93,249
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (29,468) (36,553) (81,084)
--------- --------- ---------
Net cash used in investing activities (29,468) (36,553) (81,084)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of Senior Secured Notes -- -- (59,500)
Proceeds from borrowings under Term Loan -- -- 50,000
Proceeds from Real Estate Loan -- -- 37,145
Proceeds from issuance of common stock
and exercise of stock options -- 42 160
Repayment of construction loan previously subject to compromise -- (5,753) --
Proceeds from borrowings under construction loans -- 10,942 --
Proceeds from (repayment of) borrowings
under revolving credit agreement 35,698 112,000 (30,243)
Decrease (increase) in restricted cash 4,231 (5,254) --
Repayment of long-term debt (550) (569) (5,250)
--------- --------- ---------
Net cash provided by (used in) financing activities 39,379 111,408 (7,688)
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,916) 1,900 4,477
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 27,477 25,577 21,100
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 21,561 $ 27,477 $ 25,577
========= ========= =========
WORKING CAPITAL AND OTHER:
Accounts receivable $ (280) $ 5,486 $ (9,834)
Merchandise inventories 30,817 49,449 22,251
Assets held for disposal, net (21,899) 17,088 --
Refundable income taxes and deferred income taxes 13,040 8,966 (28,296)
Prepaid expenses and other current assets (3,565) (375) (5,857)
Accounts payable (2,849) (3,732) 113,847
Accrued expenses (2,427) (8,048) 122,525
Other accrued liabilities (3,755) 5,371 (3,822)
Federal and state income taxes payable -- -- (44,584)
Other assets and long-term liabilities 12,279 689 (5,956)
--------- --------- ---------
WORKING CAPITAL AND OTHER $ 21,361 $ 74,894 $ 160,274
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest payments $ 38,613 $ 36,278 $ 36,210
Income tax payments 688 562 8,101
Capital lease obligations incurred -- 462 14,756
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 49
THE CALDOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
NOTE 1 - CHAPTER 11 PROCEEDINGS AND BASIS OF FINANCIAL STATEMENTS PRESENTATION
On September 18, 1995, The Caldor Corporation (the "Registrant") and
certain of its subsidiaries (collectively, the "Debtors", "Caldor" or the
"Company") filed voluntary petitions (the "Filing") for relief under Chapter 11
of the United States Bankruptcy Code ("Chapter 11"). The Debtors are presently
operating their business as debtors-in-possession subject to the jurisdiction of
the U.S. Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court").
In the Chapter 11 case, substantially all liabilities as of the date
of the Filing are subject to resolution under a plan of reorganization to be
voted upon by the Debtors' creditors and stockholders and confirmed by the
Bankruptcy Court. Amended and restated schedules were filed by the Debtors with
the Bankruptcy Court setting forth the assets and liabilities of the Debtors as
of the date of the Filing as shown by the Debtors' accounting records. The
Bankruptcy Court fixed August 12, 1996 as the last date by which creditors of
the Debtors could file proofs of claim for claims that arose prior to the
Filing. The Debtors are in the process of reconciling differences between
amounts shown by the Debtors and claims filed by creditors. The amount and
settlement terms for such disputed liabilities are subject to allowance by the
Bankruptcy Court. Ultimately, the adjustment of the total liabilities of the
Debtors remains subject to a Bankruptcy Court approved plan of reorganization
and, accordingly, the amount of such liabilities is not presently determinable.
The Bankruptcy Court has extended the period in which the Debtors possess the
exclusive right to file a plan of reorganization through September 1, 1998 and
the period in which the Debtors can solicit acceptances for the plan of
reorganization through October 30, 1998. The Debtors have distributed a term
sheet and drafts of their proposed plan of reorganization and disclosure
statement to the professionals representing the Debtors' Creditor, Bank and
Equity Committees. The Debtors are negotiating the terms and timing of their
emergence from Chapter 11 with these Committees. At this time it is not
expected that such plan would provide for recovery by equity security holders.
On September 18, 1997, the New York Stock Exchange suspended trading
in the Company's Common Stock and on November 25, 1997, the Securities and
Exchange Commission delisted the Company's Common Stock. Subsequent to September
18, 1997, the Company's Common Stock has been traded on the "OTC Bulletin
Board."
The United States Trustee for the Southern District of New York has
appointed Official Committees ("Committees") of Unsecured Creditors and Equity
Security Holders for the Chapter 11 case. The role of the Committees includes,
among other things: (a) consultation with the Debtors concerning the
administration of the Chapter 11 case; (b) investigation of the acts, conduct,
assets, liabilities, financial condition and operations of the Debtors, and the
desirability of the continuation of their business and other relevant matters;
and (c) participation in the formulation of a plan of reorganization. In
discharging these responsibilities, the Committees have standing to raise issues
with the Bankruptcy Court relating to the business of the Debtors and the
conduct and course of the Chapter 11 case. The Debtors are required to pay
certain expenses of the Committees and those of the Steering Committee of the
banks participating in the Extended DIP Facility (as hereinafter defined),
including professional fees, to the extent allowed by the Bankruptcy Court.
F-7
<PAGE> 50
On December 6, 1996 the Company presented its Five-Year Business
Plan (the "Business Plan") to the Company's Creditor, Bank and Equity Committees
setting forth its strategy to restore the Company to long-term profitability by
raising customer satisfaction levels, revamping advertising programs, lowering
everyday prices and focusing its promotional activity, narrowing and refocusing
merchandise assortments, and implementing improved operating efficiencies and
cost reductions. The Company believes that the Business Plan sets forth a
strategic direction to take advantage of its strengths and to improve key areas
of its business. The Company will continue to review and refine the Business
Plan.
On June 7, 1996, the Bankruptcy Court approved the Debtors'
reclamation program, which authorizes the Debtors to settle the claims of 425
vendors that submitted reclamation demands at the time of Filing. The program
provides for each reclamation vendor that extends mutually acceptable credit
support to receive both a cash payment of up to 50% of its eligible reclamation
claim and, subject to certain conditions, priority treatment for the remainder
of its claim. Reclamation cash payments of $1.5 million and $11.6 million were
made in 1997 and 1996, respectively. To the extent these payments exceed $10
million, the Debtors are required to apply such excess to pay down the term
portion of the pre-petition credit facility (the "Term Loan") in an equivalent
amount (up to $8.5 million). In 1997 and 1996, the Debtors had paid down $1.4
million per year of the Term Loan related to the reclamation program.
Under Chapter 11, the Debtors may elect to assume or reject real
estate leases, employment contracts, personal property leases, service contracts
and other executory pre-petition contracts, subject to Bankruptcy Court
approval. Under Section 502 of the Bankruptcy Code, a lessor's claim for damages
resulting from the rejection of a real property lease is limited to the rent
provided under such lease, without acceleration, for the greater of one year, or
15%, not to exceed three years, of the remaining term of the lease following the
earlier of the date of the Filing or the date on which the property is returned
to the landlord. Forty-five of the Company's store leases, including three which
were rejected in 1996, are guaranteed by the Company's former parent, The May
Department Stores Company ("May Company"). In 1989 as part of its leveraged
buyout from May Company, the Company agreed to indemnify May Company for any
damages incurred by May Company under its guaranties. The Company's liability to
May Company for amounts paid by May Company under its guaranties of these
leases, if rejected, may not be limited under Section 502 of the Bankruptcy
Code. As a pre-petition claim, however, this liability is subject to compromise
and discharge. A landlord may also have a claim for unpaid pre-petition rent. As
of April 15, 1998, the Debtors had rejected leases for 32 locations, assumed 17
real estate leases (two of which were for warehouses and the balance were for
stores) and had
F-8
<PAGE> 51
reached agreement with landlords to terminate, without liability, seven
additional leases. Subsequent to assuming these leases, the Company announced
its plans to close the Under-Performing Stores (as hereinafter defined),
including three locations for which leases had been assumed (the "Previously
Assumed Stores"). The claims of the landlords of the Previously Assumed Stores
are treated as administrative expenses under Chapter 11 subject to both the
landlords' obligation to mitigate damages and limitations on damages agreed upon
by the Company and each landlord. The Company is required by an order of the
Bankruptcy Court, subject to the right of both the Company and the applicable
landlord to move to accelerate for due cause shown, to make a decision to assume
or reject 39 leases by August 31, 1998 and the balance of the real property
leases on confirmation of its plan of reorganization. As part of the ongoing
review of its operations, the Company is currently negotiating with landlords
regarding rent reductions and lease restructurings (See note 8).
On April 2, 1996, the Bankruptcy Court approved the closing of 12
under-performing stores (the "1996 Closed Stores") and the Debtors' retention of
a liquidator to conduct store closing sales (the "1996 Closing Sales"). The 1996
Closing Sales were completed and the stores were closed by the end of June 1996.
On July 16, 1996, the Bankruptcy Court directed the application of the net
proceeds of the 1996 Closing Sales to the payment of the Term Loan. The Company
paid $2.2 million and $22.5 million to The Chase Manhattan Bank ("Chase"), as
agent for the Term Loan banks in 1997 and 1996, respectively.
On March 12, 1997 the Bankruptcy Court approved the closing of 4
under-performing stores (the "1997 Closed Stores") and the Debtor's retention of
a liquidator to conduct store closing sales (the "1997 Closing Sales"). These
sales were completed and the stores were closed by the end of May 1997.
Concurrently, the Registrant, as the borrower thereunder, the subsidiaries of
the Registrant named therein, as the guarantors thereunder, and the bank group
led by Chase entered into an amendment (the "Third Amendment") to the Amended
and Restated Revolving Credit and Guaranty Agreement dated as of October 17,
1995 among the Registrant, as the borrower thereunder, the subsidiaries of the
Registrant named therein, as the guarantors, thereunder, and a bank group led by
Chase ("the DIP Facility"). Pursuant to the Third Amendment, all of the proceeds
of the 1997 Closing Sales were applied to a prepayment of the Tranche B (as
hereinafter defined) loans and the Tranche B facility commitment was reduced by
such amount.
As part of the Company's ongoing review process, the Company
identified, and on March 25, 1998 obtained Bankruptcy Court approval to close,
12 under-performing stores in 1998 (the "Under-Performing Stores"). The Company
completed a liquidation sale at one of the locations and has retained a
liquidator who is currently conducting store closing sales at the other
locations. The net proceeds of these sales will be placed in a segregated
interest bearing account with Chase, in its capacity as agent under the DIP
Facility, pending agreement between the Company and the bank group concerning
distribution of the proceeds.
The Debtors continue to review leases and contracts, as well as
other operational and merchandising changes, and cannot presently determine or
reasonably estimate the ultimate outcome of, or liability resulting from this
review.
The consolidated financial statements of the Company have been
presented in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7: "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7") and have been prepared in
accordance with generally accepted accounting principles applicable to a going
concern, which contemplates continuity of operations, realization of assets and
the liquidation of liabilities and commitments in the normal course of business.
The Filing, related circumstances and the losses from operations, raise
substantial doubt about the Company's ability to continue as a going concern.
The appropriateness of using the going concern basis is dependent upon, among
other things, confirmation of a plan of reorganization, future profitable
operations, and the ability to generate sufficient cash from operations and
financing sources to meet obligations. As a result of the Filing and related
circumstances, however, such realization of assets and liquidation of
liabilities is subject to significant uncertainty. While under the protection of
Chapter 11, the Debtors may sell or otherwise dispose of assets, and liquidate
or settle liabilities, for amounts other than those reflected in the
F-9
<PAGE> 52
consolidated financial statements. Further, a plan of reorganization could
materially change the amounts reported in the consolidated financial statements.
The consolidated financial statements do not include any adjustments relating to
a recoverability of the value of recorded asset amounts or the amounts and
classification of liabilities that might be necessary as a consequence of a plan
of reorganization.
NOTE 2 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Business - The Company operates a regional chain
of upscale discount retail stores located in nine East Coast and Mid-Atlantic
states. The Company's fiscal year ends on the Saturday closest to January 31.
References to 1997, 1996 and, 1995 relate to the fiscal years ended January 31,
1998, February 1, 1997 and February 3, 1996, respectively. Each of these fiscal
years included 52 weeks except for 1995 which included 53 weeks. References to
years relate to fiscal years rather than calendar years.
b. Principles of Consolidation and Basis of Presentation - The
consolidated financial statements include the accounts of the Company and all of
its subsidiaries. All material intercompany accounts and transactions between
the entities have been eliminated.
c. Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents. Cash equivalents are stated at cost, which approximates market
value.
d. Restricted Cash - As of January 31, 1998, the restricted cash
balance of $1 million was being held in a segregated account, pursuant to
stipulation, pending resolution of a motion filed in Bankruptcy Court by a
vendor of the Company. As of February 1, 1997, the restricted cash balance of
$5.3 million was being held in an escrow account pending final resolution of
issues concerning the closing sales agreement between the Company and the
liquidator who conducted the 1996 Closing Sales.
e. Merchandise Inventories -The value of merchandise inventories is
determined by the lower of LIFO (last-in, first-out) cost, using the retail
inventory method, or market. The LIFO cost of merchandise inventories exceeded
current cost at January 31, 1998 and February 1, 1997. Therefore, the reported
amounts of merchandise inventory approximate market at January 31, 1998 and
February 1, 1997.
f. Assets Held for Disposal - Assets held for disposal represent the
net realizable value of inventories located at the stores to be closed and the
net realizable value of land and building for the Silver Spring, Maryland store
to be closed.
g. Property and Equipment - Property and equipment are stated at
cost (or purchase cost) less accumulated depreciation and amortization.
Provisions for depreciation and amortization are computed using the
straight-line method based upon the estimated useful lives of the assets, which
are 40 to 50 years for buildings and 3 to 15 years for furniture, fixtures and
equipment. Leasehold improvements are amortized over the shorter of their
economic lives or the terms of the leases. Leasehold interests and investments
in property under capital leases are amortized over the related lease term.
h. Debt Issuance Costs - Debt issuance costs are amortized over the
term of the related debt agreements (See note 14).
i. Selling, General and Administrative Expenses - Buying and store
occupancy costs are included in selling, general and administrative expenses.
F-10
<PAGE> 53
j. Store Pre-Opening Expenses - Costs associated with the opening of
new stores are expensed in the year the stores are opened. The Company did not
incur any pre-opening expenses in 1997. The Company incurred pre-opening
expenses of $3.1 million and $1.6 million in 1996 and 1995, respectively.
k. Advertising Costs - Advertising costs, net are expensed as
incurred and were $60.4 million, $70.8 million and $70.4 million in 1997, 1996
and 1995, respectively.
l. Income Taxes - The Company provides for deferred income taxes
under the asset and liability method in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," whereby
deferred income taxes result from the tax effect of temporary differences
between the tax bases of assets and liabilities and their reported amounts in
the financial statements (see Note 11).
m. Earnings (Loss) Per Share - In 1997, the Company adopted SFAS No.
128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 establishes standards
for computing and presenting earnings per share. Basic and diluted earnings
(loss) per share were computed by dividing net income by the weighted average
number of common shares outstanding during each period. Stock options to
purchase 190,525, 279,299 and 1,083,037 shares of common stock were outstanding
at January 31, 1998, February 1, 1997 and February 3, 1996 respectively, but
were not included in the computation of diluted earnings per share since they
would have resulted in an antidilutive effect.
n. Self Insurance Programs - The Company is self insured for workers
compensation and general liability claims, and recognizes the projected costs of
such programs on a discounted basis using a risk-free rate. Use of a risk-free
rate to discount future cash payments produces a reserve that approximates the
amount at which such claims could be settled in an arm's length transaction with
a third party.
o. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The consolidated financial statements include
estimates of restructuring charges for certain facilities closings (see note 8)
and do not purport to reflect or provide for the consequences of the bankruptcy
proceedings and other uncertainties. Actual results could differ from reported
results.
p. Reclassifications - Certain balances in prior fiscal years have
been reclassified to conform with the current year's classifications.
q. Stock-Based Compensation - The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations. In 1996, the Company adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation Plans."
(See note 9).
r. Recent Accounting Pronouncements - In June 1997, the FASB issued
SFAS No. 130, "Reporting Comprehensive Income," which is effective for the
Company's fiscal year ending January 30, 1999 ("Fiscal Year 1998"). SFAS No. 130
establishes standards for reporting and display of comprehensive income (the
change in equity from transactions and other events except those resulting from
investment by owners). The Company is currently evaluating the effects of this
change on its financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related information," which is effective
beginning with Fiscal Year 1998. SFAS No. 131 will require that segment
F-11
<PAGE> 54
financial information be publicly reported on the basis that is used internally
for evaluating segment performance. The Company is currently evaluating the
effects of this change on its financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" which is effective
beginning with Fiscal Year 1998. SFAS No. 132 standardizes the disclosure
requirements for pension and other postretirement benefits, but does not change
the existing measurement or recognition provisions of previous standards. The
Company is currently evaluating the effects of this change on its financial
statement disclosures.
s. Fair Value of Financial Instruments - SFAS No. 107, "Disclosures
About Fair Value of Financial Instruments" requires disclosures of estimated
fair values of financial instruments both reflected and not reflected in the
accompanying consolidated financial statements. The estimated fair values of the
Company's cash and cash equivalents, accounts receivable, borrowings under
credit agreements and accounts payable (post-petition) approximate the carrying
amounts at January 31, 1998 and February 1, 1997 due to their short maturities
or variable-rate nature of the borrowings. As judgment is involved, the
estimates are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The fair value of the Company's
liabilities subject to compromise is not presently determinable as a result of
the Chapter 11 proceedings.
F-12
<PAGE> 55
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost, less accumulated depreciation and
amortization, as follows:
<TABLE>
<CAPTION>
January 31, 1998 February 1, 1997
---------------- ----------------
<S> <C> <C>
Land $ 10,464 $ 15,561
Buildings, leasehold
interests and improvements 278,791 293,023
Furniture, fixtures and equipment 251,810 263,743
Property under capital leases 105,144 123,633
--------- ---------
646,209 695,960
Less: Accumulated depreciation and
amortization (209,551) (187,889)
--------- ---------
Property and equipment, net $ 436,658 $ 508,071
========= =========
</TABLE>
NOTE 4 - OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
January 31, 1998 February 1, 1997
---------------- ----------------
<S> <C> <C>
Accrued reorganization costs $26,532 $33,713
Accrued wages and benefits 15,469 18,557
Other accruals 11,541 12,208
------- -------
Total $53,542 $64,478
======= =======
</TABLE>
F-13
<PAGE> 56
Note 5 - Debt
Debt consisted of the following:
<TABLE>
<CAPTION>
January 31, 1998 February 1, 1997
---------------- ----------------
<S> <C> <C>
Short-term debt:
Borrowings under revolving credit agreement $ 187,698 $ 152,000
========= =========
Long-term debt:
Capital lease obligations, due 1998 - 2018,
10.5% to 11.1% $ 10,525 $ 8,527
Construction loan 9,936 10,486
--------- ---------
20,461 19,013
Less: Current maturities (9,936) (550)
--------- ---------
Total long-term debt $ 10,525 $ 18,463
========= =========
</TABLE>
On October 17, 1995, the Bankruptcy Court entered a final order (the
"Final Order") approving the DIP Facility. The DIP Facility amended and
restated, in its entirety, the Registrant's Debtor-In-Possession Revolving
Credit and Guaranty Agreement dated as of September 18, 1995 with Chase as
agent. On June 4, 1997, the Bankruptcy Court entered a final order approving the
Fourth Amendment to the DIP Facility (the "Fourth Amendment") which extended the
DIP Facility to June 15, 1998 (the "Extended DIP Facility"). The Extended DIP
Facility provides for a revolving credit and letter of credit facility in an
aggregate principal amount not to exceed $450 million, divided into two (2)
separate tranches consisting of (i) a post petition revolving credit and letter
of credit facility in an aggregate principal amount not to exceed $250 million
made available by the Tranche A Banks (the "Tranche A Facility") and (ii) the
continued use of the revolving credit and letter of credit portion of the
pre-petition credit facility made available by the Tranche B Banks (the "Tranche
B Facility") in an aggregate principal amount of $200 million which principal
amount may be borrowed, paid and reborrowed. The Company's maximum borrowing
under the Tranche A Facility, up to $250 million, may not exceed the lesser of
60% of Eligible Cost Value of Inventory or 50% of Eligible Retail Value of
Inventory (the "Borrowing Base"). At January 31, 1998, the Borrowing Base was
$217.4 million. The Extended DIP Facility has a sublimit of $175 million for the
issuance of letters of credit. The Tranche B Facility must be fully utilized
before the Company can borrow under the Tranche A Facility. In addition, the
Extended DIP Facility provides for, among other things, capital expenditures not
to exceed $16 million from January 31, 1998 through the maturity date, revised
earnings before interest, taxes, depreciation, amortization and reorganization
items ("EBITDAR") thresholds for the fiscal quarter ending May 2, 1998 and
revised monthly inventory amounts through June 15, 1998. The Extended DIP
Facility also contains restrictive covenants, including, among other things,
limitations on the creation of additional liens and indebtedness, capital
leases and annual rents, the sale of assets and a prohibition on the payment of
dividends. The Company was in compliance with the financial covenants contained
in the Extended DIP Facility at January 31, 1998.
The Extended DIP Facility provides that advances made (i) under the
Tranche A Facility will bear interest at a rate of 0.75% per annum in excess of
Chase's Alternative Base Rate ("ABR"), or at the Registrant's option, a rate of
1.75% per annum in excess of LIBOR for the interest periods of one, three or six
months or (ii) under the Tranche B Facility will bear interest at 0.25% per
annum in excess of ABR, or, at the Registrant's option, a rate of
F-14
<PAGE> 57
1.0% per annum in excess of LIBOR. The Registrant incurred approximately $3
million in bank fees associated with the extension of the DIP Facility, which
were paid in 1997. In all other material respects, the DIP Facility remains
unchanged.
The Final Order provides that (i) the Company pay monthly interest
payments on the outstanding principal amount of pre-petition indebtedness under
the Term Loan and the real estate based loan agreement (the "Real Estate Loan")
between the Company and Chase at an annual rate equal to LIBOR plus 3/4 of 1%
and (ii) the lenders under such pre-petition facilities be granted a replacement
security interest in and lien upon all of the properties and assets of the
Company. The outstanding principal amounts on the Term Loan and the Real Estate
Loan have been classified as liabilities subject to compromise on the
consolidated balance sheets (see note 6).
