<PAGE>
As filed with the Securities and Exchange Commission on January 28, 1999
Registration Statement No. 333-66953
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
PRE-EFFECTIVE
AMENDMENT NO. 2
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.-- 5311 Bradlees, Inc.--04-
Massachusetts (Primary Standard 3156108
Bradlees Stores, Inc.-- Industrial Classification Bradlees Stores, Inc.--
Massachusetts Code Number) 04-3220855
(State or other (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.
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<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 JANUARY 28, 1999
PROSPECTUS
BRADLEES, INC.
7,267,424 Shares of Common Stock
BRADLEES STORES, INC.
$36,000,000 of 9% Convertible Notes
Bradlees, Inc. and its subsidiary companies operate discount department
stores in the Northeast through Bradlees, Inc.'s subsidiary, Bradlees Stores,
Inc. 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. and
the Common Stock issuable upon conversion of the Convertible Notes.
We are registering these securities on behalf of the Selling Securityholders.
The Selling Securityholders received these securities, directly or indirectly,
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 6.
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 January , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PROSPECTUS SUMMARY........................................................ 2
The Company.............................................................. 2
The Offering............................................................. 3
Summary Financial Data................................................... 5
RISK FACTORS.............................................................. 6
Economic and Industry Risks.............................................. 6
Competition............................................................. 6
Concentration in the Northeast.......................................... 6
Merchandising Strategy Must Successfully Evolve......................... 6
Labor Negotiations...................................................... 6
Financial Risks.......................................................... 7
High Leverage........................................................... 7
History of Losses....................................................... 7
Restrictions Imposed by the Terms of the BankBoston Facility............ 7
Risk to Continuing Operations if Covenants Not Met...................... 8
Limitations on Future Growth............................................ 8
Liquidity............................................................... 8
Assets Pledged as Collateral under the BankBoston Facility.............. 8
Post-Bankruptcy Risks.................................................... 9
Recent Emergence from Chapter 11 Proceedings............................ 9
Fresh Start Reporting May Make Future Financial Statements Difficult to
Compare................................................................ 9
Determination of Equity Value........................................... 9
Tax Consequences of the Plan of Reorganization; Potential Loss of
Certain Tax Attributes................................................. 9
Risks Related to the Securities.......................................... 10
Limited Market for Common Stock and Notes............................... 10
Restrictions on Common Stock Dividends.................................. 10
Future Stock Issuances Can Dilute Current Owners........................ 10
Guarantor Does not Have Significant Separate Assets..................... 11
Fraudulent Conveyance Matters........................................... 11
Miscellaneous Business Risks............................................. 11
Dependence on key personnel............................................. 11
Potential Year 2000 Liability........................................... 11
Change of Control not Restricted........................................ 12
Board of Directors May Change........................................... 12
THE COMPANY............................................................... 13
General.................................................................. 13
Background to Our Bankruptcy Reorganization.............................. 13
The Plan of Reorganization............................................... 13
USE OF PROCEEDS........................................................... 18
DIVIDEND POLICY........................................................... 18
CAPITALIZATION............................................................ 19
SELECTED FINANCIAL DATA................................................... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 30
Results of Operations.................................................... 30
1997 Compared to 1996.................................................... 30
1996 Compared to 1995.................................................... 32
Year-to-Date 1998 Compared to Year-to-Date 1997.......................... 33
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
Liquidity and Capital Resources............................................ 34
Year 2000 Readiness Disclosure............................................. 35
BUSINESS.................................................................... 37
Company Overview........................................................... 37
Employees and Collective Bargaining Arrangements........................... 38
Competition................................................................ 38
Patents, Trademarks and Licenses........................................... 39
Seasonality................................................................ 39
Credit Facility............................................................ 39
Further Information........................................................ 39
Facilities................................................................. 40
Legal Proceedings.......................................................... 40
MANAGEMENT.................................................................. 41
Directors and Executive Officers........................................... 41
Board of Directors of Bradlees, Inc. and Its Committees.................... 43
Board of Directors of Bradlees Stores, Inc................................. 44
Summary Compensation Table................................................. 45
Corporate Bonus Plan....................................................... 46
Enterprise Appreciation Incentive Plan..................................... 46
Management Emergence Bonus Plan............................................ 46
Severance Program.......................................................... 47
Stock Option Plan for Key Employees........................................ 47
Retirement Plans........................................................... 47
Compensation of Directors.................................................. 48
Employment Agreement with Peter Thorner.................................... 48
Compensation Committee Interlocks and Insider Participation................ 49
PRINCIPAL STOCKHOLDERS...................................................... 50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 51
Other Transactions......................................................... 51
Company Policy............................................................. 51
SELLING SECURITY HOLDERS.................................................... 51
PLAN OF DISTRIBUTION ....................................................... 52
Type of Transactions....................................................... 52
Price of Transaction; Fees................................................. 52
SHARES ELIGIBLE FOR FUTURE SALE............................................. 53
TERMS OF OUTSTANDING INDEBTEDNESS........................................... 53
Credit Agreement........................................................... 53
CAP Notes.................................................................. 54
Cure Notes................................................................. 55
Tax Notes.................................................................. 55
DESCRIPTION OF THE 9% CONVERTIBLE NOTES..................................... 55
General.................................................................... 55
Ranking.................................................................... 55
Redemption................................................................. 56
Limitations on Mergers and Consolidation................................... 56
Guarantee.................................................................. 57
Events of Default, Notice and Waiver....................................... 57
Modification of the Indenture.............................................. 58
Collateral................................................................. 58
Conversion................................................................. 59
Governing Law.............................................................. 59
The Trustee................................................................ 59
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
Authentication............................................................. 59
DESCRIPTION OF CAPITAL STOCK................................................ 60
General.................................................................... 60
Authorized and Outstanding Capital Stock................................... 60
Certain Provisions of the Articles and By-laws of Bradlees, Inc............ 60
Massachusetts Anti-takeover Laws........................................... 62
Certain Provisions of the Articles and By-laws of Bradless Stores, Inc. ... 62
Transfer Agent and Registrar............................................... 63
Listing.................................................................... 63
LEGAL MATTERS............................................................... 63
EXPERTS..................................................................... 63
ADDITIONAL INFORMATION...................................................... 63
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;
. availability of new store sites;
. 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. and its subsidiary companies operate discount department
stores in the Northeast through Bradlees, Inc.'s subsidiary, Bradlees Stores,
Inc. (collectively, the "Company"), primarily in the Boston to Philadelphia
corridor. We have been active in the discount department store business for 40
years.
On June 23, 1995, we filed a petition for relief under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11"). On January 29, 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, as subsequently modified, was
confirmed by the Bankruptcy Court on January 27, 1999 and became effective on
January 29, 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 "The Company--The 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 9%
Convertible 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).. 10,225,711 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
Outstanding................ $40,000,000 aggregate principal amount.
Maturity.................... January 29, 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 (i) a
first priority lien on our leasehold interest in
our Yonkers, New York store, which we are seeking
to sell, (and the net proceeds we receive upon
its disposition), (ii) under certain
circumstances and subject to certain limitations,
first priority liens on our leasehold interests
in our Danbury, Connecticut, Norwalk, Connecticut
and Saddle Brook, New Jersey stores (none of
which we are currently seeking to sell), and
(iii) a second priority pledge of all of the
outstanding capital stock of New Horizons of
Yonkers, Inc. The disposition of the Yonkers, New
York store is subject to Bankruptcy Court
approval. In addition, pursuant to the Plan of
Reorganization we have modified the termination
date and certain other provisions of our lease
for our Union Square, New York store in exchange
for a payment upon the Effective Date of $11.0
million by the landlord. This payment will be
applied as a pre-payment to the 9% Convertible
Notes.
3
<PAGE>
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.
4
<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 thirty-
nine weeks ended October 31, 1998 and November 1, 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 thirty-nine weeks ended October 31, 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 39 Weeks Ended
---------------------------------------------- --------------------------------
1997 October 31, 1998
---------------------- -------------------
Pro Pro November 1,
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 $906,385 $903,074 $895,220
Gross margin............ 396,357 384,457 434,067 491,691 271,002 270,163 269,699
Operating expenses(b)... 401,578 373,281 530,757 612,102 296,180 282,768 308,666
Operating income
(loss)................. (5,221) 11,176 (96,690) (120,411) (25,178) (12,605) (38,967)
Loss before income
taxes.................. (22,557) (18,525) (218,759) (311,946) (34,583) (33,794) (48,480)
Income tax benefit...... - - - 104,533 - - -
Net loss................ $ (22,557) $ (18,525) $ (218,759) $ (207,413) $(34,583) $(33,794) $(48,480)
Loss per share:
Basic and diluted...... $ (1.98) $ (1.81) $ (19.17) $ (18.17) $ (3.06) $ (3.30) $ (4.26)
Shares used for
computation:
Basic and diluted...... 11,365 10,226 11,412 11,416 11,311 10,226 11,382
Ratio of earnings to
fixed charges(c)....... - - - - - - -
</TABLE>
<TABLE>
<CAPTION>
October 31, 1998
--------------------
January 31, Pro
1998 Historical Forma(a)
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<S> <C> <C> <C>
Balance Sheet Data:
Working capital(d)........................ $ 46,151 $ 10,836 $(15,939)
Total assets.............................. 595,166 661,410 596,515
Long-term debt, less current
maturities(d)............................ 27,073 26,211 61,440
Total stockholders equity (deficiency).... $(285,950) $(320,532) $ 85,000(e)
</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
thirty-nine week period ended October 31, 1998 is presented as if the Plan
was consummated on February 1, 1997, and the balance sheet data at October
31, 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 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.
(e) See "Risk Factors--Post Bankruptcy Risks--Determination of Equity Value."
5
<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. Caldor
Corp., which has been in bankruptcy since 1995, announced on January 22, 1999
that it intends to close all of its stores and liquidate its assets. 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.
6
<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 pro forma consolidated ratio of total debt to total capitalization
as of October 31, 1998 was approximately 0.73:1. 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 the 39 weeks ended October 31, 1998,
we reported a net loss of $34.5 million as compared to a net loss of $48.5
million for the 39 weeks ended November 1, 1997. Additionally, our November and
December sales performance was below plan. 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. There can be no assurance that we will achieve or maintain
profitability in any future period. See "Management Discussion and Analysis of
Financial Condition and Results of Operations."
Restrictions Imposed by the Terms of the BankBoston Facility
The BankBoston Facility is a $270 million financing facility which includes
a $20 million junior secured "last in-last out" subfacility 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, subject to
certain exceptions; and
7
<PAGE>
. agreeing not to let certain financial ratios which measure our debt
coverage and accounts payable to inventory ratios drop below specified
levels.
See also "Terms of Outstanding Indebtedness-Credit Agreement."
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 "Terms of Outstanding 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 new store
sites 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.
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.
We plan to sell our leasehold interest in our Yonkers, New York store. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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.
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<PAGE>
Post-Bankruptcy Risks
Recent Emergence from Chapter 11 Proceedings
We emerged from Chapter 11 proceedings on January 29, 1999. Our experience
in and recent emergence from Chapter 11 may affect our ability to negotiate
favorable trade terms with certain 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
For accounting purposes, we plan to use the end of our fiscal year ended
January 30, 1999 as our emergence date. In accordance with AICPA Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7"), we will adopt "Fresh-Start Reporting" and will
reflect the effects of such adoption on our Consolidated Balance Sheet as of
January 30, 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 will
include a 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 the price of our securities to fluctuate more than the prices of the
securities of our competitors.
Determination of Equity Value
The determination of equity value included in the unaudited pro forma
condensed consolidated financial statements and elsewhere in this Prospectus
was derived from an estimated enterprise value of the reorganized Bradlees and
reduced by estimated embedded debt levels. The enterprise value was developed
by an independent financial advisor for purposes of the filing of our
Disclosure Statement in the United States Bankruptcy Court for the Southern
District of New York in October 1998 (the "Disclosure Statement"). In
developing the determination of equity value, our financial advisor used
various assumptions and estimates, including projected embedded debt of
approximately $90 million which represents the ongoing revolver facility that
is estimated to remain after the seasonal cleanup of the facility. As a result,
the equity value was assumed to be in the range of $75 to $90 million. For
purposes of the Disclosure Statement and this Prospectus, we have determined
that an equity value of $85 million represents a reasonable estimate of
distributable equity value to the creditors. Subsequent to the filing of the
Disclosure Statement, a number of events have occurred which may impact the
determination of equity value, including but not limited to, information
regarding our fourth quarter performance, a settlement with a landlord
regarding the disposition of a leasehold interest and the pending liquidation
of Caldor, a major competitor.
In finalizing our fresh start reporting requirements, we are required to
perform a final appraisal of the book value of our equity which will take into
account the above matters and other pertinent events, and may likely result in
a change to the determination of equity value reflected in the unaudited pro
forma financial information. Accordingly, this equity value does not purport to
be an estimate of current or future trading prices of securities and actual
market prices of such securities after issuance will depend on various factors
not possible to predict with certainty.
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
9
<PAGE>
("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 included 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 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 "Terms of Outstanding Indebtedness-Credit Agreement."
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 (March 30, 1999 to April 29,
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.
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<PAGE>
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 Agreement with Peter Thorner."
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 are using 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, the
majority of which is being incurred in 1998 and included in SG&A expenses.
Through October 31, 1998, we have incurred $1.9 million for such expense.
The remaining major systems to be remediated or replaced are the Company's
merchandise planning system (approximately 50% remediated) and store host
systems (approximately 30% remediated) expected to be completed by the end of
the first quarter of 1999, and the warehouse management system that is
scheduled to be replaced by the end of the second quarter of 1999. A test of
all systems, including store support and facility systems, for proper Year 2000
compliance is planned for the end of the second quarter of 1999.
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
11
<PAGE>
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 takeover, thus reducing the ability of the
Board to obtain maximum value for shareholders in a takeover.
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.
12
<PAGE>
THE COMPANY
General
Bradlees, Inc. ("Bradlees") and its subsidiary companies operate 103
discount department stores as of January 1, 1999, in seven states in the
Northeast, through Bradlees, Inc.'s subsidiary, Bradlees Stores, Inc.
(collectively, the "Company") primarily in the heavily populated corridor
running from the Boston to the Philadelphia metropolitan areas. One store is
planned to be closed in March, 1999. Headquartered in Braintree, Massachusetts,
the Company and its predecessor have been active in the discount department
store business for 40 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 an initial 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
and filed an Amended Plan of Reorganization and related disclosure statement
with the Bankruptcy Court on October 2, 1998. Our Plan of Reorganization was
originally confirmed by the Bankruptcy Court on November 18, 1998. The United
States District Court for the Southern District of New York reversed this
confirmation on December 23, 1998. We modified the Plan of Reorganization, and
the modified Plan of Reorganization was confirmed by the Bankruptcy Court on
January 27, 1999. The modified Plan of Reorganization became effective on
January 29, 1999 (the "Plan of Reorganization"). 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.
13
<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.
14
<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 $13,300,000 as of
January 27, 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. The Bankruptcy Court approved the disclosure
statement on October 5, 1998 and confirmed the modified Plan of Reorganization
on January 27, 1999.
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 primarily paid down through proceeds of
sale of our leasehold interest in our Yonkers, New York store and the
modification of the lease terms of our Union Square, New York store;
15
<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.
The Plan of Reorganization became effective January 29, 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 $265 million. The holders of
these claims are expected to receive:
. $30.6 million in cash;
. 9% Convertible Notes in an original aggregate principal amount equal
to $40.0 million;
. 10,225,711 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 January 29,
2004);
. 9% CAP Notes in an original aggregate principal amount of $547,094;
. 9% Cure Notes in an original aggregate principal amount of $3.4
million; and
. 9% Tax Notes in an original aggregate principal amount of $3.4
million.
. 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 $250 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 up to
3 years. See "Business -- Credit Facility."
. One of our subsidiaries, New Horizons of Yonkers, Inc., will remain in
Chapter 11. All of the operations of the Yonkers store 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. and Dostra Realty Co.,
Inc., into Bradlees Stores, Inc.
. 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. Altschuler and
Lieberman);
. The Unofficial Committee selected one member (Mr. MacDonald);
. The Creditors Committee selected one member (Mr. Clingman,); and
. The Bank Group, the Unofficial Committee and the Creditors
Committee, acting together, selected two members (Messrs. Blauner
and Roth).
See "Management--Board of Directors of Bradlees, Inc. and Its
Committees."
. We will pay an aggregate emergence bonus of $1,000,000 and entered
into an agreement to pay additional bonuses of $2,000,000 if certain
conditions are met. We also paid deferred bonuses of $1,000,000
to certain executives. See "Executive Compensation -- Management
Emergence Bonus Plan and Corporate Bonus Plan."
16
<PAGE>
. We determined to grant, on or about April 29, 1999, options to
purchase an aggregate of 750,000 shares of Common Stock to certain
members of our management. See "Management--Stock Option Plan for Key
Employees."
. We agreed to register the resale of the Common Stock, the 9%
Convertible Notes, the Common Stock issuable upon the Conversion of
the Notes and the Common Stock issuable upon exercise of the Warrants
received by certain parties, directly or indirectly as a result of
their ownership of participation interests in claims resulting in the
issuance of such securities with the Securities and Exchange
Commission under the Securities Act of 1933.
. 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.
17
<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."
18
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at October 31, 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>
October 31, 1998
--------------------
Pro
Historical Forma
---------- --------
(in thousands)
<S> <C> <C>
Long-term debt, including current maturities:
Liabilities subject to settlement under the
reorganization case................................... $ 548,788 $ - (1)
DIP facility/BankBoston Facility....................... 157,392 165,963
Notes payable.......................................... - 36,300 (2)
Capital lease obligations.............................. 27,249 26,928
--------- --------
Total long-term debt, including current maturities.... 733,429 229,191
Stockholders' equity (deficiency)(3):
Common stock........................................... 115 102 (2)
Additional paid in capital............................. 137,821 84,898 (2)
Accumulated deficit.................................... (457,665) -
Treasury stock, at cost................................ (803) -
--------- --------
Total stockholders' equity (deficiency)................. (320,532) 85,000 (4)
--------- --------
Total capitalization.................................... $ 412,897 $314,191
========= ========
</TABLE>
- --------
(1) Reflects cancellation of liabilities at the Effective Date.
(2) Reflects issuance of $40 million of 9% Convertible Notes less $11 million
repayment from the Union Square proceeds, 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.
(4) See "Risk Factors--Post Bankruptcy Risks--Determination of Equity Value."
19
<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 independent auditors' 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 thirty-nine week periods ended October 31, 1998
and November 1, 1997 and as of October 31, 1998 and November 1, 1997 are
derived from the unaudited condensed consolidated financial statements of the
Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Unaudited
39 Weeks Ended Fiscal Year
----------------------- ----------------------------------------------------------
October 31, November 1,
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............... $ 906,385 $ 895,220 $1,344,444 $1,561,718 $1,780,768 $1,916,555 $1,880,511
Gross margin........... 271,002 269,699 396,357 434,067 491,691 591,160 603,504
Operating expenses(a)... 296,180 308,666 401,578 530,757 612,102 549,154 544,386
Operating income
(loss)................. (25,178) (38,967) (5,221) (96,690) (120,411) 42,006 59,118
Income (loss) before
income taxes and
extraordinary items.... (34,583) (48,480) (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..... (34,583) (48,480) (22,557) (218,759) (207,413) 5,806 13,450
Extraordinary items(b).. - - - - - - (5,200)
Cumulative effect of ac-
counting changes(c).... - - - - - (485) (1,475)
Net income (loss)....... $ (34,583) $ (48,480) $ (22,557) $ (218,759) $ (207,413) $ 5,321 $ 6,775
Income (loss) per share:
Basic and diluted...... $ (3.06) $ (4.26) $ (1.98) $ (19.17) $ (18.17) $ .47 $ .60
Shares used for
computation............ 11,311 11,382 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)...... $ 10,836 $ 19,530 $ 46,151 $ 68,649 $ 200,195 $ 32,874 $ 88,623
Total assets............ 661,410 700,007 595,166 604,200 798,662 884,814 785,845
Long-term debt, less
current maturities(e).. 26,211 32,738 27,073 33,296 53,396 289,643 269,798
Total stockholders' eq-
uity (deficiency)...... $(320,532) $(311,705) $ (285,950) $ (263,293) $ (45,010) $ 163,432 $ 163,680
</TABLE>
- --------
(a) Net of other 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.
20
<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.
21
<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 Effective Date of the Plan of Reorganization had occurred
on October 31, 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 Effective Date 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.
22
<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
Oct. 31, 1998 Debits Credits Oct. 31, 1998
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Unrestricted cash and
cash equivalents...... $ 10,959 $ 11,000 $ 11,000 $ 10,959
Restricted cash and
cash equivalents...... 25,129 - 23,929(2) 1,200
-------- ---------- ----------- --------
Total cash and cash
equivalents.......... 36,088 11,000 34,929 12,159
-------- ---------- ----------- --------
Accounts receivable.... 11,925 11,925
Inventories............ 318,883 1,000(3h) 317,883
Prepaid expenses....... 11,031 - - 11,031
-------- ---------- ----------- --------
Total current assets.. 377,927 11,000 35,929 352,998
-------- ---------- ----------- --------
Property, plant and
equipment, net:
Property excluding
capital leases, net... 123,892 - 11,000(2) 110,692
2,200(3j)
Property under capital
leases, net........... 17,732 9,196(3b) 5,406(3j) 21,522
-------- ---------- ----------- --------
Total property, plant
and equipment, net... 141,624 9,196 18,606 132,214
-------- ---------- ----------- --------
Other assets:
Lease interests at fair
value, net............ 137,350 - 59,530(3j) 77,820
Assets held for sale... - 3,400(2) - 14,000
10,600(3d)
Other, net............. 4,509 2,475(2) 1,222(3g) 4,498
1,264(3i)
Reorganization value in
excess of revalued
assets................ - 14,985(3k) - 14,985
-------- ---------- ----------- --------
Total other assets.... 141,859 31,460 62,016 111,303
-------- ---------- ----------- --------
Total assets.......... $661,410 $ 51,656 $ 116,551 $596,515
======== ========== =========== ========
</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 BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Adjustments Pro Forma
Oct. 31, 1998 Debits Credits Oct. 31, 1998
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable....... $ 179,413 $ - $ - $179,413
Accrued expenses....... 23,221 7,000(2) 2,000(1) 15,746
2,475(3c)
Self-insurance
reserves.............. 6,027 - - 6,027
Short-term debt........ 157,392 - 8,571(2) 165,963
Current portion of
notes and capital
lease obligations..... 1,038 - 750(2) 1,788
--------- ---------- ---------- --------
Total current
liabilities.......... 367,091 9,475 11,321 368,937
--------- ---------- ---------- --------
Long-term liabilities:
Obligations under
capital leases........ 26,211 321(3b) - 25,890
Convertible notes
payable............... - 11,000 40,000(2) 29,000
Deferred income taxes.. 8,581 8,581(3h) - -
Self-insurance
reserves.............. 12,237 - - 12,237
Unfavorable lease
liability............. - - 45,573(3j) 45,573
Other long-term
liabilities........... 19,034 - 2,000(1) 29,878
6,550(2)
2,294(3f)
--------- ---------- ---------- --------
Total long-term
liabilities.......... 66,063 19,902 96,417 142,578
--------- ---------- ---------- --------
Liabilities subject to
settlement under the
reorganization case.... 548,788 548,788(2) - -
Stockholders' equity
(deficiency):
Common stock
Par value............. 115 115(3a) 102(2) 102
Additional paid-in-
capital.............. 137,821 137,821(3a) 84,898(2) 84,898
Accumulated deficit.... (457,665) 4,000(1) 393,463(2) -
68,202(3)
Treasury stock, at
cost.................. (803) - 803(3a) -
--------- ---------- ---------- --------
Total stockholders'
equity (deficiency).. (320,532) 141,936 547,468 85,000
--------- ---------- ---------- --------
Total liabilities and
stockholders' equity
(deficiency)......... $ 661,410 $ 720,101 $ 655,206 $596,515
========= ========== ========== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
24
<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
39 Weeks 39 Weeks
Ended Pro Forma Adjustments Ended
Oct. 31, 1998 Debits Credits Oct. 31, 1998
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Total sales............. $939,203 3,381(1) - $935,822
Leased department
sales.................. 32,818 70(1) - 32,748
-------- --------
Net sales............... 906,385 903,074
Cost of goods sold...... 635,383 - 2,472(1) 632,911
-------- --------
Gross margin............ 271,002 270,163
Leased department and
other operating in-
come................... 8,757 25(1) - 8,732
-------- --------
279,759 278,895
Selling, store
operating,
administrative and
distribution expenses.. 280,326 2,967(3) 631(1) 278,498
1,021(6) 5,773(7)
724(10) 136(11)
Depreciation and amorti-
zation expense......... 24,370 - 3(1) 12,761
5,103(3)
2,253(5)
469(6)
3,781(9)
Loss on disposition of
properties............. 241 241
Interest and debt ex-
pense.................. 11,960 869(4) 1,215(4) 21,189
9,575(8)
Reorganization items.... (2,555) 2,555(2) - -
-------- --------
Net loss................ $(34,583) $(33,794)
======== ========
Comprehensive loss...... $(34,583) $(33,794)
======== ========
Net loss per share - ba-
sic and diluted........ $ (3.06) $ (3.30)(12)
======== ========
Weighted average shares
outstanding (in
thousands) - basis and
diluted................ 11,311 10,226
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
25
<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
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 15,510(9) 3,751(5) 29,701
1,358(5)
Reorganization items.... 752 752(3) -
---------- ----------
Loss before income
taxes.................. (22,557) (18,525)
Income taxes............ - -
---------- ----------
Net loss................ $ (22,557) $ (18,525)
========== ==========
Net loss per share -
basic and diluted..... $ (1.98) $ (1.81)(13)
========== ==========
Weighted average shares
outstanding (in
thousands) - basic and
diluted................ 11,365 10,226
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
26
<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 October 31, 1998, and the unaudited pro forma condensed
consolidated statements of operations for the 52 weeks ended January 31, 1998
and for the 39 weeks ended October 31, 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 unaudited pro forma condensed consolidated financial
statements, the "Effective Date" is assumed to be October 31, 1998 for the
unaudited pro forma condensed consolidated balance sheet, and February 1, 1997
for the unaudited pro forma condensed consolidated 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:
October 31, 1998 Balance Sheet Pro Forma Adjustments
1. Reserves established prior to emergence for emergence-related and
performance bonuses payable on the Effective Date 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. In
connection with the consummation of the Plan, we will receive $11
million in cash for the modification to the Union Square lease and
immediately pay down the 9% Convertible Notes. The reduction of
$11.0 million in property, plant and equipment, net, includes a
write-off of $7.6 million for the Union Square store and a
reclassification of $3.4 million to assets held for sale for one
store lease that is expected to be sold to help fund the further
paydown of the 9% Convertible Notes.
The payment of $23.9 million out of restricted funds and $8.6
million out of borrowings is for certain settlements due under the
POR and for financing costs of $2.5 million associated with the
post-emergence revolver. The total payment of $32.5 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 assigned reorganization value
exceeding the revalued net assets is recorded as a long-term asset.
The calculation of the preliminary and estimated new equity value is
discussed in detail in Section Three (Subsection XIII) of the
Disclosure Statement filed as an exhibit to this Registration
Statement. See also "Risk Factors--Post Bankruptcy Risks--
Determination of Equity Value."
27
<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 October 31, 1998
borrowing rate (12%) for similar financings.
c. Revaluation of the straight-line rent reserve ($2.5 million).
Straight-line rent is recalculated on a going-forward basis by
the reorganized Bradlees.
d. Revaluation of the store lease held for sale to an estimated
total net realizable value of $14 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 $4.3 million
(excluding the impact from the fourth quarter non-union
pension freeze--Note 8 to the October 31, 1998 Form 10-Q) and
additional Supplemental Executive Retirement Plan (the "SERP")
liability of $1.4 million, reduced by the write-off of the
unrecognized FAS No. 106 prior service costs of $3.4 million.
g. Revaluation of the intangible SERP asset ($1.2 million) to its
estimated net realizable value.
h. Write-off ($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 ($1.3
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 $59.5 million in favorable
lease interests and an unfavorable lease liability of $45.6
million for certain locations. The remaining favorable lease
interests and the unfavorable lease liability will both be
amortized to rent expense.
k. Recording of the reorganization value in excess of the
revalued assets at October 31, 1998.
The Company expects to incur charges of approximately $5.1 million prior to
emergence for an estimated going-out-of-business inventory impairment of $1.5
million and other store closing costs of $3.6 million for two store closings
anticipated to occur by the end of fiscal year 1999.
Pro Forma Adjustments - Statement of Operations for the Thirty-nine Weeks
Ended October 31, 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 year to date amortization of deferred
financing costs.
28
<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 slightly higher average revolver borrowing level,
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 were 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 stores
closed in 1998.
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 SERP expense as a result of the effect of
fresh-start reporting.
13. Pro forma earnings per share were 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.
29
<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 (in millions) and the percentages
of net sales for the items reflected in our Statements 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>
Our business is seasonal in nature, with a significant portion of our 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 1996 and a 5.0% decrease in comparable store
sales. The major cause for the decline in comparable
30
<PAGE>
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 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 facilities in 1997 and a $1.1 million
write-off in 1997 of deferred financing costs 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
related 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.
31
<PAGE>
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.
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.
32
<PAGE>
Year-to-Date 1998 Compared to Year-to-Date 1997
<TABLE>
<CAPTION>
39 weeks ended
October 31, 1998 November 1, 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 39 weeks ended October 31, 1998
("Year-to-Date 1998") and for the 39 weeks ended November 1, 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................................. $939.2 $930.7
Leased dept. sales.......................... 32.8 35.5
------ ------
Net sales................................... 906.4 895.2
Cost of goods sold.......................... 635.4 625.5
------ ------
Gross margin................................ 271.0 269.7
Leased dept. and other operating income..... 8.7 8.7
------ ------
279.7 278.4
Selling, store operating, administrative and
distribution expenses...................... 280.3 289.8
Depreciation and amortization expense....... 24.4 27.5
Loss on disposition of properties........... 0.2 -
Interest and debt expense................... 12.0 11.7
Reorganization items........................ (2.6) (2.1)
------ ------
Net loss.................................. $(34.6) $(48.5)
====== ======
Net loss per share........................ $(3.06) $(4.26)
====== ======
Total sales increase (decrease):
All stores................................ 0.9% (19.5)%
Comparable stores......................... 4.7% (7.6)%
</TABLE>
<TABLE>
<CAPTION>
39 Weeks Ended
October 31, 1998 November 1, 1997
---------------- ----------------
<S> <C> <C>
As a percentage of net sales, results were
as follows:
Net sales................................... 100.0 % 100.0 %
Cost of goods sold.......................... 70.1 69.9
----- -----
Gross margin................................ 29.9 30.1
Leased dept. and other operating income..... 0.9 1.0
----- -----
30.8 31.1
Selling, store operating, administrative and
distribution expenses...................... 30.9 32.3
Depreciation and amortization expense....... 2.7 3.1
Loss on disposition of properties........... - -
Interest and debt expense................... 1.3 1.3
Reorganization items........................ (0.3) (0.2)
----- -----
Net loss.................................... (3.8)% (5.4)%
===== =====
</TABLE>
33
<PAGE>
Year-to-Date 1998 total sales increased $8.5 million or 0.9% from Year-to-
Date 1997 due to an increase of 4.7% 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 various
merchandising and marketing initiatives started in 1997, including the
reintroduction of layaway, lower opening price points in certain departments,
more item-intensive and price-point oriented circular ad offerings, the
addition of certain convenience and commodity products to drive traffic, and
the implementation of two key programs: "Certified Value" (highlights certain
key recognizable items at competitive everyday prices) and "WOW!" (integrates
targeted and unadvertised opportunistic purchases).
Gross margin for Year-to-Date 1998 increased $1.3 million, primarily as a
result of the strong comparable store sales and decreased 0.2% as a percentage
of net sales due primarily to a lower initial markup. Leased department and
other operating income was unchanged in Year-to-Date 1998 compared to Year-to-
Date 1997, as 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 $9.5 million or 1.4% as a
percentage of net sales compared to Year-to-Date 1997. The improved SG&A
expense performance was due primarily to advertising, home office and benefits
expense reductions, partially offset by last year's third quarter reduction of
$3.6 million in self-insurance reserves.
Depreciation and amortization expense declined $3.1 million or 0.4% 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 $0.3 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 $162 and $116 million, respectively, in Year-
to-Date 1998 compared to $144 and $85 million, respectively, in Year-to-Date
1997, and the weighted average revolver interest rate was 7.93% during Year-to-
Date 1998 compared to 7.51% in the prior-year period. The unfavorable impact on
Year-to-Date 1998 interest expense from these factors was mostly offset by
lower bank fees, lower capital lease interest expense and lower amortization of
deferred financing costs.
Reorganization credits of $2.6 and $2.1 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.
