<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1998
REGISTRATION STATEMENT NO. 333-66953
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BRADLEES, INC. AND
BRADLEES STORES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BRADLEES, INC.--MASSACHUSETTS 5311 BRADLEES, INC.--04-3156108
BRADLEES STORES, INC.-- (PRIMARY STANDARD BRADLEES STORES, INC.--
MASSACHUSETTS INDUSTRIAL CLASSIFICATION 04-3220855
(STATE OR OTHER CODE NUMBER) (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
ONE BRADLEES CIRCLE
BRAINTREE, MASSACHUSETTS 02184
(781) 380-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
PETER THORNER
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
&
DAVID L. SCHMITT
SENIOR VICE PRESIDENT, GENERAL COUNSEL
SECRETARY AND CLERK
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPY TO:
RAYMOND C. ZEMLIN, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MA 02109
(617) 570-1000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this Registration Statement becomes effective, which time is to be
determined by the Selling Securityholders. All of the Securities offered hereby
are offered for the account of the Selling Securityholders.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE +
+SELLING SECURITYHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION +
+STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. +
+THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT +
+SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR +
+SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 25, 1998
PROSPECTUS
BRADLEES, INC.
7,267,424 SHARES OF COMMON STOCK
BRADLEES STORES, INC.
$36,000,000 OF 9% CONVERTIBLE NOTES
Bradlees, Inc., through its subsidiary, Bradlees Stores, Inc., operates
discount department stores in the Northeast. The Securities being offered by
this Prospectus were issued by us under the terms of our bankruptcy
reorganization.
This Prospectus relates to:
.7,267,424 shares of Common Stock of Bradlees, Inc.; and
.$36,000,000 of 9% Convertible Notes issued by Bradlees Stores, Inc.
We are registering these securities on behalf of the Selling Securityholders.
The Selling Securityholders received these securities pursuant to our Plan of
Reorganization in exchange for the cancellation of various indebtedness owed by
us to them. We are not selling any of these securities and we will not receive
any proceeds from the sale of these securities. The Selling Securityholders may
offer these securities through public or private transactions, on the Nasdaq
National Market, at prevailing prices or at privately negotiated prices. The
registration of these securities does not necessarily mean that any Selling
Securityholder will actually sell such securities.
The Common Stock offered by this Prospectus has been accepted for listing on
the Nasdaq National Market, subject to official notice of issuance, under the
symbol "[BRAD]."
Our principal executive offices are located at One Bradlees Circle,
Braintree, Massachusetts 02184. Our telephone number is (781) 380-3000.
-----------
INVESTING IN THESE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 2
The Company.............................................................. 2
The Offering............................................................. 3
RISK FACTORS.............................................................. 5
Economic and Industry Risks.............................................. 5
Competition............................................................. 5
Concentration in the Northeast.......................................... 5
Merchandising Strategy Must Successfully Evolve......................... 5
Labor Negotiations...................................................... 5
Financial Risks.......................................................... 6
High Leverage........................................................... 6
History of Losses....................................................... 6
Restrictions Imposed by the Terms of the BankBoston Facility............ 6
Risk to Continuing Operations if Covenants Not Met...................... 7
Limitations on Future Growth............................................ 7
Liquidity............................................................... 7
Assets Pledged as Collateral under the BankBoston Facility.............. 7
Post-Bankruptcy Risks.................................................... 8
Recent Emergence from Chapter 11 Proceedings............................ 8
Fresh Start Reporting May Make Future Financial Statements Difficult to
Compare................................................................ 8
Tax Consequences of the Plan of Reorganzation; Potential Loss of Certain
Tax Attributes......................................................... 8
Risks Related to the Securities.......................................... 8
Limited Market for Common Stock and Notes............................... 8
Restrictions on Common Stock Dividends.................................. 9
Future Stock Issuances Can Dilute Current Owners........................ 9
Guarantor Does not Have Significant Separate Assets..................... 9
Fraudulent Conveyance Matters........................................... 9
Miscellaneous Business Risks............................................. 9
Dependence on key personnel............................................. 9
Potential Year 2000 Liability........................................... 10
Change of Control not Restricted........................................ 10
Board of Directors May Change........................................... 10
THE COMPANY............................................................... 11
General.................................................................. 11
Background to Our Bankruptcy Reorganization.............................. 11
The Plan of Reorganization............................................... 11
USE OF PROCEEDS........................................................... 16
DIVIDEND POLICY........................................................... 16
CAPITALIZATION............................................................ 17
SELECTED FINANCIAL DATA................................................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 28
Results of Operations.................................................... 28
1997 Compared to 1996.................................................... 29
1996 Compared to 1995.................................................... 30
Year-to-Date 1998 Compared to Year-to-Date 1997.......................... 31
Liquidity and Capital Resources.......................................... 33
Potential Year 2000 Liability............................................ 34
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
BUSINESS.................................................................... 35
Company Overview........................................................... 35
Employees and Collective Bargaining Arrangements........................... 36
Competition................................................................ 36
Patents, Trademarks and Licenses........................................... 37
Seasonality................................................................ 37
Credit Facility............................................................ 37
Further Information........................................................ 37
Facilities................................................................. 38
Legal Proceedings.......................................................... 38
MANAGEMENT.................................................................. 39
Directors and Executive Officers........................................... 39
The Board of Directors and Its Committees.................................. 41
New Board of Directors..................................................... 42
Summary Compensation Table................................................. 43
Corporate Bonus Plan....................................................... 44
Enterprise Appreciation Incentive Plan..................................... 44
Management Emergence Bonus Plan............................................ 44
Severance Program.......................................................... 45
Stock Option Plan for Key Employees........................................ 45
Retirement Plans........................................................... 45
Compensation of Directors.................................................. 46
Employment Agreement with Peter Thorner.................................... 46
Compensation Committee Interlocks and Insider Participation................ 47
PRINCIPAL STOCKHOLDERS...................................................... 48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 49
Other Transactions......................................................... 49
Company Policy............................................................. 49
SELLING SECURITY HOLDERS.................................................... 49
Plan of Distribution....................................................... 50
SHARES ELIGIBLE FOR FUTURE SALE............................................. 51
TERMS OF OUTSTANDING INDEBTEDNESS........................................... 51
Credit Agreement........................................................... 51
CAP Notes.................................................................. 52
Cure Notes................................................................. 53
Tax Notes.................................................................. 53
DESCRIPTION OF THE 9% CONVERTIBLE NOTES..................................... 53
General.................................................................... 53
Ranking.................................................................... 53
Redemption................................................................. 54
Limitations on Mergers and Consolidation................................... 54
Guarantee.................................................................. 54
Events of Default, Notice and Waiver....................................... 54
Guarantee.................................................................. 54
Modification of the Indenture.............................................. 55
Collateral................................................................. 56
Conversion................................................................. 56
Governing Law.............................................................. 57
The Trustee................................................................ 57
Authentication............................................................. 57
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
DESCRIPTION OF CAPITAL STOCK................................................ 58
General.................................................................... 58
Authorized and Outstanding Capital Stock................................... 58
Certain Provisions of the Articles and By-laws............................. 58
Transfer Agent and Registrar............................................... 60
Listing.................................................................... 61
LEGAL MATTERS............................................................... 62
EXPERTS..................................................................... 62
ADDITIONAL INFORMATION...................................................... 62
INDEX TO FINANCIAL STATEMENTS............................................... F-1
</TABLE>
(iii)
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference or made in this prospectus
under the captions "Prospectus Summary," "Risk Factors" and "The Company," and
elsewhere in this Prospectus are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Act of 1934. When we use the words "anticipate," "assume,"
"believe," "estimate," "expect," "intend," and other similar expressions in
this Prospectus, they are generally intended to identify forward-looking
statements. In connection with such forward-looking statements, you should
consider that they involve known and unknown risks, uncertainties and other
factors which are, in some cases, beyond our control and which could materially
affect our actual results, performance or achievements. Factors that could
cause our actual results, performance or achievements to differ materially from
those expressed or implied by such forward-looking statements include, but are
not limited to, the following:
.international, national, regional and local economic and political
conditions;
.demographic changes;
.competition;
.unfavorable changes in interest rates;
.unfavorable weather conditions;
.loss of significant vendors;
.liability and other claims asserted against us;
.fluctuations in operating results;
.increased costs of key resources;
.continued acceptance of merchandising and marketing initiatives;
.changes in consumer spending and shopping habits;
.changes in import duties, tariffs and quotas;
.changes in business strategy; and
.the ability to attract and retain qualified personnel.
We disclaim any obligation to update any such factors or to publicly
announce the result of any revisions to any of these forward-looking statements
contained herein to reflect subsequent events or developments.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus.
It is not complete and may not contain all of the information that you should
consider before investing in the Securities. You should read the entire
Prospectus carefully, including the "Risk Factors" section and the financial
statements and the notes to those statements.
THE COMPANY
BACKGROUND
Bradlees, Inc., through its subsidiary Bradlees Stores, Inc., operates
discount department stores in the Northeast, primarily in the Boston to
Philadelphia corridor. We have been active in the discount department store
business for over 30 years.
On June 23, 1995, we filed a petition for relief under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11"). On [February 1], 1999, we
completed our reorganization and emerged from bankruptcy. In connection with
our reorganization, we took significant steps to improve our operations,
including:
. Recruiting an experienced management team;
. Reintroducing basic convenience and commodity products that our customers
expect us to carry;
. Revising our pricing policies to increase customer traffic;
. Revising our marketing strategy to reduce costly and inefficient advertising
and promotional events; and
. Reducing costs by improving operating efficiencies.
BUSINESS STRATEGY
We are focusing on three key merchandise categories:
1. Moderately-priced basic and casual apparel;
2. Basic and fashion items for the home; and
3. Frequently purchased convenience and commodity products.
We believe we can strategically leverage our traditional strengths in the
fashion and quality of our apparel and decorative home product offerings while
driving customer traffic with selected hardlines merchandise.
THE REORGANIZATION
We were compelled to seek the protection of the Bankruptcy Court on June 23,
1995. While in Chapter 11, we continued to manage our affairs as a debtor-in-
possession.
On October 5, 1998, the first Amended Disclosure Statement relating to our
plan of reorganization was approved by the Bankruptcy Court (the "Plan of
Reorganization"). The Plan of Reorganization was confirmed by the Bankruptcy
Court on November 18, 1998 and became effective on [February 1], 1999 (the
"Effective Date").
In connection with our reorganization in bankruptcy and our related
operational restructuring, all of the equity interests in Bradlees, Inc. that
existed immediately prior to the Effective Date were canceled. In addition, we
canceled certain indebtedness that existed prior to our entering bankruptcy.
Our Plan of Reorganization provided that certain holders of this canceled
indebtedness receive an equity interest in the reorganized company and/or 9%
Convertible Notes issued by Bradlees Stores, Inc. which pay interest at the
rate of 9% per annum and are convertible into our common stock after one year.
In connection with the issuance of these securities, we are registering the
resale of the securities received by certain of our creditors under the Plan of
Reorganization. This Prospectus is part of the Registration Statement we agreed
to file. See "Plan of Reorganization."
2
<PAGE>
THE OFFERING
The principal terms of the Common Stock and 9% Convertible Notes
(collectively, the "Securities") are summarized below. For a more complete
description, see "Description of Capital Stock" and "Description of the Notes."
The Selling Securityholders will receive all of the proceeds from the sale of
the Securities offered hereby. We will not receive any proceeds from this
Offering.
COMMON STOCK:
<TABLE>
<C> <S>
Issuer........................ Bradlees, Inc.
Securities Offered (1)........ 7,267,424 shares of Common Stock.
Common Stock Outstanding (2).. 9,909,091 shares of Common Stock.
Voting Rights................. Each share of Common Stock has one vote.
Listing....................... We have listed the common stock offered by this
Prospectus on the Nasdaq National Market.
Trading Symbol................ [BRAD]
</TABLE>
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(1) Under the terms of the Plan of Reorganization, the number of shares issued
to the Selling Stockholders varies with the amount of general unsecured
claims allowed. The Securities Offered and Common Stock Outstanding assumes
that the amount of the general unsecured claims allowed are not less than
$225 million and the number of shares issued to the Selling Securityholders
is not more than 7,267,424. Excludes an indeterminate number of shares
issuable upon conversion of the 9% Convertible Notes. Since the number of
shares of Common Stock issuable upon conversion of the 9% Convertible Notes
varies as the market price of the Common Stock changes, it is impossible at
this time to determine how many shares may be issued upon conversion of the
9% Convertible Notes.
(2) Excluding 1,000,000 shares of Common Stock reserved for issuance upon
exercise of outstanding warrants as of February 1, 1999 (the "Warrants")
and 750,000 shares of Common Stock issuable upon exercise of employee
options which we have agreed to issue under the Plan of Reorganization.
Also excludes all shares of Common Stock issuable upon conversion of the 9%
Convertible Notes.
9% CONVERTIBLE NOTES:
Issuer...................... Bradlees Stores, Inc.
Securities Offered.......... $36,000,000 aggregate principal amount.
9% Convertible Notes $40,000,000 aggregate principal amount.
Outstanding................
Maturity............... [February 1, 2004].
Interest Rate.......... The 9% Convertible Notes bear interest at a rate
of 9% per annum. Interest accrues from the date
we issue the Notes and is payable semi-annually
in arrears on each January 1 and July 1,
commencing July 1, 1999.
Guarantor.............. The 9% Convertible Notes will be guaranteed by
Bradlees, Inc., which owns all of the outstanding
capital stock of Bradlees Stores, Inc. If
Bradlees Stores, Inc. cannot make payments on the
9% Convertible Notes when they are due, Bradlees,
Inc. must make them instead.
Liens.................. The 9% Convertible Notes will be secured by first
priority liens on our leasehold interest in our
Yonkers, New York and Union Square, New York
stores, each of which we are seeking to sell.
Conversion............. The 9% Convertible Notes will be convertible any
time after the first anniversary of the Effective
Date into shares of our Common Stock. The
conversion price will initially be the average
closing price of our Common Stock on the twenty
business days preceding the first anniversary of
the Effective Date.
Listing................ We do not intend to apply for listing of the 9%
Convertible Notes on any securities exchange or
authorization for quotation on the NASDAQ system.
We do not expect that an active trading market
will develop for the 9% Convertible Notes.
3
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary financial data set forth below presents historical and pro forma
financial information of the Company. The financial information for the twenty-
six weeks ended August 1, 1998 and August 2, 1997 was derived from the
unaudited condensed consolidated financial statements of the Company which, in
the opinion of management, include all adjustments, consisting only of normal
adjustments necessary for a fair presentation of the results for the periods.
The results for the twenty-six weeks ended August 1, 1998 are not necessarily
indicative of the results to be expected for the full year. Fiscal year 1997
refers to the 52 weeks ended January 31, 1998, fiscal year 1996 refers to the
52 weeks ended February 1, 1997 and fiscal year 1995 refers to the 53 weeks
ended February 3, 1996. The summary information should be read in conjunction
with the financial statements and related notes thereto appearing elsewhere in
this Prospectus, "Unaudited Pro Forma Condensed Consolidated Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR 26 WEEKS ENDED
---------------------------------------------- -----------------------------------
1997 AUGUST 1, 1998
---------------------- --------------
PRO PRO AUGUST 2,
HISTORICAL FORMA(A) 1996 1995 HISTORICAL FORMA(A) 1997
---------- ---------- ---------- ---------- ---------- -------------- ---------
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net Sales............... $1,344,444 $1,294,748 $1,561,718 $1,780,768 $594,252 $590,941 $564,787
Gross margin............ 396,357 384,924 434,067 491,691 176,263 175,424 172,595
Operating expenses(b)... 401,578 373,281 530,757 612,102 195,856 187,017 209,148
Operating income
(loss)................. (5,221) 11,643 (96,690) (120,411) (19,593) (11,593) (36,553)
Loss before income
taxes.................. (22,557) (18,590) (218,759) (311,946) (27,376) (26,247) (48,857)
Income tax benefit...... - - - 104,533 - - -
Net loss................ $ (22,557) $ (18,590) $ (218,759) $ (207,413) $(27,376) $(26,247) $(48,857)
Loss per share:
Basic and diluted...... $ (1.98) $ (1.88) $ (19.17) $ (18.17) $ (2.42) $ (2.65) $ (4.29)
Shares used for
computation:
Basic and diluted...... 11,365 9,909 11,412 11,416 11,309 9,909 11,387
Ratio of earnings to
fixed charges(c)....... - - - - - - -
</TABLE>
<TABLE>
<CAPTION>
AUGUST 1, 1998
--------------------
JANUARY 31, PRO
1998 HISTORICAL FORMA(A)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(d)........................... $ 46,151 $ 24,013 $ (952)
Total assets................................. 595,166 575,253 506,449
Long-term debt, less current maturities(d)... 27,073 26,499 67,263
Total stockholders equity (deficiency)....... $(285,950) $(313,325) $ 85,000
</TABLE>
- --------
(a) Pro forma information gives effect to the consummation of the Plan,
including adjustments for fresh-start reporting. Pro forma condensed
consolidated statement of operations data for fiscal year 1997 and the
twenty-six week period ended August 1, 1998 is presented as if the Plan was
consummated on February 1, 1997, and the balance sheet data at August 1,
1998 is presented as if the Plan was consummated on such date. See
"Unaudited Pro Forma Condensed Consolidated Financial Information." These
amounts are presented for informational purposes only and do not purport to
represent what the Company's financial position or results of operations
would have been if consummation of the Plan had actually occurred on such
dates.
(b) Net of other operating income.
(c) For the periods presented above, earnings were insufficient to cover fixed
charges by the amount of the respective loss before income taxes. As used
herein, "earnings" consists of income (loss) before taxes plus fixed
charges less capitalized interest. "Fixed charges" consist of interest
expense including amortization of debt issuance costs, capitalized interest
and a portion of rent expense which is deemed to be representative of an
interest factor.
(d) Excluding liabilities subject to settlement under the reorganization case.
4
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information in
this Prospectus before deciding to invest in any of the Securities being
offered by the Selling Securityholders.
ECONOMIC AND INDUSTRY RISKS
COMPETITION
The discount retail business is highly competitive, and many of our
competitors have greater resources than we do. We compete against national
companies, such as Wal-Mart Stores, Inc., Target Stores and K-Mart Corp. and
regional companies, such as Caldor Corp. and Ames Department Stores. Consumers
choose among these companies based upon a number of factors, including price,
location, product quality, merchandise selection, advertising and service.
Other factors in the competition for consumers are generally beyond our
control. These factors include:
.consumer preferences;
.changes in style; and
.population trends.
If we fail to compete successfully, customer traffic could be reduced, which
would negatively impact sales and profits. In addition, while we believe that
we are pursuing the proper merchandising and marketing strategies that will
allow us to compete effectively in our operating areas, we can not make
assurances that these strategies will further improve our performance, or that
such strategies will remain valid in the future.
CONCENTRATION IN THE NORTHEAST
Our stores are located exclusively in the Northeast. This makes us more
susceptible to local and regional economic downturns than some of our
competitors who are nationally diversified. As with our other competitors, we
are also subject to a national economic downturn. Any economic downturn
affecting us might cause consumers to reduce their spending, impacting our
sales. In addition, our business is seasonal in nature, with a significant
portion of our sales occurring in the fourth quarter, which includes the
pivotal holiday selling season. If sales for the holiday selling season decline
because of a regional or national economic downturn, or for any other reason,
our sales and profits will be negatively impacted.
In addition, the Northeast is generally a more expensive area of the country
in which to own and operate stores. Since we are concentrated in the Northeast,
we face higher average costs of operating stores than our national competitors.
MERCHANDISING STRATEGY MUST SUCCESSFULLY EVOLVE
Our profitability is dependent upon the success of our merchandising
strategy which is to focus on three key merchandise categories: moderately-
priced basic and casual apparel; basic and fashion items for the home; and
frequently purchased convenience and commodity products. We believe we can
strategically leverage our traditional strengths in the fashion and quality of
our apparel and decorative home product offerings while driving customer
traffic with selected hardlines merchandise. There can be no assurance that
this strategy will be successful and, in the future, we must anticipate, gauge
and appropriately revise this strategy to meet changing consumer demands.
LABOR NEGOTIATIONS
Unlike many of our competitors, the majority of our work force is unionized.
We cannot predict the effect, if any, that any future collective bargaining
agreements with these unions will have on our operations or financial
performance.
5
<PAGE>
FINANCIAL RISKS
HIGH LEVERAGE
After giving effect to the reduction in our outstanding debt pursuant to the
Plan of Reorganization, we have a reduced, but nevertheless substantial, amount
of debt. Our consolidated ratio of total debt to total capitalization as of
[February 1, 1999] was approximately 2.3:1. See "Capitalization." We have a
$270 million financing facility with BankBoston, N.A. as Administrative Agent
and Issuing Bank (the "BankBoston Facility") under which we are allowed to
borrow for general corporate purposes, working capital and inventory purchases.
If we are unable to generate sufficient cash flow from operations in the
future, or if we fail to satisfy the financial covenants contained in the
BankBoston Facility, we could face default on the BankBoston Facility and other
financing agreements.
The leveraged nature of our capital structure will have several important
effects on our operations, including the following: (i) we continue to have
significant cash requirements for debt service; (ii) because our indebtedness
under the BankBoston Facility bears interest at a floating rate, to the extent
we have not hedged our interest rate exposure, we are sensitive to any increase
in prevailing interest rates; (iii) funds available for capital expenditures
will be limited; and (iv) our ability to meet our debt service obligations (and
to satisfy the financial covenants contained therein) may be impaired. Our
ability to meet such obligations in the future will be dependent upon our
future performance which, in turn, will be subject to general economic
conditions and to financial, business and other factors affecting our
operations, including factors beyond our control. See "Business-Credit
Facility."
Our ability to repay such indebtedness at maturity or otherwise may depend
upon our ability either to refinance or extend such indebtedness, to repay such
indebtedness with proceeds of other capital transactions, such as the issuance
of additional equity, or to sell assets. There can be no assurance that such
refinancing or extension will be available on reasonable terms or at all, that
additional equity will be issued, or that a sale of assets will occur. The
inability to repay such indebtedness could have a material adverse effect on
us.
HISTORY OF LOSSES
We experienced significant losses from operations in fiscal years 1996 and
1995. In the long term, our ability to continue operations is dependent upon
our ability to achieve profitable results of operations and positive cash
flows. Although improvements have been made each year since fiscal year 1996,
we have continued to incur net losses. For fiscal year 1997, we reported a net
loss of $22.6 million, for fiscal year 1996 we reported a net loss of $218.8
million and for fiscal year 1995 we reported a net loss of $207.4 million. See
"Management Discussion and Analysis of Financial Condition and Results of
Operations."
RESTRICTIONS IMPOSED BY THE TERMS OF THE BANKBOSTON FACILITY
We have a $270 million financing facility which includes a $20 million
junior secured "last in-last out" subfacility, with BankBoston, N.A. as
Administrative Agent and Issuing Bank (the "BankBoston Facility") under which
we are allowed to borrow for general corporate purposes, working capital and
inventory purchases. The BankBoston Facility is a revolving credit facility
which has affirmative and negative covenants which substantially restrict many
aspects of our operations and finances.
The BankBoston Facility is a revolving credit facility that took effect upon
the Effective Date. This facility is for a term of up to three years and may
not exceed the maximum principal amount of $270 million. Under the terms of the
BankBoston Facility, we have agreed to certain financial covenants, including:
. maintaining a minimum level of earnings before interest, taxes,
depreciation and amortization;
. capping our capital expenditures at $20 million annually; and
. agreeing not to let certain financial ratios which measure our debt
coverage and accounts payable to inventory ratios drop below specified
levels.
See also "Other Indebtedness-Credit Agreement."
6
<PAGE>
RISK TO CONTINUING OPERATIONS IF COVENANTS NOT MET
The covenants under the BankBoston Facility will limit our operational and
financial flexibility and our ability to respond to changing retail conditions
and take advantage of attractive business opportunities. Should we be unable to
meet any of these covenants when required, it will be necessary to request
waivers and/or amendments of the facility from BankBoston. There can be no
assurance that the necessary waivers and/or amendments will be granted or that,
if granted, they will be on terms acceptable or favorable to us. Failure to
obtain such waivers and/or amendments could result in our obligations under the
BankBoston Facility being declared immediately due and payable, in which case
BankBoston could foreclose on the collateral securing the BankBoston Facility.
See "Other Indebtedness-Credit Agreement."
LIMITATIONS ON FUTURE GROWTH
Our growth is subject to (i) our ability to maintain or further increase
revenues at existing stores, (ii) the availability of capital and (iii) the
restrictions on capital expenditures set forth in the BankBoston Facility,
which prohibits annual capital expenditures in excess of $20 million unless our
earnings, as calculated before interest, taxes, depreciation and amortization,
are above $40 million annually and we do not default under the BankBoston
Facility. There can be no assurance that we will be able to maintain or further
increase revenues at current stores or that sufficient capital will be
available to us or, if available, that it will be available on terms that we
consider reasonable. Our inability or failure to maintain or further increase
such revenues or obtain such sufficient capital on favorable terms could have a
material adverse effect on our operations, business or financial condition.
Our current plans are expected to require annual capital expenditures of
approximately $20 million, which are within the restrictions contained in the
BankBoston Facility. We are continually evaluating store locations and
operations to determine whether to close stores that do not meet our
performance objectives. Additionally, we may expand, downsize, relocate, or
remodel existing stores. The $20 million of capital expenditures does not
include any expenditures for new stores. Management has no current plans to
close any of the remaining Bradlees stores, other than the contemplated sales
of our leasehold interests in our Yonkers, New York store and our Union Square,
New York store pursuant to the Plan of Reorganization. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Further, numerous stores and our two distribution centers are in older
facilities. The foregoing limitations on capital expenditures could prevent us
from modernizing our distribution centers or remodeling our aging stores.
LIQUIDITY
Although we have entered into the $270 million BankBoston Facility, we can
make no assurances that our cash and cash equivalents on hand and our cash
availability will be sufficient to meet our anticipated working capital needs
and capital expenditures in the future. To finance future expenditures, we may
need to issue additional securities and incur additional debt. We may not be
able to obtain additional required capital on satisfactory terms, if at all.
The failure to raise the funds necessary to finance future cash requirements
could materially and adversely affect our operating results in future periods.
ASSETS PLEDGED AS COLLATERAL UNDER THE BANKBOSTON FACILITY
Obligations under the BankBoston Facility are secured by liens on
substantially all of our non-real estate assets. If, after default, BankBoston
were to foreclose on the collateral securing the BankBoston Facility or if such
assets were liquidated, the proceeds of such assets would be applied to satisfy
our obligations under the BankBoston Facility. If this were to happen, it is
unlikely that the remaining unencumbered assets would be sufficient to allow
our equity holders to recover any significant amount.
7
<PAGE>
POST-BANKRUPTCY RISKS
RECENT EMERGENCE FROM CHAPTER 11 PROCEEDINGS
We emerged from Chapter 11 proceedings on [February 1, 1999]. Our experience
in and recent emergence from Chapter 11 may affect our ability to negotiate
favorable trade terms with manufacturers and other vendors. The failure to
obtain such favorable terms could have a material adverse effect on our
operations, business or financial condition.
FRESH START REPORTING MAY MAKE FUTURE FINANCIAL STATEMENTS DIFFICULT TO COMPARE
In accordance with AICPA Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"), we have
adopted "Fresh-Start Reporting" and have reflected the effects of such adoption
on our Consolidated Balance Sheet as of January 31, 1999. Accordingly, our
Consolidated Balance Sheets after January 30, 1999 and our Consolidated
Statements of Operations for periods after January 30, 1999 will not be
comparable in certain material respects to the Consolidated Financial
Statements for prior periods included elsewhere herein. For example, the
Consolidated Statement of Operations for fiscal 1998 included an extraordinary
gain relating to the debt discharged in the Chapter 11 proceedings. Since our
financial statements will not be comparable to our previous financial
statements in certain material respects or the financial statements of our
competitors who have not adopted Fresh-Start Reporting, it may be more
difficult for third parties to accurately gauge our performance. This might
cause our stock price to fluctuate more than the stock prices of our
competitors.
TAX CONSEQUENCES OF THE PLAN OF REORGANIZATION; POTENTIAL LOSS OF CERTAIN TAX
ATTRIBUTES
As a result of the implementation of the Plan of Reorganization, we will (i)
undergo an "ownership change" (generally, a greater than 50 percentage point
change in ownership) for purposes of section 382 of the Internal Revenue Code
of 1986, as amended (the "Code"), and (ii) realize cancellation of indebtedness
income ("COI") from the cancellation of certain indebtedness in exchange for
Common Stock, 9% Convertible Notes and warrants to purchase shares of Common
Stock. Because such ownership change and cancellation of indebtedness arose in
a bankruptcy proceeding under Chapter 11, we avoided some of the adverse
Federal income tax consequences generally associated with such changes (e.g.
the COI realized will not be includible in income). Nevertheless, we expect
that our ability to offset future taxable income with net operating loss
carryforwards ("NOLs"), as well as certain built-in losses and tax credits,
will be limited and that certain of our tax attributes, including NOLs, will be
reduced (but not eliminated). In addition, the sale of the Common Stock by the
Selling Securityholders under this Prospectus, as well as the exercise of the
warrants, may cause us to undergo another "ownership change" under Section 382
of the Code and, accordingly, may further limit our NOLs and certain built-in
losses and tax credits to income.
RISKS RELATED TO THE SECURITIES
LIMITED MARKET FOR COMMON STOCK AND NOTES
Prior to our emergence from bankruptcy, the stock of the pre-reorganization
company ("Old Bradlees") traded on the New York Stock Exchange. In October of
1997, the New York Stock Exchange delisted the stock of Old Bradlees. The
Common Stock being offered hereby is listed on The Nasdaq National Market. The
Notes being offered hereby are not listed on any securities exchange. There can
be no assurance that a market will develop for the Securities, or that if a
market does develop, that the market will have sufficient liquidity so as not
to impact the price of the Securities.