Under the Tranche A Facility, the Company pays a commitment fee of 0.5%
per annum on the unused portion thereof, a letter of credit fee equal to 1.5%
per annum of average outstanding letters of credit and certain other fees. Under
the Tranche B Facility, the Company pays a commitment fee of 0.3125% per annum
on the unused portion thereof, a letter of credit fee equal to 0.75% per annum
of average outstanding letters of credit and certain other fees. Commitment fees
were approximately $0.9 million and $1.2 million in 1997 and 1996, respectively.
Letter of credit fees were approximately $0.7 million and $0.5 million in 1997
and 1996, respectively.
The Tranche A Banks and the Tranche B Banks were granted a lien on all
of the assets of the Debtors and a superpriority claim for all obligations of
the Debtors arising under the Tranche A Facility and the Tranche B Facility,
respectively. However, the claim of the Tranche B Banks is subordinate in
priority to the claim of the Tranche A Banks. In addition, Chase, as agent, was
granted a security interest in all of the shares of capital stock now or
hereafter issued to the Registrant by certain of its subsidiaries.
At January 31, 1998 and February 1, 1997, the respective principal
amounts outstanding were $187.7 million and $152 million in revolving credit
borrowings and $61.8 million and $52.6 million in letters of credit, which were
issued primarily to import merchandise in the normal course of the Company's
business. The effective interest rate at January 31, 1998 and February 1, 1997
was 7.0% and 6.3%, respectively, on revolving credit borrowings.
The maximum amounts of revolving credit borrowings at any month-end
were $300.2 million in 1997, $267 million in 1996 and $222.1 million in 1995.
Average revolving credit borrowings outstanding were $210.5 million at a
weighted average interest rate of 7.1% in 1997, $151.8 million at a weighted
average interest rate of 6.6% in 1996 and $160.0 million at a weighted average
interest rate of 7.2% in 1995.
The Company borrowed $10.9 million in 1996 under a construction loan
relating to the Silver Spring, Maryland store. As of January 31, 1998 and
February 1, 1997, the outstanding borrowings under this loan were $9.9 million
and $10.5 million, respectively and bear interest at a rate of 1.75% per annum
in excess of LIBOR. On March 25, 1998, the Company obtained Bankruptcy Court
approval to close the Silver Spring, Maryland store in 1998, and accordingly,
the outstanding balance of the loan as of January 31, 1998 has been classified
as current maturities of long-term debt on the consolidated balance sheet.
The Registrant has received a commitment (the "Commitment") from
BankBoston, N. A. ("BBNA") to provide the Company with separate fully
underwritten and committed senior secured $450 million guaranteed revolving
credit facilities for debtor-in-possession financing (the "New DIP Facility")
and exit financing (the "Exit Facility", and together with the New DIP Facility,
the "New Facilities"). The New DIP Facility will be used for the working capital
and general business needs of the Company as well as to repay in full the
Company's Extended DIP Facility. The Exit Facility will be used to provide for
the working capital and general business needs of the reorganized Company beyond
the Effective Date as well as to repay in full the New DIP Facility. BBNA
intends, with the Company's consent, to syndicate part of the New Facilities to
other financial institutions (collectively, including BBNA, the "Lenders").
BBNA's commitment to provide the New DIP Facility is subject to certain
conditions precedent including approval by the Bankruptcy Court of the New DIP
Facility. The New DIP Facility will be replaced by the Exit Facility on the
effective date of a plan of reorganization (the "Effective Date") provided that
the plan is not inconsistent with certain terms of the Commitment and is
otherwise reasonably satisfactory to BBNA and that all conditions precedent to
confirmation of the plan have been met. Among other things, the plan must
provide for repayment in full of the New DIP Facility, the Company must have had
a 12-month rolling EBITDAR on the closing date of the Exit Facility no less than
$60 million (EBITDAR for the 1997 fiscal year was $53.7 million), and the
Company's borrowing availability under the Exit Facility on the closing date
thereof must exceed certain specified minimum levels.
The New DIP Facility will terminate on the earlier of (i) Effective Date
or (ii) 18 months after the closing date for the New DIP Facility. The Exit
Facility will terminate four years after the closing date of the New DIP
Facility.
F-15
<PAGE> 58
The Company's maximum borrowing under the New DIP Facility may not exceed
the lesser of (a) the sum of (i) 72% (77% for the fiscal months of March through
December of each year (the "Overadvance Rate") provided that the Overadvance
Rate shall not increase the borrowing base by more than $30 million) of the cost
value of the Company's Eligible Inventory and, without duplication, Eligible
Letter of Credit Inventory, Eligible In Transit Inventory and Eligible FOB
Inventory minus applicable Reserves, (ii) 80% of the Company's Eligible Accounts
Receivable minus applicable Reserves (as such terms are defined in the New DIP
Facility) and (iii) the lesser of (A) $45 million and (B) under certain
circumstances, 70% of the agreed upon value of the Company's leasehold interests
in real estate and (b) $450 million (the "New DIP Facility Borrowing Base").
The Company's maximum borrowing under the Exit Facility may not exceed the
lesser of (a) the sum of (i) 75% (73% for the fiscal months of January and
February of each year) of the cost value of the Company's Eligible Inventory
and, without duplication, Eligible Letter of Credit Inventory, Eligible In
Transit Inventory and Eligible FOB Inventory minus applicable Reserves, (ii)
80% of the Company's Eligible Accounts Receivable minus applicable Reserves (as
such terms are defined in the New DIP Facility) and (iii) the lesser of (A)
$40 million and (B) under certain circumstances, 60% of the agreed upon value
of the Company's leasehold interests in real estate and (b) $450 million (the
"Exit Facility Borrowing Base").
The New Facilities have a sublimit of $150 million for the issuance of
letters of credit. The New Facilities also contain restrictive covenants,
including, among other things, limitations on the creation of additional liens
and indebtedness, capital leases and annual rents, the sale of assets, and the
maintenance of minimum earnings before interest, taxes, depreciation,
amortization and reorganization items, the maintenance of ratio of accounts
payable to inventory levels, and a prohibition on the payment of dividends.
Advances under the New Facilities will bear interest, at the Company's
option, at BBNA's Alternate Base Rate per annum or the Eurodollar Applicable
Margin (i.e., the fully reserved adjusted Eurodollar Rate plus 2.25% or 2.75%
during any period that the Company is utilizing the Overadvance Rate) for
periods of one, two and three months. The Eurodollar Applicable Margin is
subject to reduction by up to 0.50% if the Company achieves certain specified
EBITDAR levels.
Under the New Facilities, the Company will pay an unused line fee of 0.25%
per annum on the unused portion thereof, a letter of credit fee equal to 1.625%
per annum of average outstanding letters of credit and certain other fees. In
connection with the receipt of the Commitment and the closing of the New DIP
Facility, the Company will pay fees to BBNA of approximately $5.6 million. The
Company will also pay BBNA an annual agency fee of $150,000.
Obligations of the Company under the New DIP Facility will be granted (i)
superpriority administrative claim status pursuant to section 364 (c) (1) of the
Bankruptcy Code, subject only to an exclusion for certain administrative and
professional fees and (ii) secured perfected first priority security interests
in and liens upon all assets of the Company. Obligations of the Company under
the Exit Facility will be granted secured perfected first priority security
interests in and liens upon all assets of the Company.
F-16
<PAGE> 59
NOTE 6 - LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise are subject to future adjustments
depending on Bankruptcy Court actions and further developments with respect to
disputed claims. Liabilities subject to compromise were as follows:
<TABLE>
<CAPTION>
January 31, 1998 February 1, 1997
---------------- ----------------
<S> <C> <C>
Accounts payable $224,185 $226,506
Term Loan 187,469 191,100
Real Estate Loan 37,145 37,145
Rejected leases and other
miscellaneous claims 167,936 129,900
Accrued expenses 75,288 80,784
Capital lease obligations 21,789 39,318
Construction loan 11,511 11,511
Industrial revenue bonds and
mortgage notes 3,716 3,716
-------- --------
Total $729,039 $719,980
======== ========
</TABLE>
Liabilities subject to compromise under reorganization proceedings
include substantially all current and long-term unsecured debt as of the date of
the Filing. Pursuant to the provisions of the Bankruptcy Code, payment of those
liabilities may not be made except pursuant to a plan of reorganization or
Bankruptcy Court order while the Debtors continue to operate as
debtors-in-possession. The Company has recorded an estimated liability for
certain leases that have either been rejected or the Company anticipates
rejecting.
Accounts payable subject to compromise was reduced by reclamation
payments of $1.5 million and a reduction to the liability for vendor claims of
$2 million (see note 7). The outstanding principal amount of the Term Loan was
reduced by application of the closing sale proceeds of $2.2 million for the 1996
Closed Stores and $1.4 million in payments related to the reclamation program.
Rejected leases and other miscellaneous claims increased to reflect lease
rejection claims for the Under-Performing Stores. Accrued expenses were reduced
principally by payments for rent, real estate taxes and common area maintenance
charges relating to assumed leases, pursuant to Section 365 of the Bankruptcy
Code. Capital lease obligations were reduced by normal amortization and the
reclassification of leases assumed in 1997 to long-term debt.
F-17
<PAGE> 60
NOTE 7 - COST OF MERCHANDISE SOLD
During 1995, the Company recorded reserves for additional vendor claims
of approximately $29 million estimated to result upon the reconciliation of
pre-petition liabilities and for anticipated losses on the liquidation of
inventories in 1996 of approximately $39 million. Based upon actual claims
reconciliation experience, the Company reduced its provision and liability for
vendor claims by approximately $2 million and $15 million in 1997 and 1996,
respectively. In addition, the Company refined its practice of capitalizing
certain costs in inventory, which resulted in additional cost of merchandise
sold in 1996 of approximately $13 million upon liquidation of such inventories.
The impact of these items, which was included in cost of merchandise sold in
1997 and 1996, was not material to the Company's consolidated financial position
or results of operations.
NOTE 8 - REORGANIZATION ITEMS
The components of reorganization items and accrual activity that were
directly associated with the Company's Chapter 11 reorganization proceedings and
the resulting restructuring of its operations were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Reorganization items
Provision for closed stores $32,471 $30,770 $ 47,250
Lease rejection obligations 38,036 20,813 96,458
Retention costs (note 15) 1,686 15,042 12,509
Professional fees 5,317 13,700 8,816
Write-off of deferred financing costs 690 1,261 2,200
Other 6,731 5,936 3,498
------- ------- --------
Total $84,931 $87,522 $170,731
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Accrual activity
Balance - beginning of year $ 163,613 $ 136,530 $ --
Reorganization items 84,931 87,522 170,731
Cash payments (16,936) (29,890) (3,090)
Asset write-offs (37,140) (30,549) (31,111)
--------- --------- ---------
Balance - end of year $ 194,468 $ 163,613 $ 136,530
========= ========= =========
</TABLE>
Cash payments made in 1997 included $8.1 million for professional fees,
$5.1 million for severance payments, $2.0 million for bankruptcy expenses and
$1.7 million for store closing expenses. Cash payments made in 1996 included
$15.9 million for professional fees, $3.8 million for severance payments, $7.2
million for bankruptcy expenses and $3.0 million for store closing expenses.
Cash payments in 1995 were $1.5 million for bankruptcy expenses and $1.6 million
for professional fees.
As discussed in note 1, the Company closed 12 under-performing stores in
1996 and four under-performing stores in 1997. The Company identified, and on
March 25, 1998, the Bankruptcy Court approved, the closing of the
Under-Performing Stores. The Company completed a liquidation sale at one of the
locations and has retained a liquidator who is currently conducting store
closing sales at the other locations. The provision for closed stores covers
costs associated
F-18
<PAGE> 61
with the closing of the stores and primarily relates to fixed asset and
inventory write-offs. The lease obligations and related reserves for the
facilities closings include numerous real property leases rejected and to be
rejected (including three previously assumed leases) and amounts for other
executory contracts that have been identified for rejection pursuant to Section
365 of the Bankruptcy Code and are reflected at the estimated amount of the
eventually allowed claims of the lessors in the Chapter 11 case as prescribed
by Section 502 of the Bankruptcy Code for the rejection of leases. Forty-five
of the Company's store leases, including three which were rejected in 1996, are
guaranteed by the Company's former parent, The May Company. In 1989 as part of
its leveraged buyout from May Company, the Company agreed to indemnify May
Company for any damages incurred by May Company under its guaranties. The
Company's liability to May Company for amounts paid by May Company under its
guaranties of these leases, if rejected, may not be limited under Section 502
of the Bankruptcy Code. As a pre-petition claim, however, this liability is
subject to compromise and discharge. The costs relating to these facilities
closings are based on management's best estimates, however actual costs could
differ from those presently recorded in the consolidated financial statements.
Net sales of the Under-Performing Stores were approximately $156.9 million,
$157.1 million and $132.9 million in 1997, 1996 and 1995, respectively. Net
sales of the 1997 Closed Stores were approximately $8.0 million, $92.6 million
and $88.2 million during 1997, 1996 and 1995, respectively. Net sales of the
1996 Closed Stores were approximately $18.1 million and $133.6 million during
1996 and 1995, respectively.
NOTE 9 - STOCK COMPENSATION PLANS
At January 31, 1998, the Company had four stock-based compensation
plans which are described below. The Company applies Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its stock-based compensation plans other than for its
restricted stock awards. The Company determined that had compensation cost for
the Company's stock-based compensation plans been determined consistent with
the methodology prescribed under SFAS No. 123 "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), the impact on the Company's net loss and loss
per share would not be material. The effects of applying SFAS No. 123 are not
indicative of future results as SFAS No. 123 does not take into consideration
compensation expense related to awards granted prior to 1995.
a. Stock Option Plans - The Company's 1995 Stock Option Plan for Key
Employees, 1991 Stock Option Plan for Key Employees and 1991 Stock Option Plan
for Directors provide for the granting of options to purchase 1,500,000 shares
of the Company's common stock to key employees and directors. The option price
under the plans is the fair market value of the shares on the grant date.
Exercise terms are determined at each grant date. Stock options granted during
1995 and 1994 become exercisable in installments of 25% per year on each of the
first through fourth anniversaries of the grant date and have a maximum term of
ten years.
F-19
<PAGE> 62
A summary of the status of the Company's three stock option plans and
changes during the years ended January 31, 1998, February 1, 1997 and February
3, 1996 is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------- ------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 279,299 $25.12 1,083,037 $26.15 972,600 $28.05
Granted 316,350 20.54
Exercised (2,725) 15.63
Canceled (88,774) 25.70 (803,738) 26.51 (203,188) 26.63
------- --------- ---------
Outstanding at end of year 190,525 24.87 279,299 25.12 1,083,037 26.15
======= ========= =========
Options exercisable at
year-end 163,626 $24.82 182,323 $24.40 401,342 $24.88
</TABLE>
b. Stock Appreciation Rights and Restricted Stock Plan - The Company's
1994 Performance Stock Appreciation Rights ("SARs") and Restricted Stock Plan
provides for the granting of 1,300,000 shares of the Company's common stock to
key employees in the form of SARs or as restricted stock. No more than 546,000
shares will be granted as restricted stock.
During fiscal 1995, 225,000 SARs were granted at a weighted average
fair market value of $18.63. No SARs were granted during 1997 or 1996. At
January 31, 1998, SARs which had been awarded and were outstanding amounted to
5,000 shares at a price of $31.88, 7,500 shares at a price of $18.75 and 5,000
shares at a price of $13.50. No compensation expense was recognized in
connection with the granting of SARs.
During fiscal 1996 and 1995, 191,169 and 216,188 restricted stock
awards at a weighted average fair market value of $4.00 and $21.44,
respectively, were granted to certain key employees at no cost to these
employees. There were no restricted stock awards granted during 1997. The
outstanding restricted stock awards vest on the later of three years subsequent
to the 1996 award date or six months following the date of a plan of
reorganization. The cost of restricted stock awards, based on the stock's fair
market value at the award date is charged to stockholders' equity and
subsequently amortized against earnings over the vesting period. In 1997, the
Company amortized $0.5 million and for 1996 and 1995 $0.9 million per year of
unamortized compensation related to restricted stock awards. At January 31,
1998, 183,718 shares were outstanding under restricted stock awards.
F-20
<PAGE> 63
NOTE 10 - SHAREHOLDER RIGHTS PLAN
On August 2, 1995, the Company adopted a Shareholder Rights Plan and
declared a distribution of one Right for each outstanding share of Common Stock,
par value $.01 per share (the "Company Common Stock"). Such Rights only become
exercisable ten business days after a person or group (an "Acquiring Person")
acquires beneficial ownership of, or commences a tender or exchange offer for,
15% or more of the Company's Common Stock (the "Stock Acquisition Date").
Each Right entitles the holder to purchase from the Company one
one-hundredth of a share of Series A Preferred Stock, par value $.01 per share,
at a purchase price of $64 for each one one-hundredth of a share, subject to
adjustment. Thereafter, upon the occurrence of certain events (for example, if
the Company is the surviving corporation of a merger with an Acquiring Person),
each holder of a Right will have the right to receive, upon exercise, shares of
Preferred Stock (or, in certain circumstances, Common Stock, cash, property or
other securities of the Company) having a value of twice the exercise price of
the Rights. Alternatively, upon the occurrence of certain other events (for
example, if the Company is acquired in a merger or other business combination in
which the Company is not the surviving corporation), each holder (other than the
Acquiring Person) of a Right will have the right to receive, upon exercise,
shares of Common Stock of the surviving corporation having a value of twice the
exercise price of the Rights.
At any time until 10 business days following the Stock Acquisition
Date, the Company may redeem the Rights in whole, but not in part, at a price of
$.01 per Right (subject to adjustment in certain events) payable at the option
of the Company. The Rights will expire on August 2, 2005.
F-21
<PAGE> 64
NOTE 11 - INCOME TAXES
The provision (benefit) for income taxes included the following:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ $ $(32,394)
State and local 800 500 865
---- -------- --------
800 500 (31,529)
---- -------- --------
Deferred:
Federal (28,296)
State and local
---- -------- --------
(28,296)
---- -------- --------
Total $800 $ 500 $(59,825)
==== ======== ========
</TABLE>
A reconciliation between income taxes computed using the effective income
tax rate and the statutory income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes (benefit) at statutory rates $(46,133) $(64,689) $(123,360)
State and local income taxes, net of federal benefit 520 325 562
Unrecognized deferred tax asset 46,649 62,879 62,973
Other (236) 1,985
-------- -------- ---------
Provision (benefit) for income taxes $ 800 $ 500 $ (59,825)
======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax rate (35.0)% (35.0)% (35.0)%
State and local income taxes, net of federal benefit 0.4 0.2 0.1
Unrecognized deferred tax asset 35.4 34.0 17.9
Other (0.2) 1.1
---- ---- ----
Effective income tax rate 0.6% 0.3% (17.0)%
==== ==== ====
</TABLE>
F-22
<PAGE> 65
The tax effect of temporary differences and carry forwards which give rise
to deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carryforward $ 133,136 $ 95,308
Targeted jobs tax credit carryforward 6,108 6,108
Alternative minimum tax credit carryforward 6,011 6,011
Reserves for reorganization items 24,195 29,780
Reserves for restructuring items 72,633 62,797
--------- ---------
Total deferred tax assets 242,083 200,004
--------- ---------
Fixed assets and accumulated depreciation (26,238) (32,892)
Current assets and accrued liabilities (11,225) (15,591)
--------- ---------
Total deferred tax liabilities (37,463) (48,483)
--------- ---------
Total deferred tax assets (liabilities), net 204,620 151,521
Less: Valuation allowance (204,620) (151,521)
--------- ---------
Net deferred tax assets $ -- $ --
========= =========
</TABLE>
The Company and its subsidiaries file a consolidated federal income tax
return. For tax reporting purposes, the Company has adopted the year ending on
the Thursday occurring nearest to the last day of the calendar month of October.
The Company has certain federal and state net operating loss
carryforwards at October 1997 which will expire in the years 1998 through 2012.
The Company has an alternative minimum tax credit carryforward of approximately
$6.0 million available to offset future regular income taxes payable to the
extent such regular taxes exceed alternative minimum taxes payable. The Company
has approximately $6.1 million of targeted jobs tax credit carryforwards, which
expire in the years 2005 through 2010. The valuation allowance relates to the
uncertainty associated with future realization of net operating loss
carryforwards, credit carryforwards and certain deductible temporary
differences.
NOTE 12 - EXTRAORDINARY ITEM
During February 1995, the Company amended its credit agreement to
increase the amortizing Term Loan to $215 million. Using $50 million in Term
Loan borrowings and $16 million of non-amortizing revolver borrowings, the
Company executed, on February 7, 1995, an in-substance defeasance of the
outstanding 15% Senior Subordinated Notes (the "Notes") by depositing $66
million of U.S. government securities into an irrevocable trust to cover the
redemption value (including principal, call premium and interest) of the Notes
on June 1, 1995, at which time the Notes were called. For financial reporting
purposes, the Notes were considered extinguished during the first quarter of
fiscal 1995, and the defeasance transaction resulted in an extraordinary loss of
$8.4 million. During the fourth quarter of fiscal 1995, the previously recorded
tax benefit from this extraordinary loss was reversed and allocated to
continuing operations.
F-23
<PAGE> 66
NOTE 13 - LEASE OBLIGATIONS AND COMMITMENTS
The Company leases the majority of its stores and certain equipment
under noncancelable leases. Certain of the store leases provide for contingent
rentals based on sales. Substantially all of the store leases require the
Company to pay taxes, insurance and other occupancy costs and contain renewal
options which range from 5 to 60 years.