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 $157.4 million at October 31, 1998,
exclusive of the issuance of letters of credit, under our $250 million DIP
Facility (Note 4). As of November 1, 1997, we had outstanding borrowings of
$131.5 million, exclusive of the issuance of letters of credit, under the prior
DIP facility (Note 4). The increase in borrowings since the end of the third
quarter of 1997 relates primarily to the net loss incurred in Year-to-Date
1998, along with payments for Chapter 11 professional fees and other
reorganization expenses.
We currently expect our borrowings, exclusive of the issuance of letters of
credit, for the fourth quarter of 1998 to peak at approximately $167 million in
November, 1998 and average approximately $120 million. The revolver amount
available to borrow in the fourth quarter of 1998, after deducting expected
letters of credit outstanding, is currently expected to peak at approximately
$225 million in November, 1998 and average approximately $185 million.
34
<PAGE>
Other than payments made to certain pre-petition creditors approved by the
Bankruptcy Court (Notes 2 and 4), 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 the Plan of Reorganization has been consummated. 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 $48.8 million, compared to $50.8 million of cash used by operations before
reorganization items in Year-to-Date 1997. Net cash used by reorganization
items in Year-to-Date 1998 of $10.3 million was comprised of professional fee
payments of $7.8 million and store closing and severance costs of $3.2 million,
partially offset by interest income on restricted funds of $0.7 million.
Inventories at October 31, 1998 decreased $16.5 million from November 1,
1997, due primarily to the closing of six stores in February 1998 (inventories
decreased approximately $1.1 million, excluding the impact of the closed
stores). Accounts payable at October 31, 1998 decreased $16.9 million from
November 1, 1997, mostly due to the decrease in inventories. The increases in
inventories and accounts payable from January 31, 1998 were primarily the
result of normal seasonal build-ups.
Accrued expenses at October 31, 1998 were $7.3 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 $11.4 million lower
than at November 1, 1997, due primarily to reductions in severance reserves,
vacation pay liabilities and store closing costs.
We incurred capital expenditures of $10.4 million in Year-to-Date 1998
(compared to $14.7 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 total approximately $18 to $20 million, primarily
for management information systems (including the initial expenditures for a
warehouse management system expected to be completed in 1999 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.
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 our 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.
Year 2000 Readiness Disclosure
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
35
<PAGE>
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, the majority of which is being incurred in 1998
and included in SG&A expenses. Through October 31, 1998, we have incurred $1.9
million for such expense.
The remaining major systems to be remediated or replaced are the Company's
merchandise planning system (approximately 50% remediated) and store host
systems (approximately 30% remediated) expected to be completed by the end of
the first quarter of 1999, and the warehouse management system that is
scheduled to be replaced by the end of the second quarter of 1999. A test of
all systems, including store support and facility systems, for proper Year 2000
compliance is planned for the end of the second quarter of 1999.
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.
36
<PAGE>
BUSINESS
Company Overview
We operate 103 discount department stores as of January 1, 1999, in seven
states in the Northeast, primarily in the heavily populated corridor running
from the Boston to the Philadelphia metropolitan areas. One store is planned to
be closed in March, 1999. Headquartered in Braintree, Massachusetts, the
Company and its predecessor have been active in the discount department store
business for 40 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
37
<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
that is planned to be completed in 1999. We also installed a new mainframe
computer and point-of-sale controllers and modified 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. We currently
plan to sell our leasehold interests in our Yonkers, New York. We are also in
the process of closing our Danvers, Massachusetts store. 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 December 1, 1998, we employed 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. Caldor Corp., which has been in bankruptcy since 1995,
announced on January 22, 1999 that it intends to close all of its stores and
liquidate its assets. 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
assurances 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.
38
<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 until December 23, 2001. We can use the BankBoston
Facility for working capital, general business needs and to pay off our DIP
Facility.
The senior secured tranche has an advance rate equal to 80% of the Loan
Value of Eligible Receivables, plus generally 72% of the Loan Value of Eligible
Inventory, subject to certain adjustments. The Company may also borrow up to an
additional $20 million under the junior secured facility provided that the
total inventory borrowings do not exceed 93% of the Loan to Value Ratio.
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, subject to
certain exceptions;
. agreeing not to let certain financial ratios which measure our debt
coverage and accounts payable to inventory ratios drop below specified
goals.
See "Terms of Outstanding Indebtedness-Credit Agreement."
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."
39
<PAGE>
FACILITIES
The following chart shows the geographic distribution of our stores as of
January 1, 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 1, 1999, our stores, including the one store which is in the
process of closing and one store which is expected to close by the end of
fiscal year 1999, occupied a total of approximately 7,820,151 square feet of
selling area. We lease all of our stores, two distribution centers and central
office under long-term leases.
Pursuant to the Plan of Reorganization, in exchange for a payment of $11.0
million by the landlord, we have revised certain terms of the lease for our
Union Square, New York store, including amending the expiration date of such
lease to be March 15, 2000 and eliminating lease terms which allowed for
extensions of the lease. In addition, we have agreed to a $1.1 million annual
increase in the rent for the remaining term of the 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 modified plan of
reorganization was confirmed on January 27, 1999, 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.
40
<PAGE>
MANAGEMENT
Directors and Executive Officers
The names, ages, and current positions of all of the executive officers and
directors of Bradlees, Inc. as of January 15, 1999 are listed below along with
their business experience during the past five years. The Directors of Bradlees
Stores, Inc. are Messrs. Thorner, Moses and Schmitt. The executive officers of
Bradlees Stores, Inc. are the same as those of Bradlees, Inc.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert A. Alt-
schuler....... 42 Director
Robert W.
Benenati...... 50 Senior Vice President, Logistics
Stephen J.
Blauner....... 45 Director
W. Edward
Clingman,
Jr. .......... 45 Director
Bruce
Conforto..... 46 Senior Vice President, Chief Information Officer
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. .... 54 Director
Mark E.
James........ 49 Senior Vice President, Marketing
Lawrence Lie-
berman....... 50 Director
Robert G.
Lynn......... 48 Director, President and Chief Operating Officer
Charles K.
MacDonald.... 40 Director
Cornelius F.
Moses
III(1)....... 40 Senior Vice President, Chief Financial Officer
Ronald T. Ray-
mond......... 55 Senior Vice President, Asset Protection
William H.
Roth......... 46 Director
David L.
Schmitt(1)... 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 Thorn-
er(1)........ 55 Chairman and Chief Executive Officer
</TABLE>
- --------
(1) Director of Bradlees Stores, Inc.
Mr. Altschuler became a Director of the Company in January 1999. He has
served as Vice President and Director of Leasing for Marx Realty & Improvement
Co. Inc. since 1987.
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. Blauner became a Director of the Company in January 1999. He has served
as a consultant on bankruptcy and distressed investing for a small group of
clients since January 1998. In addition, since 1998 Mr. Blauner has served in
an Of Counsel position to the law firm of Milbank, Tweed, Hadley & McCloy for
the purposes of representing the Loan Syndications and Trading Association,
Inc. as its outside general counsel. From prior to 1993 to December 1997, he
served as a partner and head of the bankruptcy department at Milbank, Tweed,
Hadley & McCloy.
Mr. Clingman became a Director of the Company in January 1999. He has served
as President and Chief Executive Officer of Best Products Co., Inc. ("Best
Products") from January 1997 to the present (during Best Products' liquidation
and related wind-down). Prior to serving as President and Chief Executive
Officer, Mr. Clingman served as Senior Vice President, General Counsel and
Secretary from May 1996 to December 1996. He served as Vice President, General
Counsel and Secretary from March 1993 to May 1996. Mr. Clingman serves as a
director of Best Products.
41
<PAGE>
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. 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 from prior to 1993 to December 1996.
Mr. Lieberman became a Director of the Company in January 1999. He has
served as Vice President, Merchandising for ABC Home Furnishings Inc. since
December 1990.
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. MacDonald became a Director of the Company in January 1999. He has
served as President of Morgandane Management Corp., an investment advisory
firm, from 1997 to the present. From prior to 1993 to 1995, he was a portfolio
manager for Stonington Management Corp. Mr. MacDonald also serves as a director
of Atlantic Gulf Communities Corp.
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.
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. Roth became a Director of the Company in January 1999. He has served as
a partner at the law firm of Kelly & Roth since 1987.
42
<PAGE>
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, and Mr. Clingman was Senior Vice President,
General Counsel and Secretary 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.
Board of Directors of Bradlees, Inc. and Its Committees
The business of Bradlees, Inc. is managed under the direction of the Board
of Directors. As of the Effective Date, there are nine members of the Board of
Directors of Bradlees, Inc. These directors were selected pursuant to the Plan
and assumed their positions immediately prior to the Effective Date. The
Amended and Restated Articles of Organization of Bradlees, Inc. provide that
the members of 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.
Bradlees, Inc. intends to hold its first annual meeting after the Effective
Date in the Spring of 2000.
The Board of Bradlees, Inc. has established an audit committee (the "Audit
Committee"), a compensation committee (the "Compensation Committee") and a
nominating committee (the "Nominating Committee"). The Audit Committee, which
consists solely of outside directors, recommends to the Board of Directors the
firm to be appointed as independent accountants to audit financial statements
and to perform
43
<PAGE>
services related to the audit. 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 Bradlees,
Inc. 1999 Stock Option Plan (the "Stock Plan"). In addition, the Compensation
Committee establishes, amends and revokes rules and regulations for
administration of the Stock Plan.
The Nominating Committee consists of the Chairman of the Board and two other
non-employee 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.
Board of Directors of Bradlees Stores, Inc.
The business of Bradlees Stores, Inc. is managed by its Board of Directors.
As of the Effective Date, there were three members of its Board of Directors.
The Amended and Restated Articles of Organization of Bradlees Stores, Inc.
provide that the members of the Board of Directors shall serve initial terms
which will expire upon the election and qualification of directors at each
annual meeting of stockholders.
44
<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.
45
<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. The remaining three-quarters of the bonuses were
previously paid. See "Summary Compensation Table."
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 executives were selected to participate in
our Management 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
46
<PAGE>
recoupment. If an employee is involuntarily terminated without Cause,
voluntarily leaves for Good Reason, or leaves due to death or disability, then
the employee does not have to return any payments under the Emergence Bonus
Plan and is entitled to receive any portion of the payments to be made under
the Emergence Bonus Plan within 30 days after the date of termination of
employment.
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, the Bradlees, Inc. 1999 Stock Option
Plan (the "Stock Plan") became effective. 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 for
our non-union employees 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
47
<PAGE>
Retirement Plan. The benefits from the Supplemental Plan are payable in the
form of a single lump sum amount. The following table shows the estimated
annual retirement benefits which will be payable to participating employees
from the Retirement Plan and the Supplemental Plan in the form of a straight
life annuity upon normal retirement at age 65 after selected periods of
service. These benefits presented below do not reflect the Social Security
offset described above and do not take into account any reduction for joint and
survivor payments.
Pension Plan Table
Estimated Annual Retirement Benefits
<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
48
<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.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our Common Stock as of January 29, 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. All of the Common Stock of Bradlees
Stores, Inc. is owned by Bradlees, Inc.
<TABLE>
<CAPTION>
Directors, Executives
Officers,
and 5% Beneficial Shares Beneficially Owned
Owners(1)(2) Prior to the Offering(2) Percentage(3)
--------------------- ------------------------- -------------
<S> <C> <C>
Ariel Fund Limited..................... 2,853,981 27.9%
Gabriel Capital, L.P. ................. 1,934,578 18.9%
Elliott Associates, L.P................ 473,100 4.6%
Westgate International, L.P............ 990,046 9.7%
Robert A. Altschuler................... 0 *
Robert W. Benenati..................... 0 *
Stephen J. Blauner..................... 0 *
W. Edward Clingman, Jr................. 0 *
Bruce Conforto......................... 0 *
Gregory Dieffenbach.................... 0 *
Judith Dunning......................... 0 *
John M. Friedman, Jr. ................. 0 *
Mark James............................. 0 *
Lawrence Lieberman..................... 0 *
Robert Lynn............................ 0 *
Charles K. MacDonald................... 0 *
Cornelius F. Moses, III................ 0 *
Ronald T. Raymond...................... 0 *
William H. Roth........................ 0 *
David L. Schmitt....................... 0 *
Sandra Smith........................... 0 *
Thomas N. Smith........................ 0 *
James C. Sparks........................ 0 *
Peter Thorner.......................... 0 *
All directors and executive officers
as a group (consisting of 20 people).. 0 *
</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 Ariel Fund Limited, the mailing address is c/o Maples & Calder,
P.O. Box 309, Grand Cayman, Cayman Islands, BWI. For Gabriel Capital, L.P.,
the mailing address is 450 Park Avenue, New York, New York 10627. For
Elliott Associates, L.P. and Westgate International, L.P., the mailing
address is 712 Fifth Avenue, 36th Floor, New York, New York 10019.
(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.
(3) Percentage ownership prior to this Offering is based upon 10,225,711 shares
of Common Stock issued and outstanding as of January 29, 1999.
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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 is interest-free and payable on January 30, 1999. Any bonus payments
payable to Mr. Smith prior to January 30, 1999 shall be 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 Ariel Fund Limited, Gabriel Capital, L.P.,
Elliott Associates, L.P. and Westgate International, L.P.
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
Common Stock(1) of Notes
--------------- ----------------
<S> <C> <C>
Ariel Fund Limited(2).......................... 2,853,981 $ 17,421,221
Gabriel Capital, L.P.(2)....................... 1,934,578 $ 11,809,016
Elliott Associates, L.P. ...................... 473,100 $ 540,000
Westgate International, L.P. .................. 990,046 $ 4,532,875
------------ --------------
TOTAL........................................ 6,251,705(3) $34,303,112(3)
</TABLE>
- --------
(1) 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) J. Ezra Merkin ("Merkin") is the sole general partner of Gabriel Capital,
L.P. Gabriel Capital Corp. is the investment advisor for Ariel, and Merkin
is the sole shareholder, sole director and president of Gabriel Capital
Corp.
(3) Additional securities have been registered hereby on behalf of parties
which may receive such securities in connection with the Companies'
emergence from Chapter 11 and which parties have not yet been identified.
Once identified, such parties will be listed above pursuant to a post-
effective amendment of the Registration Statement of which this Prospectus
forms a part.
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PLAN OF DISTRIBUTION
Type of Transactions.
The Selling Securityholders (and donees, pledgees, transferees or other
successors in interest receiving Securities from a Selling Securityholder after
the date of this Prospectus) may offer and sell all or a portion of their
Securities at various times in one or more of the following types of
transactions:
. In the over-the-counter market;
. In private transactions and 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, swaps or derivatives (exchange-listed or otherwise)
and in settlement of other transactions in standardized or over-the-
counter options;
. cross or block trades;
. "at the market" to or through market makers, into an existing
market;
. direct sales to purchasers, sales effected through agents;
. hedging transactions with broker-dealers (who may short the Common
Stock); 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 that may be changed. 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 10,225,711 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 or
pursuant to a registration statement on Form S-8 as described below.
As of January 29, 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 April, 1999. In addition, 1,000,000 shares of
Common Stock were reserved for issuance under Warrants outstanding as of
January 29, 1999. The Warrants will expire on January 29, 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 "last-in last-out" secured subfacility. This facility is for
a period expiring on December 23, 2001 and may not exceed a maximum principal
amount of $270 million. The initial advances
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under this BankBoston Facility were 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 are secured by a first-priority
security interest in all of our assets, properties and rights, except for our
interest in any owned or leased real property. The security interest of the
junior secured facility, though a first-priority interest, ranks behind the
security for the senior secured facility.
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
(subject to certain exceptions);
. 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 $547,094. The CAP Notes bear
interest at a rate equal to nine percent (9%) per annum. Principal and accrued
interest are payable in twelve equal quarterly installments, commencing three
months after the Effective Date. Bradlees Stores, Inc. can prepay these notes,
in whole or in part, at any time or from time to time, without premium or
penalty. 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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<PAGE>
Cure Notes
Pursuant to the Plan of Reorganization, Bradlees Stores, Inc. has issued Cure
Notes in the aggregate principal amount of $3.4 million. The Cure Notes are not
secured and bear interest at a rate equal to nine percent (9%) per annum.
Principal and accrued interest are payable in twelve equal quarterly
installments, commencing three months after the Effective Date. Bradlees
Stores, Inc. can prepay these notes, in whole or in part, at any time or from
time to time, without premium or penalty.
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 $3.4 million 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 January 29, 1999 (the "Indenture") between Bradlees,
Inc., Bradlees Stores, Inc. and IBJ Whitehall Bank & Trust Company, 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. 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 29, 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. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Bradlees Stores, Inc. will only pay the principal on the Notes to each Holder
who presents and surrenders such Notes to a Paying Agent on or after January
29, 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. Each Note will rank on
parity with each other Note.
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Except as described under "Merger, Consolidation or Sale of Assets," or
"Limitations on Indebtedness" 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 net proceeds received upon the disposition of
the Yonkers, New York or the Union Square, New York stores or the net proceeds
received upon the disposition of the Additional Collateral (as defined below).
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 neither Bradlees, Inc. nor Bradlees Stores, Inc.
may consolidate or merge with, or sell, assign, transfer, lease or convey all
or substantially all of its assets to, any other entity unless (i) either
Bradlees, Inc. or Bradlees Stores, Inc., as the case may be, shall be the
continuing entity, or the successor entity 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) In the case of a
transaction involving Bradlees Stores, Inc., Bradlees Stores, Inc.'s
obligations to pay principal of (and premium, if any) and interest on all of
the Notes, as well as every covenant and obligation of Bradlees Stores, Inc. or
(B) in the case of a transaction involving Bradlees, Inc., the guarantee
obligations of Bradlees, Inc. (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, Inc.,
Bradlees Stores, Inc. or the successor entity, shall deliver to the Trustee a
certificate and an opinion of counsel that such actions comply with the
applicable provisions of the Indenture.
Limitations on Indebtedness
The Indenture provides that neither Bradlees Stores, Inc. nor any of its
subsidiaries will incur any Indebtedness (which as defined in the Indenture
includes obligations for borrowed money, the defined purchase price of certain
assets and guarantees of the foregoing) other than (i) Indebtedness incurred
under or permitted by the BankBoston Facility (or any amendment, restatement,
modification, renewal, refunding, replacement or refinancing thereof in whole
or in part from time to time); (ii) Indebtedness represented by the Notes (or
any amendment, restatement, modification, renewal, refunding, replacement or
refinancing thereof in whole or in part from time to time); (iii) Indebtedness
incurred in connection with the acquisition (by purchase, lease or otherwise)
of additional store sites; (iv) Indebtedness incurred to finance or refinance
capital expenditures; and (v) Indebtedness incurred in the ordinary course of
business.
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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 unsecured obligations of Bradlees,
Inc. and 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 15 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, acceleration, 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 or related security agreement that
continues for 30 days after written notice thereof given to Bradlees, Inc. and
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, Inc., Bradlees Stores, Inc. or any
significant subsidiary of either of these parties; (v) we incur Indebtedness
under the BankBoston Facility or any other Indebtedness in an amount exceeding
five million dollars that is not paid when due (whether at maturity, by
acceleration or otherwise); (vi) any one or more judgments, orders as to
liability or debt for payment in excess of five million dollars shall be
rendered against us which is not paid or stayed within 30 days, subject to
specified limitations; (vii) Bradlees, Inc. fails to deliver Common Stock
within three trading days upon conversion of the Notes; (viii) the guarantee of
Bradlees, Inc. ceases to be in effect for a period of ten days after notice is
provided; and (ix) the lien created by the security agreement shall cease to be
enforceable and Bradlees Stores, Inc. does not cure the cessation within 30
days.
If an Event of Default under the Indenture occurs and is continuing, then in
every such case the holders of at least 25% in principal amount of outstanding
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.,
provided that such acceleration shall not be effective until 24 hours after
notice is given to the administration agent under the BankBoston Facility, if
any amounts are outstanding under such facility. However, at any time after
such a declaration of acceleration with respect to the Notes has been made, 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 TIA 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 10 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 not less than 25% aggregate principal
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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, it being
understood that the Trustee shall have no duty to ascertain the potential
prejudice of any actions.
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, any security documents or the
Notes 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) reduce the principal or change or have the
effect of changing the stated maturity of any Notes, or change the date on
which any Notes may be subject to redemption, or reduce the redemption price;
(ii) reduce the rate of interest, or change or have the effect of changing the
stated maturity for payment 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 or permitting the holders of a majority in
principal amount of Notes to waive events of default; (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;
(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;
(viii) waive a default in payment of principal or interest; (ix) release
Bradlees, Inc. from its guarantee obligations or release collateral other than
as permitted by this Indenture; or (x) 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, any security documents or the
Notes will be permitted to be made by Bradlees, Inc, 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 to the extent permitted
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 such documents, 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; (vi) to give effect to the release of any collateral or any lien in
accordance with the terms of any security document; (vii) to make any change
that does not adversely affect the rights of any Note holders or (viii) to make
any change that provides an additional benefit to the holders of the Notes.
Collateral
The Notes are secured by a first priority lien on our leasehold interest in
our Yonkers, New York store and the net proceeds from the disposition of such
property.
58
<PAGE>
Pursuant to the Plan of Reorganization, we have modified the termination
date and certain other provisions of our lease for our Union Square, New York
store in exchange for a payment upon the Effective Date of $11.0 million by the
landlord. This payment will be applied as a pre-payment to the Notes.
In addition, we have pledged, on a second priority basis all of our interest
in the capital stock of New Horizons of Yonkers, Inc. as additional security
for the Notes. Further, we have granted a first priority lien on our leasehold
interests in our stores in Danbury, Connecticut, Norwalk, Connecticut and
Saddle Brook, New Jersey (the "Additional Collateral"). The lien on the
Additional Collateral shall only secure indebtedness under the Notes equal to
the sum of $6.5 million plus an amount from time to time equal to the amount of
interest that would accrue on $6.5 million of principal amount of outstanding
Notes from January 29, 1999 to the date of calculation of the extent of such
lien on the Additional Collateral (but excluding any period for which interest
has in fact been paid under the Notes).
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 may change if we (i)
make any distributions in shares of our Common Stock to our stockholders; (ii)
issue options, warrants or rights to our stockholders that dilute current
owners of Bradlees, Inc. Common Stock; (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; or (iv) distribute any assets
(other than cash dividends not exceeding certain levels), evidences of
indebtedness or shares of stock. The Notes will not be convertible after the
close of business on January 27, 2004, or after the close of business on the
second day prior to the date on which the specified Note was to be redeemed.
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
IBJ Whitehall Bank & Trust Company will be the Trustee under the Indenture.
Its address is One State Street, New York, New York 10004.
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 TIA), 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 as of the date of its authentication.
59
<PAGE>
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 41,000,000 shares, par
value $.01 per share, consisting of 40,000,000 shares of Common Stock and
1,000,000 shares of preferred stock. As of January 29, 1999, 10,225,711 shares
of Common Stock, held by approximately 2,200 stockholders, are issued and
outstanding. As of January 29, 1999, no preferred stock was issued or
outstanding.
Common Stock. As of January 29, 1999, 10,225,711 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 January 29, 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 1,000,000 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 of Bradlees, Inc.
General. Bradlees' 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.
60
<PAGE>
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 with the vote of two-thirds ( 2/3) of the
shareholders eligible to elect Directors.
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.
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.
61
<PAGE>
. 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 Articles, Bradlees has elected not to be governed by Chapter 110F. The
Articles were approved by the Bankruptcy Court in connection with the Plan of
Reorganization. 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 Articles, Bradlees has opted not to be governed by the provisions
of Chapter 110D.
Certain Provisions of the Articles and By-laws of Bradlees Stores, Inc.
The Articles and By-laws of Bradlees Stores, Inc. are substantially the same
as the Articles and By-laws of Bradlees, Inc. discussed above, with the
following major exceptions
.Bradlees Stores, Inc. has only three directors;
. Bradlees Stores, Inc. has authorized capital stock consisting of
150,000 shares of common stock
and
50,000 shares of preferred stock.
All of the issued and outstanding shares of common stock of Bradlees Stores,
Inc. is held by Bradlees, Inc. There is no preferred stock of Bradlees Stores,
Inc. currently outstanding.
62
<PAGE>
Transfer Agent and Registrar
We have selected Boston EquiServe as the transfer agent and registrar for
the Common Stock.
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.
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
63
<PAGE>
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.
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
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 did
not provide 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.
64
<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 October 31, 1998
(unaudited)
Condensed Consolidated Statements of Operations for the thirteen weeks
ended October 31, 1998
(unaudited) and November 1, 1997 (unaudited)............................ F-2
Condensed Consolidated Statements of Operations for the thirty-nine weeks
ended October 31, 1998 (unaudited) and November 1, 1997 (unaudited)..... F-3
Condensed Consolidated Balance Sheets as of October 31, 1998 (unaudited)
and November 1, 1997 (unaudited)........................................ F-4
Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks
ended October 31, 1998 (unaudited) and November 1, 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-21
Independent Auditors' Report-Deloitte & Touche LLP....................... F-22
Consolidated Statements of Operations for the fiscal years ended January
31, 1998, February 1, 1997 and February 3, 1996......................... F-23
Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997.. F-24
Consolidated Statements of Cash Flows for the fiscal years ended January
31, 1998, February 1, 1997 and February 1, 1996......................... F-25
Consolidated Statements of Stockholders' Equity (Deficiency) for the fis-
cal years ended January 31, 1998, February 1, 1997 and February 3,
1996.................................................................... F-26
Notes to Consolidated Financial Statements............................... F-27
</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
--------------------------
Oct. 31, 1998 Nov. 1, 1997
------------- ------------
<S> <C> <C>
Total sales........................................ $323,106 $342,337
Leased department sales............................ 10,973 11,904
-------- --------
Net sales.......................................... 312,133 330,433
Cost of goods sold................................. 217,394 233,329
-------- --------
Gross margin....................................... 94,739 97,104
Leased department and other operating income....... 3,028 3,282
-------- --------
97,767 100,386
-------- --------
Selling, store operating, administrative and
distribution expenses............................. 95,549 93,796
Depreciation and amortization expense.............. 7,803 9,004
Interest and debt expense.......................... 4,371 4,187
Reorganization items............................... (2,749) (6,978)
-------- --------
Net income (loss).................................. $ (7,207) $ 377
======== ========
Comprehensive income (loss)........................ $ (7,207) $ 377
======== ========
Net loss per share - basic and diluted............. $ (0.64) $ 0.03
======== ========
Weighted average shares outstanding (in
thousands) - basic and diluted.................... 11,310 11,366
======== ========
</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>
39 Weeks Ended
--------------------------
Oct. 31, 1998 Nov. 1, 1997
------------- ------------
<S> <C> <C>
Total sales........................................ $939,203 $930,683
Leased department sales............................ 32,818 35,463
-------- --------
Net sales.......................................... 906,385 895,220
Cost of goods sold................................. 635,383 625,521
-------- --------
Gross margin....................................... 271,002 269,699
Leased department and other
operating income................................... 8,757 8,722
-------- --------
279,759 278,421
Selling, store operating, administrative and
distribution expenses............................. 280,326 289,844
Depreciation and amortization expense.............. 24,370 27,544
Loss on disposition of properties.................. 241 --
Interest and debt expense.......................... 11,960 11,673
Reorganization items............................... (2,555) (2,160)
-------- --------
Net loss........................................... $(34,583) $(48,480)
======== ========
Comprehensive loss................................. $(34,583) $(48,480)
======== ========
Net loss per share - basic and diluted............. $ (3.06) $ (4.26)
======== ========
Weighted average shares outstanding (in
thousands) - basic and diluted.................... 11,311 11,382
======== ========
</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>
Oct. 31, 1998 Jan. 31, 1998 Nov. 1, 1997
------------- ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Unrestricted cash and cash
equivalents........................ $ 10,959 $ 10,949 $ 11,291
Restricted cash and cash
equivalents........................ 25,129 16,760 9,436
-------- -------- --------
Total cash and cash equivalents... 36,088 27,709 20,727
-------- -------- --------
Accounts receivable................. 11,925 10,013 14,183
Inventories......................... 318,883 238,629 335,359
Prepaid expenses.................... 11,031 8,733 11,087
Assets held for sale................ - 7,754 7,754
-------- -------- --------
Total current assets.............. 377,927 292,838 389,110
Property, plant and equipment, net:
Property excluding capital leases,
net................................ 123,892 131,525 135,430
Property under capital leases, net.. 17,732 18,959 21,126
-------- -------- --------
Total property, plant and
equipment, net................... 141,624 150,484 156,556
-------- -------- --------
Other assets:
Lease interests at fair value, net.. 137,350 142,454 144,705
Assets held for sale................ - 4,000 5,250
Other, net.......................... 4,509 5,390 4,386
-------- -------- --------
Total other assets................ 141,859 151,844 154,341
-------- -------- --------
Total assets........................ $661,410 $595,166 $700,007
======== ======== ========
</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>
Oct. 31, 1998 Jan. 31, 1998 Nov. 1, 1997
------------- ------------- ------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY
Current liabilities:
Accounts payable.................... $179,413 $124,361 $196,279
Accrued expenses.................... 23,221 30,516 34,619
Self-insurance reserves............. 6,027 6,564 6,144
Short-term debt..................... 157,392 84,208 131,500
Current portion of capital lease
obligations........................ 1,038 1,038 1,038
-------- -------- --------
Total current liabilities......... 367,091 246,687 369,580
-------- -------- --------
Long-term liabilities
Obligations under capital leases.... 26,211 27,073 32,738
Deferred income taxes............... 8,581 8,581 8,581
Self-insurance reserves............. 12,237 13,328 12,473
Other long-term liabilities......... 19,034 23,342 28,186
-------- -------- --------
Total long-term liabilities....... 66,063 72,324 81,978
-------- -------- --------
Liabilities subject to settlement
under the reorganization case........ 548,788 562,105 560,154
Stockholders' deficiency:
Common stock - 11,310,384
outstanding (11,312,154 at 1/31/98,
11,387,154 at 11/1/97)
Par value.......................... 115 115 115
Additional paid-in-capital......... 137,821 137,821 137,951
Accumulated deficit................. (457,665) (423,082) (449,007)
Treasury stock, at cost............. (803) (804) (764)
-------- -------- --------
Total stockholders' deficiency.... (320,532) (285,950) (311,705)
-------- -------- --------
Total liabilities and stockholders'
deficiency......................... $661,410 $595,166 $700,007
======== ======== ========
</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>
39 Weeks Ended
--------------------------
Oct. 31, 1998 Nov. 1, 1997
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(34,583) $(48,480)
Adjustments to reconcile net loss to cash used by
operating activities:
Depreciation and amortization expense........... 24,370 27,544
Amortization of deferred financing costs........ 1,215 2,098
Reorganization items............................ (2,555) (2,160)
Changes in working capital and other, net....... (37,231) (29,832)
-------- --------
Net cash used by operating activities before
reorganization items............................. (48,784) (50,830)
-------- --------
Reorganization items:
Interest income received........................ 746 330
Chapter 11 professional fees paid............... (7,786) (7,877)
Other reorganization expenses paid, net......... (3,225) (5,611)
-------- --------
Net cash used by reorganization items............. (10,265) (13,158)
-------- --------
Net cash used by operating activities............. (59,049) (63,988)
Cash flows from investing activities:
Capital expenditures, net......................... (10,379) (14,721)
Increase in restricted cash and cash equivalents.. (8,369) (310)
-------- --------
Net cash used in investing activities............. (18,748) (15,031)
-------- --------
Cash flows from financing activities:
Payments of liabilities subject to settlement..... (6,551) (5,447)
Deferred financing costs.......................... - (2,026)
Net borrowings under the DIP facilities........... 73,184 89,000
Proceeds from sales of properties................. 12,036 -
Principal payments on capital lease obligations... (862) (1,242)
-------- --------
Net cash provided by financing activities......... 77,807 80,285
-------- --------
Net increase (decrease) in unrestricted cash and
cash equivalents................................... 10 1,266
Unrestricted cash and cash equivalents:
Beginning of period............................... 10,949 10,025
-------- --------
End of period..................................... $ 10,959 $ 11,291
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest and certain debt fees...... $ 10,282 $ 9,264
Cash received (paid) for income taxes............. $ (279) $ 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 (third quarter) and 39 weeks (year-to-date) ended October 31,
1998 and November 1, 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
consummation of the Company's amended plan of reorganization (Note 2), 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 the amended and modified plan of
reorganization (the "Plan") that was confirmed by the Bankruptcy Court on
January 27, 1999. The Plan provides for approximately $165 million in
distributions to creditors, inclusive of $16 million of administrative claim
payments, $7 million in tax and cure notes, $14 million in cash, $40 million in
convertible notes primarily payable to the Company's pre-Chapter 11 bank group,
new common stock with an estimated value of $85 million, and $3 million in
other distributions. As previously reported, all existing stock will be
canceled upon the Company's emergence from bankruptcy with no issuance of new
stock to current shareholders.
A Form 8-K has been filed with the SEC that describes, among other things,
the classification and treatment of pre-petition claims under the Plan and
conditions to the occurrence of the Plan's effective date.