In addition, pursuant to our Plan of Reorganization, Shares of Common Stock
and Warrants to purchase Common Stock will be issued to certain of our
creditors. Some of these creditors may prefer to sell their Common Stock and/or
Warrants, rather than to hold them on a long-term basis. The Shares, Notes and
Warrants issued in the reorganization to creditors other than the Selling
Securityholders will generally be freely tradeable
8
<PAGE>
as a result of an exemption from registration provided by the Bankruptcy Code.
Accordingly, it is anticipated that the market for our Common Stock, to the
extent one exists, will be volatile and the availability for unrestricted sale
of such a large number of shares of Common Stock may have the effect of
depressing the market price of the Common Stock.
RESTRICTIONS ON COMMON STOCK DIVIDENDS
Old Bradlees did not declare or pay cash dividends on its common stock ("Old
Common Stock") or any other equity security while in Chapter 11, and we do not
anticipate paying cash dividends on the Common Stock offered hereby or any
other equity security in the foreseeable future. The BankBoston Facility
specifically prohibits the payment of any type of dividends on the Common
Stock. See "Description of Certain Indebtedness."
FUTURE STOCK ISSUANCES CAN DILUTE CURRENT OWNERS
As part of the Plan of Reorganization, we have issued Warrants to purchase
1,000,000 shares of Common Stock at $7.00 per share. Pursuant to the Plan of
Reorganization, we have also agreed to issue options to purchase 750,000 shares
of our Common Stock at an exercise price per share which is the lowest 10-day
rolling average of the closing prices of our Common Stock within the period
between 60 and 90 days after the Effective Date (April , 1999 to May , 1999).
These options will be issued when their exercise price is determined. Further,
we can also issue additional securities (including under our stock option plan)
in the future. When we sell a new security, the purchaser of that security is
entitled to a proportionate share of the aggregate rights of the holders of
that class of security. Thus, it is possible that the value we receive on the
sale of a new security will be less than the proportionate value attributable
to the existing holders of that security. Since all holders of the same
security share proportionately the rights of the security, the pre-existing
security holders will receive less value after the new security is issued than
if we had not issued the new security.
GUARANTOR DOES NOT HAVE SIGNIFICANT SEPARATE ASSETS
Bradlees, Inc., which owns all of the outstanding capital stock of Bradlees
Stores, Inc., will fully and unconditionally guarantee the 9% Convertible
Notes. Substantially all of the assets of the Companies, on a consolidated
basis, are held by Bradlees Stores, Inc.
FRAUDULENT CONVEYANCE MATTERS--FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER
SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN
PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of
a guarantee could be subordinated to all other debts of that guarantor under
certain circumstances. In addition, any payment by that guarantor pursuant to
its guarantee could be voided and required to be returned to the guarantor, or
to a fund for the benefit of the creditors of the guarantor.
MISCELLANEOUS BUSINESS RISKS
DEPENDENCE ON KEY PERSONNEL
Our future success is largely dependent on the talents and efforts of Peter
Thorner, our Chief Executive Officer and Chairman of the Board, and other
members of senior management. We entered into an employment agreement with Mr.
Thorner in 1995, but do not maintain a key person life insurance policy on the
life of Mr. Thorner. The loss of Mr. Thorner or other members of our senior
management could have a material adverse effect on our operations, business and
financial condition. See "Management - Employment Agreements."
9
<PAGE>
POTENTIAL YEAR 2000 LIABILITY
We have determined that we must modify portions of our software so that our
computer systems will properly recognize and use dates beyond December 31,
1999. We believe we can mitigate the impact of the Year 2000 disruption by
upgrading or modifying existing software and, in certain instances, converting
to new software. However, if the Year 2000 upgrades, modifications and
conversions are not made, or are not made in a timely manner, the Year 2000
issue could have a material impact on our operations.
We intend to use both internal and external resources to remediate, replace
and test software for Year 2000 compliance. We have entered into a contract
with a major outside consulting firm to provide the majority of the resources
necessary to identify, and then replace or remediate, our affected systems. We
intend to complete our Year 2000 project no later than the beginning of the
fourth quarter of fiscal 1999, but currently expect to substantially complete
the conversion by the second quarter of fiscal 1999. At this time, we expect
the cost of the Year 2000 project to be approximately $3 to $4 million, which
expense was primarily incurred in fiscal 1998. Through October 31, 1998, we
have incurred $1.9 million for such expense. We are in the process of
developing contingency plans in the event that such replacement or remediation
is not fully completed in a timely manner. We have calculated the costs of the
Year 2000 project and predicted the dates on which we plan to complete the Year
2000 modifications using our best estimates, which required using a number of
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, we can
not guarantee that we will achieve the predicted estimates and our actual
results could differ materially from those plans.
We are also attempting to obtain representations and assurances from our
third party providers of services and goods, including vendors of software
products, that their software is or will be Year 2000 compliant on a timely
basis. However, because certain of our processes may be interrelated with, or
dependent upon, systems outside our control, we can give no assurances that the
implementation of our Year 2000 project will be successful.
CHANGE OF CONTROL NOT RESTRICTED
Our Plan of Reorganization prohibits us from having anti-takeover measures
in our Articles of Organization and By-Laws. Numerous studies have shown that
the presence of such anti-takeover provisions in a corporation's organizational
documents has the result of increasing shareholder value in any attempted take-
over. If we do not subsequently amend these documents to include such
provisions, it is possible that our Board of Directors will be limited in its
ability to respond to any potential take-over, thus reducing the ability of the
Board to obtain maximum value for shareholders in a take-over.
BOARD OF DIRECTORS MAY CHANGE
Our current Board of Directors consists of 3 representatives chosen by us
and 6 representatives chosen by creditors in our Chapter 11 proceeding. It is
likely that the composition of our Board will change in the future as current
members resign, decline to stand for re-election, or are not re-elected. This
turnover in our directors may be more likely than it is for other companies
because it is likely that one or more of our creditor constituencies (which
some of our directors represent) will dispose of their ownership interests. The
changing composition of our Board might result in changing corporate policies.
10
<PAGE>
THE COMPANY
GENERAL
Bradlees, Inc. ("Bradlees"), through our subsidiary, Bradlees Stores, Inc.
(collectively, the "Company"), operates 103 discount department stores as of
February 1, 1999, 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, the Company and its
predecessor have been active in the discount department store business for over
30 years.
BACKGROUND TO OUR BANKRUPTCY REORGANIZATION
EVENTS LEADING TO THE CHAPTER 11 FILING. During the early 1990's, Old
Bradlees' business strategy relied heavily on opening new stores, remodeling
existing locations and competing on the basis of price. From 1992 to January,
1995, we opened 15 new stores (10 in 1994) and remodeled 41 stores at a total
capital cost of $182 million. The new stores were generally larger stores with
rents that substantially exceeded the chain average rent per square foot. Some
of the new stores were also multilevel 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. Old Bradlees' declining
operating performance, coupled with the aggressive expansion program, began to
erode our liquidity. Old Bradlees' liquidity further eroded in May and June,
1995, because of the unwillingness of factors and vendors to continue to extend
trade credit. Old Bradlees, unable to obtain sufficient financing to satisfy
factor and vendor concerns, was compelled to seek Bankruptcy Court protection
on June 23, 1995.
THE CHAPTER 11 FILING. Old Bradlees, and each of its subsidiaries filed
petitions for relief under Chapter 11 of the United States Bankruptcy Code on
June 23, 1995. Once in bankruptcy, we filed a plan of reorganization and
related disclosure statement with the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court") on April 13, 1998. Our
Plan of Reorganization was confirmed by the Bankruptcy Court on November 18,
1998 and became effective on [February 1, 1999]. The Chapter 11 reorganization
process and our Plan of Reorganization are discussed below.
THE PLAN OF REORGANIZATION
The following chart shows the organization of Old Bradlees and the
organization of the Company following its reorganization.
11
<PAGE>
CORPORATE STRUCTURE PRIOR TO THE REORGANIZATION
BRADLEES, INC.
BRADLEES
ADMINISTRATIVE
CO., INC.
BRADLEES STORES
INC.
MAXIMA DOSTRA REALTY NEW HORIZONS NEW HORIZONS NEW HORIZONS
SERVICES, CO., INC. OF BUCKNER, OF WESTBURY, OF YONKERS,
INC. INC. INC. INC.
CORPORATE STRUCTURE AFTER THE
REORGANIZATION
BRADLEES, INC.
BRADLEES STORES,
INC.
NEW HORIZONS OF
YONKERS, INC.
12
<PAGE>
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. After we entered
Chapter 11, Section 362 of the Bankruptcy Code did not allow our creditors and
other parties in interest to take certain actions without Bankruptcy Court
approval. Among other things, they were not allowed to:
. Commence or continue a judicial, administrative or other proceeding
against us a) which was or could have been commenced prior to
commencement of the Chapter 11 proceeding, or b) to recover a claim
that arose prior to commencement of the case;
. Enforce any judgments against us that existed prior to our entry into
bankruptcy;
. Take any action to obtain possession of our property or to exercise
control over our property or our estates;
. Create, perfect or enforce any lien against our property;
. Collect, assess or recover claims against us that arose before the
commencement of the case; or
. Offset any debt owing to us that arose prior to the commencement of
the case against a claim of such creditor or party-in-interest against
us that arose before the commencement of the case.
Although we were authorized to operate our business as a debtor-in-
possession, we were not permitted to engage in transactions outside the
ordinary course of business without first complying with the notice and hearing
provisions of the Bankruptcy Code, and if necessary, obtaining Bankruptcy Court
approval. An official unsecured creditors' committee was formed by the United
States Trustee. This committee and various other parties in interest, including
creditors holding claims, such as the pre-petition bank group, had the right to
appear and be heard by the Bankruptcy Court on our applications relating to
certain business transactions. We were required to pay certain expenses of the
committee, including legal and accounting fees, to the extent allowed by the
Bankruptcy Court. In addition, upon the approval of the Bankruptcy Court, we
made monthly adequate protection payments of $300,000 to those creditors in the
pre-petition bank group, for an aggregate total payment of $13,250,000 as of
[January 1, 1999].
PLAN OF REORGANIZATION - PROCEDURES. A debtor-in-possession has the
exclusive right to propose and file with the Bankruptcy Court a plan of
reorganization for a period of time which can be extended by the Bankruptcy
Court.
Given the seasonality and magnitude of our operations, our change in
business strategies, and the number of interested parties possessing claims
that had to be resolved in this Chapter 11 case, the plan formulation process
was complex. Accordingly, we obtained additional extensions of the exclusivity
period to August 3, 1998. On April 13, 1998, we filed our Plan of
Reorganization and related disclosure statement with the Bankruptcy Court. The
Bankruptcy Court approved the disclosure statement on October 5, 1998 and
confirmed the Plan of Reorganization on November 18, 1998.
Our Plan of Reorganization contained distributable value to creditors of
approximately $165 million, which consists of:
. Approximately $16 million of administrative claim payments;
. $14 million in cash to the bank group and the unsecured creditors;
. A $40 million note primarily payable to our pre-Chapter 11 bank group,
which is anticipated to be funded through proceeds of sales of our
leasehold interests in our Yonkers, New York store and our Union
Square, New York store;
13
<PAGE>
. New Bradlees' Common Stock with an estimated value of $85 million. The
Old Bradlees Common Stock was canceled; and
. Certain notes totalling $7.3 million and other distributions totalling
$2.7 million.
On November 18, 1998, the Plan of Reorganization was confirmed by the
Bankruptcy Court. The Plan of Reorganization became effective [February 1,
1999] (the "Effective Date").
Pursuant to the Plan of Reorganization, after giving effect to various
elections made by various creditors, the following occurred on the Effective
Date:
. Although creditors can dispute the disallowance of claims after the
Effective Date, the claims of creditors are estimated to be allowed in
the aggregate amount of approximately $ million. The holders of
these claims are expected to receive:
.$ in cash;
.9% Convertible Notes in an original aggregate principal amount equal
to $ ;
. shares of our Common Stock;
. warrants to purchase 1,000,000 shares of our Common Stock at a
price of $7.00 per share (which warrants expire on [February 1,
2004]);
.9% CAP Notes in an original aggregate principal amount of $ ; and
.9% Cure Notes in an original aggregate principal amount of $ .
. The interests of all stockholders holding stock in Old Bradlees were
terminated, and the stock of Old Bradlees was canceled.
. All outstanding bonds, notes, indentures and like instruments were
canceled.
. Approximately $ million in debtor-in-possession financing was paid
in full.
. We entered into the BankBoston Facility, which provides for a secured
revolving line of credit of $270 million with a maximum term of 3
years. See "Business -- Credit Facility."
. Our subsidiary, New Horizons of Yonkers, Inc., will remain in Chapter
11 until such time as it sells its leasehold interest in the Yonkers,
New York store. All of the other properties and operations of Yonkers
were transferred to Bradlees Stores, Inc.
. We merged Bradlees Administrative Co., Inc. into Bradlees, Inc. We
also merged all of the subsidiaries of Bradlees Stores, Inc., with the
exception of New Horizons of Yonkers, Inc., into Bradlees Stores, Inc.
We will merge New Horizons of Yonkers, Inc. into Bradlees Stores, Inc.
after Yonkers sells its property and emerges from Chapter 11.
. The tenure of the Board of Directors of Bradlees, Inc. terminated on
the Effective Date. The following became new members of the Board of
Bradlees, Inc. as of the Effective Date:
.We selected three members (Messrs. Thorner, Lynn, and Friedman);
.The Bank Group selected two members (Messrs. and );
.The Unofficial Committee selected one member (Mr. );
.The Creditors Committee selected one member (Mr. , /Ms. ); and
. The Bank Group, the Unofficial Committee and the Creditors
Committee, acting together, selected two members (Messrs. and
).
. We paid an aggregate bonus of $1,000,000 to certain managerial
employees. See "Board of Directors" and "Executive Compensation --
Emergence Bonus Plan."
14
<PAGE>
. We granted options to purchase an aggregate of 750,000 shares of
Common Stock to certain members of our management. See "Executive
Compensation -- Stock Option Plan."
. The Plan of Reorganization also provided for many other matters,
including satisfaction of numerous other claims, satisfaction of
certain other claims in accordance with negotiated settlement
agreements and an agreement to keep in place certain retirement and
employment agreements.
THE FOREGOING IS A SUMMARY OF THE MATERIAL TERMS OF THE PLAN OF
REORGANIZATION. A COMPLETE COPY OF THE PLAN OF REORGANIZATION HAS BEEN FILED AS
AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
15
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of Securities by the Selling
Stockholders.
DIVIDEND POLICY
We do not anticipate paying cash dividends in the foreseeable future. We
expect that we will retain all available earnings generated by our operations
for the development and growth of our business. Any future determination as to
the payment of dividends will be made at the discretion of the Board of
Directors and will depend upon our operating results, financial condition,
capital requirements, general business conditions and such other factors as the
Board of Directors deems relevant. Certain financing agreements, including the
BankBoston Facility, restrict our ability to pay cash dividends on the Common
Stock and make certain other restricted payments (as defined therein).
Specifically, under the terms of the BankBoston Facility, we have agreed not to
pay dividends of any kind. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
16
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at August 1, 1998, and as adjusted to give pro forma effect to the consummation
of the Plan of Reorganization at that date. The presentation does not purport
to represent what the Company's actual capitalization would have been had such
transactions in fact been consummated on such date. The table should be read in
conjunction with the Company's financial statements and the related notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Unaudited Pro Forma Condensed Consolidated
Financial Information" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 1, 1998
--------------------
PRO
HISTORICAL FORMA
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current maturities:
Liabilities subject to settlement under the
reorganization case.................................... $ 554,439 $ -(1)
DIP facility/BankBoston Facility........................ 111,592 119,230
Notes payable........................................... - 47,300(2)
Capital lease obligations............................... 27,537 28,301
--------- --------
Total long-term debt, including current maturities..... 693,568 194,831
Stockholders' equity (deficiency)(3):
Common stock............................................ 115 99(2)
Additional paid in capital.............................. 137,821 84,901(2)
Accumulated deficit..................................... (450,458) -
Treasury stock, at cost................................. (803) -
--------- --------
Total stockholders' equity (deficiency).................. (313,325) 85,000
--------- --------
Total capitalization..................................... $ 380,243 $279,831
========= ========
</TABLE>
- --------
(1) Reflects cancellation of liabilities at the Effective Date.
(2) Reflects $40 million of 9% Convertible Notes and certain other long-term
debt and estimated equity value of the new Common Stock and Warrants issued
in connection with settlement of claims.
(3) Excludes 1,000,000 shares of Common Stock reserved for issuance upon
exercise of the Warrants and 750,000 shares of Common Stock reserved for
issuance upon exercise of options we have agreed to grant. The Warrants
will be valued along with the Common Stock after the Effective Date and the
total equity value may be modified as a result.
17
<PAGE>
SELECTED FINANCIAL DATA
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" for, and as of the end of, each of
the years in the five-year period ended January 31, 1998, are derived from the
consolidated financial statements of the Company, which consolidated financial
statements have been audited by Arthur Andersen LLP (fiscal year 1997) or
Deloitte & Touche LLP (pre-fiscal year 1997), independent certified public
accountants. The consolidated financial statements as of January 31, 1998 and
February 1, 1997, and for each of the years in the three-year period ended
January 31, 1998, and the reports thereon, are included elsewhere in this
Prospectus. Fiscal year 1994 refers to the 52 weeks ended January 28, 1995 and
fiscal year 1993 refers to the 52 weeks ended January 29, 1994. Certain
reclassifications have been made to the operating expenses and operating income
of fiscal years 1994 and 1993 to conform to the current presentation.
The selected data should be read in conjunction with the consolidated
financial statements for the three-year period ended January 31, 1998, the
related notes and the independent auditors' reports, which contain explanatory
paragraphs for fiscal years 1995-1997 relating to the Company's filing for
reorganization under Chapter 11 and raise substantial doubt about its ability
to continue as a going concern, appearing elsewhere in this Prospectus. The
consolidated financial statements and the selected data do not include any
adjustments that might result from the outcome of these uncertainties. As a
result of the Company filing a voluntary petition to reorganize under Chapter
11 on June 23, 1995 and operating as a debtor-in-possession thereafter, the
selected financial data for periods prior to June 23, 1995 are not comparable
in certain material respects to periods subsequent to such date. The selected
data presented below for the twenty-six week periods ended August 1, 1998 and
August 2, 1997 and as of August 1, 1998 are derived from the unaudited
condensed consolidated financial statements of the Company included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
UNAUDITED
26 WEEKS ENDED FISCAL YEAR
-------------------- ----------------------------------------------------------
AUGUST 1, AUGUST 2,
1998 1997 1997 1996 1995 1994 1993
--------- --------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 594,252 $ 564,787 $1,344,444 $1,561,718 $1,780,768 $1,916,555 $1,880,511
Gross margin........... 176,263 172,595 396,357 434,067 491,691 591,160 603,504
Operating expenses(a)... 195,856 209,148 401,578 530,757 612,102 549,154 544,386
Operating income
(loss)................. (19,593) (36,553) (5,221) (96,690) (120,411) 42,006 59,118
Income (loss) before
income taxes and
extraordinary items.... (27,376) (48,857) (22,557) (218,759) (311,946) 10,011 26,069
Income tax benefit
(expense).............. - - - - 104,533 (4,205) (12,619)
Income (loss) before
extraordinary items and
cumulative effect of
accounting changes..... (27,376) (48,857) (22,557) (218,759) (207,413) 5,806 13,450
Extraordinary items(b).. - - - - - - (5,200)
Cumulative effect of
accounting changes(c).. - - - - - (485) (1,475)
Net income (loss)....... $ (27,376) $ (48,857) $ (22,557) $ (218,759) $ (207,413) $ 5,321 $ 6,775
Income (loss) per share:
Basic and diluted...... $ (2.42) $ (4.29) $ (1.98) $ (19.17) $ (18.17) $ .47 $ .60
Shares used for
computation............ 11,309 11,387 11,365 11,412 11,416 11,353 11,273
Ratio of earnings to
fixed charges(d)....... - - - - - 1.31 1.81
BALANCE SHEET DATA:
Working capital(e)...... $ 24,013 $ 22,136 $ 46,151 $ 68,649 $ 200,195 $ 32,874 $ 88,623
Total assets............ 575,253 617,187 595,166 604,200 798,662 884,814 785,845
Long-term debt, less
current maturities(e).. 26,499 32,224 27,073 33,296 53,396 289,643 269,798
Total stockholders'
equity (deficiency).... $(313,325) $(312,081) $ (285,950) $ (263,293) $ (45,010) $ 163,432 $ 163,680
</TABLE>
- --------
(a) Net of other operating income.
(b) The extraordinary item in fiscal year 1993 resulted from the refinancing of
a credit agreement and the associated write-off of unamortized deferred
financing costs.
18
<PAGE>
(c) The fiscal year 1994 charge for the cumulative effect of accounting changes
resulted from the adoption of Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits," and the
fiscal year 1993 charge resulted from a change in the method of discounting
accrued workers' compensation and general liability claims.
(d) For the periods presented since fiscal year 1994, earnings were
insufficient to cover fixed charges by the amounts of the respective loss
before income taxes. For purposes of computing the ratio of earnings to
fixed charges, "earnings" consist of income (loss) before taxes and
extraordinary items plus fixed charges less capitalized interest. "Fixed
charges" consist of interest expense, including amortization of debt
issuance cost, capitalized interest and a portion of rent expense which is
deemed to be representative of an interest factor.
(e) Excludes liabilities subject to settlement under the reorganization case
after the Chapter 11 filing.
19
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet and
unaudited pro forma condensed consolidated statements of operations are based
on the statements of Bradlees included elsewhere in this Prospectus as adjusted
to give effect to the consummation of the Plan of Reorganization. The unaudited
pro forma condensed consolidated statements of operations have been prepared as
if the Effective Date of the Plan of Reorganization had occurred on February 1,
1997. The unaudited pro forma condensed consolidated balance sheet has been
prepared assuming the consummation of the Plan of Reorganization had occurred
on August 1, 1998.
The unaudited pro forma condensed consolidated financial information and
accompanying notes should be read in conjunction with the Company's financial
statements and the notes thereto appearing elsewhere in this Prospectus. The
Unaudited Pro Forma Condensed Consolidated Financial Information is presented
for informational purposes only and does not purport to represent what the
Company's financial position or results of operations would actually have been
if the consummation of the Plan of Reorganization had occurred on such date or
at the beginning of the period indicated, or to project the Company's financial
position or results of operations at any future date or for any future period.
20
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS PRO FORMA
AUG. 1, 1998 DEBITS CREDITS AUG. 1, 1998
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Unrestricted cash and
cash equivalents...... $ 8,148 $ - $ - $ 8,148
Restricted cash and
cash equivalents...... 24,862 - 23,662(2) 1,200
-------- ---------- ----------- --------
Total cash and cash
equivalents.......... 33,010 - 23,662 9,348
-------- ---------- ----------- --------
Accounts receivable.... 7,373 7,373
Inventories............ 239,478 1,000(3h) 238,478
Prepaid expenses....... 8,733 - - 8,733
-------- ---------- ----------- --------
Total current assets.. 288,594 - 24,662 263,932
-------- ---------- ----------- --------
Property, plant and
equipment, net
Property excluding
capital leases, net... 124,768 - 12,000(2) 109,414
2,200(3j)
1,154(3k)
Property under capital
leases, net........... 17,978 10,323(3b) 5,483(3j) 22,580
238(3k)
-------- ---------- ----------- --------
Total property, plant
and equipment, net... 142,746 10,323 21,075 131,994
-------- ---------- ----------- --------
Other assets:
Lease interests at fair
value, net............ 139,063 - 61,243(3j) 77,010
810(3k)
Assets held for sale... - 12,000(2) - 30,000
18,000(3d)
Other, net............. 4,850 1,275(2) 1,222(3g) 3,513
1,390(3i)
-------- ---------- ----------- --------
Total other assets.... 143,913 31,275 64,665 110,523
-------- ---------- ----------- --------
Total assets.......... $575,253 $ 41,598 $ 110,402 $506,449
======== ========== =========== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
21
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS PRO FORMA
AUG. 1, 1998 DEBITS CREDITS AUG. 1, 1998
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable....... $ 121,153 $ - $ - $121,153
Accrued expenses....... 24,324 7,000(2) 2,000(1) 16,989
2,335(3c)
Self-insurance
reserves.............. 6,474 - - 6,474
Short-term debt........ 111,592 - 7,638(2) 119,230
Current portion of
capital lease
obligations........... 1,038 - - 1,038
--------- ---------- ---------- --------
Total current
liabilities.......... 264,581 9,335 9,638 264,884
--------- ---------- ---------- --------
Long-term liabilities:
Obligations under
capital leases........ 26,499 - 764(3b) 27,263
Convertible notes
payable............... - - 40,000(2) 40,000
Deferred income taxes.. 8,581 8,581(3h) - -
Self-insurance
reserves.............. 13,145 - 13,145
Unfavorable lease
liability............. - - 44,706(3j) 44,706
Other long-term
liabilities........... 21,333 - 818(3f) 31,451
2,000(1)
7,300(2)
--------- ---------- ---------- --------
Total long-term
liabilities.......... 69,558 8,581 95,588 156,565
--------- ---------- ---------- --------
Liabilities subject to
settlement under the
reorganization case.... 554,439 554,439(2) - -
Stockholders' equity
(deficiency):
Common stock
Par value............. 115 115(3a) 99(2) 99
Additional paid-in-
capital.............. 137,821 137,821(3a) 84,901(2) 84,901
Accumulated deficit.... (450,458) 4,000(1) 399,114(2) -
55,344(3)
Treasury stock, at
cost.................. (803) 803(3a) -
--------- ---------- ---------- --------
Total stockholders'
equity (deficiency).. (313,325) 141,936 540,261 85,000
--------- ---------- ---------- --------
Total liabilities and
stockholders' equity
(deficiency)......... $ 575,253 $ 714,291 $ 645,487 $506,449
========= ========== ========== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
22
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
26 WEEKS 26 WEEKS
ENDED PRO FORMA ADJUSTMENTS ENDED
AUG. 1, 1998 DEBITS CREDITS AUG. 1, 1998
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Total sales............. $616,097 3,381(1) - $612,716
Leased department
sales.................. 21,845 70(1) - 21,775
-------- --------
Net sales............... 594,252 590,941
Cost of goods sold...... 417,989 - 2,472(1) 415,517
-------- --------
Gross margin............ 176,263 175,424
Leased department and
other operating in-
come................... 5,730 25(1) - 5,705
-------- --------
181,993 181,129
Selling, store
operating,
administrative and
distribution expenses.. 184,777 2,174(3) 631(1) 183,648
809(6) 3,948(7)
558(10) 91(11)
Depreciation and amorti-
zation expense......... 16,567 - 3(1) 8,833
3,391(3)
1,502(5)
318(6)
2,520(9)
Loss on disposition of
properties............. 241 241
Interest and debt ex-
pense.................. 7,590 217(4) 763(4) 14,654
7,610(8)
Reorganization items.... 194 - 194(2) -
-------- --------
Net loss................ $(27,376) $(26,247)
======== ========
Comprehensive loss...... $(27,376) $(26,247)
======== ========
Net loss per share - ba-
sic and diluted........ $ (2.42) $ (2.65)(12)
======== ========
Weighted average shares
outstanding (in
thousands) - basis and
diluted................ 11,309 9,909
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
23
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED PRO FORMA ADJUSTMENTS ENDED
JAN. 31, 1998 DEBITS CREDITS JAN. 31, 1998
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Total sales............. $1,392,250 $ 51,267(1) $1,340,983
Leased sales............ 47,806 1,571(1) 46,235
---------- ----------
Net sales............... 1,344,444 1,294,748
Cost of goods sold...... 948,087 35,343(1) 910,291
2,453(2)
---------- ----------
Gross margin............ 396,357 384,457
Leased department and
other operating
income................. 12,151 389(1) 11,762
---------- ----------
408,508 396,219
Selling, store
operating,
administrative and
distribution expenses.. 382,910 3,957(4) 14,617(1) 370,556
1,361(7) 7,697(8)
4,879 (11) 237(12)
Depreciation and
amortization expense... 36,244 187(1) 19,912
7,464(4)
3,004(6)
636(7)
5,041(10)
Gain on disposition of
properties............. (5,425) (5,425)
Interest and debt
expense................ 16,584 16,500(9) 3,751(5) 29,766
433(5)
Reorganization items.... 752 752(3) -
---------- ----------
Loss before income
taxes.................. (22,557) (18,590)
Income tax benefit...... - -
---------- ----------
Net loss................ $ (22,557) $ (18,590)
========== ==========
Net loss per share -
basic and diluted..... $ (1.98) $ (1.88)(13)
========== ==========
Weighted average shares
outstanding (in
thousands) - basic and
diluted................ 11,365 9,909
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
24
<PAGE>
BRADLEES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following notes set forth the explanations and assumptions used and
adjustments made in preparing the unaudited pro forma condensed consolidated
balance sheet as of August 1, 1998, and the unaudited pro forma condensed
consolidated statements of operations for the year ending January 31, 1998 and
for the six months ended August 1, 1998.
The unaudited pro forma condensed consolidated financial statements reflect
the adjustments described under "Pro Forma Adjustments" below, which are based
on the assumptions and preliminary estimates described therein, which are
subject to change. These statements do not purport to be indicative of the
financial position and results of operations of Bradlees as of such dates or
for such periods, nor are they indicative of future results. Furthermore, these
unaudited pro forma condensed consolidated financial statements do not reflect
anticipated changes which may occur as the result of activities before and
after the Effective Date of the Plan of Reorganization and other matters. (For
the purposes of the pro forma financial statements, the "Effective Date" is
assumed to be August 1, 1998 for the pro forma balance sheet, and February 1,
1997 for the pro forma statements of operations.)