Rental expense for operating leases consisted of:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Real property:
Minimum rentals $ 83,583 $ 89,865 $ 91,093
Contingent rentals 2,756 2,509 2,485
-------- -------- --------
86,339 92,374 93,578
Equipment rentals 16,364 19,200 23,182
-------- -------- --------
Total $102,703 $111,574 $116,760
======== ======== ========
Rental income $ 3,710 $ 3,192 $ 3,333
======== ======== ========
</TABLE>
Excluding leases rejected or identified to be rejected, future minimum
lease payments at January 31, 1998 for each of the next five years were as
follows:
<TABLE>
<CAPTION>
Capital
Year Leases Operating Leases Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $ 7,180 $ 78,798 $ 85,978
1999 7,611 77,731 85,342
2000 6,183 74,680 80,863
2001 4,353 72,680 77,033
2002 3,937 68,750 72,687
Thereafter 27,161 751,825 778,986
-------- ---------- ----------
Minimum lease payments 56,425 $1,124,464 $1,180,889
========== ==========
Less: Imputed interest component and
executory costs (24,111)
--------
Present value of net minimum lease payments $ 32,314
========
</TABLE>
F-24
<PAGE> 67
NOTE 14 - INTEREST EXPENSE, NET
Interest expense, net, included the following:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense $ 40,216 $ 38,208 $ 40,767
Amortization of debt issuance costs 4,061 1,778 900
-------- -------- --------
44,277 39,986 41,667
Interest income (413) (484) (694)
-------- -------- --------
Interest expense, net $ 43,864 $ 39,502 $ 40,973
======== ======== ========
</TABLE>
F-25
<PAGE> 68
NOTE 15 - BENEFIT PLANS
a. Pension Plans - The Company has three defined benefit plans, which
cover employees ("Associates") who meet certain requirements including age,
length of service, and hours worked per year. The benefits provided are based
upon years of service and compensation during employment. The Caldor
Corporation Retirement Plan and the Supplemental Executive Retirement Plan were
amended effective August 1, 1996 to discontinue additional accruals for
participants. The Caldor Pension Plan and Trust was amended on October 1, 1997
to discontinue additional accruals for participants. Under both the Caldor
Corporation Retirement Plan and the Caldor Pension Plan and Trust, benefits
accrued prior to the effective dates of the future accrual discontinuations,
are not affected by these changes and current participants not yet fully vested
are eligible to vest with additional years of service after such dates.
Contributions to the pension plans, which are made solely by the
Company, are determined by an outside actuarial firm. To compute net pension
costs, the actuarial firm estimates the total benefits which will ultimately be
paid to eligible Associates and then allocates these costs to service periods.
Each of the actuarial assumptions used to calculate pension costs is reviewed
annually. The following tables summarize the funded status of the pension plans,
components of pension expense and actuarial assumptions.
At December 31, 1997, the Company recorded a minimum pension liability
of $2.1 million in accordance with SFAS No. 87, "Employers' Accounting for
Pensions."
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
FUNDED STATUS
Actuarial present value of benefit obligation:
Vested benefit obligation $ 23,664 $ 21,397
-------- --------
Accumulated benefit obligation (ABO) $ 27,351 $ 25,221
-------- --------
Projected benefit obligation (PBO) $ 27,351 $ 25,333
-------- --------
Plan assets at fair value (primarily equity and
income securities) $ 24,507 $ 22,294
-------- --------
PBO in excess of plan assets 2,844 3,039
Unrecognized net loss (612) (110)
Additional minimum liability 2,144
-------- --------
Accrued pension liability $ 4,376 $ 2,929
-------- --------
ABO in excess of plan assets $ 2,844 $ 2,927
-------- --------
</TABLE>
F-26
<PAGE> 69
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Components of Net Pension Expense
Service cost $ 1,308 $ 3,348 $ 3,827
Interest on PBO 1,832 1,852 1,603
Actual return loss on plan assets (3,762) (1,773) (2,987)
Net amortization and deferral 1,692 218 1,488
Curtailment gain -- (712)
------- ------- -------
Total $ 1,070 $ 2,933 $ 3,931
======= ======= =======
Actuarial assumptions:
Discount rate 7.00% 7.75% 7.25%
Expected return on plan assets 10.00 10.00 10.00
Salary increases N/A 3.00 3.50
</TABLE>
B. Profit Sharing Plan - The Company has a profit sharing plan pursuant
to Section 401 of the Internal Revenue Code, whereby eligible participants (all
nonunion Associates who meet certain hour requirements) may contribute a
percentage of compensation, but not in excess of the maximum allowed. The plan
provides for matching contributions and additional contributions depending upon
achievement of specific earnings levels. Charges to earnings for the Company's
contributions during 1997, 1996 and 1995 were approximately $0.7 million, $0.9
million and $1.0 million, respectively.
C. Employee Retention Plan - Included in reorganization costs for 1997,
1996 and 1995 are charges of $1.7 million, $15.0 million and $12.5 million,
respectively for the employee retention program. The Company has implemented an
employee retention program, which provides for retention payments and enhanced
severance payments to key employees who continue their employment with the
Company during the Chapter 11 proceedings. The retention plan provides, among
other things, a payment to be made to employees upon confirmation of a plan of
reorganization and a second payment 6 months thereafter. The severance plan
provides for enhanced severance payments and change in control severance
payments to be made to certain employees upon involuntary termination.
F-27
<PAGE> 70
NOTE 16 - CONTINGENCIES
As a result of the Filing, the prosecution of litigation against the
Debtors involving matters arising prior to the Filing is stayed. Such stay may
be lifted by the Bankruptcy Court handling the bankruptcy proceedings in
appropriate circumstances.
Four class actions against certain former officers of the Company were
brought on behalf of all persons who purchased the Company's stock during
specified periods of time. The Company is not a defendant in these actions
(three of which have been consolidated). A proof of claim was filed in the
Chapter 11 case by the plaintiffs in the consolidated action. Although it is
required to indemnify the defendants to the extent required by Delaware law,
the Company has directors' and officers' liability coverage. The amount of
liability, if any, related to these actions is not presently determinable. As a
pre-petition claim, any liability to the Company would be subject to
compromise. These actions are believed by the Company to be without merit and
will be vigorously defended.
The Company and certain of its subsidiaries are defendants in various
other actions commenced by vendors, customers, former employees and others.
Other persons have asserted similar claims against the Company but have not made
those claims the subject of litigation. However, cases that relate to a claim
that arose before the Filing generally were stayed pursuant to Section 362 of
the Bankruptcy Code and are to be dealt with as part of the claims
reconciliation process. The Company believes that the ultimate outcome of the
foregoing actions and claims pending against the Company and its subsidiaries
will not have a material adverse effect on the consolidated financial position,
results of operations or liquidity of the Company.
F-28
<PAGE> 71
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8, filed September 28, 1994, File
No. 33-84526 (the "1994 Form S-8")).
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1, filed September
10, 1990, File No. 33-35157 (the "1990 Registration Statement")).
4.1 Rights Agreement dated as of August 2, 1995 between the Company and
Chemical Bank, as Rights Agent (incorporated by reference to Exhibit
1.1 to the Company's Registration Statement on Form 8-A, filed on
August 11, 1995).
10.1 Credit Agreement dated as of October 21, 1993 (the "Credit
Agreement") among the Company, Caldor, Inc. - NY, Caldor, Inc. - CT,
certain lenders named therein and Chemical Bank as Administrative
Agent and Fronting Bank (incorporated by reference to Exhibit 99.3
to the Company's Current Report on Form 8-K, reporting an event
occurring on October 21, 1993, File No. 1-10745 (the "October 1993
Form 8-K")).
10.1(i) First Amendment dated as of August 16, 1994, to the Credit Agreement
among the Company, Caldor, Inc.-NY, Caldor, Inc.-CT, the lenders
listed on the signature pages thereto, Chemical Bank as
Administrative Agent, the Fronting Banks named therein and the
Swingline Lender named therein (incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K reporting an event
occurring on August 16, 1994, File No. 1-10745).
10.1(ii) Second Amendment dated as of February 6, 1995, to the Credit
Agreement among the Company, Caldor, Inc.-NY, Caldor, Inc.-CT, the
lenders listed on the signature pages thereto, Chemical Bank as
Administrative Agent, the Fronting Banks named therein and the
Swingline Lender named therein (incorporated by reference to Exhibit
99.2 to the Company's Current Report on Form 8-K reporting an event
occurring on February 6, 1995, File No. 1-10745 (the "February 1995
Form 8-K")).
10.1(iii) Third Amendment dated as of April 18, 1995, to the Credit Agreement
among the Company, Caldor, Inc.-NY, Caldor, Inc.-CT, the lenders
listed on the signature pages thereto, Chemical Bank as
Administrative Agent, the Fronting Banks named therein and the
Swingline Lender named therein (incorporated by reference to Exhibit
99.8 to the February 1995 Form 8-K).
10.1(iv) Fifth Amendment dated as of August 7, 1995 to the Credit Agreement
among the Company, Caldor, Inc.-NY, Caldor, Inc.-CT, Chemical Bank
as Administrative Agent, and the lenders listed on the signature
pages thereto (incorporated by reference to Exhibit 99.7 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended July 29, 1995, File No. 1-10745 (the "July 1995 Form 10-Q")).
10.1(v) Amended and Restated Revolving Credit and Guaranty Agreement dated
as of October 17, 1995 (the "DIP Agreement") among the Company as
borrower, Caldor, Inc.-CT
<PAGE> 72
and Caldor, Inc.-NY as retail guarantors, the other subsidiaries of
the borrower named therein as guarantors, the banks party thereto
and Chemical Bank as agent (incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K reporting an event
occurring on October 17, 1995, File No. 1-10745 (the "October 1995
Form 8-K")).
10.1(vi) Amendment Letter Agreement dated April 24, 1996 to the DIP Agreement
among the Company as borrower, certain of its subsidiaries as
guarantors, the banks party thereto and Chemical Bank (incorporated
by reference to Exhibit 99.1 to the Company's Current Report on Form
8-K reporting an event occurring on May 7, 1996, File No. 1-10745).
10.1(vii) Second Amendment dated as of June 28, 1996 to the DIP Agreement
among the Company as borrower, certain of its subsidiaries as
guarantors, the banks party thereto and Chemical Bank (incorporated
by reference to Exhibit 99.1 to the Company's Current Report on Form
8-K reporting an event occurring on July 16, 1996, File No.
1-10745).
10.1(viii) Four Store Amendment Letter Agreement dated as of March 12, 1997 to
the DIP Agreement among the Company as borrower, certain of its
subsidiaries as guarantors, the banks party thereto and The Chase
Manhattan Bank, N.A. (formerly, Chemical Bank) ("Chase")
(incorporated by reference to Exhibit 10.1 (viii) to the Company's
Annual Report on Form 10-K for the year ended February 1, 1997, File
No. 1-10745 (the "1996 Form 10-K").
10.1(ix) Fourth Amendment dated as of April 30, 1997 to the DIP Agreement
among the Company as borrower, certain of its subsidiaries as
guarantors, the banks party thereto and Chase (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended May 3, 1997, File No.
1-10745).
10.2 Form of Term Note (contained in Exhibit 10.1 as Exhibit A-3).
10.3 Guarantee Agreement dated as of October 21, 1993 among Lacdor Realty
Corp., Premier Service Programs, Inc. and Chemical Bank as
Collateral Agent (incorporated by reference to Exhibit 99.7 to the
October 1993 Form 8-K).
10.4 Guarantee, dated as of April 13, 1995 (the "Guarantee") from the
Company, Caldor, Inc.-NY and Caldor, Inc.-CT to Chemical Bank as
agent (incorporated by reference to Exhibit 99.4 to the February
1995 Form 8-K) .
10.4(i) Second Amendment dated as of August 7, 1995 to the Guarantee
from the Company, Caldor, Inc.-NY and Caldor, Inc.-CT in favor of
Chemical Bank as agent and the lenders party thereto (incorporated
by reference to Exhibit 99.8 to the July 1995 Form 10-Q).
10.5 Amended and Restated Pledge Agreement dated as of April 13, 1995
between the Company and Chemical Bank as Collateral Agent
(incorporated by reference to Exhibit 99.5 to the February 1995 Form
8-K).
10.5(i) Amended and Restated Pledge Agreement dated as of October 17, 1995
between the Company and Chemical Bank as agent for the banks party
to the DIP Agreement (incorporated by reference to Exhibit 99.2 to
the October 1995 Form 8-K).
<PAGE> 73
10.6 Amended and Restated Security Agreement dated as of April 13, 1995
among the Company, Caldor, Inc.-NY, Caldor, Inc.-CT and Chemical
Bank as Collateral Agent (incorporated by reference to Exhibit 99.6
to the February 1995 Form 8-K).
10.6(i) Amended and Restated Security Agreement dated as of October 17, 1995
between the Company and Chemical Bank as agent for the banks party
to the DIP Agreement (incorporated by reference to Exhibit 99.3 to
the October 1995 Form 8-K).
10.7 Collateral Agent Agreement dated as of April 13, 1995 among the
Company, Caldor, Inc.-CT, Caldor Lease Financing Trust and Chemical
Bank as Collateral Agent and agent for the lenders party thereto
(incorporated by reference to Exhibit 99.7 to the February 1995 Form
8-K).
10.8 Credit Agreement dated as of August 8, 1995 among the Company,
Caldor, Inc.-NY, Caldor, Inc.-CT and Chemical Bank as Administrative
Assistant and as Collateral Agent (incorporated by reference to
Exhibit 99.6 to the July 1995 Form 10-Q).
10.9 Amended and Restated Stockholders' and Warrant Holders' Agreement
dated as of May 24, 1990 among the Company, Odyssey Partners, L.P.,
May Funding, Inc., certain institutional investors named therein,
certain management stockholders named therein and certain members of
the Investor Group (as defined therein) named therein (the "Amended
and Restated Stockholders' and Warrant Holders' Agreement")
(incorporated by reference to Exhibit 10.7 to the 1990 Registration
Statement).
10.9(i) Amendment No. 1, dated as of August 24, 1990 to the Amended and
Restated Stockholders' and Warrant Holders' Agreement (incorporated
by reference to Exhibit 10.6(i) to the Company's Annual Report on
Form 10-K for the year ended February 1, 1992, File No. 1-10745 (the
"1991 Form 10-K")).
10.9(ii) Amendment No. 2 dated as of March 14, 1991 to the Amended and
Restated Stockholders' and Warrant Holders' Agreement (incorporated
by reference to Exhibit 10.6(ii) to the 1991 Form 10-K).
10.9(iii) Amendment No. 3 dated as of March 14, 1991 to the Amended and
Restated Stockholders' and Warrant Holders' Agreement (incorporated
by reference to Exhibit 10.6(iii) to the 1991 Form 10-K).
10.9(iv) Amendment No. 4 dated as of January 26, 1993 to the Amended and
Restated Stockholders' and Warrant Holders' Agreement (incorporated
by reference to Exhibit 4.11(iv) to the Company's Registration
Statement on Form S-3, filed on January 27, 1993, File No. 33-57476
(the "1993 Registration Statement")).
10.9(v) Amendment No. 5 dated as of January 26, 1993 to the Amended and
Restated Stockholders' and Warrant Holders' Agreement (incorporated
by reference to Exhibit 4.11(v) to the 1993 Registration Statement).
10.9(vi) Amendment No. 6 dated as of September 28, 1994 to the Amended and
Restated Stockholders' and Warrant Holders' Agreement (incorporated
by reference to Exhibit 4.8(vi) to the Company's Registration
Statement on Form S-3, filed on September 29, 1994, File No.
33-84488).
<PAGE> 74
10.10+ Employment Agreement dated as of April 15, 1996 between the Company
and Warren D. Feldberg (incorporated by reference to Exhibit 99.1 to
the Company's Current Report on Form 8-K, reporting an event
occurring on June 7, 1996, File No. 1-10745 (the "June 1996 Form
8-K")).
10.10(i)+ Amendment dated as of June 7, 1996 to the Employment Agreement
between the Company and Warren D. Feldberg (incorporated by
reference to Exhibit 99.2 to the June 1996 Form 8-K).
10.11+ Employment Agreement dated April 24, 1991 between the Company and
Elliot J. Kerbis (incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended February 3,
1996, File No. 1-10745 (the "1995 Form 10-K")).
10.11(i)+ Amendment dated June 20, 1995 to the Employment Agreement between
the Company and Elliott J. Kerbis (incorporated by reference to
Exhibit 10.13 (i) to the 1995 Form 10-K).
10.12+ Employment Agreement dated April 24, 1991 between the Company and
Dennis M. Lee (incorporated by reference to Exhibit 10.14 to the
1995 Form 10-K).
10.12(i)+ Amendment dated June 20, 1995 to the Employment Agreement between
the Company and Dennis M. Lee (incorporated by reference to Exhibit
10.14 (i) to the 1995 Form 10-K).
10.13+ Employment Agreement dated as of January 29, 1996 between the
Company and John G. Reen (incorporated by reference to Exhibit 99.1
to the Company's current Report on Form 8-K, reporting an event
occurring on March 6, 1996, File No. 1-10745) (the "March 1996 Form
8-K").
10.13(i)+ Amendment dated March 5, 1996 to the Employment Agreement between
the Company and John G. Reen (incorporated by reference to Exhibit
99.2 to the March 1996 Form 8-K).
10.14+ Employment Agreement dated as of August 16, 1996 between the Company
and Susan Sprunk.*
10.14(i)+ Agreement dated October 3, 1997 between the Company and Susan
Sprunk.*
10.15+ Caldor, Inc. Retirement Plan, effective January 1, 1990
(incorporated by reference to Exhibit 10.25 to the 1990 Registration
Statement).
10.16+ Caldor, Inc. Supplemental Non-Qualified Retirement Plan, effective
February 1, 1990 (incorporated by reference to Exhibit 10.32 to the
Company's Registration Statement on Form S-1, filed on March 18,
1991, File No. 33-39475).
10.17+ Caldor, Inc. Profit Sharing Plan, amended and restated effective
January 1, 1991 (incorporated by reference to Exhibit 28.01(b) to
the Company's Registration Statement on Form S-8, filed on January
9, 1992, File No. 33-44996).
<PAGE> 75
10.18+ The Caldor Performance Incentive Plan (incorporated by reference to
Exhibit 10.19 to the Company's Annual Report on Form 10-K for the
year ended January 28, 1995, File No. 1-10745).
10.18(i)+ Summary of Amendment to The Caldor Performance Incentive Plan
(incorporated by reference to Exhibit 10.19 (i) to the 1995 Form
10-K).
10.19+ 1991 Stock Option Plan for Directors, as amended through May 25,
1994 (incorporated by reference to Exhibit 99.1 of the 1994 Form
S-8).
10.19(i)+ 1991 Stock Option Plan for Directors, as amended through October 31,
1996 (incorporated by reference to Exhibit 10.19(i) to the 1996 Form
10-K).
10.20+ 1991 Stock Option Plan for Key Employees, as amended through May 25,
1994 (incorporated by reference to Exhibit 99.2 of the 1994 Form
S-8).
10.20(i)+ 1991 Stock Option Plan for Key Employees, as amended through October
31, 1996 (incorporated by reference to Exhibit 10.20 (i) to the 1996
Form 10-K).
10.21+ 1993 Retainer Stock Plan for Non-Employee Directors (incorporated by
reference to Exhibit 99.3 of the 1994 Form S-8).
10.22+ 1994 Performance SAR and Restricted Stock Plan (incorporated by
reference to Exhibit 10.23 to the 1995 Form 10-K).
10.22(i)+ 1994 Performance SAR and Restricted Stock Plan as amended through
October 31, 1996 (incorporated by reference to Exhibit 10.22(i) to
the 1996 Form 10-K).
10.23+ 1995 Stock Option Plan for Key Employees (incorporated by reference
to Exhibit 10.24 to the 1996 Form 10-K).
10.23(i)+ 1995 Stock Option Plan for Key Employees as amended through October
31, 1996 (incorporated by reference to Exhibit 10.23 (i) to the 1996
Form 10-K) .
10.24+ Summary of Severance Program (incorporated by reference to Exhibit
10.25 to the 1995 Form 10-K).
10.25+ Summary of Performance Retention Program (incorporated by reference
to Exhibit 10.26 to the 1995 Form 10-K).
10.26 Commitment Letter dated April 24, 1998 between BankBoston N.A. and
the Registrant.*
11 Statement regarding the computation of per share earnings.*
21 List of Subsidiaries of the Company (incorporated by reference to
Exhibit 21 to the 1995 Form 10-K).
23 Consent of Deloitte & Touche LLP*
27 Financial Data Schedule *
* Filed herewith
+ Management contract or compensation plan or arrangement required to
be noted as provided in Item 14(a)(3).
<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 16th day of August, 1996 between The
Caldor Corporation, a Delaware corporation and debtor-in-possession under
Chapter 11 of the Federal Bankruptcy Code, with principal offices at 20 Glover
Avenue, Norwalk, Connecticut 06856 (hereinafter referred to as the "Company"),
and Susan Sprunk with a permanent residence located at 98 Livingston Road,
Wellesley, MA 02181 (hereinafter referred to as the "Employee").
W I T N E S S E T H
WHEREAS, the Company desires that the Employee shall be
employed by the Company, and the Employee is desirous of such employment, upon
the terms and conditions set forth in this Agreement;
WHEREAS, the Company is entering into this Agreement in the
ordinary course of its business such that no approval by the court overseeing
the Company's bankruptcy proceeding is necessary;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter contained, the parties hereby agree
as follows:
1. Employment. The Company shall employ the Employee, and the
Employee shall serve the Company and its subsidiaries (the "Subsidiaries"), upon
the terms and conditions hereinafter set forth.
2. Term. The employment of the Employee by the Company
hereunder shall commence on September 3, 1996 and, unless sooner terminated in
the
<PAGE> 2
manner as hereinafter provided, shall terminate on September 3, 1998; provided,
however, that the term of this Agreement shall be renewed for additional periods
of one year each unless and until either party shall give the other party not
less than two months' written notice prior to the expiration of the then
applicable term.