F-7
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
The Company expects to emerge from Chapter 11 on January 29, 1999. Pro forma
financial information has been presented in the Company's Form S-1 Registration
Statement ("Form S-1") filed with the SEC in November, 1998 and is updated in
Note 11. The Plan was originally confirmed by the Bankruptcy Court on November
18, 1998. The United States District Court for the Southern District of New
York reversed this confirmation on December 23, 1998. We modified the Plan and
the modified Plan was confirmed by the Bankruptcy Court on January 27, 1999 and
became effective on January 29, 1999.
Schedules were 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 continuing to be investigated and
resolved. Although the ultimate amount and settlement terms for all pre-
petition liabilities have not yet been finalized, the Company believes that the
total of unsecured claims will not exceed $300 million, a condition precedent
to the effectiveness of the Plan. Payments of approximately $2.1 million were
made in 1997 to settle certain reclamation claims and 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 (Note 7).
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 $45.7 million was
recorded through October 31, 1998, for rejected leases and contracts. This
liability may be subject to future adjustments based on claims filed and
Bankruptcy Court actions. The Company believes that it has recorded its best
estimate of the liability for rejected leases and contracts based on
information currently 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 $12.7 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 Oct. 31, 1998 Jan. 31, 1998 Nov. 1, 1997
--------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
Accounts payable................... $166,567 $165,324 $165,016
Accrued expenses................... 26,000 27,996 27,694
Revolver........................... 68,405 71,105 72,005
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... 9,440 11,407 11,527
Provision for rejected leases...... 45,685 48,091 45,730
-------- -------- --------
$548,788 $562,105 $560,154
======== ======== ========
</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 October 31, 1998 were comprised of
the following, along with earned interest of $1.2 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 October 31, 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. Contractual interest expense not recorded
on certain pre-petition debt (the Revolver, 2002 Notes and 2003 Notes) totaled
approximately $7.7 and $23.1 million for the third quarter and year-to-date
periods of 1998, respectively, and $7.8 and $23.3 million for the third 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 $157.4 million
under the DIP Facility as of October 31, 1998. Trade and standby letters of
credit outstanding under the DIP Facility were $8.5 and $19.3 million,
respectively, at October 31, 1998, and $16.1 and $19.7 million, respectively,
at November 1, 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
"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 7.92% in the third quarter and
7.93% in the year-to- date period of 1998.
F-9
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
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 October 31, 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 the Plan.
The Company has received a commitment for the Exit Facility, which consists
of a $250 million senior secured revolving line of credit (of which $125
million is available for issuance of letters of credit) and a $20 million
junior secured "last in-last out" facility. The Exit Facility is for a term of
up to three years. The Company will use the Exit Facility to repay its existing
DIP Facility and for working capital and general business needs.
The senior secured tranche has an advance rate equal to 80% 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 inventory advance rate will be
increased to 77% of the Loan Value of Eligible Inventory. The Company may also
borrow up to an additional $20 million under the junior secured facility
provided that the total inventory borrowings do not exceed 93% of the Loan to
Value Ratio.
The Exit Facility permits the Company 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 plus 0.50%
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 Federal Reserve 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 facility permits the Company to
borrow funds at the "Base Rate" plus 7.00% per annum.
The Exit Facility is subject to certain conditions being satisfied,
including minimum EBITDA performance and minimum borrowing availability on the
effective date of the Plan. The Exit Facility will be secured by substantially
all of the non-real estate assets of the Company. 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, 2001, 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.
As a result of the implementation of the Plan, the Company 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
F-10
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
and warrants to purchase shares of common stock. Because such ownership change
and cancellation of indebtedness arise in a bankruptcy proceeding under Chapter
11, the Company will avoid 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, the Company expects that its 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 tax attributes, including NOLs, will be reduced (but not eliminated).
In addition, if the Company experiences another "ownership change" under
Section 382 of the Code subsequent to emergence, there may be further limits on
the Company's NOLs and certain built-in losses and tax credits to income.
6. Reorganization Items
The Company provided for or incurred the following expense and income items
during the third 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 39 Weeks Ended
----------------- -----------------
10/31/98 11/1/97 10/31/98 11/1/97
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Professional fees.................... $ 2,250 $ 2,250 $ 6,750 $ 7,500
Interest income...................... (274) (101) (746) (330)
Net asset write-off.................. - - 470 -
Gain on disposition of properties.... - (800) (1,873) (1,003)
Provision for rejected leases........ (4,725) (5,207) (7,156) (5,207)
Employee severance and termination
benefits............................ - (3,400) - (3,400)
Provision for MIS retention bonuses.. - 280 - 280
------- ------- ------- -------
$(2,749) $(6,978) $(2,555) $(2,160)
======= ======= ======= =======
</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. In 1997, the
Company sold three closed stores leases and certain equipment and recorded
related gains of $1.0 million, including $0.8 million in the third quarter, as
reorganization items.
Provision for rejected leases: During the third quarter of 1998, the Company
obtained confirmation that the lessor of a previously rejected lease had re-let
the premises and, accordingly, the Company reduced its liability for rejected
leases by $4.7 million and recognized a reorganization credit for that amount.
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
F-11
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
amount in the second quarter. During the third quarter of 1997, the Company
sold a closed store lease and reversed the associated $5.2 million rejected
lease liability that had previously been recorded at the time of the store-
closing announcement when it was expected that the lease would be rejected.
Employee severance and termination benefits: The credit of $3.4 million in
the third quarter and year-to-date period of 1997 resulted from the reversal of
certain executive severance reserves, including a significant portion of the
severance reserve that had been established for the Company's former CEO Mark
Cohen, whose employment terminated in December 1996, and remaining reserves for
certain former executives who found employment. During the third quarter of
1997, a mediated settlement was reached with Mr. Cohen that was subsequently
approved by the Bankruptcy Court.
MIS retention bonuses: The Company had a retention bonus program for certain
Management Information System (MIS) employees that provided 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.
Restructuring reserves: The Company closed 6 stores in February, 1998. As of
October 31, 1998, the Company had remaining reserves (included in accrued
expenses) totaling approximately $1.0 million (exclusive of provisions for
rejected leases discussed in Note 2) for costs associated with the closing of
the 6 stores and other restructuring activities. Approximately $3.2 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.
The Company expects to incur charges of approximately $5.1 million prior to
emergence for an estimated going-out-of-business inventory impairment of $1.5
million (to be recorded as cost of goods sold) and other store closing costs of
$3.6 million for two store closings anticipated to occur by the end of fiscal
year 1999.
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 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. Retirement Plans
The Company has a qualified, noncontributory defined benefit pension plan
for non-union employees. Plan benefits are based on the participant's
compensation and years of service. As of December 31, 1998, the Company will
freeze credited service and salary levels in this plan. This change impacts all
management and non-union hourly associates. All affected associates were
notified of the freeze in November. Vesting service will continue for non-
vested associates but no future credited service will be provided. The Company
expects to record a gain in the fourth quarter as a result of the freeze.
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. As
of January 1, 1999, the Company will contribute an amount
F-12
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
equal to 50% of up to 6% of each participant's salary contributed to the plan.
This change impacts all management and non-union hourly associates. Currently
eligible participants will become fully vested in the Company contribution as
required by law, while new hires on or after January 1, 1999 will have a 20%
per year vesting schedule with full vesting after 5 years.
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 $1.3 and $4.0 million in the third 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. Changes in Accounting Estimates
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 quarters of 1998 and 1997 using a discount rate of 6.0%
(the same rate used at January 31, 1998 and February 1, 1997). As a result of
the 1997 study, 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).
10. Summarized Financial Information for Bradlees Stores, Inc.
Under the Plan (Note 2), 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.
Substantially all of the assets of the Company, on a consolidated basis, are
held 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)
----------------------------
Oct. 31, Jan. 31, Nov. 1,
1998 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current Assets................................... $371,208 $286,332 $382,649
Noncurrent Assets................................ 283,441 302,286 310,855
Current Liabilities.............................. 367,091 246,687 369,580
Payable to Bradlees, Inc......................... 189,735 189,881 189,139
Noncurrent Liabilities........................... 66,063 72,324 81,978
Liabilities Subject to Settlement Under the
Reorganization Case............................. $328,557 $341,874 $339,923
<CAPTION>
Thirty-Nine Weeks
Ended
------------------
Oct. 31, Nov. 1,
1998 1997
-------- --------
<S> <C> <C> <C>
Net Sales........................................ $906,385 $895,220
Gross Margin..................................... 271,002 269,699
Loss from Continuing Operations.................. (34,689) (48,628)
Net Loss......................................... $(34,689) $(48,628)
</TABLE>
F-13
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
Upon confirmation of the Plan, Bradlees, Inc. will contribute a portion of
its intercompany receivable to the capital of Bradlees Stores, Inc. so that $96
million will be allowed as the final intercompany claim.
11. Pro Forma Financial Information (Unaudited)
The following unaudited pro forma summary information, pro forma condensed
consolidated balance sheet and unaudited pro forma condensed consolidated
statement of operations are based on the statements of Bradlees as adjusted to
give effect to the consummation of the Plan (Note 2). The unaudited pro forma
summary information, and pro forma condensed consolidated statement of
operations have been prepared as if the effective date of the Plan had occurred
on February 1, 1997. The unaudited pro forma condensed consolidated balance
sheet has been prepared assuming the effective date of the Plan had occurred on
October 31, 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 in the Company's Form 10-K for 1997,
Form S-1 and elsewhere in these financial statements. 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 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.
The following unaudited pro forma summary information for 1997 was derived
from the unaudited pro forma condensed consolidated statement of operations for
1997 presented, along with the notes thereto, in the Form S-1:
Pro Forma Summary Information
(Unaudited)
(000's Omitted)
<TABLE>
<CAPTION>
Fiscal Year Ended
January 31, 1998
-----------------
<S> <C>
Total Sales................................................ $1,340,983
Net Loss................................................... (18,525)
Loss Per Common Share...................................... (1.81)
Pro Forma Number of Stores................................. 103
</TABLE>
The pro forma net loss amount above excludes the gain on debt discharge and
fresh-start reporting credit expected to be recorded on the effective date.
F-14
<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
Oct. 31, 1998 Debits Credits Oct. 31, 1998
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Unrestricted cash and
cash equivalents...... $ 10,959 $ 11,000 $ 11,000 $ 10,959
Restricted cash and
cash equivalents...... 25,129 - 23,929(2) 1,200
-------- ---------- ----------- --------
Total cash and cash
equivalents.......... 36,088 11,000 34,929 12,159
-------- ---------- ----------- --------
Accounts receivable.... 11,925 11,925
Inventories............ 318,883 1,000(3h) 317,883
Prepaid expenses....... 11,031 - - 11,031
-------- ---------- ----------- --------
Total current assets.. 377,927 $ 11,000 35,929 352,998
-------- ---------- ----------- --------
Property, plant and
equipment, net:
Property excluding
capital leases, net... 123,892 - 11,000(2) 110,692
2,200(3j)
Property under capital
leases, net........... 17,732 9,196(3b) 5,406(3j) 21,522
-------- ---------- ----------- --------
Total property, plant
and equipment, net... 141,624 9,196 18,606 132,214
-------- ---------- ----------- --------
Other assets:
Lease interests at fair
value, net............ 137,350 - 59,530(3j) 77,820
Assets held for sale... - 3,400(2) - 14,000
10,600(3d)
Other, net............. 4,509 2,475(2) 1,222(3g) 4,498
1,264(3i)
Reorganization value in
excess of revalued
assets................ - 14,985(3k) - 9,985
-------- ---------- ----------- --------
Total other assets.... 141,859 31,460 62,016 108,303
-------- ---------- ----------- --------
Total assets.......... $661,410 $ 51,656 $ 116,551 $596,515
======== ========== =========== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-15
<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
Oct. 31, 1998 Debits Credits Oct. 31, 1998
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable....... $ 179,413 $ - $ - $179,413
Accrued expenses....... 23,221 7,000(2) 2,000(1) 15,746
2,475(3c)
Self-insurance
reserves.............. 6,027 - - 6,027
Short-term debt........ 157,392 - 8,571(2) 165,963
Current portion of
capital lease
obligations........... 1,038 - 750(2) 1,788
--------- ---------- ---------- --------
Total current
liabilities.......... 367,091 9,475 11,321 368,937
--------- ---------- ---------- --------
Long-term liabilities:
Obligations under
capital leases........ 26,211 321(3b) - 25,890
Convertible notes
payable............... - 11,000 40,000(2) 29,000
Deferred income taxes.. 8,581 8,581(3h) - -
Self-insurance
reserves.............. 12,237 - - 12,237
Unfavorable lease
liability............. - - 45,573(3j) 45,573
Other long-term
liabilities........... 19,034 - 2,000(1) 29,878
6,550(2)
2,294(3f)
--------- ---------- ---------- --------
Total long-term
liabilities.......... 66,063 19,902 96,417 142,578
--------- ---------- ---------- --------
Liabilities subject to
settlement under the
reorganization case.... 548,788 548,788(2) - -
Stockholders' equity
(deficiency):
Common stock
Par value............. 115 115(3a) 102(2) 102
Additional paid-in-
capital.............. 137,821 137,821(3a) 84,898(2) 84,898
Accumulated deficit.... (457,665) 4,000(1) 393,463(2) -
68,202(3)
Treasury stock, at
cost.................. (803) - 803(3a) -
--------- ---------- ---------- --------
Total stockholders'
equity (deficiency).. (320,532) 141,936 547,468 85,000
--------- ---------- ---------- --------
Total liabilities and
stockholders' equity
(deficiency)......... $ 661,410 $ 720,101 $ 655,206 $596,515
========= ========== ========== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-16
<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
39 Weeks 39 Weeks
Ended Pro Forma Adjustments Ended
Oct. 31, 1998 Debits Credits Oct. 31, 1998
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Total sales............. $939,203 3,381(1) - $935,822
Leased department
sales.................. 32,818 70(1) - 32,748
-------- --------
Net sales............... 906,385 903,074
Cost of goods sold...... 635,383 - 2,472(1) 632,911
-------- --------
Gross margin............ 271,002 270,163
Leased department and
other operating in-
come................... 8,757 25(1) - 8,732
-------- --------
279,759 278,895
Selling, store
operating,
administrative and
distribution expenses.. 280,326 2,967(3) 631(1) 278,498
1,021(6) 5,773(7)
724(10) 136(11)
Depreciation and amorti-
zation expense......... 24,370 - 3(1) 12,761
5,103(3)
2,253(5)
469(6)
3,781(9)
Loss on disposition of
properties............. 241 241
Interest and debt ex-
pense.................. 11,960 869(4) 1,215(4) 21,189
9,575(8)
Reorganization items.... (2,555) 2,555(2) - -
-------- --------
Net loss................ $(34,583) $(33,794)
======== ========
Comprehensive loss...... $(34,583) $(33,794)
======== ========
Net loss per share - ba-
sic and diluted........ $ (3.06) $ (3.30)(12)
======== ========
Weighted average shares
outstanding (in
thousands) - basis and
diluted................ 11,311 10,226
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-17
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
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 October 31, 1998, and the unaudited pro forma condensed
consolidated statement of operations for the thirty-nine weeks then ended.
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
the anticipated gain on debt discharge or fresh-start reporting credit which
are expected to be incurred as of the effective date of the Plan. (For the
purposes of the pro forma financial statements, the "Effective Date" is assumed
to be October 31, 1998 for the pro forma balance sheet, and February 1, 1997
for the pro forma statement of operations.)
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the financial statements and the notes thereto
included in these financial statements.
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:
October 31, 1998 Balance Sheet Pro Forma Adjustments
1. Reserves established prior to emergence for emergence-related and
performance bonuses payable on the Effective Date 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. In
connection with the consummation of the Plan, we will receive $11.0
million in cash for the modification of the Union Square lease and
immediately pay down the 9% Convertible Notes. The reduction of
$11.0 million in property, plant and equipment, net, includes a
write-off of $7.6 million for the Union Square store and a
reclassification of $3.4 million to assets held for sale for one
store lease that is expected to be sold to help fund the further
paydown of the 9% Convertible Notes.
The payment of $23.9 million out of restricted funds and $8.6
million out of borrowings is for certain settlements due under the
POR and for financing costs of $2.5 million associated with the
post-emergence revolver. The total payment of $32.5 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 assigned reorganization value
exceeding the revalued net assets is recorded as a long-term asset.
The calculation of the preliminary and estimated new equity value is
discussed in detail in Section Three (Subsection XIII) of the
Disclosure Statement filed as an exhibit to this Registration
Statement. See also "Risk Factors--Post Bankruptcy Risks--
Determination of Equity Value."
F-18
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 October 31, 1998
borrowing rate (12%) for similar financings.
c. Revaluation of the straight-line rent reserve ($2.5 million).
Straight-line rent is recalculated on a going-forward basis by
the reorganized Bradlees.
d. Revaluation of the one store lease held for sale to an
estimated total net realizable value of $14 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 $4.3 million
(excluding the impact from the fourth quarter non-union
pension freeze--Note 8 to the October 31, 1998 Form 10-Q.) and
additional Supplemental Executive Retirement Plan (the "SERP")
liability of $1.4 million, reduced by the write-off of the
unrecognized FAS No. 106 prior service costs of $3.4 million.
g. Revaluation of the intangible SERP asset ($1.2 million) to its
estimated net realizable value.
h. Write-off ($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 ($1.3
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 $59.5 million in favorable
lease interests and an unfavorable lease liability of $45.6
million for certain locations. The remaining favorable lease
interests and the unfavorable lease liability will both be
amortized to rent expense.
k. Recording of the reorganization value in excess of the
revalued assets at October 31, 1998.
F-19
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Adjustments - Statement of Operations for the Thirty-nine Weeks
Ended October 31, 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 year to date amortization of deferred
financing costs.
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 slightly higher average revolver borrowing level,
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 were 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.
F-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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 amounts
presented below may be subject to future adjustments depending on Bankruptcy
Court actions, further
F-31
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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>
F-32
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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).
F-33
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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
F-34
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-35
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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
F-36
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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
F-37
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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.
F-38
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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. Substantially all of the assets of the Company, on a
consolidated basis, are held 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 confirmation of the Plan, Bradlees, Inc. will contribute a portion of
its intercompany receivable to the capital of Bradlees Stores, Inc. so that $96
million will be allowed as the final intercompany claim.
F-47
<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............................................................. 6
The Company.............................................................. 13
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Business................................................................. 37
Management............................................................... 41
Principal Stockholders................................................... 50
Certain Relationships and Related Transactions........................... 51
Selling Securityholders.................................................. 51
Plan of Distribution..................................................... 52
Shares Eligible for Future Sale.......................................... 53
Terms of Outstanding Indebtedness........................................ 53
Description of the 9% Convertible Notes.................................. 55
Description of Capital Stock............................................. 60
Legal Matters............................................................ 63
Experts.................................................................. 63
Additional Information................................................... 63
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
----------------
January , 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................................................. 77,875
--------
Accounting Fees and Expenses....................................... 185,000
--------
Legal Fees and Expenses............................................ 250,000
--------
Printing Expenses.................................................. 50,000
--------
Trustee's Fees and Expenses........................................ 25,000
--------
Transfer Agent's Fee............................................... 25,000
--------
Miscellaneous...................................................... 9,782
--------
TOTAL............................................................ $650,000
========
</TABLE>
- --------
(1) The amounts set forth above, except for the SEC fee, are in each case
estimated.
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 10,225,711 shares of our Common Stock to holders of
approximately $361 million 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 $40.0 million aggregate principal amount of 9%
Convertible Notes to holders of approximately $108 million 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 warrants to purchase 1,000,000 shares of our common stock
to holders of approximately $265 million 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 $3.4 million worth of Cure Notes to holders of
approximately $3.4 million 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 $587,094 worth of Cap Notes to holders of approximately
$547,094 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 $3.4 million worth of Tax Notes to holders of
approximately $3.4 million 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 --Form of Modified Plan of Reorganization and Plan Disclosure Statement.
*2.2 --Form of Indenture.
*2.3 --Form of 9% Convertible Note.
*2.4 --Form of Leasehold Mortgage.
*2.5 --Form of CAP Notes.
*2.6 --Form of Cure Note.
*2.7 --Form of Tax Note for other priority tax claims.
*2.8 --Form of Tax Note for Federal priority tax claims.
*2.9 --Form of New Warrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<C> <S>
*3.1 --Amended and Restated Articles of Organization of Bradlees, Inc.
*3.2 --Amended and Restated Articles of Organization of Bradlees
Stores, Inc.
*3.3 --Amended and Restated By-laws of Bradlees, Inc.
*3.4 --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 --Form of 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 --Commitment Letter and Form of Revolving Credit and Guaranty
Agreement 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>
*10.42 --Bradlees, Inc. 1999 Stock Option Plan.
*10.43 --Bradlees, Inc. and Bradlees Stores, Inc. Management Emergence
Bonus Plan.
*21 --Subsidiaries of the Registrant.
*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.
*99 --Consent of Nominated Directors.
</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.
*Filed herewith.
(b) Financial Statement Schedule filed as part of this Registration
Statement is as follows:
Condensed Consolidated Financial Statements as of October 31, 1998 (unaudited)
Condensed Consolidated Statements of Operations for the thirteen weeks ended
October 31, 1998 (unaudited) and November 1, 1997 (unaudited)
Condensed Consolidated Statements of Operations for the thirty-nine weeks ended
October 31, 1998 (unaudited) and November 1, 1997 (unaudited)
Condensed Consolidated Balance Sheets as of October 31, 1998 (unaudited) and
November 1, 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended
October 31, 1998 (unaudited) and November 1, 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
II-4
<PAGE>
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 registrants
have 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.
The undersigned registrants hereby undertake:
(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. 2 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 January 27, 1999.
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: Director, Senior
Vice President,
General Counsel,
Secretary and Clerk
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 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. 2 to the Registration Statement in
their capacity as an officer or director of Bradlees, Inc. Messrs. Thorner and
Moses are also signing this Registration Statement as officers and directors of
Bradlees Stores, Inc. Mr. Lynn is also signing this Registration Statement as
an officer of Bradlees Stores, Inc. Mr. Schmitt, in his individual capacity, is
signing this Registration Statement solely as a director of Bradlees Stores,
Inc.
<TABLE>
<S> <C>
Signature Title
Date
* Chief Executive January 27,
- ------------------------------------- Officer (Principal 1999
Peter Thorner Executive Officer)
and Chairman of the
Board
* Senior Vice January 27,
- ------------------------------------- President and Chief 1999
Cornelius F. Moses, III Financial Officer
(Principal
Financial Officer
and Principal
Accounting Officer)
</TABLE>
* Director, President
- ------------------------------------- and Chief Operating January 27,
Robert Lynn Officer 1999
* Director
- ------------------------------------- January 27,
Jack E. Bush 1999
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* Director January 27,
- ------------------------------------- 1999
John A. Curry
* Director January 27,
- ------------------------------------- 1999
John M. Friedman, Jr.
* Director January 27,
- ------------------------------------- 1999
Patricia M. Pomerleau
* Director January 27,
- ------------------------------------- 1999
Sheldon Rutstein
* Director January 27,
- ------------------------------------- 1999
Willis G. Ryckman
/s/ David L. Schmitt Director of Bradlees January 27,
- ------------------------------------- Stores, Inc. 1999
David L. Schmitt
* /s/ David L. Schmitt
- -----------------------------------
David L. Schmitt, Attorney-in-fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<C> <S>
*2.1 --Form of Modified Plan of Reorganization and Plan Disclosure Statement.
*2.2 --Form of Indenture.
*2.3 --Form of 9% Convertible Note.
*2.4 --Form of Leasehold Mortgage.
*2.5 --Form of CAP Note.
*2.6 --Form of Cure Note.
*2.7 --Form of Tax Note for priority tax claims.
*2.8 --Form of Tax Notes for Federal priority tax claims.
*2.9 --Form of New Warrant.
*3.1 --Amended and Restated Articles of Organization of Bradlees, Inc.
*3.2 --Amended and Restated Articles of Organization of Bradlees Stores, Inc.
*3.3 --Amended and Restated By-laws of Bradlees, Inc.
*3.4 --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 --Form of 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<C> <S>
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 --Commitment Letter and Form of Revolving Credit and Guaranty Agreement between BankBoston, N.A. as
Administrative Agent and as Issuing Bank, and the Borrower, Bradlees Stores, Inc., with Bradlees,
Inc. as Guarantor.
*10.42 --Bradlees, Inc., 1999 Stock Option Plan.
*10.43 --Bradlees, Inc. and Bradlees Stores, Inc. Management Emergence Bonus Plan.
*21 --Subsidiaries of the Registrant.
*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.
*99 --Consents of Nominated Directors.
</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.
* Filed herewith.