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the financial statements and the notes thereto
included elsewhere in this Prospectus.
PRO FORMA ADJUSTMENTS
The unaudited pro forma condensed consolidated balance sheet and unaudited
pro forma condensed consolidated statements of operations reflect the following
pro forma adjustments based on the assumptions described below:
August 1, 1998 Balance Sheet Pro Forma Adjustments
1. Reserves established prior to emergence for emergence-related and
performance bonuses to be paid upon, or subsequent to, the Effective
Date.
2. Plan consummation distributions that include, among other things, an
estimated equity value of $85.0 million, $14.0 million in cash
distributions, and 9% Convertible Notes totaling $40.0 million
(expected to be paid in fiscal year 1999). The reclassification of
$12 million from Property, Plant and Equipment, net, to Assets Held
for Sale reflects two store leases that will be sold to fund the
payment of the 9% Convertible Notes.
The payment of $23.7 million out of restricted funds and $7.6
million out of borrowings is for certain settlements due under the
POR and for financing costs of $1.3 million associated with the
post-emergence revolver. The total payment of $31.3 million is
expected to fund all administrative and convenience claims,
including the bonuses due at consummation and the exit financing
costs, with the remaining restricted cash held for security deposits
for post-emergence payments.
3. Fresh-start accounting adjustments that reflect the estimated
adjustments necessary to adopt fresh-start reporting in accordance
with Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code". Fresh-start reporting
requires that the reorganization value of Bradlees be allocated to
Bradlees' assets in conformity with APB Opinion 16, "Business
Combinations", for transactions reported on the basis of the
purchase method. The portion of the revalued net assets exceeding
the assigned reorganization value is allocated as a reduction of
long-term assets. The calculation of the preliminary and estimated
new equity value is discussed in detail in Section Three (XIII) of
the Disclosure Schedule filed as an exhibit to this Registration
Statement.
25
<PAGE>
The fresh-start accounting adjustments are summarized as follows:
a. Cancellation of the old common stock pursuant to the Plan and
close-out to retained earnings.
b. A revaluation of all Capital Lease Obligations and related
Capital Lease Assets using our estimated 8/l/98 borrowing rate
(12%) for similar financings.
c. Revaluation of the straight-line rent reserve ($2.3 million).
Straight-line rent is recalculated on a going-forward basis by
the reorganized Bradlees.
d. Revaluation of the two store leases held for sale to an
estimated total net realizable value of $30 million.
e. Restatement of LIFO merchandise inventories to estimated fair
value approximates FIFO cost. Inventories valued at FIFO cost
then become the base year layer for LIFO inventories in the
post-consummation financial reporting period. No LIFO
adjustment is expected.
f. Recording of additional pension plan liability of $4.2 million
and additional SERP liability of $1.4 million, reduced by the
write-off of the unrecognized FAS No. 106 prior service costs
of $4.8 million.
g. Revaluation of the intangible SERP asset ($1.2 million) to its
estimated net realizable value.
h. Revaluation ($8.6 million) of deferred income taxes (due to a
change in the status of timing differences) and a ($1.0
million) reduction to reflect inventory at its estimated net
realizable value.
i. Write-off of the unamortized deferred financing charges ($1.4
million) associated with the terminated Debtor-in-Possession
(DIP) bank facility which will be amortized prior to
emergence.
j. Revaluation of fixed assets and leasehold interests based upon
the estimated fair market value of properties and leases while
considering the current markets in which Bradlees has
locations. This revaluation resulted in, among other things,
the recording of a write-down of $61.2 million in Favorable
Lease Interests and an Unfavorable Lease Liability of $44.7
million for certain locations. The remaining Favorable Lease
Interests and the Unfavorable Lease Liability will both be
amortized to rent expense.
k. Allocation of the revalued assets in excess of the
reorganization value at August 1, 1998.
The Company expects to incur charges of approximately $4.2 million,
excluding anticipated fixed asset writedowns of approximately $11 million,
prior to emergence for an estimated going-out-of-business inventory impairment
of $2 million and other store closing costs of $2.2 million for two store
closings anticipated to occur by the end of fiscal year 1999.
Pro Forma Adjustments - Statement of Operations for the Twenty-six Weeks
Ended August 1, 1998
1. To eliminate the sales and expense amounts associated with five
stores closed in February, 1998.
2. To eliminate reorganization items.
3. Adjustment in amortization of lease interests revalued under fresh-
start reporting.
4. To record amortization of post-emergence deferred financing costs
and reverse the historical amortization of deferred financing costs.
26
<PAGE>
5. Reduction in depreciation expense due to certain reclassifications
to assets held for sale and fixed asset write-offs resulting from
fresh-start reporting.
6. To adjust lease rent expense and amortization expense for revised
straight-line rent calculations.
7. To adjust lease rent expense for amortization of the unfavorable
lease liability.
8. To adjust interest expense for amortization of the discount on the
unfavorable lease liability and for increased interest expense
resulting from a higher average revolver borrowing level and the 9%
Convertible Notes and other issued notes.
9. To record reduction in depreciation and amortization expense
resulting from the allocation of the estimated excess of revalued
assets over the reorganization value at February 1, 1997.
10. To record additional FAS No. 106 expense as a result of fresh-start
reporting.
11. To reduce pension expense as a result of fresh-start reporting.
12. Pro forma earnings per share have been computed based on the
estimated weighted average number of common shares outstanding
during the applicable period assuming that the Plan was effective on
February 1, 1997.
Pro Forma Adjustments - Statement of Operations for the Fiscal Year Ended
January 31, 1998
1. To eliminate the sales and expense amounts associated with six
stores closed since February 1, 1997, excluding one store that was
assumed to be closed and sold in the ordinary course of business in
January, 1998.
2. To eliminate the provision for inventory impairment for the closed
stores.
3. To eliminate reorganization items, which include charges associated
with closing the six stores.
4. Adjustment in amortization of lease interests revalued under fresh-
start reporting.
5. To record amortization of post-emergence deferred financing costs
and reverse the historical fiscal year 1997 amortization of deferred
financing costs.
6. Reduction in depreciation expense due to certain reclassifications
to assets held for sale and fixed asset write-offs resulting from
fresh-start reporting.
7. To adjust lease rent expense and amortization expense for revised
straight-line rent calculations.
8. To adjust lease rent expense for amortization of the unfavorable
lease liability.
9. To adjust interest expense for amortization of the discount on the
unfavorable lease liability and for increased interest expense
resulting from a higher average revolver borrowing level and the 9%
Convertible Notes and other issued notes.
10. To record reduction in depreciation and amortization expense
resulting from the allocation of the estimated excess of revalued
assets over the reorganization value at February 1, 1997.
11. To record additional FAS No. 106 expense and eliminate the fiscal
year 1997 curtailment gain as a result of the effect of fresh-start
reporting and the associated write-off of unamortized prior service
costs.
12. To reduce pension and Supplemental Employee Retirement Plan expense
as a result of the effect of fresh-start reporting.
13. Pro forma earnings per share have been computed based on the
estimated weighted average number of common shares outstanding
during the applicable period assuming that the Plan was effective on
February 1, 1997.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis is based on our results of operations
detailed below for the 52 weeks ended January 31, 1998 ("1997"), the 52 weeks
ended February 1, 1997 ("1996") and the 53 weeks ended February 3, 1996
("1995"). The financial information discussed below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus. The following table sets forth
information concerning the number of our stores.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Stores, beginning of
period.................... 110 134 136
New stores................. - 3 -
Closed stores.............. (1)(a) (27) (2)
--- --- ---
Stores, end of period...... 109 110 134
=== === ===
</TABLE>
- --------
(a) Excludes six stores closed in February, 1998.
The following table sets forth the amounts and the percentages of net sales
for the items reflected in our Statement of Operations for the periods
indicated.
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ 1,344.4 100.0 % $ 1,561.7 100.0 % $1,780.8 100.0 %
Cost of goods sold...... 948.0 70.5 % 1,127.6 72.2 % 1,289.1 72.4 %
--------- ----- --------- ----- -------- -----
Gross margin............ 396.4 29.5 % 434.1 27.8 % 491.7 27.6 %
Leased department and
other operating
income................. 12.1 0.9 % 13.7 0.9 % 15.1 0.8 %
--------- ----- --------- ----- -------- -----
408.5 30.4 447.8 28.7 % 506.8 28.5 %
Selling, store
operating,
administrative and
distribution expenses.. 382.9 28.5 % 504.0 32.3 % 572.8 32.2 %
Depreciation and
amortization expense... 36.2 2.7 % 42.2 2.7 % 54.4 3.1 %
--------- ----- --------- ----- -------- -----
Operating loss.......... (10.6) (0.8)% (98.4) (6.3)% (120.4) (6.8)%
Gain on disposition of
properties............. (5.4) (0.4)% (1.7) (0.1)% - -
Interest and debt
expense................ 16.6 1.2 % 11.5 0.7 % 27.2 1.5 %
Impairment of long-lived
assets................. - - 40.8 2.6 % 99.4 5.6 %
Reorganization items.... 0.8 0.1 % 69.8 4.5 % 65.0 3.6 %
Income tax benefit...... - - - - (104.6) (5.9)%
--------- ----- --------- ----- -------- -----
Net loss................ $ (22.6) (1.7)% $ (218.8) (14.0)% $ (207.4) (11.6)%
========= ===== ========= ===== ======== =====
</TABLE>
28
<PAGE>
Our 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, which include 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.
1997 COMPARED TO 1996
Net sales for 1997 declined $217.3 million or 13.9% from 1996 due primarily
to the closing of 27 stores during fiscal year 1996 and a 5.0% decrease in
comparable store sales. The major cause for the decline in comparable store
sales was our significant reduction in the number of promotional activities in
1997, which had historically poor profit productivity.
We are focusing on three key merchandise categories: moderately priced basic
and casual apparel, basic and fashion items for the home, and frequently
purchased convenience and commodity products. We believe that we can
strategically leverage our strength in the quality and fashion content of our
product offerings while driving traffic with selected hardlines merchandise.
Management is continuing efforts to improve sales, including the expansion of
both the "Wow!" (opportunistic and unadvertised purchases) and "Certified
Value" (everyday low prices on selected highly recognizable products) programs
that have been particularly successful to-date. Comparable store sales
stabilized during the fourth quarter of 1997 (unchanged from 1996).
Gross margin declined $37.7 million but increased 1.7% as a percentage of
net sales in 1997 compared to 1996. The decline in gross margin dollars was due
to the store closings and lower comparable store sales, partially offset by the
increase in the gross margin rate. The increase in the rate was primarily due
to a lower markdown rate resulting from fewer promotions, improved inventory
control and a decrease of $3.7 million in 1997 compared to 1996 in going-out-
of-business markdown provisions for closed stores included in cost of goods
sold, partially offset by a slightly lower overall initial markup.
Leased department income and other operating income declined $1.6 million
but was unchanged as a percentage of net sales in 1997 compared to 1996. The
decline was primarily due to lower leased shoe department sales partially
offset by the benefit of layaway income (classified as other operating income)
from the layaway program that was reimplemented in the second half of 1997.
Selling, store operating, administrative and distribution ("SG&A") expenses
declined $121.1 million and 3.8% as a percentage of net sales in 1997 compared
to 1996. The decline in SG&A expenses was due to the closed stores and numerous
expense reduction initiatives, including substantial reductions in overhead and
advertising costs, designed to begin bringing our SG&A rate to a more
competitive level. Included in the 1997 SG&A expense reductions were a $4.5
million expense credit resulting from the elimination of automatic beginning of
year vacation vesting for certain pay groups and a $3.9 million curtailment
gain associated with a reduction in retiree medical benefits.
Depreciation and amortization expense declined $6.0 million in 1997 compared
to 1996, primarily as a result of the closed stores and the 1996 year-end
write-downs of certain long-lived assets in accordance with of SFAS No. 121.
However as a percentage of net sales, depreciation and amortization remained
unchanged.
We sold an owned store in January, 1998 for approximately $8.0 million and
recognized a gain of $5.4 million. This store was closed as a result of the
sale of the property and the sale was not directly associated with the Chapter
11 proceedings; therefore, the gain was not classified as a reorganization
item. The net proceeds from this sale were placed into restricted funds.
Interest and debt expense increased $5.1 million or .5% as a percentage of
net sales in 1997 compared to 1996 due primarily to higher average borrowings
under the Debtor-in-Possession credit facility with BankBoston ("DIP Facility")
in 1997 and a $1.1 million write-off in 1997 of deferred financing costs
29
<PAGE>
associated with the replacement of the prior DIP facility. Interest expense in
1996 includes a credit of $.8 million resulting from a change in the interest
rate used to discount self-insurance reserves.
Reorganization items resulted in net charges of $.8 and $69.8 million, or
.1% and 4.5% of net sales, in 1997 and 1996, respectively. These net charges
relate directly to the Chapter 11 proceedings and associated restructuring of
our operations.
We did not incur any income tax expense or benefit in 1997 and 1996.
1996 COMPARED TO 1995
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 our
relatively rapid introduction of higher-priced merchandise at the expense of
many lower opening price-point merchandise categories, elimination of layaway,
significant reduction in the number of basic convenience and commodity items
that are generally sold in discount stores, and changes in our advertising
strategy that included a reduction in the number of merchandise offerings in
our weekly circular. Although we improved the quality and fashion of our
merchandise in 1996, the changes that were implemented assumed rapid customer
acceptance of the new merchandise mix and significant sales from increased
promotional activities.
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 a
$6.7 million going-out-of-business markdown provision included in cost of goods
sold in 1996.
Leased department income and other operating income declined $1.4 million
but increased .1% 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 since the discontinuance of the layaway program in August, 1995.
SG&A expenses declined $68.8 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.
Depreciation and amortization expense declined $12.2 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 write-down of certain long-lived assets in
accordance with the adoption of SFAS No. 121.
We recognized a gain of $1.7 million in 1996 for forfeited deposits received
on the unconsummated sale of an owned undeveloped property.
Interest and debt expense declined $15.7 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 our
filing for bankruptcy 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.
We 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.
30
<PAGE>
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
related directly to the Chapter 11 proceedings and associated restructuring of
our operations.
We did not incur any income tax expense or benefit in 1996 compared to an
income tax benefit of $104.5 million in 1995. A portion of our 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 was restricted in April, 1996
pending further order of the Bankruptcy Court.
YEAR-TO-DATE 1998 COMPARED TO YEAR-TO-DATE 1997
<TABLE>
<CAPTION>
26 WEEKS ENDED
AUGUST 1, 1998 AUGUST 2, 1997
-------------- --------------
<S> <C> <C>
Stores, beginning of period..................... 109 110
New stores...................................... - -
Closed stores................................... (6) (1)
------ ------
Stores, end of period........................... 103 109
====== ======
Results of Operations, summarized in millions of dollars and expressed as a
percentage of net sales were as follows for the 26 weeks ended August 1, 1998
("Year-to-Date 1998") and for the 26 weeks ended August 2, 1997 ("Year-to-Date
1997"):
<CAPTION>
YEAR TO DATE YEAR TO DATE
1998 1997
-------------- --------------
(DOLLARS IN MILLIONS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Total sales..................................... $616.1 $588.3
Leased dept. sales.............................. 21.8 23.5
------ ------
Net Sales....................................... 594.3 564.8
Cost of goods sold.............................. 418.0 392.2
------ ------
Gross Margin.................................... 176.3 172.6
Leased dept. and other operating income......... 5.7 5.4
------ ------
182.0 178.0
Selling, store operating, administrative and
distribution expenses.......................... 184.8 196.1
Depreciation and amortization expense........... 16.6 18.5
Loss on disposition of properties............... 0.2 -
Interest and debt expense....................... 7.6 7.5
Reorganization items............................ 0.2 4.8
------ ------
Net loss...................................... $(27.4) $(48.9)
====== ======
Net loss per share............................ $(2.42) $(4.29)
====== ======
Total sales increase (decrease):
All stores.................................... 4.7% (20.1)%
Comparable stores............................. 8.6% (6.9)%
Number of stores in operation at end of period.. 103 109
</TABLE>
31
<PAGE>
Results of Operations (Cont'd)
<TABLE>
<CAPTION>
26 WEEKS ENDED
AUG. 1, 1998 AUG. 2, 1997
------------ ------------
<S> <C> <C>
As a percentage of net sales, results were as
follows:
Net sales........................................... 100.0 % 100.0 %
Cost of goods sold.................................. 70.3 69.4
----- -----
Gross margin........................................ 29.7 30.6
Leased dept. and other operating income............. 0.9 0.9
----- -----
30.6 31.5
Selling, store operating, administrative and
distribution expenses.............................. 31.1 34.7
Depreciation and amortization expense............... 2.8 3.3
Loss on disposition of properties................... - -
Interest and debt expense........................... 1.3 1.3
Reorganization items................................ - 0.9
----- -----
Net loss............................................ (4.6)% (8.7)%
===== =====
</TABLE>
Year-to-Date 1998 total sales increased $27.8 million or 4.7% from Year-to-
Date 1997 due to an increase of 8.6% in comparable store sales, partially
offset by the impact from closing six stores in February, 1998. The increase in
Year-to-Date 1998 comparable store sales was due primarily to stronger sales of
both hardlines and softlines in 1998 versus 1997. Third quarter (13 weeks ended
October 31, 1998) comparable store sales decreased 2.0% due, in part, to
unseasonably warm weather that hurt Fall apparel sales.
Gross margin for Year-to-Date 1998 increased $3.7 million, primarily as a
result of the strong comparable store sales but decreased 0.9% as a percentage
of net sales due primarily to a 1.7% decline in the gross margin rate in the
first quarter of 1998. The decrease in the gross margin rate in the first
quarter was due primarily to a lower initial markup, partially offset by fewer
clearance markdowns.
Leased department and other operating income increased $0.3 million in Year-
to-Date 1998 compared to Year-to-Date 1997. Layaway fee income more than offset
the impact from the store closings and unfavorable leased shoe department
sales.
Year-to-Date 1998 SG&A expenses declined $11.3 million or 3.6% as a
percentage of net sales compared to Year-to-Date 1997. The improved SG&A
expense performance was due primarily to store closings, reductions in store
operating and advertising expenses and reductions in overhead costs, including
reductions resulting from a reduction in retiree medical benefits and improved
monitoring of vendor account activities.
Depreciation and amortization expense declined $1.9 million or 0.5% as a
percentage of net sales in Year-to-Date 1998 compared to Year-to-Date 1997. The
decline was primarily due to the closing of six stores in February 1998.
Interest and debt expense increased $0.1 million and remained the same as a
percentage of net sales in Year-to-Date 1998 from Year-to-Date 1997. Peak and
average revolver borrowings were $127 and $108 million, respectively, in Year-
to-Date 1998 compared to $94 and $73 million, respectively, in Year-to-Date
1997, and the weighted average revolver interest rate was 7.97% during Year-to-
Date 1998 compared to 7.45% in the prior-year period. The unfavorable impact on
Year-to-Date 1998 interest expense from these factors was offset by lower
capital lease interest expense and lower amortization of deferred financing
costs.
Reorganization items of $0.2 and $4.8 million for Year-to-Date 1998 and
Year-to-Date 1997, respectively, were associated with the Chapter 11
proceedings and related restructuring and are discussed in Note 6.
32
<PAGE>
We did not record an income tax provision in Year-to-Date 1998 due to the
current expectation of no income tax expense or benefit in 1998. There was no
income tax expense or benefit recorded in Year-to-Date 1997.
LIQUIDITY AND CAPITAL RESOURCES
We had outstanding borrowings of $111.6 million at August 1, 1998, exclusive
of the issuance of letters of credit, under our $250 million DIP Facility. As
of August 2, 1997, we had outstanding borrowings of $89.0 million, exclusive of
the issuance of letters of credit, under the prior DIP facility. The increase
in borrowings since the end of Second Quarter 1997 relates primarily to the net
loss incurred in Year-to-Date 1998, including Chapter 11 professional fees and
other reorganization expenses.
We currently expect our borrowings, exclusive of the issuance of letters of
credit, for the second half of 1998 to peak at approximately $180 million in
October or November, 1998 and average approximately $130 million. The amount
available to borrow in the second half of 1998, after deducting expected
letters of credit outstanding, is currently expected to peak at approximately
$220 million in October or November, 1998 and average approximately $180
million.
Other than payments made to certain pre-petition creditors approved by the
Bankruptcy Court, principal and interest payments on indebtedness, exclusive of
certain capital lease obligations, incurred prior to Chapter 11 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 Year-to-Date 1998, cash used by operations before reorganization items
was $15.6 million, compared to $20.3 million of cash used by operations before
reorganization items in Year-to-Date 1997. This decrease in cash usage was due
principally to the improvement in operating results, partially offset by a
reduction in accrued expenses (see discussion below).
Net cash used by reorganization items in Year-to-Date 1998 of $7.2 million
was comprised of professional fee payments of $5.0 million and store closing
and severance costs of $2.7 million, partially offset by interest income of
$0.5 million.
Inventories at August 1, 1998, decreased $14.5 million from August 2, 1997,
due primarily to the closing of six stores in February 1998 (inventories
increased approximately $1.6 million, excluding the impact of the closed
stores). Accounts payable at August 1, 1998, decreased $18.3 million from
August 2, 1997, due, in part, to the decrease in inventories.
Accrued expenses at August 1, 1998 were $6.2 million lower than at January
31, 1998, due primarily to payments made against certain reserves established
in or prior to 1997 for performance bonuses, employee severance and termination
benefits and store closing costs. Accrued expenses were $17.0 million lower
than at August 2, 1997, due primarily to reductions in severance reserves,
vacation pay liabilities and store closing costs.
We incurred capital expenditures of $5.5 million in Year-to-Date 1998
(compared to $10.9 million in Year-to-Date 1997), primarily for management
information systems, store remodels and store maintenance projects. The larger
Year-to-Date 1997 total was principally a result of the 1997 expenditures
associated with a new merchandise management system. For all of 1998, we expect
total capital expenditures to be approximately $20 million, primarily for
management information systems (including the initial expenditures for a
warehouse management system and enhancements to the new merchandise management
system), the remodeling of nine stores, and other store improvements and
maintenance. We currently expect to finance these expenditures through
internally-generated funds.
33
<PAGE>
We believe our business strategies and the availability of our DIP Facility
and BankBoston Facility, together with our available cash and expected cash
flows from 1998 operations and beyond, will enable us to fund our expected
needs for working capital, capital expenditures and debt service requirements.
Achievement of expected cash flows from operations will be dependent upon our
attainment of sales, gross profit, expense and trade support levels that are
reasonably consistent with its financial plans. Such operating performance will
be subject to financial, economic and other factors affecting the industry and
our operations, including factors beyond our control.
POTENTIAL YEAR 2000 LIABILITY
We have determined that we must modify portions of our software so that our
computer systems will properly recognize and use dates beyond December 31,
1999. We believe we can mitigate the impact of the Year 2000 disruption by
upgrading or modifying existing software and, in certain instances, converting
to new software. However, if the Year 2000 upgrades, modifications and
conversions are not made, or are not made in a timely manner, the Year 2000
issue could have a material impact on our operations.
We intend to use both internal and external resources to remediate, replace
and test software for Year 2000 compliance. We have entered into a contract
with a major outside consulting firm to provide the majority of the resources
necessary to identify, and then replace or remediate, our affected systems. We
intend to complete our Year 2000 project no later than the beginning of the
fourth quarter of fiscal 1999, but currently expect to substantially complete
the conversion by the second quarter of fiscal 1999. At this time, we expect
the cost of the Year 2000 project to be approximately $3 to $4 million, which
expense was primarily incurred in fiscal 1998. Through October 31, 1998, we
have incurred $1.9 million for such expense. We are in the process of
developing contingency plans in the event that such replacement or remediation
is not fully completed in a timely manner. We have calculated the costs of the
Year 2000 project and predicted the dates on which we plan to complete the Year
2000 modifications using our best estimates, which required using a number of
assumptions of future events, including the continued availability of certain
resources, third party modification plans and other factors. However, we can
not guarantee that we will achieve the predicted estimates and our actual
results could differ materially from those plans.
We are also attempting to obtain representations and assurances from our
third party providers of services and goods, including vendors of software
products, that their software is or will be Year 2000 compliant on a timely
basis. However, because certain of our processes may be interrelated with, or
dependent upon, systems outside our control, we can give no assurances that the
implementation of our Year 2000 project will be successful.
34
<PAGE>
BUSINESS
COMPANY OVERVIEW
We operate 103 discount department stores as of January 30, 1999, 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, the Company and its predecessor have been active in
the discount department store business for over 30 years.
BUSINESS STRATEGY. In 1995, we began to implement a strategy to position
ourselves between traditional discount stores and department stores. Some of
the initiatives associated with this strategy, especially the relatively rapid
introduction of higher-price points, an aggressive clearance markdown policy,
costly promotions of the Bradlees' credit card and associated elimination of
layaway, significant reduction in the number of basic convenience and commodity
items that are generally sold in discount stores, along with costly changes in
our advertising strategy, resulted in significant sales and margin declines and
operating losses. In late December, 1996, our Board of Directors appointed
Peter Thorner as Chairman, CEO and President. Prior to joining Bradlees, Mr.
Thorner led the successful turnaround of Ames Department Stores, Inc. In April,
1997, Mr. Thorner hired Robert Lynn as President and Chief Merchandising
Officer.
We made the following key modifications to our business strategy during 1997
to enhance profitability and improve customer service:
. Reintroduced lower opening price points in a comprehensive variety of
merchandise categories to enhance value and increase customer traffic;
. Reduced costly promotional events and thereby reduced the likelihood
of substandard profit margins;
. Reintroduced certain basic convenience and commodity products that are
typical of assortments carried by discount retailers;
. Reinstituted a layaway program while controlling promotions of the
Bradlees' credit card;
. Installed new in-store directional and departmental signage;
. Revised our markdown policy based on product rate of sale;
. Modified weekly ad circulars to achieve more item-intensive and price-
point oriented ad offerings;
. Introduced both a "Certified Value" program that highlights certain
key recognizable items at competitive everyday prices and a "Wow!"
program which integrates targeted and unadvertised opportunistic
purchases; and
. Significantly reduced overhead while improving operating efficiencies.
We are focusing on three key merchandise categories: moderately-priced basic
and casual apparel; basic and fashion items for the home; and frequently
purchased convenience and commodity products. We believe we can strategically
leverage our strength in the fashion and quality content of our apparel and
decorative home product offerings while driving traffic with selected hardlines
merchandise. Management has continued its efforts to improve sales and
profitability in 1998, including the expansion of both the "Wow!" and
"Certified Value" programs that have been particularly successful to-date.
MERCHANDISE MIX. We 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. Our
35
<PAGE>
average merchandise mix in fiscal year 1997 was comprised of approximately 53%
softlines and soft home furnishings and 47% hardlines, versus an estimated
industry average of 42% softlines and soft home furnishings and 58% hardlines.
Softline products generally have higher gross margins than hardline products.
ADVERTISING AND PROMOTIONAL PROGRAMS. Our marketing strategy is designed to
appeal to our value-oriented customers. Sales are driven from competitive
pricing and promotions, primarily in weekly circulars, that feature a large
number of special values for the customer throughout the store. Approximately
45% of our sales were derived from our weekly circulars in 1997. Approximately
5.6 million circulars are distributed each week. Although circulars are our
major promotional vehicle, we also use newspaper advertising, periodic
television broadcasts, Bradlees credit-card statement inserts and in-store
promotions. Point-of-purchase advertising, layaway, employee discounts and
senior citizen discounts are also used as marketing vehicles.
OPERATIONS. Several programs have been or are being implemented to improve
store organization, thereby focusing us more intently on customer service while
at the same time reducing expenses. These improvements included reducing the
number of store regions from two to one and the number of store districts from
nine to eight. In addition, store managers are using automated staff scheduling
programs in 1998 to improve operating efficiency and provide better service to
the customer.
Management has improved productivity and controls and reduced expenses in
other areas. For example, a new merchandising management system was implemented
during 1997 and 1998 that facilitates, among other things, tracking merchandise
more accurately and efficiently from vendors through distribution centers and
to stores. In addition, we have begun developing a warehouse management system.
We also installed a new mainframe computer and point-of-sale controllers and
are modifying our point-of-sale equipment and software to allow for additional
promotional capabilities, enhanced controls and improved customer service.
STORE PROFITABILITY. We closed six stores in February, 1998. No additional
stores are currently planned for closing other than the contemplated sales of
the Yonkers, New York and Union Square, New York leasehold interests. We
continue to closely monitor the profitability of each store and will close,
sell or relocate those stores whose performance is inadequate and not
responsive to remedial actions.
EMPLOYEES AND COLLECTIVE BARGAINING ARRANGEMENTS
As of [February 1, 1999], we employ approximately 10,000 people, of which
approximately 66% are covered by collective bargaining agreements. Agreements
affecting approximately 14% of the labor force will expire within one year and
are expected to be renegotiated. We believe our relations with our employees
are good.
COMPETITION
We compete in most of our 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 we do. We
compete 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. Our principal discount department
store competitors are Caldor, Kmart and Wal-Mart, and in certain locations,
Target and Ames. Our principal department store competitors are Sears and J.C.
Penney. Target 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 tassurances
can be given that these strategies will further improve performance or that our
business and financial performance will not be adversely affected by future
competitive pressures.
36
<PAGE>
PATENTS, TRADEMARKS AND LICENSES
The trademark "Bradlees" is registered with the United States Patent and
Trademark Office. We have a significant number of other trademarks, trade
names, and service marks. We do not consider any of these other trademarks,
tradenames or services marks to individually have a material impact on our
business.
SEASONALITY
Our business is seasonal in nature, with a significant portion of net sales
occurring in the fourth quarter, which includes the pivotal holiday selling
season.