3. Duties.
a. During the term of her employment hereunder, the
Employee shall serve as Senior Vice President - Marketing of the Company,
faithfully and to the best of her ability, and perform such duties and have such
responsibilities and authority as are assigned to her by the Company, consistent
with the practices and policies of the Company.
b. During the term of her employment hereunder, the
Employee shall devote her full business time, energy and skill to such
employment and shall not, without the prior written approval of the Company,
directly or indirectly, engage or participate in, or become employed by, or
become a director, officer or partner of, or render advisory services to or
provide other services in connection with, any business activity other than that
of the Company and the Subsidiaries; provided, however, that the Employee shall
be permitted to personally invest in any corporation, partnership or other
entity, so long as any such investment, unless Employee has obtained prior
written approval from the Company, does not require or involve the active
participation of the Employee in the management of the business of any such
corporation, partnership or other entity, does not interfere with the execution
of the Employee's duties hereunder and does not otherwise violate any provisions
of this
2
<PAGE> 3
Agreement or of the Company's Conflict of Interest Policy; and, provided,
further, that the Employee may engage in other activities, such as activities
involving charitable, educational, religious and similar types of organizations,
speaking engagements and similar type activities to the extent that such other
activities do not interfere with the execution of the Employee's duties
hereunder, do not otherwise violate any provision of this Agreement or of the
Company's Conflict of Interest Policy, or otherwise conflict in any material way
with the business of the Company or the Subsidiaries.
4. Base Salary. As of the date hereof and during the term of
her employment hereunder, the Company shall pay to the Employee a base salary
for her services at the minimum rate of $300,000, per annum, through the end of
the initial two year term of this Agreement payable in accordance with the
regular payroll practices of the Company. The base salary of the Employee shall
be subject to annual review by the Company (provided however, that such review
will not result in a decrease of base salary) with the first such review to be
made on or about May 1, 1997.
5. Bonus Arrangements. In addition to the base salary provided
for in Paragraph 4 hereof, the Employee shall be entitled to the following
bonuses:
a. The Employee shall be paid an up front cash bonus of
$75,000 (less applicable taxes) (the "Bonus") payable in lump sum upon her
relocation to Fairfield County, Connecticut or its vicinity, contingent upon
Employee's fulfillment of her obligations under the initial two (2) year term of
this Agreement. In the event Employee's employment is terminated either
voluntarily or for cause during the initial
3
<PAGE> 4
two year term of this Agreement, Employee shall be required to repay the Bonus
pursuant to the following schedule;
i. 100% of the Bonus if employment is terminated prior
to December 31, 1996:
ii. if employment has not terminated on December 31,
1996, then Employee shall have earned and will not be
required to repay $37,000 of the Bonus;
iii. if employment is terminated subsequent to December
31, 1996 but prior to the expiration of the initial
two year term of this Agreement, Employee shall have
to repay $38,000 of the Bonus, provided, however,
that Employee will be deemed to have earned and shall
not be required to repay $1,900 of said $38,000 for
each and every month beyond December 31, 1996 that
employment has not terminated. For example, if
employment terminates on March 31, 1997 (i.e., 3
months after December 31, 1996), Employee shall have
earned an additional $5,700 of the Bonus and will be
required to pay back to the Company $32,300.
Employee agrees that, in the event Employee's employment is terminated within
the above designated period and the applicable amount of the Bonus is not repaid
to the Company by Employee, in whole or in part, then the Company may offset the
amount owed against any payments due to the Company from Employee, including,
without
4
<PAGE> 5
limitation, salary or bonus. However, such right of offset shall not be the sole
or exclusive means of recovery of repayments owed to the Company by Employee,
and the Company, or its assigns shall retain all other rights and remedies which
may be available.
b. The Employee shall be entitled to participate as a Level II
employee in the Performance Retention Program of the Company approved by the
Bankruptcy Court by order dated March 27, 1996, subject to the terms and
conditions of such program as from time to time in effect.
c. The Employee shall be entitled to participate in cash bonus
arrangements, such as the Performance Incentive Plan ("PIP") applicable to her
position during the term of her employment hereunder. In 1996, the PIP provides
the opportunity to earn up to sixty percent (60%) of salary based upon
predetermined annual Company financial performance criteria. For 1996, fifty
percent (50%) of the Maximum will be guaranteed if Employee remains with the
Company through April 1, 1997. The remaining fifty percent (50%) of the Maximum
can be earned based upon Company financial performance factors. Following the
bankruptcy period, the normal terms and conditions of the PIP shall apply. The
cash bonus arrangements shall be based on the attainment of achievable financial
objectives determined by the Company.
6. Other Employee Benefits and Perquisites. During the term of
this Agreement, the Company will provide to the Employee benefits under the
Company's current and future benefit plans and programs applicable to executives
at the Employee's level. As of the date hereof, these include the contributory
and non-
5
<PAGE> 6
contributory programs listed on Schedule A. (For certain of the programs listed
on Schedule A, the Employee will be entitled to participate only upon
satisfaction of generally-applicable eligibility requirements, such as length of
service requirements.) It is expressly understood that the Company may in its
discretion from time to time modify any bonus, benefit or other employee
programs, including without limitation terms of eligibility, benefit levels and
other terms and conditions, and that all such modifications shall be binding
upon the Employee. The Employee shall be entitled to vacations (taken
consecutively or in segments), aggregating four weeks each calendar year during
the term of employment, and to reasonable sick leave as determined by the
Company.
7. Expenses. It is contemplated that, in connection with her
employment hereunder, the Employee may be required to incur reasonable and
necessary travel, business entertainment and other business expenses. The
Company agrees to reimburse the Employee, consistent with the Company's
policies, for all reasonable and necessary travel, business entertainment and
other business expenses incurred or expended by her incident to the performance
of her duties hereunder.
8. Permanent Disability; Death.
a. In the event of the permanent disability (as hereinafter
defined) of the Employee during the term of her employment hereunder, the
Company shall have the right, upon written notice to the Employee, to terminate
her employment hereunder, effective upon the giving of such notice. Upon such
termination, the Company shall be discharged and released from any further
obligations under this Agreement, but the
6
<PAGE> 7
Employee shall have the obligations provided for in Paragraph 11 hereof.
Disability benefits, if any, due under applicable plans and programs of the
Company shall be determined under the provisions of such plans and programs. For
purposes of this Paragraph 8a, "permanent disability" shall mean any physical or
mental disability or incapacity which continues for 180 consecutive days or an
aggregate period of more than 180 days in any 12-month period and which shall
render the Employee permanently incapable of performing the services required of
her by the Company.
b. In the event of the death of the Employee during the term
of her employment hereunder, the base salary to which the Employee is entitled
pursuant to Paragraph 4 hereof shall continue to be paid through the end of the
month in which death occurs to the last beneficiary designated by the Employee
pursuant to Paragraph 23 hereof, or, failing such designation, to her estate. In
accordance with Paragraph 23 hereof, upon payment of such base salary and of any
vested but unpaid benefits due to the beneficiary's estate in accordance with
the Company's policies then in effect (i.e. bonus, vacation, etc.), the Company
shall have no further obligations hereunder.
9. Termination and Expiration of Employment.
a. The Employee's employment hereunder may be terminated by
the Company for "cause" at any time if the Employee shall commit any of the
following Acts of Default:
(i) The Employee shall have willfully failed to
perform any of her material obligations as set forth herein
7
<PAGE> 8
and shall have failed to cure such failure within 10 days
after receiving written notice thereof from the Company; or
(ii) The Employee shall have committed an act of
fraud, theft or dishonesty which is likely to result in
financial harm to the Company; or
(iii) The Employee shall be convicted of (or plead
nolo contendere to) any felony or misdemeanor involving moral
turpitude, which misdemeanor might, in the reasonable opinion
of the Company, cause embarrassment to the Company.
If the Employee is terminated for "cause," or the Employee
terminates her employment hereunder (except pursuant to Paragraph 12 hereof),
the Company shall have no further obligations under this Agreement, but the
Employee shall have the obligations provided for in Paragraph 11 hereof.
b. If the Company notifies the Employee that it elects not to
continue her employment pursuant to Paragraph 2 hereof (whether at the end of
the initial two-year term or any renewal term), then, subject to the provisions
of Paragraph 10, the Employee shall be entitled to receive a liquidated
severance payment, payable in a lump sum within 30 days after the date of such
termination, equal to nine (9) multiplied by the sum of (i) 1/12 of her annual
base salary in effect at the time of such termination in accordance with the
provisions of Paragraph 4 hereof plus (ii) 1/12 of 100% of her Target Bonus
Opportunity (as hereinafter defined) for the fiscal year of the Company in
8
<PAGE> 9
which such termination occurs. In the event of such termination, the Employee
shall also be entitled to a continuation of the health insurance benefits upon
the same terms and conditions in which she is participating at the time of such
termination for a period of six months commencing on the date of such
termination. As used herein, "Target Bonus Opportunity" means the bonus which
would be earned under the Performance Incentive Plan or under applicable bonus
programs were the Company to achieve, but not exceed, its business plan.
c. If (i) the Company terminates the employment of the
Employee during the term of this Agreement other than for "cause" (as defined in
Paragraph 9(a) hereof) or (ii) if the Employee terminates her employment during
the term of this Agreement because the Company, upon 30 days' prior written
notice specifying a material breach of this Agreement, has failed to cure such
material breach (within such 30-day notice period) of any of its obligations to
the Employee pursuant to this Agreement, then, subject to the provisions of
Paragraph 10, the Employee shall be entitled to receive a liquidated severance
payment, payable in a lump sum within 30 days after the date of such
termination, equal to (X) the sum of (A) 1/12 of her annual base salary in
effect at the time of such termination in accordance with the provisions of
Paragraph 4 hereof plus (B) 1/12 of 100% of her Target Bonus Opportunity for the
fiscal year of the Company in which such termination occurs, multiplied by (Y)
the greater of (a) the number of calendar months remaining in the Employee's
then-current term of employment (determined without giving effect to the
termination hereunder) and (b) nine. In the event of such termination, the
Employee shall also be entitled to a
9
<PAGE> 10
continuation of health insurance benefits upon the same terms and conditions in
which she is participating at the time of such termination, for a period equal
to the greater of the remaining term of her employment (determined without
giving effect to the termination hereunder) and nine months.
10. Enhanced Severance Program. During the period in which the
Special Severance Plan during Chapter 11 Proceedings (the "Enhanced Severance
Program") of the Company approved by the Bankruptcy Court by order dated
November 20, 1995 remains in effect (i.e., until the first business day
following six (6) months after the Company's bankruptcy plan of reorganization
becomes effective pursuant to its term), (hereinafter, the "Bankruptcy Period")
the Employee shall be entitled to the benefits of such program, subject to all
terms and conditions thereof, as from time to time in effect. Those benefits
shall be in lieu of the severance benefits provided for in Paragraph 9 of this
Agreement and the Change in Control benefits provided for in Paragraph 12.
11. Restrictive Covenants and Confidentiality; Injunctive
Relief.
a. The Employee agrees, as a condition to the performance by
the Company of its obligations hereunder, particularly its obligations under
Paragraphs 4 and 5 hereof, that during the term of her employment hereunder and
during the further period of the Remaining Term (as defined below) the Employee
shall not, without the prior written approval of the Company, directly or
indirectly through any other person, firm or corporation, (i) engage or
participate or make any financial investment in or become employed by or render
advisory or other services to or for any person, firm or
10
<PAGE> 11
corporation, or in connection with any business enterprise, which is, directly
or indirectly, in competition with the Company or (ii) solicit, entice or induce
any person who on the date of termination of employment of the Employee is, or
within the last three months of the Employee's employment by the Company was, an
employee of the Company or any Subsidiary, to become employed by any person,
firm or corporation, and the Employee shall not approach any such employee for
such purpose or authorize or knowingly approve the taking of such actions by any
other person. Nothing herein contained, however, shall restrict the Employee
from (i) making any investments in any company so long as such investment does
not give her the right to control or influence the policy decisions of any
business or enterprise which is or might be, directly or indirectly, in
competition with any of the business operations or activities of the Company and
the Subsidiaries; (ii) maintaining investments or exercising investment
opportunities (i.e., stock options) which the Employee owns or is entitled to
exercise and which investments or rights existed prior to the effective date of
this Agreement; or (iii) obtaining employment with any company, including a
competitor of the Company, during any period in which Employee is entitled to
severance payments under this Agreement, provided, however, that in addition to
the provisions of paragraph 10 hereof, any compensation received by Employee for
such employment with a competitor shall be offset against the amount of
severance payments owed to her by the Company.
For the purposes hereof, a person, firm, corporation or other
business enterprise shall be deemed to be in competition with the Company only
if it operates a
11
<PAGE> 12
discount department store within a radius of 75 miles of any discount department
store operated by the Company or any Subsidiary. As used herein, the "Remaining
Term" shall mean the period, commencing on the date of termination of employment
(whether upon normal expiration or early termination of the term of employment),
equal to the greater of the remaining term of employment (determined without
giving effect to any early termination hereunder) and nine months.
b. Recognizing that the knowledge, information and
relationship with customers, suppliers, and agents, and the knowledge of the
Company's and the Subsidiaries' business methods, systems, plans and policies
which she shall hereafter establish, receive or obtain as an employee of the
Company or any subsidiary, are valuable and unique assets of the respective
businesses of the Company and the Subsidiaries, the Employee agrees that, during
and after the term of her employment hereunder, she shall not (otherwise than
pursuant to her duties hereunder) disclose, without the prior written approval
of the Company's Chief Executive Officer, any such knowledge or information
pertaining to the Company or any Subsidiary, their business, personnel or
policies, to any person, firm, corporation or other entity, for any reason or
purpose whatsoever. The provisions of this Paragraph 11b. shall not apply to
information which is or shall become generally known to the public or the trade
(except by reason of the Employee's breach of her obligations hereunder),
information which is or shall become available in trade or other publications,
information known to the Employee prior to entering the employ of the Company,
and information which the Employee is required to disclose by law or an order of
a court of competent jurisdiction.
12
<PAGE> 13
If the Employee is required by law or a court order to disclose such
information, she shall notify the Company of such requirement and provide the
Company an opportunity (if the Company so elects) to contest such law or court
order.
c. The Employee acknowledges that the services to be rendered
by her are of a special, unique and extraordinary character and, in connection
with such services, she will have access to confidential information vital to
the Company's and the Subsidiaries' businesses. By reason of this, the Employee
consents and agrees that if she violates any of the provisions of this Agreement
with respect to diversion of the Company's or the Subsidiaries' customers or
employees, or confidentiality, the Company and the Subsidiaries would sustain
irreparable harm and, therefore, in addition to any other remedies which the
Company may have under this Agreement or otherwise, the Company shall be
entitled to apply to any court of competent jurisdiction for an injunction
restraining the Employee from committing or continuing any such violation of
this Agreement, and the Employee shall not object to any such application.
12. Change in Control, Termination of Employment and
Compensation in Event of Termination.
a. For purposes hereof, a "Change in Control" shall be deemed
to have occurred (i) if there has occurred a "change in control" as such term is
used in Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as in effect at the date hereof (the "Act"); or
(ii) if there has occurred a change in control as the term "control" is defined
in Rule 12b-2 promulgated under the Act; or (iii) when any "person" (as such
term is defined in Sections 3(a)(9) and
13
<PAGE> 14
13(d)(3) of the Act) becomes a beneficial owner, directly or indirectly, of
securities of the Company representing 20% or more of the Company's then
outstanding securities having the right to vote on the election of directors; or
(iv) if the shareholders of the Company approve a plan of complete liquidation
of the Company; or (v) if there is a change in the ownership of a substantial
portion of the assets of the Company (within the meaning of Section 280G(b)(2)
of the Internal Revenue Code of 1986, as amended (the "Code")). Notwithstanding
the foregoing, no issuance of equity securities of the Company to its creditors
pursuant to a Plan of Reorganization, irrespective of the effect of such
issuance on beneficial ownership of the Company's securities or on control of
the Company shall be deemed to constitute or to result in a "Change in Control".
b. The Employee may terminate her employment at any time
within 12 months after she has obtained actual knowledge of a Change of Control,
provided there is an assignment to the Employee of any duties inconsistent with
the status of the Employee's office and/or position with the Company as
constituted immediately prior to the Change in Control or a significant adverse
change in the nature or scope of the Employee's authorities, powers, functions
or duties as constituted immediately prior to the Change in Control.
An election by the Employee to terminate her employment under
this subparagraph b. shall not be deemed a voluntary termination of employment
by the Employee for the purpose of interpreting the provisions of any of the
Company's employee benefit plans. The Employee's continued employment with the
Company for any period of time during the Employment Term after a Change in
Control shall not be
14
<PAGE> 15
considered a waiver of any right she may have to terminate her employment to the
extent permitted under this subparagraph b.
c. If (i) the Company terminates the employment of Employee
subsequent to a change in control other than for cause or (ii) the Employee's
employment with the Company is terminated under subparagraph b. above, the
Employee (i) shall continue to receive her base salary, bonuses, awards,
perquisites and benefits, including, without limitation, benefits and awards
under the Company stock option plans and the Company's other employee benefit
plans and programs, through the Termination Date (as defined in paragraph 13b.
hereof) and, in addition thereto, (ii) shall be paid in a lump sum, within 30
days after the Termination Date, in cash, severance pay in an amount equal to
the sum of (i) 1/12 of her annual base salary in effect at the time of such
termination in accordance with the provisions of Paragraph 4 hereof and (ii)
1/12 of 100% of her Target Bonus Opportunity for the fiscal year of the Company
in which such termination occurs, multiplied by twenty-four (24); provided,
however, that such severance payment shall be reduced by the amount by which
2.99 times the Employee's "base amount" exceeds the sum of the "present value"
of all "parachute payments" with respect to the Company which have been paid to
(or for the benefit of) the Employee or to which she may be entitled, whether
under this Agreement or otherwise (including the severance payment under this
subparagraph c.). Such lump sum severance payment is referred to as the
"Termination Compensation." For purposes of this Agreement, the terms "base
amount," "present value," and "parachute payments" shall have the meanings as
set forth in Section 280G of the
15
<PAGE> 16
Code, except that "parachute payments" shall be determined without regard to
whether or not they equal or exceed three times the Employee's "base amount."
The amount of the Termination Compensation shall be determined, at the Company's
expense, by its regular certified public accountant (the "Accountant")
immediately prior to the Notice of Termination, whose determination shall be
conclusive and binding on the parties. Upon payment of the Termination
Compensation, this Agreement shall terminate and be of no further force or
effect.
d. After a Change in Control has occurred, the Company will
honor the Employee's exercise of the Employee's outstanding stock options, in
accordance with the plan under which issued. After a Change in Control has
occurred and the Employee's employment is terminated as a result thereof, the
Employee (or her designated beneficiary or personal representative pursuant to
Paragraph 23 hereof) shall also receive, except to the extent already paid
pursuant to Paragraph 12c hereof or otherwise, the sums the employee would
otherwise have received (whether under this Agreement, by law or otherwise) by
reason of termination of employment if a Change in Control had not occurred;
provided, however, that this Paragraph 12d. shall not be construed to indicate
that the Employee is entitled to payment of any amounts under Paragraph 9c.
hereof.
e. It is intended that the "present value" of the payments and
benefits to the Employee, whether under this Agreement or otherwise, which are
includable in the computation of "parachute payments" shall not, in the
aggregate, exceed 2.99 times the "base amount." Accordingly, if the Employee
received (or is guaranteed to receive
16
<PAGE> 17
in the future) payments or benefits from the Company which, when added to the
Termination Compensation, would, in the opinion of the Accountant, subject any
of the payments or benefits to the Employee to the excise tax imposed by Section
4999 of the Code, the Termination Compensation shall be reduced by the smallest
amount necessary, in the opinion of the Accountant, to avoid such tax. In
addition, the Company shall have no obligation to make any payment or provide
any benefit to the Employee subsequent to payment of the Termination
Compensation which, in the opinion of the Accountant, would subject any of the
payments or benefits to the Employee to the excise tax imposed by Section 4999
of the Code. No reduction in Termination Compensation or release of the Company
from any payment or benefit obligation in reliance upon any aforesaid opinion of
the Accountant shall be permitted unless the Company shall have provided a copy
of any such opinion, specifically entitling the Employee to rely thereon, to the
Employee no later than ten (10) days prior to the date otherwise required for
payment of the Termination Compensation or any such later payment or benefit.
f. The Employee shall not be required to mitigate the payment
of the Termination Compensation by seeking other employment. To the extent that
the Employee shall, during (in accordance with Paragraph 3b. hereof) or after
the Employment Term, receive compensation from any other employment, except as
provided in paragraph 11(a) of this Agreement, the payment of Termination
Compensation shall not be adjusted.
17
<PAGE> 18
g. Notwithstanding the above, the provisions of this Paragraph
12 shall not apply during the Bankruptcy Period, but the Employee shall be
entitled in lieu thereof to the benefits provided under the Enhanced Severance
Program referred to in Paragraph 10.
13. Notice of Termination and Termination Date.
a. Any termination of the Employee's employment by the Company
or by the Employee shall be communicated by a "Notice of Termination" to the
other party hereto. For purposes hereof, a "Notice of Termination" shall mean a
notice which shall state the "Termination Date" (as defined below) and the
reasons for such termination.
b. "Termination Date" shall mean the date specified in the
Notice of Termination as the last day of the Employee's employment by the
Company.
14. Deductions and Withholding. The Employee agrees that the
Company shall withhold from any and all payments required to be made to the
Employee pursuant to this Agreement, all federal, state, local and/or other
taxes which the Company determines are required to be withheld in accordance
with applicable statutes and/or regulations from time to time in effect. In the
unlikely event that Employee is required to repay any portion of the Bonus paid
to her by the Company as provided in Paragraph 5 hereof, and notwithstanding its
provisions, Employee's repayment obligation will be limited to only such sums as
Employee receives after all applicable withholdings (net Bonus after taxes). For
example, Employee's pay back requirements as illustrated in Paragraph 5(a)(iii)
would be limited to $32,300.00, less any and all amounts withheld with respect
to said $32,300.00.
18
<PAGE> 19
15. Prior Agreements. This Agreement cancels and supersedes
any and all prior agreements and understandings between the parties hereto
respecting the employment of the Employee by the Company.
16. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered personally
or sent by registered or certified mail, return receipt requested, to the other
party hereto at this or its address as set forth at the beginning of this
Agreement. Either party may change the address to which notices, requests,
demands and other communications hereunder shall be sent by sending written
notice of such change of address to the other party.