<PAGE>
EXHIBIT 2.1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - -x
:
In re :
: Chapter 11
BRADLEES STORES, INC., et al., : Case Nos. 95 B 42777
: through 95 B 42784 (BRL)
Debtors. :
: (Jointly Administered)
- - - - - - - - - - - - - - - - -x
SECOND AMENDED JOINT PLAN OF
REORGANIZATION OF BRADLEES STORES, INC. AND
AFFILIATES UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
--------------------------------------------------
Stuart Hirshfield
Sandor E. Schick
Hugh M. McDonald
Marc Hirschfield
DEWEY BALLANTINE LLP
1301 Avenue of the Americas
New York, New York 10019-6092
(212) 259-8000
Attorneys for Bradlees Stores,
Inc., New Horizons of Yonkers,
Inc., Bradlees, Inc., Bradlees
Administrative Co., Inc.,
Dostra Realty Co., Inc.,
Maximedia Services, Inc., New
Horizons of Bruckner, Inc. and
New Horizons of Westbury,
Inc., Debtors and Debtors-in-
Possession
Dated: New York, New York
January 26, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS, RULES OF INTERPRETATION AND CONSTRUCTION...................... 2
Section 1.01 "Additional Collateral"........................................... 2
Section 1.02 "Additional Quarterly Distribution"............................... 2
Section 1.03 "Adequate Protection Payments".................................... 2
Section 1.04 "Administrative Claim"............................................ 2
Section 1.05 "Affiliates"...................................................... 2
Section 1.06 "Allowed"......................................................... 2
Section 1.07 "Allowed Administrative Claim".................................... 3
Section 1.08 "Allowed Claim"................................................... 3
Section 1.09 "Allowed Convenience Claim"....................................... 3
Section 1.10 "Allowed Intercompany Claim"...................................... 3
Section 1.11 "Allowed Priority Claim".......................................... 3
Section 1.12 "Allowed Reclamation Claim"....................................... 3
Section 1.13 "Amended By-Laws"................................................. 3
Section 1.14 "Amended Certificate of Incorporation"............................ 3
Section 1.15 "Available Unclaimed Property".................................... 4
Section 1.16 "Ballot".......................................................... 4
Section 1.17 "Bank Documents".................................................. 4
Section 1.18 "Bank Group"...................................................... 4
Section 1.19 "Bank Group Claim"................................................ 4
Section 1.20 "Bankruptcy Code"................................................. 4
Section 1.21 "Bankruptcy Court"................................................ 4
Section 1.22 "Bankruptcy Rules"................................................ 4
Section 1.23 "Bonds"........................................................... 4
Section 1.24 "Bond Claims"..................................................... 4
Section 1.25 "Bond Indenture Trustee".......................................... 4
Section 1.26 "Bruckner Escrow Funds"........................................... 4
Section 1.27 "Bruckner Fraction"............................................... 5
Section 1.28 "BTM"............................................................. 5
Section 1.29 "BTM Stipulation"................................................. 5
Section 1.30 "Business Day".................................................... 5
Section 1.31 "Cap Notes"....................................................... 5
Section 1.32 "Capital Lease"................................................... 5
Section 1.33 "Cash"............................................................ 5
Section 1.34 "Cash Distributions".............................................. 5
Section 1.35 "Chapter 11 Cases"................................................ 5
Section 1.36 "Claim"........................................................... 5
Section 1.37 "Class"........................................................... 5
Section 1.38 "Class [___] Claim"............................................... 5
Section 1.39 "Combination Transaction"......................................... 6
Section 1.40 "Combining Debtors"............................................... 6
Section 1.41 "Confirmation Date"............................................... 6
</TABLE>
i
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<TABLE>
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Section 1.42 "Confirmation Order".............................................. 6
Section 1.43 "Consummation Costs".............................................. 6
Section 1.44 "Consummation Funds".............................................. 6
Section 1.45 "Convenience Claim"............................................... 6
Section 1.46 "Court"........................................................... 6
Section 1.47 "Creditor"........................................................ 6
Section 1.48 "Creditors' Committee"............................................ 6
Section 1.49 "Cure Notes"...................................................... 6
Section 1.50 "Cure Payments"................................................... 6
Section 1.51 "D&O Insurance"................................................... 7
Section 1.52 "Debtor".......................................................... 7
Section 1.53 "Debtors"......................................................... 7
Section 1.54 "DIP Agreement" or "DIP Facility"................................. 7
Section 1.55 "DIP Claims"...................................................... 7
Section 1.56 "Disbursing Agent"................................................ 7
Section 1.57 "Disclosure Statement"............................................ 7
Section 1.58 "Disclosure Statement Order"...................................... 7
Section 1.59 "Disputed Administrative Claims".................................. 7
Section 1.60 "Disputed Claim".................................................. 7
Section 1.61 "Disputed Claims Reserve"......................................... 8
Section 1.62 "Distribution".................................................... 8
Section 1.63 "Distribution Address"............................................ 8
Section 1.64 "Effective Date".................................................. 8
Section 1.65 "Estate".......................................................... 8
Section 1.66 "Exhibit"......................................................... 9
Section 1.67 "Exhibit Filing Date"............................................. 9
Section 1.68 "Face Amount"..................................................... 9
Section 1.69 "Federal Priority Tax Claim"...................................... 9
Section 1.70 "File"............................................................ 9
Section 1.71 "Final Order"..................................................... 9
Section 1.72 "Fractional Shares"............................................... 9
Section 1.73 "GAAP"............................................................ 9
Section 1.74 "General Unsecured Claim"......................................... 9
Section 1.75 "Indenture"....................................................... 9
Section 1.76 "Indenture Trustee"............................................... 9
Section 1.77 "Initial Distribution Date"....................................... 10
Section 1.78 "Intercompany Claim".............................................. 10
Section 1.79 "Interest"........................................................ 10
Section 1.80 "IRS"............................................................. 10
Section 1.81 "M&R"............................................................. 10
Section 1.82 "Majority Banks".................................................. 10
Section 1.83 "Net Proceeds".................................................... 10
Section 1.84 "New Common Stock"................................................ 10
Section 1.85 "New Credit Facility"............................................. 10
Section 1.86 "New Credit Facility Agent"....................................... 10
Section 1.87 "New Credit Facility Notes"....................................... 11
Section 1.88 "New Notes"....................................................... 11
</TABLE>
ii
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<TABLE>
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Section 1.89 "New Warrants".................................................... 11
Section 1.90 "Old Common Stock of [___]"....................................... 11
Section 1.91 "Ordinary Course Professionals' Compensation Order"............... 11
Section 1.92 "Other Priority Claim"............................................ 11
Section 1.93 "Other Priority Tax Claim"........................................ 11
Section 1.94 "Paying Agent".................................................... 11
Section 1.95 "Person".......................................................... 11
Section 1.96 "Petition Date"................................................... 11
Section 1.97 "Plan"............................................................ 11
Section 1.98 "Post-Effective Date Collateral".................................. 12
Section 1.99 "Prepetition Claim"............................................... 12
Section 1.100 "Primary Obligor"................................................. 12
Section 1.101 "Priority Claim".................................................. 12
Section 1.102 "Priority Tax Claim".............................................. 12
Section 1.103 "Professional Fees"............................................... 12
Section 1.104 "Pro Rata"........................................................ 12
Section 1.105 "Ratable" or "Ratable Share"...................................... 12
Section 1.106 "Record Date"..................................................... 12
Section 1.107 "Reinstated"...................................................... 12
Section 1.108 "Reorganized Corporation"......................................... 13
Section 1.109 "Reorganization Securities"....................................... 13
Section 1.110 "Reorganized [_____]"............................................. 13
Section 1.111 "Required Prepayments"............................................ 13
Section 1.112 "Schedules"....................................................... 13
Section 1.113 "Secondary Liability Claim"....................................... 13
Section 1.114 "Secured Claim"................................................... 13
Section 1.115 "SPE Agent"....................................................... 14
Section 1.116 "SPE Claims"...................................................... 14
Section 1.117 "SPE Deficiency Claim"............................................ 14
Section 1.118 "SPE Documents"................................................... 14
Section 1.119 "SPE Group"....................................................... 14
Section 1.120 "SPE Philadelphia Property"....................................... 14
Section 1.121 "SPE Properties".................................................. 14
Section 1.122 "SPE Providence Property"......................................... 14
Section 1.123 "SPE Stipulation"................................................. 14
Section 1.124 "SPE Transaction"................................................. 14
Section 1.125 "State Street".................................................... 14
Section 1.126 "State Street Administrative Claim"............................... 15
Section 1.127 "Supplemental Bank Group Distribution"............................ 15
Section 1.128 "Supplemental BSI-GEN Distribution"............................... 15
Section 1.129 "Tax Claim"....................................................... 15
Section 1.130 "Tax Note"........................................................ 15
Section 1.131 "Tax Refund"...................................................... 15
Section 1.132 "Trade Vendors' Collateral Agent"................................. 15
Section 1.133 "Trade Vendors' Lien"............................................. 15
Section 1.134 "Trust Indenture"................................................. 15
Section 1.135 "Unclaimed Property".............................................. 15
</TABLE>
iii
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<TABLE>
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<S> <C>
Section 1.136 "Union Square Lease".............................................. 15
Section 1.137 "Union Square Property"........................................... 16
Section 1.138 "Unofficial Committee"............................................ 16
Section 1.139 "Unsecured Claim"................................................. 16
Section 1.140 "Westbury Escrow Funds"........................................... 16
Section 1.141 "Westbury Fraction"............................................... 16
Section 1.142 "Yonkers Confirmation Date"....................................... 16
Section 1.143 "Yonkers Confirmation Order"...................................... 16
Section 1.144 "Yonkers Effective Date".......................................... 16
Section 1.145 "Yonkers Property"................................................ 16
Section 1.146 Generally......................................................... 17
Section 1.147 Exhibits.......................................................... 17
Section 1.148 Time Periods...................................................... 17
Section 1.149 Miscellaneous Rules............................................... 17
ARTICLE II CLASSIFICATION OF CLAIMS AND INTERESTS 17
Section 2.01 General Rules of Classification................................... 17
Section 2.02 Administrative, Tax and Other Priority Claims against any Debtor.. 18
Section 2.03 Undersecured Claims against any Debtor............................ 18
Section 2.04 Capital Lease Claims.............................................. 18
Section 2.05 Mechanic's Lien Claims............................................ 18
Section 2.06 Intercompany Claim................................................ 18
Section 2.07 Unsecured Claims against any Debtor............................... 19
Section 2.08 Allowed Convenience Claims are Classified for BSI................. 19
Section 2.09 Equity Interests in any Debtor.................................... 19
ARTICLE III CLASSIFICATION OF CLAIMS AND INTERESTS BY DEBTOR 19
Section 3.01 Bradlees, Inc..................................................... 19
Section 3.02 Bradlees Administrative Co., Inc.................................. 20
Section 3.03 Bradlees Stores, Inc.............................................. 20
Section 3.04 Dostra Realty Co., Inc............................................ 21
Section 3.05 Maximedia Services, Inc........................................... 21
Section 3.06 New Horizons of Yonkers, Inc...................................... 21
Section 3.07 New Horizons of Bruckner, Inc..................................... 22
Section 3.08 New Horizons of Westbury, Inc..................................... 22
ARTICLE IV REORGANIZATION SECURITIES 22
Section 4.01 Tax Notes......................................................... 23
Section 4.02 New Notes......................................................... 23
Section 4.03 CAP Note.......................................................... 24
Section 4.04 Cure Notes........................................................ 24
Section 4.05 New Warrants...................................................... 24
Section 4.06 New Common Stock of Reorganized BI................................ 24
</TABLE>
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<TABLE>
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ARTICLE V TREATMENT OF UNIMPAIRED CLASSES 25
Section 5.01 Administrative Claims............................................. 25
Section 5.02 Federal Priority Tax Claims....................................... 25
Section 5.03 Other Priority Tax Claims......................................... 26
Section 5.04 Other Non-Tax Priority Claims..................................... 26
Section 5.05 Convenience Claims................................................ 26
ARTICLE VI TREATMENT OF IMPAIRED CLAIMS AND INTERESTS 26
Section 6.01 Bank Group Claims................................................. 27
Section 6.02 SPE Claims........................................................ 27
Section 6.03 Bradlees, Inc..................................................... 28
Section 6.04 Bradlees Administrative Co., Inc.................................. 28
Section 6.05 Bradlees Stores, Inc.............................................. 28
Section 6.06 Dostra Realty Co., Inc............................................ 29
Section 6.07 Maximedia Services, Inc........................................... 29
Section 6.08 New Horizons of Yonkers, Inc...................................... 30
Section 6.09 New Horizons of Bruckner, Inc..................................... 30
Section 6.10 New Horizons of Westbury, Inc..................................... 30
ARTICLE VII IMPLEMENTATION. 31
Section 7.01 Reorganized BI, Reorganized BSI and Reorganized DOS............... 31
Section 7.02 Directors of the Reorganized Corporations......................... 31
Section 7.03 Employment, Retirement, Indemnification and Other Agreements and
Incentive Compensation Programs.................................. 32
Section 7.04 Management Emergence Bonus........................................ 33
Section 7.05 Corporate Action.................................................. 34
Section 7.06 Certain Retiree Health, Medical and Life Insurance Benefits....... 34
Section 7.07 Combination Transactions.......................................... 34
Section 7.08 Distributions to Holders of Claims and Interests.................. 35
Section 7.09 Miscellaneous Distribution Provisions............................. 37
Section 7.10 De Minimis Distributions.......................................... 38
Section 7.11 Compliance with Tax Requirements.................................. 39
Section 7.12 Setoffs........................................................... 39
Section 7.13 Intercompany Claims............................................... 39
Section 7.14 Unclaimed Property................................................ 39
Section 7.15 Withdrawal of the Plan............................................ 40
Section 7.16 Cancellation of Capital Stock..................................... 40
Section 7.17 Surrender of Outstanding Securities............................... 40
Section 7.18 Termination of DIP Facility....................................... 41
Section 7.19 New Credit Facility............................................... 41
Section 7.20 Union Square Property............................................. 42
Section 7.21 Yonkers Property.................................................. 42
Section 7.22 Adequate Protection Payments...................................... 42
Section 7.23 Plan Funding...................................................... 42
Section 7.24 Disputed Payments................................................. 42
Section 7.25 Withholding Taxes................................................. 42
</TABLE>
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<TABLE>
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Section 7.26 Obligations Incurred After the Confirmation Date.................. 43
Section 7.27 Cancellation of Bonds and Agreements.............................. 43
Section 7.28 Instructions to Disbursing Agent.................................. 44
Section 7.29 Record Date for Distributions to Holders of Bonds................. 44
Section 7.30 Termination of Subordination...................................... 44
ARTICLE VIII EFFECT OF THE PLAN ON CLAIMS AND INTERESTS 45
Section 8.01 Discharge......................................................... 45
Section 8.02 Revesting and Vesting............................................. 47
Section 8.03 Secondary Liability Claims........................................ 47
Section 8.04 Release of Primary Obligors....................................... 47
Section 8.05 Survival of Certain Indemnification Obligations................... 48
Section 8.06 Release of Officers, Directors, Employees and Representatives..... 48
Section 8.07 Release of Certain Claims......................................... 49
Section 8.08 Claims and Interest Objections.................................... 49
Section 8.09 Preservation of Insurance......................................... 49
ARTICLE IX EXECUTORY CONTRACTS 50
Section 9.01 Executory Contracts and Unexpired Leases.......................... 50
Section 9.02 Lease Under Which Bradlees Leases Union Square Property........... 50
Section 9.03 Executory Contract of R.R. Donnelly & Sons Company................ 50
Section 9.04 Executory Contract of J.Baker, Inc................................ 50
Section 9.05 Cure.............................................................. 51
Section 9.06 Rejection Damages Bar Date........................................ 51
Section 9.07 Executory Contracts and Unexpired Leases Entered Into and Other
Obligations Incurred After the Petition Date..................... 52
Section 9.08 Assumption of Lease Relating to Yonkers Property.................. 52
ARTICLE X CONDITIONS TO CONFIRMATION AND OCCURRENCE OF EFFECTIVE DATE.................. 52
Section 10.01 Conditions to Confirmation........................................ 52
Section 10.02 Conditions to Occurrence of Effective Date........................ 53
Section 10.03 Waiver of Conditions to Confirmation and Occurrence of Effective
Date............................................................. 55
Section 10.04 Effect of Nonoccurrence of the Conditions to Occurrence of
Effective Date................................................... 55
ARTICLE XI CONFIRMABILITY AND SEVERABILITY OF A PLAN AND CRAMDOWN...................... 56
Section 11.01 Confirmability and Severability of a Plan......................... 56
Section 11.02 Cramdown.......................................................... 56
ARTICLE XII ADMINISTRATIVE PROVISIONS 57
Section 12.01 Retention of Jurisdiction......................................... 57
Section 12.02 Governing Law..................................................... 58
</TABLE>
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Section 12.03 Fees and Expenses of Bank Group................................... 58
Section 12.04 Fees and Expenses of Unofficial Committee......................... 58
Section 12.05 Professional Fees and Expenses of Loomis Sayles................... 58
Section 12.06 Fees and Expenses of Bond Indenture Trustee....................... 58
Section 12.07 Administrative Bar Date........................................... 59
Section 12.08 Corporate Action.................................................. 59
Section 12.09 Effectuating Documents and Further Transactions................... 60
Section 12.10 Limitation of Liability........................................... 60
Section 12.11 Amendments........................................................ 60
Section 12.12 Successors and Assigns............................................ 61
Section 12.13 Confirmation Order and Plan Control............................... 61
Section 12.14 Notices........................................................... 61
Section 12.15 Committees........................................................ 64
</TABLE>
EXHIBITS
A Amended By-Laws of Reorganized BI and Reorganized BSI
B Amended Certificates of Incorporation of Reorganized BI and
Reorganized BSI
C Schedule of BSI-CAP Claims
D Schedule of Existing Employment, Retirement and Other Agreements and
Incentive Compensation Programs That Are To Remain Effective As Of
the Effective Date
E New Credit Facility
F Intentionally Omitted
G Conversion of New Notes
H Form of Reorganization Securities
I Documents Giving Rise To Trade Vendors' Lien
J Trust Indenture
K Officers of Reorganized Corporations
L Combination Transactions
vii
<PAGE>
INTRODUCTION
------------
Bradlees Stores, Inc. ("BSI"), a Massachusetts corporation, together
with its affiliated debtors, Bradlees, Inc. ("BI"), a Massachusetts corporation,
Bradlees Administrative Co., Inc. ("BAC"), a Massachusetts corporation,
Maximedia Services, Inc. ("MAX"), a Delaware corporation, Dostra Realty Co.,
Inc. ("DOS"), a Delaware corporation, New Horizons of Yonkers, Inc. ("YON"), a
Delaware corporation, New Horizons of Bruckner, Inc. ("BRU"), a Delaware
corporation, and New Horizons of Westbury, Inc. ("WES"), a Delaware corporation
(collectively, "Bradlees" or the "Debtors"), as debtors and debtors-in-
possession in the above-captioned Chapter 11 cases, hereby propose the following
second amended joint plan of reorganization (the "Plan") pursuant to section
1121(a) of title 11 of the United States Code. Reference is made to the
Debtors' Disclosure Statement (as defined herein) for a discussion of the
Debtors' history, businesses, properties, results of operations, projections for
future operations, a summary and analysis of the Plan and other related matters.
The Debtors are the proponent of the Plan within the meaning of section 1129 of
the Bankruptcy Code (as defined herein).
These reorganization cases have been consolidated for procedural
purposes only and are being jointly administered pursuant to an order of the
United States Bankruptcy Court for the Southern District of New York. This Plan
does not contemplate the substantive consolidation of any of the Debtors for any
purpose, including voting or distribution purposes. Certain of the Debtors will
be dissolved or merged (or combined in another form of transaction) with another
Debtor as a means of implementing this Plan. For voting and distribution
purposes, the Plan contemplates separate classes for each Debtor. The cash and
reorganization securities of the Debtors, as reorganized, will be distributed to
the claimants and equity interest holders in each of the classes of each of the
Debtors, as set forth herein.
Under section 1125(b) of the Bankruptcy Code, a vote to accept or
reject the Plan cannot be solicited from a holder of a claim or interest until
such time as the Disclosure Statement has been approved by the Bankruptcy Court
(as defined herein) and distributed to holders of claims and interests. ALL
HOLDERS OF CLAIMS AGAINST THE DEBTORS ARE ENCOURAGED TO READ THE PLAN AND THE
RELATED DISCLOSURE STATEMENT IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR TO
REJECT THE PLAN. SUBJECT TO CERTAIN RESTRICTIONS AND REQUIREMENTS SET FORTH IN
THE PLAN, THE DEBTORS RESERVE THE RIGHT TO ALTER, AMEND, MODIFY, REVOKE OR
WITHDRAW THE PLAN PRIOR TO ITS SUBSTANTIAL CONSUMMATION.
1
<PAGE>
ARTICLE I
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DEFINITIONS, RULES OF
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INTERPRETATION AND CONSTRUCTION
-------------------------------
A. Scope of Definitions.
--------------------
Except as expressly provided or unless the context otherwise requires,
all capitalized terms not otherwise defined shall have the meanings assigned to
them in this Article I. Any term used in the Plan that is not defined herein,
but that is used in the Bankruptcy Code or the Bankruptcy Rules, shall have the
meaning assigned to that term in the Bankruptcy Code or the Bankruptcy Rules.
B. Definitions.
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Section 1.01 "Additional Collateral" means BSI's leasehold interest
in one or more of its leases, as agreed upon by BSI and the Majority Banks, the
value of which shall not exceed in the aggregate $10.5 million, as determined by
the appraisal conducted by Cushman & Wakefield, Inc., dated December 1, 1997,
subject to appropriate adjustments, which shall secure in part the New Notes,
pursuant to Section 4.02 of the Plan.
Section 1.02 "Additional Quarterly Distribution" means a
Distribution on a Quarterly Distribution Date to each holder of Allowed Claims,
as the case may be, from the Disputed Claims Reserve for such holder's Class of
Claims.
Section 1.03 "Adequate Protection Payments" means the payments made
by the Debtors to the Bank Group pursuant to the Agreed Order Regarding Adequate
Protection of the Senior Bank Group's Interests and Related Relief, dated
October 24, 1995.
Section 1.04 "Administrative Claim" means a Claim for costs and
expenses of administration allowed under sections 503(b), 507(b) or 1114(e)(2)
of the Bankruptcy Code, including: (a) the actual and necessary costs and
expenses incurred after the Petition Date of preserving the respective Estates
and operating the business of the Debtors (including, without limitation, wages,
salaries, commissions for services and payments for inventories, leased
equipment and premises); (b) compensation for legal, financial advisory,
accounting and other services and reimbursement of expenses awarded or allowed
under sections 330(a) or 331 of the Bankruptcy Code; (c) all fees and charges
assessed against the Estates under chapter 123 of title 28, United States Code,
28 U.S.C. (S)(S) 1911-1930; and (d) Allowed Reclamation Claims.
Section 1.05 "Affiliates" shall have the meaning given such term
by section 101(2) of the Bankruptcy Code.
Section 1.06 "Allowed" means, with respect to a Claim or Interest,
to the extent such Claim or Interest is either: (a) scheduled by a Debtor
pursuant to the
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Bankruptcy Code and Bankruptcy Rules in a liquidated amount and that is not
listed as contingent, unliquidated or disputed; or (b) proof of which has been
timely Filed, or deemed timely Filed under applicable law or order of the Court,
with the Court pursuant to the Bankruptcy Code, the Bankruptcy Rules and any
applicable orders of the Court, or late Filed with leave of the Court after
notice and a hearing; and which: (i) has not been objected to within the period
fixed by the Bankruptcy Code, the Bankruptcy Rules and applicable orders of the
Court; (ii) has otherwise been allowed by a Final Order or as set forth in this
Plan. An Allowed Claim: (A) includes a Disputed Claim to the extent such
Disputed Claim becomes allowed after the Effective Date in the manner described
in section (b)(ii) of this Section, when the context so requires; and (B) shall
be net of any valid setoff exercised with respect to such Claim pursuant to the
provisions of the Bankruptcy Code. Unless otherwise specified herein, in section
506(b) of the Bankruptcy Code or by order of the Bankruptcy Court, "Allowed
Claim," shall not, for purposes of distributions under the Plan, include (x) for
Prepetition Claims, interest on such Claim or Claims accruing from or after the
Petition Date, (y) punitive or exemplary damages or (z) any fine, penalty or
forfeiture.
Section 1.07 "Allowed Administrative Claim" means an Administrative
Claim to the extent it is Allowed.
Section 1.08 "Allowed Claim" means a Claim to the extent it is
Allowed.
Section 1.09 "Allowed Convenience Claim" means a Convenience
Claim to the extent it is Allowed.
Section 1.10 "Allowed Intercompany Claim" means an Intercompany
Claim to the extent it is Allowed.
Section 1.11 "Allowed Priority Claim" means a Priority Claim to
the extent it is Allowed.
Section 1.12 "Allowed Reclamation Claim" means a Claim arising
under section 546(c)(2) of the Bankruptcy Code which has become Allowed pursuant
to the Bankruptcy Court Order dated November 12, 1996.
Section 1.13 "Amended By-Laws" means the Amended and Restated
By-laws of Reorganized BI, Reorganized BSI and Reorganized DOS, a copy of each
of which shall be filed with the Bankruptcy Court on or before the Exhibit
Filing Date as Exhibit A hereto.
Section 1.14 "Amended Certificate of Incorporation" means the
Amended and Restated Certificate of Incorporation of Reorganized BI, Reorganized
BSI and Reorganized DOS, a copy of each of which shall be filed with the
Bankruptcy Court on or before the Exhibit Filing Date as Exhibit B hereto.
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Section 1.15 "Available Unclaimed Property" means Unclaimed
Property that is unclaimed on the second anniversary of the date of Distribution
of such property (together with any interest thereon and proceeds thereof).
Section 1.16 "Ballot" means the ballot distributed to a holder of
a Claim on which ballot such holder of a Claim may, inter alia, (a) vote for or
against the Plan; and (b) to the extent that such holder holds a General
Unsecured Claim, elect to have its General Unsecured Claim treated as a
Convenience Claim in the relevant Class.
Section 1.17 "Bank Documents" means the Credit Agreement among
Bradlees, Inc., Various Lending Institutions and Bankers Trust Company, as
Agent, dated as of March 3, 1993, as amended, pursuant to which the Debtors
maintained a revolving credit facility.
Section 1.18 "Bank Group" means Bankers Trust Company, as Agent,
and the banks identified as "Banks" in the Bank Documents and their successors
and assigns, including, without limitation, Gabriel Capital, L.P.
Section 1.19 "Bank Group Claim" means the Claim of the Bank Group,
which arises under the Bank Documents against each and every Debtor.
Section 1.20 "Bankruptcy Code" means the Bankruptcy Reform Act of
1978, as amended and codified at title 11 of the United States Code, 11 U.S.C.
(S)(S) 101 et seq.
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Section 1.21 "Bankruptcy Court" means the United States Bankruptcy
Court for the Southern District of New York which has jurisdiction over the
Chapter 11 Cases .
Section 1.22 "Bankruptcy Rules" means the Federal Rules of Bankruptcy
Procedure and the Official Bankruptcy Forms, as amended, the Federal Rules of
Civil Procedure, as amended, as applicable to the Chapter 11 Cases, and the
Local Rules of the Bankruptcy Court.
Section 1.23 "Bonds" means the (i) 11% Senior Subordinated Notes due
August 1, 2002 in the original principal amount of $125,000,000 and (ii) 9- 1/4%
Senior Subordinated Notes due March 3, 2003 in the original principal amount of
$100,000,000.
Section 1.24 "Bond Claims" means the claims arising under the Bonds.
Section 1.25 "Bond Indenture Trustee" means State Street Bank and
Trust Company as the Indenture Trustee under certain indentures acting on behalf
of Bonds.
Section 1.26 "Bruckner Escrow Funds" means the funds held in escrow
from the sale of the property formerly owned by BRU pursuant to the Bankruptcy
Court Order dated January 7, 1998.
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Section 1.27 "Bruckner Fraction" means the fraction, the numerator of
which shall be the amount of BRU-GEN Claims and the denominator of which shall
be the sum of the amount of (a) BRU-BANK Claims, (b) BRU-SPE Claims and (c) BRU-
GEN Claims.
Section 1.28 "BTM" means BTM Capital Corporation f/k/a BOT
Financial Corporation.
Section 1.29 "BTM Stipulation" means the Settlement Stipulation dated
June 4, 1996, approved by Bankruptcy Court Order dated June 25, 1996, among BSI,
BI and BTM.
Section 1.30 "Business Day" means any day on which commercial banks
are open for business in New York, New York.
Section 1.31 "Cap Notes" means the new notes of Reorganized BSI
described in Section 4.03 hereof, issued on and after the Effective Date and
distributed in the manner provided in this Plan to holders of Capital Lease
Claims.
Section 1.32 "Capital Lease" means any putative lease of equipment in
which any of the Debtors has a financial interest and regarding which the Court
has entered an Order holding, or with which the putative lessor is in agreement,
that such putative lease constitutes a financing transaction.
Section 1.33 "Cash" means cash and cash equivalents.
Section 1.34 "Cash Distributions" means a Distribution of Cash.
Section 1.35 "Chapter 11 Cases" means case numbers 95 B 42777 through
95 B 42784 (BRL), inclusive, commenced by the Debtors under Chapter 11 of the
Bankruptcy Code on the Petition Date in the Bankruptcy Court, and styled "In re
Bradlees Stores, Inc., et al., Debtors."
Section 1.36 "Claim" means (a) any right to payment from any of the
Debtors, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured or (b) any right to an equitable remedy
for breach of performance if such breach gives rise to a right of payment from
any of the Debtors, whether or not such right to an equitable remedy is reduced
to judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
secured or unsecured.
Section 1.37 "Class" means a category of holders of Claims or
Interests as described in Article II.
Section 1.38 "Class [___] Claim" means a Claim in the particular
Class of Claims identified and described in Article III.
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Section 1.39 "Combination Transaction" means a consolidation, merger,
contribution of assets or other transaction in which a Combining Debtor merges
with or transfers substantially all of its assets and liabilities to Reorganized
BSI or an affiliated corporation on or about the Effective Date, as set forth in
Exhibit L annexed hereto.
Section 1.40 "Combining Debtors" means the Debtors shown as entering
into a Combination Transaction in Exhibit L annexed hereto.
Section 1.41 "Confirmation Date" means the date on which the Clerk of
the Bankruptcy Court enters the Confirmation Order.
Section 1.42 "Confirmation Order" means the order, entered by the
Bankruptcy Court, confirming the Plan in accordance with the provisions of
Chapter 11 of the Bankruptcy Code.
Section 1.43 "Consummation Costs" means all Cash Distributions
required to be made under, or to give effect to, this Plan on or about the
Effective Date other than Cash Distributions made to holders of the Bank Group
Claim, SPE Claims, BRU-Gen Claims, BSI-Gen Claims, and WES-Gen Claims.
Section 1.44 "Consummation Funds" shall mean: (i) the Westbury Escrow
Funds, (ii) the Bruckner Escrow Funds, and (iii) Tax Refund proceeds.
Section 1.45 "Convenience Claim" means a Claim against BSI that would
otherwise be classified as a Class BSI-GEN Claim that is asserted in the amount
of $500 or less or that is more than $500, if the holder has elected on the
Ballot, within the time fixed by the Bankruptcy Court for completing and
returning such Ballot, to accept $500 in Cash in full satisfaction, discharge
and release of such Claim.
Section 1.46 "Court" shall have the same meaning as Bankruptcy Court.
Section 1.47 "Creditor" means any Person that has a Claim.
Section 1.48 "Creditors' Committee" means the Official Committee of
Unsecured Creditors originally appointed by the United States Trustee on July 6,
1995 pursuant to Bankruptcy Code section 1102.
Section 1.49 "Cure Notes" means the new notes of Reorganized BSI
described in Section 4.04 hereof, issued on and after the Effective Date and
distributed in the manner provided in this Plan.
Section 1.50 "Cure Payments" means the payment in Cash or with a Cure
Note with respect to the assumption of an executory contract or unexpired lease,
pursuant to section 365(b) of the Bankruptcy Code, of an amount equal to all
matured but unpaid monetary obligations, without interest, under such executory
contract or unexpired lease to the extent such obligations are enforceable under
the Bankruptcy Code and applicable non-bankruptcy law.
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Section 1.51 "D&O Insurance" means the officers and directors
insurance maintained by the Debtors which covers the Debtors' officers and
directors.
Section 1.52 "Debtor" means one of the Debtors.
Section 1.53 "Debtors" refers collectively to Bradlees Stores, Inc.,
New Horizons of Yonkers, Inc., Bradlees, Inc., Bradlees Administrative Co.,
Inc., Dostra Realty Co., Inc., Maximedia Services, Inc., New Horizons of
Bruckner, Inc., and New Horizons of Westbury, Inc., debtors-in-possession in the
Chapter 11 Cases.
Section 1.54 "DIP Agreement" or "DIP Facility" means the Revolving
Credit and Guaranty Agreement, dated as of December 23, 1997, as approved by
order of the Bankruptcy Court dated December 22, 1997, among BSI (as borrower),
BI, BAC and the subsidiaries of BSI (as guarantors), BankBoston, N.A. (as
Administrative Agent and as Issuing Bank), BankBoston Retail Finance, Inc., (as
Agent), The CIT Group/Business Credit, Inc. and Congress Financial Corporation
(New England) (each as Co-Agent) and those entities identified as "Lenders"
therein and their respective successors and assigns.
Section 1.55 "DIP Claims" means all Claims arising under the DIP
Agreement, including Claims against BSI and Claims arising under the guarantees
issued by each of the other Debtors.
Section 1.56 "Disbursing Agent" means Reorganized BSI or such other
person, which shall be duly bonded at all times, as may be retained by
Reorganized BSI with approval of the Bankruptcy Court to hold and distribute the
Distributions and such other property as may be required by the Bankruptcy
Court.
Section 1.57 "Disclosure Statement" means the written disclosure
statement, dated October 2, 1998, that relates to the Plan, as amended,
supplemented or modified from time to time, and as approved by the Bankruptcy
Court under section 1125 of the Bankruptcy Code and Bankruptcy Rule 3017.
Section 1.58 "Disclosure Statement Order" means the order of the
Court approving the Disclosure Statement as containing adequate information
pursuant to section 1125 of the Bankruptcy Code.
Section 1.59 "Disputed Administrative Claims" means any
Administrative Claims as to which the Debtors or any other party in interest has
interposed an objection in accordance with the Bankruptcy Code and the
Bankruptcy Rules, which objection has not been withdrawn or determined by a
Final Order.
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Section 1.60 "Disputed Claim" means (a) if no proof of Claim has been
timely Filed or deemed timely Filed under applicable law or order of the Court,
a Claim that has been listed on a Debtor's Schedules of Liabilities as other
than disputed, contingent or unliquidated, but as to which no later than the
Effective Date an objection has been Filed; or (b) if a proof of Claim has been
Filed or deemed timely Filed under applicable law or order of the Court, a Proof
of Claim as to which an objection has been timely Filed and has not been (i)
withdrawn, (ii) overruled or denied by a Final Order or (iii) granted in whole
by a Final Order. For the purposes of the Plan, a Claim shall be considered a
Disputed Claim only if, unless otherwise ordered by the Bankruptcy Court, an
objection has been Filed with respect to such Claim no later than the Effective
Date or if a Claim is permitted to be Filed thereafter, no later than thirty
days after such Claim has been Filed. For purposes of this Plan, a Disputed
Claim means only that portion of a Claim which is Disputed (i.e., only to the
----
extent of the difference between the amount asserted in the Proof of Claim and
the amount admitted by the Debtors as constituting an Allowed Claim in their
objection). The portion of a Claim that is not in dispute pursuant to a timely
Filed objection shall be an Allowed Claim and paid upon the Initial Distribution
Date pursuant to the Plan.
Section 1.61 "Disputed Claims Reserve" means a reserve of Cash or
Reorganization Securities for the relevant Class, established herein for, inter
alia, the payment of (a) Disputed Claims that become Allowed Claims after the
Effective Date, and (b) Additional Quarterly Distributions to holders of
previously Allowed Claims, which shall be held in trust for the benefit of the
holders of the above-referenced types of Claims and shall not constitute
property of the Debtors' estates or the Reorganized Corporations.
Section 1.62 "Distribution" means the distribution in accordance with
this Plan of: (a) Cash, or (b) Reorganization Securities, as the case may be.
Section 1.63 "Distribution Address" means the address set forth in
the relevant proof of claim, as such address may have been updated pursuant to
Bankruptcy Rule 2002(g). If no proof of claim is Filed in respect of a
particular Claim, such defined term means the address set forth in the relevant
Debtor's Schedules, as such address may have been updated pursuant to Bankruptcy
Rule 2002(g).
Section 1.64 "Effective Date" means a Business Day selected by the
Debtors which is no later than the first Business Day after the later of (a)
sixty (60) days after the Confirmation Order is entered by the Bankruptcy Court,
or (b) the first day of the first fiscal year of the Reorganized Debtors after
the Confirmation Order is entered; provided, however, that no stay of the
Confirmation Order is then in effect. The Effective Date may be extended by the
Debtors, upon notice to and subject to the unanimous consent of the Creditors'
Committee, the Bank Group and the Unofficial Committee, without leave or order
of the Bankruptcy Court and without any other action, or by order of the
Bankruptcy Court, if such consent is not obtained.
Section 1.65 "Estate" means, as to each Debtor, the estate of such
Debtor in its Chapter 11 Case created by section 541 of the Bankruptcy Code upon
the commencement of such Chapter 11 Case.
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Section 1.66 "Exhibit" means an exhibit to either this Plan or the
Disclosure Statement.
Section 1.67 "Exhibit Filing Date" means the last date by which forms
of the Exhibits to the Plan shall be Filed with the Court, which date shall be
as specified in this Plan for each such Exhibit, but in any event, or where no
such date is specified, no later than thirty days after the Confirmation Date.
Section 1.68 "Face Amount" means (a) with respect to any Claim for
which a proof of claim is Filed, an amount equal to: (i) the liquidated amount,
if any, set forth therein; and/or (ii) any other amount estimated by the Court
in accordance with section 502(c) of the Bankruptcy Code and the relevant
provisions of this Plan; or (b) if no proof of claim is Filed and such Claim is
scheduled in the relevant Debtor's Schedules, the amount of the Claim scheduled
as undisputed, noncontingent and liquidated.
Section 1.69 "Federal Priority Tax Claim" means a Claim of the United
States of America that is entitled to priority in payment pursuant to section
507(a)(8) of the Bankruptcy Code.
Section 1.70 "File" or "Filed" means filed with the Bankruptcy Court
in the Chapter 11 Cases.
Section 1.71 "Final Order" means an order or judgment, the operation
or effect of which has not been stayed, reversed or amended and as to which
order or judgment (or any revision, modification or amendment thereof), the time
to appeal or seek review or rehearing has expired and as to which no appeal or
review or rehearing that was Filed is pending.
Section 1.72 "Fractional Shares" means the fractions of New Common
Stock or New Warrants not Distributed pursuant to Section 7.09(d) hereof.
Section 1.73 "GAAP" means generally accepted accounting principles.
Section 1.74 "General Unsecured Claim" shall have the same meaning as
Unsecured Claim.
Section 1.75 "Indenture" means an agreement to which BI is a party
and under which the Bonds were issued.
Section 1.76 "Indenture Trustee" means the entity appointed by
Reorganized BSI (which is reasonably acceptable to the holders of the Bank Group
Claims) which shall (a) serve as indenture trustee with respect to the New Notes
and (b) hold all liens with respect to the Post-Effective Date Collateral
pursuant to Section 4.02 hereof.
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Section 1.77 "Initial Distribution Date" means the applicable date or
dates on which initial Distributions are made under this Plan, which shall be
the Effective Date or, as soon thereafter as practicable, but in any event no
more than thirty (30) days after the Effective Date.
Section 1.78 "Intercompany Claim" means the Claim of BI against BSI.
The amount of the Intercompany Claim, as allowed pursuant to the provisions of
this Plan, gives effect to a previously made (subject to confirmation of the
Plan) capital contribution by BI to BSI in an amount equal to $160,181,000. As
is set forth in Section 6.05 hereof and after giving effect to BI's capital
contribution to BSI, the amount of the Intercompany Claim shall be Allowed, with
prejudice and without defense, in the amount of $96.0 million for purposes of
this Plan, subject to the entry of the Confirmation Order and the occurrence of
the Effective Date.
Section 1.79 "Interest" means (a) share in a corporation, whether or
not transferable or denominated "stock," or similar security; (b) interest of a
limited partner in a limited partnership; (c) warrant or right, other than a
right to convert, to purchase, sell or subscribe to a share, security or
interest of a kind specified in subparagraphs (a) and (b) of this paragraph; or
(d) interest of a general partner in a limited or general partnership.
Section 1.80 "IRS" means the Internal Revenue Service.
Section 1.81 "M&R" means M&R Heating and Air Conditioning Services,
Inc. For purposes of this Plan, M&R shall have an Allowed BSI-MEC Claim in the
amount of $4,750.00 and an Allowed BSI-GEN Claim in the amount of $3,950.00.
Section 1.82 "Majority Banks" means Gabriel Management, in its
capacity as a holder of the Bank Group Claim.
Section 1.83 "Net Proceeds" means the proceeds from the sale of a
property which is part of the estate of any Debtor minus the Debtors' costs
of selling such property.
Section 1.84 "New Common Stock" means the shares of common stock of
Reorganized BI provided for under the Plan and authorized under the Amended
Certificate of Incorporation of such Reorganized Corporation.
