FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended Commission File
Number 1-11134
February 1, 1997
BRADLEES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3156108
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization)
Identification Number)
One Bradlees Circle, Braintree, MA 02184
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617)380-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each
Exchange
Title of Each Class on Which
Registered
------------------- ---------------------
COMMON STOCK, $.01 PAR VALUE PER SHARE
NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of Act: None
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
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. [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No Not yet applicable X
----- -----
-----
Aggregate market value of the voting stock held by
non-affiliates of the registrant at April 4, 1997: $7,831,799
Number of shares of the registrant's common stock outstanding as
of April 4, 1997: 11,391,708 shares.
DOCUMENTS INCORPORATED BY REFERENCE: None
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BRADLEES, INC.
AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS
Bradlees, Inc. and its subsidiaries, including Bradlees
Stores, Inc. (collectively "Bradlees" or the "Company") operate
109 discount department stores as of April, 1997, in seven
states in the Northeast, primarily in the heavily populated
corridor running from the Boston to the Philadelphia
metropolitan areas. Headquartered in Braintree, Massachusetts,
Bradlees and its predecessor have been active in the discount
department store business for over 30 years. The Company filed
petitions for relief under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") on June 23, 1995 (the "Filing").
The Company is presently operating its business as a
debtor-in-possession subject to the jurisdiction of the United
States Bankruptcy Court for the Southern District of New York
(the "Bankruptcy Court"). Events leading to the Filing and the
Chapter 11 reorganization process are discussed below.
Events Leading to the Filing. During the early 1990's,
Bradlees' business strategy relied heavily on opening new
stores, remodeling existing locations and competing on the basis
of price. From 1992 to January, 1995, Bradlees opened 15 new
stores (10 in 1994) and remodeled 41 stores at a total capital
cost of $182 million. The new stores were not typical of other
Bradlees stores and were generally larger stores with rents that
substantially exceeded the chain average rent per square foot.
Some of the new stores were also multi-level facilities which
further increased their operating costs when compared with other
prototypical Bradlees stores. The store expansion and
remodeling program marginally increased sales while gross
margins declined and operating expenses increased. Bradlees'
declining operating performance, coupled with the aggressive
expansion program, began to erode the Company's liquidity. The
Company's liquidity further eroded in May and June, 1995,
because of the unwillingness of factors and vendors to continue
to extend trade credit in the face of declining operating
results. Bradlees, unable to obtain sufficient financing to
satisfy factor and vendor concerns, was compelled to seek
Bankruptcy Court protection on June 23, 1995.
BUSINESS STRATEGY. In 1995 the Company began to implement
a strategy to differentiate Bradlees from its traditional
discount store competition. Management undertook a number of
initiatives designed to position the Company between the
traditional discount stores and department stores. Some of
these initiatives, especially the relatively rapid introduction
of higher-quality merchandise with generally higher-price points
at the expense of many lower opening price-point merchandise
categories, elimination of layaway and certain basic
traffic-driving convenience and commodity items that are
generally sold in discount stores, along with changes in the
Company's advertising strategy (e.g., a reduction in the number
of merchandise offerings in the Company's weekly circular, an
expansion of one-day promotional events at very deep discounts,
and heavy reliance on costly newspaper and television
advertising), resulted in significant sales and margin declines
and operating losses. In late December, 1996, the Company's
Board of Directors appointed Peter Thorner as Chairman, CEO and
President, replacing the former Chairman and CEO, Mark Cohen.
Prior to joining Bradlees, Mr. Thorner led the successful
turnaround of Ames Department Stores, Inc.
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The Company will continue to focus on merchandise quality
and fashion as a way to differentiate itself from its closest
competition, but is making the following modifications to its
business strategy: (a) reintroducing lower opening price points
in selective merchandise categories to enhance value, increase
customer traffic and avoid costly promotions; (b) reintroducing
certain basic convenience and commodity products that are
typical of assortments carried by discount stores; (c)
reinstituting a layaway program in the second half of the fiscal
year ending January 31, 1998 ("1997"); (d) revising the
Company's markdown policy based on product rate of sale; (e)
making the weekly circulars more item-intensive and price-point
oriented with clear presentation while reducing less productive
and more costly advertising media; and (f) improving operating
efficiencies to achieve further cost reductions. The Company is
making evolutionary changes in its merchandise assortment and
presentation in connection with these steps. In addition, the
Company reduced and reorganized its home office, store, field
and regional management structures and closed 27 stores in the
fiscal year ended February 1, 1997 ("1996"). The Company is
closing one additional unprofitable store in April, 1997.
MERCHANDISE MIX. Bradlees' stores provide a broad spectrum
of basic and fashion apparel (including private-label brands),
basic and fashion home furnishings, convenience hard goods and
extensive seasonal offerings. Bradlees' average merchandise mix
in 1996 was comprised of approximately 53% softlines and soft
home furnishings and 47% hardlines, versus an estimated industry
average of 42% soft lines and soft home furnishings and 58%
hardlines. The Company's softlines focus should enable it to
achieve a higher overall gross margin rate than the industry
average. The Company's future merchandise mix may be further
modified based on the results of a recently initiated customer
research project.
Advertising and Promotional Programs. Bradlees' marketing
strategy in 1997 will be better designed to appeal to its
value-oriented customers. Sales will be driven from competitive
pricing and promotions, primarily in weekly circulars, that will
feature a greater number of special values for the consumer.
Approximately 40% of Bradlees' sales have been derived from its
weekly circulars in the last two years. Approximately 5.1
million circulars are distributed each week, with an increase to
5.8 million beginning in late April, 1997. Although circulars
are the major promotional vehicle, the Company also uses
periodic television broadcasts, newspaper advertising, Bradlees
credit-card statement inserts, occasional direct-mail programs
and in-store promotions. Point-of-purchase advertising and
senior citizen discounts are also used. The Company intends to
focus its promotional program on the weekly circular and to
gradually decrease reliance on other advertising media.
OPERATIONS. Several programs have been implemented to
restructure the store organization, thereby focusing the
organization more intently on customer service while at the same
time reducing expenses. The number of store regions has been
reduced from two to one and the number of store districts from
nine to eight. Management of the store and distribution
organizations has been consolidated for efficiencies, improved
coordination of activities, and improved inventory distribution.
In addition, store managers will be using automated staff
scheduling and merchandise flow programs in 1997 to improve
operating efficiency and provide better service to the customer.
The customer research project currently underway may result in
additional modifications to store operations.
Management is continuing to improve productivity and
controls and reduce expenses in other areas of the Company. A
new merchandise management system is being implemented in 1997
that
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will facilitate, among other things, tracking merchandise more
accurately and efficiently from vendors and through distribution
centers to stores. The Company is also installing a new
mainframe computer and intends to upgrade its computer systems
in the stores to improve productivity and reduce expenses.
Store Profitability. No additional stores are currently
planned for closing. However, the Company continues to closely
monitor the profitability of each store and will close those
stores whose performance is inadequate and not responsive to
remedial actions.
Employees and Collective Bargaining Arrangements
Bradlees employs approximately 10,500 people of which
approximately 73% are covered by collective bargaining
arrangements, including arrangements affecting approximately 2%
of the labor force that will expire within one year and are
expected to be re-negotiated.
Competition
Bradlees competes in most of its markets with a variety of
national, regional and local discount and other department and
specialty stores, which vary by market. Some of these
competitors have substantially greater resources than the
Company. Bradlees competes on the basis of product quality and
value, merchandise selection, advertising and price. In
addition, store location, appearance and customer service are
important competitive factors. Bradlees' principal discount
department store competitors are Caldor, Kmart, Wal-Mart and
Ames. Bradlees' principal department store competitors are
Sears and J.C. Penney. In addition, Target, a discount
department store chain, and Kohl's, a department store chain,
are opening stores in some areas in which Bradlees operates.
Management believes that it is pursuing the proper merchandising
and marketing strategies and operating focus that should allow
it to compete effectively in its operating areas. However, no
assurances can be given that these strategies will improve
performance or that Bradlees' business and financial performance
will not be adversely affected by future competitive pressures.
Patents, Trademarks and Licenses
The trademarks "Bradlees" and "Mrs. B" are registered with
the United States Patent and Trademark Office. The Company has
a significant number of other trademarks, trade names, and
service marks. None of these other trademarks are currently
considered to have a material impact on the Company's business.
Reorganization Case
The following discussion provides general background
information regarding the Chapter 11 process, but is not
intended to be an exhaustive summary.
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, among other things; (i)
commence or continue a judicial, administrative or other
proceeding against Bradlees a) which was or could have been
commenced prior to commencement of the Chapter 11 case, or b) to
recover a claim that arose prior to commencement of the case;
(ii) enforce any pre-petition judgments against Bradlees; (iii)
take any action to obtain
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possession of property of Bradlees or to exercise control over
property of Bradlees or its estates; (iv) create, perfect or
enforce any lien against the property of Bradlees; (v) collect,
assess or recover claims against Bradlees that arose before the
commencement of the case; or (vi) offset any debt owing to
Bradlees that arose prior to the commencement of the case
against a claim of such creditor or party-in-interest against
Bradlees that arose before the commencement of the case.
Although Bradlees is authorized to operate its business as
a debtor-in-possession, it may not engage in transactions
outside the ordinary course of business without first complying
with the notice and hearing provisions of the Bankruptcy Code
and obtaining Bankruptcy Court approval when necessary. An
official unsecured creditors' committee has been formed by the
United States Trustee and is acting in the Chapter 11 case of
Bradlees. This committee and various other parties in interest,
including creditors holding claims, such as the pre-pretition
bank group, have the right to appear and be heard on
applications of the debtors relating to certain business
transactions. The Company is required to pay certain expenses
of the committee, including legal and accounting fees, to the
extent allowed by the Bankruptcy Court. In addition, the
Company has an agreement, approved by the Bankruptcy Court, with
the pre-petition bank group to make monthly adequate protection
payments of $300,000.
Plan of Reorganization - Procedures. For 120 days after
the date of the filing of a voluntary Chapter 11 petition, a
debtor-in-possession has the exclusive right to propose and file
with the Bankruptcy Court a plan of reorganization. If a
debtor-in-possession files a plan of reorganization during the
initial 120-day exclusivity period, no other party may file a
plan of reorganization until 180 days after the date of filing
of the Chapter 11 petition, during which period the debtor-in-
possession has the exclusive right to solicit acceptances of the
plan. If a Chapter 11 debtor fails to file its plan during the
initial 120 day exclusivity period, or such additional
exclusivity period ordered by the Bankruptcy Court, 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, a committee of
creditors or equity security holders, or an indenture trustee
may file a plan of reorganization in the Chapter 11 cases.
Given the seasonality and magnitude of the Company's
operations and the number of interested parties possessing
claims that have to be resolved in this Chapter 11 case, the
plan formulation process is complex. Accordingly, the Company
has sought and obtained an additional extension of the
exclusivity period to August 4, 1997 and the period to solicit
acceptance of a plan of reorganization and related disclosure
statement to October 3, 1997. The Company may need to seek an
additional extension, or extensions, of exclusivity. Although
extensions of exclusivity are common in large bankruptcy cases,
there can be no assurance that an additional extension or
extensions would be granted by the Bankruptcy Court.
If a plan of reorganization is filed and a disclosure
statement is approved by the Bankruptcy Court at a hearing, the
disclosure statement will be sent with the plan of
reorganization to members of those classes of claims that are
impaired and equity security holders for acceptance or
rejection. The Bankruptcy Code defines acceptance of a plan by
a class of impaired claims as acceptance by holders of at least
two-thirds in dollar amount and more than one-half in number of
claims in that class, but for that purpose counts only those
who actually vote to accept or reject the plan. Thus, a class
will have voted to accept the plan only if two-thirds in amount
and a majority in number actually voting cast
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their ballots in favor of acceptance. Holders of claims who
fail to vote are not counted as either accepting or rejecting a
plan. Following acceptance or rejection of the 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')
claims and equity security holders will, pursuant to the plan,
receive at least as much as the class would have received in a
liquidation, (ii) each impaired class of (creditors') claims and
equity security holders has accepted the plan by the requisite
vote and (iii) confirmation of the plan is not likely to be
followed by the liquidation or need for further financial
reorganization unless the plan proposes such liquidation or
reorganization. Under the Bankruptcy Code, the classes of
claims or interests not receiving a distribution under the plan
of reorganization are deemed not to have accepted the plan, and
therefore would not be entitled to vote to accept or reject the
plan. In the Bradlees case, it is highly unlikely that current
equity security holders will receive any distribution under any
future plan of reorganization.
If any impaired class of creditors' claims or equity
security holders does not accept the plan and assuming that all
of the other requirements of the Bankruptcy Code are met, the
proponent of the plan may invoke the so-called "cramdown"
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'
claims 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 in the Bankruptcy Code, phrases "discriminate unfairly" and
"fair and equitable" have narrow and specific meanings unique to
bankruptcy law.
Schedules have been filed by the Company with the
Bankruptcy Court setting forth the assets and liabilities of
Bradlees as of the Filing as shown by the Company's books and
records. As part of the Chapter 11 reorganization process, the
Company has notified all known or potential claimants for the
purpose of identifying all pre-petition claims against
Bradlees. Pursuant to an order of the Bankruptcy Court, all
proofs of claim were required to be filed by April 1, 1996.
Differences between amounts shown by Bradlees and claims filed
by creditors are being investigated and resolved. The ultimate
amount of and settlement terms for such liabilities are subject
to an approved plan of reorganization and, accordingly, are not
presently determinable.
Under the Bankruptcy Code, the Company may elect to assume
or reject real estate leases, employment contracts, personal
property leases, service contracts and other unexpired executory
pre-petition leases and contracts, subject to Bankruptcy Court
approval. Bradlees established and recorded an estimated
liability of approximately $50.9 million as of February 1, 1997,
for certain leases that were rejected or are expected to be
rejected. This rejected lease liability may be subject to
future adjustments based on claims filed by the lessors and
Bankruptcy Court action. The Company cannot presently determine
or reasonably estimate the ultimate liability which may result
from the filing of claims for any rejected contracts or from
additional leases which may be rejected in the future.
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ITEM 2. PROPERTIES
Store Location and Size
Bradlees' stores are located principally in shopping
centers that are in high traffic areas. The stores appeal to
consumers seeking a wide range of value-priced merchandise and
shopping convenience.
The following chart shows the geographic distribution of the
Company's stores as of April, 1997:
Maine 1
New Hampshire 8
Massachusetts 37
Connecticut 19
New York 8
New Jersey 29
Pennsylvania 7
---
Total 109
===
The Company operates stores in a variety of size ranges,
although newer stores generally have sales areas greater than
the current average of 76,018 square feet.
Distribution Facilities
Bradlees' distribution facilities are located in Edison,
New Jersey and Braintree, Massachusetts. The 584,000 square
foot Edison facility generally serves as the soft goods
processing center for nearly all apparel and softlines
merchandise and as the hardlines merchandise distribution
facility for the New York, New Jersey and Pennsylvania stores.
The 470,000 square foot Braintree facility generally services
all stores with basic merchandise items and distributes
hardlines merchandise to the New England states. The Company
also currently utilizes, on a shared cost basis, a health and
beauty care products warehouse owned by The Stop & Shop
Companies, Inc. ("Stop & Shop").
Properties
As of February 1, 1997, the Company's stores, including the
one store closed in early April, 1997, occupied a total of
approximately 8,360,447 square feet of selling area. Bradlees
leases substantially all of its stores, two distribution centers
and central office under long-term leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is presently operating its business as a
debtor-in-possession subject to the jurisdiction of the
Bankruptcy Court. There were no material legal proceedings
pending against the Company prior to the Chapter 11 filing. The
Company currently retains the exclusive right to file a plan of
reorganization until August 4, 1997 and to solicit acceptance of
a plan of reorganization until October 3, 1997. Certain claims
have been brought against the Company which are incident to, and
will be resolved in, the Chapter 11 proceeding.
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There are no other material legal proceedings pending or,
to the knowledge of management, threatened against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the 13 weeks ended February 1, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Price Range
Dividends(a)
Year Ended Year Ended
Feb. 1, 1997 Feb. 3, 1996 Feb. 1, 1997 Feb. 3,1996
--------------- ------------ ------------ -----------
First 13 weeks $2.50-1.50 $12.00-9.63 - $ 0.15
Second 13 weeks 2.00-1.00 10.25-.88 - -
Third 13 weeks 1.37-.62 2.25-1.63 - -
Fourth 13 weeks 1.12-.74 1.88-1.00 - -
(14 weeks in prior year)
------ ------
Total $ - $ 0.15
======= ======
Stock Exchange Listing New York Stock Exchange
Ticker Symbol BLE
Approximate number of holders of record at April 1, 1997 641
(a) The quarterly dividend was suspended after the first
quarter of 1995. Dividends cannot be declared on the Company's
common stock under the terms of the DIP Facility (Note 6 to the
Consolidated Financial Statements).
On May 1, 1997, the New York Stock Exchange (NYSE)
announced that trading in the Company's common stock
was suspended effective on that date and that the NYSE
will apply for a delisting of the Company's stock. This was
based on the Company's announcement on May 1, 1997, that new
stock is likely to be issued and the current stock cancelled
under any future plan of reorganization (see "Reorganization
Case" under Part I, Item 1-Business, of this Form 10-K) and
the fact that the Company falls below the NYSE's continued
listing criteria.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of Bradlees should be
read in conjunction with the Consolidated Financial Statements
and related Notes appearing elsewhere in this Form 10-K.
(in millions, except for per share data)
Predecessor
Company
Corporation
------------------------------------------ -----------
52 weeks 53 weeks 52 weeks 52 weeks Period Period
ended ended ended ended 7/10/92 2/2/92
to to
2/1/97 2/3/96 l/28/95 l/29/94 l/30/93 7/9/92
---------- ------- -------- --------- -------- -------
Net sales $1,561.7 $1,780.8 $1,916.6 $1,880.5 $1,159.1 $671.8
Net income (loss)(1) (218.8) (207.4) 5.3 6.8 32.2 (28.3)
Net income (loss) per
common share (19.17) (18.17) .47 .60 2.87 -
Working capital (2) 68.6 185.3 32.9 88.6 81.0 -
Total assets 604.2 798.7 884.8 785.8 772.1 -
Long-term debt and 33.3 53.4 289.6 269.8 245.2 -
redeemable preferred
stock
Liabilities subject to 571.0 539.8 - - - -
settlement
(1) Includes pre-tax charges of $40.8 and $99.4 million relating
to the impairment of long-lived assets and pre-tax
reorganization items of $69.8 and $65.0 million for the 52 and
53 weeks ended February 1, 1997 ("1996") and February 3, 1996
("1995"), respectively. Also, includes a gain on disposition of
properties of $1.7 million for 1996 and the cumulative effect of
an accounting change (net of taxes) of $.5 million for the year
ended January 28, 1995.
(2) Working capital for 1996 and 1995 excludes liabilities
subject to settlement under the reorganization case.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(a) Results of Operations
Fiscal Year Ended
--------------------------------------------------
February 1, 1997 February 3, 1996 January 28, 1995
---------------- ---------------- ----------------
Stores, beginning of period 134 136 126
New stores 3 - 11
Closed stores (27)(a) (2) (1)
---- ---- ----
Stores, end of period 110 134 136
(a) Excludes one store closing in April, 1997.
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The following discussion and analysis is based on the
results of operations of the Company detailed below for the 52
weeks ended February 1, 1997 ("1996"), the 53 weeks ended
February 3, 1996 ("1995") and the 52 weeks ended January 28,
1995 ("1994"). The financial information discussed below should
be read in conjunction with the Consolidated Financial
Statements and Notes included elsewhere in this Form 10-K.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in millions)
<TABLE>
<CAPTION>
1996 1995 1994
% of % of % of
1996 Net Sales 1995 Net Sales 1994 Net Sales
---- --------- ----- ---------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,561.7 100.0% $1,780.8 100.0% $1,916.6 100.0%
Cost of goods sold 1,127.6 72.2% 1,289.1 72.4% 1,325.4 69.2%
--------- ------ -------- ------- ------- ------
Gross margin 434.1 27.8% 491.7 27.6% 591.2 30.8%
Leased department and
other operating income 12.8 0.8% 14.1 0.8% 18.6 1.0%
------- ------ -------- -------- ------ ------
446.9 28.6% 505.8 28.4% 609.8 31.8%
Selling, store operating,
administrative and
distribution expenses 505.9 32.4% 575.2 32.3% 520.3 27.1%
Depreciation and
amortization expense 40.8 2.6% 52.9 3.0% 49.0 2.6%
------- ------ -------- -------- ------ ------
Operating profit (loss) (99.8) (6.4%) (122.3) (6.9%) 40.5 2.1%
Gain on disposition of
properties (1.7) (0.1%) - - - -
Interest and debt expense 10.1 0.6% 25.2 1.4% 30.5 1.6%
Impairment of long-lived
assets 40.8 2.6% 99.4 5.6% - -
Reorganization items 69.8 4.5% 65.0 3.6% - -
Income tax expense(benefit) - - (104.5) (5.9%) 4.2 0.2%
------- ------ -------- ------- ------ ------
Earnings (loss) before
cumulative effect of
accounting change (218.8) (14.0%) (207.4) (11.6%) $5.8 0.3%
Cumulative effect of
accounting change,
net of income tax benefit - - - - (0.5) -
------- ------ -------- -------- ------ ------
Net earnings (loss) ($218.8) (14.0%) ($207.4) (11.6%) $5.3 0.3%
======= ====== ======= ====== ======= ======
</TABLE>
The Company's business is seasonal in nature, with a
significant portion of its net sales occurring in the fourth
quarter, which includes the holiday selling season. Comparable
store sales, including leased shoe department sales, for each
year are discussed below and represent percentage
increases/decreases over the prior year for stores that were
open and operated by Bradlees for at least the prior full fiscal
year. The rate of inflation did not have a significant effect
on sales during these years.
Results of Operations for 1996 Compared to 1995
The following discussion, as well as other portions of this
document, includes certain statements which are or may be
construed as forward looking about the Company's business, sales
and
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expenses, and operating and capital requirements. Any such
statements are subject to risks that could cause the actual
results or requirements to vary materially.
Net sales for 1996 declined $219.1 million or 12.3% from
1995 due primarily to the closing of 27 stores in 1996 and a
5.4% decrease in comparable store sales. The major causes for
the decline in comparable store sales were the Company's
relatively rapid introduction of higher-quality and generally
higher-price points in its merchandise carried for sale at the
expense of many lower opening price-point merchandise
categories, elimination of layaway and certain basic
convenience and commodity items that are generally sold in
discount stores, and changes in the Company's advertising
strategy that included a reduction in the number of merchandise
offerings in the Company's weekly circular. Although the
Company improved the quality and fashion of its merchandise, the
changes that were implemented assumed rapid customer acceptance
of the new merchandise mix and significant sales from increased
promotional activities.
The Company will continue to focus on quality and fashion
as a way to differentiate itself from its closest competition
but is making several modifications to its business strategy to
improve its operations (see Item 1 - "Business Strategy").
However, no assurances can be given that these strategies will
improve performance or that Bradlees' business and financial
performance will not be adversely affected by future competitive
pressures.
Gross margin declined $57.6 million but increased .2% as a
percentage of net sales in 1996 compared to 1995. The decline
in gross margin dollars was due to the lower sales, partially
offset by the slight increase in the gross margin rate. The
increase in the rate was due to a higher overall initial markup
and lower inventory shrink, partially offset by a higher
markdown rate associated primarily with increased promotional
activities and the negative impact of the $6.7 million
going-out-of-business markdown provision included in cost of
goods sold in 1996 (Note 7 to the Consolidated Financial
Statements). Some markdowns were also incurred for the changes
in merchandise assortment in 1995 and 1996.
Leased department and other operating income declined $1.3
million but was unchanged as a percentage of net sales in 1996
compared to 1995. The decline was due to lower leased shoe
department sales and the absence of any layaway income
(classified as other operating income) since the discontinuance
of the layaway program in August, 1995.
Selling, store operating, administrative and distribution
("SG&A") expenses declined $69.3 million but increased .1% as a
percentage of net sales in 1996 compared to 1995. The decline
in SG&A expenses was due to the closed stores and reductions in
logistics and certain home office expenses, partially offset by
an increase in advertising expenses. The increase in SG&A
expenses as a percentage of net sales was due to the sales
decline in 1996. The Company has implemented several expense
reduction initiatives to bring the Company's future SG&A rate to
a more competitive level.
Depreciation and amortization expense declined $12.1
million or .4% as a percentage of net sales in 1996 compared to
1995, primarily as a result of the closed stores and the 1995
year-end writedown of certain long-lived assets in accordance
with the adoption of SFAS No. 121 (Note 4).
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<PAGE> 12
The Company recognized a gain of $1.7 million in 1996 for
forfeited deposits received on the unconsummated sale of an
owned undeveloped property (included in current assets held for
sale).
Interest and debt expense declined $15.1 million or .8% as
a percentage of net sales in 1996 compared to 1995 due primarily
to the discontinuance of accruing interest on substantially all
pre-petition debt subsequent to the Filing on June 23, 1995.
Interest expense includes a credit of $.8 million in 1996 and a
$2.9 million charge in 1995 resulting from changes in the
interest rate used to discount self-insurance reserves.
The Company incurred charges of $40.8 and $99.4 million, or
2.6% and 5.6% of net sales, in 1996 and 1995, respectively, due
to the impairment of certain long-lived assets in accordance
with SFAS No. 121 (Note 4).
Reorganization items resulted in net charges of $69.8 and
$65.0 million, or 4.5% and 3.6% of net sales, in 1996 and 1995,
respectively. These net charges relate directly to the Chapter
11 proceedings and associated restructuring of the Company's
operations and are discussed in Note 7 to the Consolidated
Financial Statements.
In October, 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation",
which became effective for 1996. As discussed in Note 10, the
Company continues to account for its stock-based compensation
costs in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock-Issued to Employees", using the
intrinsic value method. The Company has omitted the pro forma
disclosures required under SFAS No. 123, relating to the
calculation of stock-based compensation costs using the fair
value method, since the effect on net loss and net loss per
share in 1995 and 1996 is immaterial.
In February, 1997, the FASB issued SFAS No. 128, "Earnings
per Share", which is effective for financial statements, for
both interim and annual periods, ending after December 15, 1997.
The Company has not yet determined the impact SFAS No. 128 may
have on its earnings per share calculations.
The Company did not incur any income tax expense or benefit
in 1996 compared to an income tax benefit of $104.5 million in
1995 (Note 12). A portion of the Company's 1995 loss before
income taxes was utilized in April, 1996, to recover $24.5
million of income taxes previously paid, of which $6.0 million
of these funds was restricted in April, 1996, pending further
order of the Bankruptcy Court.
Results of Operations for 1995 Compared to 1994
The Company experienced declining comparative store sales
and gross margins and a corresponding decrease in liquidity
during the first quarter of 1995. In addition, the covenants in
the Company's pre-petition revolving credit agreement (Note 6 to
the Consolidated Financial Statements) that were amended on
April 17, 1995, did not provide the Company with adequate
operating flexibility and resulted in a further default under
the terms of the credit agreement. On June 23, 1995, the
Company filed for protection under Chapter 11 of the U.S.
Bankruptcy Code.
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<PAGE> 13
Net sales for 1995 declined $135.8 million or 7% from 1994
due to a 13.6% decline in comparable store sales and the closing
of two stores, partially offset by a full year's sales from 10
new stores opened during 1994 (one opened in August, 1994, four
opened in October, 1994, and five opened in November, 1994).
The major causes for the decline in comparable store sales were
the sluggish retail environment (especially for apparel) and
increased competition. In addition, as part of the new
merchandising and marketing strategies initiated in 1995, the
Company emphasized lower-volume, higher-margin products in its
merchandise mix and in its advertising, with less emphasis on
higher-volume, lower-margin commodity products.
Gross margin declined $99.5 million or 3.2% as a percentage
of net sales in 1995 compared to 1994 due primarily to markdowns
associated with the changes in the Company's merchandise
assortment, the Company's aggressive posture with respect to
markdowns and higher inventory shrink, partially offset by an
increase in the overall initial markup.
Leased department and other operating income declined $4.5
million or .2% as a percentage of net sales in 1995 compared to
1994, primarily due to lower layaway income (included in other
operating income) resulting from the August 1995 discontinuance
of the layaway program.
SG&A expenses increased $54.9 million or 5.2% as a
percentage of net sales in 1995 compared to 1994, primarily as a
result of significant expenses related to the new stores opened
late in 1994, expenses such as hiring, relocation and severance
costs for the management reorganization in 1995, additions and
expansions of certain home office functions, and expenses
related to certain changes in 1995 to the Company's financial
and merchandising systems and to store format and presentation.
Depreciation and amortization expense increased $3.9
million or .4% as a percentage of net sales in 1995 due to the
full-year impact of the extensive capital expenditure program in
1994 (primarily new stores). Interest and debt expense declined
$5.3 million or .2% as a percentage of net sales in 1995
compared to 1994, due primarily to the discontinuance of
accruing interest on substantially all pre-petition debt.
Included in the 1995 interest expense was a $2.9 million charge
resulting from a reduction in the interest rate used to discount
accrued general liability and workers' compensation claims.
The Company incurred a charge of $99.4 million or 5.6% as a
percentage of net sales in 1995, due to the impairment of
certain long-lived assets and associated adoption of SFAS No.
121 (Note 4).
Reorganization items incurred for 1995 related directly to
the Chapter 11 proceedings and are discussed in Note 7.
The Company recorded an income tax benefit of $104.5
million in 1995 compared to income tax expense of $4.2 million
in 1994 (Note 12).
Liquidity and Capital Resources
Borrowings, exclusive of the issuance of letters of credit,
under the DIP Facility (Note 6) during 1996 peaked at $42.5
million and averaged $5.9 million. There were no borrowings
under the DIP Facility during 1995. The Company's unrestricted
cash and cash equivalents balance peaked at
13
<PAGE> 14
$67.5 million and averaged $20.7 million during 1996, compared
to a peak of $170.3 million and an average of $94.1 million
during 1995 subsequent to the Filing. As of February 1, 1997,
the Company had $42.5 million of borrowings outstanding under
the DIP Facility and $10.0 million of unrestricted cash and cash
equivalents. As of February 3, 1996, the Company had no
borrowings outstanding under the DIP Facility and $63.0 million
of unrestricted cash and cash equivalents.
The Company's liquidity, which was limited in the weeks
prior to the Filing, improved dramatically after the Filing due
to the nonpayment of virtually all pre-petition liabilities. In
1995, prior to the Filing, borrowings under the pre-petition
revolver peaked at $99.5 million and averaged $84.3 million.
Borrowings outstanding under the pre-petition revolver were
$93.5 million, exclusive of outstanding letters of credit, at
the time of the Filing.
The Company currently expects its borrowings, exclusive of
the issuance of letters of credit, under the DIP Facility in
1997 to peak at approximately $100 million in October or
November, 1997 and average approximately $75 million. The
maximum available borrowings under the DIP Facility, up to $200
million, are limited to 60% of the Eligible Book Value of
Inventory (as amended on March 20, 1997 to include goods on
order for which trade letters of credit have been issued).
Total merchandise inventories (at cost) in fiscal 1997 are
expected to peak at approximately $330 million and average
approximately $270 million.
Other than payments made to certain pre-petition creditors
approved by the Bankruptcy Court (Note 3), principal and
interest payments on indebtedness, exclusive of certain capital
lease obligations, incurred prior to the Filing have not been
made and will not be made without Bankruptcy Court approval or
until a reorganization plan defining the repayment terms has
been confirmed by the Bankruptcy Court. Virtually all
pre-petition indebtedness of Bradlees is subject to settlement
under the reorganization case.
In 1996, net cash used by operating activities before
reorganization items was $26.3 million and was due primarily to
the operating loss incurred, partially offset by the income tax
refund and the net cash benefit from the closing of the 27
stores. In 1995, cash flow from operations before
reorganization items was $31.5 million, including the benefit
resulting from non-payment of most of the liabilities incurred
prior to the Filing, as compared to $79.6 million in 1994. The
operating loss incurred in 1995, partially offset by the
nonpayment of most pre-petition liabilities, was the major
reason for the decline from 1994 in net cash provided by
operating activities.
Inventories declined $45.3 million during 1996 due
primarily to the closing of the 27 stores. Inventories declined
$16.8 million during 1995, exclusive of the inventory impairment
discussed in Note 7, primarily as a result of a more aggressive
clearance policy. Inventories had increased $35.3 million in
1994 due to the addition of ten new stores. Accounts payable
declined $32.3 million in 1996 due primarily to the impact of
the closed stores. Accounts payable, exclusive of amounts
subject to settlement, declined $70.8 million in 1995, primarily
as a result of improved liquidity after the Filing that led to
more timely payments.
Cash flows from reorganization items and the increase in
restricted cash and cash equivalents (included in investing
activities) are discussed in Notes 7 and 2, respectively.
Proceeds from sales of assets (included in financing activities)
in 1996 are discussed in Note 2.
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<PAGE> 15
Capital expenditures of $27.5 million in 1996 represented
primarily management information systems, merchandise fixtures
and store maintenance programs. Capital expenditures of $37.0
million in 1995 included $12.8 million of additions financed
through a special purpose entity (Note 8) and represented
primarily costs associated with the new stores opened in March,
1996 and other real estate development. The decrease in capital
expenditures in 1995 as compared to 1994 ($92.6 million of
capital expenditures) was due to the significant decline in
expenditures for new stores. In 1994, Bradlees completed its
largest store opening program in almost a decade, with ten new
stores and one replacement store, including its first stores in
the New York City and Rhode Island markets.
In 1997, the Company expects total capital expenditures to
be approximately $20 million (some of which may be subject to
Bankruptcy Court approval) based upon its current plan,
primarily for management information systems and store
maintenance. The Company currently expects to finance these
expenditures through internally-generated funds.