17. Assignability, Binding Effect and Survival. This Agreement
shall inure to the benefit of and shall be binding upon the heirs, executors,
administrators, successors and legal representatives of the Employee, and shall
inure to the benefit of and be binding upon the Company and its successors and
assigns. Notwithstanding the foregoing, the obligations of the Employee may not
be delegated and, except as expressly provided in Paragraph 23 hereof relating
to the designation of beneficiaries, the Employee may not assign, transfer,
pledge, encumber, hypothecate or otherwise dispose of this Agreement, or any of
her rights hereunder, and any such attempted delegation or disposition shall be
null and void and without effect. The provisions of Paragraphs 8, 9, and 11
hereof shall survive termination of this Agreement and, to the extent
appropriate to the intention of the parties and the subject matter of this
Agreement, other rights and obligations of the parties may survive the
termination of this Agreement.
19
<PAGE> 20
18. Complete Understanding; Amendment. This Agreement
constitutes the complete understanding between the parties with respect to the
employment of the Employee hereunder, and no statements, representation,
warranty or covenant has been made by either party with respect thereto except
as expressly set forth herein. this Agreement shall not be altered, modified,
amended or terminated except by written instrument signed by each of the parties
hereto. Waiver by either party hereto of any breach hereunder by the other party
shall not operate as a waiver of any other breach, whether similar to or
different from the breach waived.
19. Governing Law. Except to the extent superseded by federal
bankruptcy law, this Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut without giving effect to principles of
conflicts of law.
20. Paragraph Headings. The paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
21. Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and unenforceable, shall not be affected thereby,
and each provision hereof shall be validated and shall be enforced to the
fullest extent permitted by law.
20
<PAGE> 21
22. Arbitration. Any dispute arising out of or relating to the
obligations of either party hereto shall be settled by arbitration in accordance
with the rules of the American Arbitration Association. The decision of the
arbitrator shall be final and binding on the parties hereto. As part of her
decision, the arbitrator shall determine if such dispute was frivolous and, if
so, the reasonable fees and expenses of the parties shall be paid by the party
against whom such a determination is made or, in the absence of such a
determination, the Company shall pay all such reasonable fees and expenses.
23. Designation of Beneficiary. The Employee shall have the
right to name, from time to time by written notice to the Company, any one
person as beneficiary hereunder or, with the consent of the Company, she may
make other forms of designation of beneficiary or beneficiaries. The Employee's
designated beneficiary or personal representative, as the case may be, shall
accept the payments provided for in Paragraph 9 or Paragraph 12d. hereof, as
applicable, in full discharge and release of the Company of and from any further
obligations under this Agreement. Any other benefits due under applicable plans
and programs of the Company shall be determined under the provisions of such
plans and programs.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto set their hands as of
the dates set forth below.
THE CALDOR CORPORATION
By:
------------------------- ---------------------------
Dennis M. Lee Date
------------------------- ---------------------------
Susan Sprunk Date
22
<PAGE> 23
Schedule A -- Employee Benefit Programs
Cash Bonus and Profit-Sharing Programs:
Performance Incentive Plan
Caldor Profit Sharing Plan
Insurance Programs:
Company-Paid Life Insurance
Optional Life Insurance
Split Dollar Life Insurance Plan
Group Medical Plan
Long-Term Disability Insurance
Travel Accident Insurance
Other:
Standard Automobile allowance
Tax Preparation/Financial Planning/Executive Physicals/
Club Membership/Car Phone
10% Associate Discount Program
Relocation Program
23
<PAGE> 1
Exhibit 10.14
AGREEMENT
This Agreement is made and entered into by The Caldor Corporation ("Caldor")
and SUSAN SPRUNK (Executive").
Caldor agrees to pay to Executive the gross sum of $250,000.00 as a special
bonus. Executive acknowledges receipt of such bonus.
In consideration for Caldor's payment of a special bonus, Executive agrees to
pay back to Caldor the amount of the bonus (net of taxes) in the event that
Executive's employment is terminated either voluntarily or otherwise for cause
within two years of the date of this agreement. The amount agreed to be paid
back is as follows:
One hundred percent (100%) of special bonus if employment
terminates within one (1) year from date of this agreement.
Fifty percent (50%) of special bonus if employment terminates
within two (2) years (but more than one year) from date of this
agreement.
Executive agrees that, in the event Executive's employment is terminated within
the above designated period and the relevant amount of the bonus is not repaid
to Caldor by Executive, in whole or in part, then Caldor may offset the amount
owed against any payments due to Executive from Caldor, including, without
limitation, salary or bonus. However, such right of offset shall not be the
sole or exclusive means of recovery of repayments owed to Caldor by Executive,
and Caldor, or its assigns shall retain all other rights and remedies which may
be available.
Executive acknowledges that nothing in this Agreement constitutes an agreement
to employ Executive for any specified period of time or otherwise affects
Caldor's right to terminate Executive's employment.
Executive further acknowledges that he/she has carefully read this Agreement,
that he/she understands its terms, and that he/she voluntarily signs his/her
name to it.
/s/ Susan Sprunk October 3, 1997
- --------------------- -----------------------
Susan Sprunk Date
THE CALDOR CORPORATION
By /s/ Dennis M Lee Oct 3, 1997
- --------------------- -----------------------
Date
<PAGE> 1
[EXECUTION COPY]
BANKBOSTON, N.A.
100 Federal Street
Boston, Massachusetts 02110
April 24, 1998
The Caldor Corporation
20 Glover Avenue
Norwalk, Connecticut 06856-5620
Attention: Mr. Jack Reen
Re: Commitment Letter
Ladies and Gentlemen:
You have advised BankBoston, N.A. ("BBNA") and the other financial
institutions from time to time executing a counterpart signature page to this
Commitment Letter substantially in the form attached as Exhibit B hereto and
listed on a revised Schedule A hereto (together with BBNA, the "Lenders"), that
The Caldor Corporation, as debtor and debtor-in-possession (the "Debtor") in a
case (the "Case") filed under Chapter 11 of the United States Bankruptcy Code
(the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court"), is seeking (i)
debtor-in-possession financing in order to provide for the working capital and
general business needs of the Debtor and to repay in full the Debtor's current
debtor-in-possession credit facility dated as of October 17, 1995 (as amended,
the "Current Credit Facility"), and (ii) post-confirmation financing in
connection with a plan of reorganization to be filed by the Debtor (the "Plan")
to provide for the working capital and general business needs of the reorganized
Debtor following the effective date of the Plan (the "Plan Effective Date") as
well as to repay in full the DIP Facility (as defined below). In that regard,
the Lenders are pleased to advise you of their commitment, upon the terms and
subject to the conditions set forth in this Commitment Letter, in the term sheet
attached as Exhibit A to this Commitment Letter (the "Term Sheet") and in the
letter of even date herewith addressed to you (the "Fee Letter") providing,
among other things, for the payment of certain fees relating to the Facilities
(as defined below) (this Commitment Letter, the Term Sheet and the Fee Letter
are referred to collectively herein as the "Commitment Letter"), to provide (i)
to the Debtor a senior secured $450,000,000 guaranteed revolving credit facility
(the "DIP Facility") and (ii) to the reorganized Debtor a senior secured
$450,000,000 guaranteed revolving credit facility (the "Exit Facility" and
together with the DIP Facility, the "Facilities").
<PAGE> 2
The Caldor Corporation
April 24, 1998
Page 2
Each Lender, severally and not jointly, agrees to provide its share of
each Facility as set forth opposite its name on Schedule A attached hereto (as
amended from time to time in accordance with the terms hereof).
The Lenders' commitment to provide the DIP Facility in accordance with
Exhibit A attached hereto is subject to the negotiation, execution and delivery
of a Revolving Credit and Guarantee Agreement (the "DIP Credit Agreement")
reasonably appropriate security documents in connection therewith and other
definitive documentation (collectively, the "Definitive DIP Documentation") with
respect to the DIP Facility reasonably satisfactory in form and substance to the
Lenders.
The Lenders' commitment to provide the DIP Facility is also subject to:
(A) The approval by the Bankruptcy Court of:
(i) All aspects of this Commitment Letter (as it relates
to the DIP Facility) and the Definitive DIP
Documentation and the transactions contemplated by
this Commitment Letter relating to the DIP Facility
and by the Definitive DIP Documentation, and
(ii) All actions to be taken, undertakings to be made and
obligations to be incurred by the Debtor and the
Guarantors (as defined in the Term Sheet) in
connection with the DIP Facility;
All such approvals of the Bankruptcy Court shall be evidenced
by the entry of one or more orders satisfactory in form and
substance to the Lenders;
(B) The Lenders' completion of and satisfaction, in the Lenders'
sole judgment, with the scope and results of their legal due
diligence investigation of the Debtor and each of the
Guarantors;
(C) The satisfaction of each of the conditions precedent to
effectiveness and funding applicable to the DIP Facility set
forth in the Term Sheet and in the DIP Credit Agreement; and
(D) There not having occurred or become known to any Lender any
material adverse change in the condition (financial and
otherwise), operations or assets of the Debtor and the
Guarantors, taken as a whole (including, without limitation,
any material reduction in the value of the assets of the
Debtor and the Guarantors, taken as a whole), from that shown
in the information made available to the Lenders on or prior
to the date of this Commitment Letter.
The Lenders' commitment to provide the Exit Facility in accordance with
Exhibit A hereto is subject to the negotiation, execution and delivery of a
Revolving Credit and
<PAGE> 3
The Caldor Corporation
April 24, 1998
Page 3
Guarantee Agreement (the "Exit Credit Agreement"), reasonably appropriate
security documents in connection therewith and other definitive documentation
(collectively, the "Definitive Exit Documentation", and together with the
Definitive DIP Documentation, the "Definitive Documentation") with respect to
the Exit Facility, reasonably satisfactory in form and substance to the Lenders.
The Lenders' commitment to provide the Exit Facility is also subject
to:
(A) The approval by the Bankruptcy Court of:
(i) all aspects of this Commitment Letter (as it relates
to the Exit Facility) and the Definitive Exit
Documentation and the transactions contemplated by
this Commitment Letter relating to the Exit Facility
and by the Definitive Exit Documentation; and
(ii) All actions to be taken, undertakings to be made and
obligations to be incurred by the reorganized Debtor
and the Guarantors in connection with the Exit
Facility;
All such approvals of the Bankruptcy Court shall be evidenced
by the entry of one or more orders satisfactory in form and
substance to the Lenders;
(B) The satisfaction of each of the conditions precedent to
effectiveness and to funding applicable to the Exit Facility
set forth in the Term Sheet and in the Exit Credit Agreement,
including, without limitation:
(i) The final terms of the Plan and the order of the
Bankruptcy Court approving the Plan (the
"Confirmation Order") shall not be inconsistent with
Schedule A to the Term Sheet and otherwise reasonably
satisfactory to the Administrative Agent;
(ii) All conditions precedent to the confirmation of the
Plan and to the Plan Effective Date shall have been
met (or the waiver thereof shall have been consented
to by the Administrative Agent (as defined below))
and the Plan Effective Date shall have occurred or
shall be scheduled to occur, except for the initial
extension of credit under the Exit Facility;
(iii) Except as consented to by the Administrative Agent,
the Bankruptcy Court's retention of jurisdiction
under the Confirmation Order shall not govern the
enforcement of the Definitive Exit Documentation
after the Plan Effective Date or any rights or
remedies relating thereto (except with respect to the
granting of the Leasehold Security Interest (as
defined in the Term
<PAGE> 4
The Caldor Corporation
April 24, 1998
Page 4
Sheet) to the Collateral Agent (as defined below) for
its benefit and the benefit of the Administrative
Agent (as defined below), the Managing Agent (as
defined below) and the Lenders);
(iv) There shall exist no defaults or events of default
under the DIP Facility; and
(v) Simultaneous with the initial extension of credit
under the Exit Facility, all amounts outstanding
under the DIP Facility shall be paid in full in
immediately available funds; and
(C) There not having occurred or become known to any Lender any
material adverse change in the condition (financial and
otherwise), operations or assets of the Debtor and the
Guarantors, taken as a whole (including, without limitation,
any material reduction in the value of the assets of the
Debtor and the Guarantors, taken as a whole), from that shown
in the information made available to the Lenders on or prior
to the date of this Commitment Letter.
The terms and conditions of the Lenders' commitments under this
Commitment Letter with respect to the Facilities are not limited to the terms
and conditions set forth in this Commitment Letter. Those matters that are not
covered by or made clear under the provisions of this Commitment Letter are
subject to the reasonable approval and agreement of the Lenders and the Debtor.
The Lenders reserve the right, prior to or after the execution of the
Definitive DIP Documentation or the Definitive Exit Documentation, as the case
may be, to syndicate part of their respective commitments to one or more banks,
commercial finance companies or other financial institutions, in each case with
the prior written consent of the Debtor (except as set forth in the Term Sheet),
which consent shall not be unreasonably withheld, that will become parties to
such Definitive Documentation, with each syndicate member having a minimum
commitment of at least $10,000,000, although BBNA agrees to endeavor to identify
prospective syndicate members who are willing (without the payment of money or
other economic concessions on the part of BBNA) to participate in the Facilities
for a commitment of $20,000,000 or more. Accordingly, you agree to actively
assist the Lenders in completing a timely syndication that is reasonably
satisfactory to them. Such assistance shall be accomplished by a variety of
means, including direct contact during the syndication process between senior
officers and representatives of the Debtor and representatives of advisors and
consultants retained by the Debtor on the one hand, and the proposed syndicate
assignees and participants, on the other hand, and the participation at
reasonably convenient times and places by senior officers and representatives of
the Debtor (and representatives of advisors and consultants retained by the
Debtor) in one or more meetings to be arranged by a Lender with the proposed
syndicate assignees and participants.
<PAGE> 5
The Caldor Corporation
April 24, 1998
Page 5
Although the Term Sheet sets forth the principal terms of the proposed
financing, you should understand that we reserve the right to propose terms in
addition to those terms which will not materially change or alter the terms of
this Commitment Letter (including the Term Sheet). It is agreed that if the
Lenders deem such actions advisable in order to ensure a successful syndication,
the Lenders may propose, and you agree to negotiate in good faith (although you
have no obligation to agree to such modifications), reasonable modifications to
the structure and the amount of the Facilities from that described herein or in
the Term Sheet, provided that the aggregate principal amount of each Facility,
taken as a whole, remains the same. Moreover, the Term Sheet does not purport to
include all of the representations, warranties, defaults, definitions and other
terms which will be contained in the Definitive DIP Documentation or the
Definitive Exit Documentation, all of which must be reasonably satisfactory to
the Lenders.
To assist each Lender in its syndication efforts, you agree promptly to
provide, and to cause your advisors to provide, any Lender, upon request, with
all information deemed reasonably necessary by such Lender to complete
successfully the syndication, including, without limitation, all information
that is reasonably available and projections prepared by you or on your behalf
relating to the transactions contemplated hereby.
Upon your acceptance of this Commitment Letter as provided herein, BBNA
will have committed, as of the date hereof, to provide the full amount of each
Facility upon the terms and subject to the conditions set forth herein and in
the Term Sheet. To the extent that additional banks, commercial finance
companies or other financial institutions assume a portion of BBNA's (or any
other Lender's) commitment by executing a counterpart signature page to this
Commitment Letter (a copy of which we will provide to you (as well as a revised
Schedule A hereto)), substantially in the form attached as Exhibit B (thereby
becoming a "Lender" hereunder), BBNA's (or such other Lender's) commitment
hereunder will be reduced dollar-for-dollar by the amount of the commitment
assumed by each such new Lender and the commitment of each Lender hereunder will
be several and not joint. Each such new Lender will be entitled to all of the
rights and benefits, and subject to all of the obligations, applicable to
Lenders under this Commitment Letter.
You hereby represent and covenant that (a) all information concerning
the Debtor and the Guarantors (the "Information") that has been or will be made
available to the Lenders and any other financial institutions that become
parties to either Facility by you or any of your authorized representatives in
connection with the transactions contemplated by this Commitment Letter is and
will be, as of the date when so made available (or, if later, the date of this
Commitment Letter), complete and correct in all material respects and does not
and will not, as of the date when so made available (or, if later, the date of
this Commitment Letter), contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements contained in
such Information, taken as a whole, not materially misleading in light of the
circumstances under which such statements are made and (b) all financial
projections
<PAGE> 6
The Caldor Corporation
April 24, 1998
Page 6
concerning the Debtor and the Guarantors (the "Projections") that have been or
will be prepared by you and made available to the Lenders have been or will be
prepared in good faith based upon reasonable assumptions. You agree to revise
the Information and Projections from time to time in order that the foregoing
representations and warranties remain true from time to time. In arranging and
syndicating the Facilities, the Lenders will be using and relying on the
Information and Projections.
BBNA will serve as administrative agent (the "Administrative Agent")
for itself and the other Lenders under each Facility and will perform the
customary duties related to that function. BankBoston Retail Finance, Inc.
("BBRF"), an affiliate of BBNA, will act as managing agent (in such capacity,
the "Managing Agent") and as collateral agent (in such capacity, the "Collateral
Agent") for itself and the other Lenders under each Facility and will perform
the customary duties related to that function.
By your signature below, you further agree (a) to pay all reasonable
out-of-pocket costs and expenses incurred by BBNA, the Administrative Agent, the
Managing Agent and the Collateral Agent in connection with this Commitment
Letter, the transactions contemplated hereby (including, without limitation,
preparation, negotiation, closing and administration of the Definitive DIP
Documentation and the Definitive Exit Documentation) and BBNA's and the
Collateral Agent's ongoing due diligence in connection therewith (including,
without limitation, reasonable travel expenses; reasonable attorneys' fees and
expenses; reasonable asset evaluation expenses and reasonable audit expenses
(including, without limitation, tradename appraisals); reasonable syndication
expenses, recording and filing fees, title insurance premiums and other
reasonable charges and disbursements and any other reasonable out-of-pocket
costs and expenses of BBNA, the Administrative Agent, the Managing Agent and the
Collateral Agent), from time to time promptly upon request whether or not such
transactions are consummated, (b) to pay all fees and other amounts contemplated
by this Commitment Letter (including the Fee Letter) when such amounts are due
and (c) to indemnify and hold harmless the Administrative Agent, the Managing
Agent, the Collateral Agent, BancBoston Securities Inc., the Lenders, the other
financial institutions that become parties to either Facility and each of their
respective officers, directors, partners, beneficiaries, trustees, employees,
professionals, affiliates, agents and controlling persons (collectively, the
"Indemnified Persons") from and against any and all losses, claims, damages,
costs, expenses and liabilities to which any such Indemnified Person may become
subject arising out of, or in connection with, this Commitment Letter, the
transactions contemplated hereby or any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not any of such
Indemnified Persons is a party thereto, and to reimburse each of such
Indemnified Persons, from time to time upon their demand, for any reasonable
legal or other expenses incurred in connection with investigating or defending
any of the foregoing, whether or not the transactions contemplated hereby are
consummated, provided that the foregoing indemnity set forth in this clause (c)
will not, as to any Indemnified Person, apply to losses, claims, damages,
liabilities or related expenses to the extent that they have been
<PAGE> 7
The Caldor Corporation
April 24, 1998
Page 7
determined by a court of competent jurisdiction by final non-appealable order to
arise from the bad faith, willful misconduct or gross negligence of such
Indemnified Person. All such out-of-pocket costs and expenses, fees and other
amounts and indemnities shall be considered and treated as superpriority
administrative expenses of the Debtor in the Case and in any subsequent or
superseding bankruptcy proceeding of the Debtor, subject to the Carve Out (as
defined in the Term Sheet).
Upon execution of this Commitment Letter by the Borrower, the Borrower
will promptly seek approval from the Bankruptcy Court of a $500,000
non-refundable commitment fee (the "Commitment Fee") and the Documentation
Deposit (as defined in the Term Sheet) payable to BBNA in immediately available
funds within one business day after such approval. If the DIP Closing Date
occurs, the Commitment Fee will be credited toward the Closing Fee (as defined
in the Fee Letter).
You agree that this Commitment Letter (including the Fee Letter) is for
your confidential use only and that it will not be disclosed by you or any of
the Guarantors to any person (including any lender bidding for any portion of
the financing contemplated by this Commitment Letter) other than to your
employees, officers, accountants, attorneys, and other advisors (subject to
appropriate confidentiality restrictions) and, to the extent necessary for
acceptance of this Commitment Letter, to the Bankruptcy Court, and then only in
connection with the transactions contemplated hereby and on a confidential
basis. However, upon your acceptance of this Commitment Letter, this Commitment
Letter may be disclosed in connection with obtaining Bankruptcy Court approval
of the terms and conditions contemplated herein.
Each Lender agrees to keep any information delivered or made available
by you to it confidential from anyone other than such Lenders' employees,
officers, partners, beneficiaries, trustees, attorneys and other advisors who
are or are expected to become engaged in evaluating, approving, structuring or
administering the Facilities or rendering legal advice in connection therewith,
provided that nothing herein shall prevent the Lenders from disclosing such
information (a) upon the order of any court or administrative agency or upon the
request of any administrative agency or authority, (b) upon the request or
demand of any regulatory agency or authority, (c) to the extent that such
information has been publicly disclosed other than as a result of a disclosure
by the Lenders, (d) to any other Lender, (e) to any actual or potential
syndicate assignee or participant, provided that each such assignee or
participant has been notified of the provisions of this paragraph and agrees to
be bound by them, or (f) otherwise as required by law.
You hereby agree that the Lenders' commitment hereunder to provide the
Exit Facility is separate and distinct from their commitment to provide the DIP
Facility and that the Exit Facility is subject to its own conditions precedent.
Accordingly, you agree that your obligation to repay all amounts outstanding
under the DIP Facility on the "Termination Date" thereof is absolute and
unconditional and not subject to or conditioned upon the closing of the Exit
Facility or the making of any loans thereunder.
<PAGE> 8
The Caldor Corporation
April 24, 1998
Page 8
This Commitment Letter shall not be assignable by you without the prior
written consent of the Lenders and may not be amended or any provision hereof
waived or modified except by an instrument in writing signed by you and the
Lenders.
This Commitment Letter supersedes all our prior letters to you
regarding the subject of this Commitment Letter.