CREDIT FACILITY
The BankBoston Facility provides us with a $250 million senior secured
revolving credit facility (of which $125 million is available for issuance of
letters of credit) and a $20 million junior secured "last in-last out"
subfacility for a period of up to 3 years (the "BankBoston Facility"). We can
use the BankBoston Facility for working capital, general business needs and to
pay off our DIP Facility.
The BankBoston Facility permits us to borrow funds under the senior secured
tranche at an interest rate per annum equal to (a) the higher of (i) the annual
rate of interest as announced by BankBoston as its "Base Rate" and (ii) the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System plus 1/2 of 1% per annum; or (b) 2.25%
per annum plus the quotient of (i) the LIBOR Rate in effect divided by (ii) a
percentage equal to 100% minus the percentage established by the Board of
Governors of the Federal Reserve System as the maximum rate for all reserves
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency Liabilities. Each of these rates is subject to a 0.50% increase in
the event of overadvances. The junior secured subfacility permits us to borrow
funds at the "Base Rate" plus 7.00% per annum.
In connection with the BankBoston Facility, we have entered into a Security
Agreement and a Pledge Agreement with BankBoston. The Security Agreement and
the Pledge Agreement cover substantially all of our non-real estate assets.
Under the terms of the BankBoston Facility, we have agreed to certain financial
covenants including:
. maintaining a minimum level of earnings before interest, taxes,
depreciation and amortization;
. capping our capital expenditures at $20 million annually;
. agreeing not to let certain financial ratios which measure our debt
coverage and accounts payable to inventory ratios drop below specified
goals.
See "Other Indebtedness-Credit Facility."
FURTHER INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from the SEC's Website at "http://www.sec.gov" and our website at
"http://www.Bradlees.com."
37
<PAGE>
FACILITIES
The following chart shows the geographic distribution of our stores as of
January 30, 1999:
<TABLE>
<S> <C>
Maine................................................................. 1
New Hampshire......................................................... 8
Massachusetts......................................................... 36
Connecticut........................................................... 17
New York.............................................................. 6
New Jersey............................................................ 29
Pennsylvania.......................................................... 6
---
Total................................................................. 103
===
</TABLE>
We operate stores in a variety of sizes, with the current average store
being 75,924 total square feet.
Our 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 stores.
As of January 31, 1998, our stores, including the six stores which closed in
February, 1998, occupied a total of approximately 8,285,917 square feet of
selling area. We lease all of our stores, our two distribution centers and our
central office, each under a long-term lease.
LEGAL PROCEEDINGS
On June 23, 1995, we filed a voluntary petition in the United States
Bankruptcy Court for the Southern District of New York to reorganize under
Chapter 11 of the United States Bankruptcy Code. Our plan of reorganization was
confirmed on November 18, 1998, and became effective on the Effective Date.
After the Effective Date, the Bankruptcy Court will retain jurisdiction over us
for limited purposes. New Horizons of Yonkers, Inc. will remain in Chapter 11
after the Effective Date until it sells the leasehold interest it holds. Thus,
it will continue to be subject to the jurisdiction of the Bankruptcy Court.
From time to time, we are party to litigation arising in the ordinary course
of business. We believe that no pending legal proceeding will have a material
adverse effect on our business, financial condition or results of operations.
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages, and current positions of all of our executive officers and
directors as of January 15, 1999 are listed below along with their business
experience during the past five years.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert W.
Benenati...... 50 Senior Vice President, Logistics
Stephen Blaun-
er............ Director
Jack E.
Bush(1)....... 64 Director
Bruce
Conforto...... 46 Senior Vice President, Chief Information Officer
John A. Cur-
ry(1)......... 64 Director
Gregory K.
Dieffenbach... 49 Senior Vice President, Human Resources
Judith D. Dun-
ning.......... 48 Senior Vice President, Planning and Allocation
John M. Fried-
man, Jr.(2)... 54 Director
Mark E. James.. 49 Senior Vice President, Marketing and Advertising
Robert G.
Lynn.......... 48 Director, President/Chief Operating Officer
Cornelius F.
Moses III..... 40 Senior Vice President, Chief Financial Officer
Patricia M.
Pomerleau(1).. 49 Director
Ronald T. Ray-
mond.......... 55 Senior Vice President, Asset Protection
Sheldon
Rutstein(2)... 64 Director
Willis G. Ryck-
man(2)........ 54 Director
David L.
Schmitt....... 48 Senior Vice President, General Counsel, Secretary and Clerk
Sandra L.
Smith......... 41 Senior Vice President, General Merchandise Manager, Hardlines
Thomas N.
Smith......... 42 Senior Vice President, Stores
James C.
Sparks........ 52 Senior Vice President, General Merchandise Manager, Softlines
Peter Thorner.. 55 Chairman and Chief Executive Officer
[New Directors]
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Benenati became Senior Vice President, Logistics of the Company in
October 1997. He was Senior Vice President, Operations, from February 1997 to
October 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 August 1994 to June 1995. He was Vice
President, Operations and Administration for Simon and Schuster Publishing Co.
from prior to 1993 to August 1994.
Mr. Bush became a Director of the Company in July 1997. He has served as
President of Raintree Partners, Inc., a management consulting firm, since 1995
and Chairman and Chief Executive Officer of Jumbo Sports, Inc., a sporting
goods retailer, since December 1997. He served as President and Director of
Michaels Stores, Inc. from prior to 1993 to 1995. He also serves as a Director
of Stage Stores, Inc., Carolina Art and Frame Co. and Jumbo Sports, Inc.
Mr. Conforto became Senior Vice President, Chief Information Officer of the
Company in April 1998. Prior to joining the Company, he was Vice President,
Corporate Information Technology of HFS Incorporated from August 1996 to April
1997. He was Vice President of Information Services for Rickel Home Centers,
Inc. from prior to 1993 to August 1996.
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 1993 to September 1996.
39
<PAGE>
Mr. Dieffenbach became Senior Vice President, Human Resources of the Company
in July 1997. Prior to joining the Company, he was Vice President, Human
Resources for Uptons Department Stores, Inc. from prior to 1993 to May 1997.
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 Department Stores, Inc., a division of Federated Department Stores,
Inc., from prior to 1993 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 1993 to April 1996.
Mr. James became Senior Vice President, Marketing of the Company in May
1997. Prior to joining the Company, he was Senior Vice President, Marketing and
Advertising for Best Products Co., Inc. ("Best Products") from prior to 1993 to
December 1996.
Mr. Lynn became President and Chief Operating Officer of the Company in
April 1998. He served as President and Chief Merchandising Officer of the
Company from April 1997 to April 1998. Mr. Lynn was elected a Director of the
Company in April 1997. Prior to joining the Company, he was a consultant to
various retail and manufacturing clients from January 1996 to April 1997. He
was Vice Chairman and Chief Operating Officer of American Eagle Outfitters,
Inc. from January 1995 to December 1995 and a Director from April 1994 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 January 1989 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 prior to 1993 to April 1995.
Ms. Pomerleau became a Director of the Company in March 1993. She has served
as President and Chief Executive Officer of ExpressCompany.com (formerly known
as 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 1993 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 prior to 1993 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 prior to 1993 to
December 1994. He also serves as a Director of Instron Corporation.
Mr. Ryckman became a Director of the Company in May 1997. He has served as
Founder and President of WGR, Inc. since prior to 1993 and of WGR Golf L.P.
since 1994. He has served as Chief Operating Officer and Managing Director of
Associate Capital L.P., a New York-based hedge fund, since 1995. He has served
as Chairman of the Board of Tri Tech Labs, Inc. and Irma Shorell, Inc. since
prior to 1993. He also serves as a
40
<PAGE>
Director of Omni Capital Corporation, Banyon Hotel Management Corporation,
Krasdale Foods, Inc., National Propane Corp., Provision, Inc. and Panavision,
Inc.
Mr. Schmitt has served as Senior Vice President, General Counsel, Secretary
and Clerk of the Company since November 1995. 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 1993 to June 1994.
Ms. Smith became Senior Vice President, General Merchandise Manager,
Hardlines of the Company in July 1995. Ms. Smith served as Vice President,
General Merchandise Manager, Hardlines of the Company from February 1994 to
July 1995 and Divisional Merchandise Manager, Home Fashions of the Company from
prior to 1993 to February 1994.
Mr. Smith became Senior Vice President, Stores of the Company in December
1997. Prior to joining the Company, he was Director of Operations and
Merchandising for Fry's Electronics from April 1995 to December 1997. He was
Division Director for The Home Depot/Crossroads from June 1993 to April 1995.
He was Regional Vice President for Wal-Mart from prior to 1993 to April 1993.
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 prior to 1993 to October 1994.
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 prior to 1993 to 1994.
On September 24, 1996, while Mr. James was Senior Vice President, Marketing
and Advertising of Best Products, Best Products filed for bankruptcy protection
under Chapter 11 of the United States Bankruptcy Code. Best Products was
subsequently liquidated.
Mr. Conforto was Vice President of Information Services for Rickel Home
Centers, Inc. when they filed for bankruptcy protection under Chapter 11 of the
United States Bankruptcy Code. Rickel Home Centers, Inc. was subsequently
liquidated.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
Our business is managed under the direction of the Board of Directors. As of
the Effective Date, there are nine members of our Board of Directors. These
directors were selected pursuant to the Plan. Our Amended and Restated Articles
of Organization provide that the Board of Directors shall serve initial terms
which will expire upon the election and qualification of directors at each
annual meeting of stockholders. At each annual meeting of stockholders, the
successors of the directors will be elected by a plurality of the votes cast at
such meeting. We intend to hold our first annual meeting after the Effective
Date in the Spring of 2000.
Our Board has established an audit committee (the "Audit Committee"), a
compensation committee (the "Compensation Committee") and a nominating
committee (the "Nominating Committee"). The Audit Committee, a majority of whom
are outside directors, recommends to the Board of Directors the firm to be
appointed as independent accountants to audit financial statements and to
perform services related to the audit.
41
<PAGE>
The Audit Committee also reviews the scope and results of the audit with the
independent accountants, reviews with management and the independent
accountants the Company's year-end operating results, considers the adequacy of
the internal accounting procedures and considers the effect of such procedures
on the accountants' independence.
The Compensation Committee, which consists solely of outside directors,
reviews and recommends to the Board of Directors the compensation arrangements
for all directors and officers, approves such arrangements for other senior
level employees and administers and takes such other action as may be required
in connection with certain compensation and incentive plans of the Company. The
Compensation Committee also determines the number of options to be granted or
shares of Common Stock to be issued to eligible persons under our Stock Option
Plans (the "Stock Plans"). In addition, the Compensation Committee establishes,
amends and revokes rules and regulations for administration of the Stock Plan.
Our Board has also established a Nominating Committee consisting of the
Chairman of the Board and two other directors selected by the Chairman of the
Board. The purpose of the Nominating Committee is to facilitate the nomination
of directors to fill vacancies on the Board. The current members of the
Nominating Committee are Mr. Thorner, , .
THE NEW BOARD OF DIRECTORS
In connection with the Confirmation of the Plan, the following persons were
nominated to serve on and joined our Board of Directors as of the Effective
Date. We have nominated Peter Thorner, Robert G. Lynn and John M. Friedman, Jr.
The Bank Group representatives are and ; the Unofficial Committee
representative is ; the Creditor Committee representative is ; and
the representatives chosen by the Bank Group, the Unofficial Committee and the
Creditors Committee, acting together, are and .
42
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the earned compensation for the Chief
Executive Officer of the Company and our four highest-paid executive officers
in 1997 other than the Chief Executive Officer (the "Named Officers") for
fiscal years 1997, 1996 and 1995.
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 AWARDS OPTION/SARS PAYOUTS COMPENSATION
- ------------------ ---- -------- -------- ------------ ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter Thorner........... 1997 $741,827 $299,063(l) (2) - - $150,000(3) $9,318(4)
Chairman and Chief l996 $589,166 - $ 12,961 - - $150,000(3) $9,293
Executive Officer 1995 $440,391 $406,252(5) $ 97,257 $231,250(6) 100,000 $150,000(3) $4,490
Robert G. Lynn.......... 1997 $401,827(7) $196,875(1) $ 29,109(8) - - - $ 840(4)
Director, President, and
Chief Operating Officer
Robert W. Benenati...... 1997 $292,729 $ 90,011(l) (2) - - - $1,113(4)
Senior Vice 1996 $205,036 - $ 62,762 - - - $ 850
President, Logistics l995 $141,948 $190,075(5) $ 18,793 - - - $ 596
Cornelius F. l997 $279,175 $ 84,012(l) (2) - - - $1,054(4)
Moses, III..............
Senior Vice President 1996 $228,682 - (2) - - - $ 944
and Chief Financial 1995 $162,322 $ 79,453(5) $162,087 - - - $ 216
Officer
David L. Schmitt ....... 1997 $243,751 $ 73,500(l) (2) - - - $ 912(4)
Senior Vice 1996 $180,024 - (2) - - - $ 748
President, General 1995 $103,860 $ 69,556(5) (2) - - - $ 312
Counsel, Secretary and
Clerk
</TABLE>
- --------
(1) Includes an earned bonus paid in April, 1998 pursuant to our Corporate
Bonus Plan (see below), but excludes the following deferred payments
which were paid, with interest, at the Effective Date: Mr. Thorner -
$99,688; Mr. Lynn - $65,625; Mr. Benenati - $30,004; Mr. Moses -
$28,004; and Mr. Schmitt - $24,500.
(2) Perquisites and other personal benefits for the indicated periods did
not exceed the lesser of $50,000 or 10% of reported salary and bonus.
(3) See Enterprise Appreciation Incentive Plan below.
(4) Premiums paid with respect to term life insurance for the calendar year
ended December 31, 1997.
(5) Includes an earned bonus paid in April, 1996 pursuant to our Retention
Bonus Plan, but excludes the following deferred payments which were
paid, with interest, at the Effective Date: Mr. Thorner - $68,751; Mr.
Benenati - $16,915; Mr. Moses - $18,151; and Mr. Schmitt - 14,852.
(6) 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. The
restrictions on these shares lapse at the rate of 20% a year, on or
after the third business day following the announcement of annual
earnings for the years 1995 through 1999. On January 30, 1998, the last
trading day of fiscal 1997, 15,000 shares with a value of $1,875 were
still subject to restrictions. The aggregate market value is based on a
fair market value of $.125, the closing price of the Company's Common
Stock on January 30, 1998. The Common Stock was canceled at the
Effective Date.
(7) Represents a partial year beginning when Mr. Lynn joined the Company in
April, 1997.
(8) Includes $27,216 for relocation expenses related to Mr. Lynn's
employment as President and Chief Merchandising Officer of the Company
and reimbursement for tax liabilities related to such relocation
expenses.
43
<PAGE>
CORPORATE BONUS PLAN
In February 1997 we adopted, and in April 1997 the Bankruptcy Court
approved, the Corporate Bonus Plan (the "Corporate Bonus Plan"). 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
measurements tied directly to our annual business plan. The amount of the award
increases if our 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 we achieve our target performance level and (b) bonus eligible
employees based on performance if we do not achieve our target performance
level.
Under the Corporate Bonus Plan, we had to obtain a minimum EBITDA (as
defined) of $28.1 million for fiscal 1997, net of the anticipated costs of the
Corporate Bonus Plan, in order for any employee to be eligible for 100% of an
award (except for the discretionary fund mentioned 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. We achieved an
EBITDA of $28.5 million (net of the provision for the bonuses and excluding
gains on disposition of properties) for fiscal 1997 and paid total bonuses of
$3.9 million to approximately 286 employees under the Corporate Bonus Plan in
April 1998.
With respect to the Named Officers and certain other members of our senior
management, one-quarter of the amount of any bonus payable before such time as
we consummated our Chapter 11 plan of reorganization was paid, with interest,
on the Effective Date.
For fiscal 1998, our Board of Directors adopted threshold performance
measurements tied directly to our 1998 business plan. We must obtain a minimum
EBITDA of $32 million, net of the anticipated costs of the Corporate Bonus
Plan, in order for any employee to be eligible for 100% of an award (except for
the discretionary fund mentioned above). Partial awards will be made if we
achieve certain levels of EBITDA below $32 million. For each $5 million of
EBITDA improvement over $32 million, the award increases by 25% of the base
award up to a maximum increase of 100% of the award. In addition, any award may
be increased or decreased by 25% based upon an employee's performance.
ENTERPRISE APPRECIATION INCENTIVE PLAN
In August 1995 we adopted, and in November 1995 the Bankruptcy Court
approved, the Enterprise Appreciation Incentive Plan (the "Incentive Plan").
The Incentive Plan was terminated on the Effective Date. The Incentive Plan was
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. No further payments are expected to be paid under the
Incentive Plan, other than the payment of $400,000 with respect to amounts due
Mr. Thorner for the remaining term of the Incentive Plan (see Employment
Agreement with Peter Thorner below) because the Incentive Plan was canceled.
MANAGEMENT EMERGENCE BONUS PLAN
On the Effective Date, certain managerial employees were selected to
participate in our Emergence Bonus Plan (the "Emergence Bonus Plan"). The
aggregate amount payable to these employees under the Emergence Bonus Plan is
$3 million. One million dollars of this was paid on the Effective Date. The
remaining $2 million will be paid on the later of (a) the one-year anniversary
of the Effective Date and (b) the date upon which the 9% Convertible Notes are
fully paid or converted into equity. No payments will be made under the
Emergence Bonus Plan if there exists any continuing default under the
BankBoston Facility or its successor (as such terms are defined under the
Emergence Bonus Plan). If an employee leaves us for any reason, other than an
involuntary termination without Cause or a voluntary termination for Good
Reason, within one year of receiving a payment under the Emergence Bonus Plan,
the payment shall be subject to partial or total
44
<PAGE>
recoupment. If an employee is involuntarily terminated without Cause, or
voluntarily leaves for Good Reason, the employee does not have to return any
payments under the Emergence Bonus Plan and is entitled to immediate
acceleration of any portion of the payments made or to be made under the
Emergence Bonus Plan.
SEVERANCE PROGRAM
In August 1995 we 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). 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 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,
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 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 to continue to constitute a
majority of the Board unless the election of the new directors has been
approved by the incumbent directors. Consummation of our Plan of Reorganization
did not constitute a change of control under the Severance Program.
STOCK OPTION PLAN FOR KEY EMPLOYEES
There were no options for Old Bradlees' common stock granted or exercised by
Named Officers in fiscal 1998. Pursuant to the Plan of Reorganization, all
options outstanding immediately prior to the Effective Date were canceled as of
the Effective Date. On the Effective Date, we enacted a new stock option plan
(the "Stock Plan"). Pursuant to the Plan of Reorganization, we have agreed to
grant options to purchase 750,000 shares of our Common Stock to our management.
The options will be granted when their exercise price is determined. The
exercise price of these options will be the lowest ten-day rolling average of
the closing price of our Common Stock within the period between sixty and
ninety days after the Effective Date.
RETIREMENT PLANS
We maintain a qualified retirement plan (the "Retirement Plan") for our
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. Effective December 31, 1998, the Retirement Plan was
frozen for credited service and salary adjustments. 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. We also maintain 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
45
<PAGE>
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
<TABLE>
<CAPTION>
10 YEARS
FINAL AVERAGE OF 15 OR MORE
COMPENSATION* SERVICE YEARS OF SERVICE
- ------------- -------- ----------------
<S> <C> <C>
$ 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
</TABLE>
- --------
* Federal law limits the amount of compensation that may be taken into account
in calendar year 1998 in calculating benefits under the Retirement Plan to
$160,000 and limits the annual benefits that may be payable in calendar year
1998 to $125,000. These tax limits do not apply to benefits payable from the
Supplemental Plan.
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, 1998, the
years of credited service for the Retirement Plan for Messrs. Thorner, Lynn,
Benenati, Moses, and Schmitt were 4, 2, 4, 4, and 4, respectively. As of
December 31, 1998, the years of credited service for the Supplemental Plan for
Messrs. Thorner, Lynn, Benenati, Moses, and Schmitt were 9, 2, 4, 4 and 4,
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
We have entered into a three-year employment agreement with Mr. Thorner,
commencing as of October 26, 1995 and amended as of November 7, 1997. This
employment agreement is automatically extended for one additional year each
year unless either party gives the other party written notice of its election
not to extend the contract. Effective December 24, 1996, concurrent with his
then appointment as Chairman, President and Chief Executive Officer, Mr.
Thorner received a minimum annual base salary of $725,000 and an annual
incentive award of 55% of his base salary. In March 1998, our Board of
Directors approved an increase in Mr. Thorner's
46
<PAGE>
annual base salary to $850,000 effective February 1, 1998. While in Chapter 11,
the annual incentive award was 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 the Plan of Reorganization
was deferred, and paid with interest on the Effective Date.
In addition, the employment agreement provides for the payment by us 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 by us. The employment agreement also provides that
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. No payments were paid under the Incentive
Plan to Mr. Thorner, other than the annual nonrefundable advances and a payment
of $400,000 with respect to amounts due Mr. Thorner for the remaining term of
the Incentive Plan, which was paid on the Effective Date. The agreement also
provides for certain retirement benefits, for reimbursement of certain legal,
annual financial counseling and relocation expenses and participation in our
employee benefit plans. The employment agreement also provides that in the
event of Mr. Thorner's termination of employment by us (including following a
change in control of the Company) without Cause or Good Reason (as defined in
the Employment Agreement), Mr. Thorner would generally be entitled to all
payments and benefits called for under the agreement for the remainder of its
term.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All executive officer compensation decisions will be made by the
Compensation Committee. The Compensation Committee will review and make
recommendations regarding the compensation for our management and key
employees, including salaries and bonuses.
47
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our Common Stock as of [February 1, 1999], by (i) each
person known by us to beneficially own five percent or more of the outstanding
shares of the Common Stock, (ii) each director, and certain executive officers,
and (iii) all directors, nominees for director and executive officers as a
group. Except as otherwise indicated, we believe that the beneficial owners of
the Common Stock listed below, based on information furnished by such owners,
have sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
DIRECTORS, EXECUTIVES
OFFICERS,
AND 5% BENEFICIAL SHARES BENEFICIALLY OWNED
OWNERS(1)(2) PRIOR TO THE OFFERING(2) PERCENTAGE(3)
--------------------- ------------------------- -------------
<S> <C> <C>
Gabriel Capital, L.P. .................
[Bank Group Members]...................
Peter Thorner.......................... 0 *
Robert Lynn............................ 0 *
Robert W. Benenati..................... 0 *
Bruce Conforto......................... 0 *
Gregory Dieffenbach.................... 0 *
Judith Dunning......................... 0 *
Mark James............................. 0 *
Cornelius F. Moses, III................ 0 *
Ronald T. Raymond...................... 0 *
David L. Schmitt....................... 0 *
Sandra Smith........................... 0 *
Thomas N. Smith........................ 0 *
James C. Sparks........................ 0 *
Jack E. Bush........................... 0 *
John A. Curry.......................... 0 *
John M. Friedman, Jr. ................. 0 *
Patricia M. Pomerleau.................. 0 *
Sheldon Rutstein....................... 0 *
Willis G. Ryckman...................... 0 *
All directors and executive officers
as a group (consisting of people)..
</TABLE>
- --------
* Represents less than 1.0% of the issued and outstanding shares of Common
Stock.
(1) Unless otherwise indicated, the mailing address for each stockholder and
director is c/o the Company, One Bradlees Circle, Braintree, Massachusetts
02184. For Gabriel Capital, L.P., the mailing address is [ ].
(2) As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting of a security, or the sole or shared
investment power with respect to a security (i.e., the power to dispose, or
direct the disposition, of a security). In computing the number of shares
of Common Stock beneficially owned by a person, shares of Common Stock
subject to options or warrants held by that person that are currently
exercisable or exercisable within 60 days of this Prospectus are deemed
outstanding, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. The warrants expire
on .
(3) Percentage ownership prior to this Offering is based upon shares of
Common Stock issued and outstanding as of [February 1, 1999].
48
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OTHER TRANSACTIONS
In February 1998, we made a loan in the amount of $100,000 to Thomas N.
Smith, Senior Vice President, Stores, in connection with his relocation. This
loan was interest-free and payable on January 30, 1999. Any bonus payments
payable to Mr. Smith prior to January 30, 1999 were used to repay any
outstanding balance of the loan. In September 1998, we made a loan in the
amount of $100,000 to Bruce Conforto, Senior Vice President and Chief
Information Officer, in connection with his relocation. This loan is interest-
free and payable on or prior to March 31, 1999. Any bonus payments payable to
Mr. Conforto prior to March 31, 1999 shall be used to repay any outstanding
balance of this loan.
COMPANY POLICY
We have a policy that any transactions with directors, officers, employees
or affiliates be approved in advance by a majority of our Board of Directors,
including a majority of the disinterested members of the Board, and be on terms
no less favorable to us than we could obtain from non-affiliated parties.
SELLING SECURITYHOLDERS
The Selling Securityholders are [Gabriel Capital, L.P., Elliott Associates,
L.P., Westgate International, L.P. and the other Bank Group members].
The following table sets forth the name of each Selling Securityholder, and
the amount of the Securities owned by each such Selling Securityholder which
are subject to being offered hereby. This Prospectus relates to the offers and
sales of the Securities by the Selling Securityholders, including the shares of
Common Stock issuable upon conversion of the 9% Convertible Notes. The
Securities subject to offering and sale by the Selling Securityholders pursuant
hereto constitute all of the holdings of such securities by such Selling
Securityholders. For the respective percentages of the Company's securities
beneficially owned by each Selling Securityholder (including such ownership as
may be attributed to such securityholders) prior to the offering, see
"Principal Stockholders." The following table does not include any Common Stock
issuable upon exercise of outstanding options or warrants. Each Selling
Stockholder may offer and sell all of the Securities registered hereby. If such
Selling Stockholder sells all of the Securities registered hereby, such Selling
Stockholder will not beneficially own any of our securities. Inclusion on this
list does not imply that any person or entity will actually offer or sell any
of the shares registered on his, her or its behalf.
<TABLE>
<CAPTION>
SHARES OF PRINCIPAL AMOUNT
COMMONSTOCK OF NOTES
----------- ----------------
<S> <C> <C>
Gabriel Capital, L.P. ............................. - -
Elliott Associates, L.P. .......................... - -
Westgate International, L.P. ...................... - -
- -
- -
--- ---
TOTAL............................................
</TABLE>
49
<PAGE>
PLAN OF DISTRIBUTION
TYPE OF TRANSACTIONS.
The Selling Securityholders (and donees and pledgees receiving Securities
from a Selling Securityholder after the date of this Prospectus) may offer and
sell their Securities at various times in one or more of the following types of
transactions:
.In the over-the-counter market;
.In transactions other than the over-the-counter market;
.In connection with short sales of the Securities;
.By pledge to secure debts or other obligations;
. In connection with the writing of non-traded and exchange traded
call options and in settlement of other transactions in standardized
or over-the-counter options; or
.In a combination of any of the above transactions.
PRICE OF TRANSACTION; FEES.
These transactions may be at market price, at prices related to the market
price, at negotiated prices or at fixed prices. If the Selling Securityholders
use the services of an underwriter, broker, dealer or agent to assist with the
sale of Securities, the party providing services may be paid for their efforts.
The compensation can be paid by either the buyer or the seller of the
Securities and can be in the form of a discount, commission or concession. The
buyer and the seller will determine how much compensation will be paid and the
form in which it will be paid. It is possible that the agent providing these
services, or the Selling Securityholders, might be considered to be
underwriters under the Securities Act, and any profits received or compensation
paid could be considered an underwriting discount or commission under the
Securities Act.
At the time a particular offer of Securities is made, a prospectus
supplement, to the extent required, will be distributed which will set forth
the aggregate amount and type of Securities being offered, the names of the
Selling Securityholders, the purchase price, the amount of expenses of the
offering and the terms of the offering, including the name or names of any
underwriters, brokers, dealers or agents, any discounts, commissions and other
items constituting compensation from the Selling Securityholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
Under the Exchange Act and applicable rules and regulations promulgated
thereunder, any person engaged in a distribution of any of the Securities may
not simultaneously engage in market making activities with respect to the
Securities for a period of 5 days prior to the commencement of the
distribution, subject to certain exemptions. In addition and without limiting
the foregoing, the Selling Securityholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations promulgated
thereunder, including without limitation Regulation M, which provisions may
limit the timing of purchases and sales of any of the Securities by the Selling
Securityholders.
Under the securities laws of certain states, the Securities may be sold in
such states only through registered or licensed brokers or dealers. In
addition, in certain states the Securities may not be sold unless the
Securities have been registered or qualify for sale in such state or an
exemption from registration or qualification is available and is complied with.
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SHARES ELIGIBLE FOR FUTURE SALE
At the Effective Date, we have 9,909,091 shares of Common Stock outstanding.
Under the terms of our Plan of Reorganization, the number of shares we issue to
our former creditors varies with the amount of general unsecured claims
allowed. The number of shares outstanding is based upon an assumption that the
amount of general unsecured claims allowed are not less than $225 million and
the number of shares issued to the Selling Securityholder's not more than
7,267,424. The number of shares outstanding does not include an indeterminate
number of shares of Common Stock which may be issued upon conversion of the 9%
Convertible Notes. In addition, we have an aggregate of 1,000,000 shares of
Common Stock reserved for issuance upon the exercise of outstanding Warrants
and 750,000 shares of Common Stock reserved for issuance upon exercise of
Options which we agreed to grant pursuant to the Plan of Reorganization. The
offer and sale of 7,267,424 of such shares of Common Stock, plus an
indeterminate number of shares issuable upon conversion of the 9% Convertible
Notes, are registered under the Securities Act pursuant to the Registration
Statement of which this Prospectus is a part.