The Company believes its ability to meet its financial
obligations and make planned capital expenditures will depend on
the Company's future operating performance, which will be
subject to financial, economic and other factors affecting the
industry and operations of the Company, including factors beyond
its control.
Bradlees currently anticipates the following investment and
financing activities for 1997:
(a) capital expenditures of approximately $20 million as
discussed above, (b) payments of certain capital lease
obligations (Note 8), (c) adequate protection payments (Note 3),
(d) average borrowings of approximately $75 million with a net
increase of $15 to $20 million in outstanding borrowings under
the DIP Facility, and (e) the possible sale of certain
properties and lease interests.
The Company believes the actions set forth above and the
availability of its DIP Facility (which is scheduled to expire
on the earlier of June 23, 1998 or emergence from bankruptcy),
together with the Company's available cash and expected cash
flows from 1997 operations and beyond, will enable Bradlees to
fund its expected needs for working capital, capital
expenditures and debt service requirements during Chapter 11.
Achievement of expected cash flows from operations is dependent
upon the Company's attainment of sales, gross profit, and
expense levels that are reasonably consistent with its financial
plan.
15
<PAGE> 15
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, and current positions of all executive
officers and directors of the Company as of April 30, 1997 are
listed below along with their business experience during the
past five years. The executive officers of the Registrant are
elected annually in May.
Name Age Position
Robert W. Benenati 48 Senior Vice President, Operations
Mark A. Cohen 48 Director
Sandra S. Colby 40 Senior Vice President, General
Merchandise Manager, Hardlines
John A. Curry 62 Director
Judith Dunning 46 Senior Vice President, Planning and
Allocation
John M. Friedman, Jr. 52 Director
Robert G. Lynn 47 Director, President and Chief Merchandising
Officer
Cornelius F. Moses, III 38 Senior Vice President, Chief
Financial Officer
Patricia M. Pomerleau 48 Director
Ronald T. Raymond 53 Senior Vice President, Asset
Protection
Sheldon Rutstein 62 Director
David L. Schmitt 46 Senior Vice President,
Administration, General
Counsel, Secretary and Clerk
James C. Sparks 50 Senior Vice President, General
Merchandise Manager, Softlines
Peter Thorner 53 Chairman and Chief Executive
Officer
Timothy L. Worcester 54 Senior Vice President, Marketing
Alan M. Weingarden 49 Senior Vice President, Chief
Information Officer
Mr. Benenati became Senior Vice President, Operations of
the Company in February 1997. He was Senior Vice President,
Distribution of the Company from June 1995 to February 1997.
Prior to joining the Company, he was Senior Vice President,
Distribution of QVC, Inc. from 1994 to June 1995. He was Vice
President, Operations and Administration for Simon and Schuster
Publishing Co. from 1992 to 1994.
Mr. Cohen has served as a Director of the Company since
December 1994. He served as Chairman of the Board of Directors
and Chief Executive Officer of the Company from December 1994 to
December 1996. Prior to joining the Company, Mr. Cohen served
as Chairman and Chief Executive Officer of Lazarus Department
Stores, Inc., a division of Federated Department Stores, Inc.
("Lazarus"), from prior to 1992 to December 1994.
Ms. Colby became Senior Vice President, General Merchandise
Manager, Hardlines of the Company in July 1995. Ms. Colby
served as Vice President, General Merchandise Manager, Softlines
of the Company from February 1994 to July 1995 and Divisional
Merchandise Manager, Home Fashions of the Company from prior to
1992 to February 1994.
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<PAGE> 17
Mr. Curry became a Director of the Company in January 1994.
He has served as President Emeritus of Northeastern University
since September 1996. He served as President of Northeastern
University from prior to 1992 to September 1996.
Ms. Dunning became Senior Vice President, Planning and
Allocation of the Company in February 1997. Ms. Dunning served
as Vice President, Strategic Planning of the Company from
January 1996 to February 1997. Prior to joining the Company,
she was Vice President, Merchandise Planning of
Rich's/Lazarus/Goldsmith's, a division of Federated Department
Stores, Inc., from February 1995 to January 1996 and Vice
President, Merchandise Planning of Lazarus from 1992 to February
1995.
Mr. Friedman became a Director of the Company in May 1996.
Mr. Friedman was a partner at Dewey Ballantine from prior to
1992 to April 1996.
Mr. Lynn became Director, President and Chief Merchandising
Officer of the Company in April 1997. Prior to joining the
Company, he was a consultant to various retail and manufacturing
clients from December 1995 to April 1997. He was Vice Chairman
and Chief Operating Officer of American Eagle Outfitters, Inc.
from January 1995 to December 1995. Mr. Lynn was a retail
consultant to the creditors' committee in the McCrory bankruptcy
from December 1993 to January 1995. Mr. Lynn served as
President and Chief Executive Officer of the United States
division of F.W. Woolworth from prior to 1992 to September 1993.
Mr. Moses became Senior Vice President, Chief Financial
Officer of the Company in July 1996. Mr. Moses served as Senior
Vice President, Finance of the Company from July 1995 to July
1996. Mr. Moses was Vice President, Finance of the Company from
April 1995 to July 1995. Prior to joining the Company, Mr.
Moses was Senior Vice President, Finance of Ames Department
Stores, Inc. ("Ames") from 1992 to April 1995.
Ms. Pomerleau became a Director of the Company in March
1993. She has served as President and Chief Executive Officer
of AlphaSight Online Strategists since April 1996. She was
Managing Partner of Pomerleau Associates from October 1995 to
March 1996. Prior to founding Pomerleau Associates, she was
Managing Partner of ADS Consulting from November 1994 to October
1995. Ms. Pomerleau was Executive Vice President, Chief
Operating Officer of South Shore Hospital, Inc. and South Shore
Health and Educational Corporation and a member of the Board of
Directors of each from prior to 1992 to October 1994.
Mr. Raymond became Senior Vice President, Asset Protection
of the Company in July 1995. Prior to joining the Company, he
was Senior Vice President, Asset Protection for Ames from 1992
to July 1995.
Mr. Rutstein became a Director of the Company in April
1995. He has served as a Consultant for Raytheon Co. since
December 1994. He was Senior Vice President and Chief Financial
Officer for Raytheon Co. from February 1992 to December 1994.
Mr. Rutstein was Senior Vice President and Controller of
Raytheon Co. from prior to 1992 to February 1992.
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<PAGE> 18
Mr. Schmitt became Senior Vice President, Administration,
General Counsel, Secretary and Clerk of the Company in February
1997. He was Senior Vice President, General Counsel, Secretary
and Clerk of the Company from November 1995 to February 1997.
He was Vice President, General Counsel, Secretary and Clerk of
the Company from July 1995 to November 1995. Prior to joining
the Company he was Vice President, Business Development for
Wheelabrator Clean Water Systems, Inc. from 1994 to June 1995.
He was President of CP Consulting from prior to 1992 to June
1994.
Mr. Sparks became Senior Vice President, General
Merchandise Manager, Softlines of the Company in July 1995. He
was Vice President, General Merchandise Manager, Softlines of
the Company from October 1994 to July 1995. Prior to joining
the Company, Mr. Sparks was Vice President, General Merchandise
Manager of Belk Lindsey from August 1992 to October 1994. He
was Senior Vice President, General Merchandise Manager, Mens and
Childrens of Caldor, Inc. from prior to 1992 to August 1992.
Mr. Thorner has served as Chairman of the Board of
Directors and Chief Executive Officer of the Company since April
1997. He served as Chairman of the Board of Directors,
President and Chief Executive Officer of the Company from
December 1996 to April 1997. He served as President and Chief
Operating Officer of the Company from June 1995 to December 1996
and he was elected a Director of the Company in July 1995. He
was Vice Chairman of the Company from March 1995 to June 1995.
Prior to joining the Company, he was President, Chief Operating
Officer and Acting Chief Executive Officer and a member of the
Board of Directors of Ames from 1992 to 1994. He was previously
Executive Vice President and Chief Financial Officer of Ames.
Mr. Weingarden became Senior Vice President, Chief
Information Officer of the Company in July 1996. He was Vice
President, Management Information Systems of the Company from
April 1995 to July 1996. Prior to joining the Company, Mr.
Weingarden was Vice President, MIS of Laura Ashley, Inc. from
April 1993 to April 1995. He was Vice President, MIS of Silo,
Inc., a division of Dixon's Group PLC, from prior to 1992 to
March 1993.
Mr. Worcester became Senior Vice President, Marketing of
the Company in March 1996. Prior to joining the Company, he was
Senior Vice President, Marketing for Rich's/Lazarus/Goldsmith's,
a division of Federated Department Stores, Inc., from prior to
1992 to February 1996.
Mr. Harold Leppo resigned as a member of the Board of
Directors of the Company on April 30, 1997.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires the Company's officers
and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file
reports of ownership and changes in ownership (Forms 3, 4 and 5)
with the Securities and Exchange Commission and the New York
Stock Exchange.
Based solely on the Company's review of the copies of Forms
3 and 4 and amendments thereto received by it during 1996, Forms
5 and amendments thereto received by it with respect to fiscal
1996, or written representations from certain reporting persons
that no Forms 5 were required to be filed by those persons, the
Company believes that during 1996, except as described below,
officers, directors
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<PAGE> 19
and greater-than-ten-percent beneficial owners complied with all
filing requirements under Section 16(a) of the Exchange Act
applicable to them. A Section 16 filing by Mr. John M.
Friedman, Jr., a Director of the Company, was late and a
corrective Form 4 was filed in March 1997. The Form 3 for each
of Mr. Alan M. Weingarden, Senior Vice President, Chief
Information Officer of the Company, and Mr. Timothy L.
Worcester, Senior Vice President, Marketing, was filed
approximately two weeks late.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the earned compensation for
the Chief Executive Officer of the Company, the four highest
paid executive officers of the Company other than the Chief
Executive Officer, along with Mark A. Cohen, the former Chief
Executive Officer of the Company, James M. Zamberlan, the former
Executive Vice President, Stores of the Company and John F.
Reeves, the former Assistant to the Chairman of the Company (the
"Named Officers") for 1996, 1995 and 1994
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Awards
------------------------
Payouts
-------
Annual Compensation Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Stock Awards Options/SARs Payouts Compensation
- ------------------ ---- ------ ----- ------------ ------------ ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter Thorner 1996 $589,166 - $12,961(1) - - $150,000(2) $9,293(3)
Chairman and 1995 $440,391 $406,252 $97,257 $231,250(4) 100,000 $150,000 $4,490
Chief Executive Officer
Timothy L. Worcester 1996 $233,685 $100,000(5)$93,509(6) - - - $1,121(3)
Senior Vice President,
Marketing
Cornelius F. Moses, III 1996 $228,682 - (7) - - - $944(3)
Senior Vice President 1995 $162,322 $79,453 $162,087 - - - $216
& Chief Financial
Officer
James C. Sparks 1996 $216,528 $50,000(8) (7) - - - $897(3
Senior Vice President, 1995 $215,528 $53,591 $83,407 - - - $764
General Merchandise 1994 $47,660 $26,156 (7) - 15,000 - -
Manager, Softlines
Robert W. Benenati 1996 $205,036 - $62,762(9) - - - $850(3)
Senior Vice President, 1995 $141,948 $190,075 $18,793 - - - $596
Operations
Mark A. Cohen 1996 $830,769 - $339,514(10) - - $300,000(2) $5,073,906(11)
Director and Former 1995 $900,000 $438,750 $501,806 - - $300,000 $2,987
Chairman and Chief 1994 $141,923 $700,000 $93,774 $1,021,875(12) 200,000 - -
Executive Officer
James M. Zamberlan 1996 $350,012 - $80,808(13) - - - $1,226,380(14)
Former Executive 1995 $141,955 $255,004 $55,002 - - - $460
Vice President, Stores
John F. Reeves 1996 $201,936 $125,000(15)$48,196(16) - - - $117,237(17)
Former Assistant to
the Chairman
</TABLE>
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<PAGE> 20
(1) Includes $9,594 for relocation expenses related to Mr.
Thorner's employment as Chairman and Chief Executive Officer of
the Company and reimbursement for tax liabilities related to
such relocation expenses.
(2) See Enterprise Appreciation Incentive Plan below.
(3) Premiums paid by the Company with respect to term life
insurance for the calendar year ended December 31, 1996.
(4) Based on a fair market value of $9.250, the closing price of
the Company's Common Stock on May 11, 1995, the date of grant.
These shares vest at the rate of 20% a year, on or after the
third business day following the announcement of annual earnings
for the year 1995 through 1999. The total number of restricted
shares and the aggregate value of such shares on January 31,
1997, the last trading day of fiscal 1996, was 20,000 shares
valued at $20,000. The aggregate market value is based on a
fair market value of $1.00, the closing price of the Company's
Common Stock on January 31, 1997.
(5) Includes hiring bonus of $75,000 and relocation bonus of
$25,000.
(6) Includes $90,638 for relocation expenses related to Mr.
Worcester's employment as Senior Vice President, Marketing of
the Company and reimbursement for tax liabilities related to
such relocation expenses.
(7) Perquisites and other personal benefits for the indicated
periods did not exceed the lesser of $50,000 or 10% of reported
salary and bonus.
(8) Represents forgiveness of debt (housing loan).
(9) Includes $59,292 for relocation expenses related to Mr.
Benenati's employment as Senior Vice President, Operations of
the Company and reimbursement for tax liabilities related to
such relocation expenses.
(10)Includes $332,945 for living and relocation expenses related
to Mr. Cohen's employment as Chairman and Chief Executive
Officer of the Company and reimbursement for tax liabilities
related to such living and relocation expenses.
(11)Includes $4,675 which is the premium paid by the Company
with respect to term life insurance for the calendar year ended
December 31, 1996. Also includes $5,000,000 drawn down by Mr.
Cohen from a letter of credit and $69,231, each as a severance
payment upon Mr. Cohen's termination as Chairman and Chief
Executive Officer of the Company. The Company is negotiating
with Mr. Cohen to settle any other severance due under his
employment agreement. No final settlement has been reached.
(12)Based on a fair market value of $13.625, the closing price
of the Company's Common Stock on December 3, 1994, the date of
grant. The total number of restricted shares and the aggregate
value of such shares on January 31, 1997, the last trading day
of fiscal 1996, was 75,000 shares, valued at $75,000. The
aggregate market value is based on a fair market value of $1.00,
the closing price of the Company's Common Stock on January 31,
1997. As part of the final settlement with Mr. Cohen regarding
severance due under his employment agreement, the shares will be
forfeited.
(13)Includes $75,759 for relocation expenses related to Mr.
Zamberlan's employment as Executive Vice President, Stores of
the Company and reimbursement for tax liabilities related to
such relocation expenses.
20
<PAGE> 21
(14)Includes $1,380 which is the premium paid by the Company
with respect to term life insurance for the calendar year ended
December 31, 1996, and $1,225,000 as a severance payment upon
Mr. Zamberlan's termination as Executive Vice President, Stores
of the Company (see Severance Agreement with James Zamberlan
below).
(15)Includes hiring bonus of $75,000 and relocation bonus of
$50,000.
(16)Includes $44,678 for relocation expenses related to Mr.
Reeves' employment as Assistant to the Chairman of the Company
and reimbursement for tax liabilities related to such relocation
expenses.
(17)Includes $692 which is the premium paid by the Company with
respect to term life insurance for the calendar year ended
December 31, 1996, and $116,545 as a severance payment pursuant
to the Severance Program (see Severance Program below) upon Mr.
Reeves' termination as Assistant to the Chairman of the Company.
Retention Bonus Plan
In August 1995 the Company adopted, and in November 1995 the
Bankruptcy Court approved, the Retention Bonus Plan (the
"Retention Bonus Plan") for key employees. The Retention Bonus
Plan provided incentives and rewards for (i) performance of key
employees that met or exceeded expectations and (ii) continued
employment. For periods after 1995, requirements for bonuses
included attainment of threshold performance criteria
established by the Board of Directors. With respect to the
Named Officers and certain other members of senior management of
the Company, one-quarter of the amount of any bonus payable
before such time as the Company has consummated a Chapter 11
plan of reorganization has been deferred, with interest, until
the earlier of the date of consummation of such plan, or the
date of termination of employment by the Company without cause,
by the officer for good reason, or on account of death or
disability. For the year ended February 1, 1997, no bonuses
were paid under the Retention Bonus Plan because the Company
failed to meet the threshold performance level. The Retention
Bonus Plan has been terminated and replaced by the Corporate
Bonus Plan effective in February 1997 (see Corporate Bonus Plan
below).
Corporate Bonus Plan
In February 1997 the Company adopted, and in April 1997 the
Bankruptcy Court approved, the Corporate Bonus Plan (the
"Corporate Bonus Plan") which has replaced the Retention Bonus
Plan beginning for 1997. The Corporate Bonus Plan provides
incentives and rewards for (i) performance of key employees that
meets or exceeds expectations and (ii) attainment of threshold
performance criteria tied directly to the Company's 1997
business plan. The amount of the award would increase as the
Company's performance exceeds the business plan. In addition, a
discretionary fund in the amount of $500,000 has been
established to provide bonuses to (a) non-bonus eligible
employees based upon performance regardless of whether the
Company achieves its target performance level and (b) bonus
eligible employees based on performance if the Company does not
achieve its target performance level.
Under the Corporate Bonus Plan, the Company must obtain a
minimum EBITDA (as defined) of $27 million, net of the
anticipated costs of the Corporate Bonus Plan, in order for any
employee to be eligible for an award (except for the
discretionary fund mention above). For each $5 million of
EBITDA improvement over the amount projected, the award
increases by 25% of the base award up to a maximum increase of
100% of the award.
21
<PAGE> 22
With respect to the Named Officers and certain other members
of senior management of the Company, one-quarter of the amount
of any bonus payable before such time as the Company has
consummated a Chapter 11 plan of reorganization will be
deferred, with interest, until the earlier of the date of
consummation of such plan, or the date of termination of
employment by the Company without cause, by the officer for good
reason, or on account of death or disability.
Enterprise Appreciation Incentive Plan
In August 1995 the Company adopted, and in November 1995
the Bankruptcy Court approved, the Enterprise Appreciation
Incentive Plan (the "Incentive Plan"). The Incentive Plan is
intended to provide an incentive to those key executives whose
management and individual performance will have a direct impact
on increasing the long-term value of the Company. The Incentive
Plan is also designed to encourage those executives to remain
with the Company during the Chapter 11 reorganization and to
provide competitive long-term compensation in the absence of a
traditional equity-based plan. All members of the Company's
senior management are eligible to be selected by the Board of
Directors to participate in the Incentive Plan.
Under the Incentive Plan, each participant has been granted
an equity incentive award payable on June 23, 2000 (the fifth
anniversary of the Chapter 11 filing date) equal to the increase
in the value of the Company (as determined by appraisal) over
the five years ending on June 23, 2000. Each participant's
interest in the Incentive Plan vests in equal installments over
the five-year period, subject to acceleration in certain
situations. In the event a participant terminates his or her
employment without good reason or is terminated with cause prior
to June 23, 2000, then the participant forfeits his or her
rights under the Incentive Plan.
Awards under the Incentive Plan will be paid promptly
following June 23, 2000 in the form of 60% cash and the balance
in cash, notes and stock as described thereunder. In no event
will the total of all benefits payable under the Incentive Plan
exceed the lesser of $20,000,000 or 13% of the total
appreciation in the value of the Company during the five-year
period. The extent of the participation by Mr. Thorner in the
Incentive Plan is specified in his employment agreement (see
Employment Agreement with Peter Thorner below). The maximum
benefit of the other participants (exclusive of Messrs. Cohen
and Thorner) in the Incentive Plan will not exceed the lesser of
$6,153,846 or 4% of the total appreciation in the value of the
Company during the five-year period. The interest of other
members of senior management who are participating in the
Incentive Plan will be designated by the Company's Chief
Executive Officer, subject to approval by the Board of
Directors, on the date of substantial consummation of the
Company's plan of reorganization.
Severance Program
In August 1995 the Company adopted and in November 1995 the
Bankruptcy Court approved, a severance program (the "Severance
Program") that covers all officers, Vice President and above,
and certain other employees of the Company, but not including
Mr. Thorner who has a separate employment agreement (see
Employment Agreement with Peter Thorner below) and Messrs. Cohen
and Zamberlan who have separate severance arrangements (See
Employment Agreement with Mark Cohen and Severance Agreement
with James Zamberlan below). If the employment of any
participant in the Severance Program is terminated other than
for cause, death, disability or by the employee, then salary is
guaranteed, subject to mitigation by other employment, for up to
eighteen months for the
22
<PAGE> 23
President, Executive Vice Presidents and Senior Vice Presidents
and twelve months for Vice Presidents and a lump-sum payment
equal to six months of salary is paid to certain other
employees. Certain participants would also receive a lump-sum
payment equal to the amount of any incentive payment for the
fiscal year in which the termination occurred (the "Severance
Lump Sum").
If the employment of any participant is terminated other
than for cause, death, disability or retirement, or is
terminated under certain other circumstances, within one year
following a change of control of the Company, then the employee
will receive a lump-sum payment. The payment is the Severance
Lump Sum Amount plus one and one-half times the annual salary in
effect immediately prior to the change of control (the "Annual
Salary") for the President, Executive Vice Presidents and Senior
Vice Presidents, one times the Annual Salary for Vice Presidents
and one-half times the Annual Salary for certain other
employees. For purposes of the Severance Program, a change of
control includes but is not limited to the acquisition by any
person of beneficial ownership of 50% or more of the Company's
outstanding voting securities, or the failure of the individuals
who constituted the Board of Directors in August 1995 continue
to constitute a majority of the Board unless the election of the
new directors has been approved by the incumbent directors.
Stock Option Plan for Key Employees
There were no options granted to employees in 1996. There
were no options exercised by any of the Named Officers during
1996. The following table sets forth information regarding the
fiscal year-end number and value of unexercised stock options
held by the Named Officers.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Shares Acquired Value Options at Fiscal Year End at Fiscal Year End(1)
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter Thorner 0 $0 20,000 80,000 $0 $0
Timothy L. Worcester 0 $0 - - - -
Cornelius F. Moses,III 0 $0 - - - -
James C. Sparks 0 $0 6,000 9,000 $0 $0
Robert W. Benenati 0 $0 - - - -
Mark A. Cohen 0 $0 40,000 160,000 $0 $0
James M. Zamberlan 0 $0 - - - -
John F. Reeves 0 $0 - - - -
- -------------------------
</TABLE>
(1) Based on a fair market value of $1.00, the closing price
of the Company's Common Stock on January 31, 1997, the last
trading day of 1996.
23
<PAGE> 24
Retirement Plans
The Company maintains a qualified retirement plan (the
"Retirement Plan") for its eligible employees. The retirement
benefits under the Retirement Plan are determined pursuant to a
benefit formula that takes into account the employee's Final
Average Compensation (as defined in the Retirement Plan), and/or
years of service, up to 30 years. All benefits under the
Retirement Plan, except the minimum benefits, are subject to an
integration offset based upon the employee's Covered
Compensation (as defined in the Retirement Plan) or Final
Average Compensation, if less. The Company also maintains a
non-qualified Supplemental Executive Retirement Plan (the
"Supplemental Plan") which, as of December 1, 1995, replaced the
Excess Pension Plan which was terminated. Under the
Supplemental Plan an eligible employee, upon normal retirement
at age 65, may receive supplemental retirement benefits equal to
50% of his Final Average Compensation, minus the sum of his
Social Security benefits and the annual benefit payable from the
Retirement Plan. The benefits from the Supplemental Plan are
payable in the form of a single lump sum amount. The following
table shows the estimated annual retirement benefits which will
be payable to participating employees from the Retirement Plan
and the Supplemental Plan in the form of a straight life annuity
upon normal retirement at age 65 after selected periods of
service. These benefits presented below do not reflect the
Social Security offset described above and do not take into
account any reduction for joint and survivor payments.
Pension Plan Table
Estimated Annual Retirement Benefits
------------------------------------
Final Average 10 Years 15 or More
Compensation* of Service Years of Service
------------- ---------- ----------------
$200,000 $66,666 $100,000
$250,000 $83,333 $125,000
$300,000 $100,000 $150,000
$400,000 $133,333 $200,000
$500,000 $166,666 $250,000
$600,000 $200,000 $300,000
$700,000 $233,333 $350,000
$800,000 $266,666 $400,000
$900,000 $300,000 $450,000
$1,000,000 $333,333 $500,000
$1,100,000 $366,666 $550,000
$1,200,000 $400,000 $600,000
$1,300,000 $433,333 $650,000
$1,400,000 $466,666 $700,000
$1,500,000 $500,000 $750,000
$1,600,000 $533,333 $800,000
*Federal law limits the amount of compensation that may be taken
into account in calendar year 1996 in calculating benefits under
the Retirement Plan to $150,000 and limits the annual benefits
that may be payable in calendar year 1996 to $120,000. These
tax limits do not apply to benefits payable from the
Supplemental Plan.
24
<PAGE> 25
Compensation recognized under the Retirement Plan is the
participant's annualized rate of base salary. Compensation
under the Supplemental Retirement Plan is the participant's base
salary and bonus. The calculation of retirement benefits under
both plans is generally based upon the participant's highest
annual compensation averaged over three years. As of December
31, 1996, the years of credited service for the Retirement Plan
for Messrs. Thorner, Worcester, Moses, Sparks, Benenati, Cohen,
Zamberlan and Reeves were 2,1, 2, 2, 2, 2, 1 and 1,
respectively. As of December 31, 1996, the years of credited
service for the Supplemental Plan for Messrs. Thorner,
Worcester, Moses, Sparks, Benenati, Cohen, Zamberlan and Reeves
were 7, 1, 2, 2, 2, 7, 1 and 1, respectively.
Compensation of Directors
Each director who is not an employee of the Company
receives an annual retainer of $30,000. Directors who are also
employees of the Company do not receive any remuneration for
serving as directors.
Employment Agreement with Peter Thorner
The Company has entered into a three-year employment
agreement with Mr. Thorner, commencing as of October 26, 1995.
Effective December 24, 1996, concurrent with his appointment as
Chairman, President and Chief Executive Officer, Mr. Thorner
will receive a minimum annual base salary of $725,000 and an
annual incentive award of 55% of his base salary. While in
Chapter 11, the annual incentive award is payable pursuant to
the Corporate Bonus Plan. The annual incentive award could be
increased to 110% of Mr. Thorner's base salary if certain
maximum performance goals are met under the Corporate Bonus
Plan. Under the employment agreement, one-quarter of the amount
of any annual incentive bonus payable before the consummation of
a Chapter 11 plan of reorganization would be deferred, with
interest, until the earlier of the date of consummation of the
plan or the date of termination of employment by the Company
without cause, by the officer for good reason or on account of
death or disability. In addition, the employment agreement
provides for the payment by the Company of an equity incentive
bonus (payable in cash, debt and equity securities) pursuant to
the Incentive Plan determined by reference to the increase in
value of the Company from the date of the bankruptcy filing to
the fifth anniversary of the employment agreement, subject
generally to vesting over five years. Under the employment
agreement, Mr. Thorner is entitled to receive an annual
nonrefundable advance of $150,000 towards his benefits under the
Incentive Plan while he remains employed with the Company. Mr.
Thorner's equity incentive bonus under the Incentive Plan would
be at least $1,000,000 but would not exceed the lesser of
$4,615,385 or 3% of the appreciation in value of the Company.
The agreement also provides for certain retirement benefits, for
reimbursement of certain legal, annual financial counseling and
relocation expenses and participation in the Company's employee
benefit plans. The employment agreement also provides that in
the event of Mr. Thorner's termination of employment by the
Company (including following a change in control of the Company)
without cause, Mr. Thorner would generally be entitled to all
payments and benefits called for under the agreement for the
remainder of its term.
25
<PAGE> 26
Employment Agreement with Mark A. Cohen
The Company has entered into a five-year employment
agreement with Mr. Cohen, commencing as of October 26, 1995.
The agreement contains provisions that are similar to Mr.
Thorner's agreement, except for the following differences.
First, Mr. Cohen's minimum annual base salary was $900,000, and
he was entitled to an annual incentive award of 65% of his base
salary which could be increased to 130% of base salary upon
consummation of a Chapter 11 plan of reorganization if certain
performance goals were met. Mr. Cohen's maximum equity
incentive bonus was the lesser of $9,230,769 or 6% of the
Company's appreciation in value, and he was entitled to receive
an annual nonrefundable advance of $300,000 while he remained
employed by the Company.
Mr. Cohen's employment with the Company was terminated as
of December 24, 1996. The Company is currently negotiating a
settlement agreement with Mr. Cohen to settle the payment of
severance pursuant to the terms of his agreement. Mr. Cohen has
already drawn down the full amount of the $5,000,000 letter of
credit provided by the terms of his employment agreement and
received certain other amounts. Any severance arrangement
entered into by the Company will be subject to the approval of
the Bankruptcy Court.
Severance Agreement with James Zamberlan
In connection with the termination of Mr. Zamberlan's
employment with the Company, the Company entered into a
severance arrangement with Mr. Zamberlan as set forth in a
severance agreement and escrow agreement, each dated as of
January 31, 1997. In order to resolve all issues arising out of
the employment agreement with Mr. Zamberlan, the Company has
paid to Mr. Zamberlan a severance payment of $1,200,000 and a
payment of $25,000 for legal fees incurred by Mr. Zamberlan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Based on Schedule 13Ds and 13Gs filed with the Securities and
Exchange Commission, the Company believes that no person owns
beneficially more than 5% of the Company's outstanding Common
Stock as of April 4, 1997.
The following table sets forth certain information regarding
the beneficial ownership of the Company's Common Stock as of
April 30, 1997 by (i) each of the Company's directors, (ii) the
Named Officers and (iii) all directors and executive officers as
a group.
26
<PAGE> 27
Amount and Nature of Percent of Shares
Name of Beneficial Owner Beneficial Ownership Outstanding
- ----------------------- -------------------- -----------------
Robert W. Benenati - -
Mark A. Cohen 75,000 *
John A. Curry (1) 15,000 *
John M. Friedman, Jr. (1) 5,000 *
Robert G. Lynn - -
Cornelius F. Moses, III - -
Patricia M. Pomerleau (1) 15,000 *
John F. Reeves 10,000 *
Sheldon Rutstein (1) 10,000 *
James C. Sparks (2) 11,000 *
Peter Thorner (3) 61,459 *
Timothy L. Worcester - -
James M. Zamberlan - -
All directors and executive officers
as a group (sixteen people) (4) 204,315 1.2%
- -----------------------------------
*Less than 1% of the outstanding shares of Common Stock.
(1) The entire amount of the Company's Common Stock set forth
are shares of Common Stock subject to options that are
exercisable within 60 days of April 30, 1997.
(2) Excludes 6,000 shares of Common Stock subject to options
held by Mr. Sparks that are exercisable within 60 days of April
30, 1997.
(3) Includes 40,000 shares of Common Stock subject to options
held by Mr. Thorner that are exercisable within 60 days of April
30, 1997.
(4) Includes a total of 102,072 shares of Common Stock subject
to options held by the directors and executive officers that are
exercisable within 60 days of April 30, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
John M. Friedman, Jr., a Director of the Company, is a
former partner of Dewey Ballantine, a law firm retained by the
Company. Mr. Friedman resigned from Dewey Ballantine in April
1996 and became a Director of the Company in May 1996.
27
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
Consolidated statements of operations for the years
ended February 1,
1997, February 3, 1996 and January 28, 1995.
Consolidated balance sheets as of February 1, 1997 and
February 3,
1996.
Consolidated statements of cash flows for the years
ended February 1,
1997, February 3, 1996 and January 28, 1995.
Consolidated statements of stockholders' equity
(deficiency) for the
years ended February 1, 1997, February 3, 1996 and
January 28, 1995.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. Financial Statement Schedules
All financial statement schedules are omitted, as the
required
information is not applicable or is included in the
consolidated
financial statements or related notes.
3. Exhibits
The exhibits required to be filed by item 601 of
Regulation S-K are
listed in the accompanying Exhibit Index.
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the
13 weeks ended February 1, 1997:
Date of Report Date of Filing Item Number Description
-------------- -------------- ----------- -----------
January 28, 1997 January 29, 1997 5 Fiscal 1997
disclosure of
summary financial
plan
and amendment
to
DIP Facility.
December 17, 1996 December 18, 1996 5 Disclosure of
third
quarter
and
year-to-date
results
compared
to plan.
28
<PAGE> 29
BRADLEES, INC.
AND SUBSIDIARIES
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 in the City of Braintree, Commonwealth
of Massachusetts on April 30, 1997:
BRADLEES, INC.
By: /s/ PETER THORNER By: /s/CORNELIUS F. MOSES, III
-------------------------- ---------------------------
Peter Thorner Cornelius F. Moses, III
Chairman and Senior Vice President
Chief Executive Officer Chief Financial Officer
(Principal Executive Officer) (Principal Financial and
Accounting Officer)
By: /s/ RICK C. WELKER
---------------------------
Rick C. Welker
Vice President and
Controller
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 registrants in the capacities and on
the date indicated.
Signature Title Date
/s/ JOHN A. CURRY
- -------------------------- Director April 30, 1997
John A. Curry
/s/ JOHN FRIEDMAN, JR. Director April 30, 1997
- --------------------------
John Friedman, Jr.
/s/ PATRICIA M. POMERLEAU Director April 30, 1997
- --------------------------
Patricia M. Pomerleau
/s/ SHELDON RUTSTEIN Director April 30, 1997
- --------------------------
Sheldon Rutstein
/s/ MARK A. COHEN Director April 30, 1997
- ---------------------------
Mark A. Cohen
29
<PAGE> 30
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially
No. Description Numbered Page
3.1* Restated Articles of Organization of Bradlees, Inc.,
is incorporated by reference from Amendment No. 4 to
the Company's Form S-1 Registration No. 33-47720,
Part II, Item 16, Exhibit 3.1, as filed with the
Securities and Exchange Commission on June 16, 1992.