This Commitment Letter shall be governed by, and construed in
accordance with, the laws of the State of New York.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof by signing and returning to the
Administrative Agent by telecopy not later than 5:00 p.m., Boston time, on
Friday, April 24, 1998 (with an original to follow by overnight mail), the
enclosed duplicate originals of this Commitment Letter and the Fee Letter. The
commitments contained herein shall be terminated if (a) you shall have failed to
accept this Commitment Letter and the Fee Letter in the time and manner set
forth in the previous sentence, (b) the Lenders shall not have received evidence
of the Bankruptcy Court's approval of your executing and performing this
Commitment Letter and the payment of the fees, expenses or other amounts
contemplated hereby including, without limitation, the Commitment Fee and the
Documentation Deposit, on or prior to May 30, 1998, or (c) the Lenders shall not
have received evidence of the Bankruptcy Court's approval of your executing and
performing the Fee Letter and the Definitive DIP Documentation, and the payment
of the fees, expenses or other amounts as contemplated thereby on or prior to
May 30, 1998.
With respect to the Exit Facility, if the initial funding under the
Exit Credit Agreement has not previously or contemporaneously occurred, this
Commitment Letter (other than the indemnity and confidentiality provisions
hereof) shall expire and be of no further force and effect on the earlier to
occur of (i) termination of the DIP Facility in accordance with the terms
thereof and (ii) one (1) Business Day (as defined in the DIP Facility) after the
Plan Effective Date (or, at the request of the Borrower, within five (5)
Business Days after the Plan Effective Date).
This Commitment Letter may be executed in any number of counterparts,
each of which shall be an original and all of which, when taken together, shall
constitute one agreement.
[SIGNATURE PAGES FOLLOW]
<PAGE> 9
The Caldor Corporation
April 24, 1998
Page 9
We are pleased to have been given the opportunity to participate in
this transaction.
Very truly yours,
BANKBOSTON, N.A.
By:
----------------------------------------
Name:
Title:
<PAGE> 10
The Caldor Corporation
April 24, 1998
Page 10
Agreed to and accepted as of the date first above written:
THE CALDOR CORPORATION,
as Debtor and Debtor-in-Possession
By:
-----------------------------------
Name:
Title:
<PAGE> 11
Schedule A to Commitment Letter
-------------------------------
(as of April 24, 1998)
<TABLE>
<CAPTION>
Commitment Commitment
Lender Percentage Amount
- ------ ---------- ------
<S> <C> <C>
BankBoston, N.A. 100% $450,000,000
</TABLE>
<PAGE> 12
Exhibit A to Commitment Letter
THE TERMS AND CONDITIONS SUMMARIZED HEREIN ARE INTENDED SOLELY AS A GENERAL
DESCRIPTION OF THE PRINCIPAL TERMS OF THE FACILITIES AND WILL BE EXTENSIVELY
SUPPLEMENTED BY THE ADMINISTRATIVE AGENT IN THE DEFINITIVE DIP DOCUMENTATION AND
THE DEFINITIVE EXIT DOCUMENTATION (AS APPLICABLE).
CAPITALIZED TERMS USED HEREIN WITHOUT DEFINITION SHALL HAVE THE SAME MEANINGS
GIVEN TO SUCH TERMS IN THE COMMITMENT LETTER TO WHICH THIS TERM SHEET IS
ATTACHED.
THE CALDOR CORPORATION
DEBTOR-IN-POSSESSION AND EXIT FACILITY TERM SHEET
APRIL 24, 1998
Borrower: The Caldor Corporation (the "Borrower").
Guarantors: Caldor, Inc. - CT and Caldor, Inc. - NY
(collectively, the "Retail Guarantors") and
each other wholly-owned subsidiary of the
Borrower (other than American East, Inc.)
(collectively with the Retail Guarantors,
the "Guarantors")
Administrative Agent: BankBoston, N.A. ("BBNA"), as administrative
agent (the "Administrative Agent") for
itself and other Lenders (as defined below).
Collateral Agent: BankBoston Retail Finance, Inc. (the
"Collateral Agent").
Managing Agent: BankBoston Retail Finance, Inc. (the
"Managing Agent").
Underwriter: BancBoston Securities Inc. ("BSI")
Lenders: BBNA will provide the Borrower with
separate fully underwritten and committed
$450,000,000 Facilities as described below.
As set forth in the Commitment Letter, BBNA
expressly reserves the right to syndicate
part of either or both such Facilities to
other financial institutions (collectively,
including BBNA, the "Lenders"). The Borrower
shall assist and cooperate with BBNA and the
other Lenders in achieving a successful
syndication, including participating in
lender meetings and responding to reasonable
information requests in a timely manner.
Closing Date: The closing of and initial funding under the
DIP Facility (the "DIP Closing Date") will
occur on or before May 15, 1998, or as soon
as reasonably practicable thereafter (but in
no event later than June 15, 1998) (provided
that all conditions precedent thereto have
been satisfied or waived as provided herein)
and substantially concurrent with the entry
of an order by the Bankruptcy Court
approving the DIP Facility (the "Financing
Order") provided that there is no stay of
the order pending at such time. The closing
of and initial funding under
1
<PAGE> 13
the Exit Facility (the "Exit Closing Date")
will occur on or within one (1) business day
after the Plan Effective Date (provided that
all conditions precedent to the Exit Closing
Date have been satisfied or waived as
provided herein).
Facilities: The DIP Facility will consist of up to an
eighteen (18) month debtor-in-possession
revolving credit facility in a maximum
principal amount of $450,000,000.
The Exit Facility will consist of up to a
four (4) year (less the actual term of the
DIP Facility) post-confirmation revolving
credit facility in a maximum principal
amount of $450,000,000.
With respect to either Facility, the sum of
direct borrowings plus letters of credit
outstanding and unpaid reimbursement
obligations in respect of letters of credit
shall not exceed $450,000,000. Furthermore,
the sum of direct borrowings under either
Facility plus letters of credit outstanding
and unpaid reimbursement obligations in
respect of letters of credit minus fully
cash collateralized secured letters of
credit (as provided below) shall not exceed
the Borrowing Base described below. Both
Facilities will have a sublimit of
$150,000,000 for letters of credit
(documentary and standby) and bankers'
acceptances to be issued by BBNA.
Availability: During the term of either Facility,
revolving credit loans will be available
daily upon notice (if received prior to 3:00
p.m., Boston time, on that day) for Base
Rate Loans (as defined below) and upon two
business days' notice, and in minimum
amounts of $1,000,000 or larger integral
multiples thereof, for Eurodollar Loans (as
defined below). The Borrower may not have
more than seven Eurodollar Loans outstanding
at any one time. Letters of credit will be
available upon notice customary for
facilities of this type in agreed upon
amounts. Notwithstanding the foregoing, the
Administrative Agent may in its sole
discretion make Base Rate Loans available to
the Borrower on a same day basis.
Termination Date: All obligations under the DIP Facility will
be due and payable, and all commitments
under the DIP Facility shall be permanently
terminated, on the earlier to occur of (a)
the Plan Effective Date or (b) eighteen (18)
months from the DIP Closing Date (the "DIP
Termination Date").
All obligations under the Exit Facility will
be due and payable, and all commitments
under the Exit Facility shall be permanently
terminated, four (4) years (less the actual
term of the DIP Facility) from the Exit
Closing Date (the "Exit Termination Date").
2
<PAGE> 14
Prepayments; Repayments: Loans under both Facilities shall be repaid
on a daily basis from the proceeds of
collections received in the Borrower's cash
concentration account to be maintained at
BBNA, as provided below. Immediate
prepayment shall be required if and to the
extent that loans outstanding under either
Facility exceed any availability limitations
thereunder. The Borrower shall also
immediately (and, in any event, on the same
business day) reimburse BBNA for any drawing
under any letter of credit or bankers
acceptance through the conversion of an
availability reserve in connection with such
letter of credit and bankers' acceptance to
a loan under either Facility or otherwise.
Subject to applicable conditions, amounts
prepaid under either Facility may be
reborrowed prior to the applicable
Termination Date. No loans repaid or prepaid
at any time under either Facility shall be
charged a premium or penalty except for
breakage costs associated with Eurodollar
Loans as provided below and default interest
as provided herein.
Interest: All loans outstanding under either Facility
shall bear interest at the Administrative
Agent's Alternate Base Rate in effect from
time to time or, at the Borrower's option,
so long as no default or Event of Default
(as defined below) has occurred and is then
continuing, at the fully reserve adjusted
Eurodollar rate (the "Eurodollar Rate") plus
2.25% (2.75% during any period that the
Borrower is utilizing the Overadvance Rate
(as defined below)) (the "Eurodollar
Applicable Margin") for interest periods of
one (1) two (2) and three (3) months.
Notwithstanding the foregoing, commencing
with the first fiscal quarter of the
Borrower beginning after receipt by the
Administrative Agent of the Borrower's
audited financial statements for fiscal year
1998, the Eurodollar Applicable Margin will
be reduced by (i) 0.25% for any fiscal
quarter for which the rolling 12-month
EBITDA of the Borrower for the immediately
preceding 12-month period is greater than or
equal to $75,000,000, but less than
$100,000,000 or (ii) without duplication,
0.50% for any fiscal quarter for which the
rolling 12-month EBITDA of the Borrower for
the immediately preceding 12-month period is
greater than or equal to $100,000,000.
"EBITDA" shall mean, for any period, all as
determined in accordance with GAAP, the
consolidated net income (or net loss) of the
Borrower and the Guarantors for such period,
plus (a) the sum of (i) depreciation
expense, (ii) amortization expense, (iii)
other non-cash expense, (iv) provision for
LIFO adjustment for inventory valuation, (v)
net total Federal, state and local income
tax expenses, (vi) gross interest expense
for such period less gross interest income
for such period, (vii) extraordinary losses,
(viii) the non-cash portion, if any, of any
non-recurring charge or restructuring
charge, (ix) the
3
<PAGE> 15
cumulative effect of any change in
accounting principles and (x) "Chapter 11
expenses" (or "administrative costs"
reflecting Chapter 11 expenses) as shown on
the Borrower's consolidated statement of
income for such period, less extraordinary
gains.
The "Alternate Base Rate" shall be defined
as the higher of (i) the annual rate of
interest announced from time to time by the
Administrative Agent at its head office in
Boston, Massachusetts, as its "Base Rate" or
(ii) one-half of one percent (.50%) above
the Federal Funds Effective Rate. "Federal
Funds Effective Rate" shall mean, for any
day, the rate per annum equal to the
weighted average of the rates on overnight
federal funds transactions with members of
the Federal Reserve System arranged by
federal funds brokers, as published for such
day (or, if such day is not a business day,
for the next preceding business day) by the
Federal Reserve Bank of New York; or, if
such rate is not published for any day that
is a business day, the average of the
quotations for such day on such transactions
received by the Administrative Agent from
three funds brokers of recognized standing
selected by the Administrative Agent.
Loans bearing interest based on the
Alternate Base Rate shall herein be referred
to as "Base Rate Loans" and loans bearing
interest based on the Eurodollar Rate shall
herein be referred to as "Eurodollar Loans."
For both Facilities, interest on Base Rate
Loans shall be payable monthly in arrears on
the first business day of each calendar
month following the month in which such
interest accrued, commencing on the first
such date after the applicable Closing Date,
and at maturity. Interest on all Eurodollar
Loans shall be payable at the end of the
applicable interest period. The Borrower
will be responsible for all costs related to
the termination for any reason of any
Eurodollar Loan prior to its scheduled
maturity.
Letters of Credit: Letters of credit will support ordinary
course obligations of the Borrower and the
Guarantors and will be issued in a form
acceptable to the Administrative Agent. At
the request of the Borrower, letters of
credit will be issued under the DIP Facility
on the DIP Closing Date to support
documentary and/or standby letters of credit
outstanding on the DIP Closing Date which
have been issued by other financial
institutions. Letters of credit issued under
either Facility will have expiration dates
of no later than, (i) for standby letters of
credit, one (1) year from the date of
issuance (with agreed upon renewal
provisions) and (ii) for documentary letters
of credit, 180 days from the date of
issuance. In no event shall any letters of
credit expire later than ninety (90) days
after the DIP Termination Date, or, if the
Exit Closing Date has occurred, ninety (90)
days after the Exit Termination Date.
4
<PAGE> 16
Letter of Credit Fees: For standby and documentary letters of
credit, a letter of credit fee of 1.50% per
annum (the "L/C Fee") on the maximum amount
available to be drawn under each such letter
of credit. All L/C Fees will be payable to
the Administrative Agent (for the pro-rata
account of the Lenders), monthly in arrears
based on the average daily outstanding
undrawn face amount of all letters of
credit. In addition, the Borrower will pay
to the Administrative Agent for its own
account an issuance fee of 0.125% per annum
on the face amount of each letter of credit
as well as customary fees to cover the costs
of negotiation, issuance, settlement,
amendment and processing of such letters of
credit.
Agency Fee: To be paid in accordance with the Fee
Letter.
Borrowing Base: DIP Facility: The "Borrowing Base" for the
DIP Facility shall be equal to the lesser of
(a) the sum of (i) seventy-two percent (72%)
(the "Inventory Advance Rate") (or, during
the fiscal months of March through December
only, 77% (the "Overadvance Rate"); provided
that the Overadvance Rate shall not increase
the Borrowing Base by more than $30,000,000)
of the cost value of the Borrower's and the
Retail Guarantors' Eligible Inventory (as
defined below) and, without duplication,
Eligible Letter of Credit Inventory (as
defined below), Eligible In-Transit
Inventory and Eligible FOB Inventory minus
applicable Reserves (as described below),
(ii) eighty percent (80%) of the Borrower's
Eligible Accounts Receivable (as defined
below) minus applicable Reserves and (iii)
the lesser of (A) $45,000,000 and (B)
seventy percent (70%) of the "low
liquidation value" of the Borrower's and the
Guarantors' leasehold interests in real
estate (as determined by Keen Realty in an
appraisal dated October 7, 1997), but only
to the extent that the Collateral Agent has
an enforceable first-priority perfected
security interest in such leasehold
interests as provided under "Priority and
Security" below (the "Perfection
Conditions"); and (b) $450,000,000.
Exit Facility: The "Borrowing Base" for the
Exit Facility shall be equal to the lesser
of (a) the sum of (i) seventy-five percent
(75%) (seventy-three percent (73%) for the
months of January and February of each year)
(the "Inventory Advance Rate") of the cost
value of the Borrower's and the Retail
Guarantors' Eligible Inventory (as defined
below) and, without duplication, Eligible
Letter of Credit Inventory (as defined
below), Eligible In-Transit Inventory and
Eligible FOB Inventory minus applicable
Reserves (as described below), (ii) eighty
percent (80%) of the Borrower's Eligible
Accounts Receivable (as defined below) minus
applicable Reserves and (iii) the lesser of
(A) $40,000,000 and (B) sixty percent (60%)
of the "low liquidation value" of the
Borrower's and the Guarantors'
5
<PAGE> 17
leasehold interests in real estate (as
determined by Keen Realty in an appraisal
dated October 7, 1997), subject to the
Perfection Conditions; and (b) $450,000,000.
"Eligible Inventory" will consist of stock
ledger inventory calculated by the retail
method of accounting valued at cost less
capitalized cost. The Lender must have a
valid and perfected first-priority security
interest in such inventory for it to be
included for Borrowing Base purposes.
Eligible Inventory will exclude inventory
that is not salable, including, without
limitation: non-merchandise categories
(labels, bags, packaging, etc.), inventory
in foreign locations (except for Eligible
Letter of Credit Inventory (as defined
below), and samples. Eligible Inventory will
specifically exclude damaged goods and
return-to-vendor merchandise and consignment
goods.
"Eligible Accounts Receivable" will consist
of current amounts due to the Borrower from
major credit card companies (the "Accounts
Receivable") which are unpaid for no more
than five (5) business days from the date of
sale and which companies have signed a
payment direction agreement (a "Payment
Direction Agreement") satisfactory to the
Administrative Agent and subject to certain
other eligibility criteria customary for
credit card receivables. The Lender must
have a valid and perfected first-priority
security interest in such Accounts
Receivable for them to be included in the
Borrowing Base.
"Eligible Letter of Credit Inventory" will
consist of inventory which has not been
received by the Borrower and for which a
documentary letter of credit has been issued
which has an expiration date within 75 days
of the inclusion of such inventory as
Eligible Letter of Credit Inventory.
"Eligible In-Transit Inventory" will consist
of inventory in an aggregate amount not to
exceed $65,000,000 at any time (i) for which
a documentary letter of credit has been
issued and paid, but such inventory has not
yet been received in the Borrower's
warehouse and, if such inventory is in the
possession of any of the Borrower's customs
brokers, it is, if required by the
Collateral Agent, subject to a customs
broker agreement in form and substance
reasonably satisfactory to the Collateral
Agent (a "Customs Broker Agreement") and
(ii) that has been received in the
Borrower's warehouse, but has not yet been
recorded in the Borrower's stock ledger
report.
"Eligible FOB Inventory" will consist of
inventory which has not been received by the
Borrower but which has been sold to the
Borrower "FOB shipping point," is subject to
a common carrier agreement in form and
substance reasonably satisfactory to the
Collateral Agent (a "Common Carrier
6
<PAGE> 18
Agreement") and the invoice with respect to
such inventory is not dated earlier than 30
days prior to the date of the then-current
Borrowing Base certificate provided to the
Collateral Agent. The amount of Eligible FOB
Inventory to be included in the Borrowing
Base at any time shall be determined by the
Administrative Agent in its sole discretion.
The Eligible FOB Inventory amount will be
initially set at zero (-0-) at least until
such time as the Borrower is able to deliver
to the Administrative Agent a detailed
methodology for tracking Eligible FOB
Inventory through invoices on a weekly basis
that is acceptable to the Administrative
Agent; provided, however, that the
Administrative Agent will be under no
obligation to increase the amount of the
Eligible FOB Inventory above zero in the
event that such a methodology is delivered
to the Administrative Agent, any such
increase to remain in the sole discretion of
the Administrative Agent.
The Collateral Agent shall be entitled to
obtain periodic inventory liquidation
analyses performed by Gordon Brothers
Companies, Inc., or another liquidation
analysis firm chosen by the Collateral Agent
in its reasonable discretion, and follow-up
reviews of the Borrower's books and records
to be conducted by a commercial finance
audit firm chosen by the Collateral Agent.
The Administrative Agent shall be entitled
to make reasonable adjustments to the
Borrowing Base of either or both Facilities
on the basis of the results of such analysis
and review, provided that such adjustment
shall take effect seven (7) business days
after written notice to the Borrower.
Reserves: Accounts receivable, inventory availability
and other Borrowing Base reserves may be
established by the Administrative Agent in
its reasonable discretion. An initial
Borrowing Base reserve will include a
"Professional Fee Carve Out Reserve"
consisting of the accrued and unpaid
professional fees arising from the Case in
an amount not to exceed $6,000,000. In
addition, with respect to the Exit Facility,
to the extent that, at any time (based upon
appraisals conducted by the Collateral
Agent), the loan-to-inventory value ratio of
the Borrower and the Retail Guarantors
exceeds eighty-five percent (85%) (using the
same methodology previously disclosed to the
Borrower by the Collateral Agent as of the
DIP Closing Date) a Borrowing Base reserve
will be established with respect to such
excess. Changes to reserves will be
initiated on seven business days notice to
the Borrower.
Use of Proceeds: DIP Facility: To repay in full the Current
Credit Facility and to fund the working
capital and general business needs of the
Borrower and the Retail Guarantors.
Exit Facility: To repay in full the DIP
Facility and to fund the working capital and
general business needs of the reorganized
7
<PAGE> 19
Borrower and the Retail Guarantors following
the Plan Effective Date.
Unused Line Fee: During the term of both Facilities, an
unused line fee (the "Unused Line Fee") in
the amount of 0.25% per annum on the average
daily unused amount for the immediately
preceding calendar month of the then
existing Facility will accrue for the pro
rata benefit of all Lenders. The aggregate
amount of outstanding letters of credit
issued under the applicable Facility will be
treated as a use of the Facilities in such
amount for purposes of calculating the
Unused Line Fee. The Unused Line Fee will be
payable for the period from the DIP Closing
Date to the DIP Termination Date (or, if the
Exit Closing Date has occurred, the Exit
Termination Date), monthly in arrears on the
first business day of each month commencing
on the first such date after the DIP Closing
Date with the final payment due on the DIP
Termination Date.
Closing Fee: To be paid in accordance with the Fee
Letter.
Diligence and Documentation Fees: The Borrower will obtain Bankruptcy Court
approval for a documentation deposit of
$150,000 (the "Documentation Deposit") to
cover a portion of BBNA's continuing due
diligence costs and expenses, including
appraisals, field examinations, legal costs
and expenses related to this Commitment
Letter and other normal costs and expenses
associated with a transaction of this nature
and legal costs and expenses in preparing
and negotiating the Definitive DIP
Documentation and closing the DIP Facility.
The Documentation Deposit shall be in
addition to the $100,000 due diligence
deposit (the "Diligence Deposit") to be
provided to BBNA pursuant to a separate
order of the Bankruptcy Court. Such approval
shall be obtained as promptly as possible
after the date hereof. Any unused amount of
the Diligence Deposit will be returned to
the Borrower upon the termination of the
Commitment Letter or execution of the
Definitive DIP Documentation.
Nature of Fees: Non-refundable under all circumstances
except for any unused amount of the
Diligence Deposit.
Calculations, Payments: All computations of interest and fees shall
be based on a 360-day year and paid for the
actual number of days elapsed. All payments
shall be made to the Administrative Agent in
United States dollars in immediately
available funds.
Default Interest: Upon the occurrence and during the
continuance of an Event of Default (as
defined below), and notwithstanding any
otherwise applicable interest rate, the
interest rate shall be the interest rate
then in effect plus 2.00% per annum.