All of the outstanding shares of Common Stock, all of the shares of Common
Stock issuable upon exercise of the warrants and options, and all of the shares
of Common Stock issuable upon conversion of the 9% Convertible Notes, are
freely tradeable without restriction or further registration under the
Securities Act, either because such shares were issued or are issuable pursuant
to the exemption provided by Section 1145 of the Bankruptcy Code and such
shares are not "restricted securities" as defined in Rule 144 under the
Securities Act or because the offer and resale of such shares is registered
pursuant to the Registration Statement of which this Prospectus forms a part.
As of [February 1, 1999], a total of 1,000,000 shares of Common Stock were
reserved for issuance under the Stock Plan, of which 750,000 shares will be the
subject of options we agreed to grant pursuant to the Plan of Reorganization.
These options will be granted in May, 1999. In addition, 1,000,000 shares of
Common Stock were reserved for issuance under Warrants outstanding as of
[February 1, 1999]. The Warrants will expire on [February 1, 2004]. We
currently intend to file a registration statement on Form S-8 under the
Securities Act to register all shares of Common Stock currently issuable
pursuant to the Stock Plan. To the extent shares of Common Stock are owned or
purchased by our "affiliates" as such term is defined in Rule 144 and are not
registered pursuant to this Registration Statement of which this Prospectus
forms a part, such restricted shares may generally be sold in compliance with
Rule 144.
In general under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated), including persons deemed to be affiliates, whose
restricted securities have been fully paid for and held for at least one year
from the later of the date of acquisition from us or any of our affiliates, may
sell such securities in brokers' transactions or directly to market makers,
provided the number of shares sold in any three-month period does not exceed
the greater of 1% of the then outstanding shares of the Common Stock or the
average weekly trading volume in the public market during the four calendar
weeks immediately preceding the filing of the seller's Form 144. Sales under
Rule 144 are also subject to certain notice requirements and availability of
current public information concerning us. Pursuant to Rule 144(k), after two
years have elapsed from the later of the acquisition of the restricted
securities from us or any of our affiliates, such shares may be sold without
limitation by persons who have not been our affiliates for at least three
months.
TERMS OF OUTSTANDING INDEBTEDNESS
CREDIT AGREEMENT
As of the Effective Date, we have entered into a $270 million financing
facility with BankBoston, N.A. as Administrative Agent and Issuing Bank. The
facility is composed of a $250 million senior secured revolving credit facility
and a $20 million junior secured subfacility. This facility is for a term of
three years and may not exceed a maximum principal amount of $270 million. The
initial advances under this BankBoston Facility will
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be used to pay in full all of our obligations under the DIP Facility and the
remainder can be used for general corporate purposes, working capital and
inventory purchases. No more than $125 million of the advances under the
BankBoston Facility are permitted to be in the form of letters of credit.
Borrowings under the BankBoston Facility will be secured by a first-priority
security interest (second-priority for the junior secured subfacility) in all
of our assets, properties and rights, except for our interest in any owned or
leased real property.
The BankBoston Facility permits us to borrow funds under the senior secured
facility at an interest rate per annum equal to (a) the higher of (i) the
annual rate of interest as announced by BankBoston as its "Base Rate" and (ii)
the weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System plus 1/2 of 1% per annum; or (b) 2.25%
per annum plus the quotient of (i) the LIBOR Rate in effect divided by (ii) a
percentage equal to 100% minus the percentage established by the Board of
Governors of the Federal Reserve System as the maximum rate for all reserves
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency Liabilities. Each of these rates is subject to a 0.50% increase in
the event of overadvances. The junior secured subfacility permits us to borrow
funds at the "Base Rate" plus 7.00% per annum. We are also required to pay a
fee of 1.50% per annum of the average daily balance of the maximum amount that
is available at any time for drawing or payment under any outstanding letters
of credit.
The BankBoston Facility contains a number of significant covenants preventing
us from taking certain actions including:
. Undergoing a merger or entering into a stock or asset acquisition;
. Making capital expenditures in any fiscal year in excess of $20 million,
which limit is subject to increase after twelve months provided we meet
certain earnings goals;
. Permitting our earnings before interest, taxes, depreciation and
amortization ("EBITDA") from dropping below specified levels;
. Permitting the ratio of (a) our amount of accounts payable to (b) the
value of our inventory to be less than specified percentages (which
percentages change on a monthly basis, but are between 37.0% and 42.5%);
. Allowing the ratio of (a) our EBITDA less certain capital expenditures
to (b) our cash interest expense plus principal payments to be less than
1.00:1; and
. Purchasing or guaranteeing any other party's indebtedness, paying
dividends, entering into certain transactions with our affiliates and
making any investments other than those permitted.
If we fail to meet these and other obligations under the BankBoston Facility,
the lenders under the BankBoston Facility would have recourse to a number of
remedies, including an acceleration of amounts owed and foreclosure on the
collateral securing the borrowings.
CAP NOTES
Pursuant to the Plan of Reorganization, Bradlees Stores, Inc. has issued CAP
Notes in the aggregate principal amount of $ . The CAP Notes bear
interest at a rate equal to nine percent (9%) per annum, payable semi-annually
on January 1 and July 1 of each year. If not paid sooner, all amounts
outstanding on the CAP Notes will be due on the first business day after the
day which is six years after the Effective Date. The CAP Notes are secured by a
first lien on the property on which the CAP Note holder holds a valid first
priority security interest.
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CURE NOTES
Pursuant to the Plan of Reorganization, Bradlees Stores, Inc. has issued Cure
Notes in the aggregate principal amount of $ . The Cure Notes are not
secured and bear interest at a rate equal to nine percent (9%) per annum. If
not paid sooner, all amounts outstanding on the Cure Notes shall be due on the
first business day after the day which is three years after the Effective Date.
TAX NOTES
Pursuant to the Plan of Reorganization and Section 1129(a)(9)(C) of the
Bankruptcy Code, Bradlees Stores, Inc. has agreed to make deferred cash
payments in the aggregate principal amount of $ on account of allowed
tax claims. Payments will be made in equal annual installments of principal,
plus simple interest accruing from the Effective Date at a rate equal to eight
percent (8%) per annum on the unpaid portion of such claims. The first payment
is due on the latest of: (i) 30 days after the Effective Date, (ii) 30 days
after the date on which an order allowing any such claim becomes a final order,
and (iii) such other date as is agreed to by Bradlees Stores, Inc. and by the
holder of such claim. Bradlees Stores, Inc. has the right to pay any such
claim, or the remaining balance of any such claim, in full, at any time, on or
after the Effective Date, without premium or penalty.
DESCRIPTION OF THE 9% CONVERTIBLE NOTES
The 9% Convertible Notes (as used in this section, the "Notes") were issued
under an Indenture dated [February 1, 1999] (the "Indenture") between Bradlees
Stores, Inc. and , as trustee (the "Trustee"). The material provisions
of the Notes and the Indenture are summarized below. The statements under this
caption relating to the Notes and the Indenture are summaries only, however,
and do not purport to be complete. Such summaries make use of terms defined in
the Indenture and are qualified in their entirety by express reference to the
Indenture, which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The Notes will be issued by Bradlees Stores,
Inc. All section references under this heading are references to sections of
the Indenture. The Indenture will be subject to and governed by the Trust
Indenture Act of 1939, as amended (the "TIA").
GENERAL
Each Note will mature on [January 31, 2004], and will bear interest at the
rate of 9% per annum from the date of issuance, payable semi-annually in
arrears on January 1 and July 1 of each year, commencing July 1, 1999, to the
person in whose name the Note is registered at the close of business on the
record date next preceding such interest payment date. Bradlees Stores, Inc.
will pay the principal on the Notes to each Holder who surrenders such Notes to
a Paying Agent on or after [February 1, 2004]. Bradlees Stores, Inc. will pay
principal and interest in U.S. legal tender by Federal funds bank wire transfer
or (in the case of payment of interest) by check to the persons who are
registered Holders at the close of business on the Record Date next preceding
the applicable interest payment date. The aggregate principal amount of the
Notes that may be issued will be limited to $40,000,000.
The Notes will be transferable and exchangeable at the office of the
Security Registrar and will be issued in fully registered form, without
coupons, in denominations of $1,000 and any whole multiple thereof. Bradlees
Stores, Inc. may require payment of a sum sufficient to cover any transfer tax
or other similar governmental charge payable in connection with certain
transfers and exchanges.
RANKING
The indebtedness represented by the Notes will rank equally with other non-
subordinated indebtedness of Bradlees Stores, Inc.
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Except as described under "Merger, Consolidation or Sale of Assets," the
Notes do not contain any provisions that would limit the ability of Bradlees
Stores, Inc. to incur indebtedness or that would afford holders of Notes
protection in the event of (i) a highly leveraged or similar transaction
involving Bradlees Stores, Inc., the management of Bradlees Stores, Inc., or
any affiliate of any such party, (ii) a change of control, or (iii) a
reorganization, restructuring, merger or similar transaction involving Bradlees
Stores, Inc. that may adversely affect the holders of the Notes. In addition,
subject to the limitations set forth under "Merger, Consolidation or Sale of
Assets," Bradlees Stores, Inc. may, in the future, enter into certain
transactions, such as the sale of all or substantially all of its assets or the
merger or consolidation of the Bradlees Stores, Inc., that would increase the
amount of Bradlees Stores, Inc.'s indebtedness or substantially reduce or
eliminate Bradlees Stores, Inc.'s assets, which may have an adverse effect on
Bradlees Stores, Inc.'s ability to service its indebtedness, including the
Notes.
REDEMPTION
Any Notes outstanding shall be redeemed, along with any accrued and unpaid
interest on such Notes with the proceeds received upon the sale of the Yonkers,
New York or the Union Square, New York stores. Additionally, the proceeds of
any offering of common stock by Bradlees, Inc., except offerings pursuant to
the Plan of Reorganization or pursuant to any benefit plan, shall be used to
repay, pro rata, any outstanding Notes plus accrued and unpaid interest. We
have the right to redeem the Notes at any time, in whole or in part, by paying
the holder the unpaid principal plus accrued and unpaid interest.
LIMITATIONS ON MERGERS AND CONSOLIDATION
The Indenture provides that Bradlees Stores, Inc. may not, without the
consent of the holders of any outstanding Notes, consolidate with, or sell,
lease or convey all or substantially all of its assets to, or merge with or
into, any other entity unless (i) either Bradlees Stores, Inc. shall be the
continuing entity, or the successor entity (if other than Bradlees Stores,
Inc.) formed by or resulting from any such consolidation or merger or which
shall have received the transfer of such assets, shall expressly assume by
supplemental indenture (A) Bradlees Stores, Inc.'s obligations to pay principal
of (and premium, if any) and interest on all of the Notes and (B) the due and
punctual performance and observance of all of the obligations of Bradlees
Stores, Inc. contained in the Indenture and the Notes; (ii) before and
immediately after giving effect to such transaction, no event of default under
the Indenture, and no event which, after notice or the lapse of time, or both,
would become such an event of default, shall have occurred or be continuing and
(iii) Bradlees Stores, Inc. or the successor entity, shall deliver to the
Trustee a certificate that such actions comply with the applicable provisions
of the Indenture.
GUARANTEE
Bradlees, Inc. will fully and unconditionally guarantee the obligations of
Bradlees Stores, Inc. under the 9% Convertible Notes. The obligations of
Bradlees, Inc. under its guarantee will be limited as necessary to prevent the
guarantee from constituting a fraudulent conveyance under applicable law. See
"Risk Factors--Fraudulent Conveyance Matters."
EVENTS OF DEFAULT, NOTICE AND WAIVER
The following events are "Events of Default" with respect to the Notes: (i)
default for 30 days in the payment of any installment of interest on any Note;
(ii) default in the payment of principal of any Note when it becomes due and
payable, at maturity, redemption or otherwise; (iii) default in the performance
or breach of any other obligation of Bradlees Stores, Inc. or Bradlees, Inc.
contained in the Indenture that continues for 60 days after written notice
thereof given to Bradlees Stores, Inc. as provided in the Indenture; (iv)
certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of Bradlees Stores, Inc. and
(v) the lien created by the security agreement relating to the Yonkers and
Union Square stores shall cease to be enforceable and Bradlees Stores, Inc.
does not cure the cessation within 30 days.
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If an Event of Default under the Indenture occurs and is continuing, then in
every such case the holders of [a majority] in principal amount of Notes have
the right to declare the principal amount of all the Notes to be due and
payable immediately by written notice thereof to Bradlees Stores, Inc. However,
at any time after such a declaration of acceleration with respect to the Notes
has been made, but before a judgment or decree for payment of the money due has
been obtained by the Trustee, the holders of a majority in principal amount of
outstanding Notes may rescind and cancel such declaration and its consequences
if (i) the recission would not conflict with any judgement or decree; (ii) all
events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to the Notes have been cured or
waived; (iii) to the extent payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid; and (iv)
Bradlees Stores, Inc. has paid the Trustee its reasonable compensation. The
Indenture also provides that the holders of not less than a majority in
principal amount of the outstanding Notes may waive any past default and its
consequences, except a default (i) in the payment of the principal of (or
premium, if any) or interest on any Note; or (ii) with respect to an obligation
contained in the Indenture that cannot be modified or amended without the
consent of the holder of each outstanding Note affected thereby.
The Indenture requires the Trustee to give notice to the holders of the
Notes within 90 days of the occurrence of an Event of Default of which it is
aware under the Indenture unless such default shall have been cured or waived;
provided, however, that such Trustee may withhold notice to the holders of
Notes if specified responsible officers, as set forth in the TIA, of such
Trustee consider such withholding to be in the interest of such holders.
The Indenture provides that no holders of Notes may institute any
proceedings, judicial or otherwise, upon or with respect to the Indenture or
for any remedy thereunder, except in the case of failure of the Trustee to act
within 60 days after it has received a reasonably satisfactory offer of
indemnity and a written request to institute proceedings relating to an Event
of Default from the holders of a majority in principal amount of the
outstanding Notes. This provision will not prevent, however, any holder of
Notes from instituting suit for the enforcement of payment of the principal and
interest on such Notes at the respective due dates thereof.
The holders of not less than a majority in principal amount of the
outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or of
exercising any trust or power conferred upon such Trustee. The Trustee may
refuse to follow any direction which is in conflict with any law or the
Indenture, which may involve the Trustee in personal liability or which may be
unduly prejudicial to the holders of Notes not joining therein.
Within 120 days after the close of each fiscal year, Bradlees Stores, Inc.
is required to deliver to the Trustee a certificate, signed by one of several
specified officers of Bradlees Stores, Inc., stating whether or not such
officer has knowledge of any failure by Bradlees Stores, Inc. to comply with
any of its obligations under the Indenture.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture are permitted to be made only
with the consent of the holders of a majority in principal amount of all
outstanding Notes issued under the Indenture affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the holder of each such Note affected thereby, (i)
change the stated maturity of the principal of, or any installment of interest
(or premium, if any) on, any such Notes; (ii) reduce the principal amount of,
or the rate or amount of interest on the Notes, (iii) change the place of
payment or currency for payment of principal or interest on any such Notes;
(iv) impair the right to institute suit for the enforcement of any payment on
or with respect to any such Notes; (v) reduce the above-stated percentage of
any outstanding Notes necessary to modify or amend the Indenture with respect
to such Notes or to waive compliance with certain provisions thereof or certain
Events of Default and consequences thereunder or to reduce the quorum or voting
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requirements set forth in the Indenture; (vi) change any material provision of
any security document; (vii) adversely affect the right of holders of the Notes
to convert them into common stock; or (viii) modify any of the foregoing
provisions to adversely affect the holders of the Notes in any material
respects. Any amendment to release the collateral securing the Notes must be
unanimously approved by all holders of Notes.
Modifications and amendments of the Indenture will be permitted to be made
by Bradlees Stores, Inc. and the Trustee thereunder without the consent of any
holder of the Notes for any of the following purposes: (i) to evidence the
succession of another person to Bradlees Stores, Inc. as obligor under the
Indenture; (ii) to provide for the acceptance of appointment by a successor
Trustee or facilitate the administration of the trust under the Indenture by
more than one Trustee; (iii) to cure any ambiguity, defect or inconsistency in
the Indenture, provided that in the opinion of the Trustee, such action shall
not adversely affect the interests of holders of Notes issued under the
Indenture; (iv) to provide for uncertificated Notes; (v) to maintain compliance
with the requirements of the SEC or to remain qualified under the TIA; or (vi)
to supplement any of the provisions of the Indenture to the extent necessary to
permit or facilitate defeasance and discharge of the Notes, provided that such
action shall not adversely affect the interests of the holders of the
outstanding Notes.
[The Indenture contains provisions for convening meetings of the holders of
Notes. A meeting will be permitted to be called at any time by the Trustee, and
also, upon request, by Bradlees Stores, Inc. or the holders of at least 10% in
principal amount of the outstanding Notes, in any such case upon notice given
as provided in the Indenture. Except for any consent that must be given by the
holder of each Note affected by certain modifications and amendments of the
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding Note. Any
resolution passed or decision taken at any meeting of holders of the Notes duly
held in accordance with the Indenture is binding on all holders of Notes. The
quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the outstanding Notes; provided, however, that if any action is to be taken
at such meeting with respect to a consent or waiver which may be given by the
holders of not less than a specified percentage in principal amount of the
outstanding Notes, (i) the persons holding or representing such specified
percentage in principal amount of the outstanding Notes will constitute a
quorum; and (ii) the principal amount of the outstanding Notes that vote in
favor of such request, demand, authorization, direction, notice, consent,
waiver or other action shall be taken into account in determining whether such
request, demand, authorization, direction, notice, consent, waiver or other
action has been made, given or taken under the Indenture.]
COLLATERAL
The Notes are secured by first priority liens on our leasehold interests in
our Yonkers, New York and Union Square, New York stores, each of which we are
seeking to sell.
CONVERSION
The Notes will be convertible any time after the first anniversary of the
Effective Date into shares of our Common Stock. The conversion price will
initially be the arithmetic unweighted average closing price of the Common
Stock of Bradlees, Inc. on the twenty business days preceding the first
anniversary of the Effective Date. The conversion price can change if we (i)
make any distributions to our stockholders; (ii) issue options, warrants or
rights that dilute current owners of Bradlees, Inc. Common Stock; or (iii) take
any action to increase or decrease the number of shares outstanding which would
effectively dilute the value of the convertible feature of the Note. The Notes
will not be convertible after the close of business on January , 2004, or
after the close of business on the second day prior to the date on which the
specified Note was to be redeemed.
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GOVERNING LAW
The Indenture and each Note are governed by, and construed in accordance
with, the laws of the State of New York, except as may otherwise be required by
mandatory provisions at law.
THE TRUSTEE
[ ] will be the Trustee under the Indenture. Its address is
].
The Indenture contains certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest (as
defined in the Trust Indenture Act of 1939), it must eliminate such conflict or
resign.
The Indenture provides that in case an Event of Default shall occur and be
continuing, the Trustee will be required to use the degree of care and skill of
a prudent person in the conduct of his or her own affairs.
AUTHENTICATION
Two officers of Bradlees Stores, Inc. will sign each Note on behalf of
Bradlees Stores, Inc., in each case by manual or facsimile signature. A seal of
Bradlees Stores, Inc. will be reproduced on each Note and may be in facsimile
form. A Note will not be valid until the Trustee or an Authenticating Agent
manually signs the certificate of authentication on the Note. Each Note will be
dated the date of its authentication.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary description of the capital stock of Bradlees is
qualified in its entirety by reference to the Bradlees Amended and Restated
Articles of Organization (the "Articles") and the Bradlees Amended and Restated
By-laws (the "By-laws"), copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. All of the Stock of
Bradlees Stores, Inc. is owned by Bradlees. The terms of the common stock of
Bradlees Stores, Inc. are contained in the Amended and Restated Articles of
Organization and the Amended and Restated By-laws of Bradlees Stores, Inc.,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Bradlees has authorized capital stock consisting of shares of capital
stock, par value $.01 per share, consisting of 40,000,000 shares of Common
Stock and shares of preferred stock. As of [February 1, 1999], shares
of Common Stock, held by approximately stockholders, are issued and
outstanding. As of [February 1, 1999], no preferred stock was issued or
outstanding.
COMMON STOCK. As of [February 1, 1999], 9,909,091 shares of Common Stock are
issued and outstanding. In addition, the following shares of Common Stock are
reserved for issuance:
.1,000,000 shares issuable upon exercise of outstanding warrants; and
.1,000,000 shares are reserved for issuance under the Stock Plan.
In addition, we have agreed to issue an indeterminate number of shares upon
the conversion of the 9% Convertible Notes.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders. Therefore, the holders of a majority of
the shares voted in the election of directors can elect all of the directors
then standing for election, subject to the rights of the holders of preferred
stock, if and when issued. As of [February 1, 1999], no preferred stock was
issued or outstanding. The holders of Common Stock are entitled to receive such
dividends, if any, as may be declared from time to time by our Board of
Directors from funds legally available therefor. See "Dividend Policy." The
possible issuance of preferred stock with a preference over Common Stock as to
dividends could impact that dividend rights of holders of Common Stock. The
holders of Common Stock have no preemptive or other subscription rights, and
there are no conversion rights or redemption or sinking fund provisions with
respect to the Common Stock. All outstanding shares of Common Stock, including
the shares offered hereby, are fully paid and non-assessable.
UNDESIGNATED PREFERRED STOCK. The Board of Directors is authorized, without
further action of the stockholders, to issue up to shares of preferred
stock in one or more series and to fix the designations, powers, preferences
and the relative, participating, optional or other special rights of the shares
of each series and any qualifications, limitations and restrictions thereon as
set forth in our Articles of Organization. Any such preferred stock issued by
us may rank prior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of Common Stock.
CERTAIN PROVISIONS OF THE ARTICLES AND BY-LAWS
GENERAL. Our Articles and By-laws contain rules of corporate governance and
stockholder rights. The Articles and By-laws allow the board of directors to
issue shares of preferred stock and to set the voting rights and preferences of
that stock.
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BOARD OF DIRECTORS. The Articles and By-laws provide that the initial number
of directors shall be 9. The board of directors may increase, but not decrease,
the number of directors. The first annual meeting of stockholders will be held
in 2000. The initial directors shall serve terms expiring at this annual
meeting. Successors will hold office until the next annual meeting of the
stockholders in 2001. The initial directors shall hold office until their
successors are elected and qualified or until their resignation or removal.
Any holder of record of shares of capital stock or the Nominating Committee
established by the board of directors may nominate directors. Shareholders who
nominate directors are subject to advance notice and disclosure requirements as
well as time limits. Shareholders shall elect directors by the affirmative vote
of a plurality of the votes cast at the meeting.
REMOVAL OF DIRECTORS. The Board of Directors may remove any director with or
without cause by the vote of a majority of directors then in office. The
shareholders may remove any director but only for cause, with the vote of two-
thirds ( 2/3) of the shareholders eligible to elect Directors. A Director may
be removed for cause only after reasonable notice and opportunity to be heard
before the body proposing removal. For "cause" means only the following:
. conviction of a felony;
. declaration of unsound mind by order of a court;
. gross dereliction of duty;
. commission of any action involving moral turpitude; or
. intentional misconduct or a knowing violation of law, by the
director, if such action results both in an improper substantial
personal benefit and a material injury to the Company.
MEETINGS OF STOCKHOLDERS. The board of directors may call a special meeting
of stockholders. The clerk or in certain circumstances any other officer must
call a special meeting of the stockholders upon written application of one or
more stockholders who hold at least (1) two-thirds (66 2/3%) in interest of the
capital stock entitled to vote at such meeting or (2) such lesser percentage as
shall be determined to be the maximum percentage which we are permitted by
applicable law to establish for the call of such a meeting. At a special
meeting, the shareholders may only act upon those matters set forth in the
notice of the special meeting. The By-laws set forth advance notice and
disclosure requirements and time limitations on any new business which a
stockholder wishes to propose for consideration at an annual meeting of
stockholders.
INDEMNIFICATION AND LIMITATION OF LIABILITY. The By-laws provide that we
shall indemnify our directors and officers to the fullest extent authorized by
Massachusetts law against all expense and liabilities reasonably incurred in
connection with service for or on behalf of us, unless that director or officer
is adjudicated in that proceeding to have breached his or her duty of loyalty
to us. We may, in the discretion of the Board of Directors, indemnify our
employees and agents as if they were directors or officers, to the fullest
extent authorized by Massachusetts law.
Pursuant to Massachusetts law and the Articles, a director does not have any
liability for monetary damages for breach of fiduciary duty except for:
. any breach of the director's duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. an unauthorized distribution or loan to an officer or director in
violation of the Massachusetts General Law; or
. any transaction from which the director obtained an improper personal
benefit.
In addition, Massachusetts law states that a corporation may not indemnify a
director, officer or employee who has not acted in good faith in the reasonable
belief that his or her action was in the best interest of the corporation.
59
<PAGE>
SALE, LEASE OR EXCHANGE OF ASSETS; MERGER. Massachusetts law provides that,
unless the articles of organization provide otherwise, two-thirds ( 2/3) of the
outstanding shares are required to approve a sale, lease or exchange of all or
substantially all of our assets or a merger or consolidation. The Articles do
not contain a provision changing this requirement.
AMENDMENT OF THE BY-LAWS. The board of directors or the shareholders may
amend or repeal the Articles or By-laws, subject to the following:
. The board of directors can amend or repeal the By-laws with a
majority vote of the directors in office. Following an amendment,
the board of directors must give notice to all shareholders entitled
to vote on amendments by the time the board gives notice of the next
annual meeting.
. The shareholders can amend or repeal the By-laws with a vote of at
least two-thirds ( 2/3) of all shareholders eligible to vote. All
shares of voting stock vote together as a single class.
. If the board of directors recommends an amendment or repeal of the
By-laws, the shareholders can amend or repeal with a majority vote
of all shareholders eligible to vote. All shares of voting stock
vote together as a single class.
AMENDMENT OF THE ARTICLES. The shareholders can amend the Articles at any
annual meeting or at a special meeting called to amend the Articles. The
shareholders may vote to amend the Articles alone or with the board of
directors. The board of directors may not amend the Articles without
shareholder approval.
. The shareholders can amend the Articles with a vote of at least two-
thirds of all shareholders eligible to vote. All shares of voting
stock vote together as a single class.
. If the board of directors recommends an amendment, the shareholders
can amend the Articles with a majority vote of all shareholders
eligible to vote. All shares of voting stock vote together as a
single class.
MASSACHUSETTS ANTI-TAKEOVER LAWS
CHAPTER 110F
Chapter 110F of the Massachusetts General Laws prohibits corporations from
engaging in certain business combinations which include mergers and
consolidations and certain stock or assets sales with an interested
stockholder. This prohibition extends for three years following the date the
stockholder becomes an interested stockholder. An interested stockholder is a
holder of five percent (5%) or more of the outstanding stock of the
corporation. The statute allows corporations to elect not to be governed by
Chapter 110F if a majority of shares entitled to vote approves such election.
In its By-laws, Bradlees has elected not to be governed by Chapter 110F. This
election took effect at the Effective Date.
CHAPTER 110D
Chapter 110D of the Massachusetts General Laws governs any person (the
"acquiror") who makes a bona fide offer to acquire, or acquires, shares of
stock of a Massachusetts corporation that when combined with shares already
owned, would increase the acquiror's ownership to at least 20% of the voting
stock of such company. To vote his or her shares, an acquiror must obtain the
approval of a majority of shares held by all stockholders not including shares
of the acquiror, officers or inside directors of the corporation. A
Massachusetts corporation may elect not to be governed by Chapter 110D by
including a provision to that effect in its articles of organization or by-
laws. In its By-laws, Bradlees has opted not to be governed by the provisions
of Chapter 110D.
TRANSFER AGENT AND REGISTRAR
We have selected as the transfer agent and registrar for the Common
Stock.
60
<PAGE>
LISTING
The Common Stock has been accepted for listing, subject to official notice
of issuance, on the Nasdaq National Market, under the symbol "[BRAD]."
We do not intend to apply for listing of the Notes on any securities
exchange or authorization for quotation on the Nasdaq Stock Market.
61
<PAGE>
LEGAL MATTERS
Goodwin, Procter & Hoar llp, Boston, Massachusetts will pass upon the
validity of the shares of the Common Stock and the Notes offered by this
Prospectus.
EXPERTS
The consolidated balance sheet, statements of operations, stockholder's
equity (deficiency), and cash flows of the Company as of January 31, 1998 and
for the fiscal year then ended included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports. Arthur Andersen LLP's report for the fiscal year ended
January 31, 1998 contained an explanatory paragraph that raised substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The consolidated financial statements of Bradlees, Inc. as of February 1,
1997 and for the years ended February 1, 1997 and February 3, 1996 included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein (which report expresses an
unqualified opinion and includes explanatory paragraphs referring to (a) the
Company's filing for reorganization under Chapter 11 of the Federal Bankruptcy
Code, and (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 have been so included in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement on Form S-1 (including any and all amendments thereto,
the "Registration Statement") under the Securities Act and the rules and
regulations promulgated thereunder, with respect to the Securities offered
hereby. This Prospectus omits certain information contained in the Registration
Statement, and reference is made to the Registration Statement and the exhibits
and schedules thereto for further information with respect to the Company and
the Securities offered hereby. Statements contained in this Prospectus
concerning the provisions or contents of any contract, agreement or any other
document referred to herein are not necessarily complete with respect to each
such contract, agreement or document filed as an exhibit to the Registration
Statement, and reference is made to such exhibit for a more complete
description of the matters involved, and each such statement shall be deemed
qualified by such reference. We are subject to the information requirements of
the Exchange Act, and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information, as well as the Registration Statement,
including the exhibits and schedules thereto, may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at 7 World Trade Center, 13th Floor,
New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from such offices,
upon payment of the fees prescribed by the Securities and Exchange Commission.
The Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that submit electronic filings to the Commission.