3.2* By-Laws of Bradlees, Inc., is incorporated by
reference from the Company's Form S-4 Registration
No. 33-60068, Part II, Item 21, Exhibit 3.2, as filed
with the Securities and Exchange Commission on March
26, 1993.
4.1* Indenture between Bradlees, Inc. and Fleet Bank of
Massachusetts, N.A., as Trustee, relating to the 2003
Notes (including form of 2003 Note) is incorporated
by reference from the Company's Form S-4 Registration
No. 33-60068, Part II, Item 21, Exhibit 4.1, as filed
with the Securities and Exchange Commission on March
26, 1993.
4.2* Form of Indenture between Bradlees, Inc. and Fleet
Bank of Massachusetts, N.A., as Trustee, relating to
the Exchange Notes (including form of Exchange Note)
is incorporated by reference from the Company's Form
S-4 Registration No. 33-60068, Part II, Item 21,
Exhibit 4.2, as filed with the Securities and
Exchange Commission on March 26, 1993.
4.3* Indenture, dated as of August 1, 1992, between
Bradlees, Inc. and State Street Bank and Trust
Company, as Trustee, relating to the 2002 Notes is
incorporated by reference from Amendment No. 1 to the
Company's Form S-1, Registration No. 33-49436, Part
II, Item 16, Exhibit 4.1, as filed with the
Securities and Exchange Commission on July 29, 1992.
10.1* Credit Agreement, dated as of March 3, 1993, among
Bradlees, Inc., various lending institutions and
Bankers Trust Company as Agent, is incorporated by
reference from the Company's Form S-4, Registration
No. 33-60068, Part II, Item 21, Exhibit 10.2, as
filed with the Securities and Exchange Commission on
March 26, 1993.
30
<PAGE> 31
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially
No. Description Numbered Page
- ------ ----------- -------------
10.2* First Amendment to Credit Agreement, dated as of
April 26, 1993, among Bradlees, Inc., various lending
institutions and Bankers Trust Company as Agent, is
incorporated by reference from Amendment
No. 2 to the Company's Form S-4, Registration No.
33-60068, Part II, Item 21, Exhibit 10.14, as filed
with the Securities and Exchange Commission on May
21, 1993.
10.3* Second Amendment to Credit Agreement, dated as of
June 24, 1993, among Bradlees, Inc., various lending
institutions and Bankers Trust Company as Agent, is
incorporated by reference from the Company's Form
10-Q for the quarterly period ended May 22, 1993,
Part II, Item 6, Exhibit 10, as filed with the
Securities and Exchange Commission on July 2, 1993.
10.4* Third Amendment to Credit Agreement, dated as of
September 20, 1993, among Bradlees, Inc., various
lending institutions and Bankers Trust Company as
Agent, is incorporated by reference from the
Company's Form 10-Q for the quarterly period ended
November 6, 1993, Part II, Item 6, Exhibit 10, as
filed with the Securities and Exchange Commission on
December 20, 1993.
10.5* Fourth Amendment to Credit Agreement, dated as of
September 15, 1994, among Bradlees, Inc., various
lending institutions and Bankers Trust Company as
Agent, is incorporated by reference from the
Company's Form 10-Q for the quarterly period ended
August 13, 1994, Part II, Item 6, Exhibit 10, as
filed with the Securities and Exchange Commission
on September 27, 1994.
10.6* Fifth Amendment to Credit Agreement, dated as of
April 17, 1995, among Bradlees, Inc., various
lending institutions and Bankers Trust Company as
Agent, is incorporated by reference from the
Company's Form 10-K for the fiscal year ended
January 28, 1995, Part IV, Item 14(a)(3), Exhibit
10.6, as filed with the Securities and Exchange
Commission on April 28, 1995.
31
<PAGE> 32
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially
No. Description Numbered Page
- ------ ----------- -------------
10.7* Stock Purchase Agreement among the Company, Bradlees
Administrative Co., Inc., Stop & Shop and the
Bradlees Holding Companies, is incorporated by
reference from Amendment No. 7 to the Company's
Form S-1, Registration No. 33-47720, Part II, Item
16, Exhibit 10.2, as filed with the Securities and
Exchange Commission on July 1, 1992.
10.8* Restricted Stock Plan is incorporated by reference
from Amendment No. 6 to the Company's Form S-1,
Registration No. 33-47720, Part II, Item 16,
Exhibit 10.3, as filed with the Securities and
Exchange Commission on June 29, 1992.
10.9* Amendment No. 1 to Restricted Stock Plan is
incorporated by reference from the Company's Form
10-Q for the quarterly period ended November 5, 1994,
Part II, Item 6, Exhibit 10.7, as filed with the
Securities and Exchange Commission on December 20,
1994.
10.10* Key Employee Stock Option Plan is incorporated by
reference from Amendment No. 6 to the Company's
Form S-1, Registration No. 33-47720, Part II, Item
16, Exhibit 10.7, as filed with the Securities and
Exchange Commission on June 29, 1992.
10.11* Amendment No. 1 to Key Employee Stock Option Plan is
incorporated by reference from the Company's Form
10-Q for the quarterly period ended November 5, 1994,
Part II, Item 6, Exhibit 10.8, as filed with the
Securities and Exchange Commission on December 20,
1994.
10.12* Form of Restricted Stock Agreement is incorporated
by reference from Amendment No. 6 to the Company's
Form S-1, Registration No. 33-47720, Part II, Item
16, Exhibit 10.8, as filed with the Securities and
Exchange Commission on June 29, 1992.
10.13* 1993 Non-Employee Directors' Stock Option Plan is
incorporated by reference from the Company's Form
10-Q for the quarterly period ended August 14, 1993,
Part II, Item 6, Exhibit 10, as filed with the
Securities and Exchange Commission on September 27,
1993.
32
<PAGE> 33
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially
No. Description Numbered Page
- ------ ----------- ------------
10.14* Transitional Reimbursement Agreement is
incorporated by reference from Amendment No. 3
to the Company's Form S-1, Registration No.
33-47720, Part II, Item 16, Exhibit 10.10,
as filed with the Securities and Exchange
Commission on June 16, 1992.
10.15* Management Information Reimbursement Agreement is
incorporated by reference from Amendment No. 3
to the Company's Form S-1, Registration No.
33-47720, Part II, Item 16, Exhibit 10.11, as filed
with the Securities and Exchange Commission on June
16, 1992.
10.16* Product Supply Agreement is incorporated by
reference from Amendment No. 3 to the Company's
Form S-1, Registration No. 33-47720, Part II, Item
16, Exhibit 10.12, as filed with the Securities and
Exchange Commission on June 16, 1992.
10.17* Trailer Option Agreement is incorporated by reference
from Amendment No. 3 to the Company's Form S-1,
Registration No. 33-47720, Part II, Item 16, Exhibit
10.13, as filed with the Securities and Exchange
Commission on June 16, 1992.
10.18 Letter Agreement, dated March 28, 1995, amending the
Product Supply Agreement, Transitional Reimbursement
Agreement and Management Information Reimbursement
Agreement.
10.19 Amendment No. 1, dated as of October 31, 1994, to
Management Information Reimbursement Agreement.
10.20 Amendment No. 2, dated as of August 11, 1996, to
Management Information Reimbursement Agreement.
10.21* Employment Agreement dated as of October 18, 1994
among Bradlees Stores, Inc., Bradlees, Inc. and Barry
A. Berman is incorporated by reference from the
Company's Form 10-Q for the quarterly period ended
November 5, 1994, Part II, Item 6, Exhibit 10.1, as
filed with the Securities and Exchange Commission on
December 20, 1994.
33
<PAGE> 34
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially
No. Description Numbered Page
- ------ ----------- -------------
10.22* Amended and Restated Employment Agreement dated as of
October 26, 1995 between and among Bradlees, Inc.,
Bradlees Stores, Inc. and Mark A. Cohen is
incorporated by reference from the Company's Form
10-Q for the quarterly period ended October 28, 1995,
Part II, Item 6, Exhibit 10.2, as filed with the
Securities and Exchange Commission on December 12,
1995.
10.23* Stock Option Agreement dated December 3, 1994 between
Bradlees, Inc. and Mark A. Cohen is incorporated by
reference from the Company's Form 10-Q for the
quarterly period ended November 5, 1994, Part II,
Item 6, Exhibit 10.3, as filed with the Securities
and Exchange Commission on December 20, 1994.
10.24* Stock Option Agreement dated December 3, 1994 between
Bradlees, Inc. and Mark A. Cohen is incorporated by
reference from the Company's Form 10-Q for the
quarterly period ended November 5, 1994, Part II,
Item 6, Exhibit 10.4, as filed with the Securities
and Exchange Commission on December 20, 1994.
10.25*,** Stock Option Agreement dated December 3, 1994 between
Bradlees, Inc. and Mark A. Cohen is incorporated by
reference from the Company's Form 10-Q for the
quarterly period ended November 5, 1994, Part II,
Item 6, Exhibit 10.5, as filed with the Securities
and Exchange Commission on December 20, 1994.
10.26*,** Restricted Stock Agreement dated as of December 3,
1994 between Bradlees, Inc. and Mark A. Cohen is
incorporated by reference from the Company's Form
10-Q for the quarterly period ended November 5, 1994,
Part II, Item 6, Exhibit 10.6, as filed with the
Securities and Exchange Commission on December 20,
1994.
10.27* Amended and Restated Employment Agreement dated as of
October 26, 1995 between and among Bradlees, Inc.,
Bradlees Stores, Inc. and Peter Thorner is
incorporated by reference from the Company's Form
10-Q for the quarterly period ended October 28, 1995,
Part II, Item 6, Exhibit 10.2, as filed with the
Securities and Exchange Commission on December 12,
1995.
34
<PAGE> 35
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially
No. Description Numbered Page
- ------ ----------- -------------
10.28* Employment Agreement dated as of August 28, 1995
between and among Bradlees, Inc., Bradlees Stores,
Inc. and James M. Zamberlan is incorporated by
reference from the Company's Form 10-Q for the
quarterly period ended October 28, 1995, Part II,
Item 6, Exhibit 10.3, as filed with the Securities
and Exchange Commission on December 12, 1995.
10.29* Bradlees, Inc. and Bradlees Stores, Inc. Retention
Bonus Plan for Fiscal Year Ending February 3, 1996
and Subsequent Fiscal Years is incorporated by
reference from the Company's Form 10-K for the year
ended February 3, 1996, Part IV, Item 14(a)(3),
Exhibit 10.26, as filed with the Securities and
Exchange Commission on May 3, 1996.
10.30* Bradlees, Inc. and Bradlees Stores, Inc. Enterprise
Appreciation Incentive Plan Effective June 23, 1995
is incorporated by reference from the Company's Form
10-Q for the quarterly period ended October 28,
1995, Part II, Item 6, Exhibit 10.5, as filed with
the Securities and Exchange Commission on December
12, 1995.
10.31* Debtor-in-Possession Revolving Credit and Guaranty
Agreement, dated as of June 23, 1995, between
Chemical Bank, as Agent, and Bradlees Stores, Inc.,
a Debtor-in-Possession, with Bradlees Administrative
Co., Inc. and the Subsidiaries of the Borrower as
Guarantors, is incorporated by reference from the
Company's Form 8-K dated July 26, 1995, Item 7,
Exhibit 10.1, as filed with the Securities and
Exchange Commission on July 27, 1995.
10.32* First Amendment, dated as of June 30, 1995, to
Debtor-in-Possession Revolving Credit and Guaranty
Agreement, is incorporated by reference from the
Company's Form 8-K dated July 26, 1995, Item 7,
Exhibit 10.2, as filed with the Securities and
Exchange Commission on July 27, 1995.
10.33* Second Amendment, dated as of August 9, 1995, to
Debtor-in-Possession Revolving Credit and Guaranty
Agreement, is incorporated by reference from the
Company's Form 10-Q for the quarterly period ended
August 12, 1995, Part II, Item 6, Exhibit 10.3, as
filed with the Securities and Exchange Commission on
September 26, 1995.
35
<PAGE> 36
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially
No. Description Numbered Page
- ------ ----------- -------------
10.34* Third Amendment, dated as of March 15, 1996, to
Debtor-in-Possession Revolving Credit and Guaranty
Agreement, dated as of June 23, 1995, between
Chemical Bank, as Agent and Societe Generale, as
Co-Agent, and Bradlees Stores, Inc., a Debtor-in-
Possession, with Bradlees Administrative Co., Inc.
and the Subsidiaries of the Borrower as Guarantors,
is incorporated by reference from the Company's Form
8-K dated March 29, 1996, Item 7, Exhibit 10.4, as
filed with the Securities and Exchange Commission on
April 1, 1996.
10.35* Fourth Amendment, dated as of September 13, 1996, to
Debtor-in-Possession Revolving Credit and Guaranty
Agreement, dated as of June 23, 1995, between The
Chase Manhattan Bank, as Agent and Societe Generale,
as Co-Agent, and Bradlees Stores, Inc., a Debtor-in-
Possession, with Bradlees Administrative Co., Inc.
and the Subsidiaries of the Borrower as Guarantors,
is incorporated by reference from the Company's Form
10-Q for the quarterly period ended August 3, 1996,
Part II, Item 6, Exhibit 10.5, as filed with the
Securities and Exchange Commission on September 17,
1996.
10.36* Fifth Amendment, dated as of January 13, 1997, to
Debtor-in-Possession Revolving Credit and Guaranty
Agreement, is incorporated by reference from the
Company's Form 8-K dated January 28, 1997, Item 7,
Exhibit 10.6, as filed with the Securities and
Exchange Commission on January 29, 1997.
10.37 Sixth Amendment, dated as of March 20, 1997, to
Debtor-in-Possession Revolving Credit and Guaranty
Agreement.
10.38* Bradlees, Inc. and Bradlees Stores, Inc.
Supplemental Executive Retirement Plan Effective
December 1, 1995 is incorporated by reference from
the Company's Form 10-K for the year ended
February 3, 1996, Part IV, Item 14(a)(3), Exhibit
10.32, as filed with the Securities and Exchange
Commission on May 3, 1996.
36
<PAGE> 39
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially
No. Description Numbered Page
- ------ ----------- -------------
10.39* Form of Senior Vice President Severance Agreement is
incorporated by reference from the Company's Form
10-K for the year ended February 3, 1996, Part IV,
Item 14(a)(3), Exhibit 10.33, as filed with the
Securities and Exchange Commission on May 3, 1996.
10.40 Form of Revised Senior Vice President Severance
Agreement.
10.41 Form of President Severance Agreement.
10.42 Severance Agreement dated as of January 31, 1997 by
and between Bradlees Stores, Inc., Bradlees, Inc. and
James M. Zamberlan, and Escrow Agreement dated as of
January 31, 1997 by and among James M. Zamberlan,
Bradlees, Inc. and Bradford J. Smith, Esq. of
Goodwin, Procter & Hoar LLP.
11 Computation of earnings per share.
21* Subsidiaries of the Registrant is incorporated by
reference from the Company's Form 10-K for the fiscal
year ended January 28, 1995, Part IV, Item 14 (a)(3),
Exhibit 21, as filed with the Securities and Exchange
Commission on April 28, 1995.
23 Consent of Deloitte & Touche LLP, Independent
Auditors.
*Previously filed.
**Confidential treatment has been requested for omitted portions.
37
<PAGE> 38
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Bradlees, Inc., Debtor-in-Possession:
We have audited the accompanying consolidated balance sheets of
Bradlees, Inc. and subsidiaries, Debtor-in-Possession (the
"Company"), as of February 1, 1997 and February 3, 1996, and the
related consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for the years ended February
1, 1997, February 3, 1996, and January 28, 1995. 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
Bradlees, Inc. and subsidiaries at February 1, 1997 and February
3, 1996, and the results of its operations and its cash flows
for the years ended February 1, 1997, February 3, 1996, and
January 28, 1995 in conformity with generally accepted
accounting principles.
As discussed in Notes 1 and 3, the Company has filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code.
The accompanying consolidated financial statements do not
purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such consolidated
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 prepetition
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; or (d) as to operations,
the effect of any changes that may be made in its business.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial
statements, the Company's 1996 and 1995 losses from operations
and stockholders' deficiency raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1.
The consolidated financial statements do not include adjustments
that might result from the outcome of this uncertainty.
As discussed in Note 14 to the consolidated financial
statements, effective January 30, 1994, the Company adopted
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Post-employment Benefits."
38
Boston, Massachusetts
March 20, 1997
<PAGE> 39
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
52 Weeks ended 53 Weeks ended 52 Weeks ended
February 1, 1997 February 3, 1996 January 28, 1995
Total sales $1,619,444 $ 1,840,926 $1,978,261
Leased sales 57,726 60,158 61,706
--------- --------- ---------
Net sales 1,561,718 1,780,768 1,916,555
Cost of goods sold 1,127,651 1,289,077 1,325,395
Gross margin 434,067 491,691 591,160
Leased department and other
operating income 12,850 14,075 18,565
-------- -------- --------
446,917 505,766 609,725
Selling, store operating,
administrative and
distribution expenses 505,926 575,220 520,289
Depreciation and
amortization expense 40,750 52,853 48,957
Gain on disposition of properties (1,739) - -
Interest and debt expense 10,165 25,278 30,468
Impairment of long-lived assets 40,782 99,358 -
Reorganization items 69,792 65,003 -
-------- ------- --------
Earnings (loss) before income
taxes and cumulative effect of
accounting change (218,759) (311,946) 10,011
Income tax expense (benefit) - (104,533) 4,205
--------- -------- --------
Earnings (loss) before cumulative
effect of accounting change (218,759) (207,413) 5,806
Cumulative effect of accounting
change, net of income tax
benefit - - (485)
---------- -------- -----
Net earnings (loss) ($218,759) ($207,413) $5,321
========== ======== =====
Net earnings (loss) per share:
Earnings (loss) before
cumulative effect of
accounting change $(19.17) $ (18.17) $ 0.51
========== ========= ======
Cumulative effect of
accounting change, net of
income tax benefit - - (0.04)
---------- -------- -------
Net earnings (loss) per share $ (19.17) $ (18.17) $ 0.47
========== ======== =======
Number of shares used in
earnings (loss) per share
calculation (in thousands) 11,412 11,416 11,353
====== ====== ======
See accompanying Notes to Consolidated Financial Statements
39
<PAGE> 40
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
February 1,1997 February 3,1996
--------------- ---------------
Assets
Current assets:
Unrestricted cash and cash equivalents $ 10,025 $63,012
Restricted cash and cash equivalents 9,126 1,194
--------- ---------
Total cash and cash equivalents 19,151 64,206
--------- ---------
Accounts receivable 8,240 10,536
Refundable income taxes - 24,576
Inventories 236,920 282,270
Prepaid expenses 8,466 10,008
Assets held for sale(principally real estate) 8,419 8,954
--------- ---------
Total current assets 281,196 400,550
--------- ---------
Property, plant and equipment, net 163,641 207,496
--------- --------
Other assets:
Lease interests and lease acquisition costs,net 150,229 186,626
Assets held for sale (principally real estate) 5,250 -
Other, net 3,884 3,990
--------- ---------
Total other assets 159,363 190,616
--------- ---------
Total assets $ 604,200 $798,662
========= =========
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable $ 115,315 $148,870
Accrued employee compensation and benefits 13,317 15,328
Self-insurance reserves 7,086 7,426
Other accrued expenses 32,607 26,129
Short-term debt 42,500 -
Current portion of capital lease obligations 1,722 2,602
--------- ---------
Total current liabilities 212,547 200,355
--------- --------
Long-term debt 33,296 53,396
Deferred income taxes 8,581 8,581
Self-insurance reserves 14,386 14,852
Other long-term liabilities 27,642 26,723
Liabilities subject to settlement under the
reorganization case 571,041 539,765
Commitments and contingencies (Note 13)
Stockholders' equity (deficiency):
Common stock - 11,394,433 shares outstanding
(11,416,656 at 2/3/96)
Par value 115 115
Additional paid-in-capital 137,951 137,951
Unearned compensation (167) (793)
Accumulated deficit (400,525) (181,766)
Treasury stock, at cost-73,296 shares
(51,073 at 2/3/96) (667) (517)
--------- -------
Total stockholders' deficiency (263,293) (45,010)
--------- ---------
Total liabilities and stockholders' deficiency $604,200 $798,662
========= =========
See accompanying Notes to Consolidated Financial Statements.
40
<PAGE> 41
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
52 Weeks 53 Weeks 52 Weeks
ended ended ended
Feb. 1, 1997 Feb. 3, 1996 Jan. 28, 1995
------------ ------------ -------------
Cash Flows From Operating Activities:
Net earnings (loss) $(218,759) $(207,413) $ 5,321
Adjustments to reconcile net
earnings (loss) to cash provided
(used) by operating activities:
Cumulative effect of accounting change - - 485
Depreciation and amortization 40,750 52,853 48,957
Impairment of long-lived assets 40,782 99,358 -
Amortization of deferred financing costs 2,154 1,475 1,313
Stock compensation - 701 1,067
Deferred income taxes - (79,957) 1,321
Reorganization items 69,792 65,003 -
Gain on disposition of properties (1,739) - -
Increase (decrease) in cash resulting
from changes in:
Accounts receivable 2,296 6,819 (3,547)
Inventories 44,293 16,848 (35,341)
Prepaid expenses 1,542 372 934
Refundable income taxes 24,576 (24,546) -
Other assets (1,464) (1,359) -
Accounts payable (32,319) 96,431 74,484
Accrued expenses 1,830 4,935 (15,399)
-------- -------- --------
Net cash (used) provided by operating
activities before reorganization items (26,266) 31,490 79,595
-------- -------- --------
Operating cash flows from
reorganization items:
Interest income received 1,445 2,965 -
Bankruptcy-related professional
fees paid (10,756) (2,250) -
Other reorganization expenses paid,net (17,572) (3,084) -
-------- -------- --------
Net cash used by reorganization items (26,883) (2,369) -
-------- -------- --------
Net cash provided (used) by operating
activities (53,149) 29,121 79,595
-------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures, net (27,527) (36,964) (92,599)
Lease acquisition costs - (65) (2,620)
Increase in restricted cash and
cash equivalents (7,932) (1,194) -
-------- -------- --------
Net cash used in investing activities (35,459) (38,223) (95,219)
-------- -------- --------
Cash Flows From Financing Activities:
Principal payments on long-term debt (2,707) (5,794) (6,829)
Payments of liabilities subject to
settlement (5,327) (11,764) -
Proceeds from sales of assets 1,739 - 5,150
Borrowings under pre-petition
revolving loan facility - 72,500 21,000
Borrowings under financing obligation - 12,801 -
Borrowings under DIP facility 42,500 - -
Deferred financing costs (584) (4,047) (2,500)
Other common stock activity, net - (18) 145
Dividends paid - (1,712) (6,781)
-------- -------- --------
Net cash provided by financing
activities 35,621 61,966 10,185
-------- -------- --------
41
<PAGE> 42
(CONTINUED)
Net increase (decrease) in unrestricted
cash and cash equivalents (52,987) 52,864 (5,439)
Unrestricted cash and cash equivalents:
Beginning of period 63,012 10,148 15,587
-------- --------- ---------
End of period $10,025 $ 63,012 $ 10,148
======== ========= =========
Supplemental disclosure of
cash flow information:
Cash paid for interest $ 2,208 $ 14,484 $ 24,906
Cash paid (received) for income taxes $(25,046) $ (2,869) $ 8,986
Supplemental schedule of noncash
(investing and financial) activities:
Capital lease obligations incurred $ - $ 8,398 $ 23,642
See accompanying Notes to Condensed Consolidated Financial
Statements.
<PAGE> 43
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-In-Possession)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Retained
Earnings
Common Stock Additional Shareholders'
Unearned (Accum. Treasury Equity
Shares Amount Paid-in-Capital Comp. Deficit) Stock (Deficiency)
<S> <C> <C> <C> <C> <C> <C> <C>
Bal. at Jan. 29, 1994 11,267,882 $113 $136,757 $(1,636) $28,819 $(373) $163,680
Restricted stock-grant 75,000 - 758 (758) - - -
Rest. stock-forfeitures (14,190) - - 207 - (207) -
Rest. stock-amortization - - - 490 - - 490
Deferred salary option
plan grant 45,000 - 290 - - 287 577
Stock options exercised 20,920 - 272 - - - 272
Other treasury stock
activity, net (9,358) - - - - (127) (127)
Net earnings - - - - 5,321 - 5,321
Dividends ($0.60 per share) - - - - (6,781) - (6,781)
----------- ----- ---------- -------- -------- ----- ----------
Bal. at Jan. 28, 1995 11,385,254 113 138,077 (1,697) 27,359 (420) 163,432
Rest. stock-grant 25,000 1 232 (232) - - 1
Rest. stock-revaluation - - (628) 628 - - -
Rest. stock-forfeitures (13,139) - - 79 - (79) -
Rest. stock-amortization - - - 429 - - 429
Deferred salary option
plan grant 27,000 1 270 - - - 271
Other treasury stock
activity, net (7,459) - - - - (18) (18)
Net loss - - - - (207,413) - (207,413)
Dividends ($0.15 per share) - - - - (1,712) - (1,712)
----------- ----- ---------- -------- -------- ----- ----------
Bal. at Feb. 3, 1996 11,416,656 115 137,951 (793) (181,766) (517) (45,010)
Rest. stock-forfeitures (22,223) - - 150 - (150) -
Rest. stock-amortization - - - 476 - - 476
Net loss - - - - (218,759) - (218,759)
----------- ----- ---------- -------- -------- ----- ----------
Bal. at Feb. 1, 1997 11,394,433 $115 $137,951 $(167) $(400,525) $(667) $(263,293)
============ ==== =========== ========= ========== ======= ===========
See accompanying Notes to Consolidated Financial Statements
</TABLE>
43
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bradlees, Inc. and Subsidiaries
(Operating as Debtor-In-Possession)
1. Basis of Presentation
Bradlees, Inc. and its subsidiaries, including Bradlees
Stores, Inc. (collectively "Bradlees" or the "Company") is a
discount department store retailer in the Northeast. The
Company's consolidated financial statements have been prepared
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 generally accepted accounting principles applicable
to a going concern, which principles, except as otherwise
disclosed, assume that assets will be realized and liabilities
will be discharged in the normal course of business. The
Company filed petitions for relief under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") on June 23, 1995
(the "Filing"). The Company is presently operating its business
as a debtor-in-possession subject to the jurisdiction of the
United States Bankruptcy Court for the Southern District of New
York (the "Bankruptcy Court").
Bradlees acquired the Bradlees Business from The Stop &
Shop Companies, Inc. ("Stop & Shop") with the proceeds from a
July 10, 1992 initial public offering of 11,018,625 shares of
its common stock ("Acquisition"). The Bradlees Business was
comprised of Bradlees New England Holdings, Inc., Bradlees New
York Holdings, Inc. and Stop & Shop Holdings, Inc. ("Holdings")
and Holdings' wholly-owned subsidiary, Bradlees New Jersey, Inc.
and each of their subsidiaries. Certain real estate
subsidiaries of the Bradlees Business were retained by Stop &
Shop and the properties owned by these subsidiaries were leased
to Bradlees. The Acquisition was accounted for using the
purchase method of accounting.
The Company experienced significant operating losses in
1996 and 1995. The Company's ability to continue as a going
concern is dependent upon the confirmation of a plan of
reorganization by the Bankruptcy Court, the ability to maintain
compliance with debt covenants under the DIP Facility (Note 6),
achievement of profitable operations, and the resolution of the
uncertainties of the reorganization case discussed in Note 3. A
plan of reorganization could materially change the amounts
reported in the accompanying consolidated financial statements.
The accompanying consolidated financial statements do not
include any adjustments relating to the 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.
In an effort to return the Company to profitability and
accomplish its long-term goals, the Company will continue to
focus on merchandise quality and fashion as a way to
differentiate itself from its closest competition, but is making
the following modifications to its business strategy: (a)
reintroducing lower opening price points in selective
merchandise categories to enhance value, increase customer
traffic and avoid costly promotions; (b) reintroducing certain
basic convenience and commodity products that are typical of
assortments carried by discount stores; (c) reinstituting a
layaway program in the second half of the fiscal year ending
January 31, 1998 ("1997"); (d) revising the Company's markdown
policy based on product rate of sale; (e) making the weekly
circulars more item-intensive and price-point oriented with
clear presentation while reducing less productive and more
costly advertising media; and (f) improving operating
efficiencies to achieve further cost reductions. The Company is
making evolutionary changes in its merchandise assortment and
presentation in connection with these steps. In addition, the
Company reduced and reorganized its home office, store, field
and regional management structures and closed 27 stores in the
fiscal year ended February 1, 1997 ("1996"). The Company will
close one additional unprofitable store in April, 1997.
44
<PAGE> 45
2. Summary of Significant Accounting Policies
Principles of consolidation The consolidated financial
statements include the accounts of all subsidiaries and the
accounts of the special purpose entity ("SPE") with which the
Company had a leasing arrangement for new store sites (Note 8).
Intercompany transactions have been eliminated in consolidation.
The Company's fiscal year ends on the Saturday nearest to
January 31. The term "1996" refers to the 52 weeks ended
February 1, 1997; "1995" refers to the 53 weeks ended February
3, 1996; and "1994" refers to the 52 weeks ended January 28,
1995.
Fair Value of Financial Instruments Statement of Financial
Accounting Standards ("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 financial statements. The
estimated fair values of the Company's cash and cash
equivalents, accounts receivable, borrowings under the DIP
Facility (Note 6) and accounts payable (post-petition)
approximate the carrying amounts at February 1, 1997 and
February 3, 1996 due to their short maturities or variable-rate
nature of the borrowings. The fair value of the Company's
liabilities subject to settlement are not presently determinable
as a result of the Chapter 11 proceedings. At February 3, 1996,
the fair values, based on quoted market prices in an active
market, of the 11% Senior Subordinated Notes due 2002 ("2002
Notes") and the 9.25% Senior Subordinated Notes due 2003 ("2003
Notes"), classified as subject to settlement under the
reorganization case (Note 3) were $29,550 and $23,510,
respectively. The fair values of the 2002 Notes and 2003 Notes
were not obtainable at February 1, 1997. Face values of the
2002 Notes and 2003 Notes were $125,000 and $100,000,
respectively, at February 3, 1996 and February 1, 1997.
Geographical concentration As of February 1, 1997, the
Company operated 110 discount department stores in seven states
in the Northeast, primarily in the heavily populated corridor
running from Boston to Philadelphia. A significant change in
economic or competitive conditions within this area could have a
material impact on the Company's operations. The Company closed
27 stores in 1996 and is currently in the process of closing one
additional store in April, 1997.
Accounting 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. Actual results could
differ from those estimates. The primary estimates underlying
the Company's financial statements include the value of assets
held for sale, the estimated useful lives of fixed assets and
lease interests, the estimates used in SFAS No. 121 calculations
(Note 4), accruals for self-insured workers compensation and
general liability, provisions for rejected leases and
restructuring costs associated with closing stores (Note 7), and
the classification of liabilities subject to settlement (Note 3).
Collective bargaining arrangements Approximately 73% of
the Company's labor force is covered by collective bargaining
agreements, of which collective bargaining agreements affecting
approximately 2% of the labor force will expire within one year.
45
<PAGE> 46
Cash and cash equivalents Highly liquid investments with
original maturities of 3 months or less when purchased are
classified as cash and cash equivalents. Restricted cash and
cash equivalents at February 1, 1997 were comprised of the
following, along with earned interest of $.2 million: (a) $6.0
million of the $24.5 million federal income tax refund received
in April, 1996, held in escrow pending further order of the
Bankruptcy Court; (b) $1.7 million of forfeited deposits
received in 1996 on a planned sale of an owned undeveloped
property that was not consummated (pursuant to the Bankruptcy
Court order permitting the sale of the property, all proceeds
associated with the sale of the property must be maintained in a
segregated escrow account pending further order of the
Bankruptcy Court), and (c) other funds ($1.2 million) restricted
for security deposits for utility expenses incurred after the
Filing. The security deposits for utility expenses were also
held at February 3, 1996.
Inventories Substantially all inventories are valued at
the lower of cost (which includes certain warehousing costs) or
market, using the last-in, first-out ("LIFO") retail method. No
LIFO charge has been recorded by the Company as there has been
no excess of current cost over LIFO cost since the Acquisition.
Assets held for sale Assets held for sale are stated at
the lower of net book value or estimated net realizable value
(Note 7) and have been classified as current or noncurrent based
upon the anticipated time to sell the asset.
Property, plant and equipment Maintenance, repairs and
minor renewals are charged to operations as incurred. Major
renewals and betterments which substantially extend the useful
life of the property are capitalized. Depreciation and
amortization are recorded based upon the estimated useful lives
under the straight-line method. Leasehold improvements and
assets recorded under capital leases are amortized over the
lives of the respective leases (including extensions) or the
lives of the improvements, whichever is shorter.
Buildings 30 years
Fixtures, machinery and equipment 3 to 10 years
Leasehold improvements 10 to 20 years
or the term of the
lease, if shorter
Lease interests and lease acquisition costs Lease
interests and lease acquisition costs represent the lease rights
acquired at the Acquisition (Note 1) and costs incurred
subsequently to acquire a lease or lease right, and are
amortized on the straight-line method over the remaining lives
of the leases (including option periods) or 40 years, if
shorter. Accumulated amortization was $27.7 million at February
1, 1997 and $23.0 million at February 3, 1996. During 1996 and
1995, accumulated amortization of $3.3 and $4.2 million was
eliminated in accordance with SFAS No. 121 (Note 4),
respectively, and $3.8 million was eliminated in 1995 in
conjunction with closing stores (Note 7). As a result of
charges taken in accordance with SFAS No. 121 and for closed
stores, all lease acquisition costs have been written-off as of
February 1, 1997.