Section 1.85 "New Credit Facility" means the new Credit Agreement
among Reorganized BSI and BankBoston, N.A., as Agent for itself and the other
financial institutions signatory thereto, pursuant to which the revolving credit
facility as described in Section 7.19 hereof will be offered to Reorganized BSI.
Section 1.86 "New Credit Facility Agent" means the entity designated
as the "agent" under the New Credit Facility.
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Section 1.87 "New Credit Facility Notes" means the new notes of
Reorganized BSI described in Section 7.19 hereof, issued on and after the
Effective Date and distributed in the manner provided in the New Credit
Facility.
Section 1.88 "New Notes" means the new notes of Reorganized BSI
described in Section 4.02 hereof, issued on and after the Effective Date and
distributed in the manner provided in this Plan.
Section 1.89 "New Warrants" means the new warrants of Reorganized BI
described in Section 4.05 hereof, issued on and after the Effective Date and
distributed in the manner provided in this Plan.
Section 1.90 "Old Common Stock of [___]" means, when used with
reference to a particular Debtor or Debtors, the common stock issued by such
Debtor or Debtors and outstanding immediately prior to the Effective Date.
Section 1.91 "Ordinary Course Professionals' Compensation Order"
means the Bankruptcy Court Order dated December 21, 1995 authorizing the Debtors
to retain and compensate Ordinary Course Professionals (as defined in such
Order).
Section 1.92 "Other Priority Claim" means any Claim, other than a
Priority Tax Claim or an Administrative Claim, asserted against the Debtors,
which Claim is accorded priority under subsection 507(a) of the Bankruptcy Code.
Section 1.93 "Other Priority Tax Claim" means a Claim, other than a
Federal Priority Tax Claim, that is entitled to priority in payment pursuant to
section 507(a)(8) of the Bankruptcy Code.
Section 1.94 "Paying Agent" means the Disbursing Agent, any indenture
trustee, stock transfer agents, agents contractually authorized and/or obligated
to make Distributions to certain claimants and similar intermediaries and agents
participating in making or conveying Distributions as required by the Plan, each
of whom shall be duly bonded at all times.
Section 1.95 "Person" means an individual, corporation, partnership,
joint venture, association, joint stock company, trust, estate, unincorporated
organization, government (or agency or political subdivision thereof) or other
entity.
Section 1.96 "Petition Date" means June 23, 1995, the date on which
each of the Debtors filed its voluntary petition for reorganization, thereby
commencing the Chapter 11 Cases.
Section 1.97 "Plan" means this Chapter 11 plan of reorganization,
either in its present form or as it may be altered, amended or modified by the
Debtors from time to time.
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Section 1.98 "Post-Effective Date Collateral" means assets as to
which the Indenture Trustee shall be granted a first priority security interest
to secure the obligations of Reorganized BSI under the New Notes.
Section 1.99 "Prepetition Claim" means any Allowed Claim against any
of the Debtors arising on or prior to the Petition Date.
Section 1.100 "Primary Obligor" means a Debtor against whom a Claim
has been asserted in respect of which a Secondary Liability Claim is also
asserted against another Debtor.
Section 1.101 "Priority Claim" means any Claim, if Allowed, which is
entitled to priority pursuant to section 507(a) of the Bankruptcy Code, other
than: (a) an Administrative Claim; or (b) a Tax Claim.
Section 1.102 "Priority Tax Claim" means any Claim, if Allowed,
asserted against the Debtors, which Claim is entitled to priority pursuant to
section 507(a)(8) of the Bankruptcy Code, other than a Federal Priority Tax
Claim.
Section 1.103 "Professional Fees" means a Claim of a professional
retained in the Chapter 11 Cases pursuant to sections 327 and 1103 of the
Bankruptcy Code or otherwise, for compensation or reimbursement of costs and
expenses relating to services incurred during the period from the Petition Date
through and including the Effective Date, pursuant to sections 330, 331 or
503(b) of the Bankruptcy Code, and unpaid as of the Effective Date.
Section 1.104 "Pro Rata" means (a) with regard to a Claim asserted in
a particular Class, a proportionate share, so that the ratio of the Distribution
on account of an Allowed Claim is the same as the ratio of the amount of the
Distribution on account of all of the Allowed Claims and Disputed Claims in the
Class of which the Allowed Claim is a member to the total amount of all of the
Allowed Claims in such Class and (b) with regard to Classes of Claims, a ratio
equal to the amount available for Distribution to such Classes divided by the
amount equal to the sum of Allowed Claims and Disputed Claims in such class.
Section 1.105 "Ratable" or "Ratable Share" means a number (expressed
as a percentage) equal to the proportion that an Allowed Claim in a particular
Class bears to the aggregate amount or number of: (a) Allowed Claims plus (b)
Disputed Claims (in their aggregate Face Amount) in such Class as of the date of
determination.
Section 1.106 "Record Date" means the date which is five Business
Days following entry of the Confirmation Order.
Section 1.107 "Reinstated" means leaving unaltered the legal,
equitable and contractual rights to which a Claim entitles the holder of such
Claim, in accordance with section 1124 of the Bankruptcy Code, including: (a)
curing all prepetition and postpetition defaults other than defaults relating to
the insolvency or financial condition
PLAN-12
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of a Debtor or its status as a debtor under the Bankruptcy Code; (b) reinstating
the maturity date of the Claim; and (c) compensating the holder of such Claim
for damages incurred as a result of its reasonable reliance on a provision
allowing the Claim's acceleration.
Section 1.108 "Reorganized Corporation" means each Debtor or its
successor corporation, on and after the Effective Date, as reorganized pursuant
to the Plan.
Section 1.109 "Reorganization Securities" means, collectively: (a)
Tax Notes, (b) New Notes, (c) CAP Notes, (d) New Warrants, (e) Cure Notes and
(f) New Common Stock. The form of certain Reorganization Securities are annexed
hereto as Exhibit H.
Section 1.110 "Reorganized [_____]" means, when used with reference
to a particular Debtor, such Debtor on and after the Effective Date.
Section 1.111 "Required Prepayments" means that portion of the Net
Proceeds, not to exceed the aggregate amount of $40 million, arising from the
sale of the Yonkers Property and/or the Union Square Property prior to the
Effective Date, which shall be distributed on the Effective Date to holders of
Claims receiving New Notes under the Plan in lieu of a like amount of New Notes.
Section 1.112 "Schedules" means the Schedules of Assets and
Liabilities and the Statements of Financial Affairs filed by the Debtors, on
October 20, 1995, as subsequently amended, in accordance with section 521 of the
Bankruptcy Code and the Official Bankruptcy Forms of the Bankruptcy Rules, as
such schedules or statements may be amended or supplemented from time to time in
accordance with Bankruptcy Rule 1009.
Section 1.113 "Secondary Liability Claim" means a Claim (other than
(i) an Intercompany Claim, (ii) Bank Group Claim and (iii) SPE Claim) that
arises from a Debtor being liable as a guarantor of, or otherwise jointly,
severally or secondarily liable for, any contractual, tort or other obligation
of another Debtor, including any Claim based upon: (a) guaranties of payment,
collection or performance; (b) indemnity bonds, obligations to indemnify,
obligations to hold harmless or for contribution; (c) performance bonds; (d)
contingent liabilities arising out of contractual obligations or out of
undertakings (including any assignment or other transfer) with respect to
leases, operating agreements, management contracts or other similar obligations
made or given by a Debtor relating to the performance of a Debtor; (e) vicarious
liability; or (f) any other joint or several liability that any Debtor may have
in respect of any obligation that is the basis of a Claim.
PLAN-13
<PAGE>
Section 1.114 "Secured Claim" means a Claim, if Allowed, against any
Debtor held by any entity or judgment creditor of such Debtor, to the extent of
the value, as determined by the Bankruptcy Court pursuant to subsection 506(a)
of the Bankruptcy Code, of any interest in property of the estate securing such
Allowed Claim.
Section 1.115 "SPE Agent" shall have the meaning which the term
"Agent" is given in the SPE Documents.
Section 1.116 "SPE Claims" means Claims arising under the SPE
Documents of the SPE Group.
Section 1.117 "SPE Deficiency Claim" means that Allowed Unsecured
Claim, solely against BSI, arising from the SPE Documents, the SPE Transaction,
and the SPE Stipulation held by the SPE Group in an amount equal to $12,732,677
less the amount by which the net proceeds actually distributed to the SPE Group
- ----
from the sale of the SPE Philadelphia Property exceeds $2,000,000.
Section 1.118 "SPE Documents" means the Credit Agreement among State
Street Bank and Trust Company, not in its individual capacity, except as
expressly stated herein, but solely as Owner Trustee, as Borrower, Various
Lending Institutions and Bankers Trust Company, as Agent, dated September 30,
1994, as amended, pursuant to which the SPE Properties were purchased .
Section 1.119 "SPE Group" means Bankers Trust Company, as Agent, and
the banks identified as "Banks" in the SPE Documents or their respective
successors and assigns.
Section 1.120 "SPE Philadelphia Property" means the property located
in Philadelphia, Pennsylvania which was financed pursuant to the SPE Documents.
Section 1.121 "SPE Properties" means together, the SPE Philadelphia
Property and the SPE Providence Property.
Section 1.122 "SPE Providence Property" means the property located in
Providence, Rhode Island, which was financed pursuant to the SPE Documents.
Section 1.123 "SPE Stipulation" means that certain Stipulation and
Order, dated March 27, 1998, among the Debtors, the SPE Agent, the SPE Group,
State Street (as Owner Trustee) and BRE Funding, Inc. pursuant to which, among
other things, (a) the SPE Transaction was recharacterized as a financing
transaction, (b) the amount of the SPE Claim was fixed and (c) the Debtors'
liability for the State Street Administrative Claim was capped.
Section 1.124 "SPE Transaction" means the transaction by which the
SPE Properties were acquired as provided in the SPE Documents.
Section 1.125 "State Street" means State Street Bank and Trust
Company.
PLAN-14
<PAGE>
Section 1.126 "State Street Administrative Claim" means the
administrative claim asserted by State Street based upon the SPE Documents,
which, pursuant to the SPE Stipulation, is capped at $100,000.
Section 1.127 "Supplemental Bank Group Distribution" shall have the
meaning ascribed to such term in Section 6.01(iii) hereof.
Section 1.128 "Supplemental BSI-GEN Distribution" shall have the
meaning ascribed to such term in Section 6.05 hereof.
Section 1.129 "Tax Claim" means Other Priority Tax Claims and Federal
Priority Tax Claims.
Section 1.130 "Tax Note" means a note issued by Reorganized BSI with
respect to a particular Tax Claim which has a value equal to the Allowed amount
of such Tax Claim payable over the term set forth in section 1129(a)(9)(C) of
the Bankruptcy Code, as more particularly described in the Disclosure Statement.
Section 1.131 "Tax Refund" means the amount which the Debtors
received as a refund for the overpayment of their tax obligations. Pursuant to
an Order dated April 29, 1996, such amounts are held in escrow by the Debtors.
Section 1.132 "Trade Vendors' Collateral Agent" means the entity
appointed by the Creditors' Committee (which is reasonably acceptable to
Reorganized BSI), which shall hold all liens with respect to the Trade Vendors'
Lien pursuant to Section 10.02(f) hereof.
Section 1.133 "Trade Vendors' Lien" means any liens granted to the
Trade Vendors' Collateral Agent, as of the Effective Date, pursuant to Section
10.02(f) hereof.
Section 1.134 "Trust Indenture" means the trust indenture referenced
in Section 4.02 hereof.
Section 1.135 "Unclaimed Property" means any Cash and Reorganization
Securities unclaimed on or after the applicable Initial Distribution Date or
date on which an Additional Quarterly Distribution would have been made in
respect of the relevant Allowed Claim. Unclaimed Property shall include: (a)
checks (and the funds represented thereby) and Reorganization Securities (i)
mailed to a Distribution Address and returned as undeliverable without a proper
forwarding address or (ii) not mailed or delivered because no Distribution
Address to mail or deliver such property was available, and (b) funds for checks
delivered but uncashed.
Section 1.136 "Union Square Lease" means that certain lease dated
November 26, 1993 between Greenwich Holding Corporation, as lessor, and Bradlees
New York, Inc., predecessor in interest to BSI, as lessee, pursuant to which,
among other things, BSI operates a Bradlees store.
PLAN-15
<PAGE>
Section 1.137 "Union Square Property" means that property located at
14th Street and Broadway, New York, New York, which is subject to BSI's
leasehold interest pursuant to the Union Square Lease.
Section 1.138 "Unofficial Committee" means the Unofficial Committee
of Trade Claim Holders formed by Stonington Management Corporation and Anvil
Investment Partners.
Section 1.139 "Unsecured Claim" means any Claim that is not an
Administrative Claim, Bank Group Claim, Intercompany Claim, Other Priority
Claim, Other Priority Tax Claim, Priority Claim, Priority Tax Claim, or Secured
Claim.
Section 1.140 "Westbury Escrow Funds" means the funds held in escrow
from the sale of the real property formerly owned by WES pursuant to the
Bankruptcy Court Orders dated May 29, 1996 and February 25, 1998.
Section 1.141 "Westbury Fraction" means the fraction, the numerator
of which shall be the amount of WES-GEN Claims and the denominator of which
shall be the sum of the amount of (a) WES-BANK Claims, (b) WES-SPE Claims and
(c) WES-GEN Claims.
Section 1.142 "Yonkers Confirmation Date" means the date on which the
Clerk of the Bankruptcy Court enters the Yonkers Confirmation Order.
Section 1.143 "Yonkers Confirmation Order" means the order, entered by
the Bankruptcy Court, confirming the Plan as it relates to Yonkers.
Section 1.144 "Yonkers Effective Date" means the Business Day which
is the later of (a) twenty days after the date on which the sale of the Yonkers
Property closes, or (ii) twenty days after the inventory and fixtures located at
the Bradlees' store at the Yonkers Property are sold, but in any event a date no
later than August 27, 1999, unless YON shall have, subject to Order of the
Court, extended such date.
Section 1.145 "Yonkers Property" means that certain leasehold
interest owned by YON located in Yonkers, New York.
PLAN-16
<PAGE>
C. Rules of Construction.
---------------------
Section 1.146 Generally. For purposes of the Plan, (a) any reference
in the Plan to an existing document or Exhibit Filed or to be Filed means such
document or Exhibit as it may have been or may be amended, modified or
supplemented; (b) unless otherwise specified, all references in the Plan to
Sections, Articles, Schedules and Exhibits are references to Sections, Articles,
Schedules and Exhibits of or to the Plan; and (c) the rules of construction set
forth in section 102 of the Bankruptcy Code and the Bankruptcy Rules shall apply
unless superseded herein or in the Confirmation Order.
Section 1.147 Exhibits. All Exhibits are incorporated into and are a
part of the Plan as if set forth in full herein and, to the extent not annexed
hereto, such Exhibits shall be Filed with the Bankruptcy Court on or before the
Exhibit Filing Date. Copies of Exhibits can be obtained upon written request to
Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New York 10019-6092
(Attn: Stuart Hirshfield, Esq.), counsel to the Debtors.
Section 1.148 Time Periods. In computing any period of time prescribed
or allowed by the Plan, the provisions of Bankruptcy Rule 9006(a) shall apply.
Section 1.149 Miscellaneous Rules. (i) The words "herein," "hereof,"
"hereunder," and other words of similar import refer to this Plan as a whole,
not to any particular Section, subsection, or clause, unless the context
requires otherwise; (ii) whenever it appears appropriate from the context, each
term stated in the singular or the plural includes the singular and the plural,
and each pronoun stated in the masculine, feminine or neuter includes the
masculine, feminine and the neuter; (iii) captions and headings to Articles and
Sections of the Plan are inserted for convenience or reference only and are not
intended to be a part or to affect the interpretation of the Plan; and (iv) the
rules of construction set forth in section 102 of the Bankruptcy Code shall
apply, unless superceded herein or in the Confirmation Order.
ARTICLE II
----------
CLASSIFICATION OF CLAIMS AND INTERESTS
--------------------------------------
Section 2.01 General Rules of Classification.
All Claims and Interests, other than Administrative Claims and Tax
Claims, if any, have been classified in the Classes set forth below. In
accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims
and Tax Claims have not been classified and thus are excluded from the Classes
set forth below.
A Claim or Interest is classified in a particular Class only to the
extent that the Claim or Interest falls within the description of that Class and
is classified in other Class(es) to the extent that any remainder of the Claim
or Interest falls within the description of such other Class(es).
PLAN-17
<PAGE>
A Claim is also placed in a particular Class for the purpose of
receiving Distributions pursuant to the Plan only to the extent that such Claim
is an Allowed Claim in that Class and such Claim has not been paid, released, or
otherwise settled prior to the Effective Date.
Section 2.02 Administrative, Tax and Other Priority Claims against
any Debtor.
Administrative Claims (including DIP Claims) and Tax Claims are not
classified for each Debtor. Priority Claims are classified for each Debtor.
For instance, Priority Claims against BI are classified in the BI-PTY Class.
Section 2.03 Undersecured Claims against any Debtor.
To the extent that the amount of an Allowed Claim is greater than the
value of the collateral securing such Claim as of the applicable valuation date,
subject to section 1111(b) of the Bankruptcy Code, such Claim is classified in
both a Secured Claim Class for the secured portion of such Claim and a General
Unsecured Claim Class for the excess of such Claim over the value of the
collateral. Each such Secured Claim against a particular Debtor is in a
separate Class of such Debtor if the collateral securing such Secured Claim
materially differs from the collateral securing other Allowed Secured Claims
against the same Debtor. For instance, if two Allowed Secured Claims against
BSI are secured by different collateral of BSI, each such Claim is separately
classified. Notwithstanding anything to the contrary herein, absent an Order of
the Bankruptcy Court or agreement fixing the allowed amount of a Secured Claim
or the scheduling of such Claim as liquidated, nondisputed and noncontingent on
the relevant Debtor's Schedule, the relevant Debtor is not bound by a
classification made or implied herein with respect to any particular Claim.
Section 2.04 Capital Lease Claims.
Each claim arising from a Capital Lease against BSI is separately
classified against BSI.
Section 2.05 Mechanic's Lien Claims.
The Secured Claim of M&R against BSI is separately classified
against BSI.
Section 2.06 Intercompany Claim.
The Allowed Intercompany Claim is separately classified as a claim
against BSI.
PLAN-18
<PAGE>
Section 2.07 Unsecured Claims against any Debtor.
Allowed Unsecured Claims against any Debtor are classified for each
such Debtor in separate Unsecured Claims Classes and Convenience Claims Classes.
Section 2.08 Allowed Convenience Claims are Classified for BSI.
Allowed Convenience Claims are classified against BSI. Each
Convenience Claim is a General Unsecured Claim for which the holder thereof has
elected on the Ballot to be treated as a Convenience Claim in the relevant
Class. Each holder of an Allowed General Unsecured Claim against BSI may elect
Convenience Claim treatment for all, but not part, of its aggregate Allowed
General Unsecured Claim against BSI. A claimant may elect to treat all, but not
a part, of its Allowed General Unsecured Claim against BSI as one Convenience
Claim and may retain its Allowed General Unsecured Claim against another Debtor
as a General Unsecured Claim against such Debtor. Notwithstanding anything to
the contrary herein, each holder of a General Unsecured Claim that is Allowed in
an amount that is less than or equal to $500 shall be deemed to have elected to
treat such Claim as a Convenience Claim.
Section 2.09 Equity Interests in any Debtor.
The Interests in each Debtor are separately classified. For instance,
the Interests in BSI are classified in the BSI-EQT Class.
ARTICLE III
-----------
CLASSIFICATION OF CLAIMS AND INTERESTS BY DEBTOR
------------------------------------------------
The following sets forth the classification of each type of Claim
against, and Interest in, each of the Debtors.
Section 3.01 Bradlees, Inc.
Class BI-PTY (BI-Priority Claims): Class BI-PTY consists of all
---------------------------------
Priority Claims against BI.
Class BI-BANK (BI-Bank Group Claims): Class BI-BANK consists of all
------------------------------------
Bank Group Claims against BI.
Class BI-SPE (BI-SPE Claims): Class BI-SPE consists of the SPE Claim
----------------------------
against BI.
Class BI-GEN (BI-General Unsecured Claims): Class BI-GEN consists of
------------------------------------------
all General Unsecured Claims, including Bond Claims, against BI.
Class BI-EQT (BI-Common Stock Interests): Class BI-EQT consists of
----------------------------------------
all Interests based on the Old Common Stock of BI.
PLAN-19
<PAGE>
Section 3.02 Bradlees Administrative Co., Inc.
Class BAC-PTY (BAC-Priority Claims): Class BAC-PTY consists of all
-----------------------------------
Priority Claims against BAC.
Class BAC-SPE (BAC-SPE Claims): Class BAC-SPE consists of the SPE
------------------------------
Claim against BAC.
Class BAC-BANK (BAC-Bank Group Claims): Class BAC-BANK consists of
--------------------------------------
all Bank Group Claims against BAC.
Class BAC-GEN (BAC-General Unsecured Claims): Class BAC-GEN consists
--------------------------------------------
of all General Unsecured Claims against BAC.
Class BAC-EQT (BAC-Common Stock Interests): Class BAC-EQT consists of
------------------------------------------
all Interests based on the Old Common Stock of BAC.
Section 3.03 Bradlees Stores, Inc.
Class BSI-PTY (BSI-Priority Claims): Class BSI-PTY consists of all
-----------------------------------
Priority Claims against BSI.
Class BSI-CAP (BSI-Capital Lease Claims): Class BSI-CAP consists of
----------------------------------------
all Capital Lease Claims against BSI. Each Creditor holding a BSI-CAP Claim is
separately subclassified as set forth in Exhibit C hereto.
Class BSI-MEC (BSI-Secured Claim of M&R): Class BSI-MEC consists of
----------------------------------------
the Secured Claim of M&R against BSI.
Class BSI-SPE (BSI-SPE Claims): Class BSI-SPE consists of the SPE
------------------------------
Claim against BSI.
Class BSI-BANK (BSI-Bank Group Claims): Class BSI-BANK consists of
--------------------------------------
all Bank Group Claims against BSI.
Class BSI-INTER (BSI-Intercompany Claims): Class BSI-INTER consists
-----------------------------------------
of the Intercompany Claims.
Class BSI-GEN (BSI-General Unsecured Claims): Class BSI-GEN consists
--------------------------------------------
of all General Unsecured Claims against BSI and the SPE Deficiency Claim.
Class BSI-CON (BSI-Convenience Claims): Class BSI-CON consists of all
--------------------------------------
Convenience Class Claims against BSI.
Class BSI-EQT (BSI-Common Stock Interests): Class BSI-EQT consists of
------------------------------------------
all Interests based on the Old Common Stock of BSI.
PLAN-20
<PAGE>
Section 3.04 Dostra Realty Co., Inc.
Class DOS-PTY (DOS-Priority Claims): Class DOS-PTY consists of all
-----------------------------------
Priority Claims against DOS.
Class DOS-SPE (DOS-SPE Claims): Class DOS-SPE consists of the SPE
------------------------------
Claim against DOS.
Class DOS-BANK (DOS-Bank Claims): Class DOS-BANK consists of all Bank
--------------------------------
Group Claims against DOS.
Class DOS-GEN (DOS-General Unsecured Claims): Class DOS-GEN consists
--------------------------------------------
of all General Unsecured Claims against DOS.
Class DOS-EQT (DOS-Common Stock Interests): Class DOS-EQT consists of
------------------------------------------
all Interests based on the Old Common Stock of DOS.
Section 3.05 Maximedia Services, Inc.
Class MAX-PTY (MAX-Priority Claims): Class MAX-PTY consists of all
-----------------------------------
Priority Claims against MAX.
Class MAX-SPE (MAX-SPE Claims): Class MAX-SPE consists of the SPE
------------------------------
Claim against MAX.
Class MAX-BANK (MAX-Bank Claims): Class MAX-BANK consists of all Bank
--------------------------------
Group Claims against MAX.
Class MAX-GEN (MAX-General Unsecured Claims): Class MAX-GEN consists
--------------------------------------------
of all General Unsecured Claims against MAX.
Class MAX-EQT (MAX-Common Stock Interests): Class MAX-EQT consists of
------------------------------------------
all Interests based on the Old Common Stock of MAX.
Section 3.06 New Horizons of Yonkers, Inc.
Class YON-PTY (YON-Priority Claims): Class YON-PTY consists of all
-----------------------------------
Priority Claims against YON.
Class YON-SPE (YON-SPE Claims): Class YON-SPE consists of the SPE
------------------------------
Claim against YON.
Class YON-BANK (YON-Bank Claims): Class YON-BANK consists of all Bank
--------------------------------
Group Claims against YON.
Class YON-GEN (YON-General Unsecured Claims): Class YON-GEN consists
--------------------------------------------
of all General Unsecured Claims against YON.
PLAN-21
<PAGE>
Class YON-EQT (YON-Common Stock Interests): Class YON-EQT consists of
------------------------------------------
all Interests based on the Old Common Stock of YON.
Section 3.07 New Horizons of Bruckner, Inc.
Class BRU-PTY (BRU-Priority Claims): Class BRU-PTY consists of all
-----------------------------------
Priority Claims against BRU.
Class BRU-SPE (BRU-SPE Claims): Class BRU-SPE consists of the SPE
------------------------------
Claim against BRU.
Class BRU-BANK (BRU-Bank Claims): Class BRU-BANK consists of all Bank
--------------------------------
Group Claims against BRU.
Class BRU-GEN (BRU-General Unsecured Claims): Class BRU-GEN consists
--------------------------------------------
of all General Unsecured Claims against BRU.
Class BRU-EQT (BRU-Common Stock Interests): Class BRU-EQT consists of
------------------------------------------
all Interests based on the Old Common Stock of BRU.
Section 3.08 New Horizons of Westbury, Inc.
Class WES-PTY (WES-Priority Claims): Class WES-PTY consists of all
-----------------------------------
Priority Claims against WES.
Class WES-SPE (WES-SPE Claims): Class WES-SPE consists of the SPE
------------------------------
Claim against WES.
Class WES-BANK (WES-Bank Claims): Class WES-BANK consists of all Bank
--------------------------------
Group Claims against WES.
Class WES-GEN (WES-General Unsecured Claims): Class WES-GEN consists
--------------------------------------------
of all General Unsecured Claims against WES.
Class WES-EQT (WES-Common Stock Interests): Class WES-EQT consists of
------------------------------------------
all Interests based on the Old Common Stock of WES.
ARTICLE IV
----------
REORGANIZATION SECURITIES
-------------------------
Reorganized BSI shall issue the following new securities on or about
the Effective Date to be distributed to holders of certain Allowed Claims of
each of the Debtors (as set forth herein):
PLAN-22
<PAGE>
Section 4.01 Tax Notes.
Subject to the election of the relevant Debtor to distribute Cash to
any holder of an Allowed Tax Claim, each holder of an Allowed Tax Claim shall
receive a Tax Note as set forth in Sections 5.02 and 5.03 of this Plan.
Section 4.02 New Notes.
Reorganized BSI shall issue to the holders of (i) the Bank Group
Claims, (ii) the SPE Claims, (iii) YON-GEN Claims, (iv) BRU-GEN Claims and (v)
WES-GEN Claims, New Notes in an aggregate principal amount to be determined
prior to the Effective Date equal to the difference between (a) $40 million and
(b) any Required Prepayment. Required Prepayments shall be distributed to
holders of Claims in the foregoing classes in the following proportion: (a)
0.83 percent to holders of YON-GEN Claims; (b) 0.83 percent to holders of BRU-
GEN Claims; (c) 0.83 percent to holders of WES-GEN Claims; (d) 9.75 percent to
holder of SPE Claims; and (e) 87.75 percent to holders of the Bank Group Claims.
If not paid sooner, all amounts outstanding with respect to the New Notes shall
be due on the first Business Day after the date which is five years after the
Effective Date. The New Notes shall (a) be a full recourse obligation of
Reorganized BSI, (b) be secured by a first lien on the Yonkers Property and the
Union Square Property (provided that YON or BSI, as the case may be, have not
sold its interest in such property on the date of issuance of such New Notes),
Additional Collateral and a pledge of BSI's Interest in the Old Common Stock of
YON, (c) be prepaid Pro Rata without penalty from the Net Proceeds of any equity
offering and the sale of the Yonkers Property and the Union Square Property and
(d) bear interest at a rate equal to nine percent (9%) per annum payable semi-
annually on January 1 and July 1 of each year. In the event that the Net
Proceeds from the assignment of the Union Square Lease exceed $15.0 million, the
lien against the Additional Collateral granted by this Section shall be
terminated and released. In the event that the Net Proceeds from the assignment
of the Union Square Lease are less than $15.0 million, the holders of the New
Notes shall retain a security interest in the Additional Collateral but such
collateral only shall secure indebtedness under the New Notes in the amount of
the difference between $17.5 million and the Net Proceeds from the assignment of
the Union Square Lease, plus interest thereon. Reorganized BSI shall not be
under any obligation to seek to sell or assign the Additional Collateral to
prepay the New Notes, but shall prepay the New Notes if, and to the extent, any
of the Additional Collateral is sold. The lien securing the New Notes, as
provided in this Section, shall be held by the Indenture Trustee in accordance
with the Trust Indenture. The holders of the New Notes shall have the option to
convert the New Notes to New Common Stock of Reorganized BI in accordance with
the terms set forth in Exhibit G hereto. The Debtors intend to register the New
Notes received by Gabriel Capital L.P., Elliot Associates, L.P. and/or Westgate
International, L.P. for resale with the Securities and Exchange Commission under
the Securities Act of 1934. The Trust Indenture, a copy of which will be
annexed hereto as Exhibit J, will be filed with the Court on or before the
Exhibit Filing Date. Reorganized BI will guaranty Reorganized BSI's obligations
under the New Notes.
PLAN-23
<PAGE>
Section 4.03 CAP Note.
In accordance with Section 6.05 hereof, Reorganized BSI may issue a
CAP Note to the holder of the Class BSI-CAP Claim in the principal amount equal
to $627,094 less the amount of all adequate protection payments received by BTM
from BSI under the BTM Stipulation after November 13, 1998, which amount shall
be calculated as of the Effective Date. The CAP Notes shall bear interest at a
rate equal to nine percent (9.0%) per annum, payable quarterly in arrears at
such times as principal payments are due. Principal shall be payable in twelve
(12) equal successive installments commencing three months following the
Effective Date, until the Note, including unpaid interest, is paid in full. The
CAP Note delivered to BTM shall be and remain secured by a first lien on the
property on which BTM holds a valid first priority security interest as
recognized by the BTM Stipulation.
Section 4.04 Cure Notes.
In accordance with Section 9.05 hereof, Reorganized BSI may issue Cure
Notes in conjunction with the assumption of executory contracts in a principal
amount to be determined prior to the Effective Date but in any event not to
exceed $3,400,000. The Cure Notes shall be unsecured and shall bear interest at
the rate of nine percent (9%) per annum. If not paid sooner, all amounts
outstanding with respect to the Cure Notes shall be due on the first Business
Day after the date which is three years from the Effective Date.
Section 4.05 New Warrants.
Reorganized BI shall issue to holders of BI-GEN Claims a Ratable
Distribution of New Warrants to purchase an aggregate amount of 1,000,000 shares
of New Common Stock of Reorganized BI. The New Warrants shall be exercisable
over a five-year period after the Effective Date. The exercise price of the New
Warrants for each share of New Common Stock of Reorganized BI shall be $7.00 per
share. Reorganized BI shall use all reasonable efforts to have the New Warrants
listed on a nationally recognized stock exchange after the Effective Date.
Section 4.06 New Common Stock of Reorganized BI.
Reorganized BI shall issue a single class of up to 40,000,000 shares
of New Common Stock. New Common Stock of Reorganized BI is to be distributed
under this Plan to holders of Allowed Claims in the BSI-GEN Class, holders of
the Bank Group Claim and holders of the SPE Claims. In aggregate, no more than
10,909,090 of such shares shall be distributed to holders of Allowed Claims
under this Plan. The Debtors intend to register the New Common Stock to be
received by Gabriel Capital L.P., Elliott Associates, L.P. and Westgate
International, L.P. for resale with the Securities and Exchange Commission under
the Securities Act of 1934 and the Debtors intend to continue to file periodic
reports under such Act. Reorganized BI shall use all reasonable efforts to have
the New Common Stock listed on a nationally recognized stock exchange after the
Effective Date.
PLAN-24
<PAGE>
ARTICLE V
---------
TREATMENT OF UNIMPAIRED CLASSES
-------------------------------
Section 5.01 Administrative Claims.
(a) Payment of Administrative Claims in General. Except as
-------------------------------------------
specified below in this Section 5.01 or otherwise set forth in the Plan, and
subject to the bar date provisions herein, each holder of an Allowed
Administrative Claim (including an Allowed Reclamation Claim) shall receive Cash
equal to the amount of such Administrative Claim (unless the holder of such
Claim agrees to other treatment) on the latest of: (i) 30 days after the
Effective Date, (ii) the first business date which is 30 days after the date on
which an order allowing such Claim becomes a Final Order, and (iii) such other
time or times that are agreed on by the holder of the Administrative Claim and
the applicable Debtor or Reorganized Corporation.