8
<PAGE> 20
Cash Concentration Account: No later than the DIP Closing Date, and
subject to the immediately following
paragraph, BBNA will become (and shall
remain throughout the terms of both
Facilities) the concentration bank for the
Borrower's cash management system. All
collections from any source and proceeds
from asset sales (including inventory) will
be deposited either directly into an account
with BBNA or into an account at institutions
with which the Administrative Agent has in
place a blocked account, agency or similar
agreement satisfactory to it in its sole
discretion. The Borrower will establish cash
management systems reasonably satisfactory
to the Administrative Agent in its sole
discretion. All amounts in accounts at
institutions referred to above (other than
BBNA) shall be swept daily into a cash
concentration account at BBNA (the "Cash
Concentration Account") and applied as
follows: first, to pay amounts, including
interest, due and payable under the DIP
Facility or Exit Facility, as applicable
(other than principal of Base Rate Loans and
Eurodollar Loans); second, to reduce
outstanding Base Rate Loans under the DIP
Facility or Exit Facility, as applicable;
third, to reduce or, at the Borrower's
option, cash collateralize outstanding
Eurodollar Loans under the DIP Facility or
Exit Facility, as applicable (with the
Borrower being obligated to pay any breakage
fees associated with a reduction of
Eurodollar Loans); and fourth, if an Event
of Default has occurred and is then
continuing, to cash collateralize letters of
credit outstanding under the DIP Facility or
Exit Facility, as applicable, in an amount
equal to 105% of the maximum amount
available to be drawn under such letters of
credit. As needed, the Administrative Agent
will charge the concentration account for
the unpaid amount of any and all fees,
costs, expenses, interest and other amounts
payable under the Facilities; provided that
the Administrative Agent provides the
Borrower with notice reasonable under the
circumstances prior to any such charge. So
long as no default or Event of Default has
occurred and is then continuing, excess
funds not applied in the manner described in
the preceding sentence shall be released to
the Borrower. Funds swept into the Cash
Concentration Account shall be applied or
released as described above as of the
business day immediately following the day
on which such funds are received in the Cash
Concentration Account with the Borrower
agreeing to indemnify BBNA against the
nonpayment of any provisional items.
For the first thirty (30) days following the
DIP Closing Date, the Borrower may maintain
its existing concentration account
arrangements with Chase, and agency accounts
under which funds are transferred daily or
nearly daily to that concentration account,
so long as Chase enters into blocked
account, agency or similar agreements
reasonably acceptable to the
9
<PAGE> 21
Administrative Agent, and pursuant to
arrangements reasonably satisfactory to the
Administrative Agent funds are swept daily
from the Chase concentration account to the
Cash Concentration Account for application
as set forth above.
Priority and Security: DIP Facility: All direct borrowings, all
reimbursement obligations under letters of
credit and all other obligations of the
Borrower under the DIP Facility shall at all
times (a) be entitled to superpriority claim
status under Section 364(c)(1) of the
Bankruptcy Code and have priority over any
and all administrative expenses specified in
Bankruptcy Code Sections 503(b), 507(b),
364(c) and any subsequent Chapter 7 case
pursuant to Section 364(c)(1) of the
Bankruptcy Code, or otherwise, subject only
to a Carve Out (as defined below) for
allowed professional fees and expenses
incurred by the Borrower's professionals and
those of any statutory committees appointed
in the Case and (b) be secured under
Sections 364(c) or 364(d) of the Bankruptcy
Code (as necessary to effectuate the
following) by a first-priority and perfected
security interest in and lien upon (i) all
of the Borrower's and the Guarantors'
inventory, Accounts Receivable, general
intangibles, equipment, intellectual
property and leasehold interests in real
property (with such security interests in
leaseholds to have been granted by an order
of the Bankruptcy Court in form and
substance satisfactory to the Administrative
Agent in its sole discretion), (ii) all of
the Borrower's interest in the real property
associated with six stores of the Borrower
listed on Schedule C hereto and (iii) all
unencumbered assets of the Borrower and the
Guarantors; and (c) be secured under Section
364(c) of the Bankruptcy Code by a perfected
second-priority security interest in and
lien upon all other property, rights, and
assets of the Borrower and the Guarantors.
"All property, rights and assets" includes
all real and personal property of the
Borrower and the Guarantors, whether now
owned or hereafter acquired. In any event,
the DIP Facility shall be secured by at
least the same collateral (with at least the
same level of priority) as that securing the
Current Credit Facility (but shall not be
senior to any existing liens to which the
Current Credit Facility is not senior
(subject always to the requirement that the
DIP Facility be secured by an unshared
first-priority security interest in any
inventory, Accounts Receivable and
leaseholds included in the Borrowing Base)).
"Carve Out" shall mean (i) allowed
administrative expenses incurred pursuant to
28 U.S.C. Section 1930(a)(6) and (ii)
allowed accrued and unpaid and future fees
and expenses incurred by the Debtors'
professionals and any statutory committee
professionals appointed in the Case pursuant
to Sections 327 and 1103 of the Bankruptcy
Code, which shall not exceed $6,000,000 in
the aggregate subsequent to the
10
<PAGE> 22
occurrence of an Event of Default.
Exit Facility: All direct borrowings, all
reimbursement obligations under letters of
credit and all other obligations of the
Borrower under the Exit Facility shall at
all times be secured by a first-priority
perfected lien on and security interest in
all existing and after acquired assets,
properties, and rights of the Borrower and
the Guarantors (including, without
limitation, inventory, accounts receivable,
general intangibles, equipment, intellectual
property and real estate (including
leasehold interests, such security interests
in leaseholds (the "Leasehold Security
Interest") to have been expressly granted
and ordered by the Bankruptcy Court with
such order to contain provisions acceptable
to the Administrative Agent in its sole
discretion to ensure that the Lenders
receive at least the full benefit (economic
or otherwise) of such leaseholds as would be
enjoyed by the relevant lessee absent the
grant of such security interest, whether now
owned or hereafter acquired or arising, and
all proceeds thereof, subject only to
permitted liens satisfactory to the
Collateral Agent. In the event that the
Bankruptcy Court does not include an order
as specified above with respect to the
Leasehold Security Interest, the Lenders'
commitment hereunder shall have full force
and effect except that the Borrowing Base
shall exclude clause (a)(iii), except to the
extent of any leasehold mortgages that are
delivered to the Collateral Agent and filed
in the appropriate filing office and that
otherwise comply with the provisions of
paragraph 19 below. In addition, the
Collateral Agent shall be named as loss
payee on all insurance policies relating to
property subject to the Lenders' security
interest.
11
<PAGE> 23
All liens granted under the Facilities will
be granted to the Collateral Agent for the
benefit of itself, the Lenders, the Managing
Agent and the Administrative Agent
Conditions to Effectiveness The effectiveness of each Facility and the
and Initial Extension of Credit: obligation of the Lenders to provide the
initial extension of credit under the DIP
Facility or, as the case may be, the Exit
Facility (such closing conditions to be
applicable to both Facilities unless
otherwise indicated) shall be subject to the
satisfaction of usual and customary
conditions, including, without limitation,
the applicable conditions set forth in the
Commitment Letter as well as the following
conditions:
1. With respect to the DIP Facility, the
Bankruptcy Court shall have entered the
Financing Order in the Case satisfactory in
form and substance to the Administrative
Agent approving the Definitive DIP
Documentation, the transactions contemplated
hereby and thereby and including,
specifically but without limiting the
foregoing, the grant to the Lenders, the
Administrative Agent, the Managing Agent and
the Collateral Agent of superpriority
status, subject to the Carve Out, and the
first and second-priority liens contemplated
herein under the heading "Priority and
Security" and the payment and performance by
the Borrower and the Guarantors of all of
their obligations under the Definitive DIP
Documentation. The Financing Order shall
have authorized extensions of credit in the
full amount of the DIP Facility or otherwise
in an amount satisfactory to the Lenders,
shall contain such other provisions
reasonably required by the Administrative
Agent and shall not have been reversed,
modified, amended, or stayed, unless
otherwise agreed by the Administrative
Agent;
2. With respect to the Exit Facility, the final
terms of the Plan and the Confirmation Order
shall not be inconsistent with the
requirements set forth on Schedule A hereto
and otherwise reasonably satisfactory to the
Administrative Agent. All conditions
precedent to confirmation and to the Plan
Effective Date shall have been met (or the
waiver thereof shall have been consented to
by the Administrative Agent) and the Plan
Effective Date shall have occurred or shall
be scheduled to occur but for such initial
extension of credit under the Exit Facility.
The Confirmation Order shall not have been
reversed, modified, amended, or stayed and,
unless otherwise agreed by the
Administrative Agent, and no appeals from
the Confirmation Order shall be outstanding
which could have a material adverse effect
on (i) the effectiveness, priority,
perfection or validity of the Collateral
Agent's security interests in the collateral
securing the Exit Facility (the "Exit
Collateral"), (ii) the value of the Exit
Collateral or the
12
<PAGE> 24
Collateral Agent's or the Lenders' ability
to realize thereon or (iii) the prospect of
full and timely repayment of all amounts due
or to be due under the DIP Facility or the
Exit Facility (any such potential material
adverse effect, an "Exit Facility Material
Adverse Effect"), the existence or
non-existence of such potential material
adverse effect to be determined in an order
of the Bankruptcy Court (an "MAE Order")
upon a motion (an "MAE Motion") to
be filed by the Administrative Agent
within five (5) Business Days (as
defined in the DIP Facility) of its receipt
of a copy of the statement of the issues on
such appeal (it being understood that (a)
assuming the timely filing of the MAE Motion
as provided above, the Lenders shall have no
obligation to advance any funds under the
Exit Facility unless and until the
Bankruptcy Court has entered an MAE Order
finding that such appeal will not have an
Exit Facility Material Adverse Effect and
two (2) Business Days have elapsed from the
time of entry of such Order (provided that
all of the other conditions precedent to
effectiveness of the Exit Facility and
funding thereunder contained herein and
therein have been satisfied or waived by the
Administrative Agent) and (b) if the
Administrative Agent fails to file the MAE
Motion within the 5-day time period provided
above, the Lenders shall not be entitled to
refuse to advance any funds under the Exit
Facility based solely upon the existence of
such appeal (although all of the other
conditions precedent to effectiveness of the
Exit Facility and funding thereunder
contained herein and therein shall continue
to apply; provided, however, that the
assertion in any appeal that the Borrower
cannot provide the Collateral Agent and/or
the Lenders with a first-priority perfected
security interest in any leasehold shall not
be a basis, in whole or in part, for an Exit
Facility Material Adverse Effect (provided,
that such leasehold will be excluded from
the Borrowing Base during the pendency of
such appeal). Except as consented to by the
Administrative Agent, the Bankruptcy Court's
retention of jurisdiction under the
Confirmation Order shall not govern the
enforcement of the Definitive Exit
Documentation after the Plan Effective Date
or any rights or remedies relating thereto
(except with respect to the granting of the
Leasehold Security Interest to the
Collateral Agent for its benefit and the
benefit of the Administrative Agent and
Lenders). The financial condition, capital
structure, liabilities and financial
projections, including cash flow, of the
Borrower shall be reasonably satisfactory to
the Administrative Agent in all respects,
and the terms of any capital stock shall be
reasonably satisfactory to the
Administrative Agent in all respects;
13
<PAGE> 25
3. Execution and delivery to the Administrative
Agent of the applicable Definitive
Documentation (including a certified
Borrowing Base certificate and reasonably
appropriate security documentation);
4. Receipt of other closing documents
including, without limitation, if
applicable, Customs Broker Agreements,
Common Carrier Agreements and Payment
Direction Agreements required by the
Administrative Agent reasonably satisfactory
in form and substance to the Administrative
Agent;
5. Legal opinions of counsel to the Borrower
and the Guarantors reasonably satisfactory
in form and substance to the Administrative
Agent, including, without limitation, with
respect to the enforceability and perfection
of the Collateral Agent's security
interests;
6. Payment by the Borrower of all fees then
payable as referenced herein and in the Fee
Letter;
7. With respect to the DIP Facility, the
Administrative Agent shall have received and
be satisfied with detailed one-year
financial projections and business
assumptions for the Borrower. With respect
to the Exit Facility, the Agent shall have
received no later than sixty (60) days prior
to the Plan Effective Date a three year
business plan for the Borrower which shall
not indicate any prospective defaults under
the Commitment Letter (including the Term
Sheet) or the Exit Facility;
8. Any other information (financial or
otherwise) requested by the Administrative
Agent shall have been received by the
Administrative Agent and shall be in form
and substance reasonably satisfactory to the
Administrative Agent;
9. With respect to the DIP Facility, the
Collateral Agent shall be reasonably
satisfied that the assets of the Borrower
and the Guarantors are in the amounts and of
the quality previously represented by the
Borrower to the Collateral Agent, and the
Collateral Agent shall have received such
valuations, credit and background checks and
other reports, material and information
concerning such assets as shall reasonably
be satisfactory to the Collateral Agent. In
addition, the Collateral Agent shall be
reasonably satisfied that the inventory of
the Borrower is located at such places and
is in the amounts and of the quality and
value previously represented by the Borrower
to the Collateral Agent (and that no
inventory is owned by the Guarantors other
than the Retail Guarantors) and the
Collateral Agent shall have received such
reports, material and other
14
<PAGE> 26
information concerning the inventory and the
Borrower's suppliers as shall be
satisfactory to the Collateral Agent in its
sole discretion;
10. The Collateral Agent shall have received
results of searches or other evidence
satisfactory to the Collateral Agent (in
each case dated as of a date reasonably
satisfactory to the Collateral Agent)
indicating the absence of liens on the
assets of the Borrower and the Guarantors,
except for liens permitted by the applicable
Definitive Documentation and liens for which
termination statements and releases
reasonably satisfactory in form and
substance to the Collateral Agent are being
tendered concurrently with such extension of
credit;
11. The Collateral Agent shall have filed all
such financing statements and shall have
given all such notices as may be necessary
for the Collateral Agent to perfect its
security interest in the collateral for
itself and for the benefit of the Lenders
and the Administrative Agent and to assure
its first- and second- priority status
therein (as described above in "Priority and
Security");
12. With respect to the DIP Facility, the
Borrower and Guarantors shall have minimum
excess availability under the Borrowing Base
of not less than $60 million at closing
(excluding any Eligible FOB Inventory).
13. There shall not have occurred or become
known to the Administrative Agent any
material adverse change in the financial
condition, operations or assets of the
Borrower or the Guarantors since January 1,
1998;
14. With respect to the Exit Facility, the
Administrative Agent shall be reasonably
satisfied with all ongoing post-confirmation
litigation risks and the adequacy of all
reserves therefor;
15. The cash management system described above
shall have been substantially implemented,
including the obtaining of a blocked
account, agency or similar agreement in form
and substance reasonably acceptable to the
Collateral Agent from each concentration
bank and depository bank of the Borrower;
16. All corporate proceedings and all
instruments and agreements in connection
with the transactions among the Borrower,
the Guarantors and the Administrative Agent
contemplated by the applicable Definitive
Documentation shall be reasonably
satisfactory in form and substance to the
Administrative Agent and the Administrative
Agent shall have received all information
and copies of all documents or papers that
it may reasonably request;
15
<PAGE> 27
17. The Collateral Agent shall be reasonably
satisfied with the insurance arrangements of
the Borrower and the Guarantors, taken as a
whole, and shall have received all
documentation requested in connection with
such insurance including documentation
naming the Collateral Agent as "loss payee"
under each casualty policy and the
Collateral Agent, the Administrative Agent,
the Managing Agent, BSI and each Lender as
an "additional insured" under each liability
policy. All proceeds from insurance shall be
subject to the cash management requirements
outlined herein;
18. With respect to the DIP Facility, the
Administrative Agent shall have received a
payoff letter in form and substance
reasonably satisfactory to the
Administrative Agent from the Borrower's
existing debtor-in-possession lender as well
as tender of releases and discharge of all
collateral security for the Current Credit
Facility.
19. With respect to the Exit Facility, in order
for the value of such leaseholds to be
included in the Borrowing Base, the Borrower
shall have delivered to the Collateral Agent
(i) duly-executed and acknowledged leasehold
mortgages with respect to each of its and
the Guarantors' inventory locations, in form
and substance satisfactory to the Collateral
Agent and in form sufficient for recording
in the applicable jurisdiction, (ii) binders
of title insurance with respect to each such
mortgage, and (iii) such other instruments,
documents and opinions as reasonably deemed
necessary by the Collateral Agent in
connection therewith (including, without
limitation, landlord and mortgagee consents,
memorandums of lease (to the extent
necessary to record any mortgages) and the
like).
Conditions to Each
Extension of Credit: The obligation of the Lenders to provide
each extension of credit (including the
initial extension of credit) shall be
subject to the satisfaction of the following
conditions and such other conditions
determined by the Administrative Agent:
(a) No default or Event of Default
shall exist or shall result from
the requested extension of credit;
(b) Representations and warranties
shall be true and correct in all
material respects at the date of
each extension of credit except to
the extent that such
representations and warranties
expressly relate to an earlier
date, in which case they shall be
true and correct in all material
respects as of such earlier date;
(c) Timely receipt of a notice of
borrowing from the Borrower;
16
<PAGE> 28
(d) The Collateral Agent shall have
received a Borrowing Base
certificate within three business
days following the end of the prior
business week (ending on the
Saturday of such week), which
Borrowing Base certificate shall
include supporting schedules as
required by the Collateral Agent;
and
(e) The Borrower shall have paid the
balance of all fees then due and
payable as referenced herein.
The request and acceptance by the Borrower
of each extension of credit shall be deemed
to be a representation and warranty by the
Borrower that the conditions specified above
have been satisfied and that after giving
effect to such extension of credit the
Borrower shall continue to be in compliance
with the Borrowing Base.
Representations and Warranties: With respect to each Facility (unless
otherwise noted) the Borrower and the
Guarantors shall represent and warrant in a
manner reasonably satisfactory to the
Administrative Agent as to usual and
customary matters, including, without
limitation, the following, with carve-outs
and materiality limitations where
appropriate and agreed upon by the Borrower
and the Administrative Agent:
(a) Due incorporation and good
standing;
(b) No required consent or approval
which has not been obtained;
(c) Due authorization, execution and
delivery of Definitive
Documentation; no violation of
other agreements; no violation of
laws (including environmental
laws);
(d) Absence of liens, other than liens
expressly permitted by the
applicable Definitive
Documentation;
(e) Accuracy, fairness and completeness
of financial information and
financial statements previously
delivered to the Administrative
Agent (and that such financial
statements have been prepared in a
manner consistent with GAAP);
(f) Compliance in all material respects
with applicable laws and
regulations including, without
limitation, applicable
environmental laws and regulations;
(g) With respect to the DIP Facility,
no material adverse change in the
operations, business, properties,
assets or financial condition of
the Borrower since the date of the
financial statements delivered
prior to the date of the
17
<PAGE> 29
Commitment Letter. With respect to
the Exit Facility, no material
adverse change in the operations,
business, properties, assets or
financial condition of the Borrower
from that set forth in the
Borrower's financial statements
reflecting the Plan, other than
those contemplated by the Plan;
(h) With respect to the Exit Facility,
no litigation which has not been
resolved or fully reserved for
under the Plan which, if determined
adversely, would have a material
adverse effect on the operations,
business, properties, assets or
financial condition of the
Borrower;
(i) Use of proceeds;
(j) ERISA, OSHA, environmental, labor
and employment representations;
(k) Customary insurance
representations;
(l) All store and other inventory
locations and inventory ownership;
(m) With respect to the Exit Facility,
absence of pre-petition or
administrative claims or liens
other than those discharged on the
Plan Effective Date (which includes
the DIP Facility) or,
notwithstanding any other provision
herein, those claims contemplated
by the Plan (as approved by the
Administrative Agent and in an
aggregate principal amount not to
exceed $20,000,000) to survive the
Plan Effective Date, other than any
post-petition, ordinary course
expenses or trade payables (but not
those which are materially
delinquent);
(n) All bank account locations and
numbers;
(o) Status of franchises, patents,
copyrights, trademarks, tradenames,
licenses and permits;
(p) That the assets of the Borrower and
the Guarantors are in the amounts
and of the quality previously
represented by the Borrower to the
Administrative Agent and the
inventory of the Borrower is
located at such places and is in
such amounts and of the quality and
value previously represented by the
Borrower to the Administrative
Agent;
(q) Payment of taxes (after taking into
account, with respect to the Exit
Facility, the deferral of any
priority tax claims under the
Plan);
18
<PAGE> 30
(r) That no information that has been
furnished by the Borrower to the
Administrative Agent contains any
material misstatement of fact or
omits to state a material fact
necessary to make the statements
contained therein not misleading in
light of the circumstances in which
made;
(s) With respect to the DIP Facility,
that the Financing Order has been
entered, has not been reversed,
modified, amended or stayed and
otherwise remains in full force and
effect; and
(t) With respect to the Exit Facility,
that the Plan has become effective
and that the Confirmation Order has
been entered and remains in full
force and effect.
Affirmative Covenants: With respect to each Facility (unless
otherwise noted), the Borrower and the
Guarantors shall agree to comply with usual
and customary affirmative covenants,
including, without limitation, the
following, with carve-outs or "baskets" and
materiality limitations where appropriate
and agreed upon by the Borrower and the
Administrative Agent:
(a) Keep financial statements in
accordance with GAAP and maintain
true and complete books and
records;
(b) Furnish weekly Borrowing Base
certificates, monthly, quarterly
and annual financial statements and
other reports (in each case within
appropriate time periods) as may be
specified in the Definitive
Documentation or as reasonably
requested by the Administrative
Agent or any of the Lenders, such
annual financial statements to be
audited and/or reviewed by the
Borrower's certified public
accountants in a manner consistent
with the Borrower's past practices;
(c) Maintain insurance on all its
property in a manner which is
customary in the industry for
similar companies with financially
sound and responsible insurance
companies and in amounts and
coverages reasonably satisfactory
to the Collateral Agent and
maintain the Collateral Agent's
status as loss payee under each
casualty policy and the Collateral
Agent, the Administrative Agent,
the Managing Agent, BSI and each
Lender as an "additional insured"
under each liability policy;
(d) Do all things necessary to
preserve, renew and keep in full
force its corporate existence;
19
<PAGE> 31
(e) Pay all sales, withholding, income
and other taxes (after taking into
account, with respect to the Exit
Facility, the deferral of any
priority tax claims under the Plan)
and other obligations as and when
due except where contested in good
faith and by appropriate
proceedings (but only if the
Borrower has set aside on its books
adequate reserves therefor);
(f) Notify the Administrative Agent of
any default or Event of Default and
of any litigation that could
reasonably be expected to have a
material adverse effect on the
Borrower, if adversely determined;
(g) As soon as practicable and in any
event no less frequently than on an
annual basis and no later than 60
days prior to the commencement of
each fiscal year, deliver to and
discuss with the Lenders its future
financial projections;
(h) Permit the Administrative Agent,
the Collateral Agent and their
respective agents to visit the
premises of the Borrower and the
Guarantors, confer with officers
and representatives of the Borrower
and the Guarantors, review all of
their books and records during
regular business hours and conduct
examinations, verifications and
appraisals of the components of the
Borrowing Base, including
appraisals of leases, the other
assets of the Borrower and all
systems and procedures of the
Borrower and the Guarantors during
regular business hours, including
those relating to cash management,
and permit the Lenders and their
agents in agreed upon circumstances
to communicate directly with the
Borrower's and the Guarantors'
independent certified public
accountants concerning the
business, financial condition and
other affairs of the Borrower and
the Guarantors;
(i) Timely pay reasonable fees and
expenses of any consultants,
appraisers and advisors retained by
the Administrative Agent in
connection with the Facility;
(j) Establish and maintain its cash
concentration system with BBNA as
provided above;
(k) Comply with customary
environmental, ERISA and OSHA
covenants; and
(l) Maintain procedures satisfactory to
the Collateral Agent for assuring
and maintaining the Collateral
Agent's first and second-priority
perfected security interest in the
20
<PAGE> 32
collateral for the benefit of
itself, the Administrative Agent
and the Lenders.