Lease interests acquired at the Acquisition represented the
value attributed to real estate leased by the Company at July
10, 1992. The lease interests were determined by calculating
the present value of the excess of market rent for each lease
over the actual rent payable (including percentage rent) over
the remaining lease term, including all renewal option periods,
discounted at 10%, and then adjusted in accordance with the
purchase method of accounting. The recoverability of the
remaining carrying value of lease interests is dependent upon
the Company's ability to generate sufficient future cash flows
from operations at each leased site, or in the case of a sale or
disposition of a lease or leases, the continuation of similar
favorable market rents. Accordingly, recoverability of this
asset could be significantly
46
<PAGE> 47
affected by future economic, market and competitive factors and
is subject to the inherent uncertainty associated with
estimates.
Self-insurance reserves The Company is primarily
self-insured for workers' compensation and general liability
costs. The self-insurance reserves are actuarially determined
using discount rates of 6.00% at February 1, 1997 and 5.30% at
February 3, 1996. Self-insurance reserves have been classified
as current and noncurrent in accordance with the estimated
timing of the projected payments.
Deferred financing costs Deferred financing costs (related
to the DIP Facility) are amortized over the life of the related
financing. Accumulated amortization was $2.9 million at
February 1, 1997 and $.9 million at February 3, 1996. Net
deferred financing costs as of the Filing date of $3.4 million,
$2.0 million and $2.7 million for the pre-petition revolver,
2002 Notes and 2003 Notes, respectively, were netted against the
related outstanding debt subject to settlement during 1995 (Note
3).
Store opening and closing costs Preopening costs are
expensed prior to or when a store opens or, in the case of a
remodel, reopens. Store closing costs are provided for when the
decision is made to close such stores.
Stock compensation The Company accounts for stock-based
employee compensation costs using the intrinsic value method.
Capitalized interest During 1995, the Company ceased
interest capitalization due to the Filing. Capitalized interest
was $.5 million for 1994.
Income taxes The Company provides for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes."
Deferred income taxes, net of valuation allowances, are provided
to recognize the effect of temporary differences between
financial reporting and income tax reporting of assets and
liabilities.
Net earnings (loss) per share Primary earnings (loss) per
share is based on the weighted average number of common shares
outstanding plus the common stock equivalents related to stock
options if not anti-dilutive. Fully diluted earnings per share
was not presented for 1996 and 1995 since it would have an
anti-dilutive impact and was not presented in 1994 since
dilution was less than 3%.
Reclassifications Certain reclassifications have been made
to the 1995 and 1994 financial statements to conform with the
1996 presentation.
New accounting pronouncements In February 1997, the
Financial Accounting Standards Board ("FASB") issued SFAS No.
128, "Earnings per Share." SFAS 128 is effective for financial
statements, for both interim and annual periods, ending after
December 15, 1997. The Company has not determined the impact
SFAS 128 may have on its earnings per share calculations.
3. Reorganization Case
In the Chapter 11 case, substantially all liabilities as of
the date of the Filing are subject to settlement under a plan of
reorganization to be voted upon by the Company's creditors and
stockholders and confirmed by the Bankruptcy Court. Schedules
have been filed by the Company with the Bankruptcy Court setting
forth the assets and liabilities of the Company as of the date
of the Filing as shown by the Company's accounting records.
Differences between amounts shown by the Company and claims
filed by creditors are being investigated and resolved. The
ultimate amount and settlement terms for such liabilities are
subject to a plan of reorganization, and accordingly, are not
presently determinable. The Company currently retains the
exclusive right to file a plan of reorganization until August 4,
1997 and to
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<PAGE> 48
solicit acceptance of a plan of reorganization until October 3,
1997, each subject to possible extension as approved by the
Bankruptcy Court.
Under the Bankruptcy Code, the Company may elect to assume
or reject real estate leases, employment contracts, personal
property leases, service contracts and other executory
pre-petition leases and contracts, subject to Bankruptcy Court
approval. A liability of approximately $50.9 million has been
recorded as of February 1, 1997 for rejected leases and
anticipated claims for certain closed store leases that were
expected to be rejected. This liability may be subject to
future adjustments based on claims filed by the lessors and
Bankruptcy Court actions. The Company cannot presently
determine or reasonably estimate the ultimate liability which
may result from the filing of claims for any rejected contracts
or from additional leases which may be rejected at a future
date. The Company believes that it recorded its best estimate
of the liability for rejected leases based on information
available.
The principal categories of claims classified as
"Liabilities subject to settlement under the reorganization
case" are identified below. Deferred financing costs as of the
Filing date of $3.4 million, $2.0 million and $2.7 million,
respectively, for the pre-petition revolving loan facility (the
"Revolver") and subordinated debt (the "2002 and 2003 Notes")
have been netted against the related outstanding debt amounts.
In addition, a $9.0 million cash settlement and approximately
$6.1 million of adequate protection payments reduced the
Revolver debt amount. The cash settlement relates to a portion
of the Company's cash balance as of the date of the Filing ($9.3
million) which was claimed as collateral by the pre-petition
bank group. The claim was settled in full for $9.0 million and
approved by the Bankruptcy Court in 1995. Also, payments of
approximately $1.1 and $.8 million were made to IBM Credit
Corporation ("IBM") and Comdisco, Inc. ("Comdisco"),
respectively, in 1996 for settlement of certain equipment
capital lease obligations (Note 6). All amounts presented below
may be subject to future adjustments depending on Bankruptcy
Court actions, further developments with respect to disputed
claims, determination as to the security of certain claims, the
value of any collateral securing such claims, or other events.
(000's)
------------------------------------
Liabilities Subject to Settlement
Under the Reorganization Case February 1, 1997 February 3, 1996
- ------------------------------ -------------------- ----------------
Accounts payable $167,098 $167,200
Accrued expenses 27,932 23,112
Revolver 75,005 78,305
2002 Notes 122,274 122,274
2003 Notes 97,957 97,957
SPE financing obligation (Note 8) 17,951 17,951
Obligations under capital leases 11,887 13,995
Liability for rejected leases 50,937 18,971
-------- --------
$571,041 $539,765
======== ========
4. Statement of Financial Accounting Standards No. 121
In the fourth quarter of 1995, the Company adopted SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of " and recorded a charge of
approximately $99.4 million to reflect the impairment of
certain long-lived assets. In the fourth quarter of 1996, the
Company recorded an additional charge of approximately $40.8
million in accordance with SFAS No. 121 based on revisions to
cash flow assumptions and as a result of the significant
operating loss incurred in 1996. SFAS No. 121 requires
48
<PAGE> 49
that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company
reviewed its long-lived assets for recoverability in both years
primarily as a result of the significant operating losses
incurred.
In applying SFAS No. 121, the Company compared currently
anticipated cash flows over the remaining lease term, including
anticipated renewal periods, from each store (excluding closing
stores) with the corresponding carrying amount of identified
long-lived assets and recorded a reduction in carrying value
where such cash flows were not sufficient to recover the related
assets over the term of the lease.
The fair value of these impaired long-lived assets was
determined primarily using the Company's current estimate of the
associated future cash flows over the base lease term, including
anticipated renewal periods and consideration of the fair market
value of the assets at the end of the lease term. The stream of
future cash flows by store were discounted at a 20% rate, which
the Company believed to be commensurate with the risks involved.
There are significant assumptions, primarily future cash
flows, inherent in the SFAS No. 121 calculations, particularly
given the Company's recent operating losses and evolving
merchandising strategy. These assumptions may not be realized
and are subject to significant business, economic and
competitive uncertainties. It is possible that the SFAS No. 121
estimates could change in the near term and the effect of such
changes could be material to the financial statements.
The charges in 1996 and 1995 are comprised of the following
long-lived asset impairments (in 000's):
1996 1995
---- ----
Property excluding capital leases, net $10,548 $43,632
Property under capital leases, net 3,363 21,688
Lease interest and lease
acquisition costs, net 26,871 34,038
------ ------
$40,782 $99,358
====== ======
5. Property, Plant and Equipment, Net
(000's)
------------------------------------
February 1, 1997 February 3, 1996
---------------- ----------------
Property excluding capital leases:
Buildings and improvements $96,978 $103,318
Equipment and fixtures 109,486 105,878
Land 3,731 15,039
--------- ---------
Subtotal 210,195 224,235
Accumulated depreciation (70,949) (53,988)
--------- --------
Property excluding capital leases, net 139,246 170,247
--------- --------
49
<PAGE> 50
Property under capital leases:
Buildings and improvements 28,218 41,230
Equipment and fixtures 8,395 11,682
--------- ---------
Subtotal 36,613 52,912
Accumulated amortization (12,218) (15,663)
--------- ---------
Property under capital leases, net 24,395 37,249
--------- ---------
Total property, plant and equipment, net $163,641 $207,496
========= =========
6. Debt
(000's)
------------------------------------
February 1, 1997 February 3, 1996
---------------- ----------------
DIP Facility (8.25%-1996) $42,500 $ -
Revolver (10.0% - 1996, 9.75% - 1995) 75,005 78,305
2002 Notes (11%) 122,274 122,274
2003 Notes (9.25%) 97,957 97,957
SPE financing obligation (7.75%) (Note 8) 17,951 17,951
Obligations under capital leases (Note 8) 46,905 69,993
--------- ---------
Total debt 402,592 386,480
Less: Short-term debt (DIP Facility) 42,500 -
Current portion-capital leases 1,722 2,602
Less: Debt subject to settlement (Note 3):
Revolver 75,005 78,305
2002 Notes 122,274 122,274
2003 Notes 97,957 97,957
SPE financing obligation 17,951 17,951
Obligations under capital leases 11,887 13,995
--------- ---------
Long-term debt $33,296 $53,396
========= =========
As a result of the Filing, substantially all debt
(exclusive of the DIP Facility) outstanding at February 1, 1997
and February 3, 1996 was classified as liabilities subject to
settlement (Note 3). No principal or interest payments are made
on any pre-petition debt (excluding certain capital leases)
without Bankruptcy Court approval or until a reorganization plan
defining the repayment terms has been approved. During 1995,
the Company received Bankruptcy Court approval to make certain
adequate protection payments to the pre-petition bank group.
The adequate protection payments, a cash settlement, and
deferred financing costs have been netted against the related
outstanding debt amounts (Note 3).
On June 25, 1996, the Bankruptcy Court approved an
agreement between the Company and BTM Capital Corporation
("BTM") that fixed the secured claim of BTM in the amount of
$2.25 million, subject to reduction for adequate protection
payments also approved by the Bankruptcy Court. On December 17,
1996, the Bankruptcy Court approved agreements between the
Company and IBM and between the Company and Comdisco which
settled all litigation between the parties regarding the
characterization of certain equipment lease agreements. Under
these agreements, the Company agreed to pay all amounts due to
IBM ($1.1 million in December, 1996) and Comdisco ($.8 million
in January,
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<PAGE> 51
1997), purchase all the equipment under the IBM equipment lease
agreement ($1.4 million in December, 1996) and reject the
Comdisco lease effective February 28, 1997.
Generally, interest on pre-petition debt ceases accruing
upon the filing of a petition under the Bankruptcy Code; if,
however, the debt is collateralized by an interest in property
whose value (minus the cost of preserving such property) exceeds
the amount of the debt, post-petition interest may be payable.
Other than those noted above, no other determinations have yet
been made regarding the value of the property interests which
collateralize various debts. Although interest may be paid
pursuant to an order of the Bankruptcy Court, it is uncertain
whether any post-petition interest will be payable or paid. The
Company believes at this time that it is unlikely that such
interest will be paid. Contractual interest expense not
recorded on certain pre-petition debt (the Revolver, 2002 Notes
and 2003 Notes) totaled approximately $32.5 and $20.1 million
for 1996 and 1995, respectively.
DIP Facility The Company has a Debtor-in-Possession
Revolving Credit and Guaranty Agreement (the "DIP Facility") in
the aggregate amount of $200 million (of which $125 million is
available for issuance of letters of credit) with Chase
Manhattan Bank, as Agent, under which the Company is allowed to
borrow for general corporate purposes, working capital and
inventory purchases. The DIP Facility, originally dated as of
June 23, 1995, was amended and reduced to $200 million from $250
million in September, 1996. There were outstanding direct
borrowings of $42.5 million under the DIP Facility as of
February 1, 1997. Trade and standby letters of credit
outstanding under the DIP Facility were $9.2 and $26.9 million,
respectively, at February 1, 1997 and $10.2 and $37.5 million,
respectively, at February 3, 1996 .
At the Company's option, the Company may borrow under the
DIP Facility, as amended on March 20, 1997, at the Alternate
Base Rate (as defined) plus .50% (.25%-1996) or at the Adjusted
LIBO Rate (as defined) plus 1.75% (1.50%-1996). The weighted
average interest rate under the DIP Facility in 1996
approximated 7.39%. The maximum borrowing, up to $200 million,
is limited to 60% of the Eligible Book Value of Inventory (as
amended on March 20, 1997 to include goods on order for which
trade letters of credit have been issued). The weighted average
borrowings under the DIP Facility in 1996 were $5.9 million.
Although there are no compensating balance requirements,
the Company is required to pay an annual commitment fee of .5%
of the unused portion of the DIP Facility. The DIP Facility
contains restrictive covenants including, among other things,
limitations on the incurrence of additional liens and
indebtedness, limitations on capital expenditures and the sale
of assets, the maintenance of minimum operating earnings
("EBITDA") and inventory levels, and a prohibition on paying
dividends. Certain of these covenants were amended in March,
1997 for future periods. The Bankruptcy Court has approved the
amendment. At February 1, 1997, the Company is in compliance
with the amended DIP Facility covenants. The lender under the
DIP Facility has a "super-priority" claim against the estate of
the Company. The March 1997 amendment also extends the
expiration date to the earlier of June 23, 1998 or the
substantial consummation of a reorganization plan that is
confirmed by the Bankruptcy Court.
Revolver Prior to the Filing, the Company had a $150
million revolving loan facility ("Revolver"), including
outstanding commercial and standby letters of credit, under its
Credit Agreement, as amended. The Revolver had a maturity date
of July 31, 1997, and had a variable interest rate based on,
among others factors, the Company's elected borrowing period and
amount. The weighted average interest rate
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<PAGE> 52
approximated 10.0% in 1996 and 8.1% in 1995. The Company also
paid commitment and agency fees. In addition, the Credit
Agreement contained restrictive covenants, including limitations
on indebtedness, liens, dividends and other payments and asset
sales. No interest has been paid or accrued on the Revolver
since the Filing.
2002 Notes and 2003 Notes The 2002 Notes and 2003 Notes
are pari passu to each other and subordinated to the Company's
senior indebtedness. Beginning on August 1, 1997, the 2002 Notes
were to be redeemable, in whole or in part, at the Company's
option, at 104%, decreasing annually to par on August 1, 2000.
Beginning on March 1, 2000, the 2003 Notes were to be
redeemable, in whole or in part, at the Company's option, at par
plus accrued interest. The 2002 Notes and 2003 Notes contain
limitations, similar to the Credit Agreement, on indebtedness,
liens, dividends and other payments and asset sales. Interest
on the 2002 Notes and 2003 Notes, due semi-annually, has not
been paid or accrued since the Filing.
7 Reorganization Items
The Company provided for or incurred the following expense
and income items in 1996 and 1995 directly associated with the
Chapter 11 reorganization proceedings and the resulting
restructuring of its operations (in 000's):
1996 1995
----- ----
Professional fees $10,000 $ 9,200
Interest income (1,445) (3,078)
Provision for rejected leases 32,756 18,971
Net asset write-offs 4,034 21,548
Gain on disposition of properties (1,697) -
Provision for inventory impairment (1,000) 7,100
Provision for occupancy and other store closing costs 4,102 3,059
Employee severance and termination benefits 23,042 -
Chapter 11 customer discounts - 2,960
Provision for retention bonuses - 5,243
------- -------
$69,792 $65,003
======= =======
Professional fees and interest income: Professional fees
represent estimates of expenses incurred, primarily for legal,
consulting and accounting services provided to the Company and
the creditors committee (which are required to be paid by the
Company while in Chapter 11). Interest income represents
interest earned on cash invested during the Chapter 11
proceeding.
Provision for rejected leases and net asset write-offs:
Under the Bankruptcy Code, the Company may elect to reject real
estate leases, subject to Bankruptcy Court approval. The
Company recorded provisions of approximately $32.8 and $19.0
million in 1996 and 1995, respectively, for rejected leases and
anticipated claims for certain closed and closing store leases
that were expected to be rejected. In connection with the store
closings and lease rejections, the Company wrote off certain net
assets, primarily for leasehold improvements, net capital leases
and lease interests. Net asset write-offs in 1996 also include
adjustments to lower the carrying values of certain properties
held for sale to their current net realizable values. The
rejected lease liability may be subject to future adjustments
based on claims filed
52
<PAGE> 53
by the lessors and Bankruptcy Court actions. The Company cannot
presently determine or reasonably estimate the ultimate
liability which may result from additional leases which may be
rejected at a future date.
Gain on disposition of properties: The Company sold two
closed store leases in 1996 and the related gains were
classified as reorganization items since the associated net
asset write-offs were previously included in reorganization
items.
Inventory impairment and store closing costs: In January,
1996, the Company approved a restructuring plan to close 13
stores in the first half of 1996. In connection with this plan,
the Company rejected certain leases and wrote off net assets (as
described in a preceding paragraph). In addition, the Company
established provisions at February 3, 1996 for inventory
impairment and other closing costs associated with closing the
13 stores. The provision for inventory impairment represented
the Company's best estimate of the incremental markdowns
required to liquidate the inventory at the closed stores. Such
costs were recorded at February 3, 1996, in accordance with the
retail inventory method. The provision for inventory impairment
was reduced by $1 million at the conclusion of the
going-out-of-business sales when actual results became
available.
In July, 1996, the Company approved a restructuring plan to
close 14 additional stores in October, 1996. In connection with
this plan, the Company rejected certain leases and wrote off net
assets as described above. In addition, the Company established
provisions at August 3, 1996, for inventory impairment and other
closing costs associated with closing the 14 stores. An
inventory impairment charge of $6.7 million for 15 stores
(including the one store to be closed in April, 1997) was
charged to cost of sales in 1996 as a result of a recent
Securities and Exchange Commission staff announcement in which
they stated that inventory markdowns attributable to a
restructuring or exit plan should be classified in the income
statement as a component of cost of sales.
Other store closing costs represent incremental asset
protection, occupancy and various closing costs associated with
the decision to close the stores. Other store closing costs
paid in 1996 totaled $2.7 million.
Employee severance and termination benefits: Employee
severance and termination benefits of $23.0 million in 1996
included the following: (a) $13.5 million, of which $8.3
million was paid in 1996, for 60 regional, district and central
office positions, including the Company's former CEO, associated
with the January 1997 management reorganization and regional and
district consolidation; (b) $1.2 million paid to 738 store
associates as a result of the 14 stores closed in October, 1996;
(c) $4.2 million, of which $3.0 million was paid in 1996, for 63
central office positions eliminated in September, 1996; (d) $1.1
million paid to 660 store associates as a result of the 13
stores closed in the first half of 1996; and, (e) $3.0 million
paid to 287 store, district and regional associates terminated
as a result of the February, 1996 store management
reorganization.
Chapter 11 customer discounts: The "Chapter 11 customer
discounts" reflected a special 5% discount that was provided to
customers during a two-week period following the Filing to
retain customer loyalty and to compensate customers for the
inconvenience of unavailable merchandise.
Retention bonuses: During 1995, the Bankruptcy Court
approved certain assumed and amended executive contracts and the
Company's Retention Bonus Plan (the "Plan") that provided for
management
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<PAGE> 54
bonuses for continued employment during the first fiscal year of
Chapter 11 reorganization and through the date of payment.
Thereafter, the Plan and executive contracts provided incentives
and rewards for performance that meets or exceeds established
levels, as well as for continued employment. The 1995 provision
included the Chapter 11-related bonuses, along with certain
executive guaranteed awards related to the Filing.
Closed store results: Net sales and operating (loss)
income (exclusive of any central office expense allocation and
prior to interest expense, income taxes and reorganization
items) from the 27 stores closed in 1996 and the one store to be
closed in April, 1997 were (in 000's):
1996 1995 1994
---- ---- ----
Net sales $152,341 $297,617 $277,278
Operating income (loss) (26,445) (31,883) 1,419
8. Leases
At February 1, 1997, the Company had various noncancelable
leases in effect for substantially all of its stores,
distribution centers, and its office building, as well as
certain equipment. In connection with the Filing, all lease
contracts whether assumed or rejected are subject to Bankruptcy
Court approval. Therefore, the commitments shown below may not
reflect actual cash outlays in the future. Payments under
certain capital leases which the Company currently believes
represent undersecured financings are classified as liabilities
subject to settlement and are not presented herein. Minimum
payments due under remaining leases, excluding leases which are
included in the provision for rejected leases (Note 7), are as
follows:
(000's)
Capital Leases Operating Leases
-------------- ----------------
1997 $6,103 $46,635
1998 6,110 45,272
1999 6,111 43,546
2000 5,145 42,593
2001 5,088 40,374
Thereafter 47,936 363,837
------- --------
Total minimum payments 76,493 $582,257
========
Estimated executory costs (3,669)
--------
Net minimum lease payments 72,824
Imputed interest (37,806)
--------
Present value of net minimum lease payments 35,018
Less current portion (1,722)
--------
Obligations under capital leases, net of
current portion $33,296
========
Minimum payments for capital and operating leases have not
been reduced by minimum sublease rentals of $12.1 and $9.1
million, respectively, due in the future under noncancelable
leases. The minimum payments do not include the contingent
rentals that may be payable under certain leases.
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<PAGE> 55
Total rent expense is as follows:
(000's)
-----------------------
1996 1995 1994
---- ---- ----
Operating leases:
Minimum rent $57,352 $60,890 $54,575
Contingent rent 1,024 972 1,498
Sublease income (9,248) (9,585) (12,902)
-------- -------- --------
49,128 52,277 43,171
-------- -------- --------
Capital leases:
Contingent rent 22 26 54
Sublease income (1,726) (1,829) (2,231)
-------- ------- ---------
(1,704) (1,803) (2,177)
-------- ------- ---------
Total $47,424 $50,474 $40,994
======== ======== ========
Contingent rentals are determined on the basis of a
percentage of sales in excess of stipulated minimums for certain
stores. Sublease income includes leased department income which
is included in leased department and other operating income.
Most of the leases require that the Company pay taxes,
maintenance, insurance and certain operating expenses.
Management expects that, in the normal course of business,
expiring leases will be renewed or replaced by other leases.
During 1994, the Company entered into a financing facility
with a special purpose entity ("SPE") (Note 2) and a group of
banks, with Bankers Trust as Agent, that provided a $75 million
financing facility for new store sites, which was to expire in
1998. On April 17, 1995, the amount under the financing
facility was reduced to $45 million, of which only $30 million
could be utilized in 1995. In June, 1995, the amount was
further reduced to $24 million, the amount required for the two
sites then under development. Under the terms of the financing
facility with the SPE, the Company entered into leases with
terms of up to six years. Upon expiration of the leases, the
Company could purchase the properties, allow the SPE to sell the
sites to an unrelated third party (subject to the residual
guarantee which, in effect, guarantees 100% of the outstanding
borrowings) or extend the lease term. As a result of the
guarantee and the Filing, the Company has included the accounts
of the SPE in its consolidated financial statements. Borrowings
of approximately $18 million at February 1, 1997 and February 3,
1996 are included in liabilities subject to settlement and are
collateralized by land and buildings (with a carrying value of
$5.3 million) that are classified as long-term assets held for
sale. Any proceeds from the sale of these properties will be
restricted to pay down the related borrowings.
Prior to the Filing, the Company had assigned various other
leases to third parties for closed facilities and may, depending
upon the Chapter 11 claims reconciliation process and Bankruptcy
Court determinations, be liable under the original leases in the
event of nonperformance by any third party assignee. At February
1, 1997, the Company had assigned 26 leases with terms through
2012 and annual minimum rental payments totaling $11.3 million.
The Company does not anticipate nonperformance by any third
party and, accordingly, these minimum rent payments are not
included in the Company's schedule of future minimum payments.
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<PAGE> 56
9. Common Stock and Additional Paid-In Capital
The authorized capital stock of the Company consists of 40
million shares of common stock, par value of $0.01 per share
("Common Stock"), of which 11,394,433 shares were outstanding at
February 1, 1997, and one million shares of preferred stock, par
value of $0.01 per share, none of which were outstanding at
February 1, 1997.
The Company has a Restricted Stock Plan that provides for
the award of 277,008 shares of Common Stock ("Restricted Stock")
to certain officers and employees. At February 1, 1997,
111,405 shares were available to be issued and 165,603 shares
were outstanding under the Restricted Stock Plan. There have
been no awards of Restricted Stock since the Filing. No cash
payments are required from Restricted Stock recipients and all
issued shares accrue dividends, if any. In general, the shares
become unrestricted under a five-year vesting schedule, except
for 75,000 shares which vest upon the attainment of certain
sales goals. All shares of Restricted Stock may vest earlier in
certain circumstances (death, disability, retirement or a change
of control). Shares of Restricted Stock which have not vested
are not freely transferable and revert to the Company upon the
employee's termination.
10. Stock Options
The Company has a 1992 Stock Option Plan for Key Employees
("Key Employee Plan") that provides for the grant of options for
up to 1,272,283 shares of Common Stock to certain employees. No
options have been granted under the Key Employee Plan since the
Filing. The options are intended to qualify as incentive stock
options or nonqualified stock options and generally have a three
to five-year vesting schedule. Activity in the Key Employee
Plan is as follows:
Weighted
Average
Shares Exercise
Price
Outstanding at January 29, 1994 804,600 $13.60
Granted 387,000 14.13
Cancelled (118,318) 14.97
Exercised (20,920) 13.00
--------- ------
Outstanding at January 28, 1995 1,052,362 $13.65
Granted 153,000 9.78
Cancelled (261,794) 13.83
Exercised - -
--------- ------
Outstanding at February 3, 1996 943,568 $12.97
Granted -
Cancelled (265,790) $13.46
Exercised - -
--------- ------
Outstanding at February 1, 1997 677,778 $12.78
========= ======
Exercisable at February 1, 1997 352,502 $13.14
========= ======
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<PAGE> 57
Options outstanding at February 1, 1997, range in exercise
price from $6.50 to $18.38 and have a remaining weighted average
contractual life of 6.92 years.
The Company has a 1993 Non-Employee Directors' Stock Option
Plan ("Directors' Plan") that provides for the grant of
nonqualified options for up to 100,000 shares of Common Stock to
non-employee directors. In general, the options have a
three-year vesting schedule. During 1996, 1995 and 1994,
15,000, 30,000 and 0 options respectively, were granted under
the Directors' Plan. During 1996, 15,000 options were canceled.
At February 1, 1997, 75,000 options under the Directors' Plan
are outstanding with exercise prices ranging from $13.00 to
$15.75 (weighted average exercise price is $10.60). At February
1, 1997, 40,000 of the options are exercisable at a weighted
average price of $13.58 and have a weighted average remaining
contractual life of 6.50 years.
In October 1995, the FASB issued SFAS No. 123, "Accounting
for Stock-Based Compensation," effective for the Company's
fiscal year beginning February 4, 1996. SFAS No. 123
encourages but does not require the recognition of compensation
expense for the fair value of stock option and other equity
instruments issued to employees. If the fair-value provisions
of SFAS No. 123 are not adopted, certain pro forma amounts of
net earnings and earnings per share that would have been
reported had these provisions been adopted are required to be
disclosed, if material. The Company continues to account for
stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" using the intrinsic value method. The difference
between accounting for stock-based compensation under APB No. 25
and SFAS No. 123 was not material for 1996 and 1995, and
accordingly the pro forma disclosures have been omitted.
11. Employee Benefit Plans
Pension plans Certain union employees are covered by
multi-employer defined benefit plans. Expenses for these plans
were $1.1 million for 1996, $1.3 million for 1995 and $1.1
million for 1994.
The Company has a qualified, noncontributory defined
benefit pension plan for employees not participating in
multi-employer plans. Plan benefits are based on the
participant's compensation and/or years of service. The Company
funds the net pension costs each year. The plan assets are held
in a master trust fund, which invests primarily in equity, fixed
income securities and cash and cash equivalents.
The Company has several nonqualified, noncontributory
defined benefit plans for the benefit of certain highly
compensated employees. The plans are unfunded and benefits paid
under the plans are based on years of service and employees'
compensation.
57
<PAGE> 58
The components of net pension costs for the plans are as
follows:
(000's)
-------------------------
1996 1995 1994
---- ---- ----
Service costs $3,897 $3,061 $3,529
Interest costs 4,909 4,369 3,943
Return on plan assets (7,617) (9,165) (68)
Net amortization and deferral 2,993 5,497 (3,337)
Curtailment loss 554 - -
Special termination benefits 782 - -
------- ------ --------
Net pension costs $5,518 $3,762 $4,067
======= ======= =======
The funded status is as follows:
(000's)
------------------------------------------------
February 1, 1997 February 3, 1996
---------------- ----------------
Qualified Nonqualified Qualified Nonqualified
Plan Plans Plan Plans
----------- ------------ --------- -----------
Actuarial present value of:
Vested benefit obligation $55,352 $4,444 $48,564 $2,099
======== ======== ======== =======
Accumulated benefit $56,183 $4,583 $49,515 $2,250
obligation
======== ======== ======== =======
Projected benefit obligation $66,978 $5,126 $61,259 $3,672
Plan assets at fair value 62,325 - 54,165 -
-------- -------- -------- --------
Projected benefit obligation
greater than plan assets (4,653) (5,126) (7,094) (3,672)
Unrecognized prior service cost 576 107 713 -
Unrecognized transition
obligation - 1,609 - 2,471
Unrecognized net (gain) loss 313 49 3,098 (80)
Additional minimum liability
(recorded as other assets) - (1,222) - (969)
-------- -------- -------- ---------
Accrued pension liability $(3,764) $(4,583) $(3,283) $(2,250)
The curtailment loss and special termination benefits
result from the employment terminations of several executives
and the closing of 27 stores during 1996. These costs were
primarily included in termination benefits as part of
reorganization items (Note 7). Certain portions ($1.4 million)
of the nonqualified plans' accrued pension liability relate to
pre-petition employment contracts and are included in
liabilities subject to settlement under the reorganization case.
The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit
obligation for the qualified plan was 4.09% for 1996 and 1995;
the discount rate, 7.25% for 1996 and 1995; and the expected
rate of return on the plan assets, 9.0% for 1996 and 8.5% for
1995. The rate of increase in future compensation levels and
discount rate used in determining the actuarial present value of
the projected benefit obligation for the nonqualified plans was
4.25% for 1996 and 1995 and 7.25% for 1996 and 1995,
respectively.
58
<PAGE> 59
Defined Contribution Plan The Company has a Deferred
Salary Option Plan for all active employees in eligible job
categories. Employees may contribute a portion of their salary
to the plan. The Company's contributions to the plan, which were
suspended in 1996, may be in the form of cash or common stock of
the Company and were based on a percentage of employee
contributions. There was no plan expense in 1996, as compared
to $1.0 million for 1995 and $1.1 million for 1994.
Postretirement Plan The Company provides certain health
care and life insurance benefits for certain retired employees
meeting age and service requirements. The Company accounts for
the postretirement plan in accordance with SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," which requires the Company to accrue the estimated
cost of retiree benefit payments during the years the employee
provides services. The Company's postretirement benefits are
not funded. The status of the plan is as follows:
(000's)
February 1, 1997 February 3, 1996
---------------- ----------------
Accumulated postretirement
benefit obligation for:
Retirees $1,886 $2,469
Fully eligible actives 1,998 2,778
Other actives 3,983 6,351
--------- ---------
$7,867 $11,598
Plan assets at fair value - -
--------- ---------
Funded status (7,867) (11,598)
Unrecognized prior service cost (5,313) (6,165)
Unrecognized net (gain) loss (1,203) 3,150
--------- ---------
Accrued post-retirement benefit cost $(14,383) $(14,613)
Net postretirement (benefit) cost is as follows:
1996 1995 1994
---- ---- ----
Service cost $ 241 $ 338 $ 403
Interest cost 540 774 696
Amortization, net (877) (808) (749)
------ ------ ------
Net (benefit) cost $ (96) $ 304 $ 350
====== ====== ======
The assumed health care cost trend rate used in measuring
the accumulated post-retirement benefit obligation was 8.70% for
1996 (6.75% for post-65 coverage) grading down to 4.25% over 10
years and 6.5% for 1995 (7.25% for post-65 coverage) grading
down to 4.25% over 12 years. A one percentage point increase in
the assumed health care cost trend rate would increase the
accumulated post-retirement benefit obligation by 2.11% and the
service and interest cost by 2.78%. The assumed discount rate
used in determining the accumulated post-retirement benefit
obligation was 7.25% for 1996 and 1995.
59
<PAGE> 60
12. Income Taxes
There was no income tax expense or benefit in 1996. The
income tax expense (benefit) on the earnings (loss) before
cumulative effect of accounting change in 1995 and 1994 was as
follows:
(000's)
---------------------------------
1995 1994
------ -----
Current:
Federal $(24,476) $1,758
State (100) 762
---------- -------
(24,576) 2,520
---------- -------
Deferred:
Federal (74,765) 1,404
State (5,192) 281
---------- -------
(79,957) 1,685
---------- -------
$(104,533) $4,205
========== =======
The income tax expense (benefit) differs from the amount
computed by applying the statutory Federal income tax rates to
the earnings (loss) before income taxes and cumulative effect of
accounting change as follows:
1996 1995 1994
---- ---- ----
Statutory rate (35.0%) (35.0%) 35.0%
State income taxes, net of
Federal income tax benefit (6.4%) (4.8%) 7.0%
Non-deductible professional fees 1.5% 1.2% -
Non-deductible compensation 1.5% - -
Valuation allowance 38.4% 5.1% -
------- ------- ------
0% (33.5%) 42.0%
60
<PAGE> 61
Deferred taxes represent the differences between financial
statement amounts and the tax bases of assets and liabilities.