62
<PAGE>
We intend to furnish our stockholders with annual reports containing audited
consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm, and with quarterly reports for the first
three quarters of each fiscal year containing unaudited interim consolidated
financial information.
On September 24, 1997, the Audit Committee of the Board of Directors of the
Company recommended the appointment of Arthur Andersen LLP as certifying
accountants for the Company replacing Deloitte & Touche LLP, who was dismissed,
effective September 24, 1997 and the appointment along with the dismissal was
approved by the Board of Directors and the United States Bankruptcy Court for
the Southern District of New York.
There were no disagreements between Deloitte & Touche LLP and the Company's
management at the decision-making level during the two most recent fiscal years
and the subsequent interim periods (the "Reporting Period"), which
disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP,
would have caused Deloitte & Touche LLP to make reference to the subject matter
of the disagreements in connection with its reports. In addition, there were no
reportable events, as defined in Item 304(a)(i)(v) of Regulation S-K, during
the Reporting Period.
Deloitte & Touche LLP's report on the consolidated financial statements for
the year ended February 1, 1997 expressed an unqualified opinion and included
explanatory paragraphs relating to the following:
February 1, 1997 report:
a The Company's filing for reorganization protection under Chapter 11
of the Federal Bankruptcy Code.
b. The Company's 1996 and 1995 losses from operations and stockholders'
deficiency which raises substantial doubt about the Company's
ability to continue as a going concern.
During the Reporting Period, neither the Company nor anyone on its behalf
has consulted Arthur Andersen LLP regarding the application of accounting
principles to a specified transaction or the type of audit opinion that might
be rendered on the Company's financial statements, and Arthur Andersen LLP has
not provided a written or oral report or advice that Bradlees' management
concluded was an important factor considered by the registrant in reaching a
decision on the issue.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
BRADLEES, INC. AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AUGUST 1, 1998
(UNAUDITED)
Condensed Consolidated Statements of Operations for the thirteen weeks
ended August 1, 1998 (unaudited) and August 2, 1997 (unaudited).......... F-2
Condensed Consolidated Statements of Operations for the twenty-six weeks
ended August 1, 1998 (unaudited) and August 2, 1997 (unaudited).......... F-3
Condensed Consolidated Balance Sheets as of August 1, 1998 (unaudited) and
August 2, 1997 (unaudited)............................................... F-4
Condensed Consolidated Statements of Cash Flows for the twenty-six weeks
ended August 1, 1998 (unaudited) and August 2, 1997 (unaudited).......... F-6
Notes to Condensed Consolidated Financial Statements (unaudited).......... F-7
CONSOLIDATED FINANCIAL STATEMENTS AS OF JANUARY 31, 1998
Report of Independent Public Accountants-Arthur Andersen LLP.............. F-14
Independent Auditors' Report-Deloitte & Touche LLP........................ F-15
Consolidated Statements of Operations for the fiscal years ended January
31, 1998, February 1, 1997 and February 3, 1996.......................... F-16
Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997... F-17
Consolidated Statements of Cash Flows for the fiscal years ended January
31, 1998, February 1, 1997 and February 1, 1996.......................... F-18
Consolidated Statements of Stockholders' Equity (Deficiency) for the
fiscal years ended January 31, 1998, February 1, 1997 and February 3,
1996..................................................................... F-19
Notes to Consolidated Financial Statements................................ F-20
</TABLE>
F-1
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
-------------------------
AUG. 1, 1998 AUG. 2, 1997
------------ ------------
<S> <C> <C>
Total sales......................................... $322,791 $311,507
Leased department sales............................. 12,410 14,091
-------- --------
Net sales........................................... 310,381 297,416
Cost of goods sold.................................. 213,788 204,480
-------- --------
Gross margin........................................ 96,593 92,936
Leased department and other operating income........ 2,957 3,145
-------- --------
99,550 96,081
-------- --------
Selling, store operating, administrative and
distribution expenses.............................. 92,250 97,726
Depreciation and amortization expense............... 7,993 9,197
Interest and debt expense........................... 3,964 3,951
Reorganization items................................ (1,935) 2,071
-------- --------
Net loss............................................ $ (2,722) $(16,864)
======== ========
Comprehensive loss.................................. $ (2,722) $(16,864)
======== ========
Net loss per share - basic and diluted.............. $ (0.24) $ (1.48)
======== ========
Weighted average shares outstanding (in thousands) -
basic and diluted................................. 11,309 11,387
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
26 WEEKS ENDED
-------------------------
AUG. 1, 1998 AUG. 2, 1997
------------ ------------
<S> <C> <C>
Total sales......................................... $616,097 $588,346
Leased department sales............................. 21,845 23,559
-------- --------
Net sales........................................... 594,252 564,787
Cost of goods sold.................................. 417,989 392,192
-------- --------
Gross margin........................................ 176,263 172,595
Leased department and other
operating income.................................... 5,730 5,440
-------- --------
181,993 178,035
Selling, store operating, administrative and
distribution expenses.............................. 184,777 196,048
Depreciation and amortization expense............... 16,567 18,540
Loss on disposition of properties................... 241 -
Interest and debt expense........................... 7,590 7,486
Reorganization items................................ 194 4,818
-------- --------
Net loss............................................ $(27,376) $(48,857)
======== ========
Comprehensive loss.................................. $(27,376) $(48,857)
======== ========
Net loss per share - basic and diluted.............. $ (2.42) $ (4.29)
======== ========
Weighted average shares outstanding (in thousands) -
basic and diluted................................. 11,309 11,387
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUG. 1, 1998 JAN. 31, 1998 AUG. 2, 1997
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Unrestricted cash and cash
equivalents......................... $ 8,148 $ 10,949 $ 10,858
Restricted cash and cash
equivalents......................... 24,862 16,760 9,334
-------- -------- --------
Total cash and cash equivalents.... 33,010 27,709 20,192
-------- -------- --------
Accounts receivable.................. 7,373 10,013 10,453
Inventories.......................... 239,478 238,629 253,993
Prepaid expenses..................... 8,733 8,733 8,887
Assets held for sale................. - 7,754 7,754
-------- -------- --------
Total current assets............... 288,594 292,838 301,279
Property, plant and equipment, net:
Property excluding capital leases,
net................................. 124,768 131,525 136,975
Property under capital leases, net... 17,978 18,959 22,681
-------- -------- --------
Total property, plant and
equipment, net.................... 142,746 150,484 159,656
-------- -------- --------
Other assets:
Lease interests at fair value, net... 139,063 142,454 146,570
Assets held for sale................. - 4,000 5,250
Other, net........................... 4,850 5,390 4,432
-------- -------- --------
Total other assets................. 143,913 151,844 156,252
-------- -------- --------
Total assets......................... $575,253 $595,166 $617,187
======== ======== ========
</TABLE>
(Continued)
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUG. 1, 1998 JAN. 31, 1998 AUG. 2, 1997
------------ ------------- ------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY
Current liabilities:
Accounts payable..................... $121,153 $124,361 $139,410
Accrued expenses..................... 24,324 30,516 41,389
Self-insurance reserves.............. 6,474 6,564 7,378
Short-term debt...................... 111,592 84,208 89,000
Current portion of capital lease
obligations......................... 1,038 1,038 1,966
-------- -------- --------
Total current liabilities............ 264,581 246,687 279,143
-------- -------- --------
Long-term liabilities
Obligations under capital leases..... 26,499 27,073 32,224
Deferred income taxes................ 8,581 8,581 8,581
Self-insurance reserves.............. 13,145 13,328 14,979
Other long-term liabilities.......... 21,333 23,342 26,976
-------- -------- --------
Total long-term liabilities........ 69,558 72,324 82,760
-------- -------- --------
Liabilities subject to settlement under
the reorganization case............... 554,439 562,105 567,365
Stockholders' deficiency:
Common stock - 11,310,384 outstanding
(11,312,154 at 1/31/98, 11,387,154
at 8/2/97)
Par value........................... 115 115 115
Additional paid-in-capital.......... 137,821 137,821 137,951
Accumulated deficit.................. (450,458) (423,082) (449,382)
Treasury stock, at cost.............. (803) (804) (765)
-------- -------- --------
Total stockholders' deficiency..... (313,325) (285,950) (312,081)
Total liabilities and stockholders'
deficiency........................ $575,253 $595,166 $617,187
======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-5
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
26 WEEKS ENDED
-------------------------
AUG. 1, 1998 AUG. 2, 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................... $(27,376) $(48,857)
Adjustments to reconcile net loss to cash used by
operating activities:
Depreciation and amortization expense............ 16,567 18,540
Amortization of deferred financing costs......... 763 1,577
Reorganization items............................. 194 4,818
Changes in working capital and other, net........ (5,698) 3,597
-------- --------
Net cash used by operating activities before
reorganization items.............................. (15,550) (20,325)
-------- --------
Reorganization items:
Interest income received......................... 472 229
Chapter 11 professional fees paid................ (5,008) (5,068)
Other reorganization expenses paid, net.......... (2,688) (3,295)
-------- --------
Net cash used by reorganization items.............. (7,224) (8,134)
-------- --------
Net cash used by operating activities.............. (22,774) (28,459)
Cash flows from investing activities:
Capital expenditures, net.......................... (5,540) (10,890)
Increase in restricted cash and cash equivalents... (8,102) (208)
-------- --------
Net cash used in investing activities.............. (13,642) (11,098)
-------- --------
Cash flows from financing activities:
Payments of liabilities subject to settlement...... (5,231) (3,506)
Deferred financing costs........................... - (1,776)
Net borrowings under the DIP facilities............ 27,384 46,500
Proceeds from sales of properties.................. 12,036 -
Principal payments on capital lease obligations.... (574) (828)
-------- --------
Net cash provided by financing activities.......... 33,615 40,390
-------- --------
Net increase (decrease) in unrestricted cash and cash
equivalents......................................... (2,801) 833
Unrestricted cash and cash equivalents:
Beginning of period................................ 10,949 10,025
-------- --------
End of period...................................... $ 8,148 $ 10,858
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest and certain debt fees....... $ 6,501 $ 5,221
Cash paid for income taxes......................... $ 153 $ 109
Supplemental schedule of noncash (investing and
financing) activities:
Reduction of liabilities subject to settlement due
to transfer of title to property.................. $ 2,000 $ -
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-6
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Bradlees, Inc. and
subsidiaries, including Bradlees Stores, Inc. (collectively "Bradlees" or the
"Company"), 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").
With respect to the unaudited condensed consolidated financial statements
for the 13 weeks (second quarter) and 26 weeks (year-to-date) ended August 1,
1998 and August 2, 1997, it is the Company's opinion that all necessary
adjustments (consisting of normal and recurring adjustments) have been included
to present a fair statement of results for the interim periods. Certain prior-
year amounts have been reclassified to conform to this year's presentation.
These statements should be read in conjunction with the Company's financial
statements (Form 10-K) for the fiscal year ended January 31, 1998 ("1997"). Due
to the seasonal nature of the Company's business, operating results for the
interim periods are not necessarily indicative of results that may be expected
for the fiscal year ending January 30, 1999 ("1998"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted, pursuant to the general rules and regulations promulgated by the
Securities and Exchange Commission (the "SEC").
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 4),
achievement of profitable operations, maintenance of adequate financing, and
the resolution of the uncertainties of the reorganization case discussed in
Note 2. The Company experienced significant operating losses in 1996 and 1995.
In an effort to return the Company to profitability and accomplish its long-
term goals, the Company is focusing on three core product lines: moderately-
priced basic and casual apparel, basic and fashion items for the home, and
edited assortments of frequently purchased commodity and convenience products.
Bradlees is committed to quality and fashion, especially in apparel and home
furnishings, and to improved customer service. The Company believes that it can
strategically leverage its strength in the fashion and quality content of its
apparel and decorative home product offerings while driving traffic with
selected hardlines merchandise.
2. 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. Except for payments of approximately $2.1 million
made in 1997 to settle certain
F-7
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
reclamation claims, the ultimate amount and settlement terms for pre-petition
liabilities are subject to a plan of reorganization, and accordingly, are not
presently determinable. Two properties that were financed prior to the Filing
and held for sale at the beginning of 1998 were either sold or transferred
during the second quarter and the associated pre-petition financing obligation
was reduced accordingly (see Note 7).
The Company currently retains the exclusive right to solicit acceptance of a
plan of reorganization until October 5, 1998, subject to possible extension as
approved by the Bankruptcy Court. The Company filed its plan of reorganization
and related disclosure statement with the Bankruptcy Court on April 13, 1998,
and expects to file an amended plan of reorganization and related disclosure
statement with the Bankruptcy Court on or about September 17, 1998, and,
subject to confirmation of the amended plan of reorganization, currently
anticipates emergence from Chapter 11 at the end of fiscal 1998. A hearing to
approve the amended disclosure statement has been scheduled with the Bankruptcy
Court for September 17, 1998.
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 $50.4 million was
recorded through August 1, 1998, for rejected leases and contracts. This
liability may be subject to future adjustments based on claims filed and
Bankruptcy Court actions. Although the Company does not currently anticipate
the rejection of additional leases, 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 any additional leases which may be
rejected at a future date. The Company believes that it has recorded its best
estimate of the liability for rejected leases and contacts 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 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 $11.5 million of adequate protection payments
since the Filing have been applied to reduce 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. 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.
<TABLE>
<CAPTION>
(000'S)
LIABILITIES SUBJECT TO SETTLEMENT --------------------------------------
UNDER THE REORGANIZATION CASE AUG. 1, 1998 JAN. 31,1998 AUG. 2, 1997
--------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Accounts payable..................... $165,720 $165,324 $165,762
Accrued expenses..................... 25,646 27,996 27,932
Revolver............................. 69,605 71,105 72,905
2002 Notes........................... 122,274 122,274 122,274
2003 Notes........................... 97,957 97,957 97,957
Financing obligation................. 12,460 17,951 17,951
Obligations under capital leases..... 10,367 11,407 11,647
Provision for rejected leases........ 50,410 48,091 50,937
-------- -------- --------
$554,439 $562,105 $567,365
======== ======== ========
</TABLE>
F-8
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
3. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents at August 1, 1998 were comprised of the
following, along with earned interest of $1.0 million: (a) $6.0 million of the
$24.5 million federal income tax refund received in April, 1996; (b) $1.1
million of forfeited deposits, net of property carrying costs, received in 1996
on a planned sale of an owned undeveloped property that was not consummated and
$7.6 million of net proceeds received when this property was sold in March,
1998; (c) $8.0 million from the sale of a closed store in January, 1998; and
(d) other funds ($1.2 million) restricted for security deposits for utility
expenses incurred after the Filing.
4. DEBT
As a result of the Filing, substantially all debt (exclusive of the DIP
Facility) outstanding at August 1, 1998, was classified as liabilities subject
to settlement (Note 2). 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 2).
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 certain adequate protection payments approved by the
Bankruptcy Court, 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 $7.7 and $15.4
million for the second quarter and year-to-date periods of 1998, respectively,
and $7.8 and $15.6 million for the second quarter and year-to-date periods of
1997, respectively.
Financing Facility. The Company has a $250 million financing facility (the
"Financing Facility") (of which $125 million is available for issuance of
letters of credit) with BankBoston Retail Finance, Inc. ("BBNA") as agent,
under which the Company is allowed to borrow for general corporate purposes,
working capital and inventory purchases. The Financing Facility consists of (a)
an up to eighteen month debtor-in-possession revolving credit facility in the
maximum principal amount of $250 million (the "DIP Facility" - see below) and,
subject to meeting certain conditions, (b) an up to three year post-
confirmation revolving credit facility in the maximum principal amount of $250
million (the "Exit Facility" - see below). The commitment period for the
combined facility cannot exceed four years.
The DIP Facility replaced a $200 million Debtor-in Possession Revolving
Credit and Guaranty Agreement (the "Prior DIP Facility") with Chase Manhattan
Bank, as agent. There were outstanding direct borrowings of $111.6 million
under the DIP Facility as of August 1, 1998. Trade and standby letters of
credit outstanding under the DIP Facility were $24.8 and $19.7 million,
respectively, at August 1, 1998, and $29.9 and $19.7 million, respectively, at
August 2, 1997 under the Prior DIP Facility.
The DIP Facility has an advance rate of 60% of the Loan Value of Eligible
Receivables (as defined), plus 72% of the Loan Value of Eligible Inventory (as
defined). Between March 1 and December 15, the Company can borrow an
overadvance amount on the Loan Value of Eligible Inventory of 5% (the
F-9
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
"Overadvance Amount"), subject to a $20 million limitation. At the Company's
option, the Company may borrow under the DIP Facility at the Alternate Base
Rate (as defined) in effect from time to time (the "Base Rate Applicable
Margin") or the adjusted Eurodollar rate plus 2.25% (the "Eurodollar
Applicable Margin") for interest periods of one, two or three months. The Base
Rate Applicable Margin and Eurodollar Applicable Margin would be increased
0.5% during any fiscal month that the Company has Overadvance Amounts. The
weighted average interest rate under the DIP Facility was 7.95% in the second
quarter and 7.97% in the year-to-date period of 1998.
There are no compensating balance requirements under the DIP Facility but
the Company is required to pay an annual commitment fee of 0.3% of the unused
portion. 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 minimum accounts
payable to inventory ratios. The lenders under the DIP Facility have a "super-
priority claim" against the estate of the Company. As of August 1, 1998, the
Company is in compliance with the DIP Facility covenants. The DIP Facility
expires on the earlier of June 30, 1999, or the effective date of any plan of
reorganization that is confirmed by the Bankruptcy Court.
The Exit Facility has an advance rate equal to 60% of the Loan Value of
Eligible Receivables, plus the lower of (i) 72% of the Loan Value of Eligible
Inventory or (ii) 80% of the ratio of the annual appraised liquidation value
to the Loan Value (as defined) of the inventory (the "Loan to Value Ratio").
Between March 1 and December 15, the Company can borrow an overadvance amount
on the Loan Value of Eligible Inventory of 5% provided that the overadvance
does not cause the Loan Value of Eligible Inventory to exceed 75% and provided
the Loan to Value Ratio does not exceed 85%. At the Company's option, the
Company may borrow under the Exit Facility at the Base Rate Applicable Margin
or the Eurodollar Applicable Margin for interest periods of one, two, or three
months. The Base Rate Applicable Margin and Eurodollar Applicable Margin would
be increased 0.5% during any fiscal month that the Company has Overadvance
Amounts.
The Exit Facility is subject to certain connections being satisfied,
including (i) an all-equity plan of reorganization; (ii) minimum EBITDA
performance; and (iii) minimum borrowing availability on the effective date of
the plan of reorganization. The Company obtained a modification to the
commitment letter dated April 7, 1998, from BBNA, as agent, that modified
their commitment so that the plan of reorganization filed by the Company on
April 13, 1998, although not an all-equity plan, satisfied the conditions for
the Exit Facility and the Company expects to obtain a similar modification for
the amended plan of reorganization (Note 2). The Exit Facility will be secured
by all of the assets of the Company, except interest in real property
(although this may be somewhat modified for the amended plan of
reorganization).
The Exit Facility contains financial covenants including (i) minimum
EBITDA, (ii) minimum accounts payable to inventory; (iii) maximum capital
expenditures; and (iv) minimum operating cash flow to interest expense (for
the fiscal quarters ending on or about January 31, 2000, and thereafter).
5. INCOME TAXES
The Company provides for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". On an interim basis, the Company provides for income taxes using the
estimated annual effective rate method. The Company did not recognize a
quarterly or annual income tax expense or benefit in 1997 and also does not
expect to recognize a quarterly or annual income tax expense or benefit in
1998.
F-10
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
6. REORGANIZATION ITEMS
The Company provided for or incurred the following expense and income items
during the second quarter and year-to-date periods of 1998 and 1997, directly
associated with the Chapter 11 reorganization proceedings and the resulting
restructuring of its operations:
<TABLE>
<CAPTION>
(000'S)
--------------------------------
13 WEEKS ENDED 26 WEEKS ENDED
--------------- ---------------
8/1/98 8/2/97 8/1/98 8/2/97
------- ------ ------- ------
<S> <C> <C> <C> <C>
Professional fees.......................... $ 2,250 $2,250 $ 4,500 $5,250
Interest income............................ (351) (111) (472) (229)
Net asset write-off........................ 470 - 470 -
Gain on disposition of properties.......... (1,873) (68) (1,873) (203)
Provision for rejected leases.............. (2,431) - (2,431) -
------- ------ ------- ------
$(1,935) $2,071 $ 194 $4,818
======= ====== ======= ======
</TABLE>
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.
Net asset write-off: The Company incurred a $0.5 million net asset write-off
in the second quarter of 1998 relating to the disposal of greeting card
fixtures that are being replaced as a consequence of the Company's rejection of
its greeting card supply contract.
Gain on disposition of properties: The Company sold a previously closed
store in the second quarter of 1998 (see Note 7) and recognized a gain of $1.9
million that was classified as a reorganization item since the associated asset
write-offs were previously included in reorganization items.
Provision for rejected leases: During the second quarter of 1998, the
Company was notified by two of its former landlords at closed locations that
the properties had been re-let and therefore their claims for rejected lease
damages were reduced by $2.4 million. The Company reduced its rejected lease
liability accordingly and recognized a reorganization credit for that amount in
the second quarter. In regards to the rejection of the Company's greeting card
supply contract mentioned above, the Company recorded certain reclassifications
to and within liabilities subject to settlement under the reorganization case
for this contract rejection.
Restructuring reserves: The Company closed 6 stores in February, 1998. As of
August 1, 1998, the Company had remaining reserves (included in accrued
expenses) totaling approximately $1.1 million (exclusive of provisions for
rejected leases discussed in Note 2) for costs associated with the closing of
the 6 stores and prior store closings and restructuring. Approximately $2.7
million of restructuring costs were paid in the year-to-date period of 1998.
The majority of the remaining reserved costs are expected to be paid within a
year.
7. ASSETS HELD FOR SALE
The Company had assets held for sale at the beginning of 1998 that consisted
of two properties, one of which was sold in the second quarter for
approximately $4.3 million. A net gain of approximately $1.9 million was
recorded in the second quarter for the sale of that property (Note 6) and the
net proceeds from the sale of the property of $3.5 million were utilized to pay
down the related pre-petition financing obligation. Title to the other property
that had been held for sale was transferred to the related financing group at
the end of the
F-11
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
second quarter and the pre-petition financing obligation was reduced by the
amount of the carrying value of the property ($2 million) pending a final
agreement on the economic value of the property (which is currently anticipated
to be at or above $2 million).
8. POST-RETIREMENT PLAN
The Company provides certain health care and life insurance benefits for
certain retired non-union employees meeting age and service requirements. The
Company accounts for the post retirement plan in accordance with SFAS No. 106,
"Employers' Accounting for Post-Retirement 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 post-retirement
benefits are funded on a current basis.
The SFAS No. 106 valuation at January 31, 1998, along with amortization
credits of $1.4 and $2.8 million in the second quarter and year-to-date periods
of 1998, respectively, reflected changes that were effective January 1, 1998.
The changes represent the elimination of future benefits for active employees
who do not become eligible by January 1, 2000, and a phase-out of the Company
contributions over the next two years (at 50% per year beginning January 1,
1999) towards the cost of providing medical benefits to eligible retirees.
9. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company currently believes that there will be no impact from SFAS No. 133 on
the Company's earnings.
F-12
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
10. SUMMARIZED FINANCIAL INFORMATION FOR BRADLEES STORES, INC.
On November 18, 1998, the Company's amended plan of reorganization (the
"Plan") was confirmed by the Bankruptcy Court. Under the Plan, Bradlees, Inc.
is issuing common stock and Bradlees Stores, Inc. is issuing certain debt.
Bradlees, Inc. operates its stores through Bradlees Stores, Inc., an indirect
wholly-owned subsidiary. Bradlees, Inc. is guaranteeing the debt issued by
Bradlees Stores, Inc. The following summarized financial information of
Bradlees Stores, Inc. is presented in accordance with SEC Staff Accounting
Bulletin 53 and Regulation S-X Rule 1-02 (bb):
<TABLE>
<CAPTION>
(000'S)
----------------------------
AUG. 1, JAN. 31, AUG. 2,
1998 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current Assets................................... $281,942 $286,332 $294,897
Noncurrent Assets................................ 286,617 302,286 315,866
Current Liabilities.............................. 264,581 246,687 279,143
Payable to Bradlees, Inc......................... 189,739 189,881 190,023
Noncurrent Liabilities........................... 69,558 72,324 82,760
Liabilities Subject to Settlement Under the
Reorganization Case............................. $334,208 $341,874 $347,134
<CAPTION>
TWENTY-SIX WEEKS
ENDED
------------------
AUG. 1, AUG. 2,
1998 1997
-------- --------
<S> <C> <C> <C>
Net Sales........................................ $594,252 $564,787
Gross Margin..................................... 176,263 172,595
Loss from Continuing Operations.................. (27,419) (48,939)
Net Loss......................................... $(27,419) $(48,939)
</TABLE>
Upon consummation of the Plan, Bradlees, Inc. will contribute $93.7 million
of its intercompany receivable to the capital of Bradlees Stores, Inc. and $96
million will be allowed as the final intercompany claim.
F-13
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Bradlees, Inc., Debtor-in-Possession:
We have audited the accompanying consolidated balance sheet of Bradlees,
Inc. and subsidiaries, Debtor-in-Possession (the "Company"), as of January 31,
1998, and the related consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for the fiscal year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bradlees, Inc. and
subsidiaries as of January 31, 1998, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Notes 1 and 3 to the consolidated financial statements on June 23, 1995, the
Company filed a petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. In addition, the Company has experienced operating losses in
each of the three years ended January 31, 1998 and at January 31, 1998 had a
substantial stockholders' deficit. These matters raise substantial doubt about
the Company's ability to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon, among other things, (i)
acceptance of a Plan of reorganization by the Company's creditors with
confirmation by the Bankruptcy Court, (ii) compliance with all debt covenants
under the debtor-in-possession financing, (iii) the success of future
operations, including returning to profitability and maintaining adequate post
bankruptcy financing and liquidity and (iv) the resolution of the uncertainties
of the reorganization case discussed in Note 3. Management's plans in regard to
these matters are also discussed in Note 1 to the financial statements.