Negative Covenants: With respect to each Facility (unless otherwise
noted), the Borrower and the Guarantors shall
comply with usual and customary negative
covenants, including, without limitation, the
following, with materiality limitations and
baskets where appropriate and agreed upon by the
Borrower and the Administrative Agent:
(a) Not merge or consolidate with any
other party (other than with
subsidiaries or parent entities so
long as the Borrower is the
survivor), or enter into any stock
or asset acquisitions;
(b) Not create or permit to exist any
liens or encumbrances on any assets
(including, without limitation, any
inventory) or capital stock except
(i) liens in favor of the
Administrative Agent and (ii) such
other liens as are permitted in the
applicable Definitive Documentation
(the Definitive Documentation will
permit liens imposed by law for
taxes not yet due; statutory
carriers' and other like liens;
pledges or deposits in connection
with workers' compensation and
other social security obligations
and other scheduled existing liens
not conflicting with the provisions
of "Priority and Security" above;
deposits to secure the performance
of tenders, bids and other
contracts, other than for the
payment of borrowed money, arising
in the ordinary course of business;
easements and other similar
encumbrances that are not material;
the interests of lessors under
leases of real property; liens
(other than on inventory) securing
purchase money indebtedness
permitted by the applicable
Definitive Documentation and
subordinated liens created as
security for the Junior Facility
(as defined below));
(c) Not create or permit to exist
indebtedness (excluding normal
expense or merchandise payables and
taxes not yet due and payable)
other than: (i) indebtedness under
the respective Facilities; (ii)
purchase money indebtedness and
indebtedness consisting of rental
obligations under capital leases
not to exceed, in the aggregate, an
amount to be determined and
refinancings of any of the
foregoing thereof on terms and
conditions no less favorable to the
Borrower and the Lenders as the
indebtedness being refinanced;
(iii) with respect to the Exit
Facility, other indebtedness
incurred pre-petition to be
discharged upon the Plan Effective
Date; and (iv) certain other
indebtedness to be agreed,
including a junior secured credit
facility (the "Junior Facility") in
21
<PAGE> 33
an amount not to exceed $30
million, all of the terms of which
shall be acceptable to the
Administrative Agent in its sole
discretion, and, in any event, (a)
shall be subordinated in right of
payment to the Exit Facility and
subordinated with respect to rights
in the collateral that secures the
Exit Facility, (b) shall not have
the ability to exercise or enforce
any rights with respect to the
Junior Facility or its collateral
until such time as the obligations
under the Exit Facility have been
satisfied in full, (c) shall not
contain any cross-default rights to
the Exit Facility (although a right
of cross-acceleration (subject to
all of the other requirements
herein) shall be permitted), (d)
shall not provide the lenders under
the Junior Facility with any right
to consent to or approve any
amendments, modifications,
refinancings or other changes to
the Exit Facility and (e) shall be
subject to an intercreditor
agreement with the Administrative
Agent satisfactory to the
Administrative Agent in its sole
discretion;
(d) Not permit the financial covenants
to be violated (indicative
covenants and levels are outlined
in Schedule B attached hereto);
(e) Not guaranty the obligations of
others, except for existing
guarantees;
(f) Not conduct transactions with
shareholders and affiliates on
anything other than an arm's length
basis and in the ordinary course of
business consistent with past
practices;
(g) Not make investments other than
investments in short term
obligations of, or which are
guaranteed by, the United States of
America, short term commercial
paper bearing the highest credit
rating obtainable, certain
certificates of deposit and time
deposits, and certain other
investments satisfactory to the
Administrative Agent;
(h) Not declare or make any dividend or
make any distribution on account of
or purchase of capital stock of the
Borrower;
(i) Not sell or otherwise dispose of
assets except for (i) sales of
inventory in the ordinary course of
business and (ii) so long as no
Event of Default has occurred and
is continuing or would occur after
giving effect to such sale or
disposition, (A) sales of assets
having a fair market value not
exceeding $10,000,000 in the
aggregate and (B) sales of obsolete
fixtures and
22
<PAGE> 34
equipment no longer used or useful
in the Borrower's or the
Guarantors' business; and
(j) Not make any cash interest payments
with respect to the term loan under
that certain credit agreement,
dated as of October 31, 1993 among
the Borrower, the Retail
Guarantors, Chemical Bank, as
administrative agent and fronting
bank and the other lenders thereto
(the "Term Loan") or on that
certain credit agreement, dated
August 8, 1995, among Chemical
Bank, individually and as
administrative agent and collateral
agent, the Borrower and the Retail
Guarantors (the "Real Estate
Loan").
Events of Default: With respect to the DIP Facility, "Events of
Default" will include, without limitation,
failure to pay interest, principal fees or
expenses when due; conversion of the
Borrower's Case (or the bankruptcy case of
any Guarantor) to Chapter 7; appointment of
a Chapter 11 Trustee or an examiner with
powers similar to a Trustee; the grant of
any other superpriority claims; the
Bankruptcy Court entering a relief of stay
of payment of pre-petition indebtedness in
an amount exceeding amounts to be determined
per annum or permitting the foreclosure upon
security interests in assets of the Borrower
or the Guarantors (other than the security
interests created under the DIP Facility);
the reversal, vacatur, stay, amendment or
modification of the Financing Order; change
in control; any judgment on a post-petition
claim in excess of an amount to be
determined; the Borrower or the Guarantors
being enjoined from conducting business or
the disruption of business for more than a
number of days to be determined and that
results in an impairment or decrease in the
value of the assets of the Borrower or the
Guarantors in an amount that exceeds an
amount to be determined; failure to deliver
to the Administrative Agent reports when
due; any representation or warranty found to
be incorrect in any material respect; and
breach of any negative covenant or
affirmative covenant. Cure periods, notice
periods with respect to enforcement of
remedies and "knowledge" qualifiers will be
provided where appropriate, as determined by
the Borrower and the Administrative Agent.
With respect to the Exit Facility, "Events
of Default" shall include, without
limitation, failure by the Borrower to pay
principal, interest, fees, or other amounts
when due; breach by the Borrower or the
Guarantors of any of its affirmative or
negative covenants (with agreed upon grace
periods where appropriate); commencement of
a bankruptcy or similar proceeding by the
Borrower or the Guarantors or commencement
of an involuntary case against the Borrower
or any Guarantor which is not dismissed
within 30 days; any
23
<PAGE> 35
representation or warranty made by the
Borrower or the Guarantors shall prove to
have been incorrect in any material respect
when made or deemed made; loss of any lease,
permit, or agreement the loss of which could
reasonably be expected to have a material
adverse effect on the Borrower or any
Guarantor; defaults under other agreements
or obligations in agreed upon amounts and
other cross default provisions to material
obligations of the Borrower or any
Guarantor; any material provision of the
Definitive Exit Documentation shall cease to
be valid and binding on the Borrower or any
Guarantor or the liens in favor of the
Administrative Agent shall cease to be
first-priority perfected liens (subject to
the liens permitted by the Administrative
Agent); change of control; the Borrower or
any Guarantor being enjoined from conducting
its business or there shall be a disruption
of its business for more than 10 days; and
certain insolvency, judgment, ERISA and OSHA
related defaults, with appropriate
limitations and time periods. Cure periods
and "knowledge" qualifiers will be provided
where appropriate, as determined by the
Borrower and the Administrative Agent.
Then and in such event under the applicable
Facility, the Administrative Agent may, and
at the request of the Lenders holding 51% of
outstanding obligations under such Facility
shall, take all or any of the following
actions:
(a) Declare the principal of and
accrued interest on the outstanding
borrowings to be immediately due
and payable;
(b) Terminate any further commitment to
lend to the Borrower or to issue
letters of credit;
(c) Set off any amounts held as cash
collateral or in any accounts
maintained with the Administrative
Agent, the Collateral Agent, the
Lenders or their respective agents;
(d) Require the Borrower upon demand to
furnish immediate cash collateral
for letters of credit then
outstanding; and
(e) Take any other action or exercise
any other right or remedy permitted
under the Agreement or by
applicable law.
Voting: Consent of the Majority Lenders (as defined
below) will be necessary for consents,
amendments, and waivers concerning the
applicable Definitive Documentation;
provided, however, that the rate of
interest, the terms of the Facilities, the
conditions set forth on Schedule A hereto,
the amount of the commitments, the date and
amount of any principal payments,
24
<PAGE> 36
and the amount of fees may not be changed,
and advance rates may not be increased
(provided, however, the Administrative Agent
will have the discretion, but not the
obligation, to provide not more than 2
"agent advances" during a fiscal year in an
amount not to exceed $15,000,000 for a
period not to exceed 60 days), without the
consent of all Lenders under the applicable
Facility. Collateral may not be released
without the consent of all Lenders (with
customary exceptions). "Majority Lenders"
shall mean the Lenders under the applicable
Facility holding at least 51% of the loans
under such Facility then outstanding; and if
no loans are outstanding under such
Facility, then it shall mean Lenders under
such Facility whose aggregate commitments
constitute at least 51% of the total
commitments.
Yield Protection and Standard yield protection and
Increased Costs: indemnification provisions including
regarding capital adequacy will be
incorporated in the Definitive Documentation
that will compensate the Lenders in the
event that any present or future law,
requirement, guideline or request of
relevant authorities shall increase costs,
reduce payments or earnings, or increase
capital requirements.
Costs and Expenses: With respect to each Facility, all
reasonable out-of-pocket costs and expenses
of the Administrative Agent, the Managing
Agent and the Collateral Agent, their
business and legal advisors (including,
without limitation, reasonable legal fees
and fees of other agents to the
Administrative Agent, the Managing Agent and
the Collateral Agent, reasonable expenses in
connection with (i) (a) periodic field
examinations, (b) audits, and (c) collateral
(including lease) appraisals; provided that
the Borrower shall not be required to
reimburse the Administrative Agent, the
Managing Agent or the Collateral Agent for
more than 3 field examinations/audits, 3
inventory appraisals and 3 lease appraisals
in any year (subject at all times to an
aggregate yearly cap of $180,000) provided,
further, that during the existence of an
Event of Default, the Borrower shall pay for
all field examinations/audits, inventory
appraisals and lease appraisals conducted by
the Administrative Agent, the Managing Agent
or the Collateral Agent, without cost
limitation, (ii) monitoring of assets,
syndication, enforcement of rights and
publicity and (iii) other miscellaneous
disbursements) and legal review costs of the
Administrative Agent, the Managing Agent and
the Collateral Agent shall be payable by the
Borrower on demand whether or not the
transactions contemplated hereby are
consummated.
Assignments and Participations: Rights and obligations under each Facility
will be assignable (subject to $10,000,000
minimum amounts) by the Lenders to Eligible
Assignees (to be defined in a manner
satisfactory to the Borrower and BBNA;
provided that the Borrower shall have the
right to consent to such assignments (except
with
25
<PAGE> 37
respect to assignments from current Lenders
to their affiliates (or between Lenders) or
subsequent to an event of default), such
consent not to be unreasonably withheld) and
otherwise as set forth in the Commitment
Letter. All assignments shall require the
consent of the Administrative Agent. The
Administrative Agent will receive a
processing and recordation fee of $3,000
from each assignee with each assignment. The
Borrower shall not be required to pay the
expenses of the assignor, but shall pay its
own expenses and that of the Administrative
Agent with respect to each assignment. Each
Lender shall have the right to sell
participations in its loans, subject to
customary voting limitations.
Indemnity: With respect to each Facility, the Borrower
and the Guarantors shall indemnify and hold
harmless the Administrative Agent, the
Collateral Agent, the Managing Agent, BSI
and the Lenders and their respective
officers, directors, employees, affiliates,
agents and controlling persons from and
against any and all losses, claims, damages,
costs, expenses and liabilities to which any
such person may become subject arising out
of, or in connection with, either Facility,
the transactions contemplated hereby or
thereby or any claim, litigation,
investigation or proceeding relating to any
of the foregoing, whether or not any of such
indemnified persons is a party thereto, and
to reimburse each of such indemnified
persons, from time to time upon their
demand, for any reasonable legal or other
expenses incurred in connection with
investigating or defending any of the
foregoing, whether or not the transactions
contemplated hereby or thereby are
consummated; provided that the foregoing
indemnity will not, as to any indemnified
person, apply to losses, claims, damages,
liabilities or related expenses to the
extent that they arise from the bad faith,
willful misconduct or gross negligence of
such indemnified person as finally
determined by a final non-appealable order
of a court of competent jurisdiction.
Insurance Subsidiary: Certain representations and warranties,
covenants, events of default and certain
other provisions of the Definitive
Documentation may be made applicable to
American East, Inc.
Definitive Documentation: Satisfactory in form and substance to the
Administrative Agent, the Collateral Agent,
the Lenders and the Borrower.
Governing Law: All Definitive Documentation shall be
governed by, and construed in accordance
with, the laws of the State of New York and,
to the extent applicable with respect to the
DIP Facility, the provisions of the
Bankruptcy Code.
26
<PAGE> 38
SCHEDULE A TO TERM SHEET
Additional Conditions to Exit Facility:
- - Repayment in full of DIP Facility
- - All equity settlement on pre-petition debt.
- - 12-month rolling EBITDA of the Borrower on Exit Closing Date shall be
no less than $60 million.
- - No existing defaults under DIP Facility and no projected defaults under
Exit Facility or the Commitment Letter (including the Term Sheet) based
on projections provided by the Borrower.
- - All material undisputed outstanding post-petition trade credit as of
the Exit Closing Date must be paid to date in accordance with payment
terms of the applicable vendor, as agreed to the Borrower.
- - Excess borrowing availability under Exit Facility on the Exit Closing
Date (after giving effect to payment of the administrative claims under
the Plan, including repayment of the DIP Facility, with the proceeds of
the Exit Facility) shall be no less than the following:
<TABLE>
<CAPTION>
Fiscal Month in which Exit
Closing Date Occurs Required Availability
------------------- ---------------------
<S> <C>
February $ 70,000,000
March $ 60,000,000
April $ 50,000,000
May $ 50,000,000
June $ 50,000,000
July $ 50,000,000
August $ 50,000,000
September $ 50,000,000
October $ 50,000,000
November $ 50,000,000
December $ 110,000,000
January $ 75,000,000
</TABLE>
27
<PAGE> 39
SCHEDULE B TO TERM SHEET
DIP FACILITY COVENANTS
1. Ratio of Accounts Payable to Inventory of the Borrower shall not be
less than the following during each fiscal month of the Borrower:
<TABLE>
<CAPTION>
Fiscal Month Accounts Payable to
------------ -------------------
Inventory Ratio
---------------
<S> <C>
February 30%
March 27%
April 27%
May 26%
June 23%
July 28%
August 29%
September 30%
October 30%
November 33%
December 34%
January 28%
</TABLE>
2. Rolling 12-month EBITDA (tested on a quarterly basis) of the Borrower
shall not be less than the following:
<TABLE>
<CAPTION>
Fiscal Quarter Ending On or
About Required EBITDA
----- ---------------
<S> <C>
July 31, 1998 $ 40,000,000
October 31, 1998 $ 40,000,000
January 31, 1999 $ 50,000,000
April 30, 1999 $ 60,000,000
July 31, 1999 $ 60,000,000
October 31, 1999 $ 65,000,000
</TABLE>
3. Maximum annual Capital Expenditures of the Borrower to be set at the
amount set at $40,000,000 per annum.
EXIT FACILITY COVENANTS
1. Ratio of Accounts Payable to Inventory of the Borrower shall be as set
forth in the DIP Facility.
2. Rolling 12-month EBITDA (after cash restructuring costs) of the
Borrower shall be not less than the following:
28
<PAGE> 40
<TABLE>
<CAPTION>
Fiscal Quarter Ending On or
About Required EBITDA
----- ---------------
<S> <C>
July 31, 1998 $ 60,000,000
October 31, 1998 $ 60,000,000
January 31, 1999 $ 60,000,000
April 30, 1999 $ 60,000,000
July 31, 1999 $ 60,000,000
October 31, 1999 $ 65,000,000
January 31, 2000 $ 70,000,000
April 30, 2000 $ 70,000,000
July 31, 2000 $ 75,000,000
October 31, 2000 $ 80,000,000
January 31, 2001 and thereafter $ 80,000,000
</TABLE>
3. Beginning at the end of the Borrower's 1999 fiscal year, the Borrower
shall have a Fixed Charge Coverage Ratio (EBITDA - Capital Expenditures
- cash Taxes to cash Interest (other than interest under the Term Loans
and the Real Estate Loan) + Principal Payments) of not less than 1.25:1
(tested quarterly on a rolling 12-month basis)
4. Maximum annual Capital Expenditures to be $40,000,000 in the aggregate
for fiscal year 1998, $45,000,000 in the aggregate for fiscal year 1999
and $50,000,000 in the aggregate for fiscal year 2000 and each fiscal
year thereafter.
<PAGE> 41
SCHEDULE C TO TERM SHEET
MORTGAGED PROPERTIES
Owned Real Properties
Caldor Store #19 - Rocky Hill
80 Town Line Road
Rocky Hill, Connecticut 06067
Caldor Store #61 - Bedford
Daniel Webster Highway and Kilton Road
Bedford, NH 03102
Caldor Store #16 - Wappingers Falls
Route 9 & Vassar Road
Wappingers Falls, NY 12590
Leasehold Interests
Caldor Store #134 - Ledgewood
Roxbury Mall 275 Route 10
Succasunna, NJ 07876
Caldor Store #70 - Westboro
Route 9 - 18 Lyman
Westboro, MA 01581
Caldor Store #77 - Swansea
Swansea Mall Route 118
Swansea, MA 02777
<PAGE> 42
Exhibit B to Commitment Letter
[Form of Counterpart Signature Page of Additional Lender]
Reference is made to the Commitment Letter, dated April 23, 1998 (the
"Commitment Letter"), among BankBoston, N.A., each of the other Lenders party
thereto, and The Caldor Corporation, as Debtor and Debtor-in-Possession.
Capitalized terms used herein without definition shall have the meanings given
to such terms in the Commitment Letter. The undersigned hereby agrees that, as
of the date set forth below, it is a Lender under the Commitment Letter with a
commitment amount equal to the amount set forth opposite its name on Schedule A
hereto (which shall be attached to the Commitment Letter as a revised Schedule A
thereto) and agrees to be bound by all of the terms and conditions thereof.
[Date]
[LENDER]
By:___________________________
Name:
Title:
<PAGE> 1
- --------------------------------------------------------------------------------
Statement Re Computation of Per Share Earnings Exhibit 11
The Caldor Corporation and Subsidiaries
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 31, February 1, February 3,
1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C>
BASIC AND DILUTED EPS:
Net loss $ (132,609) $ (185,325) $ (30l,028)
============== ============== ==============
Weighted average number of common shares
outstanding 16,911,009 16,994,234 16,902,339
============== ============== ==============
Basic and diluted loss per share $ (7.84) $ (10.91) $ (17.81)
============== ============== ==============
</TABLE>
- -------------------------------
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT EXHIBIT 23
- --------------------------------------------------------------------------------
We consent to the incorporation by reference in a) Registration Statement No.
33-44996 of The Caldor Corporation (Debtor-In-Possession) ("Caldor") on Form
S-8, b) Registration Statement No. 33-41321 of Caldor on Form S-8, c)
Registration Statement No. 33-51510 of Caldor on Form S-8, d) Registration
Statement No. 33-67438 of Caldor on Form S-8, and e) Registration Statement No.
33-84526 of Caldor on Form S-8, of our report dated April 24, 1998 which
expresses an unqualified opinion and includes explanatory paragraphs relating
to the Company's reorganization proceedings and its ability to continue as a
going concern, appearing in this Annual Report on Form 10-K of Caldor for the
year ended January 31, 1998.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
New York, New York
April 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 21,561
<SECURITIES> 0
<RECEIVABLES> 12,853
<ALLOWANCES> 0
<INVENTORY> 419,682
<CURRENT-ASSETS> 506,182
<PP&E> 646,209
<DEPRECIATION> 209,551
<TOTAL-ASSETS> 949,120
<CURRENT-LIABILITIES> 461,195
<BONDS> 272,155
0
0
<COMMON> 169
<OTHER-SE> (282,845)
<TOTAL-LIABILITY-AND-EQUITY> 949,120
<SALES> 2,496,747
<TOTAL-REVENUES> 2,496,747
<CGS> 1,828,343
<TOTAL-COSTS> 1,828,343
<OTHER-EXPENSES> 756,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,864
<INCOME-PRETAX> (131,809)
<INCOME-TAX> 800
<INCOME-CONTINUING> (132,609)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (132,609)
<EPS-PRIMARY> (7.84)
<EPS-DILUTED> (7.84)
</TABLE>