Deferred tax liabilities (assets) are as follows:
(000's)
-------------------------
1996 1995
---- ----
Lease interests $50,435 $68,913
Inventories 12,916 4,807
Other 793 774
-------- ------
Total liabilities 64,144 74,494
--------- --------
Net operating loss carryforwards (100,392) (31,710)
Self insurance accruals (9,018) (9,637)
Rejected lease claims (21,725) (7,968)
Post-retirement benefits (5,829) (5,966)
Closing costs (3,278) (1,266)
Property, plant and equipment, net (4,294) (5,554)
Capital leases (2,890) (9,198)
Vacation (3,769) (4,066)
Alternative minimum tax credit carryforwards (2,144) (2,000)
Other (2,110) (4,535)
--------- --------
(155,444) (81,900)
Valuation allowance 99,886 15,987
--------- --------
Total assets 55,563 (65,913)
--------- --------
$ 8,581 $ 8,581
========= ========
At February 1, 1997, the Company had net operating loss
carryforwards of approximately $239.0 million for Federal income
tax purposes which will expire beginning in fiscal year 2011 and
alternative minimum tax credit carryforwards of $2.1 million
which are available to reduce future Federal regular income
taxes over an indefinite period. Certain changes in stock
ownership can result in a limitation on the amount of net
operating loss and tax credit carryovers that can be utilized
each year.
During 1995, the Company recorded a valuation allowance of
$16.0 million against the deferred tax assets. During 1996, the
valuation allowance was increased by $83.9 million. The
realization of the deferred tax assets is dependent upon future
taxable income during the Federal and State carryforward
periods.
13. Commitments and Contingencies
The Company, exclusive of matters relating to the Filing
(Note 3), is party to various legal actions and administrative
proceedings and subject to various claims arising in the
ordinary course of business. The Company believes that the
disposition of these matters will not have a material adverse
effect on its financial position, results of operations or
liquidity. All civil litigation commenced against the Company
prior to the Filing has been stayed by operation of law. There
were no material legal proceedings pending against the Company
prior to the Filing.
The Company is currently negotiating final severance pay
and termination benefits for its former CEO who resigned in
December, 1996. The Company recorded a provision in 1996
(included in employee severance and termination benefits within
reorganization items-Note 7) for the expected outcome of the
negotiations. The Company believes that it has recorded its
best estimate of the final
61
<PAGE> 62
settlement agreement at February 1, 1997. The former CEO
withdrew $5 million under a letter of credit in January, 1997,
pursuant to his employment contract.
With respect to certain members of executive and senior
management of the Company, one-quarter of the amount of any
bonus payable under the Company's Retention Bonus Plan (Note 7)
before such time as the Company has consummated a Chapter 11
plan of reorganization will be deferred, with interest, until
the earlier of the date of consummation of such plan, or the
date of termination of employment by the Company without cause,
by the officer for good reason, or on account of death or
disability. Approximately $.2 million of the bonuses earned
under the Retention Bonus Plan in 1995 remains subject to this
deferral. No bonuses were earned under the Retention Bonus Plan
in 1996.
In August, 1995, the Company adopted, and in November,
1995, the bankruptcy court approved, the Enterprise Appreciation
Incentive Plan (the "Incentive Plan"). All members of the
Company's senior management are eligible to be selected by the
Board of Directors to participate in the Incentive Plan. Under
the Incentive Plan, each participant receives an equity
incentive award payable on June 23, 2000 (the fifth anniversary
of the Chapter 11 filing date) equal to the increase in the
value of the Company (as determined by appraisal) over the five
years ending on June 23, 2000. Each participant's interest in
the Incentive Plan vests in equal installments over the
five-year period, subject to acceleration in certain situations.
In the event a participant terminates his or her employment
without good reason or is terminated with cause prior to June
23, 2000, then the participant forfeits his or her rights under
the Incentive Plan.
Awards under the Incentive Plan will be paid promptly
following June 23, 2000 in the form of 60% cash and the balance
in cash, notes and stock as described thereunder. In no event
will the total of all benefits payable under the Incentive Plan
exceed the lesser of $20,000,000 or 13% of the total
appreciation in the value of the Company during the five year
period. As of February 1, 1997, based on the Company's
operating performance, management believes that no amounts are
payable under the Incentive Plan.
In August, 1995, the Company adopted and the Bankruptcy
Court approved a severance program (the "Severance Program")
that covers certain members of management. If the employment of
any participant in the Severance Program is terminated other
than for cause, death, disability or by the employee, or in
connection with a change in control (as defined), then salary
and certain incentive payments are guaranteed for periods
ranging up to eighteen months, subject to mitigation by other
employment. Amounts payable at February 1, 1997 under the
Severance Program for management terminations during 1996 were
included in the reserve for termination benefits (Note 7).
14. Accounting Change
Effective January 30, 1994, the Company adopted SFAS No.
112, "Employers' Accounting for Postemployment Benefits." This
standard requires that the cost of benefits provided to inactive
employees be recognized on the accrual basis of accounting.
Previously, the Company recognized such postemployment benefit
costs (primarily medical benefits provided to certain employees
receiving long-term disability benefits) when paid. The
cumulative effect of this change in accounting principle, net of
income tax benefit, was to reduce 1994 results of operations by
$0.5 million (net of a $0.4 million income tax benefit) or $0.04
per share.
62
<PAGE> 63
15. Summary of Quarterly Results (Unaudited)
($ in thousands except per share data)
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ------
Year Ended February 1, 1997:
Net sales $337,703 $369,578 $404,456 $449,981 $1,561,718
Gross margin 102,514 101,396 113,061 117,096 434,067
Net loss (53,746) (82,785) (23,073) (59,155) (218,759)
Net loss per share $(4.71) $(7.25) $(2.02) $(5.19) $(19.17)
Weeks in period 13 13 13 13 52
Year Ended February 3, 1996:
Net sales $379,606 $421,432 $404,127 $575,603 $1,780,768
Gross margin 99,507 124,459 115,710 152,015 491,691
Net loss (32,399) (27,556) (38,592) (108,866) (207,413)
Net loss per share $(2.84) $(2.41) $(3.38) $(9.54) $(18.17)
Weeks in period 13 13 13 14 53
63
<PAGE> 64
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 19151
<SECURITIES> 0
<RECEIVABLES> 8240
<ALLOWANCES> 0
<INVENTORY> 236920
<CURRENT-ASSETS> 281196
<PP&E> 246808
<DEPRECIATION> 83167
<TOTAL-ASSETS> 604200
<CURRENT-LIABILITIES> 212547
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> (263408)
<TOTAL-LIABILITY-AND-EQUITY> 604200
<SALES> 1561718
<TOTAL-REVENUES> 1574568
<CGS> 1127651
<TOTAL-COSTS> 1127651
<OTHER-EXPENSES> 655511
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10165
<INCOME-PRETAX> (218759)
<INCOME-TAX> 0
<INCOME-CONTINUING> (218759)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (218759)
<EPS-PRIMARY> (19.17)
<EPS-DILUTED> (19.17)
</TABLE>
<Body Text>
EXHIBIT 10.18
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text> March 28,
1995
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>VIA FEDERAL EXPRESS
<Body Text>
<Body Text>Samuel W.W. Mandell
<Body Text>President & Chief Operating Officer
<Body Text>Bradlees, Inc.
<Body Text>One Bradlees Circle
<Body Text>Braintree, MA 02184
<Body Text>
<Body Text>Dear Sam:
<Body Text>
<Body Text> This letter will serve to memorialize the
agreements we have reached on behalf of Bradlees, Inc., Bradlees
Administrative Co., Inc. (collectively "Bradlees") and The Stop
& Shop Supermarket Company ("Stop & Shop") regarding the
Product Supply Agreement, the Transitional Reimbursement
Agreement and the Management Information Reimbursement
Agreement, all dated as of June 23, 1992, and certain tax
deductions, which have been in dispute between Bradlees and Stop
& Shop.
<Body Text>
<Body Text> The parties agree as follows:
<Body Text>
<Body Text> Product Supply Agreement
<Body Text>
<Body Text> 1. The termination date is extended to
midnight, June 30, 1997. On and after July 1, 1996, Bradlees
shall not be entitled to receive the benefit of any "diverting
income," which is defined to mean the amount of money resulting
from the difference between the quoted price of a product
purchased directly from a manufacturer or its representative and
the contemporaneous acquisition cost of that product purchased
from a supplier other than the manufacturer or its
representative. In addition, diverting income shall include any
monies earned by selling a product purchased from the
manufacturer or its representative and sold in the open market.
<Body Text>
<Body Text> 2. Through June 30, 1996, Bradlees may reduce
the volume of products it purchases under the agreement
unilaterally upon 90 days notice to Stop & Shop. Thereafter,
such reduction may be made unilaterally upon 30 days notice to
Stop & Shop.
<Body Text>
<Body Text> 1
<Body Text>
Body Text
<PAGE> 2
<Body Text>
<Body Text>
<Body Text> 3. Bradlees may add unique (Bradlees only) full
case items to the agreement only by mutual consent of the
parties. It may withdraw unique product lines as per current
practice, provided that on or before the termination date,
Bradlees must purchase all unique items at Stop & Shop's then
current book value plus delivery costs.
<Body Text>
<Body Text> 4. Stop & Shop will continue to service
Bradlees from its No. Haven, CT (Universal Distributors),
Readville, MA and Chicopee, MA warehouses so long as Stop & Shop
continues to operate such warehouses and to stock Bradlees
product needs at such warehouses. Stop & Shop will provide
Bradlees with at least thirty (30) days notice of its
discontinuance of operations at any of these warehouses.
<Body Text>
<Body Text> 5. Stop & Shop shall be permitted to adopt
operational/organizational changes affecting its warehouse
operations, e.g. Pic to Lite, buying organization, shifting
product among/between facilities. Bradlees store or
distribution changes affecting the Universal Distributors
operations, including delivery schedules, shall be implemented
only upon mutual consent of the parties.
<Body Text>
<Body Text> 6. Stop & Shop shall not be required to deliver
products to Bradlees if Stop & Shop's operations are interrupted
due to labor disputes; war or civil insurrection; or Acts of God.
<Body Text>
<Body Text> Transitional Reimbursement Agreement
<Body Text>
<Body Text> The parties shall enter into a mutually
acceptable transportation agreement for provision of
transportation services by Stop & Shop to Bradlees,
substantially in accordance with past practice which shall
provide that each party shall give the other at least 6 months
notice (which period shall be counted from the date of such
notice) of cancellation. Rates for such services for the period
February 1, 1995 through January 31, 1996 are as set forth in
the attached letter agreement dated December 20, 1994. Rates
for 1996 and 1997 may be adjusted annually as of February 1st of
each year, but it is agreed that no adjustment shall exceed 2%
of the prior year's rate. In the event that the parties are
unable to reach such an agreement, each agrees that the parties'
current arrangement for transportation services may only be
terminated upon 6 months notice (which period shall be counted
from the date of such notice).<PAGE>
<Body Text>
<Body Text>
<Body Text>Page 3
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text> Management Information Reimbursement Agreement
<Body Text>
<Body Text> 1. Effective for the year commencing July 1, 1995,
the term "Minimum Annual Expense", which appears in Section 1,
shall mean 85% of the prior year's expenses and shall not
include any Excluded Expenses.
<Body Text>
<Body Text> Disputed Tax Deductions
<Body Text>
<Body Text> Bradlees confirms that it has not, and agrees that
it will not, claim any tax deductions based upon stock option
related compensation or stock option exercise of or by any
Bradlees or Stop & Shop employee under the terms of Stop &
Shop's Management Equity Plan. The parties agree that such
deductions shall be claimed only by Stop & Shop and its
subsidiaries.
<Body Text>
<Body Text> If the above stated provisions fairly reflect your
understanding of our agreement, please sign and return one copy
of this letter agreement to me.
<Body Text>
<Body Text> Sincerely,
<Body Text>
<Body Text>
<Body Text> /s/ Joseph D.
McGlinchey
<Body Text>
- -------------------------------------------
<Body Text> Joseph D.
McGlinchey
<Body Text> Senior Vice
President
<Body Text>
<Body Text>
<Body Text>Accepted for Bradlees, Inc.
<Body Text> and Bradlees Administrative Co., Inc.
<Body Text>
<Body Text>
<Body Text>By: /s/ Samuel W.W. Mandell
<Body Text> ----------------------------------------
<Body Text> Samuel W.W. Mandell
<Body Text> President, Bradlees, Inc.
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>g/deprtmnt/corresp/s&s
<Body Text>
Body Text
<PAGE>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>December 20, 1994
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>Mr. Steven Soares
<Body Text>Transportation Manager
<Body Text>Bradlees
<Body Text>One Bradlees Circle
<Body Text>Braintree, MA 02184
<Body Text>
<Body Text>Dear Mr. Soares:
<Body Text>
<Body Text>On February 1, 1995, we are forced to increase your
transportation rates by approximately 5.5%.
<Body Text>
<Body Text>The increased rate is caused by many factors;
increased driver wages and benefits, diesel fuel increases,
replacement equipment price increases, and irregular scheduling
to meet your outbound needs.
<Body Text>
<Body Text>Attached for your review are the new zone rate costs.
If you have any questions, please call me.
<Body Text>
<Body Text>Sincerely,
<Body Text>
<Body Text>
<Body Text>
<Body Text>/s/ Charles F. Arbing
<Body Text>--------------------------------
<Body Text>Charles F. Arbing
<Body Text>Vice President Transportation
<Body Text>
<Body Text>CFA/rm
<Body Text>Enc.
<Body Text>
<Body Text>
<Body Text>
<Body Text>cc: D. Donegan
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>ZONE RATES MERCANTILE
<Body Text> OUR RATES OUR RATES
OUR RATES
<Body Text> ROUND TRIP 1/30/93 1/30/94
1/30/95
<Body Text>ZONE MILES
<Body Text> 1 10 $114.00
$116.00 $123.00
<Body Text> 2 30 $126.00 $129.00
$136.00
<Body Text> 3 50 $146.00 $149.00
$157.00
<Body Text> 4 70 $170.00 $173.00
$183.00
<Body Text> 5 90 $189.00 $193.00
$203.00
<Body Text> 6 110 $210.00 $214.00
$226.00
<Body Text> 7 130 $233.00 $238.00
$251.00
<Body Text> 8 150 $254.00 $259.00
$273.00
<Body Text> 9 170 $286.00 $292.00
$308.00
<Body Text> 10 190 $297.00 $303.00
$320.00
<Body Text> 11 210 $307.00 $313.00
$330.00
<Body Text> 12 230 $324.00 $330.00
$349.00
<Body Text> 13 250 $346.00 $353.00
$372.00
<Body Text> 14 270 $363.00 $370.00
$391.00
<Body Text> 15 290 $383.00 $391.00
$412.00
<Body Text> 16 310 $405.00 $413.00
$436.00
<Body Text> 17 330 $423.00 $431.00
$455.00
<Body Text> 18 350 $445.00 $454.00
$479.00
<Body Text> 19 370 $465.00 $474.00
$500.00
<Body Text> 20 390 $482.00 $492.00
$519.00
<Body Text> 21 410 $503.00 $513.00
$541.00
<Body Text> 22 430 $524.00 $534.00
$564.00
<Body Text> 23 450 $546.00 $557.00
$588.00
<Body Text> 24 470 $564.00 $575.00
$607.00
<Body Text> $8,105.00 $8,266.00
$8,723.00
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Body Text>g/deprtmnt/corresp/s&s.4-5
<Body Text>
<Body Text>
<Normal> AMENDMENT NO. 1
<Normal> TO
<Normal> MANAGEMENT INFORMATION REIMBURSEMENT
AGREEMENT
<Normal>
<Normal> This Amendment No. 1, dated as of October 31, 1994,
to Management Information Reimbursement Agreement (the
"Agreement"), dated as of June 23, 1992, is by and among The
Stop & Shop Supermarket Company, a Delaware corporation
("Supermarkets"), The Stop & Shop Companies, Inc., a Delaware
corporation ("Stop & Shop"), S & S Credit Co., Inc., a Delaware
corporation ("S & S Credit Co."), Bradlees Stores, Inc. (as
successor to Bradlees Administrative Co., Inc.), a Massachusetts
corporation ("Buyer"), and Bradlees, Inc., a Massachusetts
corporation ("Parent" and, together with Buyer, "Payors"). All
capitalized terms used herein shall have the same meaning as set
forth in the Agreement.
<Normal>
<Normal> RECITALS
<Normal>
<Normal> WHEREAS, pursuant to the terms of the Agreement
Stop & Shop is required to transfer to Payors certain Parallel
Systems or to continue to provide such service to Payors; and
<Normal> WHEREAS, the Parallel Systems include the payroll
personnel system ("Existing Payroll System") and certain related
services to support such Existing Payroll System (the
"Services") which Stop & Shop is currently providing to Payors;
and
<Normal>
<Normal> WHEREAS, Payors desire to install their own payroll
personnel system ("New Payroll System") independently of Stop &
Shop.
<Normal>
<Normal> NOW, THEREFORE, in consideration of the premises
and the mutual undertakings set forth herein, Stop & Shop,
Supermarkets, S & S Credit Co. and Payors hereby agree as
follows:
<Normal>
<Normal> 1. Stop & Shop shall not be required to install a
New Payroll System for Payors. However, Stop & Shop and Payors
shall assist each other in any installation, operation and
maintenance of a New Payroll System by collaborating in areas as
mutually agreed upon by Stop & Shop and Payors and providing
information to each other obtained about or derived from the New
Payroll System.
<Normal>
<Normal> 2. Until Buyer or Parent has notified Stop & Shop
that installation and testing of the New Payroll System is
complete and that use of the Existing Payroll System and
Services is no longer required, Stop & Shop shall continue to
provide the Existing Payroll System and Services to Payors
pursuant to the terms of the Agreement. The provision of the
Existing Payroll System and Services by Stop & Shop may be
modified by the terms of Paragraphs 5 and 6 below.
<Normal>
<Normal> 3. At Payors' sole discretion, Buyer or Parent
shall give to Stop & Shop ninety (90) days written notice of the
date that the Existing Payroll System and Services are no longer
required. Upon the first full month following the end of such
90-day notice period, Stop & Shop shall bear all costs related
to the Existing Payroll System, including but not limited to all
Expenditures.
<Normal>
<Normal> 4. Payors shall not be required to pay any Exit
Expenditures incurred with respect to Payors' transfer to the
New Payroll System.
<Normal>
<Normal> 5. If Payors become the sole user of the Existing
Payroll System and Services, then upon ninety (90) days written
notice from Stop & Shop of such event, Stop & Shop shall provide
the Existing Payroll System and Services to Payors for a period
(as determined by Payors in their sole discretion) of up to one
(1) year from the end of the 90-day notice period. Upon
becoming the sole user of the Existing Payroll System and upon
the end of such 90-day notice period, Payors shall reimburse
Stop & Shop for all costs related to the Existing Payroll System.
<Normal>
<Normal> 6. If Payors require the continued use of the
Existing Payroll System and Services beyond the end of the
one-year term described in Paragraph 5 above, then Buyer or
Parent shall give to Stop & Shop ninety (90) days notice prior
to the end of such one-year term. Upon receipt of such notice,
Stop & Shop and Payors shall use reasonable efforts to agree
upon the continuation of Payors' use of the Existing Payroll
System and Services; provided that Stop & Shop at its sole
discretion may limit such continuation to six (6) months beyond
the initial one-year period.
<Normal>
<Normal> 7. At any time upon sixty (60) days prior notice
to Stop & Shop, Stop & Shop shall provide to Payors at no cost
with respect to the Existing Payroll System and Services all
existing software, existing documentation and existing data, if
any, then in the possession of Stop & Shop, which Stop & Shop
has the ability to transfer to Payors pursuant to existing
agreements or by operation of law, AND SUCH SOFTWARE,
DOCUMENTATION AND DATA SHALL BE PROVIDED TO PAYORS "AS IS"
WITHOUT ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO SUCH SOFTWARE,
DOCUMENTATION AND DATA OR ANY COMPONENT THEREOF, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH
SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP,
MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION,
SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT OR TITLE;
provided, however, that Stop & Shop shall provide to Payors any
and all third party warranties, rights and licenses, and a
royalty-free perpetual license to the Owned Rights as specified
in the Agreement, which Stop & Shop may then possess which Stop
& Shop has the ability to transfer to Payors pursuant to
existing agreements or by operation of law.
<Normal>
<Normal>
<Normal>
<Normal>
<Normal>8. To the extent that any provisions of this
Amendment No. 1 are inconsistent with the terms and conditions
of the Agreement, the provisions of this Amendment No. 1 shall
prevail.
<Normal>
<Normal> IN WITNESS WHEREOF, the parties hereto have
caused this Amendment No. 1 to be duly executed as of the date
first above written.
<Normal>
<Normal>THE STOP & SHOP SUPERMARKET COMPANY
<Normal>
<Normal>By: /s/ Peter M. Phillipes
<Normal>Name: Peter M. Phillipes
<Normal>Title: Senior Vice President
<Normal>
<Normal>
<Normal>THE STOP & SHOP COMPANIES, INC.
<Normal>
<Normal>By: /s/ Peter M. Phillipes
<Normal>Name: Peter M. Phillipes
<Normal>Title: Senior Vice President
<Normal>
<Normal>
<Normal>S & S CREDIT CO., INC.
<Normal>
<Normal>By: /s/ Peter M. Phillipes
<Normal>Name: Peter M. Phillipes
<Normal>Title: Senior Vice President
<Normal>
<Normal>
<Normal>BRADLEES, INC.
<Normal>
<Normal>By: /s/ Stephen A. Feldman
<Normal>Name: Stephen A. Feldman
<Normal>Title: Senior Vice President and Chief Financial Officer
<Normal>
<Normal>
<Normal>BRADLEES STORES, INC. (As Successor to
<Normal> Bradlees Administrative Co., Inc.)
<Normal>
<Normal>By: /s/ Stephen A. Feldman
<Normal>Name: Stephen A. Feldman
<Normal>Title: Vice President
<Normal>
<Normal>
<Normal>h/systems/miramen.sam
<Normal>
<Normal>
<Normal>
<Normal>
<Body Text>
<Normal>
<Normal> AMENDMENT NO. 2
<Normal> TO
<Normal> MANAGEMENT INFORMATION REIMBURSEMENT
AGREEMENT
<Normal>
<Normal>
<Normal> This Amendment No. 2 dated as of August 11, 1996,
to Management Information Reimbursement Agreement, as amended by
Amendment No. 1, dated as of October 31, 1994 and a letter
agreement, dated March 28, 1995 (the "Agreement"), dated as of
June 23, 1992, is by and among The Stop & Shop Supermarket
Company, a Delaware Corporation ("Supermarkets"), The Stop &
Shop Companies, Inc., a Delaware corporation ("Stop & Shop"), S
& S Credit Co., Inc., a Delaware corporation ("S & S Credit
Co."), Bradlees Administrative Co., Inc., a Massachusetts
corporation ("Buyer"), and Bradlees, Inc., a Massachusetts
corporation ("Parent" and, together with Buyer, "Payors"). All
capitalized terms herein shall have the same meaning as set
forth in the Agreement.
<Normal>
<Normal>RECITALS
<Normal>
<Normal> WHEREAS, Supermarkets, Stop & Shop, S & S Credit
Co., Buyer and Parent are parties to the Agreement;
<Normal>
<Normal> WHEREAS, on June 23, 1995, (the "Petition Date"),
the Payors each filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code, and the Payors continue to
operate their respective businesses and manage their respective
properties as debtors-in-possession;
<Normal>
<Normal> WHEREAS, Stop & Shop has continued to provide
data processing services to the Payors in accordance with the
terms of the Agreement;
<Normal>
<Normal> WHEREAS, the Payors desire to implement, in an
orderly fashion and cost efficient manner, their own information
and telecommunications system, independent of Stop & Shop;
<Normal>
<Normal> WHEREAS, the Payors desire, among other things, to
off-load from Stop & Shop's computer system a certain portion of
the BI minor application codes and associated processing
("BIMIS") as defined in Section 3(a) hereof pertaining to the
Payors by February 2, 1997, and;
<Normal>
<Normal> WHEREAS, the Payors and Stop & Shop desire to
terminate the Agreement on June 30, 1997 but no later than July
5, 1997;
<Normal>
<Normal> WHEREAS, in exchange for the modifications and
amendments contained herein, subject to Bankruptcy Court
approval, the Payors desire to assume, pursuant to Bankruptcy
Code 365, the Agreement.
<Normal>
<Normal>
<Normal> NOW THEREFORE, in consideration of the premises and
the mutual undertakings set forth herein, Stop & Shop,
Supermarkets, S & S Credit Co. and Payors hereby agree as
follows:
<Normal>
<Normal> 1. Anything contained in Section 2(a) of the
Agreement to the contrary notwithstanding , during the period
(such period, the "Final MIRA Period") from August 11, 1996
through June 30, 1997 but no later than July 5, 1997 (the
"Termination Date"), the Payors shall pay Stop & Shop in lieu of
reimbursing Stop & Shop for the Aggregate Buyer Expenses and
Annual Expense Adjustments for such period, the amounts set
forth on Schedule 1 hereto on the dates specified therein;
provided that this does not change Payors' additional
obligations to pay for Exclusive Use Expenses set forth in the
Agreement.
<Normal>
<Normal> 2. During the Final MIRA Period, Stop & Shop shall
continue to provide data processing and related services
pursuant to the terms of the Agreement; provided however, that,
anything contained in the Agreement to the contrary
notwithstanding, during the Final MIRA Period, the Payors shall
not permit or cause utilization levels to exceed, to any extent,
current utilization levels so as to cause Stop & Shop to acquire
or make any changes in hardware, software, telecommunications or
business applications systems to support either capacity or
processing requirements.
<Normal>
<Normal> 3. (a) On or before February 2, 1997, the Payors
shall off-load from Stop & Shop's computer system no less than
80% of each aspect of BIMIS (mainframe usage, disk drive usage
and print usage -- BI minor application codes and associated
processing including CICS usage) pertaining to the Payors.
<Normal>
<Normal> (b) In the event that Payors fail to complete
off-loading of no less than 80% of BIMIS by February 2, 1997,
then, through the Termination Date, the Payors shall pay to Stop
& Shop the sum of $500,000 per fiscal period in lieu of the
amount set forth on Schedule 1 for such fiscal period until the
off-loading of no less than 80% of BIMIS is completed, at which
time the Payors shall pay to Stop & Shop the amount set forth on
Schedule 1 per fiscal period through the Termination Date.
<Normal>
<Normal> 4. During the period from August 11, 1996 through
February 1, 1997, the Payors shall not permit or cause
input/output or stored data to exceed current levels so as to
cause Stop & Shop to acquire or make any changes in hardware,
software, telecommunications or business application systems,
unless Payors obtain the prior approval in writing by Stop &
Shop and that any associated costs thereto are paid in advance
by the Payors.
<Normal>
<Normal> 5. Payors and Stop & Shop shall cooperate fully
with each other in all respects so as to reduce costs and
expenses through the Termination Date, including costs and
expenses arising in connection with the off-loading of no less
than 80% of BIMIS.
<Normal>
<Normal> 6. Payors and Stop & Shop shall coordinate and
cooperate with each other with respect to the off-loading of no
less than 80% of BIMIS and the exit or conversion of any and all
workload or processing so as to reduce any possible adverse
effect or disruption to both parties' data processing operations
or processing deadlines.
<Normal>
<Normal> 7. Payors acknowledge that any expenses or
liability arising from any transfer of existing software,
existing documentation and existing data relating to the
conversion shall be included in Exit Expenditures payable by
Payors. Exit Expenditures shall be reasonable, calculated by
the Stop & Shop Entities in good faith and discussed with the
Payors.
<Normal>
<Normal> 8. Anything contained in Section 3 of the
Agreement to the contrary notwithstanding, the Agreement shall
terminate on June 30, 1997, but at the option of Payors may be
extended to, but no later than, July 5, 1997 and all services
provided by Stop & Shop under the Agreement to Payors shall
cease on such date.
<Normal>
<Normal> 9. To the extent that any provisions of this
Amendment No. 2 are inconsistent with the terms and conditions
of the Agreement, the provisions of this Amendment No. 2 shall
prevail.
<Normal>
<Normal> 10. This Amendment No. 2 shall become effective
upon the entry by the Bankruptcy Court of an order approving the
assumption of the Agreement, as amended by this Amendment No. 2,
pursuant to Section 365 of the Bankruptcy Code, and upon receipt
by Stop & Shop of the amounts set forth below. Payors shall use
their reasonable efforts to seek as expeditiously as possible
the approval of the Bankruptcy Court of the Amendment No. 2 and
the assumption of the Agreement pursuant to Section 365 of the
Bankruptcy Code. Stop & Shop shall provide such information and
cooperation to the Payors as they shall reasonably require in
seeking approval of Amendment No. 2 and assumption of the
Agreement. Stop & Shop shall consent to any motion to assume
the Agreement in form and substance reasonably satisfactory to
Stop & Shop. As of the date hereof, Stop & Shop acknowledges
that there are no defaults and further acknowledges and agrees
that no amounts pertaining to this Agreement are owed by Payors
to Stop & Shop for any pre-petition and post-petition periods
except as set forth below. Notwithstanding the foregoing, Stop
& Shop agrees that Payors may seek approval and assumption of
the Agreement and of this Amendment No. 2 to the Agreement nunc
pro tunc to August 11, 1996, and that pending approval by the
Bankruptcy Court, Payors will be deemed to have fully performed
all of their obligations under the Agreement by performing all
of their obligations under the Agreement as amended by Amendment
No. 2 to the Agreement; provided that Payors pay Stop & Shop an
amount equal to $126,316.60, which includes all amounts owed to
Stop & Shop by Payors and all amounts owed to Payors by Stop &
Shop, regarding their pre-petition obligations under the
Agreement, promptly after the entry by the Bankruptcy Court of
an order approving the assumption of this Agreement.
<Normal>
<Normal> 11. Prior to the Termination Date, Buyer shall
consider, at its sole discretion, whether to purchase the assets
(or a portion of such assets) used by the Stop & Shop Entities
exclusively in connection with the Bradlees Entities and all
assets used by the Stop & Shop Entities and not needed by such
entities after the Termination Date (collectively, "Excess
Assets") (or, if such equipment is leased by the Stop & Shop
Entities, whether such lease shall be assigned to Buyer if such
assignment can be effected without breaching such lease) for a
price equal to the value of such equipment on the books of the
Stop & Shop Entities at such time (or, in the case of the
leases, Buyer shall assume, and the Stop & Shop Entities shall
be released from, all obligations under such leases). Prior to
the Termination Date, the Stop & Shop Entities shall provide to
the Buyer a list of Excess Assets including the book value of
such Excess Assets or the remaining lease payments for such
Excess Assets. The parties hereto will cooperate with one
another to minimize the adverse effects to both parties of
compliance with this Section 11.
<Normal>
<Normal> 12. The agents of the Bradlees Entities shall
include without limitation any third party which shall provide
outsourcing services to the Bradlees Entities. Prior to and
through the Termination Date, the Stop & Shop Entities shall
provide to the Payors or their designee all information and
assistance necessary to ensure the smooth transition of
responsibility for the services provided under the Agreement to
either the Payors or their designee.
<Normal>
<Normal> IN WITNESS WHEREOF, the parties hereto have caused
this Amendment No. 2 to be duly executed as of the date first
above written.
<Normal>
<Normal>
<Normal>THE STOP & SHOP SUPERMARKET COMPANY
<Normal>
<Normal>By:
<Normal> --------------------------------
<Normal>Name:
<Normal>Title:
<Normal>
<Normal>Date:
<Normal>
<Normal>
<Normal>THE STOP & SHOP COMPANIES, INC.
<Normal>
<Normal>By: --------------------------------
<Normal>Name:
<Normal>Title:
<Normal>
<Normal>Date:
Normal
<PAGE>
<Normal>
<Normal>S & S CREDIT CO., INC.
<Normal>
<Normal>By:
<Normal> --------------------------------
<Normal>Name:
<Normal>Title:
<Normal>
<Normal>Date:
<Normal>
<Normal>BRADLEES, INC.
<Normal>
<Normal>By:
<Normal> --------------------------------
<Normal>Name:
<Normal>Title:
<Normal>
<Normal>Date:
<Normal>
<Normal>
<Normal>BRADLEES ADMINISTRATIVE CO., INC.