The eventual outcome of these matters discussed in the previous paragraph is
not presently determinable. The consolidated financial statements do not
include any adjustments relating to the resolution of these uncertainties or
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
/s/ Arthur Andersen LLP
New York, New York
March 17, 1998 (except with respect to the matter discussed in Note 16, as to
which the date is November 23, 1998)
F-14
<PAGE>
DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Bradlees, Inc., Debtor-in-Possession:
We have audited the accompanying consolidated balance sheet of Bradlees,
Inc. and subsidiaries, Debtor-in-Possession (the "Company"), as of February 1,
1997, and the related consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for the years ended February 1, 1997 and
February 3, 1996. 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 the results of its operations and its cash
flows for the years ended February 1, 1997 and February 3, 1996 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.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 20, 1997 (November 23, 1998 with respect to Note 16)
F-15
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Total sales................ $ 1,392,250 $1,619,444 $1,840,926
Leased sales............... 47,806 57,726 60,158
----------- ---------- ----------
Net sales.................. 1,344,444 1,561,718 1,780,768
Cost of goods sold......... 948,087 1,127,651 1,289,077
----------- ---------- ----------
Gross margin............... 396,357 434,067 491,691
Leased department and other
operating income.......... 12,151 13,734 15,130
----------- ---------- ----------
408,508 447,801 506,821
Selling, store operating,
administrative
and distribution
expenses.................. 382,910 504,030 572,843
Depreciation and
amortization expense...... 36,244 42,200 54,387
Gain on disposition of
properties................ (5,425) (1,739) -
Interest and debt expense.. 16,584 11,495 27,176
Impairment of long-lived
assets.................... - 40,782 99,358
Reorganization items....... 752 69,792 65,003
----------- ---------- ----------
Loss before income taxes... (22,557) (218,759) (311,946)
Income tax benefit......... - - (104,533)
----------- ---------- ----------
Net loss................... $ (22,557) $ (218,759) $ (207,413)
=========== ========== ==========
Net loss per share - basic
and diluted............... $ (1.98) $ (19.17) $ (18.17)
=========== ========== ==========
Weighted average shares
outstanding
(in thousands) - basic and
diluted................... 11,365 11,412 11,416
=========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-16
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Unrestricted cash and cash equivalents..... $ 10,949 $ 10,025
Restricted cash and cash equivalents....... 16,760 9,126
--------- ---------
Total cash and cash equivalents.......... 27,709 19,151
--------- ---------
Accounts receivable.......................... 10,013 8,240
Inventories.................................. 238,629 236,920
Prepaid expenses............................. 8,733 8,466
Assets held for sale......................... 7,754 8,419
--------- ---------
Total current assets....................... 292,838 281,196
--------- ---------
Property, plant and equipment, net........... 150,484 163,641
--------- ---------
Other assets:
Lease interests, net....................... 142,454 150,229
Assets held for sale....................... 4,000 5,250
Other, net................................. 5,390 3,884
--------- ---------
Total other assets....................... 151,844 159,363
--------- ---------
Total assets............................. $ 595,166 $ 604,200
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable........................... $ 124,361 $ 115,315
Accrued employee compensation and
benefits.................................. 17,401 13,317
Self-insurance reserves.................... 6,564 7,086
Other accrued expenses..................... 13,115 32,607
Short-term debt............................ 84,208 42,500
Current portion of capital lease
obligations............................... 1,038 1,722
--------- ---------
Total current liabilities................ 246,687 212,547
--------- ---------
Obligations under capital leases............. 27,073 33,296
Deferred income taxes........................ 8,581 8,581
Self-insurance reserves...................... 13,328 14,386
Other long-term liabilities.................. 23,342 27,642
Liabilities subject to settlement under the
reorganization case......................... 562,105 571,041
Commitments and contingencies (Note 13)
Stockholders' equity (deficiency):
Common stock - 11,312,154 shares
outstanding (11,394,433 at 2/1/97) Par
value...................................... 115 115
Additional paid-in-capital................. 137,821 137,951
Unearned compensation...................... - (167)
Accumulated deficit........................ (423,082) (400,525)
Treasury stock, at cost - 155,575 shares
(73,296 at 2/1/97)........................ (804) (667)
--------- ---------
Total stockholders' deficiency........... (285,950) (263,293)
========= =========
Total liabilities and stockholders'
deficiency.............................. $ 595,166 $ 604,200
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-17
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss................... $(22,557) $(218,759) $(207,413)
Adjustments to reconcile
net loss to cash provided
(used) by operating
activities:
Depreciation and
amortization.............. 36,244 42,200 54,387
Impairment of long-lived
assets.................... - 40,782 99,358
Amortization of deferred
financing costs........... 3,750 2,154 1,475
Stock compensation......... - - 701
Deferred income taxes...... - - (79,957)
Reorganization items....... 752 69,792 65,003
Gain on disposition of
properties................ (5,425) (1,739) -
Increase (decrease) in cash
resulting from changes in:
Accounts receivable........ (1,773) 2,296 6,819
Inventories................ (1,709) 44,293 16,848
Prepaid expenses........... (357) 1,542 372
Refundable income taxes.... - 24,576 (24,576)
Accounts payable........... 9,046 (32,319) 96,431
Accrued expenses........... (6,185) 580 3,401
Other, net................. (4,547) (1,664) (1,359)
-------- --------- ---------
Net cash provided (used)
by operating activities
before reorganization
items.................... 7,239 (26,266) 31,490
-------- --------- ---------
Operating cash flows from
reorganization items:
Interest income received... 420 1,445 2,965
Bankruptcy-related
professional fees paid.... (9,626) (10,756) (2,250)
Other reorganization
expenses paid, net........ (7,157) (17,572) (3,084)
-------- --------- ---------
Net cash used by
reorganization items..... (16,363) (26,883) (2,369)
-------- --------- ---------
Net cash (used) provided
by operating activities.. (9,124) (53,149) 29,121
-------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures, net.. (19,568) (27,527) (37,029)
Increase in restricted cash
and cash equivalents...... (7,634) (7,932) (1,194)
-------- --------- ---------
Net cash used in investing
activities............... (27,202) (35,459) (38,223)
-------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on long-
term debt................. (1,657) (2,707) (5,794)
Payments of liabilities
subject to settlement..... (6,467) (5,327) (11,764)
Proceeds from sales of
assets.................... 7,967 1,739 -
Borrowings under pre-
petition revolving loan
facility.................. - - 72,500
Borrowings under financing
obligation................ - - 12,801
Borrowings under DIP
facilities................ 41,708 42,500 -
Deferred financing costs... (4,301) (584) (4,047)
Other common stock
activity, net............. - - (18)
Dividends paid............. - - (1,712)
-------- --------- ---------
Net cash provided by
financing activities..... 37,250 35,621 61,966
-------- --------- ---------
Net increase (decrease) in
unrestricted cash and
cash equivalents......... 924 (52,987) 52,864
Unrestricted cash and cash
equivalents:
Beginning of period........ 10,025 63,012 10,148
-------- --------- ---------
End of period.............. $ 10,949 $ 10,025 $ 63,012
======== ========= =========
Supplemental disclosure of
cash flow information:
Cash paid for interest..... $ 12,807 $ 9,991 $ 16,382
Cash received for income
taxes..................... $ 109 $ 25,046 $ 2,869
Supplemental schedule of
noncash (investing and
financial) activities:
Capital lease obligations
incurred.................. $ - $ - $ 8,398
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-18
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
RETAINED
EARNINGS STOCKHOLDERS'
COMMON STOCK ADDITIONAL UNEARNED (ACCUMULATED TREASURY EQUITY
SHARES AMOUNT PAID-IN-CAPITAL COMPENSATION DEFICIT) STOCK (DEFICIENCY)
------------ ------ --------------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 28,
1995................... 11,385,254 $113 $138,077 $(1,697) $ 27,359 $(420) $ 163,432
Restricted stock -
grant................. 25,000 1 232 (232) - - 1
Restricted stock -
revaluation........... - (628) 628 - - -
Restricted stock -
forfeitures........... (13,139) - - 79 - (79) -
Restricted 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)
---------- ---- -------- ------- --------- ----- ---------
BALANCE AT FEBRUARY 3,
1996................... 1,416,656 115 137,951 (793) (181,766) (517) (45,010)
Restricted stock -
forfeitures........... (22,223) - - 150 - (150) -
Restricted stock -
amortization.......... - - - 476 - - 476
Net loss................ - - - - (218,759) - (218,759)
---------- ---- -------- ------- --------- ----- ---------
BALANCE AT FEBRUARY 1,
1997................... 11,394,433 115 137,951 (167) (400,525) (667) (263,293)
Restricted stock -
forfeitures........... (82,279) - (130) 137 - (137) (130)
Restricted stock -
amortization.......... - - - 30 - - 30
Net loss................ - - - - (22,557) - (22,557)
---------- ---- -------- ------- --------- ----- ---------
Balance at January 31,
1998................... 11,312,154 $115 $137,821 - $(423,082) $(804) $(285,950)
========== ==== ======== ======= ========= ===== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-19
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
(OPERATING AS DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Bradlees, Inc. and its subsidiaries, including Bradlees Stores, Inc.
(collectively "Bradlees" or the "Company") is a discount department store
retailer operating in the Northeast United States. 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 ("the 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'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 New Financing Facility
(Note 6), achievement of profitable operations, and the resolution of the
uncertainties of the reorganization case discussed in Note 3. A confirmed 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
confirmed plan of reorganization. The Company incurred significant operating
losses in 1996 and 1995.
The Company made the following key modifications to its business strategy
during fiscal 1997 to enhance profitability and improve customer service: (a)
reintroduced lower opening price points in a comprehensive variety of
merchandise categories to enhance value and increase customer traffic; (b)
reduced costly promotional events and thereby eliminated or reduced the
likelihood of substandard profit margins; (c) reintroduced certain basic
convenience and commodity products that are typical of assortments carried by
discount retailers; (d) reinstituted a layaway program, while controlling
promotions of the Bradlees' credit card, and installed new in-store directional
and departmental signage; (e) revised the Company's markdown policy based on
product rate of sale; (f) modified weekly ad circulars to achieve more item-
intensive and price-point oriented ad offerings; (g) introduced both a
"Certified Value" program that highlights certain key recognizable items at
competitive everyday prices and a "Wow!" program which integrates targeted and
unadvertised opportunistic purchases; and (h) significantly reduced overhead
while improving operating efficiencies.
The Company continues to focus on three key merchandise categories:
moderately priced family apparel, home furnishings and conventional consumable
hardlines products. Bradlees is committed to quality and fashion, especially in
apparel and home furnishings, and to improving customer service, to
differentiate itself from its competition. The Company believes that it can
strategically leverage its strength in the quality and fashion content of its
apparel and decorative home product offerings while driving traffic with
selected hardlines merchandise.
F-20
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company closed one store in April, 1997 and, in December, 1997,
announced the planned closing of six additional underperforming stores by
February, 1998, including one owned store that was being closed as a result of
the sale of the property in January, 1998 (for which a gain of $5.4 million was
recorded). The Company closed 27 stores in 1996.
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 financing arrangement for new store sites
(Note 8). All intercompany transactions have been eliminated in consolidation.
The Company's fiscal year ends on the Saturday nearest to January 31. The
term "1997" refers to the 52 weeks ended January 31, 1998; "1996" refers to the
52 weeks ended February 1, 1997; and "1995" refers to the 53 weeks ended
February 3, 1996.
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 facilities and
accounts payable (post-petition) approximate the carrying amounts at January
31, 1998 and February 1, 1997 due to their short maturities or variable-rate
nature of the borrowings. The fair value of the Company's liabilities subject
to settlement are not presently determinable as a result of the Chapter 11
proceedings. The fair values of the 2002 Notes and 2003 Notes (Note 6) were not
obtainable at January 31, 1998 and February 1, 1997. Face values of the 2002
Notes and 2003 Notes were $125,000 and $100,000, respectively, at January 31,
1998 and February 1, 1997.
Geographical concentration As of January 31, 1998, the Company operated 109
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 six additional
stores in February, 1998.
Use of estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. 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 (Note 14), vacation
pay reserves (Note 14), 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 54% of the labor force will
expire within one year and are expected to be renegotiated.
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 January 31, 1998 were comprised of the
following, along with earned interest of $.5 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) $1.1 million of forfeited
deposits, net of property carrying costs, received in 1996 on a
F-21
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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); (c)
$8.0 million from the sale of a closed store in 1997; and (d) other funds ($1.2
million) restricted for security deposits for utility expenses incurred after
the Filing.
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 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. The costs
of assets sold or retired and the related amounts of accumulated depreciation
are eliminated from the accounts in the year of disposal, with the resulting
gain or loss included in earnings. 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.
<TABLE>
<S> <C>
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
</TABLE>
Lease interests Lease interests represent the lease rights acquired at the
Acquisition (Note 1) 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 $34.8 million at January 31, 1998 and
$27.7 million at February 1, 1997. During 1996, accumulated amortization of
$3.3 million was eliminated in accordance with SFAS No. 121 (Note 4).
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 affected by
further 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 January 31, 1998 and
February 1, 1997. 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
facilities) are amortized over the lives of the related financings. Accumulated
amortization was $.1 million at January 31, 1998 and $2.9 million
F-22
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
at February 1, 1997. The Company wrote off $1.1 million of unamortized deferred
financing costs in 1997 relating to the prior DIP Facility (Note 6) that was
replaced in December, 1997. 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 Pre-opening 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.
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 loss per share Net loss per share is computed using the weighted average
number of common shares outstanding, plus the common stock equivalents related
to stock options if not anti-dilutive, in accordance with the provisions of the
SFAS No. 128 "Earnings Per Share", which was adopted in 1997. The weighted
average number of shares (in thousands) used in the calculation for both basic
and diluted net loss per share in 1997, 1996 and 1995 was 11,365, 11,412 and
11,416 shares respectively. Diluted earnings per share equals basic earning per
share as the dilutive calculations would have an antidilutive impact as a
result of the net loss incurred in each of the years.
Reclassifications Certain reclassifications have been made to the 1996 and
1995 financial statements to conform with the 1997 presentation.
New accounting pronouncements In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for the Company beginning
with the fiscal year ending January 30, 1999 ("1998"). SFAS No. 130 will
require that total comprehensive income (the change in equity from transactions
and other events except those resulting from investment by owners) be reported
in the financial statements. The Company does not expect SFAS No. 130 to have
any material impact on the Company's financial statements.
In June 1997, the FASB also issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information", which is effective beginning with
1998. SFAS No. 131 will require that segment financial information be publicly
reported on the basis that is used internally for evaluating segment
performance. The Company does not expect SFAS No. 131 to have a material effect
on its financial statement disclosures.
In February, 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post-Retirement Benefits", which is effective
beginning with 1998 and which will affect the Company's pension and post-
retirement plan disclosures in 1998. SFAS No. 132 requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures. The Company is still reviewing the effect that SFAS No. 132 will
have on its 1998 disclosures.
F-23
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. REORGANIZATION CASE
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 generally larger stores with rents that substantially exceeded the chain
average rent per square foot. Some of the new stores were also multilevel
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.
Bradlees, unable to obtain sufficient financing to satisfy factor and vendor
concerns, was compelled to seek Bankruptcy Court protection on June 23, 1995.
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. Except for payments of $2.1 million made in 1997 to
settle certain reclamation claims, the ultimate amount and settlement terms for
pre-petition liabilities are subject to a confirmed plan of reorganization, and
accordingly, are not presently determinable. The Company currently retains the
exclusive right to file a plan of reorganization until August 3, 1998 and to
solicit acceptance of a plan of reorganization until October 5, 1998, each
subject to possible extension as approved by the Bankruptcy Court. The Company
filed its plan of reorganization and related disclosure statement with the
Bankruptcy Court on April 13, 1998 and, subject to confirmation of the plan of
reorganization, currently anticipates emergence from Chapter 11 in August,
1998. A hearing to approve the disclosure statement has been scheduled for May
27, 1998 with 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 $48.1 million has been
recorded as of January 31, 1998 for rejected leases. This liability may be
subject to future adjustments based on claims filed by the lessors and
Bankruptcy Court actions. Although the Company does not currently anticipate
the rejection of additional leases, 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 any 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 $10 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
F-24
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
<TABLE>
<CAPTION>
(000'S)
---------------------------------
LIABILITIES SUBJECT TO SETTLEMENT UNDER THE
REORGANIZATION CASE JANUARY 31, 1998 FEBRUARY 1, 1997
- ------------------------------------------- ---------------- ----------------
<S> <C> <C>
Accounts payable............................ $165,324 $167,098
Accrued expenses............................ 27,996 27,932
Revolver.................................... 71,105 75,005
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............ 11,407 11,887
Liability for rejected leases............... 48,091 50,937
-------- --------
$562,105 $571,041
======== ========
</TABLE>
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 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.
Because of these prior-year charges and the closings of unprofitable stores,
and because the Company met its operating earnings plan in 1997, there was no
such SFAS No. 121 charge in 1997.
In applying SFAS No. 121 in 1996 and 1995, the Company compared 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 were significant
assumptions, primarily future cash flows, inherent in the SFAS No. 121
calculations, particularly given the Company's prior-year operating losses and
evolving merchandising strategy.
F-25
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The assumptions utilized in 1996 and 1995 were subject to significant
business, economic and competitive uncertainties. The charges in 1996 and 1995
were comprised of the following long-lived asset impairments (in 000's):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
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
------- -------
Total long-lived asset impairment........................... $40,782 $99,358
======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
(000'S)
---------------------------------
JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ----------------
<S> <C> <C>
Property excluding capital leases:
Buildings and improvements.................. $ 96,678 $ 96,978
Equipment and fixtures...................... 123,603 109,486
Land........................................ - 3,731
-------- --------
Subtotal.................................. 220,281 210,195
Accumulated depreciation.................... (88,756) (70,949)
-------- --------
Property excluding capital leases, net.... 131,525 139,246
-------- --------
Property under capital leases:
Buildings and improvements.................. 22,682 28,218
Equipment and fixtures...................... 8,395 8,395
-------- --------
Subtotal.................................. 31,077 36,613
Accumulated amortization.................... (12,118) (12,218)
-------- --------
Property under capital leases, net........ 18,959 24,395
-------- --------
Total property, plant and equipment, net...... $150,484 $163,641
======== ========
</TABLE>
F-26
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. DEBT
<TABLE>
<CAPTION>
(000'S)
---------------------------------
JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ----------------
<S> <C> <C>
DIP facilities (8.5% - 1997, 8.5% - 1996)... $ 84,208 $ 42,500
Pre-petition Revolver (10.25% - 1997,
10.0% - 1996).............................. 71,105 75,005
Pre-petition 2002 Notes (11%)............... 122,274 122,274
Pre-petition 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)... 39,518 46,905
-------- --------
Total debt.................................. 433,013 402,592
Less: Short-term debt (DIP facilities).. 84,208 42,500
Current portion - capital leases........ 1,038 1,722
Less: Debt subject to settlement (Note
3):
Prepetition Revolver.................... 71,105 75,005
Prepetition 2002 Notes.................. 122,274 122,274
Prepetition 2003 Notes.................. 97,957 97,957
SPE financing obligation................ 17,951 17,951
Obligations under capital leases........ 11,407 11,887
-------- --------
Long-term debt obligations under capital
leases..................................... $ 27,073 $ 33,296
======== ========
</TABLE>
As a result of the Filing, substantially all debt (exclusive of the DIP
facilities) outstanding at January 31, 1998 and February 1, 1997 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, 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 $31.1 and
$31.3 million for 1997 and 1996, respectively.
F-27
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
New Financing Facility The Company obtained a new $250 million financing
facility (of which $125 million is available for issuance of letters of credit)
in December, 1997 with BankBoston Retail Finance, Inc. ("BBNA") as agent (the
"New Facility"), under which the Company is allowed to borrow for general
corporate purposes, working capital and inventory purchases. The New Facility
consists of (a) an up to eighteen month debtor-in-possession revolving credit
facility in the maximum principal amount of $250 million (the "New DIP" - see
below) and, subject to meeting certain conditions, (b) an up to three year
post-confirmation revolving credit facility in the maximum principal amount of
$250 million (the "Exit Facility" - see below). The commitment period for the
combined facility cannot exceed four years.
The New DIP replaced a $200 million Debtor-in-Possession Revolving Credit
and Guaranty Agreement with The Chase Manhattan Bank, as agent (the "Prior DIP
Facility"). There were outstanding direct borrowings of $84.2 million under the
New DIP as of January 31, 1998. Trade and standby letters of credit outstanding
under the DIP facilities were $7.1 and $26.8 million, respectively, at January
31, 1998 and $9.2 and $26.9 million, respectively, as of February 1, 1997. The
weighted average borrowings under the DIP facilities in 1997 were $87.2
million. The weighted average interest rate under the DIP facilities in 1997
was 7.54%.
The New DIP has an advance rate of 60% of the Loan Value of Eligible
Receivables (as defined), plus 72% of the Loan Value of Eligible Inventory (as
defined). Between March 1 and December 15, the Company can borrow an
overadvance amount on the Loan Value of Eligible Inventory of 5% (the
"Overadvance Amount"), subject to a $20 million limitation. At the Company's
option, the Company may borrow under the New DIP at the Alternate Base Rate (as
defined) in effect from time to time (the "Base Rate Applicable Margin") or the
adjusted Eurodollar rate plus 2.25% (the "Eurodollar Applicable Margin") for
interest periods of one, two, or three months. The Base Rate Applicable Margin
and Eurodollar Applicable Margin will be subject to an additional 0.50% during
any fiscal month that the Company has Overadvance Amounts.
There are no compensating balance requirements under the New DIP but the
Company is required to pay an annual commitment fee of 0.30% of the unused
portion of the New DIP. The New DIP contains restrictive covenants including,
among other things, limitations of the incurrence of additional liens and
indebtedness, limitations on capital expenditures and the sale of assets, the
maintenance of minimum operating earnings ("EBITDA"), and minimum accounts
payable to inventory ratios. The lenders under the New DIP have a "super-
priority claim" against the estate of the Company. As of January 31, 1998, the
Company was in compliance with the New DIP covenants. The New DIP expires on
the earlier of June 30, 1999 or the effective date of any plan of
reorganization that is confirmed by the Bankruptcy Court.
In the fourth quarter of 1997, the Company incurred a charge of
approximately $1.1 million for the write-off of the Prior DIP Facility's
unamortized deferred financing costs and paid approximately $2.3 million for
financing fees associated with the New DIP.
The Exit Facility has an advance rate equal to 60% of the Loan Value of
Eligible Receivables, plus the lower of (i) 72% of the Loan Value of Eligible
Inventory or (ii) 80% of the ratio of the annual appraised liquidation value to
the Loan Value (as defined) of the inventory (the "Loan to Value Ratio").
Between March 1 and December 15, the Company can borrow an overadvance amount
on the Loan Value of Eligible Inventory of 5%, provided the Loan to Value Ratio
does not exceed 85%. At the Company's option, the Company may borrow under the
Exit Facility at the Base Rate Applicable Margin or the Eurodollar Applicable
Margin for interest periods of one, two, or three months. The Base Rate
Applicable Margin and Eurodollar Applicable Margin will be subject to an
additional 0.50% during any fiscal month that the Company has Overadvance
Amounts.
F-28
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Exit Facility is subject to certain conditions being satisfied,
including (i) an all equity plan of reorganization; (ii) minimum EBITDA
performance; and (iii) minimum borrowing availability on the effective date of
the plan of reorganization. The Company obtained a modification to the
commitment letter dated April 7, 1998, from BBNA, as agent, that modifies their
commitment so that the plan of reorganization filed by the Company on April 13,
1998, although not an all equity plan, satisfies the conditions for the Exit
Facility. The Exit Facility will be secured by all of the assets of the
Company, except interests in real property.
The Exit Facility contains financial covenants including (i) minimum EBITDA,
(ii) minimum accounts payable to inventory, (iii) maximum capital expenditures
and (iv) minimum operating cash flow to interest expense (for the fiscal
quarters ending on or about January 31, 2000, and thereafter).
Prepetition Revolver Prior to the Filing, the Company had a $150 million
revolving loan facility ("Revolver"), including outstanding commercial and
standby letters of credit. The Revolver had a maturity date of July 31, 1997,
and had a variable interest rate based on, among other factors, the Company's
elected borrowing period and amount. The weighted average interest rate
approximated 10.0% in 1997 and 1996 and 8.1% in 1995. No interest has been paid
or accrued on the Revolver since the Filing.
Prepetition 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.
Interest on the 2002 Notes and 2003 Notes, due semiannually, 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 1997, 1996 and 1995 directly associated with the Chapter 11 reorganization
proceedings and the resulting restructuring of its operations (in 000's):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Professional fees.................................. $10,000 $10,000 $ 9,200
Interest income.................................... (420) (1,445) (3,078)
Provision for rejected leases...................... (2,846) 32,756 18,971
Net asset/liability write-offs..................... (3,408) 4,034 21,548
Gain on disposition of properties.................. (1,153) (1,697) -
Provision for inventory impairment................. - (1,000) 7,100
Provision for occupancy and other store closing
costs............................................. 1,112 4,102 3,059
Employee severance and termination benefits........ (2,813) 23,042 -
Provision for MIS retention bonuses................ 280 - -
Chapter 11 customer discounts...................... - - 2,960
Provision for retention bonuses.................... - - 5,243
------- ------- -------
Total reorganization items........................ $ 752 $69,792 $65,003
======= ======= =======
</TABLE>
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.
F-29
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Provision for rejected leases and net asset/liability 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 1997, the Company reversed a rejected lease
provision of $5.2 million that had been recorded in 1996 for a store that was
subsequently sold in 1997 with no rejection liability. In addition, the Company
recorded a provision of approximately $2.4 million in 1997 for four of the six
stores closed in February, 1998 whose leases were rejected by the Company.
In connection with the store closings and lease rejections, the Company
wrote off certain net assets (net liability in 1997), primarily for leasehold
improvements, net capital leases and lease interests. The credit of $3.4
million in 1997 resulted from the write-off of closed stores' capital lease
obligations that exceeded the carrying value of the closed stores' assets. Net
asset write-offs 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 by the lessors and Bankruptcy Court actions. The Company cannot presently
determine or reasonably estimate the ultimate liability which may result from
such claims and actions or from additional leases which may be rejected at a
future date.
Gain on disposition of properties: The Company sold certain closed store
leases in 1997 and 1996 and the related gains were classified as reorganization
items since the sales were directly related to the Chapter 11 proceedings and
the associated net asset write-offs were previously included in reorganization
items.
Inventory impairment and store closing costs: In December, 1997, the Company
approved a restructuring plan to close 6 stores by February, 1998. One of the 6
stores was owned and closed as a result of the sale of the property in January,
1998. In connection with the plan to close the 6 stores, the Company rejected
certain leases and wrote off net assets (see "Provision for rejected leases and
net asset/liability write-offs"). In addition, the Company established
provisions in 1997 for the associated closing costs and for an inventory
impairment for the 6 stores of $2.9 million that was charged to cost of sales.
The provision for inventory impairment represented the incremental markdowns
required to liquidate the inventory at the closed stores. Such costs are
recorded in accordance with the retail inventory method.
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
also rejected certain leases and wrote off net assets. In addition, the Company
established provisions in 1995 for inventory impairment and other closing costs
associated with closing the 13 stores. The provision for inventory impairment
was reduced by $1 million at the conclusion of the going-out-of-business sales
in 1996 when actual results became available. The $1 million reduction was
recorded as a credit to reorganization items since the original provision was
recorded as a reorganization item in 1995 prior to a Securities and Exchange
Commission staff announcement in which it 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.
In July, 1996, the Company approved a restructuring plan to close 14
additional stores in October, 1996. In connection with this plan, the Company
also rejected certain leases and wrote off net assets. In addition, the Company
established provisions 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.
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 1997 totaled approximately $3.5 million.
F-30
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Employee severance and termination benefits: The credit to employee
severance and termination benefits of $2.8 million in 1997 resulted from the
reversal of certain severance reserves totaling $3.4 million, including a
significant portion of the severance reserve that had been established in 1996
for Mark Cohen, the Company's former CEO, partially offset by a $0.6 million
charge for severance and termination benefits for 382 store associates at the 6
stores closed in February, 1998. A settlement agreement was reached with Mr.
Cohen in 1997.
Employee severance and termination benefits of $23.0 million in 1996
included the following: (a) $13.5 million for the January 1997 management
reorganization and regional and district consolidation; (b) $1.2 million
resulting from the 14 stores closed in October, 1996; (c) $4.2 million for
central office positions eliminated in September, 1996; (d) $1.1 million
resulting from the 13 stores closed in the first half of 1996; and (e) $3.0
million paid to store, district and regional associate positions eliminated as
a result of the February, 1996 store management reorganization. Severance and
termination benefits paid in 1997 and 1996 totaled approximately $4.5 and $16.6
million, respectively.
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 "Retention Plan") that provided for management bonuses for continued
employment during the first fiscal year of Chapter 11 reorganization and
through the date of payment. Thereafter, the Retention Plan and executive
contracts provided incentives and rewards for performance that met or exceeded
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.
MIS retention bonuses: The Company has a retention bonus program for certain
Management Information System (MIS) employees that provides for bonuses during
the Chapter 11 proceedings for continued employment through April, 1998. In
April, 1998 these bonuses were paid and this program was then discontinued.
Closed store results: Net sales and operating losses (exclusive of any
central office expense allocation and prior to interest expense, income taxes
and reorganization items) from the one store closed in April, 1997, the six
stores closed in February, 1998 and the 27 stores closed during 1996 were (in
000's):
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Net sales....................................... $61,039 $213,363 $367,693
Operating loss.................................. (251) (28,012) (36,040)
</TABLE>
F-31
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LEASES
At January 31, 1998, 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 (Notes 3 and 7), are as follows:
<TABLE>
<CAPTION>
(000'S)
-------------------------------
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
1998.......................................... $ 4,645 $ 41,853
1999.......................................... 4,646 40,844
2000.......................................... 4,111 39,357
2001.......................................... 4,132 37,933
2002.......................................... 4,132 36,041
Thereafter.................................... 40,416 220,198
-------- --------
Total minimum payments........................ 62,082 $416,226
========
Estimated executory costs..................... (2,857)
--------
Net minimum lease payments.................... 59,225
Imputed interest.............................. (31,114)
--------
Present value of net minimum lease payments... 28,111
Less current portion.......................... (1,038)
--------
Obligations under capital leases, net of
current portion.............................. $ 27,073
========
</TABLE>
Minimum payments for capital and operating leases have not been reduced by
minimum sublease rentals of $11.7 and $10.0 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.
Total rent expense is as follows:
<TABLE>
<CAPTION>
(000'S)
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Operating leases:
Minimum rent....................................... $48,749 $57,352 $60,890
Contingent rent.................................... 425 1,024 972
Sublease income.................................... (7,899) (9,248) (9,585)
------- ------- -------
41,275 49,128 52,277
------- ------- -------
Capital leases:
Sublease income.................................... (1,297) (1,726) (1,829)
------- ------- -------
Total................................................ $39,978 $47,402 $50,448
======= ======= =======
</TABLE>
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,
F-32
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 January 31, 1998 and February 1, 1997 are included in liabilities subject to
settlement and are collateralized by land and buildings (with a carrying value
of $4.0 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.
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
11,312,154 shares were outstanding at January 31, 1998, and one million shares
of preferred stock, par value of $0.01 per share, none of which were
outstanding at January 31, 1998. The Common Stock will be canceled under the
Company's filed plan of reorganization.
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 January 31, 1998, 15,217 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. 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.
F-33
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 non qualified stock options and generally have a
three to five-year vesting schedule. Activity in the Key Employee Plan is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at January 28, 1995..................... 1,052,362 $13.65
Granted............................................. 153,000 9.78
Canceled............................................ (261,794) 13.83
Exercised........................................... - -
---------
Outstanding at February 3, 1996..................... 943,568 $12.97
Granted............................................. -
Canceled............................................ (265,790) $13.46
Exercised........................................... - -
---------
Outstanding at February 1, 1997..................... 677,778 $12.78
Granted............................................. - -
Canceled............................................ (396,753) $13.32
Exercised........................................... - -
--------- ------
Outstanding at January 31, 1998..................... 281,025 $12.30
========= ======
Exercisable at January 31, 1998..................... 171,997 $12.65
========= ======
</TABLE>
Options outstanding at January 31, 1998, range in exercise price from $6.50
to $18.38 and have a remaining weighted average contractual life of 5.56 years.
The Company has a 1993 Non-Employee Directors' Stock Option Plan
("Directors' Plan") that provides for the grant of non qualified 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 1997, 1996 and 1995, 30,000,
15,000 and 30,000 options, respectively, were granted under the Directors'
Plan. During both 1997 and 1996, 15,000 options were canceled. At January 31,
1998, 90,000 options under the Directors' Plan were outstanding with exercise
prices ranging from $0.06 to $15.75 (weighted average exercise price is $7.02).
At January 31, 1998, 45,000 of the options were exercisable at a weighted
average price of $12.26 and have a weighted average remaining contractual life
of 5.26 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 1997, 1996 and 1995, and
accordingly the pro forma disclosures have been omitted.
F-34
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. EMPLOYEE BENEFIT PLANS
Pension plan. Certain union employees are covered by multi-employer defined
benefit plans. Expenses for these plans were $.9 million for 1997, $1.1 million
for 1996 and $1.3 million for 1995.
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.