(b) Payment of Statutory Fees. On or before the Effective Date, or
-------------------------
as soon thereafter as practicable all fees payable pursuant to section 1930 of
Title 28 of the United States Code, 28 U.S.C. (S) 1930, as determined by the
Bankruptcy Court at the hearing on Confirmation, shall be paid in cash equal to
the amount of such Claim. Subsequent payments after the Effective Date shall be
made as required by statute.
(c) Payment of DIP Claims. On the Effective Date or at a later
---------------------
date pursuant to the DIP Agreement, all DIP Claims against the Debtors under or
evidenced by the DIP Agreement shall be paid in Cash in an amount equal to the
amount of such DIP Claims.
(d) Payment of State Street Administrative Claim. The State Street
--------------------------------------------
Administrative Claim shall only be paid to the extent and at the time set
forth in the SPE Stipulation.
Section 5.02 Federal Priority Tax Claims.
Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code, unless
otherwise agreed to by the Debtors and the IRS, the IRS shall receive from
Reorganized BSI, on account of any Federal Priority Tax Claim, deferred cash
payments over a period not exceeding six years from the date of assessment of
such Claims. Payments shall be made in equal quarterly installments of
principal, plus simple interest accruing from the Effective Date at a rate equal
to nine percent (9%) per annum on the unpaid portion of each Federal Priority
Tax Claim; provided, however, that in the event that the Effective Date does not
occur on or before February 1, 1999, interest on the Tax Note shall begin to
accrue on February 1, 1999. The first payment shall be due on the latest of:
(i) 90 days after the Effective Date, (ii) 90 days after the date on which an
order allowing any
PLAN-25
<PAGE>
such Claim becomes a Final Order and (iii) such other date that is agreed on by
the IRS and BSI or Reorganized BSI; provided, however, that Reorganized BSI
shall have the right to pay any Federal Priority Tax Claim, or any remaining
balance of such Claim, in full, at any time on or after the Effective Date,
without premium or penalty .
Section 5.03 Other Priority Tax Claims.
Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code, unless
otherwise agreed to by the parties, each holder of an Other Priority Tax Claim
shall receive from Reorganized BSI, on account of such Claim, deferred cash
payments over a period not exceeding six years from the date of assessment of
such Claim. Payments shall be made in equal quarterly installments of
principal, plus simple interest accruing from the Effective Date at a rate equal
to nine percent (9%) per annum on the unpaid portion of each Other Priority Tax
Claim; provided, however, that in the event that the Effective Date does not
occur on or before February 1, 1999, interest on the Tax Note shall begin to
accrue on February 1, 1999. The first payment shall be due on the latest of:
(i) 90 days after the Effective Date, (ii) 90 days after the date on which an
order allowing any such Claim becomes a Final Order and (iii) such other date
that is agreed on by the holder of such Claim and BSI or Reorganized BSI;
provided, however, that Reorganized BSI shall have the right to pay any Other
Priority Tax Claim, or any remaining balance of such Claim, in full, at any time
on or after the Effective Date, without premium or penalty.
Section 5.04 Other Non-Tax Priority Claims.
Except as otherwise provided below, each holder of an Allowed Priority
Claim shall receive one hundred percent (100%) of the allowed amount of such
Claim in Cash on the later of: (i) 30 days after the Effective Date or as soon
thereafter as reasonably practicable; or (ii) the first Business Day after the
date that is 30 days after the date such Claim becomes an Allowed Claim or as
soon thereafter as practicable.
Section 5.05 Convenience Claims.
Each holder of an Allowed Convenience Claim shall be paid one hundred
percent (100%) of the amount of such Claim in Cash in an amount not to exceed
$500 for each such Claim on the later of (i) 30 days after the Effective Date or
as soon thereafter as reasonably practicable; or (ii) the first Business Day
after the date that is 30 days after the date such Claim becomes an Allowed
Claim or as soon thereafter as practicable.
ARTICLE VI
----------
TREATMENT OF IMPAIRED CLAIMS AND INTERESTS
------------------------------------------
Each Debtor shall make the following Distributions, where applicable,
on or about the Initial Distribution Date unless another date is otherwise
provided herein or elsewhere in this Plan:
PLAN-26
<PAGE>
Section 6.01 Bank Group Claims.
Class BI-BANK, Class BAC-BANK, Class BSI-BANK, Class DOS-BANK, Class
--------------------------------------------------------------------
MAX-BANK, Class YON-BANK, Class BRU-BANK and Class WES-BANK. For purposes of
- -----------------------------------------------------------
this Plan, the Bank Group Claim shall be allowed, with prejudice and without
defense, as a claim against each of the Debtors' estates in the amount of $96
million. Each holder of a BI-BANK Claim, BAC-BANK Claim, BSI-BANK Claim, DOS-
BANK Claim, MAX-BANK Claim, YON-BANK Claim, BRU-BANK Claim and WES-BANK Claim
shall receive, in respect of its Claim against each of BI, BAC, BSI, DOS, MAX,
YON, BRU and WES, and/or retain on the Effective Date, Pro Rata Distributions as
follows:
(i) Cash equal to the sum of (a) all Adequate Protection
Payments heretofore and hereafter received by the Bank Group (less any
disbursements thereof made or payments required to be made by Bankers
Trust, as the Agent Bank, including without limitation, any
professional fees), which shall continue unabated and without
modification through the Effective Date (and prorated for the month in
which the Effective Date occurs), (b) $7,000,000 and (c) any Required
Prepayments applicable to the Bank Group's Distribution of New Notes
pursuant to Section 6.01(ii);
(ii) New Notes in an original aggregate principal amount equal
to $36 million less the sum of (a) any Required Prepayments applicable
thereto, and (b) 90%, not to exceed $900,000, in an aggregate
principal amount, of the amount of any New Notes distributed to
holders of Allowed YON-GEN Claims, Allowed BRU-GEN Claims and Allowed
WES-GEN Claims; and
(iii) (a) 4,909,091 shares of New Common Stock of Reorganized
BI and (b) if the aggregate amount of Allowed General Unsecured Claims
and Disputed General Unsecured Claims asserted against BSI (excluding
the Bank Group Claim and the Intercompany Claim) is less than
$240,000,000, a supplemental Ratable Distribution in the amount of
0.98 shares of New Common Stock of Reorganized BI for every $100 by
which the aggregate amount of Allowed General Unsecured Claims plus
Disputed General Unsecured Claims against BSI (excluding the Bank
Group Claim and the Intercompany Claim) are less than $250,000,000
(such supplemental distribution of shares of New Common Stock, the
"Supplemental Bank Group Distribution").
Section 6.02 SPE Claims.
Class BI-SPE, Class BAC-SPE, Class DOS-SPE, Class MAX-SPE, Class YON-
--------------------------------------------------------------------
SPE, Class BRU-SPE and Class WES-SPE. For purposes of this Plan, the SPE Claims
- ------------------------------------
shall be Allowed, with prejudice and without defense, as a claim against each of
the Debtors' estates in the amount of $18,232,677 (subject to reduction,
pursuant to the
PLAN-27
<PAGE>
SPE Stipulation, to reflect (a) the amount of Cash received by the SPE Group
from the sale of the SPE Providence Property and (b) the net proceeds received
by the SPE Group from the SPE Philadelphia Property). Each holder of an Allowed
BI-SPE Claim, BAC-SPE Claim, BSI-SPE Claim, DOS-SPE Claim, MAX-SPE Claim, YON-
SPE Claim, BRU-SPE Claim and WES-SPE Claim shall receive, in respect of its
aggregate Allowed Claim against BI, BAC, BSI, DOS, MAX, YON, BRU and WES, a
single Pro Rata Distribution as follows:
(i) Cash from any Required Prepayments made to the SPE Group;
(ii) New Notes in a principal amount equal to $4,000,000 less
the sum of (x) any Cash Distributions received by holders of SPE
Claims from any Required Prepayments and (y) ten percent (10%) not to
exceed $100,000 of the aggregate original principal amount of all New
Notes issued to holders of YON-GEN, WES-GEN and BRU-GEN Claims under
this Plan; and
(iii) in accordance with Section 3.03 hereof, the SPE Deficiency
Claim will be treated as an Allowed BSI-GEN Claim.
Section 6.03 Bradlees, Inc.
Class BI-GEN (BI-General Unsecured Claims): Each Holder of an Allowed
------------------------------------------
BI-GEN Claim shall receive a Ratable Distribution of New Warrants. For purposes
of this Plan, the Bond Claim shall be Allowed with prejudice and without defense
as a Claim solely against BI in the amount of $233,417,000.
Class BI-EQT (BI-Common Stock Interests): Holders of Allowed BI-EQT
----------------------------------------
Interests shall receive no distribution.
Section 6.04 Bradlees Administrative Co., Inc.
Class BAC-GEN (BAC-General Unsecured Claims): Holders of Allowed BAC-
--------------------------------------------
GEN Claims shall receive no distribution.
Class BAC-EQT (BAC-Common Stock Interests): Holders of Allowed BAC-
------------------------------------------
EQT Interests shall retain their Interests in BAC.
Section 6.05 Bradlees Stores, Inc.
Class BSI-CAP (BSI-Capital Lease Claims): The holder of the Allowed
----------------------------------------
BSI-CAP Claim shall receive a CAP Note, in form and substance reasonably
satisfactory to the holder of such BSI-CAP Claim, in such principal amount with
such interest rate, and on such other terms as set forth in Section 4.03 hereof.
Class BSI-MEC (BSI-Mechanic's Lien Claims): The holder of the Allowed
------------------------------------------
BSI-MEC Claim shall receive a Cash Distribution in the amount of $4,750.
PLAN-28
<PAGE>
Class BSI-INTER (BSI-Intercompany Claim): After giving effect to BI's
-----------------------------------------
prior capital contribution to BSI, the amount of the Intercompany Claim shall be
Allowed in the amount of $96.0 million for purposes of this Plan. The entire
Class BSI-INTER Claim shall be satisfied through the issuance of shares of the
New Common Stock of Reorganized BI and Cash, which Distributions shall be made
to the holders of the Bank Group Claims pursuant to Section 6.01 hereof.
Class BSI-GEN (BSI-General Unsecured Claims): Each holder of an
--------------------------------------------
Allowed BSI-GEN Claim shall receive (i) Cash equal to a Pro Rata Distribution of
$7,000,000 (ii) two shares of New Common Stock of Reorganized BI for every $100
in Allowed Claims, and (iii) if the aggregate amount of Allowed General
Unsecured Claims and Disputed General Unsecured Claims against BSI (excluding
the Bank Group Claim and the Intercompany Claim) is less than $240,000,000, a
supplemental Ratable Distribution in the amount of 1.02 shares of New Common
Stock for every $100 that the aggregate Allowed General Unsecured Claims plus
Disputed General Unsecured Claims against BSI (excluding the Bank Group Claim
and the Intercompany Claim) are less than $250,000,000 (such supplemental
distribution of shares of New Common Stock, the "Supplemental BSI-GEN
Distribution"). To the extent that any Disputed Claim in the BSI-GEN Class
becomes disallowed by a Final Order or is withdrawn, then on the next Quarterly
Distribution Date thereafter, a supplemental Pro Rata Distribution of that
portion of the initial $7,000,000 Cash Distribution to the BSI-GEN Class
allocated to such formerly Disputed Claim shall be (x) made to the holders of
Allowed Claims in the BSI-GEN Class and (y) in the case of any remaining
Disputed Claims in the BSI-GEN Class, held in the Disputed Claims Reserve for
such Disputed Claims.
Class BSI-CON (BSI-Convenience Claims): Each holder of a BSI-CON
--------------------------------------
Claim shall receive a Cash Distribution equal to the lesser of (i) one hundred
percent (100%) of their BSI-CON Claim or (ii) $500.
Class BSI-EQT (BSI-Common Stock Interests): Holders of BSI-EQT
------------------------------------------
Interests shall retain their Interest in BSI.
Section 6.06 Dostra Realty Co., Inc.
Class DOS-GEN (DOS-General Unsecured Claims): Holders of DOS-GEN
--------------------------------------------
Claims shall receive no distribution.
Class DOS-EQT (DOS-Common Stock Interests): Holders of DOS-EQT
------------------------------------------
Interests shall retain their Interest in DOS.
Section 6.07 Maximedia Services, Inc.
Class MAX-GEN (MAX-General Unsecured Claims): Holders of MAX-GEN
--------------------------------------------
Claims shall receive no distribution.
Class MAX-EQT (MAX-Common Stock Interests): Holders of MAX-EQT
------------------------------------------
Interests shall retain their Interest in MAX.
PLAN-29
<PAGE>
Section 6.08 New Horizons of Yonkers, Inc.
Class YON-GEN (YON-General Unsecured Claims): On or about the Yonkers
--------------------------------------------
Effective Date, each holder of a YON-GEN Claim shall receive a Ratable
Distribution of: (i) Cash equal to the Net Proceeds from the sale of the Yonkers
Property multiplied by the Yonkers Fraction, but not to exceed 0.83 percent of
such Net Proceeds and (ii) New Notes in a principal amount up to 0.83 percent
of the aggregate principal amount of the New Notes which are distributed under
this Plan minus Cash Distributions made to holders of YON-GEN Claims under this
Plan.
Class YON-EQT (YON-Common Stock Interests): Holders of YON-EQT
------------------------------------------
Interests shall retain their Interest in YON.
Section 6.09 New Horizons of Bruckner, Inc.
Class BRU-GEN (BRU-General Unsecured Claims): Each holder of a BRU-GEN
--------------------------------------------
Claim shall receive a Ratable Distribution of: (i) Cash equal to the Net
Proceeds from the sale of the real property formerly owned by BRU multiplied by
the Bruckner Fraction, but not to exceed 0.83 percent of such Net Proceeds, and
(ii) New Notes in a principal amount up to 0.83 percent of the aggregate
principal amount of the New Notes which are Distributed under this Plan minus
Cash Distributions made to holders of BRU-GEN Claims under this Plan. The Cash
Distribution set forth in this Section shall be made as soon as practicable
after the sale of the Union Square Property, or at such earlier time as the
Reorganized Corporations shall decide, but in no event, before the Effective
Date.
Class BRU-EQT (BRU-Common Stock Interests): Holders of BRU-EQT
------------------------------------------
Interests shall retain their Interest in BRU.
Section 6.10 New Horizons of Westbury, Inc.
Class WES-GEN (WES-General Unsecured Claims): Each holder of a WES-GEN
--------------------------------------------
Claim shall receive a Ratable Distribution of: (i) Cash equal to the Net
Proceeds from the sale of the real property formerly owned by WES multiplied by
the Westbury Fraction, but not to exceed 0.83 percent of such Net Proceeds, and
(ii) New Notes in a principal amount up to 0.83 percent of the aggregate
principal amount of the New Notes which are Distributed under this Plan minus
Cash Distributions made to holders of WES-GEN Claims under this Plan. The Cash
Distribution set forth in this Section shall be made as soon as practicable
after the sale of the Union Square Property, or at such earlier time as the
Reorganized Corporation shall decide, but in no event, before the Effective
Date.
Class WES-EQT (WES-Common Stock Interests): Holders of WES-EQT
------------------------------------------
Interests shall retain their Interest in WES.
PLAN-30
<PAGE>
ARTICLE VII
-----------
IMPLEMENTATION
--------------
Section 7.01 Reorganized BI, Reorganized BSI and Reorganized DOS.
BI, BSI and DOS shall each continue to exist after the Effective Date
as Reorganized BI, Reorganized BSI and Reorganized DOS, respectively, each with
all of the powers of a corporation under applicable law. The Certificate of
Incorporation and Amended By-Laws of each of Reorganized BI, Reorganized BSI and
Reorganized DOS shall, inter alia, (i) prohibit the issuance of nonvoting stock
to the extent required by section 1123(a) of the Bankruptcy Code and (ii)
contain no "anti-takeover" provisions. After the Effective Date, Reorganized
BI, Reorganized BSI and Reorganized DOS may each amend or modify their
Certificate of Incorporation and Amended By-Laws as permitted under applicable
law and/or such certificate of incorporation and Amended By-Laws.
Section 7.02 Directors of the Reorganized Corporations.
Upon the Effective Date, the existing Board of Directors of each
Reorganized Corporation shall be dismissed. Not later than the date of the
commencement of the hearing on the confirmation of this Plan, the Debtors shall
have disclosed the identity and affiliations of any individuals proposed to
serve as Directors for Reorganized BI. The Board of Directors of Reorganized BI
shall each consist of nine members, who shall be designated, to serve effective
as of the Effective Date, as follows:
(i) BI shall designate Peter Thorner, one other member of
management of the Debtors and one outside individual;
(ii) the Bank Group shall designate two individuals;
(iii) the Unofficial Committee shall designate one individual;
(iv) the Creditors' Committee shall designate one individual; and
(v) the Bank Group, the Unofficial Committee and the Creditors'
Committee, acting by unanimous consent, or absent such consent, by
vote of two such groups, shall designate two individuals who shall be
reasonably acceptable to the Debtors.
Notwithstanding the foregoing, in order to be eligible to serve on the
Board of Directors of Reorganized BI, (i) each proposed Board Member designated
pursuant to this provision shall have relevant experience which would qualify
him or her to so serve and (ii) the outside individual selected by BI shall be
reasonably acceptable to the Bank Group, Unofficial Committee and Creditors'
Committee. The initial term of
PLAN-31
<PAGE>
each Board Member of Reorganized BI shall be for one year from the Effective
Date and Peter Thorner shall serve as Chairman of the Board of Directors of
Reorganized BI.
The Board of Directors of each of Reorganized BSI and Reorganized DOS
shall consist of three members, who shall be designated, to serve effective as
of the Effective Date, as follows: (x) the Chief Executive officer of
Reorganized BI, (y) the Senior Vice President and Chief Financial Officer of
Reorganized BI and (z) Senior Vice President, General Counsel, Clerk and
Secretary of Reorganized BI. The initial term of each Board Member of
Reorganized BSI and Reorganized DOS shall be for one year from the Effective
Date and the Chief Executive Officer of Reorganized BI shall serve as Chairman
of the Board of Directors of each of Reorganized BSI and Reorganized DOS.
Section 7.03 Employment, Retirement, Indemnification and Other
Agreements and Incentive Compensation Programs.
To the extent that any of the Debtors have in place as of the
Effective Date employment, retirement, indemnification and other agreements with
their respective active directors, officers and employees or retirement income
plans, welfare benefit plans and other plans for active employees, such
agreements, programs and plans shall remain in place after the Effective Date
and Reorganized BI, Reorganized BSI and Reorganized DOS, as the case may be,
shall continue to honor such agreements, programs and plans. However, as of the
Effective Date, Reorganized BI, Reorganized BSI and Reorganized DOS shall each
have the authority to terminate, amend or enter into employment, retirement,
indemnification and other agreements with their respective active directors,
officers and employees and to terminate, amend or implement retirement income
plans, welfare benefit plans and other plans for active employees. Such
agreements and plans may include equity, bonus and other incentive plans in
which officers and other employees of the Reorganized Debtors may be eligible to
participate; provided, however, that management of Reorganized BI, Reorganized
BSI and Reorganized DOS shall receive stock options in the amount of 750,000
shares of Reorganized BI which shall vest according to the following schedule:
one-third on the Effective Date, one-third on the one year anniversary of the
Effective Date, and one-third on the two year anniversary of the Effective Date.
The exercise price of such options shall be the lowest ten-day rolling average
of closing prices of Reorganized BI New Common Stock within the period between
sixty and ninety days after the Effective Date. All such options shall be
exercisable for a period of five years from the Effective Date. In addition, the
Board of Directors of Reorganized BI shall have the right to distribute to
management of Reorganized BI, Reorganized BSI and Reorganized DOS options with
respect to 250,000 additional shares of Reorganized BI at such price and on such
terms as the Board of Directors of Reorganized BI shall determine. In addition,
except for the retirement and disability benefit plans referred to below in
Section 7.06, on the Exhibit Filing Date, BI, BSI and DOS shall each file a
schedule and general summary of the existing employment, retirement,
indemnification and other agreements and incentive compensation programs that
are to remain in effect as of the Effective Date as Exhibit D to the Plan. By
the date of the commencement of the hearing on confirmation of this
PLAN-32
<PAGE>
Plan, the Debtors shall file with the Court as Exhibit K hereto a schedule
disclosing the individuals who are proposed to serve as officers of the
Reorganized Corporations following the Effective Date and the nature of the
compensation for such individuals.
Section 7.04 Management Emergence Bonus.
On the Effective Date, the Equity Appreciation Plan which was approved
by Order of the Bankruptcy Court dated October 24, 1995 shall be deemed
terminated. The Reorganized Corporations shall pay to certain of the Debtors'
managerial employees, selected prior to the Effective Date by the Chief
Executive Officer of BI and BI's pre-Effective Date Board of Directors, an
emergence bonus in Cash in amounts up to the aggregate amount of $3.0 million,
which shall be paid to such employees in two installments as follows: (x) on
the Effective Date, the amount of $1.0 million and (y) on the later of (i) the
one-year anniversary of the Effective Date and (ii) the date that the New Notes
are fully repaid or converted to equity, the amount of $2.0 million; provided,
however, that no payment of an emergence bonus shall be made in the event there
exists any continuing default notice outstanding under the New Credit Facility
or any successor working capital facility at the time of such payment; provided,
further, however, that if any person who receives an installment of such
emergence bonus leaves the employ of either of the Reorganized Corporations
within one year after the payment of either such installment by reason of (a)
an involuntary separation for "Cause" (as defined in such employee's employment
agreement to the extent one exists, or if there is no such employment agreement,
as commonly defined) or (b) voluntary separation for other than "Good Reason"
(as defined in such employee's employment agreement to the extent one exists, or
if there is no such employment agreement, as commonly defined), such person
shall (i) be obligated to promptly repay to the Reorganized Corporations an
amount equal to the amount of the most recently paid installment multiplied by a
fraction, the numerator of which is three hundred sixty-five minus the number of
days between the date that the most recently paid installment was required to be
paid pursuant to this provision and such person's date of departure from the
Reorganized Corporations, and the denominator of which is three hundred sixty-
five, and (ii) forfeit any further right to receive an installment of the
emergence bonus; provided, further, however, that if any person who would be
entitled to receive an emergence bonus leaves the employ of either of the
Reorganized Corporations prior to receiving the payment of both installments of
the emergence bonus as a result of (a) an involuntary separation for other than
for "Cause" (as defined in such employee's employment agreement to the extent
one exists, or if there is no such employment agreement, as commonly defined) or
(b) voluntary separation for "Good Reason" (as defined in such employee's
employment agreement to the extent one exists, or if there is no such employment
agreement, as commonly defined), such person shall not be required to return any
portion of the emergence bonus previously paid to such person and such person
shall be entitled to the immediate accelerated payment of any portion of the
emergence bonus not previously paid to such person.
PLAN-33
<PAGE>
Section 7.05 Corporate Action.
Each of the matters provided for under the Plan involving the
corporate structure of any Debtor or Reorganized Debtor or corporate action to
be taken by or required of any Debtor or Reorganized Debtor shall, as of the
Effective Date, be deemed to have occurred and be effective as provided herein,
and shall be authorized and approved in all respects without any requirement of
further action by stockholders or directors of any of the Debtors or the
Reorganized Debtors.
Section 7.06 Certain Retiree Health, Medical and Life Insurance
Benefits.
On and after the Effective Date, pursuant to section 1129(a)(13) of
the Bankruptcy Code, Reorganized BSI shall continue to pay all retiree benefits
(as defined in section 1114(a) of the Bankruptcy Code) of the Debtors'
respective nonunion employees who retired as of or prior to the Petition Date,
at the levels and for the duration established prior to the Effective Date in
either: (a) a Bankruptcy Court order entered pursuant to section 1114(g) of the
Bankruptcy Code or (b) agreements reached pursuant to section 1114(e) of the
Bankruptcy Code; provided, however, that prior to the Confirmation Date, the
Debtors reserve the right to seek an order declaring that the Debtors may amend
or terminate such retiree benefits at the conclusion of the period, if any, that
the Debtors are obligated to provide such retiree benefits under the terms of
their respective retiree benefit plans.
Section 7.07 Combination Transactions.
On the Effective Date (or in the case of YON, the Yonkers Effective
Date), each Combining Debtor shall take such actions as may be necessary or
appropriate to effect the relevant Combination Transaction. Such actions may
include: (a) the execution and delivery of appropriate agreements or other
documents of merger, consolidation or reorganization containing terms that are
consistent with the terms of this Plan and that satisfy the requirements of
applicable law; (b) the execution and delivery of appropriate instruments of
transfer, assignment, assumption or delegation of any property, right,
liability, duty or obligation on terms consistent with the terms of this Plan;
(c) the filing of appropriate certificates of merger or consolidation with the
appropriate governmental authorities under applicable law; and (d) all other
actions that such Debtor determines are necessary or appropriate, including the
making of filings or recordings in connection with the relevant Combination
Transaction. The form of each Combination Transaction shall be determined by
the respective Boards of Directors of such Combining Debtor and Reorganized BI,
Reorganized BSI and Reorganized DOS. Upon the consummation of a Combination
Transaction, each Combining Debtor shall cease to exist as a separate corporate
entity. On and after the Effective Date, Reorganized BSI shall assume and
perform the obligations of each Combining Debtor under this Plan.
PLAN-34
<PAGE>
Section 7.08 Distributions to Holders of Claims and Interests.
(a) Source of Cash and Reorganization Securities for Distributions.
--------------------------------------------------------------
On the Effective Date, Reorganized BI and Reorganized BSI shall each deliver to
the Disbursing Agent sufficient Cash and Reorganization Securities to make
Distributions to: (a) the holders of each relevant Debtor's Allowed Claims; and
(b) the Disputed Claims Reserves, as set forth below. Without any further act or
action required, upon written request by the Disbursing Agent (which may be made
by telecopy or other electronic means reducible to written form) received by
Reorganized BI or Reorganized BSI at least 10 Business Days prior to the
relevant Distribution hereunder, Reorganized BI or Reorganized BSI, as the case
may be, is authorized to and shall timely issue sufficient Reorganization
Securities to permit the Disbursing Agent to make Distributions required
hereunder. Any reference herein to Reorganization Securities in a Disputed
Claims Reserve shall include any Reorganization Securities that are available to
be issued by the Reorganized Corporation pursuant to this section.
(b) Initial Distributions. For each Class, no Distributions will be
---------------------
made under the Plan until an Initial Distribution Date is established for such
Class. On the applicable Initial Distribution Date, the Disbursing Agent shall
make a Distribution to: (i) each holder of an Allowed Claim in an amount equal
to its Ratable Share (calculated as of the applicable Initial Distribution Date)
of Cash or Reorganization Securities in accordance with the terms of the Plan;
(ii) each Paying Agent in an amount equal to the aggregate Ratable Share
(calculated as of the applicable Initial Distribution Date) of the Cash or
Reorganization Securities in accordance with the terms of the Plan that such
Paying Agent shall Distribute to holders of Allowed Claims in the relevant
Class; and (iii) if applicable, the Disbursing Agent shall make a Distribution
to the relevant Disputed Claims Reserve of the remaining Cash and Reorganization
Securities allocated in accordance with the terms of this Plan. The amount of
Cash to be paid on the Initial Distribution Date to holders of Allowed BSI-GEN
Claims will be calculated as if each Disputed Claim were an Allowed Claim in its
Face Amount.
(c) Disputed Claims Reserves. On the Effective Date, and after
------------------------
making all Distributions required to be made on the Effective Date, Reorganized
BI and Reorganized BSI shall each establish a separate Disputed Claims Reserve
for each of its Classes and the Classes of the other Debtors, each of which
shall be administered by the Disbursing Agent. Cash placed into the Disputed
Claims Reserve shall be held in an interest bearing account. Any payment made to
the holder of an Allowed Claim which was previously a Disputed Claim from the
Disputed Claims Reserve shall include any accrued interest thereon at the rate
earned in such interest bearing account. If the Initial Distribution Date is not
the Effective Date for a particular Class, all Cash and Reorganization
Securities allocable to the relevant Class hereunder shall be distributed by the
Disbursing Agent to the relevant Disputed Claims Reserve on or as soon as
practicable after the Effective Date. Each Disputed Claims Reserve shall be
terminated by Reorganized BI or Reorganized BSI, as the case may be, upon the
receipt of a written certification of the Disbursing Agent that all
Distributions and other dispositions of all Cash and/or Reorganization
Securities required hereunder have been made in accordance
PLAN-35
<PAGE>
with the terms of this Plan. Such written certification shall be sent by the
Disbursing Agent to Reorganized BI or Reorganized BSI, as the case may be,
within 15 days of the satisfaction of the condition set forth in the immediately
preceding sentence. With respect to the Reorganization Securities held in the
Disputed Claims Reserve, neither the Disbursing Agent, nor any other party,
shall be entitled to vote any shares of the New Common Stock held in the
Disputed Claims Reserve. In the event that any matter requires the approval of
the shareholders of Reorganized BI prior to the Distribution of the
Reorganization Securities held in the Disputed Claims Reserve, solely with
respect to such vote, the shares of New Common Stock held by the Disbursing
Agent shall be deemed not to have been issued.
(d) Tax Requirements for Income Generated by Disputed Claims
--------------------------------------------------------
Reserves. The Disbursing Agent shall pay, or cause to be paid, out of the funds
- --------
held in a particular Disputed Claims Reserve, any tax imposed by any federal,
state or local taxing authority on the income generated by the funds held in
such Disputed Claims Reserve. The applicable Disbursing Agent shall also File,
or cause to be Filed any tax or information return related to the Disputed
Claims Reserve that is required by any federal, state or local taxing authority.
(e) Estimation of Claims. The Debtors or the Reorganized
--------------------
Corporations may, at any time, request that the Bankruptcy Court estimate any
Claim subject to estimation under section 502(c) of the Bankruptcy Code and for
which the Debtors may be liable under this Plan, including any Claim for Taxes,
to the extent permitted by section 502(c) of the Bankruptcy Code regardless of
whether the Debtors, the Creditors' Committee, the Unofficial Committee, the
Bank Group or the Reorganized Corporations have previously objected to such
Claim, and the Bankruptcy Court will retain jurisdiction to estimate any Claim
pursuant to section 502(c) of the Bankruptcy Code at any time during litigation
concerning any objection to any Claim, including during the pendency of any
appeal relating to any such objection. In the event that the Bankruptcy Court
estimates any contingent or unliquidated Claim, that estimated amount will
constitute either the Allowed amount of such Claim or a maximum limitation on
such Claim, as determined by the Bankruptcy Court. If the estimated amount
constitutes a maximum limitation on such Claim, the Debtors or the Reorganized
Corporations may elect to pursue any supplemental proceedings to object to any
ultimate allowance on such Claim. The Debtors may, at any time, request that the
Bankruptcy Court estimate any claim pursuant to section 502(c) of the Bankruptcy
Code for purposes of satisfying the requirements of Section 10.02(e) hereof. All
of the aforementioned Claims objection, estimation and resolution procedures are
cumulative and not necessarily exclusive of one another. Claims may be estimated
and subsequently compromised, settled, withdrawn or resolved by any mechanism
approved by the Bankruptcy Court.
(f) Initial Distribution. When a Disputed Claim Becomes an Allowed
--------------------------------------------------------------
Claim. On the first Business Day after the end of each calendar quarter (i.e.,
March 31, June 30, September 30 and December 31 of each calendar year)
immediately following the applicable Initial Distribution Date, or as soon
thereafter as practicable (the "Quarterly Distribution Date"), the Disbursing
Agent shall make Ratable Distributions or
PLAN-36
<PAGE>
other Distribution in accordance with the provisions of this Plan (calculated as
of the later of the: (i) immediately preceding Quarterly Distribution Date, or
(ii) the applicable Initial Distribution Date) of Cash or Reorganization
Securities reserved for any Disputed Claim that has become an Allowed Claim
during the preceding calendar quarter to the holder of such Allowed Claim or the
relevant Paying Agent, as the case may be. Holders of Disputed Claims that are
ultimately Allowed will also be entitled to receive any dividends or other
distributions received on and after the Effective Date on account of the shares
of the New Common Stock distributed to such holder on account of its Allowed
Claim.