<Normal>
<Normal>By:
<Normal> --------------------------------
<Normal>Name:
<Normal>Title:
<Normal>
<Normal>Date:
<Normal>
<Normal>
<Normal> SHEET 1
<Normal> BRADLEES PERIOD EXPENSES
<Normal>
<Normal> Period 8, 1996 - Period 6, 1997
<Normal> (BIMIS offload completion targeted for
Period 1, 1997)
<Normal>
<Normal>Fiscal 1996
<Normal>Period 8 9/7/96
$500,000
<Normal>Period 9 10/5/96
$500,000
<Normal>Period 10 11/2/96
$500,000
<Normal>Period 11 11/30/96
$500,000
<Normal>Period 12 12/28/96
$500,000
<Normal>Period 13 2/1/97
$500,000
<Normal>Fiscal 1997
<Normal>Period 1 3/1/97
$370,000
<Normal>Period 2 3/29/97
$370,000
<Normal>Period 3 4/26/97
$370,000
<Normal>Period 4 5/24/97
$370,000
<Normal>Period 5 6/21/97
$370,000
<Normal>Period 6 7/19/97
$200,000
<Normal>
<Normal>
<Normal>
<Body Text>
EXHIBIT 10.37
<Body Text>
<Body Text>
<Body Text>
<Body Text> SIXTH AMENDMENT TO REVOLVING CREDIT AND
GUARANTY AGREEMENT
<Body Text>
<Body Text> SIXTH AMENDMENT, dated as of March 20, 1997 (the
"Amendment"), to the REVOLVING CREDIT AND GUARANTY AGREEMENT,
dated as of June 23, 1995, among BRADLEES STORES, INC., a
Massachusetts corporation (the "Borrower"), as a debtor and
debtor-in-possession under Chapter 11 of the Bankruptcy Code,
the Guarantors named therein (the "Guarantors"), as debtors and
debtors-in possession under Chapter 11 of the Bankruptcy Code,
THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), a
New York banking corporation ("Chase"), each of the other
financial institutions party thereto (together with Chase, the
"Banks"), THE CHASE MANHATTAN BANK, as Agent for the Banks (in
such capacity, the "Agent"); and SOCIETE GENERALE, as Co-Agent
for the Banks;
<Body Text>
<Body Text>
<Body Text> W I T N E S S E T H:
<Body Text> WHEREAS, the Borrower, the Guarantors, the
Banks, the Agent and the Co-Agent are parties to that certain
Revolving Credit and Guaranty Agreement, dated as of June 23,
1995 (as heretofore amended by that certain First Amendment to
Revolving Credit and Guaranty Agreement dated as of June 30,
1995, that certain Second Amendment to Revolving Credit and
Guaranty Agreement dated as of August 10, 1995, that certain
Third Amendment to Revolving Credit and Guaranty Agreement dated
as of March 15, 1996, that certain Amendment Letter Agreement
dated August 15, 1996, that certain Fourth Amendment to
Revolving Credit and Guaranty Agreement dated as of September
13, 1996, that certain Fifth Amendment to Revolving Credit and
Guaranty Agreement dated as of January 13, 1997 and that certain
Amendment Letter Agreement dated February 20, 1997, and as the
same may be amended, modified or supplemented from time to time,
the "Credit Agreement"); and
<Body Text>
<Body Text> WHEREAS, the Borrower and the Guarantors have
requested that from and after the Effective Date (as hereinafter
defined) of this Amendment, the Credit Agreement be amended
subject to and upon the terms and conditions set forth herein;
and
<Body Text>
<Body Text> WHEREAS, Societe Generale and Chase have agreed
that at the time of, and subject to, the occurrence of, the
Effective Date, and immediately prior to such occurrence,
Societe Generale shall assign to Chase and Chase shall accept an
assignment from Societe Generale of all of Societe Generale's
interests, rights and obligations under the Credit Agreement
pursuant to Section 10.03(b) thereof, and from and after such
date, Societe Generale shall no longer be a "Bank" under the
Credit Agreement, and shall no longer serve as Co-Agent
thereunder.
<Body Text>
<Body Text>Accordingly, the parties hereto hereby agree as
follows:
<Body Text>
<Body Text> 1. As used herein all terms which are defined
in the Credit Agreement shall have the same meanings herein.
<Body Text>
<Body Text> 2. Section 1.01 of the Credit Agreement is
hereby amended by inserting the following new definitions in
appropriate alphabetical order:
<Body Text>
<Body Text>"Effective Date" shall have the meaning given such
term in paragraph 16 of the Sixth Amendment.
<Body Text>
<Body Text>"Sixth Amendment" shall mean the Sixth
<Body Text> Amendment, dated as of March 20, 1997,
<Body Text> to this Agreement.
<Body Text>
<Body Text> 3. The definition of the term "Eligible Book
Value of Inventory" set forth in Section 1.01 of the Credit
Agreement is hereby amended by deleting the second sentence
thereof in its entirety and inserting in lieu thereof the
following sentence:
<Body Text>
<Body Text> "Inventory as to which Eligible
Book Value of
<Body Text> Inventory is determined shall
include finished
<Body Text> goods on order as to which a
documentary Letter
<Body Text> of Credit has been issued and which
if in the
<Body Text> possession of the Borrower would be
treated as
<Body Text> Inventory (all such goods described
in this sentence,
<Body Text> the "LC Inventory")."
<Body Text>
<Body Text> 4. The definition of the terms "Maturity Date"
set forth in Section 1.01 of the Credit Agreement is hereby
amended in its entirety to read as follows:
<Body Text>
<Body Text>"Maturity Date" shall mean June 23, 1998.
<Body Text>
<Body Text> 5. The definition of the term "Orders" set
forth in Section 1.01 of the Credit Agreement is hereby amended
in its entirety to read as follows:
<Body Text>
<Body Text>"Orders" shall mean the Interim Order, the Final
Order and the Extension Order of the Bankruptcy Court referred
to in Sections 4.01(c), 4.02(d) and 4.03(b).
<Body Text>
<Body Text> 6. Section 2.03(d) of the Credit Agreement is
hereby amended (i) by inserting the parenthetical phrase "(and
after the Effective Date, at a rate per annum equal to the
Alternate Base Rate plus 1/2%)" immediately following the words
"the Alternate Base Rate plus 1/4%" set forth in the fifth and
sixth lines thereof and (ii) by inserting the parenthetical
phrase "(and after the Effective Date, at a rate per annum equal
to the Alternate Base Rate plus 2-1/2%)" immediately following
the words "the Alternate Base Rate plus 2-1/4%" set forth in the
seventh line thereof.
<Body Text>
<Body Text> 7. Section 2.08(a) of the Credit Agreement is
hereby amended by inserting the following proviso at the end
thereof:
<Body Text>"provided, that from and after the Effective Date,
<Body Text> such rate per annum shall be equal to the
<Body Text> Alternate Base Rate plus 1/2%."
<Body Text>
<Body Text> 8. Section 2.08(b) of the Credit Agreement is
hereby amended by inserting the following proviso at the end
thereof:
<Body Text>
<Body Text> "provided, that from and after the
Effective Date,
<Body Text> such rate per annum shall be equal to
the Adjusted
<Body Text> LIBOR Rate for such Interest Period in
effect for
<Body Text> such Borrowing plus 13/4%."
<Body Text>
<Body Text> 9. Section 2.09 of the Credit Agreement is
hereby amended by inserting the following proviso at the end
thereof:
<Body Text> "provided, that from and after the
Effective Date,
<Body Text> such rate per annum shall be equal to the
Alternate
<Body Text> Base Rate plus 2-1/2%."
<Body Text>
<Body Text> 10. Section 2.19 of the Credit Agreement is
hereby amended in its entirety to read as follows:
<Body Text>SECTION 2.19. Certain Fees. The Borrower shall pay
(i) to the Agent, for the respective accounts of the Agent and
the Banks, the fees set forth in that certain letter dated June
21, 1995 among the Agent, Chemical Securities, Inc. (now known
as Chase Securities Inc.) and the Borrower, (ii) to the Agent,
for the respective accounts of the Banks, on the Effective Date,
a facility fee in an aggregate amount equal to 1/2% of the Total
Commitment and (iii) to the Agent, for its own account, the fees
set forth in that certain letter dated March 20, 1997 among the
Agent, Chase Securities, Inc. and the Borrower.
<Body Text>
<Body Text> 11. Section 2.21 of the Credit Agreement is
hereby amended by inserting the parenthetical phrase "(and after
the Effective Date, one and three-quarters percent (1-3/4%) per
annum)" immediately following the words "one and one-half
percent (1-1/2%) per annum" set forth in clause (i) thereof and
by deleting the designation "(x)" set fo1. Article IV of the
Credit Agreement is hereby amended by inserting the following
new Section 4.03 at the end thereof:
<Body Text>
<Body Text> SECTION 4.03. Conditions Precedent to
Extension of the
<Body Text> Maturity Date. The effectiveness of the
extension of
<Body Text> the Maturity Date pursuant to, and of the
other
<Body Text> modifications to this Agreement
contemplated by, the
<Body Text> Sixth Amendment is subject to the
satisfaction of the
<Body Text> following conditions precedent:
<Body Text>
<Body Text> (a) Notes. On or before the Effective
Date, the Agent
<Body Text> shall have received Notes in substantially
the form of
<Body Text> Schedule A to the Sixth Amendment executed
on behalf of
<Body Text> the Borrower, dated the Effective Date,
payable to the
<Body Text> order of each of the Banks, in an amount
equal to such
<Body Text> Bank's Commitment.
<Body Text>
<Body Text> (b) Order. On or before the Effective
Date, the Agent
<Body Text> and the Banks shall have received a
certified copy of
<Body Text> an order of the Bankruptcy Court in form
and substance
<Body Text> satisfactory to the Agent (the "Extension
Order")
<Body Text> approving the terms of the Sixth Amendment
(including the
<Body Text> payment of the Fees required thereunder)
which Extension
<Body Text> Order shall be in full force and effect,
and shall not
<Body Text> have been stayed, reversed, modified or
amended in any
<Body Text> respect.
<Body Text>
<Body Text> (c) Opinion of Counsel to the Borrower.
The Agent
<Body Text> and the Banks shall have received the
favorable written
<Body Text> opinion of Dewey Ballantine and such other
counsel as is
<Body Text> acceptable to the Agent as counsel to the
Borrower and the
<Body Text> Guarantors, dated the Effective Date, in
form and substance
<Body Text> satisfactory to the Agent.
<Body Text>
<Body Text> (d) Payment of Fees. The Borrower shall
have paid to the
<Body Text> Agent the then unpaid balance of all
accrued and unpaid
<Body Text> Fees owed under and pursuant to this
Agreement and the
<Body Text> letters referred to in Section 2.19.
<Body Text>
<Body Text> (e) Corporate and Judicial Proceedings.
All corporate and
<Body Text> judicial proceedings and all instruments
and agreements in
<Body Text> connection with the transactions among the
Borrower, the
<Body Text> Guarantors, the Agent and the Banks
contemplated by the
<Body Text> Sixth Amendment shall be reasonably
satisfactory in form
<Body Text> and substance to the Agent, and the Agent
shall have
<Body Text> received all information and copies of all
documents and
<Body Text> papers, including records of corporate and
judicial
<Body Text> proceedings, which the Agent may have
reasonably requested
<Body Text> in connection therewith, such documents
and papers where
<Body Text> appropriate to be certified by proper
corporate,
<Body Text> governmental or judicial authorities.
<Body Text>
<Body Text> (f) Representations and Warranties. All
representations
<Body Text> and warranties contained in this Agreement
and the
<Body Text> other Loan Documents or otherwise made in
writing in
<Body Text> connection herewith or therewith shall be
true and
<Body Text> correct in all material respects on and as
of the
<Body Text> Effective Date, and the Agent and the
Banks shall have
<Body Text> delivered a certificate from a Financial
Officer to
<Body Text> such effect.
<Body Text>
<Body Text> (g) No Default. On the Effective Date,
the Borrower
<Body Text> and Guarantors shall be in compliance
with all of the
<Body Text> terms and provisions set forth herein to
be observed
<Body Text> or performed and no Event of Default or
event which
<Body Text> upon notice or lapse of time or both
would constitute
<Body Text> an Event of Default shall have occurred
and be continuing,
<Body Text> and the Agent and the Banks shall have
received a
<Body Text> certificate from a Financial Officer to
such effect.
<Body Text>
<Body Text> 13. Section 6.04 of the Credit Agreement is
hereby amended by deleting the word "and" appearing in the
fourth line thereof and clause (iii) thereof and inserting in
lieu thereof the following:
<Body Text>
<Body Text> ", (iii) $20,000,000 during the fiscal year
ending
<Body Text> January 31, 1998 and (iv) $8,000,000 during the
period
<Body Text> thereafter through the Maturity Date."
<Body Text>
<Body Text> 14. Section 6.05 of the Credit Agreement is
hereby amended by adding to the table set forth therein the
dates and the amounts set forth below:
<Body Text>
<Body Text>
<Body Text> DATE EBITDA
<Body Text> ---- ------
<Body Text> May 3, 1997
($110,000,000)
<Body Text> August 2, 1997
($110,000,000)
<Body Text> November 1, 1997
($100,000,000)
<Body Text> January 31, 1998
($70,000,000)
<Body Text> May 2, 1998
($90,000,000)
<Body Text>
<Body Text>
<Body Text> 15. Section 6.06 of the Credit Agreement is
hereby amended by adding to the table set forth therein the
periods and the amounts set forth below:
<Body Text>
<Body Text> Period Ending Inventory
Amount
<Body Text> -------------
- ----------------
<Body Text> July 5, 1997
$161,000,000
<Body Text> August 2, 1997
$179,000,000
<Body Text> August 30, 1997
$190,000,000
<Body Text> October 4, 1997
$243,000,000
<Body Text> November 1, 1997
$258,000,000
<Body Text> November 29, 1997
$261,000,000
<Body Text> January 3, 1998
$153,000,000
<Body Text> January 31, 1998
%165,000,000
<Body Text> February 28, 1998
$181,000,000
<Body Text> April 4, 1998
$197,000,000
<Body Text> May 2, 1998
$194,000,000
<Body Text> May 30, 1998
$188,000,000
<Body Text>
<Body Text> 16. The Exhibits to the Credit Agreement are
hereby amended by replacing Exhibit A thereto in its entirety
with a new Exhibit A thereto in the form of Exhibit A hereto.
<Body Text>
<Body Text> 17. This amendment shall not become effective
until the date (the "Effective Date") on which (i) this
Amendment shall have been executed by the Borrower, the
Guarantors, the Banks, the Agent and the Co-Agent, and the Agent
shall have received evidence satisfactory to it of such
execution and (ii) the Agent shall have received evidence
satisfactory to it that each of the conditions precedent set
forth in Section 4.03 of the Credit Agreement as amended hereby
have been satisfied.
<Body Text>
<Body Text> 18. The Borrower, the Guarantors and the Banks
agree that promptly after the occurrence of the Effective Date
they shall execute and deliver an Amended and Restated Revolving
Credit and Guaranty Agreement reflecting in a single document
the terms and provisions of the Credit Agreement as modified by
this Amendment.
<Body Text>
<Body Text> 19. The Borrower agrees that its obligations
set forth in Section 10.05 of the Credit Agreement shall extend
to the preparation, execution and delivery of this Amendment.
<Body Text>
<Body Text> 20. This Amendment shall be limited precisely
as written and shall not be deemed (a) to be a consent granted
pursuant to, or a waiver or modification of, any other term or
condition of the Credit Agreement or any of the instruments or
agreements referred to therein or (b) to prejudice any right or
rights which the Agent or the Banks may now have or have in the
future under or in connection with the Credit Agreement or any
of the instruments or agreements referred to herein. Whenever
the Credit Agreement is referred to in the Credit Agreement or
any of the instruments, agreements or other documents or papers
executed or delivered in connection therewith, such reference
shall be deemed to mean the Credit Agreement as modified by this
Amendment.
<Body Text>
<Body Text> 21. This Amendment may be executed in any
number of counterparts and by the different parties hereto in
separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which
taken together shall constitute but one and the same instrument.
<Body Text>
<Body Text> 22. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
<Body Text>
<Body Text> IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be duly executed as of the day and the
year first above written.
Body Text
<PAGE>
<Body Text> BRADLEES STORES, INC.
<Body Text> By: Cornelius F. Moses, III
<Body Text> Title: Senior Vice President,
Chief Financial Officer
<Body Text>
<Body Text> GUARANTORS:
<Body Text> BRADLEES, INC.
<Body Text> BRADLEES ADMINISTRATIVE CO.,
INC.
<Body Text> DOSTRA REALTY CO., INC.
<Body Text> MAXIMEDIA SERVICES, INC.
<Body Text> NEW HORIZONS OF BRUCKNER, INC.
<Body Text> NEW HORIZONS OF WESTBURY, INC.
<Body Text> NEW HORIZONS OF YONKERS, INC.
<Body Text> By: Gary Jones
<Body Text> Title: Vice President,
Treasurer
<Body Text>
<Body Text> THE CHASE MANHATTAN BANK,
<Body Text> Individually and as Agent
<Body Text> By: Neil R. Boylan
<Body Text> Title: Vice President
<Body Text>
<Body Text> 270 Park Avenue
<Body Text> New York, New York 10017
<Body Text>
<Body Text> FLEET NATIONAL BANK
<Body Text> By: John C. McDonough
<Body Text> Title: Vice President
<Body Text>
<Body Text> 75 State Street, 4th Floor
<Body Text> Boston, Massachusetts 02109
<Body Text>
<Body Text> HELLER FINANCIAL, INC.
<Body Text> By: Thomas W. Bukowski
<Body Text> Title: Vice President
<Body Text>
<Body Text> 101 Park Avenue
<Body Text> New York, New York 10178
<Body Text>
<Body Text>
<Body Text> JACKSON NATIONAL LIFE INSURANCE
<Body Text> COMPANY
<Body Text> By: PPM AMERICA, INC., as
<Body Text> Attorney-in-Fact for
<Body Text> Jackson National Life Insurance
<Body Text> Company
<Body Text> By: Stuart Lissner
<Body Text> Title: Vice President
<Body Text>
<Body Text> 225 West Wacker, Suite 1200
<Body Text> Chicago, Illinois 60606
<Body Text>
<Body Text>
<Body Text> BHF-BANK AKTIENGESELLSCHAFT
<Body Text> GRAND CAYMAN BRANCH
<Body Text> By: John Sykes
<Body Text> Title: Assistant Vice President
<Body Text> By: Paul Travers
<Body Text> Title: Vice President
<Body Text>
<Body Text> 590 Madison Avenue
<Body Text> New York, New York 10022-2540
<Body Text>
<Body Text> MANUFACTURERS & TRADERS TRUST
COMPANY
<Body Text> By: Gino Martocci
<Body Text> Title: Assistant Vice President
<Body Text>
<Body Text> 350 Park Avenue, 6th Floor
<Body Text> New York, New York 10022
<Body Text>
<Body Text> SIGNET BANK
<Body Text> By: Mara Sierocinski
<Body Text> Title: Assistant Vice President
<Body Text>
<Body Text> 7 North Eighth Street
<Body Text> P.O. Box 25641
<Body Text> Richmond, Virginia 23260
<Body Text>
<Body Text> CREDIT AGRICOLE
<Body Text> By: Dean Balice
<Body Text> Title: Senior Vice President
and Branch Manager
<Body Text>
<Body Text> 55 East Monroe, Suite 4700
<Body Text> Chicago, Illinois 60603
<Body Text>
<Body Text>
EXHIBIT 10.40
<Body Text>
<Body Text> SEVERANCE AGREEMENT
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Style #1> AGREEMENT made as of the day of
, 1997, by and
<Style #1> -----------
- -----------
<Style #1>between Bradlees Stores, Inc., a Massachusetts
corporation ("Bradlees Stores"), Bradlees, Inc., a Massachusetts
corporation ("Bradlees" and collectively with Bradlees Stores,
the "Employer"), and [Name of Employee] (the "Employee").
<Body Text>
<Style #0>WITNESSETH
<Body Text>
<Style #1> WHEREAS, the Employee is a valued employee of the
Employer, and is presently
<Style #1>[Title of Employee] of Bradlees, Inc.; and
<Body Text>
<Style #1> WHEREAS, it is the desire of the parties hereto
to enter into an agreement to provide for a severance benefit
for the Employee in the event of termination of the Employee's
employment by the Employer in accordance with the terms and
conditions set forth in Section 4 of this Agreement; and
<Body Text>
<Style #1> WHEREAS, it is the desire of the parties hereto
to enter into an agreement to provide for a change of control
benefit for the Employee in the event of the termination of the
Employee's employment in accordance with the terms and
conditions set forth in Section 5 of this Agreement.
<Body Text>
<Style #1> NOW THEREFORE, in consideration of the mutual
covenants contained herein, the Employer and the Employee agree
as follows:
<Body Text>
<Style #1> 1. Effective Date and Term. The effective date
(the "Effective Date")
<Style #1> -----------------------
<Style #1>of this Agreement shall be . Subject to
the provisions of
<Style #1> -------------
<Style #1>Section 5, the term of this Agreement shall be one (1)
year from the Effective Date. This Agreement shall be renewed
automatically for periods of one (1) year commencing at the
first anniversary of the Effective Date and on each subsequent
anniversary thereafter, unless either the Employee or the
Employer gives written notice to the other not less than one (l)
year prior to the date of any such anniversary, of such party's
election not to extend the term of this Agreement.
Notwithstanding the termination of this Agreement, certain
provisions of this Agreement shall remain enforceable if so
specified in this Agreement or if the context so requires.
Nothing in this Agreement shall affect in any manner whatsoever
the right or power of the Employer to terminate the employment
of the Employee.
<Style #1>
<Style #1>
1
<Style #1>
<Style #1>
Style #1
<PAGE> 2
<Style #1>
<Style #2> 2. Compensation and Benefits.
<Body Text> -------------------------
<Style #1> (a) Salary. The Employer agrees to and does
hereby employ the
<Style #1> ------
<Style #1>Employee in an executive capacity for the Employee's
period of employment with the Employer at a salary (the
"Salary") at an annual rate as may be determined from time to
time by the Chief Executive Officer of the Employer for a term
which may be terminated at will by the Employer. Any salary as
so determined
<Style #1> -------
<Style #1>and then in effect shall be the Salary for all
purposes hereunder. The Salary shall be payable on a periodic
basis, as the Employer shall determine which is the same basis
upon which the Employer pays its actively employed employees in
the same job classification or pay rate as the Employee from
time to time, and at the same rate for any fraction of such a
pay period unexpired at the termination of the Employee's period
of employment with the Employer.
<Body Text>
<Style #1> (b) Taxation of Payments and Benefits. The
Employer shall
<Style #1> ---------------------------------
<Style #1>undertake to make deductions, withholdings and tax
reports with respect to payments and benefits under this
Agreement to the extent that it reasonably and in good faith
believes that it is required to make such deductions,
withholdings and tax reports. Payments under this Agreement
shall be in amounts net of any such deductions or withholdings
and nothing in this Agreement shall be construed to require the
Employer to make any payments to compensate the Employee for any
adverse tax effect associated with any payments or benefits or
for any deduction or withholding from any payment or benefit.
<Body Text>
<Style #1> 3. Duties of Employee. The Employee agrees that
during the Employee's
<Style #1> ------------------
<Style #1>period of employment with the Employer:
<Body Text>
<Style #1> (a) the Employee will faithfully perform the
duties of the Employee's employment hereunder, which duties (as
the Employer agrees) will be commensurate with the Employee's
position, and the Employee will devote to the performance of
such duties such time and attention as such duties shall
reasonably require;
<Body Text>
<Style #1> (b) the Employee will not, without the
express written consent of the Chief Executive Officer, become
actively engaged, either as an employee or as a principal in any
business other than that of the Employer or of a division or
subsidiary of the Employer; and
<Body Text>
<Style #1> (c) the Employee will do nothing
inconsistent with the Employee's duties to the Employer.
<Body Text>
<Style #1>Notwithstanding the foregoing, the Employee shall be
entitled to vacations that are in keeping with the status of the
position for which the Employee is employed and in accordance
with the vacation policy of the Employer.
<Style #1>
<Style #1>
2
<Style #1>
<Style #1>
Style #1
<PAGE> 3
<Style #1>
<Style #1>
<Style #2> 4. Severance Benefit.
<Body Text> -----------------
<Style #1> (a) In the event that the Employee's
employment relationship with the Employer is terminated by the
Employer for any reason other than for Cause (as hereinafter
defined in Section 4(c) below), the Employer shall provide to
the Employee the following severance benefits ("Severance
Benefits"):
<Style #1>
<Style #3> (i) continuation of the Employee's
Salary at the rate then in
<Style #3> effect;
<Style #3>
<Style #3> (ii) continuation of group health plan
benefits to the extent
<Style #3> authorized by and consistent with 29 U.S.C.
1161 et seq.
<Style #3> (commonly known as "COBRA"), with the cost of
such benefits
<Style #3> shared in the same relative proportion by the
Employer and
<Style #3> the Employee as in effect on the date of
termination; and
<Style #3>
<Style #3> (iii) a lump sum payment equal to
thirty-three percent (33%) of
<Style #3> Employee's annual rate of Salary at
the time of such
<Style #3> termination (the "Severance Lump
Sum"); provided, however,
<Style #3> that the Employer shall have no
obligation to make such
<Style #3> lump sum payment under this Section
4(a) if the termination
<Style #3> of the Employee is for Cause.
<Body Text>
<Style #1>The Severance Benefits set forth in Sections 4(a)(i)
and (ii) above shall continue until eighteen (18) months (or
until such time as periodic payments equal to one and one half
times the Employee's annual rate of Salary immediately prior to
the termination have been paid) after the date of termination;
provided, however, that in the event that the Employee commences
any employment or self-employment during the period he is
entitled to receive Severance Benefits, the remaining amount of
Salary due pursuant to Section 4(a)(i) for the period from the
commencement of such employment or self-employment to the end of
the period the Employee is entitled to receive Severance
Benefits shall be reduced by the amount of any compensation
earned by the Employee with respect to such employment or
self-employment and the payments and benefits provided under
Section 4(a)(ii) shall cease effective as of the date of
commencement of such employment or self-employment if such
benefits are available to the Employee through such employment
or self-employment. Notwithstanding the foregoing, nothing in
this Section 4(a) shall be construed to affect the Employee's
right to receive COBRA continuation entirely at the Employee's
own cost to the extent that the Employee may continue to be
entitled to COBRA continuation after the Employee's right to
cost sharing under Section 4(a)(ii) ceases, and for the purposes
of this sentence only, the termination date of the Employee
shall be deemed to be the last day the Employee is entitled to
benefits pursuant to Section 4(a)(ii) of this Agreement. The
Employee shall be obligated to give prompt notice of the date of
commencement of any employment or self-employment during the
period the Employee is entitled to receive Severance Benefits
and shall respond promptly to any reasonable inquiries
concerning any employment or self-employment in which the
Employee engages during such period.
<Style #1>
<Style #1> 3
<Style #1>
<Style #1>
Style #1
<PAGE> 4
<Style #1>
<Style #1>
<Style #1> (b) No Severance Benefit shall be payable if
the employment relationship is terminated by the Employee or due
to the Employee's death or due to the Employee's Disability.
For purposes of this Agreement, the term "Disability" shall mean
incapacity due to the physical or mental illness which has
caused the Employee to be eligible to receive benefits under the
Long Term Disability Plan maintained by the Employer or which
would have caused the Employee to be eligible for such benefits
had the Employee elected coverage under such plan.
<Style #1>
<Style #1> (c) For purposes of this Agreement, the term
"Cause" shall mean:
<Body Text>
<Style #3> (i) dishonest statements or acts of the
Employee with respect
<Style #3> to the Employer or any subsidiary
or affiliate thereof;
<Style #3>
<Style #3> (ii) the Employee's commission of (A) a
felony or (B) a
<Style #3> misdemeanor involving moral
turpitude, deceit, dishonesty
<Style #3> or fraud;
<Body Text>
<Style #3> (iii) material failure to perform to the
reasonable satisfaction
<Style #3> of the Chief Executive Officer a
substantial portion of the
<Style #3> Employee's duties and
responsibilities hereunder, which
<Style #3> failure continues after written
notice given to the
<Style #3> Employee by the Chief Executive
Officer;
<Body Text>
<Style #3> (iv) gross negligence or willful
misconduct of the Employee
<Style #3> with respect to the Employer or any
subsidiary or
<Style #3> affiliate thereof; or
<Body Text>
<Style #3> (v) material breach by the Employee of
any of the Employee's
<Style #3> obligations hereunder.
<Style #3>
<Style #3> (d) It is specifically agreed by the Employee
that the Employer shall have the right to offset from any
amounts due to the Employee hereunder, any amounts due and owing
by the Employee to the Employer (including, but not limited to,
unpaid loans, advances and the like).
<Style #3>
<Style #1> 5. Termination Pursuant to a Change of Control.
<Body Text>
<Style #1> (a) If there is a Change of Control (as
defined in Section 5(b) below) during the term of this
Agreement, the provisions of this Section 5 shall apply and
shall continue to apply until the later of (i) the end of the
term of this Agreement or (ii) one year from the date of the
Change of Control. If, within one (1) year following a Change
of Control, the Employee's employment is terminated by the
Employee following the occurrence of any of the events listed in
Section 5(c) below or if the Employee's employment is terminated
without Cause, in lieu of any payments under Section 4 above,
the Employer shall provide to the Employee the following
benefits ("Change of Control Benefits"):
<Style #1>
<Style #1>
<Style #1> 4
<Style #1>
<Style #1>
Style #1
<PAGE> 5
<Style #1> (i) within thirty (30) days after such
termination, a lump sum
<Style #1> payment in an amount equal to the
sum of (A) one and
<Style #1> one-half (1.5) times the Employee's
annual rate of Salary as
<Style #1> in effect immediately prior to the
Change of Control; and
<Style #1> (B) the Severance Lump Sum; and
<Body Text>
<Style #5> (ii) continuation of group health plan
benefits to the extent
<Style #5> authorized by and consistent with
COBRA, for a period of
<Style #5> eighteen (18) months after such
termination, with the cost
<Style #5> of such benefits shared in the same
relative proportion by
<Style #5> the Employee and the Employer as in
effect immediately
<Style #5>
<Style #5> prior to the Change of Control.
<Body Text>
<Style #1> (b) For purposes of this Agreement, the term
"Change of Control" shall mean the occurrence of one or more of
the following events:
<Style #6>
<Style #6> (i) any "person" (as
such term is used in Sections 13(d) and
<Style #6> 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"))
becomes a "beneficial owner" (as such
<Style #6> term is defined in Rule 13d-3
promulgated under the
<Style #6> Exchange Act) (other than Bradlees,
any trustee or other
<Style #6> fiduciary holding securities under an
employee benefit plan
<Style #6> of Bradlees, or any corporation
owned, directly or
<Style #6> indirectly, by the stockholders of
Bradlees in substantially the same proportions
as their ownership of stock of
<Style #6> Bradlees), directly or indirectly, of
securities of Bradlees
<Style #6> representing 50% or more of the
combined voting power of
<Style #6> Bradlees' then outstanding
securities; or
<Style #6>
<Style #6> (ii) persons who, as of the Effective
Date, constituted Bradlees'
<Style #6> Board of Directors (the "Incumbent
Board") cease for any
<Style #6> reason, including without limitation
as a result of a tender
<Style #6> offer, proxy contest, merger or
similar transaction, to
<Style #6> constitute at least a majority of the
Board of Directors,
<Style #6> provided that any person becoming a
director of Bradlees
<Style #6> subsequent to the Effective Date
whose election was approved
<Style #6> by at least a majority of the directors
then comprising the
<Style #6> Incumbent Board shall, for purposes of
this Section 5(b), be
<Style #6> considered a member of the Incumbent
Board; or
<Body Text>
<Style #3> (iii) the stockholders of Bradlees approve a
merger or consolidation
<Style #3> of Bradlees with any other corporation
or other entity, other
<Style #3> than (A) a merger or consolidation
which would result in the
<Style #3> voting securities of Bradlees
outstanding immediately prior
<Style #3> thereto continuing to represent (either
by remaining
<Style #3> outstanding or by being converted into
voting securities of
<Style #3> the surviving entity) more than 50% of
the combined voting
<Style #3> power of the voting securities of
Bradlees or such surviving
<Style #3> entity outstanding immediately after
such merger or
<Style #3> consolidation or (B) a merger or
consolidation effected to
<Style #3> implement a recapitalization of
Bradlees (or similar
<Style #3> transaction) in which no "person" (as
hereinabove defined)
<Style #3> acquires more than 50% of the combined
voting power of
<Style #3> Bradlees' then outstanding securities;
or
<Style #3>
<Style #3> 5
<Style #3>
Style #3
<PAGE> 6
<Style #3>
<Style #6> (iv) the stockholders of Bradlees approve a
plan of complete
<Style #6> liquidation of Bradlees or an
agreement for the sale or
<Style #6> disposition by Bradlees of all or
substantially all of
<Style #6> Bradlees' assets.
<Body Text>
<Style #1> (c) The events referred to in Section 5(a)
above shall be as follows:
<Body Text>
<Style #6> (i) a reduction of the Employee's
Salary; or
<Style #6>
<Style #6> (ii) an elimination of the Employee's
participation in any
<Style #6> senior management incentive plan
maintained by the Employer
<Style #6> in which the Employee participated
immediately prior to the
<Style #6> Change of Control; or
<Body Text>
<Style #3> (iii) the relocation of the offices at
which the Employee is
<Style #3> principally employed immediately
prior to the Change of
<Style #3> Control to a location more than fifty
(50) miles from such
<Style #3> offices, which relocation is not
approved by the Employee.
<Style #3>
<Style #1> (d) No Change of Control Benefits shall be
payable if the employment relationship is terminated by the
Employee other than for the reasons set forth in Section 5(c)
above or due to the Employee's death, Disability or retirement
after attaining age 65.
<Body Text>
<Style #1> 6. Litigation and Regulatory Cooperation.
During and after the Employee's employment, the Employee shall
cooperate fully with the Employer in the defense or prosecution
of any claims or actions now in existence or which may be
brought in the future against or on behalf of the Employer which
relate to events or occurrences that transpired while the
Employee was employed by the Employer. The Employee's full
cooperation in connection with such claims or actions shall
include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a
witness on behalf of the Employer at mutually convenient times.
During and after the Employee's employment, the Employee also
shall cooperate fully with the Employer in connection with any
examination or review of any federal, state or local regulatory
authority as any such examination or review relates to events or
occurrences that transpired while the Employee was employed by
the Employer. The Employer shall reimburse the Employee for any
reasonable out-of-pocket expenses incurred in connection with
the Employee's performance of obligations pursuant to this
Section 6.
<Style #1>
<Style #2> 7. Confidential Information and Noncompetition.