The components of net pension costs for the plans are as follows:
<TABLE>
<CAPTION>
000'S
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service costs........................................ $ 3,272 $ 3,897 $ 3,061
Interest costs....................................... 5,054 4,909 4,369
Return on plan assets................................ (9,566) (7,617) (9,165)
Net amortization and deferral........................ 4,177 2,993 5,497
Curtailment loss..................................... 126 554 -
Special termination benefits......................... (359) 782 -
------- ------- -------
Net pension costs.................................... $ 2,704 $ 5,518 $ 3,762
======= ======= =======
</TABLE>
The funded status is as follows:
<TABLE>
<CAPTION>
(000'S)
---------------------------------------------
JANUARY 31, 1998 FEBRUARY 1, 1997
---------------------- ----------------------
QUALIFIED NONQUALIFIED QUALIFIED NONQUALIFIED
PLAN PLANS PLAN PLANS
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation..... $61,504 $ 3,046 $55,352 $ 4,444
======= ======= ======= =======
Accumulated benefit obligation.. $62,656 $ 3,490 $56,183 $ 4,583
======= ======= ======= =======
Projected benefit obligation.... $72,233 $ 4,236 $66,978 $ 5,126
Plan assets at fair value....... 68,611 - 62,325 -
------- ------- ------- -------
Projected benefit obligation
greater
than plan assets............... (3,622) (4,236) (4,653) (5,126)
Unrecognized prior service
cost........................... 518 1,434 576 107
Unrecognized transition
obligation..................... - 102 - 1,609
Unrecognized net (gain) loss.... (2,740) 435 313 49
Additional minimum liability
(recorded
as other assets)............... - (1,225) - (1,222)
------- ------- ------- -------
Accrued pension liability....... $(5,844) $(3,490) $(3,764) $(4,583)
======= ======= ======= =======
</TABLE>
The curtailment losses and special termination benefits in 1997 and 1996
result from the employment terminations of several executives and the closing
of stores. These costs in 1996 were primarily included in
F-35
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
termination benefits as part of reorganization items (Note 7). Certain portions
($1.2 million) of the nonqualified plans' accrued pension liability at January
31, 1998 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 1997 and 1996; the discount rate was 7.0% for 1997 and 7.25%
for 1996; and the expected rate of return on the plan assets was 9.25% for 1997
and 9.0% for 1996. 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 non qualified plans was 4.25% for 1997 and 1996 and
7.0% for 1997 and 7.25% for 1996, respectively.
Defined Contribution Plan The Company has a 401(k) 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, were 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 1997 and 1996, as compared to $1.0 million for 1995.
Postretirement Plan The Company provides certain health care and life
insurance benefits for certain retired non-union employees meeting age and
service requirements. The Company accounts for the post- retirement 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 funded on a
current basis.
The SFAS No. 106 valuation at January 31, 1998, along with the $3.9 million
curtailment gain and a $.4 million amortization credit, reflects changes that
were effective January 1, 1998. The changes represent the elimination of future
benefits for active employees who do not become eligible by January 1, 2000,
and a phase-out of the Company contributions over the next two years (at 50%
per year beginning January 1, 1999) towards the cost of providing medical
benefits to eligible retirees.
The status of the plan is as follows:
<TABLE>
<CAPTION>
(000'S)
---------------------------------
JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ----------------
<S> <C> <C>
Accumulated postretirement benefit
obligation for:
Retirees.................................. $ 733 $ 1,886
Fully eligible actives.................... 536 1,998
Other actives............................. 439 3,983
------- --------
1,708 7,867
Plan assets at fair value................... - -
------- --------
Funded status............................... (1,708) (7,867)
Unrecognized prior service cost............. (5,189) (5,313)
Unrecognized net (gain)..................... (2,513) (1,203)
------- --------
Accrued postretirement benefit cost......... $(9,410) $(14,383)
======= ========
</TABLE>
F-36
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net postretirement (benefit) cost is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -----
<S> <C> <C> <C>
Service cost.......................................... $ 172 $ 241 $ 338
Interest cost......................................... 429 540 774
Amortization, net..................................... (1,359) (877) (808)
Curtailment gain...................................... (3,939) - -
------- ----- -----
Net (benefit) cost.................................... $(4,697) $ (96) $ 304
======= ===== =====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.70% for 1997 (6.25% for post-65
coverage) grading down to 4.25% over 10 years and 8.70% for 1996 (6.75% for
post-65 coverage) grading down to 4.25% over 10 years. A one percentage point
increase in the assumed health care cost trend rate would increase the
accumulated postretirement benefit obligation by .56% and the service and
interest cost by 3.31%. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 7.25% for 1997 and 1996.
12. INCOME TAXES
There was no income tax expense or benefit in 1997 and 1996. The income tax
benefit in 1995 was comprised of the following components:
<TABLE>
<CAPTION>
(000'S)
---------
1995
---------
<S> <C>
Current:
Federal......................................................... $ (24,476)
State........................................................... (100)
---------
(24,576)
---------
Deferred:
Federal......................................................... (74,765)
State........................................................... (5,192)
---------
(79,957)
---------
$(104,533)
=========
</TABLE>
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 as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory rate..................................... (35.0%) (35.0%) (35.0%)
State income taxes, net of Federal income tax
benefit........................................... (4.0%) (6.4%) (4.8%)
Non-deductible professional fees................... 14.5% 1.5% 1.2%
Non-deductible compensation........................ - 1.5% -
Valuation allowance................................ 24.5% 38.4% 5.1%
----- ----- -----
0% 0% (33.5%)
===== ===== =====
</TABLE>
F-37
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred taxes represent the differences between financial statement amounts
and the tax bases of assets and liabilities. Deferred tax liabilities (assets)
are as follows:
<TABLE>
<CAPTION>
(000'S)
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Lease interests........................................ $ 51,399 $ 50,435
Inventories............................................ 11,854 12,916
Other.................................................. 3,295 793
--------- ---------
Total liabilities...................................... 66,548 64,144
--------- ---------
Net operating loss carryforwards....................... (105,917) (100,392)
Self insurance accruals................................ (8,602) (9,018)
Rejected lease claims.................................. (20,350) (21,725)
Postretirement benefits................................ (3,704) (5,829)
Closing costs.......................................... (2,902) (3,278)
Property, plant and equipment, net..................... (3,233) (4,294)
Capital leases......................................... (10,708) (2,890)
Vacation............................................... (2,636) (3,769)
Alternative minimum tax credit carryforwards........... (2,144) (2,144)
Other.................................................. (3,182) (2,110)
--------- ---------
(163,378) (155,449)
Valuation allowance.................................... 105,411 99,886
--------- ---------
Total assets........................................... (57,967) (55,563)
--------- ---------
Net deferred tax liability............................. $ 8,581 $ 8,581
========= =========
</TABLE>
At January 31, 1998, the Company had net operating loss carryforwards of
approximately $260.8 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. As part of the Company's filed plan of
reorganization, it is anticipated that a major portion of the net operating
loss carryforward will be reduced by the cancellation of indebtedness and that
the change in ownership resulting from the issuance of new stock will result in
a limitation on the remaining amount of net operating loss and tax credit
carryovers that can be utilized each year.
The Company had a valuation allowance of $99.9 million against deferred tax
assets in 1996. During 1997, the valuation allowance was increased by $5.5
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.
In February, 1997 the Company adopted the Corporate Bonus Plan (the
"Corporate Bonus Plan") that was approved by the Bankruptcy Court. The
Corporate Bonus Plan provides incentives and rewards for (i)
F-38
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
performance of key employees that meets or exceeds expectations and (ii)
attainment of threshold performance measurements 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 had to obtain a minimum EBITDA
(as defined) of $28.1 million in 1997, 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 mentioned 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. The Company achieved
the minimum EBITDA in 1997 and, accordingly, recorded a provision of
approximately $4 million for such bonuses in 1997 that was included in selling,
store operating, administrative and distribution expenses. These bonuses were
paid in April, 1998.
With respect to the five-highest paid officers of the Company 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 is contingently payable, with interest, at 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 $.4 million was subject to this
deferral under the Corporate Bonus Plan in 1997. This is in addition to
approximately $.2 million of bonuses earned under the Retention Plan (Note 7)
in 1995 that remains subject to the same deferral.
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% (6% was for the
Company's former CEO, Mark Cohen, and is not reallocable) of the total
appreciation in the value of the Company during the five year period. No
payments are expected to be paid under the Incentive Plan because the Company
anticipates that the Incentive Plan will be canceled and replaced by a
different incentive plan under the presently proposed terms of the Company's
filed plan of reorganization.
The Company has entered into a three-year employment agreement with its
current CEO, Peter Thorner, commencing as of October 26, 1995 and amended as of
November 7, 1997. Mr. Thorner's 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. 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. As stated above, no payments,
other than annual nonrefundable advances of $150,000 to Mr.
F-39
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Thorner, are expected to be paid under the Incentive Plan because the Company
anticipates that the Incentive Plan will be canceled and replaced by a
different incentive plan under the presently proposed terms of the Company's
filed plan of reorganization. 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 or Good Reason (as
defined), Mr. Thorner would generally be entitled to all payments and benefits
called for under the agreement for the remainder of its term.
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 January 31, 1998
under the Severance Program for management terminations were included in the
reserve for termination benefits (Note 7).
14. CHANGES IN ACCOUNTING ESTIMATES
As discussed in Note 2, the Company is primarily self-insured for workers'
compensation and general liability costs. Actuarial studies of the self-
insurance reserves were completed in the third quarter of 1997, using a
discount rate of 6.0% (the same rate used at February 1, 1997), and in the
third quarter of 1996, using a discount rate of 6.0% (compared to 5.3% at
February 3, 1996). As a result of the studies, the self-insurance reserves were
reduced by $3.6 million in the third quarter of 1997 with a corresponding
reduction in SG&A expenses (selling, store operating, administrative and
distribution expenses) and by $5.0 million in the third quarter of 1996 with
corresponding reductions of $4.2 and $.8 million in SG&A expenses and interest
expense, respectively. The reductions in the self-insurance reserves were
primarily the result of aggressive claims management and safety initiatives.
The Company changed its vacation pay vesting policy for certain pay groups
in December, 1997, whereby the employees in those pay groups earn their
vacation pay entitlements the course of each calendar year worked (similar to
industry practice) rather than being fully vested on the first day of each
calendar year. As a result of this change, $4.5 million of the Company's
vacation pay reserves as of January 1, 1998 was eliminated with a corresponding
credit in SG&A expenses.
15. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
($ IN THOUSANDS EXCEPT PER SHARE DATA)
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31,
1998:
Net Sales................. $267,371 $297,416 $330,433 $449,224 $1,344,444
Gross Margin.............. 79,658 92,936 97,104 126,658 396,357
Net income (loss)......... (31,993) (16,864) 376 25,925 (22,557)
Net income (loss) per
share.................... $ (2.81) $ (1.48) $ 0.03 $ 2.29 $ (1.98)
Weeks in period........... 13 13 13 13 52
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
</TABLE>
F-40
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. SUMMARIZED FINANCIAL INFORMATION FOR BRADLEES STORES, INC.
On November 18, 1998, the Company's amended plan of reorganization (the
"Plan") was confirmed by the Bankruptcy Court. Under the Plan, Bradlees, Inc.
is issuing common stock and Bradlees Stores, Inc. is issuing certain debt.
Bradlees, Inc. operates its stores through Bradlees Stores, Inc., an indirect
wholly-owned subsidiary. Bradlees, Inc. is guaranteeing the debt issued by
Bradlees Stores, Inc. The following summarized financial information of
Bradlees Stores, Inc. is presented in accordance with SEC Staff Accounting
Bulletin 53 and Regulation S-X Rule 1-02 (bb):
<TABLE>
<CAPTION>
(000'S)
-----------------------------
JANUARY 31, FEBRUARY 1,
1998 1997
-------------- --------------
<S> <C> <C> <C>
Current Assets................... $ 286,332 $ 274,980
Noncurrent Assets................ 302,286 322,962
Current Liabilities.............. 246,687 212,547
Payable to Bradlees, Inc......... 189,881 190,038
Noncurrent Liabilities........... 72,324 83,905
Liabilities Subject to Settlement
Under the Reorganization Case... $ 341,874 $ 350,810
<CAPTION>
(000'S)
--------------------------------------------
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net Sales........................ $1,344,444 $1,561,718 $1,780,768
Gross Margin..................... 396,357 434,067 491,691
Loss from Continuing Operations.. (22,620) (218,726) (206,870)
Net Loss......................... $ (22,620) $ (218,726) $ (206,870)
</TABLE>
Upon consummation of the Plan, Bradlees, Inc. will contribute $93.7 million
of its intercompany receivable to the capital of Bradlees Stores, Inc. and $96
million will be allowed as the final intercompany claim.
F-41
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER BRADLEES, INC. NOR BRADLEES STORES, INC. HAS AUTHORIZED
ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS
IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS
IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE SECURITIES OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF
THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING
AND THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE IN THAT JURISDICTION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary....................................................... 2
Risk Factors............................................................. 5
The Company.............................................................. 11
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
Business................................................................. 35
Management............................................................... 39
Principal Stockholders................................................... 48
Certain Relationships and Related Transactions........................... 49
Selling Securityholders.................................................. 49
Plan of Distribution..................................................... 50
Shares Eligible for Future Sale.......................................... 51
Terms of Outstanding Indebtedness........................................ 51
Description of the 9% Convertible Notes.................................. 53
Description of Capital Stock............................................. 58
Legal Matters............................................................ 62
Experts.................................................................. 62
Additional Information................................................... 62
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BRADLEES, INC.
BRADLEES STORES, INC.
7,267,424 SHARES OF COMMON STOCK
$36,000,000 9% CONVERTIBLE NOTES
----------------
PROSPECTUS
----------------
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses of this Offering
(excluding underwriting discounts and commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT(1)
----------------- ---------
<S> <C>
SEC Registration Fee............................................... $27,343
-------
Nasdaq Listing Fee................................................. *
-------
Accounting Fees and Expenses....................................... *
-------
Legal Fees and Expenses............................................ *
-------
Printing Expenses.................................................. *
-------
Trustee's Fees and Expenses........................................ *
-------
Transfer Agent's Fee............................................... *
-------
Miscellaneous...................................................... *
-------
TOTAL............................................................ $ *
=======
</TABLE>
- --------
(1) The amounts set forth above, except for the SEC and Nasdaq fees, are in
each case estimated.
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Articles of Organization provide that a
Director shall not have personal liability to the Company or its stockholders
for monetary damages arising out of the Director's breach of fiduciary duty as
a Director of the Company to the maximum extent permitted by Massachusetts law.
Section 13(b)(1 1/2) of Chapter 156B of the Massachusetts Business Corporation
Law provides that the articles of organization of a corporation may state a
provision eliminating or limiting the personal liability of a Director to a
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, provided, however, that such provision shall not eliminate
or limit the liability of a Director (i) for any breach of the Director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law, (iii) under Section 61 or 62 of the Massachusetts Business Corporation
Law dealing with liability for unauthorized distributions and loans to
insiders, respectively, or (iv) for any transaction from which the Director
derived an improper personal benefit.
The Company's Amended and Restated By-Laws further provide that the Company
shall, to the fullest extent authorized by Chapter 156B of the Massachusetts
General Laws, indemnify each person who is, or was or has agreed to become, a
Director or officer of the Company or who is or was a Director or employee of
the Company and is serving, or shall have served, at the request of the
Company, as Director or officer of another organization or in any capacity with
respect to any employee benefit plan of the Company, against all liabilities
and expenses (including reasonable attorneys' fees), judgments and fines
incurred by him or on his behalf in connection with, or arising out of, the
defense or disposition of any action, suit or other proceeding, whether civil
or criminal, or any appeal therefrom in which they may be involved by reason of
being or having been such a Director or officer or as a result of service with
respect to any such employee benefit plan. Section 67 of Chapter 156B of the
Massachusetts General Laws authorizes a corporation to indemnify its directors,
officers, employees and other agents unless such person shall have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that such action was in the best interests of the corporation or, to the
extent such matter is related to service with respect to an employee benefit
plan, in the best interests of the participants or beneficiaries of such
employee benefit plan.
II-1
<PAGE>
The effect of these provisions would be to permit indemnification by the
Company for, among other liabilities, liabilities arising out of the Securities
Act of 1933, as amended (the "Securities Act").
Section 67 of the Massachusetts Business Corporation Law also affords a
Massachusetts corporation the power to obtain insurance on behalf of its
directors and officers against liabilities incurred by them in those
capacities. We have procured a directors' and officers' liability and company
reimbursement liability insurance policy that (i) insures directors and
officers of the Company against losses (above a deductible amount) arising from
certain claims made against them by reason of certain acts done or attempted by
such directors or officers and (ii) insures the Company against losses (above a
deductible amount) arising from any such claims, but only if the Company is
required or permitted to indemnify such directors or officers for such losses
under statutory or common law or under provisions of the Company's Amended and
Restated Articles of Organization or Amended and Restated By-Laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On the Effective Date, we issued the following securities in connection with
the Effectiveness of our Plan of Reorganization:
1. We issued shares of our Common Stock to holders of
approximately $ of allowed prepetition claims against us in
satisfaction of such claims in reliance upon the exemption from
registration set forth in Section 1145 of the Bankruptcy Code.
2. We issued $ worth of 9% Convertible Notes to holders of
approximately $ of allowed prepetition claims against us in
satisfaction of such claims in reliance upon the exemption from
registration set forth in Section 1145 of the Bankruptcy Code.
3. We issued $ worth of warrants to holders of approximately $
of allowed prepetition claims against us in satisfaction of such claims
in reliance upon the exemption from registration set forth in Section
1145 of the Bankruptcy Code.
4. We issued $ worth of Cure Notes to holders of approximately $
of allowed prepetition claims against us in satisfaction of such claims
in reliance upon the exemption from registration set forth in Section
1145 of the Bankruptcy Code.
5. We issued $ worth of Cap Notes to holders of approximately $
of allowed prepetition claims against us in satisfaction of such claims
in reliance upon the exemption from registration set forth in Section
1145 of the Bankruptcy Code.
6. We issued $ worth of Tax Notes to holders of approximately $ of
allowed prepetition claims against us in satisfaction of such claims in
reliance upon the exemption from registration set forth in Section 1145
of the Bankruptcy Code.
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
----------- -----
<C> <S>
*2.1 --The Company's Plan of Reorganization under Chapter 11 of the Bankruptcy Code.
*2.2 --Form of Indenture.
*2.3 --Form of 9% Convertible Note.
*2.4 --Form of Cure Note.
*2.5 --Form of Tax Note.
*2.6 --Form of Warrant Agreement.
*2.7 --Form of Warrant.
3.1 --Restated Articles of Organization of Bradlees, Inc. are 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. are 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
----------- -----
<C> <S>
*3.3 --Articles of Organization of Bradlees Stores, Inc.
*3.4 --By-laws of Bradlees Stores, Inc.
*3.5 --Form of Amended and Restated Articles of Organization of
Bradlees, Inc.
*3.6 --Form of Amended and Restated Articles of Organization of
Bradlees Stores, Inc.
#3.7 --Form of Amended and Restated By-laws of Bradlees, Inc.
*3.8 --Form of Amended and Restated By-laws of Bradlees Stores, Inc.
*4.1 --Specimen Certificate for shares of Common Stock, $.01 par value,
of Bradlees, Inc.
*5.1 --Opinion of Goodwin, Procter & Hoar LLP with respect to the
legality of the securities being offered.
*10.1 --Registration Rights Agreement.
10.22 --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.
10.23 --Amendment to Amended and Restated Employment Agreement, dated as
of November 7, 1997, between and among Bradlees, Inc., Bradlees
Stores, Inc. and Peter Thorner is incorporated by reference from
the Company's Form 10-K for the year ended January 31, 1998, Part
IV, Item 14(a)(3), Exhibit 10.23, as filed with the Securities
and Exchange Commission on May 1, 1998.
10.25 --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.
10.34 --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.
10.35 --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.
10.36 --Form of Revised Senior Vice President Severance Agreement is
incorporated by reference from the Company's Form 10-K for the
fiscal year ended February 1, 1997, Part IV, Item 14(a)(3),
Exhibit 10.40, as filed with the Securities and Exchange
Commission on May 2, 1997.
10.37 --Form of Revised Senior Vice President Severance Agreement is
incorporated by reference from the Company's Form 10-Q for the
quarterly period ended May 3, 1997, Part II, Item 6, Exhibit 10,
as filed with the Securities and Exchange Commission on June 6,
1997.
10.38 --Form of President Severance Agreement is incorporated by
reference from the Company's Form 10-K for the fiscal year ended
February 1, 1997, Part IV, Item 14(a)(3), Exhibit 10.41, as filed
with the Securities and Exchange Commission on May 2, 1997.
10.39 --Corporate Bonus Plan for Fiscal Year Ended January 31, 1998 and
Subsequent Fiscal Years is incorporated by reference from the
Company's Form 10-Q for the quarterly period ended August 2,
1997, Part II, Item 6, Exhibit 10, as filed with the Securities
and Exchange Commission on September 16, 1997.
10.40 --Stipulation and Order, dated October 6, 1997, among Bradlees
Stores, Inc., Bradlees, Inc. and their Affiliates and Mark A.
Cohen Settling Claims Arising Under Employment Contract with Mark
A. Cohen and Bar Order, are incorporated by reference from the
Company's Form 10-Q for the quarterly period ended November 1,
1997, Part II, Item 6, Exhibit 10, as filed with the Securities
and Exchange Commission on December 16, 1997.
*10.41 --Revolving Credit and Guaranty Agreement, dated as of ,
between BankBoston, N.A. as Administrative Agent and as Issuing
Bank, and the Borrower, Bradlees Stores, Inc., with Bradlees,
Inc. as Guarantor.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
----------- -----
<C> <S>
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.
*23.1 --Consent of Counsel (included in Exhibit 5.1 hereto).
+23.2 --Consent of Arthur Andersen LLP.
+23.3 --Consent of Deloitte & Touche LLP.
#24.1 --Power of Attorney
*25.1 --Statement of Eligibility on Form T-1.
</TABLE>
- --------
# Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (SEC File No. 333-66953) filed with the Securities and Exchange
Commission on November 6, 1998.
* To be filed by amendment.
+ Filed herewith.
(b) Financial Statement Schedule filed as part of this Registration
Statement is as follows:
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AUGUST 1, 1998 (UNAUDITED)
Condensed Consolidated Statements of Operations for the thirteen weeks ended
August 1, 1998 (unaudited) and August 2, 1997 (unaudited)
Condensed Consolidated Statements of Operations for the twenty-six weeks ended
August 1, 1998 (unaudited) and August 2, 1997 (unaudited)
Condensed Consolidated Balance Sheets as of August 1, 1998 (unaudited) and
August 2, 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended
August 1, 1998 (unaudited) and August 2, 1997 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
CONSOLIDATED FINANCIAL STATEMENTS AS OF JANUARY 31, 1998
Report of Independent Public Accountants-Arthur Andersen LLP
Independent Auditors' Report-Deloitte & Touche LLP
Consolidated Statements of Operations for the fiscal years ended January 31,
1998, February 1, 1997 and February 3, 1996
Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997
Consolidated Statements of Cash Flows for the fiscal years ended January 31,
1998, February 1, 1997 and February 1, 1996
Consolidated Statements of Stockholders' Equity (Deficiency) for the fiscal
years ended January 31, 1998, February 1, 1997 and February 3, 1996
Notes to Consolidated Financial Statements
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANTS HAVE DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF BRAINTREE, THE COMMONWEALTH OF MASSACHUSETTS ON NOVEMBER 24, 1998.
BRADLEES, INC.
/s/ David L. Schmitt
By: _________________________________
NAME:DAVID L. SCHMITT
OFFICE TITLE: SENIOR VICE
PRESIDENT, GENERAL
COUNSEL, SECRETARY
AND CLERK
BRADLEES STORES, INC.
/s/ David L. Schmitt
By: _________________________________
NAME:DAVID L. SCHMITT
OFFICE TITLE: SENIOR VICE
PRESIDENT, GENERAL
COUNSEL, SECRETARY
AND CLERK
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED. EACH PERSON
LISTED BELOW HAS SIGNED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT (I)
IN THEIR CAPACITY AS AN OFFICER OR DIRECTOR OF BRADLEES, INC. AND (II) AS AN
OFFICER OR DIRECTOR OF BRADLEES STORES, INC.
<TABLE>
<S> <C>
SIGNATURE TITLE DATE
* Chief Executive November 24,
- ------------------------------------- Officer (Principal 1998
PETER THORNER Executive Officer)
and Chairman of the
Board
* Senior Vice November 24,
- ------------------------------------- President and Chief 1998
CORNELIUS F. MOSES, III Financial Officer
(Principal
Financial Officer
and Principal
Accounting Officer)
* Director, President November 24,
- ------------------------------------- and Chief Operating 1998
ROBERT LYNN Officer
* Director November 24,
- ------------------------------------- 1998
JACK E. BUSH
</TABLE>
II-6
<PAGE>
<TABLE>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director November 24,
- ------------------------------------- 1998
JOHN A. CURRY
* Director November 24,
- ------------------------------------- 1998
JOHN M. FRIEDMAN, JR.
* Director November 24,
- ------------------------------------- 1998
PATRICIA M. POMERLEAU
* Director November 24,
- ------------------------------------- 1998
SHELDON RUTSTEIN
* Director November 24,
- ------------------------------------- 1998
WILLIS G. RYCKMAN
</TABLE>
* /s/ David L. Schmitt
- -------------------------
DAVID L. SCHMITT, ATTORNEY-IN-FACT
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
----------- -----
<C> <S>
*2.1 --The Company's Plan of Reorganization under Chapter 11 of the Bankruptcy Code.
*2.2 --Form of Indenture.
*2.3 --Form of 9% Convertible Note.
*2.4 --Form of Cure Note.
*2.5 --Form of Tax Note.
*2.6 --Form of Warrant Agreement.
*2.7 --Form of Warrant.
3.1 --Restated Articles of Organization of Bradlees, Inc. are 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. are 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.
*3.3 --Articles of Organization of Bradlees Stores, Inc.
*3.4 --By-laws of Bradlees Stores, Inc.
*3.5 --Form of Amended and Restated Articles of Organization of Bradlees, Inc.
*3.6 --Form of Amended and Restated Articles of Organization of Bradlees Stores, Inc.
#3.7 --Form of Amended and Restated By-laws of Bradlees, Inc.
*3.8 --Form of Amended and Restated By-laws of Bradlees Stores, Inc.
*4.1 --Specimen Certificate for shares of Common Stock, $.01 par value, of Bradlees, Inc.
*5.1 --Opinion of Goodwin, Procter & Hoar LLP with respect to the legality of the securities being
offered.
*10.1 --Registration Rights Agreement.
10.22 --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.
10.23 --Amendment to Amended and Restated Employment Agreement, dated as of November 7, 1997, between and
among Bradlees, Inc., Bradlees Stores, Inc. and Peter Thorner is incorporated by reference from the
Company's Form 10-K for the year ended January 31, 1998, Part IV, Item 14(a)(3), Exhibit 10.23, as
filed with the Securities and Exchange Commission on May 1, 1998.
10.25 --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.
10.34 --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.
10.35 --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.
10.36 --Form of Revised Senior Vice President Severance Agreement is incorporated by reference from the
Company's Form 10-K for the fiscal year ended February 1, 1997, Part IV, Item 14(a)(3), Exhibit
10.40, as filed with the Securities and Exchange Commission on May 2, 1997.
10.37 --Form of Revised Senior Vice President Severance Agreement is incorporated by reference from the
Company's Form 10-Q for the quarterly period ended May 3, 1997, Part II, Item 6, Exhibit 10, as
filed with the Securities and Exchange Commission on June 6, 1997.
10.38 --Form of President Severance Agreement is incorporated by reference from the Company's Form 10-K
for the fiscal year ended February 1, 1997, Part IV, Item 14(a)(3), Exhibit 10.41, as filed with
the Securities and Exchange Commission on May 2, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
----------- -----
<C> <S>
10.39 --Corporate Bonus Plan for Fiscal Year Ended January 31, 1998 and Subsequent Fiscal Years is
incorporated by reference from the Company's Form 10-Q for the quarterly period ended August 2,
1997, Part II, Item 6, Exhibit 10, as filed with the Securities and Exchange Commission on
September 16, 1997.
10.40 --Stipulation and Order, dated October 6, 1997, among Bradlees Stores, Inc., Bradlees, Inc. and
their Affiliates and Mark A. Cohen Settling Claims Arising Under Employment Contract with Mark A.
Cohen and Bar Order, are incorporated by reference from the Company's Form 10-Q for the quarterly
period ended November 1, 1997, Part II, Item 6, Exhibit 10, as filed with the Securities and
Exchange Commission on December 16, 1997.
*10.41 --Revolving Credit and Guaranty Agreement, dated as of , between BankBoston, N.A. as
Administrative Agent and as Issuing Bank, and the Borrower, Bradlees Stores, Inc., with Bradlees,
Inc. as Guarantor.
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.
*23.1 --Consent of Counsel (included in Exhibit 5.1 hereto).
+23.2 --Consent of Arthur Andersen LLP.
+23.3 --Consent of Deloitte & Touche LLP.
#24.1 --Power of Attorney.
*25.1 --Statement of Eligibility on Form T-1.
</TABLE>
- --------
# Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (SEC File No. 333-66953) filed with the Securities and Exchange
Commission on November 6, 1998.
*To be filed by amendment.
+Filed herewith.
<PAGE>
EXHIBIT 23.2
[AA LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made part of this
registration statement.
/s/ Arthur Andersen LLP
New York, New York
November 23, 1998
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-66953 of Bradlees, Inc. and Bradlees Stores, Inc. of our report dated March
20, 1997 (November 23, 1998 with respect to Note 16) on Bradlees, Inc.
consolidated financial statements (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, and (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) appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
November 23, 1998