(g) Additional Quarterly Distributions on Account of Previously
-----------------------------------------------------------
Allowed Claims. On each Quarterly Distribution Date, the Disbursing Agent shall
- --------------
distribute to each holder of a previously Allowed Claim or the relevant Paying
Agent, as the case may be, on account of such Claim an amount of Cash or
Reorganization Securities, as the case may be, equal to: (i) the Distribution
from the relevant Disputed Claims Reserve that such claimant would have received
in accordance with the Plan had it not received any prior Distributions in
respect of its Allowed Claim, less (ii) the total amount of any Distributions
previously received in respect of its Allowed Claim. The Supplemental Bank Group
Distribution and the Supplemental BSI-GEN Distribution of New Common Stock shall
be made from the applicable Disputed Claims Reserve once the General Unsecured
Claims against BSI (excluding the Bank Group Claim and the Intercompany Claims)
are reduced to below $240 million in accordance with Sections 6.01 and 6.05
hereof. Such Additional Quarterly Distributions shall continue until the
relevant Disputed Claims Reserve is depleted of Cash or Reorganization
Securities held in such Disputed Claims Reserve, other than as set forth in the
next subsection. Notwithstanding anything to the contrary herein, no
Distribution shall be made on any Quarterly Distribution Date unless the
aggregate Distribution on such Quarterly Distribution Date would be in excess of
$10,000 in value (as such value is set forth herein and/or in the Disclosure
Statement). The restriction on Additional Quarterly Distributions hereunder
imposed by the immediately preceding sentence shall no longer apply as of the
date on which all Disputed Claims in the relevant Class have been resolved. Each
such Distribution shall also include, on the basis of the amount so distributed,
any dividends or other Distributions received on and after the Effective Date on
account of the shares of the New Common Stock or interest earned on Cash
distributed to each holder receiving a Distribution on a Quarterly Distribution
Date on account of its Allowed Claim.
Section 7.09 Miscellaneous Distribution Provisions.
(a) Method of Cash Distributions. Cash payments made pursuant to
----------------------------
the Plan shall be in United States dollars by checks drawn on a domestic bank
selected by the applicable Debtor or Reorganized Corporation, or by wire
transfer from a domestic bank, at the option of the applicable Debtor or
Reorganized Corporation; provided, however, that cash payments made to foreign
creditors, if any, holding Allowed Claims may be paid, at the option of the
applicable Debtor or Reorganized Corporation, in such funds and by such means as
are necessary or customary in a particular foreign jurisdiction.
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<PAGE>
(b) Distributions on Non-Business Days. Any payment or Distribution
----------------------------------
due on a day other than a Business Day shall be made, without interest, on the
next Business Day.
(c) Accrual of Postpetition Interest. Unless otherwise provided
--------------------------------
for in the Plan, no holder of a pre-petition Allowed Claim shall be entitled to
the accrual of interest on account of such Claim.
(d) No Distribution of Fractional Securities. Notwithstanding any
----------------------------------------
other provisions of the Plan, only whole numbers of shares of New Common Stock
and New Warrants shall be issued. When any Distribution on account of an Allowed
Claim would otherwise result in the issuance of a number of shares of the New
Common Stock and New Warrants that is not a whole number, the Disbursing Agent
shall aggregate and sell all Fractional Shares of the New Common Stock and New
Warrants otherwise then distributable in accordance with the Plan at then
prevailing prices and distribute the net proceeds to the Persons otherwise
entitled thereto. Notwithstanding the foregoing, if a Person holds more than one
claim, the fractional securities that such Person otherwise would be entitled to
on account of each such Claim held by such Person shall be aggregated and, after
taking into account such aggregation, such Person shall receive on account
thereof (in addition to any whole number of shares of New Common Stock, New
Warrants or other Distribution such Person is entitled to under this Plan prior
to such aggregation) (i) any resulting whole number of shares of New Common
Stock and New Warrants and (ii) the net proceeds for any remaining Fractional
Share.
(e) No Distribution in Excess of Allowed Amount of Claim.
----------------------------------------------------
Notwithstanding anything to the contrary herein, no holder of an Allowed Claim
shall receive in respect of such Claim any Distribution (of a value set forth
herein or in the Disclosure Statement) in excess of the Allowed Amount of such
Claim. Except as expressly provided herein, no Prepetition Claim shall be
allowed to the extent that it is for Postpetition Interest or other similar
charges.
Section 7.10 De Minimis Distributions.
Notwithstanding anything to the contrary contained in the Plan, the
Disbursing Agents shall not be required to distribute Cash to the holder of an
Allowed Claim if the amount of cash to be distributed on account of such Claim
is less than $25. Any holder of an Allowed Claim on account of which the amount
of Cash to be distributed is less than $25 shall have such Claim discharged and
shall be forever barred from asserting any such Claim against the Debtors, the
Reorganized Corporation, or their respective property. Any Cash not distributed
pursuant to this provision shall be the property of the applicable Reorganized
Corporation, free of any restrictions thereon, and any such Cash held by the
Disbursing Agent shall be returned to the applicable Reorganized Corporation.
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<PAGE>
Section 7.11 Compliance with Tax Requirements.
In connection with the Plan, to the extent applicable, each Disbursing
Agent shall comply with all withholding and reporting requirements imposed on it
by federal, state and local taxing authorities, and all Distributions shall be
subject to such withholding and reporting requirements.
Section 7.12 Setoffs.
The Reorganized Corporations are authorized, pursuant to section 553
of the Bankruptcy Code, to set off against any Allowed Claim and the
Distributions to be made on account of such Claim, the claims, rights and causes
of action of any nature that the applicable Debtor may hold against the holder
of such Allowed Claim; provided, however, that neither the failure to effect
such a setoff nor the allowance of any Claim hereunder shall constitute a waiver
or release by the applicable Debtor of any such claims, rights and causes of
action that the Debtors may possess against such holder.
Section 7.13 Intercompany Claims.
All Claims between and among the Debtors, except the Intercompany
Claim, which shall be treated in accordance with the provisions of Section 6.05
hereof, shall be deemed released, waived and discharged as of the Effective
Date. All Claims between and among the Debtors and YON shall be deemed
released, waived and discharged as of the YON Effective Date.
Section 7.14 Unclaimed Property.
(a) Escrow of Unclaimed Property. Unclaimed Property (and all
----------------------------
interest, dividends, and other Distributions thereon) shall be delivered
promptly to the Disbursing Agent by each Paying Agent. The Disbursing Agent
shall deposit such Unclaimed Property and such Unclaimed Property held by the
Disbursing Agent in trust (for the benefit of the holders of Claims and
Interests entitled thereto under the terms of this Plan) in a subaccount of the
relevant Disputed Claims Reserve. For a period of two years following the
Effective Date, Unclaimed Property, including any interest, dividends, and other
Distributions thereon shall be: (i) held in such subaccount solely for the
benefit of the holders of Allowed Claims that have failed to claim such
property; and (ii) released from such subaccount and delivered to the holder of
an Allowed Claim upon presentation of proper proof by such holder of its
entitlement thereto.
(b) Investment of Unclaimed Cash. All Cash held in each such
----------------------------
subaccount shall be invested in accordance with section 345 of the Bankruptcy
Code, as modified by the relevant Orders of the Court for investments made by
the Debtors during the Chapter 11 Cases. The earnings on such investments shall
be held in trust as an addition to the balance of the subaccount for the benefit
of the holders of Allowed Claims entitled to such Unclaimed Property, and shall
not constitute property of the Debtors' estate or of the Reorganized
Corporations.
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<PAGE>
(c) Distribution of Unclaimed Property. At the end of two years
----------------------------------
following the relevant Distribution date of particular Cash or Reorganization
Securities, the holders of Allowed Claims theretofore entitled to Unclaimed
Property shall cease to be entitled thereto (such holders, the "Unclaimed
Holders"), and the Unclaimed Property for each Unclaimed Holder shall then be
distributed Pro Rata to the other holders of Allowed Claims in the Class of that
Unclaimed Holder in accordance with Section 7.09 hereof.
Section 7.15 Withdrawal of the Plan.
Each Debtor may only alter, amend, modify, revoke or withdraw this
Plan as the plan of reorganization for such Debtor's Case and the Cases of its
subsidiaries with the express unanimous consent of the Creditors' Committee, the
Bank Group and the Unofficial Committee. Each Debtor reserves the right to make
non-substantive changes in any Plan, which changes may be necessary to
facilitate the withdrawal of another Debtor from the Plan. Any such revocation
or withdrawal by a Debtor shall not affect this Plan as the plan of
reorganization of the other Debtors. If a Debtor revokes or withdraws from this
Plan: (a) nothing contained herein shall be deemed to constitute a waiver or
release of any Claims by or against such Debtor, including (without limitation)
the Intercompany Claim or any other claim of one Debtor against another Debtor,
or to prejudice in any manner the rights of such Debtor or any persons in any
further proceedings involving such Debtor, including (without limitation)
objecting to any Intercompany Claim; and (b) any provisions of any Confirmation
Order with respect to such Debtor shall be null and void (and such Debtor shall
not be benefited by the Confirmation Order) and all such rights of or against
such Debtor shall exist as though this Plan had not been filed and no actions
taken to effectuate it.
Section 7.16 Cancellation of Capital Stock.
As of the Effective Date, by virtue of the Plan and in all events
without any action on the part of the holders thereof, each share of Old Common
Stock of BI issued and outstanding or held in treasury, shall be cancelled and
retired and no consideration will be paid or delivered with respect thereto.
Notwithstanding anything herein to the contrary, holders of Old Common Stock of
BI shall not be required to surrender such stock to the Debtors.
Section 7.17 Surrender of Outstanding Securities.
Except as otherwise provided herein, each holder of an instrument or
certificated security evidencing an Allowed Claim against a Debtor (other than
if the Claim or Interest that such instrument or certificated security evidences
is Reinstated) shall surrender such instrument or certificated security to the
relevant Debtor or Paying Agent with a duly executed letter of transmittal. No
Distribution hereunder shall be made to or on behalf of any holder of such Claim
unless and until such instrument or certificated security is received or the
nonavailability of such instrument or certificated security is established to
the satisfaction of the Disbursing Agent or Paying Agent, as the case may be.
Such Disbursing Agent or Paying Agent, as the case may be, may
PLAN-40
<PAGE>
reasonably require security and/or indemnity from the purported holder of such
instrument or certificated security to hold it harmless in respect of such
instrument or certificated security and any Distributions made in respect
thereof. Any such holder that fails to surrender such instrument or
satisfactorily explain its nonavailability to the Disbursing Agent or the
relevant Paying Agent, as the case may be, within two years of the Effective
Date shall be deemed to have no further Claim against the relevant Debtor,
Reorganized Corporation or its property in respect of such Claim and shall not
participate in any Distribution hereunder. Notwithstanding anything in the
immediately preceding sentence, any such holder of a Disputed Claim shall not be
required to surrender a required instrument or certificated security until the
time such Disputed Claim is allowed or disallowed.
Section 7.18 Termination of DIP Facility.
Except to the extent that the DIP Facility otherwise provides, on the
Effective Date, all obligations of the Debtors under the DIP Facility shall be
paid or otherwise satisfied in full in accordance with the terms of the DIP
Facility. Without limiting the foregoing, with the consent of the lenders under
the DIP Facility, any letters of credit that have not expired shall be replaced
or backed-up with letters of credit as a part of Reorganized BSI's New Credit
Facility. Upon payment or satisfaction in full of all obligations under the DIP
Facility in accordance with the terms thereof, all liens and security interests
granted to secure such obligations shall be deemed terminated and shall be of no
further force and effect.
Section 7.19 New Credit Facility.
BSI expects to enter into the New Credit Facility and to issue the New
Credit Facility Notes effective as of the Effective Date. The initial advance
thereunder shall be used to satisfy in full the Debtors' obligations under the
DIP Facility and to provide working capital to Reorganized BSI.
Such documents as may exist which evidence the New Credit Facility
shall be filed by BSI with the Bankruptcy Court no later than the Exhibit Filing
Date as Exhibit E hereto. Copies of, and notice of any modification to, the New
Credit Facility after its execution shall be provided to the Creditors'
Committee, the Bank Group and the Unofficial Committee. The terms and
conditions of the New Credit Facility shall include in all respects the terms
and conditions of the commitment letter between BSI and the New Credit Facility
Agent and a New Credit Facility term sheet, except to the extent that BSI and
the New Credit Facility Agent agree otherwise. BSI shall, on or after the
Confirmation Date, execute such other documents as the New Credit Facility Agent
may require in order to effectuate the treatment afforded to the lenders under
the New Credit Facility. Copies of any such documents shall be provided to the
Creditors' Committee, the Bank Group and the Unofficial Committee prior to the
Effective Date.
PLAN-41
<PAGE>
The New Credit Facility Notes shall be in a principal amount to be
determined prior to the Effective Date but, in any event, of at least $270
million, on such terms and at such interest rates as shall be agreed upon by
Reorganized BSI and the Agent under the New Credit Facility.
Section 7.20 Union Square Property.
In the event that the Union Square Property remains unsold on the
Effective Date, the Union Square Property and the proceeds from any sale of such
property shall be pledged to the Indenture Trustee to secure the obligations of
Reorganized BSI under the New Notes as is set forth in Section 4.02. The
Debtors shall use all reasonable efforts to sell such property.
Section 7.21 Yonkers Property.
In the event that the Yonkers Property remains unsold on the Effective
Date, the Yonkers Property and the proceeds from any sale of such property shall
be pledged to the Indenture Trustee to secure the obligations of Reorganized BSI
under the New Notes as set forth in Section 4.02. The Debtors shall use all
reasonable efforts to sell such property.
Section 7.22 Adequate Protection Payments.
The Debtors shall continue to pay to the Bank Group through the
Effective Date the Adequate Protection Payments in the amounts required by the
Agreed Order Regarding Adequate Protection of the Senior Bank Group's Interests
and Related Relief, dated October 24, 1995.
Section 7.23 Plan Funding.
Consummation Costs shall be paid by the Consummation Funds.
Section 7.24 Disputed Payments.
If any dispute arises as to the identity of a holder of an Allowed
Claim who is to receive any Distribution, the Disbursing Agent may, in lieu of
making such Distribution to such Person, make such Distribution into an escrow
account to be held in trust for the benefit of such holder and shall not
constitute property of the Debtors, their estates or the Reorganized
Corporations. Such Distribution shall be held in escrow until the disposition
thereof shall be determined by order of the Bankruptcy Court or by written
agreement among the interested parties to such dispute.
Section 7.25 Withholding Taxes.
Any federal or state withholding taxes or other amounts required to be
withheld under any applicable law shall be deducted and withheld from any
Distributions hereunder.
PLAN-42
<PAGE>
Section 7.26 Obligations Incurred After the Confirmation Date.
Payment obligations incurred after the date and time of entry of the
Confirmation Order shall not be subject to application or proof of claim and may
be paid by the Debtors, Reorganized BI, Reorganized BSI or Reorganized DOS, as
the case may be, in the ordinary course of business and without further
Bankruptcy Court approval as Administrative Claims.
Section 7.27 Cancellation of Bonds and Agreements.
On the Effective Date, except as otherwise provided for therein, the
Bonds and any other note, bond, indenture or other instrument or document
evidencing or creating any indebtedness or obligation of the Debtors will be
deemed cancelled and of no further force or effect without any further action on
the part of the Bankruptcy Court, any Person or any governmental entity or
agency. The holders of such cancelled Bonds and notes will have no rights
arising from or relating to such Bonds or the cancellation thereof, except the
rights provided pursuant to the Plan.
Following the Effective Date, holders of Bonds will receive from the
respective indenture trustee, agent, servicer or the Disbursing Agent, specific
instructions regarding the time and manner in which the Bonds are to be
surrendered. Pending such surrender, such Bonds will be deemed cancelled and
shall represent only the right to receive the distributions to which the holder
is entitled under this Plan.
Any Bond which is lost, stolen, mutilated or destroyed, shall be
deemed surrendered when the holder of a Claim or Interest based thereon delivers
to the applicable indenture trustee, agent, servicer or the Disbursing Agent (a)
evidence satisfactory to the indenture trustee, agent, servicer or the
Disbursing Agent of the loss, theft, mutilation or destruction of such
instrument or certificate, and (b) such security or indemnity as may be required
by the indenture trustee, agent, servicer or the Disbursing Agent to hold each
of them harmless with respect thereto.
Each indenture or other agreement that governs the rights of the
holder of a Claim and that is administered by an indenture trustee, an agent or
a servicer shall continue in effect solely for the purposes of (a) allowing such
indenture trustee, agent or servicer to make the Distributions to be made on
account of such Claims under this Plan, (b) permitting such indenture trustee,
agent or servicer to maintain any rights or liens it may have for fees, costs,
expenses and indemnification under such indenture or other agreement and to be
paid or reimbursed for such prepetition and postpetition fees, costs, expenses
and indemnification only from the Distributions (until payment in full of such
fees, costs, expenses or indemnification) that are governed by the respective
indenture or other agreement in accordance with the provisions set forth therein
and (c) the obligations of, and/or Claims against, the Debtors under, relating
or pertaining to any agreements, indentures or certificates of designations,
governing the Bonds and any other note, bond, indenture or other instrument or
documents evidencing or creating any indebtedness or obligation of the Debtors
shall be released and discharged; provided, however, that each
PLAN-43
<PAGE>
indenture or other agreement that governs the rights of the holder of a Claim
and that is administered by an indenture trustee, an agent or a servicer shall
continue in effect solely for the purposes of allowing such indenture trustee,
agent or servicer to make the Distributions to be made on account of such claims
under this Plan; provided, further, that the provisions of the foregoing proviso
shall not affect the discharge of Debtors' liabilities under the Bankruptcy Code
and the Confirmation Order or result in any expense or liability to the
Reorganized Corporations.
Section 7.28 Instructions to Disbursing Agent.
Prior to any Distribution on account of any Bonds, the indenture
trustee, agent or servicer of the Bonds shall (a) inform the Disbursing Agent as
to the amount of properly surrendered Bonds and (b) instruct the Disbursing
Agent, in a form and manner that the Disbursing Agent reasonably determines to
be acceptable, of the names of the holders of Bonds with allowed BI-GEN Claims
and denominations of New Warrants to be issued and distributed to or on behalf
of such holders of Allowed BI-GEN Claims in exchange for properly surrendered
Bonds.
Section 7.29 Record Date for Distributions to Holders of Bonds.
At the close of business on the Record Date, the transfer ledgers of
the indenture trustees, agent and servicers of the Bonds shall be closed, and
there shall be no further changes in the record holders of the Bonds. The
Reorganized Corporations and the indenture trustees, agents and servicers for
such Bonds and the Disbursing Agent shall have no obligation to recognize any
transfer of such Bonds occurring after the Record Date. The Reorganized
Corporations and the indenture trustees, agents and servicers for such Bonds and
the Disbursing Agent shall be entitled instead to recognize and deal for all
purposes hereunder with only those record holders stated on the transfer ledgers
as of the close of business on the Record Date.
Section 7.30 Termination of Subordination.
Effective as of the date on which each holder of a Bank Group Claim
has received all Distributions to which, pursuant to this Plan, each such holder
is entitled to receive, each holder of a Bank Group Claim shall be deemed to
have waived all contractual, legal and equitable subordination rights which it
may have, whether arising under general principles of equitable subordination,
section 510(c) of the Bankruptcy Code or otherwise, with respect to the
Distribution to be made hereunder to holders of Bond Claims. On the Effective
Date, all contractual, legal or equitable subordination rights that each holder
of a Bank Group Claim has individually and collectively with respect to any
Distribution made pursuant to this Plan to holders of Bond Claims shall be
discharged and terminated, and all actions related to the enforcement of such
subordination rights will be permanently enjoined.
PLAN-44
<PAGE>
ARTICLE VIII
------------
EFFECT OF THE PLAN ON CLAIMS AND INTERESTS
------------------------------------------
Section 8.01 Discharge.
(a) Scope. Except as otherwise provided in the Plan, Confirmation
-----
Order, Yonkers Confirmation Order or DIP Facility, in accordance with section
1141(d)(1) of the Bankruptcy Code, when the Confirmation Order becomes a Final
Order, the Plan, the Confirmation Order and the Yonkers Confirmation Order shall
discharge, effective as of the Effective Date, or the Yonkers Effective Date, as
the case may be, all debts of, Claims against, liens on, and Interests in each
of the Debtors, their assets, or properties, which debts, Claims, liens, and
Interests arose at any time before the entry of the Confirmation Order and
Yonkers Confirmation Order, as the case may be. The discharge of the Debtors
shall be effective as to each Claim or Interest, regardless of whether a proof
of Claim or Interest therefor was filed, whether the Claim is an Allowed Claim,
or whether the holder thereof votes to accept the Plan. On the Effective Date,
or the Yonkers Effective Date, as the case may be, as to every discharged Claim
and Interest, any holder of such Claim or Interest (including, without
limitation, any options to purchase Old Common Stock of BI) shall be precluded
from asserting against any Debtor formerly obligated with respect to such Claim
or Interest, or against such Debtor's assets or properties, any other or further
Claim or Interest based upon any document, instrument, act, omission,
transaction, or other activity of any kind or nature that occurred before the
Confirmation Date.
(b) Injunction. Except as otherwise provided in the Plan or
----------
Confirmation Order, as of the Effective Date, all entities that have held,
currently hold or may hold a Claim or other debt or liability that is discharged
or an Interest or other right of an equity security holder that is terminated
pursuant to the terms of the Plan, are permanently enjoined from taking any of
the following actions on account of any such discharged Claims, debts or
liabilities or terminated Interests or rights: (1) commencing or continuing in
any manner any action or other proceeding against the Debtors, the Reorganized
Debtors or their respective property, officers, directors, agents, employees and
representatives and others including (without limitation) the Creditors'
Committee (including present and former members), the Bank Group (including
present and former members), the Unofficial Committee (including present and
former members), and professional persons retained by the Debtors, the
Creditors' Committee, members of the Creditors' Committee, the Bank Group and
the Unofficial Committee; (2) enforcing, attaching, collecting or recovering in
any manner any judgment, award, decree or order against the Debtors, the
Reorganized Debtors or their respective property, current and former officers,
directors, agents, employees and representatives and others including (without
limitation) the Creditors' Committee (including present and former members), the
Bank Group (including present and former members), the Unofficial Committee
(including present and former members), and professional persons retained by the
Debtors, the Creditors' Committee, members of the Creditors' Committee, the Bank
Group and the Unofficial Committee; (3) creating, perfecting or enforcing any
lien or
PLAN-45
<PAGE>
encumbrance against the Debtors, the Reorganized Debtors or their respective
property, current and former officers, directors, agents, employees and
representatives and others including (without limitation) the Creditors'
Committee (including present and former members), the Bank Group (including
present and former members), the Unofficial Committee (including present and
former members), and professional persons retained by the Debtors, the
Creditors' Committee, members of the Creditors' Committee, the Bank Group and
the Unofficial Committee; (4) asserting a setoff, right of subrogation or
recoupment of any kind against any obligation due to the Debtors, the
Reorganized Debtors or their respective property, current and former officers,
directors, employees and representatives and others including (without
limitation) the Creditors' Committee (including present and former members), the
Bank Group (including present and former members), the Unofficial Committee
(including present and former members), and professional persons retained by the
Debtors, the Creditors' Committee, members of the Creditors' Committee, the Bank
Group and the Unofficial Committee; and (5) commencing or continuing any action,
in any manner, in any place that does not comply with or is inconsistent with
the provisions of the Plan.
(c) Release of Collateral. Unless a particular Secured Claim is
---------------------
Reinstated or the holder thereof receives a Distribution of a Reorganization
Security in respect of such Claim under this Plan: (i) each holder of: (A) a
Secured Claim; and/or (B) a Claim that is purportedly secured shall on or
immediately before the Effective Date: (x) turn over and release to the relevant
Debtor (or its successor, as the case may be) any and all property of the
relevant Debtor that secures or purportedly secures such Claim; and (y) execute
such documents and instruments as such Reorganized Corporation requires to
evidence such claimant's release of such property; and (ii) on the Effective
Date, all claims, right, title and interest in such property shall revert to the
relevant Reorganized Corporation (or the successor to any Debtor that does not
survive a Combination Transaction or to Reorganized BSI in respect of the
property of a Dissolving Debtor) free and clear of all Claims and Interests,
including (without limitation) liens, charges, pledges, encumbrances and/or
security interests of any kind. No Distribution hereunder shall be made to or on
behalf of any holder of such Claim unless and until such holder executes and
delivers to the relevant Debtor or Reorganized Corporation such release of
liens. Any such holder that fails to execute and deliver such release of liens
within 180 days of the Effective Date shall be deemed to have no further Claim
against the relevant Debtor, Reorganized Corporation or their property in
respect of such Claim and shall not participate in any Distribution hereunder.
Notwithstanding the immediately preceding sentence, any such holder of a
Disputed Claim shall not be required to execute and deliver such release of
liens until the time such Claim is allowed or disallowed.
(d) Applicability. Notwithstanding anything contained herein to
-------------
the contrary, none of the provisions of this section shall be deemed applicable
to any rights, claim, or cause of action, whether asserted or yet to be
asserted, against any person or entity other than as specifically referred to in
this Section 8.01.
PLAN-46
<PAGE>
Section 8.02 Revesting and Vesting.
Subject to the Combination Transactions each of the Debtors shall, as
a Reorganized Corporation, continue to exist after the Effective Date as a
separate corporate entity, with all the powers of a corporation under applicable
law, without prejudice to any right to terminate such existence (whether by
merger or otherwise) under applicable law after the Effective Date. Except as
otherwise provided in this Plan, on the Effective Date, or in the case of YON,
the Yonkers Effective Date, all property comprising the Estates of each Debtor
(other than a Dissolving Debtor) shall revest in the relevant Reorganized
Corporation or its successor as a result of a Combination Transaction, free and
clear of all Claims, liens, charges, encumbrances and Interests of creditors and
equity security holders (other than as expressly provided herein). On the
Effective Date, any property of a Dissolving Debtor not previously distributed
under this Plan shall vest in Reorganized BSI, free and clear of all Claims,
liens, charges, encumbrances and Interests of creditors and equity security
holders of such Dissolving Debtor (other than as expressly provided herein). As
of the Effective Date, each Reorganized Corporation may operate its businesses
and use, acquire and dispose of property and settle and compromise claims or
interests arising after the Effective Date without supervision of the Court free
of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those
restrictions expressly imposed by the Plan and Confirmation Order. Without
limiting the foregoing, each Reorganized Corporation may pay the charges it
incurs for Professional Fees, disbursements, expenses, or related support
services after the Effective Date without any application to the Court.
Section 8.03 Secondary Liability Claims.
After notice and a hearing, Secondary Liability Claims shall be
estimated by the Court under section 502(c) of the Bankruptcy Code. Each such
Claim against any Debtor in respect of such Debtor's guaranty of obligations of
any Primary Obligor that is a Debtor shall be allowed against such guarantor
Debtor in the amount of the deficiency in recovery on the related claim against
such Primary Obligor.
Section 8.04 Release of Primary Obligors.
Except as provided otherwise herein, all holders of Claims against and
Interests in any of the Debtors receiving, or entitled to receive, payments or
Distributions pursuant to this Plan, in consideration for the promises and
obligations of the Debtors under this Plan, shall be deemed to have waived and
released all rights or claims they had or might have had against any current or
former officer, director or employee of each of the Debtors based upon any claim
against a Primary Obligor that also gives rise to a Secondary Liability Claim;
provided, however, except as expressly provided above in this subsection, no
such Claim or Interest holder shall be deemed by virtue of this subsection to
have waived or released any right or claim it may have against any person other
than the Debtors or the current and former officers, directors and employees of
each of them. The release of any person or entity under this section
additionally acts as an injunction against the commencement or continuation of
any action, employment of process or act to collect, offset or recover the
claims released hereby.
PLAN-47
<PAGE>
Section 8.05 Survival of Certain Indemnification Obligations.
Except as otherwise provided in this Plan, the obligations of the
Debtors to indemnify individuals who serve or served as their respective
directors, officers, agents, employees, representatives, and others, including
(without limitation) professional persons retained by any Debtor, pursuant to
such Debtor's respective certificates of incorporation, Amended By-Laws,
applicable statutes and agreements in respect of all present and future actions,
suits, and proceedings against any of such officers, directors, agents,
employees, representatives, and others, including (without limitation)
professional persons retained by any Debtor, based upon any act or omission
related to service with, for, or on behalf of any of the Debtors on or after the
Petition Date as such obligations were in effect at the time of any such act or
omission (but excluding such indemnity obligations, if any, arising under the
Bank Documents, SPE Documents, Indenture, or any other similar such agreement or
any unexpired lease or executory contract which is not assumed by any Debtor or
Reorganized Corporation which gave rise to or could give rise to a Claim against
any of the Debtors prior to the Petition Date), shall not be discharged or
impaired by confirmation or consummation of this Plan but shall survive
unaffected by the reorganization contemplated by this Plan and shall be
performed and honored by each respective Debtor or Reorganized Corporation (or
its successor) regardless of such confirmation, consummation, and
reorganization.
Section 8.06 Release of Officers, Directors, Employees and
Representatives.
Except as provided in Section 8.07 hereof, each Debtor (and its
successor Reorganized Corporation) hereby waives, releases and discharges: all
current and former officers, directors, agents, employees and representatives of
the Debtors, members of the Creditors' Committee (including present and former
members), members of the Unofficial Committee, members of the Bank Group
(including present and former members) and others, including (without
limitation) professional persons retained by the Debtors and the Creditors'
Committee, the members of the Unofficial Committee, members of the Bank Group,
the agent for the Bank Group, from any claim (as such term "claim" is defined in
section 101(5) of the Bankruptcy Code) arising prior to the Confirmation Date;
provided, however, that to the extent that applicable law would permit a holder
of a Tax Claim to seek the payment of such Tax Claim from a current or former
officer or director of the Debtors designated as a "responsible person" under
such law, nothing herein shall act to discharge or release any such person from
any liability with respect to such Tax Claim in the event that any Reorganized
Corporation fails to pay any such claim pursuant to the terms of this Plan. With
respect to the current and former members of the Creditors' Committee, the
Unofficial Committee and the Bank Group, the foregoing release shall only apply
to any claims, if any, which one or more of the Debtors may have against such
entity or entities in their capacity as a member of the Creditors' Committee,
Unofficial Committee or Bank Group, as the case may be. With
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<PAGE>
respect to the Debtors' current and former officers or directors, the foregoing
release shall not apply to claims, if any, which may exist against such persons
for which (and only to the extent) there is D&O Insurance. In any proceeding
brought with respect to any such claims against the Debtors' current or former
officers or directors, any recovery (i) will be limited to amounts which may be
payable from the D&O Insurance, and (ii) will not under any circumstances come
from the personal assets of any such current or former officer or director, as
the case may be, and in no event shall the Debtors, Reorganized Corporations or
any other Person seek to execute on any judgment against any current or former
officer or director except with respect to the D&O Insurance, even if no D&O
Insurance is determined to exist, the D&O carrier declines coverage, or the D&O
Insurance coverage is insufficient to satisfy in full any claim or judgment
obtained against such current or former officer or director. The foregoing shall
not preclude, restrict or limit any officer or director against whom such a
claim is asserted from defending against or opposing any such claim. Claimants
and holders of Interests in any of the Debtors shall be enjoined from commencing
or continuing any action, employment of process or act to collect, offset or
recover any such claim that could be brought on behalf of or in the name of any
of each such Debtor, without any independent cause of action belonging to the
claimant or equity interest holder asserting such claim.
Section 8.07 Release of Certain Claims.
Notwithstanding anything to the contrary in the Plan or in any
instrument, contract, release or other agreement entered into in connection with
the Plan or an order of the Bankruptcy Court, on the Effective Date, each Debtor
shall be deemed to have released all claims, rights and causes of action arising
under section 547 of the Bankruptcy Code.
Section 8.08 Claims and Interest Objections.
Unless otherwise ordered by the Bankruptcy Court, all Claims
objections shall be Filed and served on the applicable claimant by the later of
(a) February 1, 1999 or (b) the Effective Date; provided, however, that if a
Claim is permitted to be Filed after such date, any Claims objection with
respect to such claim may be Filed within thirty (30) days after the date such
Claim was Filed. Any Claim which is Allowed under the terms of this Plan or
pursuant to an Order of the Bankruptcy Court prior to the applicable date set
forth in the first sentence of this Section shall be deemed Allowed for all
purposes.
Section 8.09 Preservation of Insurance.
The provisions of this Plan shall not diminish or impair in any manner
the enforceability and coverage of any insurance policies that may cover Claims
against the Debtors, Reorganized Corporations or any other Person.
PLAN-49
<PAGE>
ARTICLE IX
----------
EXECUTORY CONTRACTS
-------------------
Section 9.01 Executory Contracts and Unexpired Leases.
As of the Effective Date, or in the case of YON, the Yonkers Effective
Date, all executory contracts and unexpired leases of each Debtor shall be
deemed rejected by such Debtor pursuant to the provisions of section 365 of the
Bankruptcy Code, except: (a) any executory contract or unexpired lease that has
been or is the subject of a motion to assume or assume and assign filed pursuant
to section 365 of the Bankruptcy Code by any of the Debtors before the Effective
Date; (b) any executory contract or unexpired lease listed in the "Schedule of
Assumed and Assumed and Assigned Executory Contracts and Unexpired Leases" to be
filed by the Debtors with the Court before the entry of the Confirmation Order;
(c) any executory contract or unexpired lease assumed or assumed and assigned
pursuant to the provisions of this Plan; and (d) any agreement, obligation,
security interest, transaction or similar undertaking that the relevant Debtor
believes is not executory or is not a lease, and which is later determined by
the Court to be an executory contract or unexpired lease that is subject to
assumption or rejection under section 365 of the Bankruptcy Code. The rejection
by any Debtor of an executory contract or unexpired lease shall cause such
rejection to be a breach prior to the Petition Date under sections 365(g) and
502(g) of the Bankruptcy Code.