<Style #2>
<Style #1> (a) Confidential Information. As used in
this Agreement, "Confidential Information" means information
belonging to the Employer which is of value to the Employer in
the course of conducting its business and competing with other
retailers and the disclosure of which could result in a
competitive disadvantage to the Employer. Confidential
Information includes, by way of example and without limitation,
financial information, reports, and forecasts; customers lists;
and business plans, prospects and opportunities (such as
possible acquisitions or dispositions of businesses or
facilities) which have been discussed or considered by the
management of the Employer. Confidential Information includes
information developed by the Employee in the course of the
Employee's employment by the Employer, as well as other
information to which the
<Style #1>
<Style #1> 6
<Style #1>
<Style #1>
Style #1
<PAGE> 7
<Style #1>
<Style #1>Employee may have access in connection with the
Employee's employment. Confidential Information also includes
the confidential information of others with which the Employer
has a business relationship.
<Style #1>
<Style #1> (b) Confidentiality. The Employee understands
and agrees that the Employee's employment creates a relationship
of confidence and trust between the Employee and the Employer
with respect to all Confidential Information. At all times,
both during the Employee's employment with the Employer and
after its termination, the Employee will keep in confidence and
trust all such Confidential Information, and will not use or
disclose any such Confidential Information without the written
consent of the Employer, except as may be necessary in the
ordinary course of performing the Employee's duties to the
Employer. The restrictions set forth in this Section 7(b) will
not apply to information which is generally known to the public
or in the business, unless such knowledge results from an
unauthorized disclosure by the Employee, but this exception will
not affect the application of any other provision of this
Agreement to such information in accordance with the terms of
such provision.
<Body Text>
<Style #1> (c) Documents, Records, etc. All documents,
records, apparatus, equipment and other physical property,
whether or not pertaining to Confidential Information, which are
furnished to the Employee by the Employer or are produced by the
Employee in connection with the Employee's employment will be
and remain the sole property of the Employer. The Employee will
return to the Employer all such materials and property as and
when requested by the Employer. In any event, the Employee will
return all such materials and property immediately upon
termination of the Employee's employment for any reason. The
Employee will not retain with the Employee any such material or
property or any copies thereof after such termination.
<Style #1>
<Style #1> (d) Noncompetition and Nonsolicitation. During
the term of the Employee's employment with the Employer and for
eighteen (18) months thereafter, the Employee (i) will not,
directly or indirectly, whether as owner, partner, shareholder,
consultant, agent, employee, co-venturer or otherwise, engage,
participate or invest in any Competing Business (as hereinafter
defined); and (ii) will refrain from directly or indirectly
employing, attempting to employ, recruiting
<Style #1>or otherwise soliciting, inducing or influencing any
person to leave employment with the Employer (other than
involuntary terminations undertaken in the course of the
Employee's employment with the Employer). The Employee
understands that the restrictions set forth in this Section 7(d)
are intended to protect the Employer's interest in its
Confidential Information and established employee and customer
relationships and goodwill, and agrees that such restrictions
are reasonable and appropriate for this purpose. For purposes
of this Agreement, the term "Competing Business" shall mean a
business conducted by Wal-Mart Stores, Inc., K Mart Corporation,
The Caldor Corporation, Ames Department Stores, Inc., Hills
Department Stores, Inc., TJX Companies, Inc., Marshalls,
Lechmere, Inc. or Target Stores or any of their respective
successors or assigns; provided, however, that a business
conducted by Target Stores shall be considered a Competing
Business only if a significant portion of such business is
conducted in states in which the Employer now or at the time of
the Executive's termination of employment is conducting or is
planning to conduct business.
<Style #1>
<Style #1> 7
<Style #1>
<Style #1>
Style #1
<PAGE> 8
<Style #1>
<Style #1>
<Style #1> (e) Third-Party Agreements and Rights. The
Employee hereby confirms that the Employee is not bound by the
terms of any agreement with any previous employer or other party
which restricts in any way the Employee's use or disclosure of
information or the Employee's engagement in any business. The
Employee represents to the Employer that the Employee's
execution of this Agreement, the Employee's employment with the
Employer and the performance of the Employee's proposed duties
for the Employer will not violate any obligations the Employee
may have to any such previous employer or other party. In the
Employee's work for the Employer, the Employee will not disclose
or make use of any information in violation of any agreements
with or rights of any such previous employer or other party, and
the Employee will not bring to the premises of the Employer any
copies or other tangible embodiments of non-public information
belonging to or obtained from any such previous employment or
other party.
<Body Text>
<Style #1> (f) Injunction. The Employee agrees that it
would be difficult to measure any damages caused to the Employer
which might result from any breach by the Employee of the
promises set forth in Sections 6 or 7 of this Agreement, and
that in any event money damages would be an inadequate remedy
for any such breach. Accordingly, the Employee agrees that if
the Employee breaches, or proposes to breach, any portion of
this Agreement, the Employer shall be entitled, in addition to
all other remedies that it may have, to an injunction or other
appropriate equitable relief to restrain any such breach without
showing or proving any actual damage to the Employer.
<Body Text>
<Style #2> 8. Limitation of Benefits.
<Body Text> -----------------------
<Style #1>
<Style #1> (a) It is the intention of the Employee and of
the Employer that no payments by the Employer to or for the
benefit of the Employee under this Agreement or any other
agreement or plan, if any, pursuant to which he is entitled to
receive payments or benefits shall be nondeductible to the
Employer by reason of the operation of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), relating
to parachute payments. Accordingly, and notwithstanding any
other provision of this Agreement or any such agreement or plan,
if by reason of the operation of said Section 280G, any such
payments exceed the amount which can be deducted by the
Employer, such payments shall be reduced to the maximum amount
which can be deducted by the Employer. To the extent that
payments exceeding such maximum deductible amount have been made
to or for the benefit of the Employee, such excess payments
shall be refunded to the Employer with interest thereon at the
applicable Federal Rate determined under Section 1274(d) of the
Code, compounded annually, or at such other rate as may be
required in order that no such payments shall be non-
<Style #1>deductible to the Employer by reason of the operation
of said Section 280G. To the extent that there is more than one
method of reducing the payments to bring them within the
limitations of said Section 280G, the Employee shall determine
which method shall be followed, provided that if the Employee
fails to make such determination within forty-five (45) days
after the Employer has sent the Employee written notice of the
need for such reduction, the Employer may determine the method
of such reduction in its sole discretion.
<Style #1>
<Style #1> 8
<Style #1>
<Style #1>
Style #1
<PAGE> 9
<Style #1>
<Style #1>
<Style #1> (b) If any dispute between the Employer and
the Employee as to any of the amounts to be determined under
this Section 8 or the method of calculating such amounts, cannot
be resolved by the Employer and the Employee, either the
Employer or the Employee, after giving three (3) days written
notice to the other, may refer the dispute to a partner in the
Boston, Massachusetts office of a firm of independent certified
public accountants selected jointly by the Employer and the
Employee. The determination of such partner as to the amount to
be determined under Section 8(a) and the method of calculating
such amounts shall be final and binding on both the Employer and
the Employee. The Employer shall bear the costs of any such
determination.
<Body Text>
<Style #1> 9. Arbitration of Disputes. Any controversy or
claim arising out of or relating to this Agreement or the breach
thereof or otherwise arising out of the Employee's employment or
the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination
whether based on age or otherwise) shall in the first instance,
to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or,
in the absence of such an agreement, under the auspices of the
American Arbitration Association ("AAA") in Boston,
Massachusetts in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the
rules and procedures applicable to the selection of arbitrators.
Notwithstanding the foregoing, if a controversy or claim
subject to this Section 9 is not resolved to the satisfaction of
either the Employer or the Employee, either party may further
pursue the claim in a court of competent jurisdiction.
Notwithstanding the foregoing, this provision shall not preclude
either party from pursuing a court action for the sole purpose
of obtaining a temporary restraining order or a preliminary
injunction in circumstances in which such relief is appropriate;
provided, however, that any other relief shall be pursued
through an arbitration proceeding pursuant to this Section 9.
<Body Text>
<Style #1> 10. Integration. This Agreement constitutes the
entire agreement
<Style #1>between the parties with respect to the subject matter
hereof and supersedes all prior agreements between the parties
with respect to any related subject matter.
<Style #1>
<Style #1> 11. Assignment; Successors and Assigns, etc.
Neither the Employer nor
<Style #1>the Employee may make any assignment of this Agreement
or any interest herein, by operation of law or otherwise,
without the prior written consent of the other party; provided,
however, that the Employer may assign its rights under this
Agreement without the consent of the Employee in the event that
the Employer shall hereafter effect a reorganization,
consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or
substantially all of its properties or assets to any other
corporation, partnership, organization or other entity. This
Agreement shall inure to the benefit of and be binding upon the
Employer and the Employee, their respective successors,
executors, administrators, heirs and permitted assigns.
<Style #1>
<Style #1> 12. Enforceability. If any portion or provision
of this Agreement shall
<Style #1>to any extent be declared illegal or unenforceable by
a court of competent jurisdiction, then the remainder of this
Agreement, or the application of such portion or provision in
circumstances other than those as to which it is so declared
illegal or unenforceable, shall not be affected thereby, and
each portion and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
<Style #1>
<Style #1>
<Style #1> 13. Waiver. No waiver of any provision hereof
shall be effective unless
<Style #1>made in writing and signed by the waiving party. The
failure of any party to require the performance of any term or
obligation of this Agreement, or the waiver by any party of any
breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of
any subsequent breach.
<Body Text>
<Style #1> 14. Notices. Any notices, requests, demands and
other communications
<Style #1>provided for by this Agreement shall be sufficient if
in writing and delivered in person or sent by registered or
certified mail, postage prepaid, return receipt requested, to
the Employee at the last address the Employee has filed in
writing with the Employer or, in the case of the Employer, at
its main offices, attention of the President.
<Body Text>
<Style #1> 15. Amendment. This Agreement may be amended or
modified only by a
<Style #1>written instrument signed by the Employee and by a
duly authorized representative of the Employer.
<Style #1>
<Style #1> 16. Governing Law. This is a Massachusetts
contract and shall be
<Style #1>construed under and be governed in all respects by the
internal laws of the Commonwealth of Massachusetts.
<Body Text>
<Style #1> 17. Counterparts. This Agreement may be
executed in any number of
<Style #1>counterparts, each of which when so executed and
delivered shall be taken to be an original; but such
counterparts shall together constitute one and the same document.
<Style #1>
<Style #1> 18. Release. In consideration of the
undertakings, transactions and
<Style #1>consideration recited in this Agreement, the Employee,
on behalf of the Employee and the Employee's, his agents,
representatives, attorneys, assigns, heirs, executors, and
administrators, hereby:
<Style #1>
<Style #1> (a) Unconditionally and irrevocably
remises, releases and forever discharges the Employer and its
subsidiaries and affiliates and its past, present and future
officers, stockholders, directors, employees, representatives,
attorneys, agents, successors, divisions, companies,
subsidiaries and affiliates (and past, present and future
agents, directors, officers, stockholders, employees,
representatives and attorneys of such divisions, companies,
subsidiaries and affiliates), or any of them, of and from any
and all suits, claims, demands, interest, costs (including
attorneys' fees and costs actually incurred), expenses, actions
and causes of action, rights, liabilities, obligations,
promises, agreements, controversies, losses and debits, of any
nature whatsoever, which the Employee or his heirs, successors,
legal representatives or assigns now has, owns or holds, or at
any time heretofore ever had, owned or held, or could have owned
or held, whether known or unknown, suspected or unsuspected,
from the beginning of the world to this date, including without
limiting the generality of the foregoing, any rights or claims
arising under Title VII of the Civil Rights Act of 1964, as
amended; the Age Discrimination in Employment Act of 1967, as
amended;
<Style #1>the Equal Pay Act, as amended; the Fair Labor
Standards Act, as amended; the Employment Retirement Income
Security Act, as amended; the Americans with Disabilities Act,
as amended; Massachusetts General Laws c. 151B, and any other
statutory, common law or other claims of any nature whatsoever
against the Employer or its subsidiaries or affiliates. The
Employee further agrees never to institute against the Employer
or its subsidiaries or affiliates any action or other proceeding
in any court, administrative agency, or other tribunal of the
United States or any State thereof, or before any arbitration
agency, with respect to any claim or cause of action of any type
arising or which may have existed at any time prior to the date
of the execution of this Agreement.
<Style #1>
<Style #1>THIS MEANS THAT, BY SIGNING THIS AGREEMENT, THE
EMPLOYEE WILL HAVE WAIVED ANY RIGHT THE EMPLOYEE HAD TO BRING A
LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST THE EMPLOYER OR ITS
SUBSIDIARIES OR AFFILIATES OR ANY OF THE PERSONS OR OTHER
ENTITIES LISTED IN THIS RELEASE BASED ON ANY ACTIONS TAKEN BY
THE EMPLOYER OR ANY OF THE PERSONS OR OTHER ENTITIES LISTED IN
THIS RELEASE UP TO THE DATE OF THE SIGNING OF THIS AGREEMENT,
AND THAT THE EMPLOYEE WILL HAVE RELEASED THE EMPLOYER AND ITS
SUBSIDIARIES AND AFFILIATES OF ANY AND ALL CLAIMS OF ANY NATURE
ARISING UP TO THE DATE OF THE SIGNING OF THIS AGREEMENT.
<Style #1>
<Body Text> (b) The Employee agrees to keep
confidential and not to reveal the terms of this Agreement to
anyone, except the Employee's spouse and legal counsel or
advisor. The Employee further agrees that the Company shall
have the uncontested right under this Agreement to secure
injunctive relief from a court of competent jurisdiction to
prevent the release or use of said confidential information.
<Body Text>
<Body Text> (c) Other than as stated herein, the
undersigned parties warrant that no representation, promise, or
inducement has been offered or made to induce any party to enter
into this Agreement and that they are competent to execute this
Agreement and accept full responsibility therefor. The Employee
acknowledges that the Employee has had the opportunity to be
advised and/or has been advised by the Employee's own legal
counsel or advisor in executing this Agreement and that the
Employee has been informed of the Employee's right to consider
this Agreement for twenty-one (21) days, and of his right to
revoke the Agreement within seven (7) days of the date the
Employee signs it. This Agreement is intended as final
expression of the parties' Agreement and as a complete and
exclusive statement of the terms thereof.
<Body Text>
<Body Text> 11
<Body Text>
Body Text
<PAGE>
<Style #1> IN WITNESS WHEREOF, this Agreement has been
executed as a sealed instrument by the Employer, by its duly
authorized officer, and by the Employee, as of the date first
above written.
<Body Text>
<Body Text> BRADLEES, INC.
<Body Text>
<Body Text>
<Style #1> By:
<Style #1>
- -------------------------------
<Style #1> David L.
Schmitt
<Style #1> Senior Vice
President and General
<Style #1> Counsel
<Body Text>
<Body Text>
<Style #1> BRADLEES STORES,
INC.
<Body Text>
<Body Text>
<Style #1> By:
<Style #1>
- -------------------------------
<Style #1> David L.
Schmitt
<Style #1> Senior Vice
President and General
<Style #1> Counsel
<Body Text>
<Body Text>
<Body Text>
<Body Text>
- --------------------------------
<Style #1> [Employee]
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>h/agreements/severance/svp1
<Body Text>
<Body Text>
Exhibit 10.41
<Body Text>
<Body Text> SEVERANCE AGREEMENT
<Body Text>
<Body Text>
<Body Text>
<Body Text>
<Style #1> AGREEMENT made as of the day of
, 1997, by and
<Style #1> ---------------
- ----------
<Style #1>between Bradlees Stores, Inc., a Massachusetts
corporation ("Bradlees Stores"), Bradlees, Inc., a Massachusetts
corporation ("Bradlees" and collectively with Bradlees Stores,
the "Employer"), and [Name of Employee] (the "Employee").
<Body Text>
<Style #1>
<Style #1>
<Style #1> WHEREAS, the Employee is a valued employee of the
Employer, and is presently [Title of Employee] of Bradlees,
Inc.; and
<Body Text>
<Style #1> WHEREAS, it is the desire of the parties hereto
to enter into an agreement to provide for a severance benefit
for the Employee in the event of termination of the Employee's
employment by the Employer in accordance with the terms and
conditions set forth in Section 4 of this Agreement; and
<Body Text>
<Style #1> WHEREAS, it is the desire of the parties hereto
to enter into an agreement to provide for a change of control
benefit for the Employee in the event of the termination of the
Employee's employment in accordance with the terms and
conditions set forth in Section 5 of this Agreement.
<Body Text>
<Style #1> NOW THEREFORE, in consideration of the mutual
covenants contained herein, the Employer and the Employee agree
as follows:
<Body Text>
<Style #1> 1. Effective Date and Term. The effective date
(the "Effective Date") of this Agreement shall be
. Subject to the provisions of Section
<Style #1> ---------------
<Style #1> 5, the term of this Agreement shall be one (1) year
from the Effective Date. This Agreement shall be renewed
automatically for periods of one (1) year commencing at the
first anniversary of the Effective Date and on each subsequent
anniversary thereafter, unless either the Employee or the
Employer gives written notice to the other not less than one (l)
year prior to the date of any such anniversary, of such party's
election not to extend the term of this Agreement.
Notwithstanding the termination of this Agreement, certain
provisions of this Agreement shall remain enforceable if so
specified in this Agreement or if the context so requires.
Nothing in this Agreement shall affect in any manner whatsoever
the right or power of the Employer to terminate the employment
of the Employee.<PAGE>
<Style #2> 2. Compensation and Benefits.
<Body Text>
<Style #1> (a) Salary. The Employer agrees to and does
hereby employ the Employee in an executive capacity for the
Employee's period of employment with the Employer at a salary
(the "Salary") at an annual rate as may be determined from time
to time by the Chief Executive Officer of the Employer for a
term which may be terminated at will by the Employer. Any
salary as so determined and then in effect shall be the Salary
for all purposes hereunder. The Salary shall be payable on a
periodic basis, as the Employer shall determine which is the
same basis upon which the Employer pays its actively employed
employees in the same job classification or pay rate as the
Employee from time to time, and at the same rate for any
fraction of such a pay period unexpired at the termination of
the Employee's period of employment with the Employer.
<Body Text>
<Style #1> (b) Taxation of Payments and Benefits. The
Employer shall undertake to make deductions, withholdings and
tax reports with respect to payments and benefits under this
Agreement to the extent that it reasonably and in good faith
believes that it is required to make such deductions,
withholdings and tax reports. Payments under this Agreement
shall be in amounts net of any such deductions or withholdings
and nothing in this Agreement shall be construed to require the
Employer to make any payments to compensate the Employee for any
adverse tax effect associated with any payments or benefits or
for any deduction or withholding from any payment or benefit.
<Body Text>
<Style #1> 3. Duties of Employee. The Employee agrees that
during the Employee's period of employment with the Employer:
<Body Text>
<Style #1> (a) the Employee will faithfully perform the
duties of the Employee's employment hereunder, which duties (as
the Employer agrees) will be commensurate with the Employee's
position, and the Employee will devote to the performance of
such duties such time and attention as such duties shall
reasonably require;
<Body Text>
<Style #1> (b) the Employee will not, without the
express written consent of the Chief Executive Officer, become
actively engaged, either as an employee or as a principal in any
business other than that of the Employer or of a division or
subsidiary of the Employer; and
<Body Text>
<Style #1> (c) the Employee will do nothing
inconsistent with the Employee's duties to the Employer.
<Body Text>
<Style #1>Notwithstanding the foregoing, the Employee shall be
entitled to vacations that are in keeping with the status of the
position for which the Employee is employed and in accordance
with the vacation policy of the Employer.<PAGE>
<Style #2> 4. Severance Benefit.
<Style #1> (a) In the event that the Employee's
employment relationship with the Employer is terminated by the
Employer for any reason other than for Cause (as hereinafter
defined in Section 4(c) below), the Employer shall provide to
the Employee the following severance benefits ("Severance
Benefits"):
<Style #3>
<Style #3> (i) continuation of the Employee's
Salary at the rate then in
<Style #3> effect;
<Body Text>
<Style #3> (ii) continuation of group health plan
benefits to the extent
<Style #3> authorized by and consistent with 29
U.S.C. 1161 et seq.
<Style #3> (commonly known as "COBRA"), with
the cost of such benefits
<Style #3> shared in the same relative
proportion by the Employer and
<Style #3> the Employee as in effect on the
date of termination; and
<Body Text>
<Style #3> (iii) a lump sum payment equal to fifty
percent (50%) of Employee's
<Style #3> annual rate of Salary at the time of
such termination (the
<Style #3> "Severance Lump Sum"); provided,
however, that the Employer
<Style #3> shall have no obligation to make
such lump sum payment under
<Style #3> this Section 4(a) if the termination
of the Employee is for
<Style #3> Cause.
<Body Text>
<Style #1>The Severance Benefits set forth in Sections 4(a)(i)
and (ii) above shall continue until eighteen (18) months (or
until such time as periodic payments equal to one and one half
times the Employee's annual rate of Salary immediately prior to
the termination have been paid) after the date of termination;
provided, however, that in the event that the Employee commences
any employment or self-employment during the period he is
entitled to receive Severance Benefits, the remaining amount of
Salary due pursuant to Section 4(a)(i) for the period from the
commencement of such employment or self-employment to the end of
the period the Employee is entitled to receive Severance
Benefits shall be reduced by the amount of any compensation
earned by the Employee with respect to such employment or
self-employment and the payments and benefits provided under
Section 4(a)(ii) shall cease effective as of the date of
commencement of such employment or self-employment if such
benefits are available to the Employee through such employment
or self-employment. Notwithstanding the foregoing, nothing in
this Section 4(a) shall be construed to affect the Employee's
right to receive COBRA continuation entirely at the Employee's
own cost to the extent that the Employee may continue to be
entitled to COBRA continuation after the Employee's right to
cost sharing under Section 4(a)(ii) ceases, and for the purposes
of this sentence only, the termination date of the Employee
shall be deemed to be the last day the Employee is entitled to
benefits pursuant to Section 4(a)(ii) of this Agreement. The
Employee shall be obligated to give prompt notice of the date of
commencement of any employment or self-employment during the
period the Employee is entitled to receive Severance Benefits
and shall respond promptly to any reasonable inquiries
concerning any employment or self-employment in which the
Employee engages during such period.(b)No Severance Benefit shall be paid if
the employment relationship is terminated by the Employee or due
to the Employee's death or due to the Employee's Disability.
For purposes of this Agreement, the term "Disability" shall mean
incapacity due to the physical or mental illness which has
caused the Employee to be eligible to receive benefits under the
Long Term Disability Plan maintained by the Employer or which
would have caused the Employee to be eligible for such benefits
had the Employee elected coverage under such plan.
<Style #1>
<Style #1> (c) For purposes of this Agreement, the term
"Cause" shall mean:
<Body Text>
<Style #3> (i) dishonest statements or acts of the
Employee with respect to
<Style #3> the Employer or any subsidiary or
affiliate thereof;
<Body Text>
<Style #3> (ii) the Employee's commission of (A) a
felony or (B) a misdemeanor
<Style #3> involving moral turpitude, deceit,
dishonesty or fraud;
<Body Text>
<Style #3> (iii) material failure to perform to the
reasonable satisfaction of
<Style #3> the Chief Executive Officer a
substantial portion of the
<Style #3> Employee's duties and
responsibilities hereunder, which
<Style #3> failure continues after written
notice given to the Employee
<Style #3> by the Chief Executive Officer;
<Body Text>
<Style #3> (iv) gross negligence or willful
misconduct of the Employee with
<Style #3> respect to the Employer or any
subsidiary or affiliate
<Style #3> thereof; or
<Body Text>
<Style #3> (v) material breach by the Employee of
any of the Employee's
<Style #3> obligations hereunder.
<Style #3>
<Style #3> (d) It is specifically agreed by the Employee
that the Employer shall have the right to offset from any
amounts due to the Employee hereunder, any amounts due and owing
by the Employee to the Employer (including, but not limited to,
unpaid loans, advances and the like).
<Style #3>
<Style #1> 5. Termination Pursuant to a Change of Control.
<Body Text>
<Style #1> (a) If there is a Change of Control (as
defined in Section 5(b) below) during the term of this
Agreement, the provisions of this Section 5 shall apply and
shall continue to apply until the later of (i) the end of the
term of this Agreement or (ii) one year from the date of the
Change of Control. If, within one (1) year following a Change
of Control, the Employee's employment is terminated by the
Employer following the occurrence of any of the events listed in
Section 5(c) below or if the Employee's employment is terminated
without Cause, in lieu of any payments under Section 4 above,
the Employer shall provide to the Employee the following
benefits ("Change of Control Benefits"):(i)within thirty (30) days after such
termination, a lump sum
<Style #4> payment in an amount equal to the
sum of (A) one and one-half
<Style #4> (1.5) times the Employee's annual
rate of Salary as in effect
<Style #4> immediately prior to the Change of
Control; and (B) the
<Style #4> Severance Lump Sum; and
<Body Text>
<Style #5> (ii) continuation of group health plan
benefits to the extent
<Style #5> authorized by and consistent with
COBRA, for a period of
<Style #5> eighteen (18) months after such
termination, with the cost of
<Style #5> such benefits shared in the same
relative proportion by the
<Style #5> Employee and the Employer as in
effect immediately prior to
<Style #5> the Change of Control.
<Body Text>
<Style #1> (b) For purposes of this Agreement, the term
"Change of Control" shall mean the occurrence of one or more of
the following events:
<Style #6> (i) any "person" (as such term is
used in Sections 13(d) and
<Style #6> 14(d)(2) of the Securities
Exchange Act of 1934, as
<Style #6> amended (the "Exchange Act"))
becomes a "beneficial
<Style #6> owner" (as such term is defined
in Rule 13d-3 promulgated
<Style #6> under the Exchange Act) (other
than Bradlees, any trustee
<Style #6> or other fiduciary holding
securities under an employee
<Style #6> benefit plan of Bradlees, or
any corporation owned,
<Style #6> directly or indirectly, by the
stockholders of Bradlees
<Style #6> in substantially the same
proportions as their ownership
<Style #6> of stock of Bradlees), directly
or indirectly, of
<Style #6> securities of Bradlees
representing 50% or more of the
<Style #6> combined voting power of
Bradlees' then outstanding
<Style #6> securities; or
<Style #6>
<Style #6> (ii) persons who, as of the
Effective Date, constituted
<Style #6> Bradlees' Board of Directors
(the "Incumbent Board")
<Style #6> cease for any reason, including
without limitation as a
<Style #6> result of a tender offer, proxy
contest, merger or
<Style #6> similar transaction, to
constitute at least a majority of the
Board of Directors, provided that any person becoming
<Style #6> a director of Bradlees
subsequent to the Effective Date
<Style #6> whose election was approved by
at least a majority of the
<Style #6> directors then comprising the
Incumbent Board shall, for
<Style #6> purposes of this Section 5(b),
be considered a member of the Incumbent
Board; or
<Style #6>
<Style #6>
<Style #6>
<Style #6>
<Style #6>
<Style #3> (iii) the stockholders of Bradlees
approve a merger or
<Style #3> consolidation of Bradlees with
any other corporation or
<Style #3> other entity, other than (A) a
merger or consolidation
<Style #3> which would result in the
voting securities of Bradlees
<Style #3> outstanding immediately prior
thereto continuing to
<Style #3> represent (either by remaining
outstanding or by being
<Style #3> converted into voting
securities of the surviving entity)
<Style #3> more than 50% of the combined
voting power of the voting
<Style #3> securities of Bradlees or such
surviving entity
<Style #3> outstanding immediately after
such merger or
<Style #3> consolidation or (B) a merger
or consolidation effected
<Style #3> to implement a recapitalization
of Bradlees (or similar
<Style #3> transaction) in which no
"person" (as hereinabove
<Style #3> defined) acquires more than 50%
of the combined voting
<Style #3> power of Bradlees' then
outstanding securities; or
<Body Text>
<Style #6> (iv) the stockholders of Bradlees
approve a plan of complete
<Style #6> liquidation of Bradlees or an
agreement for the sale or
<Style #6> disposition by Bradlees of all
or substantially all of
<Style #6> Bradlees' assets.
<Body Text>
<Style #1> (c) The events referred to in Section 5(a)
above shall be as follows:
<Body Text>
<Style #6>(i) a reduction of the Employee's Salary; or
<Style #6> (ii) an elimination of the
Employee's participation in any
<Style #6> senior management incentive
plan maintained by the
<Style #6> Employer in which the Employee
participated immediately
<Style #6> prior to the Change of Control;
or
<Body Text>
<Style #3> (iii) the relocation of the offices
at which the Employee is
<Style #3> principally employed
immediately prior to the Change of
<Style #3> Control to a location more than
fifty (50) miles from
<Style #3> such offices, which relocation
is not approved by the
<Style #3> Employee.
<Style #3>
<Style #1> (d) No Change of Control Benefits shall be
payable if the employment relationship is terminated by the
Employee other than for the reasons set forth in Section 5(c)
above or due to the Employee's death, Disability or retirement
after attaining age 65.
<Body Text>
<Style #1> 6. Litigation and Regulatory Cooperation.
During and after the Employee's employment, the Employee shall
cooperate fully with the Employer in the defense or prosecution
of any claims or actions now in existence or which may be
brought in the future against or on behalf of the Employer which
relate to events or occurrences that transpired while the
Employee was employed by the Employer. The Employee's full
cooperation in connection with such claims or actions shall
include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a
witness on behalf of the Employer at mutually convenient times.
During and after the Employee's employment, the Employee also
shall cooperate fully with the Employer in connection with any
examination or review of any federal, state or local regulatory
authority as any such examination or review relates to events or
occurrences that transpired while the Employee was employed by
the Employer. The Employer shall reimburse the Employee for any
reasonable out-of-pocket expenses incurred in connection with
the Employee's performance of obligations pursuant to this
Section 6.
<Style #1>
<Style #2> 7. Confidential Information and Noncompetition.
<Body Text>
<Style #1> (a) Confidential Information. As used in
this Agreement, "Confidential Information" means information
belonging to the Employer which is of value to the Employer in
the course of conducting its business and competing with other
retailers and the disclosure of which could result in a
competitive disadvantage to the Employer. Confidential
Information includes, by way of example and without limitation,
financial information, reports, and forecasts; customers lists;
and business plans, prospects and opportunities (such as
possible acquisitions or dispositions of businesses or
facilities) which have been discussed or considered by the
management of theEmployer. Confidential Information includes
information developed by the Employee in the course of the
Employee's employment by the Employer, as well as other
information to which the Employee may have access in connection
with the Employee's employment. Confidential Information also
includes the confidential information of others with which the
Employer has a business relationship.
<Style #1>
<Style #1> (b) Confidentiality. The Employee
understands and agrees that the Employee's employment creates a
relationship of confidence and trust between the Employee and
the Employer with respect to all Confidential Information. At
all times, both during the Employee's employment with the
Employer and after its termination, the Employee will keep in
confidence and trust all such Confidential Information, and will
not use or disclose any such Confidential Information without
the written consent of the Employer, except as may be necessary
in the ordinary course of performing the Employee's duties to
the Employer. The restrictions set forth in this Section 7(b)
will not apply to information which is generally known to the
public or in the business, unless such knowledge results from an
unauthorized disclosure by the Employee, but this exception will
not affect the application of any other provision of this
Agreement to such information in accordance with the terms of
such provision.
<Body Text>
<Style #1> (c) Documents, Records, etc. All documents,
records, apparatus, equipment and other physical property,
whether or not pertaining to Confidential Information, which are
furnished to the Employee by the Employer or are produced by the
Employee in connection with the Employee's employment will be
and remain the sole property of the Employer. The Employee will
return to the Employer all such materials and property as and
when requested by the Employer. In any event, the Employee will
return all such materials and property immediately upon
termination of the Employee's employment for any reason. The
Employee will not retain with the Employee any such material or
property or any copies thereof after such termination.
<Body Text>
<Style #1> (d) Noncompetition and Nonsolicitation.
During the term of the Employee's employment with the Employer
and for eighteen (18) months thereafter, the Employee (i) will
not, directly or indirectly, whether as owner, partner,
shareholder, consultant, agent, employee, co-venturer or
otherwise, engage, participate or invest in any Competing
Business (as hereinafter defined); and (ii) will refrain from
directly or indirectly employing, attempting to employ,
recruiting
<Style #1>or otherwise soliciting, inducing or influencing any
person to leave employment with the Employer (other than
involuntary terminations undertaken in the course of the
Employee's employment with the Employer). The Employee
understands that the restrictions set forth in this Section 7(d)
are intended to protect the Employer's interest in its
Confidential Information and established employee and customer
relationships and goodwill, and agrees that such restrictions
are reasonable and appropriate for this purpose. For purposes
of this Agreement, the term "Competing Business" shall mean a
business conducted by Wal-Mart Stores, Inc., K Mart Corporation,
The Caldor Corporation, Ames Department Stores, Inc., or Hills
Department Stores, Inc., or any of their respective successors
or assigns; provided, however, that a business conducted by
Target Stores shall be considered a Competing Business only if a
significant portion of such business is conducted in states in
which the Employer now or at the time of the Executive's
termination of employment is conducting or is planning to
conduct business.
<Body Text>
<Style #1> (e) Third-Party Agreements and Rights. The
Employee hereby confirms that the Employee is not bound by the
terms of any agreement with any previous employer or other party
which restricts in any way the Employee's use or disclosure of
information or the Employee's engagement in any business. The
Employee represents to the Employer that the Employee's
execution of this Agreement, the Employee's employment with the
Employer and the performance of the Employee's proposed duties
for the Employer will not violate any obligations the Employee
may have to any such previous employer or other party. In the
Employee's work for the Employer, the Employee will not disclose
or make use of any information in violation of any agreements
with or rights of any such previous employer or other party, and
the Employee will not bring to the premises of the Employer any
copies or other tangible embodiments of non-public information
belonging to or obtained from any such previous employment or
other party.
<Body Text>
<Style #1> (f) Injunction. The Employee agrees that it
would be difficult to measure any damages caused to the Employer
which might result from any breach by the Employee of the
promises set forth in Sections 6 or 7 of this Agreement, and
that in any event money damages would be an inadequate remedy
for any such breach. Accordingly, the Employee agrees that if
the Employee breaches, or proposes to breach, any portion of
this Agreement, the Employer shall be entitled, in addition to
all other remedies that it may have, to an injunction or other
appropriate equitable relief to restrain any such breach without
showing or proving any actual damage to the Employer.
<Style #1>
<Style #2> 8. Limitation of Benefits.
<Body Text>
<Style #1> (a) It is the intention of the Employee and
of the Employer that no payments by the Employer to or for the
benefit of the Employee under this Agreement or any other
agreement or plan, if any, pursuant to which he is entitled to
receive payments or benefits shall be nondeductible to the
Employer by reason of the operation of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), relating
to parachute payments. Accordingly, and notwithstanding any
other provision of this Agreement or any such agreement or plan,
if by reason of the operation of said Section 280G, any such
payments exceed the amount which can be deducted by the
Employer, such payments shall be reduced to the maximum amount
which can be deducted by the Employer. To the extent that
payments exceeding such maximum deductible amount have been made
to or for the benefit of the Employee, such excess payments
shall be refunded to the Employer with interest thereon at the
applicable Federal Rate determined under Section 1274(d) of the
Code, compounded annually, or at such other rate as may be
required in order that no such payments shall be non-
<Style #1>deductible to the Employer by reason of the operation
of said Section 280G. To the extent that there is more than one
method of reducing the payments to bring them within the
limitations of said Section 280G, the Employee shall determine
which method shall be followed, provided that if the Employee
fails to make such determination within forty-five (45) days
after the Employer has sent the Employee written notice of the
need for such reduction, the Employer may determine the method
of such reduction in its sole discretion.(b)If any dispute between
the Employer and
the Employee as to any of the amounts to be determined under
this Section 8 or the method of calculating such amounts, cannot
be resolved by the Employer and the Employee, either the
Employer or the Employee, after giving three (3) days written
notice to the other, may refer the dispute to a partner in the
Boston, Massachusetts office of a firm of independent certified
public accountants selected jointly by the Employer and the
Employee. The determination of such partner as to the amount to
be determined under Section 8(a) and the method of calculating
such amounts shall be final and binding on both the Employer and
the Employee. The Employer shall bear the costs of any such
determination.
<Body Text>
<Style #1> 9. Arbitration of Disputes. Any controversy or
claim arising out of or relating to this Agreement or the breach
thereof or otherwise arising out of the Employee's employment or
the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination
whether based on age or otherwise) shall in the first instance,
to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or,
in the absence of such an agreement, under the auspices of the
American Arbitration Association ("AAA") in Boston,
Massachusetts in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the
rules and procedures applicable to the selection of arbitrators.
Notwithstanding the foregoing, if a controversy or claim
subject to this Section 9 is not resolved to the satisfaction of
either the Employer or the Employee, either party may further
pursue the claim in a court of competent jurisdiction.
Notwithstanding the foregoing, this provision shall not preclude
either party from pursuing a court action for the sole purpose
of obtaining a temporary restraining order or a preliminary
injunction in circumstances in which such relief is appropriate;
provided, however, that any other relief shall be pursued
through an arbitration proceeding pursuant to this Section 9.
<Body Text>
<Style #1> 10. Integration. This Agreement constitutes the
entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements between the
parties with respect to any related subject matter.
<Style #1>
<Style #1> 11. Assignment; Successors and Assigns, etc.
Neither the Employer nor the Employee may make any assignment of
this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other party;
provided, however, that the Employer may assign its rights under
this Agreement without the consent of the Employee in the event
that the Employer shall hereafter effect a reorganization,
consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or
substantially all of its properties or assets to any other
corporation, partnership, organization or other entity. This
Agreement shall inure to the benefit of and be binding upon the
Employer and the Employee, their respective successors,
executors, administrators, heirs and permitted assigns.
<Style #1>
<Style #1> 12. Enforceability. If any portion or provision
of this Agreement shall to any extent be declared illegal or
unenforceable by a court of competent jurisdiction, then the
remainder of this Agreement, or the application of such portion
or provision in circumstances other than those as to which it is
so declared illegal or unenforceable, shall not be affected
thereby, and each portion and provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
<Style #1>
<Style #1> 13. Waiver. No waiver of any provision hereof
shall be effective unless made in writing and signed by the
waiving party. The failure of any party to require the
performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not
prevent any subsequent enforcement of such term or obligation or
be deemed a waiver of any subsequent breach.
<Body Text>
<Style #1> 14. Notices. Any notices, requests, demands and
other communications provided for by this Agreement shall be
sufficient if in writing and delivered in person or sent by
registered or certified mail, postage prepaid, return receipt
requested, to the Employee at the last address the Employee has
filed in writing with the Employer or, in the case of the
Employer, at its main offices, attention of the President.
<Body Text>
<Style #1> 15. Amendment. This Agreement may be amended or
modified only by a written instrument signed by the Employee and
by a duly authorized representative of the Employer.
<Style #1>
<Style #1> 16. Governing Law. This is a Massachusetts
contract and shall be construed under and be governed in all
respects by the internal laws of the Commonwealth of
Massachusetts.
<Body Text>
<Style #1> 17. Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed
and delivered shall be taken to be an original; but such
counterparts shall together constitute one and the same document.
<Style #1>
<Style #1> 18. Release. In consideration of the
undertakings, transactions and consideration recited in this
Agreement, the Employee, on behalf of the Employee and the
Employee's, his agents, representatives, attorneys, assigns,
heirs, executors, and administrators, hereby:
<Style #1>
<Style #1> (a) Unconditionally and irrevocably remises,
releases and forever discharges the Employer and its
subsidiaries and affiliates and its past, present and future
officers, stockholders, directors, employees, representatives,
attorneys, agents, successors, divisions, companies,
subsidiaries and affiliates (and past, present and future
agents, directors, officers, stockholders, employees,
representatives and attorneys of such divisions, companies,
subsidiaries and affiliates), or any of them, of and from any
and all suits, claims, demands, interest, costs (including
attorneys' fees and costs actually incurred), expenses, actions
and causes of action, rights, liabilities, obligations,
promises, agreements, controversies, losses and debits, of any
nature whatsoever, which the Employee or his heirs, successors,
legal representatives or assigns now has, owns or holds, or at
any time heretofore ever had, owned or held, or could have owned
or held, whether known or unknown, suspected or unsuspected,
from the beginning of the world to this date, including without
limiting the generality of the foregoing, any rights or claims
arising under Title VII of the Civil Rights Act of 1964, as
amended; the Age Discrimination in Employment Act of 1967, as
amended;
<Style #1>the Equal Pay Act, as amended; the Fair Labor
Standards Act, as amended; the Employment Retirement Income
Security Act, as amended; the Americans with Disabilities Act,
as amended; Massachusetts General Laws c. 151B, and any other
statutory, common law or other claims of any nature whatsoever
against the Employer or its subsidiaries or affiliates. The
Employee further agrees never to institute against the Employer
or its subsidiaries or affiliates any action or other proceeding
in any court, administrative agency, or other tribunal of the
United States or any State thereof, or before any arbitration
agency, with respect to any claim or cause of action of any type
arising or which may have existed at any time.
<Style #1>
<Style #1>THIS MEANS THAT, BY SIGNING THIS AGREEMENT, THE
EMPLOYEE WILL HAVE WAIVED ANY RIGHT THE EMPLOYEE HAD TO BRING A
LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST THE EMPLOYER OR ITS
SUBSIDIARIES OR AFFILIATES OR ANY OF THE PERSONS OR OTHER
ENTITIES LISTED IN THIS AGREEMENT AND AGREES TO EXECUTE A
GENERAL RELEASE OF CLAIMS IN A FORM PROVIDED BY THE EMPLOYER AS
A CONDITION OF RECEIVING ANY BENEFITS PURSUANT TO THIS SEVERANCE
AGREEMENT AND THAT THE EMPLOYEE WILL HAVE RELEASED THE EMPLOYER
AND ITS SUBSIDIARIES AND AFFILIATES OF ANY AND ALL CLAIMS OF ANY
NATURE.
<Style #1>
<Body Text> (b) The Employee agrees to keep
confidential and not to reveal the terms of this Agreement to
anyone, except the Employee's spouse and legal counsel or
advisor. The Employee further agrees that the Company shall
have the uncontested right under this Agreement to secure
injunctive relief from a court of competent jurisdiction to
prevent the release or use of said confidential information.
<Body Text>
<Body Text> (c) Other than as stated herein, the
undersigned parties warrant that no representation, promise, or
inducement has been offered or made to induce any party to enter
into this Agreement and that they are competent to execute this
Agreement and accept full responsibility therefor. The Employee
acknowledges that the Employee has had the opportunity to be
advised and/or has been advised by the Employee's own legal
counsel or advisor in executing this Agreement and that the
Employee has been informed of the Employee's right to consider
this Agreement for twenty-one (21) days, and of his right to
revoke the Agreement within seven (7) days of the date the
Employee signs it. This Agreement is intended as final
expression of the parties' Agreement and as a complete and
exclusive statement of the terms thereof.
<Body Text>
<Body Text> 19. Bonus Plan. Employee hereby acknowledges
that participation in the annual Corporate Bonus Plan
(hereinafter "the Plan") is limited to active employees of the
Employer and any terminated employee (terminated prior to
payment of the Plan award in any Plan year), whether receiving
severance or not, shall be ineligible to participate in the Plan.,
In Witness Whereof this Agreement has been
executed as a sealed instrument by the Employer, by its duly
authorized officer, and by the Employee, as of the date first
above written.
<Body Text>
<Body Text> BRADLEES, INC.
<Body Text>
<Body Text>
<Style #1> By:
<Style #1>
<Style #7> David L. Schmitt
<Style #7> Senior Vice President
and General Counsel
<Body Text>
<Body Text>
<Style #1> BRADLEES STORES,
INC.
<Body Text>
<Body Text>
<Style #1> By:
<Style #1>
<Style #7> David L. Schmitt
<Style #7> Senior Vice President and
General Counsel
<Body Text>
<Body Text>
<Body Text>
- -------------------------------------------
<Style #1> [Employee]
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>h/agreements/severance/1041
<Style #0>
Exhibit 10.42
<Style #0>
<Style #0>
<Style #0> SEVERANCE AGREEMENT
<Body Text>
<Body Text>
<Body Text>
<Style #1> AGREEMENT made as of the 31st day of January,
1997, by and between Bradlees Stores, Inc., a Massachusetts
corporation ("Bradlees Stores"), Bradlees, Inc., a Massachusetts
corporation ("Bradlees" and collectively with Bradlees Stores,
the "Employer"), and James M. Zamberlan (the "Employee").
<Body Text>
<Style #0>WITNESSETH
<Body Text>
<Style #1> WHEREAS, the Employer and the Employee desire by
this Severance Agreement to finally resolve all issues between
them; including, but not limited to any issues arising out of
the Employment Agreement between the Employer and the Employee
dated August 28, 1995; and any amendments thereto; and
<Body Text>
<Style #1> WHEREAS, it is the desire of the Employer to
provide severance benefits to the Employee resulting from the
termination of his employment effective January 31, 1997 (the
"Termination Date").
<Style #1>
<Style #1> NOW THEREFORE, in consideration of the mutual
covenants contained herein, the Employer and the Employee agree
as follows:
<Body Text>
<Style #1> 1. Within two (2) business days after the
execution by the Employer and the Employee of this Severance
Agreement, the Employer shall deposit a severance payment with
the Escrow Agent named in the Escrow Agreement between the
parties attached to this Severance Agreement, which is
incorporated by reference as a part of this Severance Agreement,
the sum of: (1) one million two hundred thousand dollars
($1,200,000.00) less any applicable tax deductions and
withholdings to be paid to the Employee by the Escrow Agent
pursuant to the terms of the Escrow Agreement, and (2)
twenty-five thousand dollars ($25,000.00) to be paid to
Employee's attorney by the Escrow Agent pursuant to the terms of
the Escrow Agreement. The Employer shall undertake to make
deductions, withholdings and tax reports with respect to
payments and benefits under this Severance Agreement to the
extent that it reasonably and in good faith believes that it is
required to make such deductions, withholdings and tax reports.
Payments under this Severance Agreement shall be in amounts net
of any such deductions or withholdings and nothing in this
Severance Agreement shall be construed to require the Employer
to make any payments to compensate the Employee for any adverse
tax effect associated with any payments or benefits or for any
deduction or withholding from any payment or benefit.
<Style #1>
<Style #1> 2. The Employer will assume any liability of the
Employee for unpaid rent or cancellation penalties under the
Employee's apartment lease with The Landmark at 550 Washington
Street, Braintree, MA, Unit 210 dated September 3, 1996 for the
period for November 1, 1996 to April 30, 1997, or for unpaid
furniture rental fees or cancellation penalties under the
Employee's furniture rental agreement.
<Style #1> 3. The Employer will continue to provide to the
Employee the same medical, dental and life insurance benefits
for which the Employee was eligible as of the Termination Date
for a period of eighteen (18) months after the Termination Date
at no cost to the Employee.
<Style #1>
<Style #1> 4. The Employer will pay to the Employee moving
expenses for moving the personal effects of the Employee from
Braintree, MA to Cincinnati, OH, not to exceed two thousand five
hundred dollars ($2,500), upon receipt of an itemized invoice
from the Employee for such expenses.
<Style #1>
<Style #1> 5. Notwithstanding that this Severance Agreement
supersedes the terms of the Employment Agreement between the
Employer and the Employee dated August 28, 1995, Section 5.10
relating to Indemnification and Article 9, Section 9.1 and 9.2
relating to Non-Solicitation of Employees Confidentiality
Non-Competition and Injunction are expressly retained in full
force and effect and are incorporated into this Severance
Agreement by reference. The Employee shall cooperate fully with
the Employer in the defense or prosecution of any claims or
actions now in existence of which may be brought in the future
against or on behalf of the Employer which relate to events or
occurrences that transpired while the Employee was employed by
the Employer. The Employee's full cooperation in connection
with such claims or actions shall include, but not be limited
to, being available to meet with counsel to prepare for
discovery or trial and to act as a witness on behalf of the
Employer at mutually convenient times. During and after the
Employee's employment, the Employee also shall cooperate fully
with the Employer in connection with any examination or review
of any federal, state or local regulatory authority as any such
examination or review relates to events or occurrences that
transpired with the Employee was employed by the Employer. The
Employer shall reimburse the Employee for any reasonable
out-of-pocket expenses incurred in connection with the
Employee's performance of obligations pursuant to this Section.
<Style #1>
<Style #1> 6. The terms of this Severance Agreement are
subject to the Employer obtaining either: (1) the consent of its
Official Committee of Unsecured Creditors and its Bank Group as
Debtors-In-
<Style #1>Possession in its pending Chapter 11 proceeding in the
Bankruptcy Court of the Southern District of New York that
approval by the Bankruptcy Court of this Severance Agreement is
not required; or (2) the approval of the Bankruptcy Court of the
payments to be made pursuant to this Severance Agreement. The
Employer will recommend acceptance of this Severance Agreement
to each of the foregoing parties.
<Style #1>
<Style #1> 7. Any controversy or claim arising out of or
relating to this Severance Agreement or the breach thereof or
otherwise arising out of the Employee's employment or the
termination of that employment (including, without limitation,
any claims of unlawful employment discrimination whether based
on age or otherwise) shall in the first instance, to the fullest
extent permitted by law, be settled by arbitration in any forum
and form agreed upon by the parties or, in the absence of such
an agreement, under the auspices of the American Arbitration
Association ("AAA") in Boston, Massachusetts in accordance with
the Employment Dispute Resolution Rules of the AAA, including,
but not limited to, the rules and procedures applicable to the
selection of arbitrators. Notwithstanding the foregoing, if a
controversy or claim subject to this Section 7 is not resolved
to the satisfaction of either the Employer or the Employee,
either party may further pursue the claim in a court of competent
jurisdiction. Notwithstanding the
foregoing, this provision shall not preclude either party from
pursuing a court action for the sole purpose of obtaining a
temporary restraining order or a preliminary injunction in
circumstances in which such relief is appropriate; provided,
however, that any other relief shall be pursued through an
arbitration proceeding pursuant to this Section.
<Body Text>
<Style #1> 8. This Severance Agreement, including the
Escrow Agreement dated January 31, 1997 incorporated by
reference herein, constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes
all prior agreements between the parties with respect to any
related subject matter.
<Body Text>
<Style #1> 9. Neither the Employer nor the Employee may
make any assignment of this Severance Agreement or any interest
herein, by operation of law or otherwise, without the prior
written consent of the other party; provided, however, that the
Employer may assign its rights under this Severance Agreement
without the consent of the Employee in the event that the
Employer shall hereafter effect a reorganization, consolidate
with or merge into any other corporation, partnership,
organization or other entity, or transfer all or substantially
all of its properties or assets to any other corporation,
partnership, organization or other entity. This Severance
Agreement shall inure to the benefit of and be binding upon the
Employer and the Employee, their respective successors,
executors, administrators, heirs and permitted assigns.
<Style #1>
<Style #1> 10. If any portion or provision of this Severance
Agreement shall to any extent be declared illegal or
unenforceable by a court of competent jurisdiction, then the
remainder of this Severance Agreement, or the application of
such portion or provision in circumstances other than those as
to which it is so declared illegal or unenforceable, shall not
be affected thereby, and each portion and provision of this
Severance Agreement shall be valid and enforceable to the
fullest extent permitted by law.
<Style #1>
<Style #1> 11. No waiver of any provision hereof shall be
effective unless made in writing and signed by the waiving
party. The failure of any party to require the performance of
any term or obligation of this Severance Agreement, or the
waiver by any party of any breach of this Severance Agreement,
shall not prevent any subsequent enforcement of such term or
obligation or be deemed a waiver of any subsequent breach.
<Body Text>
<Style #1> 12. Any notices, requests, demands and other
communications provided for by this Severance Agreement shall be
sufficient if in writing and delivered in person or sent by
registered or certified mail, postage prepaid, return receipt
requested, to the Employee at the last address the Employee has
filed in writing with the Employer or, in the case of the
Employer, at its main offices, attention of the General Counsel.
<Body Text>
<Style #1> 13. This Severance Agreement may be amended or
modified only by a written instrument signed by the Employee and
by a duly authorized representative of the Employer.
<Style #1>
<Style #1> 14. This Severance Agreement is a Massachusetts
contract and shall be construed under and be governed in all
respects by the internal laws of the Commonwealth of
Massachusetts.
<Body Text>
<Style #1> 15. This Severance Agreement may be executed in
any number of counterparts, each of which when so executed and
delivered shall be taken to be an original; but such
counterparts shall together constitute one and the same document.
<Style #1>
<Style #1> 16. In consideration of the undertakings,
transactions and consideration recited in this Severance
Agreement, the Employee, on behalf of the Employee and the
Employee's, agents, representatives, attorneys, assigns, heirs,
executors, and administrators, hereby:
<Style #1>
<Style #1> (a) Unconditionally and irrevocably remises,
releases and forever discharges the Employer and its
subsidiaries and affiliates and its past, present and future
officers, stockholders, directors, employees, representatives,
attorneys, agents, successors, divisions, companies,
subsidiaries and affiliates (and past, present and future
agents, directors, officers, stockholders, employees,
representatives and attorneys of such divisions, companies,
subsidiaries and affiliates), or any of them, of and from any
and all suits, claims, demands, interest, costs (including
attorneys' fees and costs actually incurred), expenses, actions
and causes of action, rights, liabilities, obligations,
promises, agreements, controversies, losses and debits, of any
nature whatsoever, including, but not limited to any disputes or
claims arising under the Employment Agreement between the
Employer and the Employee dated August 28, 1995, and any
amendments thereto, but expressly excluding disputes or claims
relating to obligations to the Employee arising under this
Severance Agreement or the Escrow Agreement dated January 31,
1997 incorporated by reference into the Severance Agreement,
which the Employee or his heirs, successors, legal
representatives or assigns now has, owns or holds, or at any
time heretofore ever had, owned or held, or could have owned or
held, whether known or unknown, suspected or unsuspected, from
the beginning of the world to this date, including without
limiting the generality of the foregoing, any rights or claims
arising under Title VII of the Civil Rights Act of 1964, as
amended; the Age Discrimination in Employment Act of 1967, as
amended; the Equal Pay Act, as amended; the Fair Labor Standards
Act, as amended; the Employment Retirement Income Security Act,
as amended; the Americans with Disabilities Act, as amended;
Massachusetts General Laws c. 151B, and any other statutory,
common law or other claims of any nature whatsoever against the
Employer or its subsidiaries or affiliates. The Employee
further agrees never to institute against the Employer or its
subsidiaries or affiliates any action or other proceeding in any
court, administrative agency, or other tribunal of the United
States or any State thereof, or before any arbitration agency,
with respect to any claim or cause of action of any type arising
or which may have existed at any time prior to the date of the
execution of this Severance Agreement.
<Style #1>
<Style #1>THIS MEANS THAT, BY SIGNING THIS AGREEMENT, THE
EMPLOYEE WILL HAVE WAIVED ANY RIGHT THE EMPLOYEE HAD TO BRING A
LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST THE EMPLOYER OR ITS
SUBSIDIARIES OR AFFILIATES OR ANY OF THE PERSONS OR OTHER
ENTITIES LISTED IN THIS RELEASE BASED ON ANY ACTIONS TAKEN BY
THE EMPLOYER OR ANY OF THE PERSONS OR OTHER ENTITIES LISTED IN
THIS RELEASE UP TO THE DATE OF THE SIGNING OF THIS AGREEMENT,
AND THAT THE EMPLOYEE WILL HAVE RELEASED THE EMPLOYER AND ITS
SUBSIDIARIES AND AFFILIATES OF ANY AND ALL CLAIMS OF ANY NATURE
ARISING UP TO THE DATE OF THE SIGNING OF THIS SEVERANCE
AGREEMENT.
<Style #1>
<Body Text> (b) The Employee agrees to keep
confidential and not to reveal the terms of this Severance
Agreement to anyone, except the Employee's spouse and legal
counsel or advisor. The Employee further agrees that the
Company shall have the uncontested right under this Severance
Agreement to secure injunctive relief from a court of competent
jurisdiction to prevent the release or use of said confidential
information.
<Body Text>
<Body Text> (c) Other than as stated herein, the
undersigned parties warrant that no representation, promise, or
inducement has been offered or made to induce any party to enter
into this Severance Agreement and that they are competent to
execute this Agreement and accept full responsibility therefor.
The Employee acknowledges that the Employee has had the
opportunity to be advised and/or has been advised by the
Employee's own legal counsel or advisor in executing this
Severance Agreement and that the Employee has been informed of
the Employee's right to consider this Severance Agreement for
twenty-one (21) days, and of his right to revoke the Severance
Agreement within seven (7) days of the date the Employee signs
it. This Agreement is intended as final expression of the
parties' agreement and as a complete and exclusive statement of
the terms thereof.
<Body Text>
<Body Text> 17. The Employer hereby releases the Employee
from any liability for acts by the Employee while employed by
the Employer, except for acts involving criminal or grossly
negligent behavior by the Employee, or which fall within the
definition of "Cause" set forth in Article I, Section 1.8 of the
Employment Agreement between the Employer and the Employee dated
August 28, 1995.
<Body Text>
<Style #1> IN WITNESS WHEREOF, this Severance Agreement has
been executed as a sealed instrument by the Employer, by its
duly authorized officer, and by the Employee, as of the date
first above written.
<Body Text>
<Body Text> BRADLEES, INC.
<Body Text>
<Body Text>
<Style #1> By: /s/ David
L. Schmitt
<Style #1>
- ---------------------------------
<Style #1> David L.
Schmitt
<Style #7> Senior
Vice President and General
<Style #7> Counsel
<Body Text>
<Body Text>
<Style #1>
BRADLEES STORES, INC.
<Style #1>
<Style #1>
<Style #1> By: /s/ David
L. Schmitt
<Style #1>
- ---------------------------------
<Style #1> David L.
Schmitt
<Style #7> Senior
Vice President and General
<Style #7> Counsel
<Style #7>
<Body Text>
<Style #1> By: /s/ James
M. Zamberlan
<Style #1>
- ---------------------------------
<Style #1> James M.
Zamberlan
<Style #1>
<Style #1>
<Style #1>
<Style #1>
<Style #1>h/agreements/severance/zambrln
Style #1
<PAGE>
ESCROW AGREEMENT
<Style #1>
<Style #1>
<Body Text> This ESCROW AGREEMENT (the "Agreement") is made
and entered into as of January 31, 1997 by and among James M.
Zamberlan ("Mr. Zamberlan"), Bradlees, Inc. ("Bradlees") and
Bradford J. Smith, Esq. of Goodwin, Procter & Hoar LLP (the
"Escrow Agent").
<Body Text>
<Body Text>1. Appointment of Escrow Agent. Mr. Zamberlan and
Bradlees hereby appoint and designate Bradlees' counsel,
Bradford J. Smith, Esq., as Escrow Agent for the purposes set
forth herein, and Bradford J. Smith, Esq. accepts said
appointment and agrees to perform in accordance with this
Agreement.
<Body Text> 2. Deposit of funds into Escrow.
<Style #1> (a) Upon execution of this Agreement and
that certain Severance Agreement by and between Mr. Zamberlan
and Bradlees ("Severance Agreement"), Bradlees shall: (i)
deposit One Million Two Hundred Thousand Dollars ($1,200,000)
less any applicable tax deductions and withholdings (the
"Severance Payment") by wire transfer into the "Goodwin, Procter
& Hoar LLP Client Funds" account at Boston Safe Deposit & Trust
Company, ABA No. 011001234, Account No. 13-041-9; and (ii)
Twenty-Five Thousand Dollars ($25,000) ("Attorney's Fees") by
wire transfer into the "Goodwin, Procter & Hoar LLP Client
Funds" account as described immediately herein above.
<Style #1> (b) The Escrow Agent may, upon delivery of
a Form W-9 by Bradlees, transfer the Severance Payment and
Attorney's Fees into an interest-bearing account. The interest
accrued on such amounts prior to distribution and termination of
the Escrow Account shall be referred to hereinafter as the
"Accrued Interest."
<Body Text>
<Body Text>3. Distribution and Termination of Escrow Account.
The Escrow Agent shall distribute the Severance Payment,
Attorney's Fees and Accrued Interest in accordance with
Subsection (a), (b), (c) or (d) of this Section, whichever
applies:
<Style #1> (a) If, within seven days of the execution
of the Severance Agreement ("Execution Date") Mr. Zamberlan does
not cause a "Notice of Revocation," as that term is used in the
Severance Agreement to be delivered and received by the Escrow
Agent, then upon receipt of notification that (y) the Official
Committee of Unsecured Creditors appointed in Bradlees pending
Chapter 11 cases and its Bank Group have agreed that payment of
the Severance Payment to Mr. Zamberlan does not require
Bankruptcy Court approval or (z) the Bankruptcy Court has
approved payment of the Severance Payment to Mr. Zamberlan (y)
and (z) referred to hereinafter as the "Approval"), the Escrow
Agent shall: (i) deliver the Severance Payment, by check or
wire transfer as directed in writing, to Mr. Zamberlan; (ii) the
Attorney's Fees, by check or wire transfer as directed in
writing, to William J. Keating, Jr., Esq., as attorney for James
Zamberlan, c/o Keating, Muething & Klekamp, 1800 Provident
Tower, 1 East Fourth Street, Cincinnati, Ohio 45202; and (iii)
the Accrued Interest, by check or wire transfer as directed in
writing, to Bradlees.
<Style #1> (b) If a Notice of Revocation is delivered
to the Escrow Agent within seven days of the Execution Date by
Mr. Zamberlan, the Severance Payment, Attorney's Fees and
Accrued Interest shall be delivered, by check or wire transfer
as directed in writing, to Bradlees.
<Style #1> (c) Upon receipt of notification from
Bradlees that the Approval cannot be delivered to the Escrow
Agent, the Severance Payment, the Attorney's Fees and the
Accrued Interest shall be delivered, by check or wire transfer
as directed in writing, to Bradlees.
<Style #1> (d) Notwithstanding the foregoing
subsections, the Severance Payment, the Attorney's Fees and the
Accrued Interest shall be delivered by the Escrow Agent upon,
and in accordance with, any joint written direction of Mr.
Zamberlan and Bradlees.
<Style #1> (e) This Agreement shall terminate upon
delivery of the Severance Payment, the Attorney's Fees and the
Accrued Interest pursuant to this Section.
<Body Text> 4. Expenses. Bradlees shall be responsible for
all expenses and charges of the Escrow Agent incurred in
connection with the establishment or administration of the
Agreement.
<Body Text> 5. Liability of Escrow Agent. The parties
hereto agree that the Escrow Agent's obligations and duties
pursuant to this Agreement shall be confined to those
specifically set forth herein. The Escrow Agent shall not be
liable for the sufficiency, correctness, genuineness or validity
of any instrument or other writing believed by him in good faith
to be genuine and to be signed or presented by the proper person
and shall not be liable in connection therewith or in connection
with the performance by him of his duties pursuant to the
provisions of this Agreement, except for gross negligence or
willful misconduct.
<Body Text> 6. Notices. Except as otherwise provided
herein, all notices and any other communications or documents
shall be in writing, refer specifically to this Agreement, be
sent by registered or certified mail, postage prepaid or by
telegram and shall be deemed to have been given when actually
received either by the designated addressee or to the designated
address. A registered or certified return receipt shall be
conclusive evidence of receipt thereof. Such notices shall be
addressed as set forth below or in accordance with the latest
unrevoked written instructions given by any party to the other
parties hereto:<PAGE>
<Body Text> (a) To Mr. Zamberlan: With Copy To:
<Body Text>
<Body Text> James Zamberlan William J.
Keating, Jr., Esq.
<Body Text> 5746 Chestnut Ridge Keating,
Muething & Klekamp
<Body Text> Cincinnati, Ohio 45230 1800 Provident
Tower
<Body Text> 1 East Fourth
Street
<Body Text> Cincinnati, Ohio
45202
<Body Text>
<Body Text> (b) To Bradlees:
<Body Text>
<Body Text> David L. Schmitt, Esq.
<Body Text> Senior Vice President and General Counsel
<Body Text> Bradlees
<Body Text> One Bradlees Circle
<Body Text> Braintree, MA 02184-9051
<Body Text>
<Body Text> (c) To Escrow Agent:
<Body Text>
<Body Text> Bradford J. Smith, Esq.
<Body Text> Goodwin, Procter & Hoar LLP
<Body Text> Exchange Place
<Body Text> Boston, MA 02109-2881
<Body Text>
<Body Text> 7. Controlling Law. This Agreement shall be
deemed a contract under the laws of the Commonwealth of
Massachusetts and should be governed by and construed in
accordance with the laws of said Commonwealth.
<Body Text> 8. Amendments. This Agreement may be amended
only by a written amendment executed by all the parties hereto.
<Body Text> 9. Headings. The headings used herein are for
convenience only and are not to be used in interpreting this
Agreement.
<Body Text> 10. Counterparts. This Agreement may be signed
in several counterparts, each of which shall be deemed an
original, and all such counterparts shall constitute one and the
same instrument.
<Body Text> IN WITNESS WHEREOF, the parties hereto have
executed this Escrow Agreement as of the date and year first
above written.
<Body Text>
<Body Text>
- -----------------------------------
<Body Text> James Zamberlan
<Body Text>
<Body Text>
<Body Text> BRADLEES, INC.
<Body Text>
<Body Text>
<Body Text> By:
- ------------------------------
<Body Text>
<Body Text>
<Body Text>
<Body Text>
- -----------------------------------
<Body Text> Bradford J.
Smith, Esq.
<Body Text>
<Body Text>
Style #1
<PAGE>
<Style #1>
<Body Text>
<Body Text>
Exhibit 23
<Body Text>
<Body Text>INDEPENDENT AUDITORS' CONSENT
<Body Text>
<Body Text>
<Body Text>We consent to the incorporation by reference in
Registration Statement Nos. 33-64850, 33-64858, 33-80896,
33-86954 and 33-86956 of Bradlees, Inc. and subsidiaries
(operating as Debtor-in-Possession) on Forms S-8 of our report
dated March 20, 1997 (which expresses an unqualified opinion and
includes explanatory paragraphs relating to (a) the Company's
filing for reorganization under Chapter 11 of the Federal
Bankruptcy Code, (b) the Company's 1996 and 1995 losses from
operations and stockholders' deficiency which raise substantial
doubt about the Company's ability to continue as a going
concern, and (c) the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 112, effective January 30,
1994, in this Annual Report on Form 10-K of Bradlees, Inc. and
subsidiaries for the year ended February 1, 1997.
<Body Text>
<Body Text>/s/ Deloitte & Touche
<Body Text>
<Body Text>Boston, Massachusetts
<Body Text>April 29, 1997
BRADLEES, INC.
EXHIBIT 11
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
COMPUTATION OF LOSS PER SHARE
(Amounts in thousands except per share amounts)
52 Weeks Ended 53 Weeks Ended
Feb. 1, 1997 Feb. 3, 1996
Primary Loss Per Share
Net loss ($218,759) ($207,413)
Weighted average number of shares
outstanding (1) 11,412 11,416
Incremental shares for assumed
exercise of
stock options (1)
Total common shares and common
share equivalent 11,412 11,416
Net loss per share:
Net loss ($19.17)
($18.17)
Fully Diluted Loss Per Share (2)
Net loss ($218,759)
($207,413) Weighted average number of shares
outstanding (1) 11,412 11,416
Incremental shares for assumed
exercise of stock options (1)
Total common shares and common share
equivalent 11,412 11,416
Fully diluted net loss per share:
Net loss ($19.17)
($18.17) (1) Shares in thousands.
(2) The information in this exhibit is provided in accordance
with Item 601 of Regulation S-K, although such information
is not required by Paragraph 14 of Accounting Principles Board
Opinion No. 15.