Section 9.02 Lease Under Which Bradlees Leases Union Square Property
[Intentionally Omitted]
Section 9.03 Executory Contract of R.R. Donnelly & Sons Company.
BSI's executory contract with R.R. Donnelly & Sons Company ("R.R.
Donnelly") shall, as of the Effective Date, (i) be deemed assumed by Reorganized
BSI, (ii) R.R. Donnelly shall waive any cure payments upon assumption of such
contract to which it might be entitled pursuant to the provisions of the
Bankruptcy Code and (iii) BSI shall waive any cause of action which it may have
against R.R. Donnelly under section 547 of the Bankruptcy Code.
Section 9.04 Executory Contract of J.Baker, Inc.
As of the Effective Date, BSI's executory contract with J.Baker, Inc.
("J.Baker") shall be deemed amended to, inter alia, extend the term of the
contract for three years following the Effective Date and, as amended, be
assumed by Reorganized BSI. In respect of the $1.8 million Claim of J.Baker,
Reorganized BSI shall, on the Effective Date or as soon thereafter as
practicable, make a Cash Distribution to J.Baker in the amount of $360,000.
Reorganized BSI shall make additional Cash Distributions to J.Baker in the
amount of $1,440,000, to be paid in equal monthly installments
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commencing thirty days after the first payment, with interest at a rate equal to
J.Baker's borrowing rate, but not to exceed nine percent (9%); provided,
however, that no interest shall accrue during the first six months after the
Effective Date; provided, further, however, that the obligation of Reorganized
BSI to make the foregoing payments owed to J.Baker shall accelerate and become
immediately due and payable should (a) Reorganized BSI enter into a third party
transaction which would constitute a change of control or (b) Peter Thorner's
employment with Reorganized BSI terminate for any reason.
Section 9.05 Cure.
At the election of the relevant Debtor, any monetary defaults under
each executory contract and unexpired lease to be assumed under this Plan shall
be satisfied pursuant to section 365(b)(1) of the Bankruptcy Code, in one of the
following ways: (a) by payment of the default amount in Cash on the Effective
Date; (b) by issuance of a Cure Note; or (c) on such other terms as agreed to
by the parties to such executory contract or unexpired lease; provided, however,
any landlord which filed a timely objection with the Court to the First Amended
Joint Plan of Reorganization of Bradlees Stores, Inc. and Affiliates Under
Chapter 11 of the Bankruptcy Code, pursuant to the procedures prescribed in the
Order dated October 5, 1998, objecting to the cure of defaults under a lease to
which such landlord is a party by means of a Cure Note, shall be paid Cash in
accordance with the provisions of Section 5.01(a) hereof to cure any defaults
under such lease if it is assumed pursuant to the provisions of this Plan. In
the event of a dispute regarding: (i) the amount of any Cure Payments; (ii) the
ability of the Debtor that is a party thereto to provide adequate assurance of
future performance under the contract or lease to be assumed; or (iii) any other
matter pertaining to assumption, the cure payments required by section 365(b)(1)
of the Bankruptcy Code shall be made following the entry of a Final Order
resolving the dispute and approving assumption.
Section 9.06 Rejection Damages Bar Date.
If the rejection by any Debtor, pursuant to the Plan or otherwise, of
an executory contract or unexpired lease results in a Claim, then such Claim
shall be forever barred and shall not be enforceable against such Debtor or
Reorganized Corporation or the properties of either of them unless a proof of
claim is filed with the clerk of the Bankruptcy Court and served upon counsel to
the Debtors (i) within fifteen (15) days after service of the later of (a)
notice of the Confirmation Order, (b) other notice that the executory contract
or unexpired lease has been rejected, or (c) in the event that any Debtor
rejects any executory contract or unexpired lease after the Confirmation Date,
within fifteen (15) days of the date of such rejection or (ii) within such time
as the Bankruptcy Court may order.
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<PAGE>
Section 9.07 Executory Contracts and Unexpired Leases Entered Into
and Other Obligations Incurred After the Petition Date.
Executory contracts and unexpired leases entered into and other
obligations incurred after the Petition Date by any Debtor shall be performed by
such Debtor or by such Reorganized Corporation liable thereunder in the ordinary
course of its business. Accordingly, such executory contracts, unexpired leases
and other obligations shall survive and remain unaffected by entry of the
Confirmation Order.
Section 9.08 Assumption of Lease Relating to Yonkers Property.
YON shall hereby assume the lease relating to the Yonkers Property as
of the Yonkers Confirmation Date. YON has determined that it intends to assign
its lease relating to the Yonkers Property to an acceptable purchaser, and will
move for such relief, at such time prior to the Yonkers Effective Date and
subject to such terms and procedures as YON or the Court may establish, except
that YON reserves the right not to assign the lease for the YON Property if it
fails to find a buyer which, in its reasonable discretion, has complied with
such terms and procedures or is otherwise acceptable.
ARTICLE X
---------
CONDITIONS TO CONFIRMATION
--------------------------
AND OCCURRENCE OF EFFECTIVE DATE
--------------------------------
Section 10.01 Conditions to Confirmation.
This Plan may not be confirmed unless each of the conditions set forth
below is satisfied. Except as provided in Section 10.03 below, any one or more
of the following conditions may be waived at any time by the Debtors with the
unanimous consent of the Creditors' Committee, the Unofficial Committee and the
Bank Group.
(a) The Disclosure Statement Order shall have been entered and be
a Final Order.
(b) The Confirmation Order and the YON Confirmation Order shall be
in form reasonably acceptable to Debtors, the Creditors' Committee, the
Unofficial Committee and the Bank Group. The Confirmation Order shall, among
other things, provide that:
(i) The Reorganized Corporation shall be deemed to succeed to,
by operation of law, all executory contracts or unexpired leases
assumed by the Debtors during the Chapter 11 Cases, (including
pursuant to the provisions of the Plan), which contracts and leases
shall remain in full force and effect notwithstanding any provision in
such contract or lease (including those described in sections
365(b)(2) and (f) of the Bankruptcy Code) that prohibits assignment or
transfer or that enables or requires the termination of such contract
or lease;
PLAN-52
<PAGE>
(ii) except as expressly provided in this Plan, the Debtors are
discharged effective upon the Effective Date or YON Effective Date, as
the case may be, from any "debt" (as that term is defined in section
101(12) of the Bankruptcy Code), and the liability in respect thereof
is extinguished completely, whether reduced to judgment or not,
liquidated or unliquidated, contingent or noncontingent, asserted or
unasserted, fixed or unfixed, matured or unmatured, disputed or
undisputed, legal or equitable, known or unknown, or that arose from
any agreement of the Debtors entered into or obligation of the Debtors
occurred before the Petition Date, or from any conduct of the Debtors
prior to the Petition Date, or that arose before the Petition Date,
including, without limitation, all interest, if any, on any such
debts, whether such interest accrued before or after the Petition
Date;
(iii) a finding by the Bankruptcy Court that the Plan complies
with all applicable provisions of the Bankruptcy Code, including that
the Plan was proposed in good faith and that the Confirmation Order
and YON Confirmation Order was not procured by fraud; and
(iv) except as expressly provided in the Plan, all Interests
shall be terminated effective upon the Effective Date.
Section 10.02 Conditions to Occurrence of Effective Date.
The Effective Date for the Plan may not occur unless each of the
conditions set forth below is satisfied. Except as provided in Section 10.03
below, any one or more of the following conditions may be waived at any time by
the Debtors with the unanimous consent of the Creditors' Committee, the
Unofficial Committee and the Bank Group.
(a) The Confirmation Order shall have been entered and be a
Final Order.
(b) Each Reorganized Debtor's respective Certificate of
Incorporation and Amended By-Laws shall have been amended as provided in this
Plan.
(c) Reorganized BI and Reorganized BSI shall each have sufficient
Cash on hand to pay the Consummation Costs and make such other timely
Distributions of Cash as may be required hereunder.
(d) Reorganized BSI shall have established a revolving line of
credit or other liquidity facility with a bank or other financial institution in
a drawable principal amount of at least $250 million, with terms satisfactory to
Reorganized BSI and the lenders under the New Credit Facility, in their sole
discretion.
(e) Subject to Section 7.08(e) hereof, the aggregate amount of
Allowed General Unsecured Claims and Disputed General Unsecured Claims (i)
against BSI (excluding the Bank Group Claim and the Intercompany Claim) shall
have been reduced,
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<PAGE>
either through agreement or order of the Bankruptcy Court, to less than $300
million and (ii) against each Debtor other than BI, BSI and BAC (other than the
Intercompany Claims, the Bank Group Claim and SPE Claims) shall have been
reduced, either through agreement or order of the Bankruptcy Court, to an amount
of less than $1 million.
(f) Reorganized BSI shall have granted to vendors who provide retail
merchandise to Reorganized BSI after the Effective Date, or who have provided
merchandise to BSI before the Effective Date which is not paid for as of the
Effective Date, a Trade Vendors' Lien to secure payment to such trade vendors of
amounts owed by Reorganized BSI. The Trade Vendors' Lien, which shall be held by
the Trade Vendors' Collateral Agent, shall be subordinated to the lien securing
the New Credit Facility to the satisfaction of the holders of the liens securing
the New Credit Facility and shall attach to all of Reorganized BSI's inventory
(but not any other assets of Reorganized BSI). If a new lender or group of
lenders replaces the lenders under the New Credit Facility, then the Trade
Vendors' Lien shall be subordinated to the liens of such replacement lender or
lenders. The Trade Vendors' Lien shall terminate on the earliest to occur of (i)
two years after the Plan Effective Date, (ii) at the sole option of Reorganized
BSI, the date on which the ratio of the amount of accounts payable of
Reorganized BSI to the amount of Inventory of Reorganized BSI, computed on a
cost basis, for any rolling three-month period is more than five percentage
points less than such ratio on a comparable store basis for the same period in
the prior year, (iii) the consummation of a transaction pursuant to which
Reorganized BI, Reorganized BSI or Reorganized DOS merges or otherwise combines
with another company or companies, (iv) at the sole option of Reorganized BSI,
as to any individual trade vendor, at such time as such vendor fails to provide
merchandise to Reorganized BSI on terms which are at least as favorable to
Reorganized BSI as the credit terms under which such vendor provided merchandise
to BSI in the year prior to the Effective Date and (v) at the sole option of
Reorganized BSI, as to any individual trade vendor that initially provides
retail merchandise to Reorganized BSI after the Effective Date, at such time as
such vendor fails to provide retail merchandise to Reorganized BSI on terms
which are as favorable to Reorganized BSI as the initial credit terms which such
vendor provide retail merchandise to Reorganized BSI; provided, however, that
any termination by Reorganized BSI of the Trade Vendors' Lien will not be
effective until the thirtieth day after Reorganized BSI gives (a) actual notice
to the Trade Vendors' Collateral Agent and (b) (x) in the case of trade vendors
generally, notice by publication in The New York Times (national edition), of
its intent to terminate the Trade Vendors' Lien and actual notice to trade
vendors to whom, according to the books and records of Reorganized BSI, amounts
are then due and owing, or (y) in the case of an individual trade vendor, actual
notice of such termination to the trade vendor whose Trade Vendors' Lien
Reorganized BSI proposes to terminate. The documents giving rise to the Trade
Vendors' Lien shall be annexed hereto as Exhibit I and shall be filed with the
Court on or before the Exhibit Filing Date. Such documents shall (i) be
consistent with the terms of this Plan, and (ii) not provide for payment by the
Debtors or the Reorganized Corporations of any legal or other fees or costs
except (a) such reasonable fees to the Trade Vendors' Collateral Agent as the
Debtors or the Reorganized Corporations and the Trade Vendors' Collateral Agent
shall agree to, and (b) such reasonable attorneys' fees as may be incurred in
connection with the filing of financing statements with respect to such
documents, such modifications or revisions to Exhibit I as the Reorganized
Corporations may agree to, or in the event of a default under such documents.
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<PAGE>
(g) Each of the Creditors' Committee, the Bank Group and the
Unofficial Committee have approved in form and substance each of the Exhibits to
this Plan, such approval not to be unreasonably withheld.
(h) (i) As of or prior to the Effective Date, one or more shelf
registration statements, in form and substance reasonably satisfactory to
Gabriel Capital L.P. and other members of the Bank Group, pursuant to which
those creditors shall have the right to re-sell the New Common Stock and New
Notes distributed to them under this Plan (whether as a holder of a Bank Group
Claim or a General Unsecured Claim), shall have been declared effective by the
Securities and Exchange Commission under applicable securities laws, and (ii) on
the Effective Date, Reorganized BI shall have committed to maintain the
effectiveness of the foregoing registration statements, pursuant to a reasonably
acceptable Registration Rights Agreement, for so long as Gabriel Capital L.P.
may be deemed an affiliate of Reorganized BI. However, the foregoing requirement
in sub-paragraph (i) shall be deemed waived if, prior to the Effective Date, the
Securities and Exchange Commission shall have advised Reorganized BI in writing
that such registration statements shall be declared effective subject only to
the occurrence of the Effective Date or the issuance of the Reorganization
Securities by Reorganized BI.
Section 10.03 Waiver of Conditions to Confirmation and Occurrence
of Effective Date.
Each of the conditions to confirmation of this Plan or to the
occurrence of the Effective Date is for the benefit of the Debtors, the
Creditors' Committee, the Bank Group and the Unofficial Committee. Other than
the requirement that the Disclosure Statement Order and the Confirmation Order
must be entered, the requirement that a particular condition be satisfied may be
waived in whole or part by the Debtors, with the unanimous consent of the
Creditors' Committee, the Bank Group and the Unofficial Committee without notice
and a hearing, and the relevant Debtors' benefits under the "mootness doctrine"
shall be unaffected by any provision hereof.
Section 10.04 Effect of Nonoccurrence of the Conditions to
Occurrence of Effective Date.
If each of the conditions to the occurrence of the Effective Date have
not been satisfied or duly waived on or before the date which is no later than
the first Business Day after the later of (a) sixty (60) days after the
Confirmation Order is entered, or (b) the first day of the first fiscal year of
the Reorganized Corporations after the Confirmation Order is entered, or by such
later date as is approved, after notice and a hearing, by the Court, then upon
motion by any party in interest made before the time that each of the conditions
has been satisfied or duly waived, the Confirmation Order may be vacated by the
Court; provided, however, that, notwithstanding the filing of such a
PLAN-55
<PAGE>
motion, the Confirmation Order shall not be vacated if each of the conditions to
occurrence of the Effective Date is either satisfied or duly waived before the
Court enters an order granting the relief requested in such motion. If the
Confirmation Order is vacated pursuant to this Section, the Plan shall be null
and void in all respects, and nothing contained in the Plan shall: (a)
constitute a waiver or release of any Claims by or against or Interests in the
Debtors; or (b) prejudice in any manner the rights of any of the Debtors or of
any other party in interest, including, without limitation, the right to seek a
further extension of the exclusivity periods under section 1121(d) of the
Bankruptcy Code.
ARTICLE XI
----------
CONFIRMABILITY AND SEVERABILITY
-------------------------------
OF A PLAN AND CRAMDOWN
----------------------
Section 11.01 Confirmability and Severability of a Plan.
The confirmation requirements of section 1129 of the Bankruptcy Code
must be satisfied separately with respect to each Debtor. Subject to the
unanimous consent of the Creditors' Committee, the Bank Group, and the
Unofficial Committee, the Debtors reserve the right to alter, amend, modify,
revoke or withdraw the Plan as it applies to any particular Debtor. A
determination by the Bankruptcy Court that the Plan, as it applies to any
particular Debtor, is not confirmable pursuant to section 1129 of the Bankruptcy
Code shall not limit or affect: (1) the confirmability of the Plan as it
applies to any other Debtor; or (2) the Debtors' ability to modify the Plan, as
it applies to any particular Debtor, to satisfy the confirmation requirements of
section 1129 of the Bankruptcy Code. Each provision of this Plan shall be
considered separable and, if for any reason any provision or provisions herein
are determined to be invalid and contrary to any existing or future law, the
balance of this Plan shall be given effect without relation to the invalid
provision.
Section 11.02 Cramdown.
The Debtors request confirmation under section 1129(b) of the
Bankruptcy Code if any impaired Class does not accept the Plan pursuant to
section 1126 of the Bankruptcy Code. In that event, the Debtors reserve the
right to modify the Plan to the extent, if any, that confirmation pursuant to
section 1129(b) of the Bankruptcy Code requires modification.
PLAN-56
<PAGE>
ARTICLE XII
-----------
ADMINISTRATIVE PROVISIONS
-------------------------
Section 12.01 Retention of Jurisdiction.
Notwithstanding confirmation of this Plan or occurrence of the
Effective Date, the Court shall retain jurisdiction for all purposes permitted
under applicable law, including without limitation the following purposes:
(a) Determination of the allowability of Claims and Interests upon
objection to such Claims or Interests by a Debtor, the Reorganized Debtors,
other successors to any of the Debtors, or any other party in interest and the
validity, extent, priority and nonavoidability of consensual and nonconsensual
liens and other encumbrances;
(b) Determination of tax liability pursuant to section 505 of the
Bankruptcy Code;
(c) Approval, pursuant to section 365 of the Bankruptcy Code, of
all matters related to the assumption, assumption and assignment, or rejection
of any executory contract or unexpired lease of any of the Debtors, including,
without limitation, the assumption and assignment of the Union Square Lease and
the lease relating to the Yonkers Property;
(d) Determination of requests for payment of administrative
expenses entitled to priority under section 507(a)(1) of the Bankruptcy Code,
including compensation of parties entitled thereto under section 330 of the
Bankruptcy Code;
(e) Resolution of controversies and disputes regarding the
interpretation of this Plan;
(f) Implementation of the provisions of this Plan and entry of
Orders in aid of confirmation and consummation of this Plan, subject to
Paragraph 23 of that certain Order dated December 22, 1997 including, without
limitation, appropriate Orders to protect the Debtors and their successors from
actions by creditors and/or Interest holders of the Debtors or any of them and
resolving disputes and controversies regarding property of the Estates and the
Reorganized Corporations that is subject to restructuring negotiations on and
after the Confirmation Date;
(g) Modification of the Plan pursuant to section 1127 of the
Bankruptcy Code;
(h) Adjudication of any causes of action that arose prior to the
Confirmation Date or in connection with the implementation of this Plan,
including avoidance actions, brought by a Debtor, Reorganized Corporation, other
successors of any of the Debtors as the representative of the Debtors' Estates
or a party in interest (as a representative of any Debtor's Estate); and
PLAN-57
<PAGE>
(i) Entry of a Final Order closing the Chapter 11 Cases.
Section 12.02 Governing Law.
Except to the extent the Bankruptcy Code, Bankruptcy Rules, or other
federal laws apply and except for Reinstated Claims governed by another
jurisdiction's law, the rights and obligations arising under this Plan shall be
governed by the laws of the State of New York, without giving effect to
principles of conflicts of law.
Section 12.03 Fees and Expenses of Bank Group.
The agent for and certain members of the Bank Group have received
reimbursement of or payment for the professionals retained by them during the
pendency of these Chapter 11 cases from the Adequate Protection Payments. Such
payments shall continue through the Effective Date. Neither the Bank Group, its
agents nor its members shall seek reimbursement for the fees and expenses of its
professionals other than from the Adequate Protection Payments. No later than
ten (10) days after the Effective Date, the Bank Group shall deliver to the
Reorganized Corporations a summary in form reasonably satisfactory to the
Reorganized Corporations of the fees and expenses paid to all professionals
retained by the Bank Group during the Chapter 11 cases. Such summary shall
include a month by month breakdown of fees and expenses paid to each such
professional by the Bank Group and the net amount of the Adequate Protection
Payments remaining after the payment of such professional fees and expenses.
Section 12.04 Fees and Expenses of Unofficial Committee.
Subject to the approval of the Bankruptcy Court on appropriate
application as set forth in Section 12.07(b) hereof, the reasonable fees and
expenses of the Unofficial Committee during the course of the Chapter 11 Cases
shall be allowed as administrative expenses of BSI, pursuant to 11 U.S.C. (S)
503(b).
Section 12.05 Professional Fees and Expenses of Loomis Sayles.
Subject to the approval of the Bankruptcy Court on appropriate
application as set forth in Section 12.07(b) hereof, the reasonable professional
fees and expenses of Loomis Sayles during the course of these cases shall each
be allowed as administrative expenses of the Debtors, pursuant to 11 U.S.C. (S)
503(b), not to exceed, in the aggregate, the amount of $300,000.
Section 12.06 Fees and Expenses of Bond Indenture Trustee.
Subject to the approval of the Bankruptcy Court on appropriate
application as set forth in Section 12.07(b) hereof, the reasonable fees and
expenses of the Bond Indenture Trustee during the course of the Chapter 11 Cases
shall be allowed as administrative expenses of the appropriate Debtor, pursuant
to 11 U.S.C. (S) 503(b).
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<PAGE>
Section 12.07 Administrative Bar Date.
(a) General Provisions. Except as provided below in Section 12.07(b)
------------------
for Administrative Claims of Professionals requesting compensation or
reimbursement of expenses and in Section 12.07(c) for liabilities incurred by a
Debtor in the ordinary course of its business, requests for payment of
Administrative Claims must be Filed no later than 30 days after the Effective
Date. Holders of Administrative Claims who are required to File a request for
payment of such Claims and who do not File such requests by the applicable bar
date shall be forever barred from asserting such Claims against the Debtors, the
Reorganized Debtors or their respective property.
(b) Professionals. All professionals or other entities requesting
-------------
compensation or reimbursement of expenses pursuant to sections 327, 328, 330,
331, 503(b) and 1103 of the Bankruptcy Code for services rendered before the
Effective Date (including compensation requested by any Professional or other
entity for making a substantial contribution in any Case) shall File an
application for final allowance of compensation and reimbursement of expenses no
later than 45 days after the Effective Date; provided, however, that any
Professional who may receive compensation or reimbursement of expenses pursuant
to the Ordinary Course Professionals' Compensation Order may continue to receive
such compensation and reimbursement of expenses for services rendered before the
Effective Date, without further Bankruptcy Court review or approval, pursuant to
the Ordinary Course Professionals' Compensation Order. Notwithstanding anything
to the contrary contained in the Ordinary Course Professionals' Compensation
Order, no Professional subject to that Order shall be required to apply to the
Bankruptcy Court for compensation and reimbursement of expenses. Objections to
applications of Professionals or other entities for compensation or
reimbursement of expenses must be Filed no later than 75 days after the
Effective Date. All compensation and reimbursement of expenses allowed by the
Bankruptcy Court shall be paid to the applicable Professional on or before ten
days after an order allowing such fees and expenses becomes a Final Order, or as
soon thereafter as practicable.
(c) Ordinary Course Liabilities. Holders of Administrative Claims
---------------------------
based on liabilities incurred by a Debtor in the ordinary course of business
shall not be required to File any request for payment of such Claims. Such
Administrative Claims shall be assumed and paid by the applicable Reorganized
Debtor pursuant to the terms and conditions of the particular transaction giving
rise to such Administrative Claim, without any further action by the holders of
such Claims.
Section 12.08 Corporate Action.
The adoption of any new or amended and restated Certificates of
Incorporation and Amended By-Laws of each Reorganized Corporation, the adoption,
PLAN-59
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execution, and implementation of any employment agreement described in the Plan
and the other matters provided for under the Plan involving the corporate or
entity structure of any Debtor, Reorganized Corporation or corporate action, as
the case may be, to be taken by or required of any Debtor or Reorganized
Corporation, as the case may be, shall be deemed to have occurred and be
effective as provided herein and shall be authorized and approved in all
respects, without any requirement of further action by stockholders or directors
of any of the Debtors or Reorganized Corporations, as the case may be. Without
limiting the foregoing, Reorganized BSI shall be authorized, without any further
act or action required, to issue all Reorganization Securities, any other
securities and any instruments required to be issued hereunder, including
sufficient New Common Stock in respect of any exercise of stock options as set
forth in the Plan.
Section 12.09 Effectuating Documents and Further Transactions.
Each Debtor and Reorganized Corporation shall be authorized to
execute, deliver, file, or record such documents, contracts, instruments,
releases, and other agreements and take such other action as may be necessary to
effectuate and further evidence the terms and conditions of the Plan.
Section 12.10 Limitation of Liability.
Neither the Debtors, the Reorganized Corporations, the Creditors'
Committee (including their present and former members), the Unofficial Committee
(including their present and former members), the Bank Group (including the
Majority Banks) any of their respective officers, directors, employees, agents
(acting in such capacity), representatives nor any professional persons employed
by any of them shall have or incur any liability to any entity for any action
taken or omitted to be taken in connection with or related to (i) the
formulation, preparation, dissemination, implementation, confirmation, or
consummation of the cases, the Plan, the Disclosure Statement, or any contract,
release, or other agreement or document created or entered into, or any other
action taken or omitted to be taken in connection with the Plan, and (ii)
actions taken or omitted to be taken in connections with the Chapter 11 Cases or
the operations of administration of the Debtors during the Chapter 11 Cases that
arose out or relate to the period prior to the Effective Date; provided,
however, that the provision of this section shall have no effect on the
liability of any entity that would otherwise result from any action or omission
to the extent that such action or omission is determined in a Final Order to
have constituted gross negligence or willful misconduct.
Section 12.11 Amendments.
(a) Preconfirmation Amendment. Subject to Sections 7.15 and 11.01 of
-------------------------
this Plan, the Debtors may modify the Plan at any time prior to the entry of the
Confirmation Order provided that the Plan, as modified, and the Disclosure
Statement pertaining thereto meet applicable Bankruptcy Code requirements.
PLAN-60
<PAGE>
(b) Post-confirmation Amendment Not Requiring Resolicitation. After
--------------------------------------------------------
the entry of the Confirmation Order, the Debtors may modify the Plan to remedy
any defect or omission or to reconcile any inconsistencies in the Plan or in the
Confirmation Order, as may be necessary to carry out the purposes and effects of
the Plan, provided that: (i) the Debtors obtain approval of the Bankruptcy Court
for such modification, after notice and a hearing; and (ii) such modification
shall not materially and adversely affect the interests, rights, treatment, or
Distributions of any Class under the Plan.
(c) Post-confirmation Amendment Requiring Resolicitation. After the
----------------------------------------------------
Confirmation Date and before the Effective Date of the Plan, the Debtors may
modify the Plan in a way that materially or adversely affects the interests,
rights, treatment, or Distributions of a class of Claims or Interests provided
that: (i) the Plan, as modified, meets applicable Bankruptcy Code requirements;
(ii) the Debtors obtain Bankruptcy Court approval for such modification, after
notice and a hearing; (iii) such modification is accepted by at least two-thirds
in amount, and more than one-half in number, of Allowed Claims voting in each
class affected by such modification; and (iv) the Debtors comply with section
1125 of the Bankruptcy Code with respect to the Plan as modified.
Section 12.12 Successors and Assigns.
The rights, benefits, and obligations of any Person named or referred
to in the Plan shall be binding upon, and shall inure to the benefit of, the
heir, executor, administrator, successor or assign of such Person.
Section 12.13 Confirmation Order and Plan Control.
To the extent the Confirmation Order and/or this Plan is inconsistent
with the Disclosure Statement, any other agreement entered into between or among
any Debtor(s), or any of them and any third party, this Plan controls the
Disclosure Statement and any such agreements and the Confirmation Order (and any
other orders of the Court) controls this Plan.
Section 12.14 Notices.
Any notice required or permitted to be provided under the Plan shall
be in writing and served by either (a) certified mail, return receipt requested,
postage prepaid, (b) hand delivery or (c) overnight delivery service, freight
prepaid, and addressed as follows:
For the Debtors and the Reorganized Corporations
------------------------------------------------
Bradlees Stores, Inc.
One Bradlees Circle
P.O. Box 9051
Braintree, MA 02184-9051
Attn: David L. Schmitt., Esq.
Senior Vice President and General Counsel
PLAN-61
<PAGE>
with copies to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Attn: Stuart Hirshfield, Esq.
For the Unofficial Committee
----------------------------
Mr. Daniel Gropper
Stonington Management Corp.
712 Fifth Avenue
New York, New York 10019
And
Mr. Mark Zucker
Anvil Capital
100 Wilshire Blvd.
Santa Monica, California 90401
with copies to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: Michael J. Edelman, Esq.
For the Bank Group
------------------
Bankers Trust Company
1 Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Attention: Allan M. Stewart
with copies to:
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, IL 60606
Attention: John Wm. Butler, Jr., Esq.
For the Majority Banks
----------------------
Gabriel Capital, L.P.
450 Park Avenue
New York, NY 10022
Attention: Jack Mayer
PLAN-62
<PAGE>
With copies to:
Kasowitz, Benson, Torres & Friedman
1301 Avenue of the Americas
36th Floor
New York, NY 10019
Attention: David Friedman, Esq.
For the Creditors' Committee
----------------------------
Copies to:
Co-chairs of the Creditors' Committee, c/o
Otterbourg Steindler Houston & Rosen, P.C.
230 Park Avenue
New York, New York 10169
Attention: Glenn Rice, Esq.
PLAN-63
<PAGE>
Section 12.15 Committees.
On the Effective Date, the Creditors' Committee shall be deemed
dissolved and the members of the Creditors' Committee shall be deemed
released and discharged from all rights and duties arising from or
related to the Chapter 11 Cases. The Professionals retained by the
Creditors' Committee and the members thereof shall not be entitled to
compensation or reimbursement of expenses for any services rendered after
the Effective Date, except for services rendered and expenses incurred in
connection with any applications for allowance of compensation and
reimbursement of expenses pending on the Effective Date or Filed after
the Effective Date pursuant to Section 12.07(b) above. Prior to the
dissolution of the Creditors' Committee, the Creditors' Committee may
appoint a committee of one or more financial representatives to become
effective on the Effective Date, whose sole duties shall be to provide
directions, on behalf of the trade vendors, to the Trade Vendors'
Collateral Agent referred to in this Plan; provided however, that such
appointee or appointees shall serve without right to receive any fees,
reimbursement of expenses or other remuneration, directly or indirectly,
from the Debtors' estates or the Reorganized Corporations.
Dated: Braintree, Massachusetts
January 26, 1999
Bradlees Stores, Inc., New Horizons of Yonkers,
Inc., Bradlees, Inc., Bradlees Administrative
Co., Inc., Dostra Realty Co., Inc., Maximedia
Services, Inc., New Horizons of Bruckner, Inc.,
and New Horizons of Westbury, Inc., Debtors and
Debtors-in-Possession
By:__________________________
Name: Peter Thorner
Title: Chairman and Chief
Executive Officer
PLAN-64
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - -x
In re :
Chapter 11
BRADLEES STORES, INC., et al., : Case Nos. 95 B 42777
through 95 B 42784 (BRL)
Debtors. :
(Jointly Administered)
- - - - - - - - - - - - - - - - - -x
FIRST AMENDED DISCLOSURE STATEMENT PURSUANT TO BANKRUPTCY
CODE (S) 1125 FOR JOINT PLAN OF REORGANIZATION OF BRADLEES STORES,
INC. AND AFFILIATES UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
-----------------------------------------------------------
Stuart Hirshfield (SH-0099)
Sandor E. Schick (SS-4991)
Hugh M. McDonald (HM-2667)
Marc Hirschfield (MH-1537)
DEWEY BALLANTINE LLP
1301 Avenue of the Americas
New York, New York 10019-6092
(212) 259-8000
Attorneys for Bradlees Stores,
Inc., New Horizons of Yonkers,
Inc., Bradlees, Inc., Bradlees
Administrative Co., Inc., Dostra
Realty Co., Inc., Maximedia
Services, Inc., New Horizons of
Bruckner, Inc. and New Horizons of
Westbury, Inc., Debtors and
Debtors-in-Possession
Dated: New York, New York
September 16, 1998
THIS IS NOT A SOLICITATION OF ACCEPTANCE OR
REJECTION OF THE PLAN. ACCEPTANCES OR REJECTIONS
MAY NOT BE SOLICITED UNTIL THIS DISCLOSURE STATEMENT
HAS BEEN APPROVED BY THE BANKRUPTCY COURT.
<PAGE>
PRELIMINARY STATEMENT AND DISCLAIMER
------------------------------------
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION
1125 OF THE BANKRUPTCY CODE AND RULE 3016 OF THE FEDERAL RULES OF BANKRUPTCY
PROCEDURE.
NO PERSON MAY GIVE ANY INFORMATION ON BEHALF OF THE DEBTORS REGARDING
THE PLAN OR THE SOLICITATION OF ACCEPTANCES OF THE PLAN, OTHER THAN THE
INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT.
ALL CREDITORS ARE ADVISED AND ENCOURAGED TO READ THIS DISCLOSURE
STATEMENT AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE
PLAN. PLAN SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE
QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN (WHICH IS ANNEXED HERETO AS
EXHIBIT 1), OTHER EXHIBITS ANNEXED HERETO AND OTHER DOCUMENTS REFERENCED AS
FILED WITH THE COURT PRIOR TO OR CONCURRENT WITH THE FILING OF THIS DISCLOSURE
STATEMENT. SUBSEQUENT TO THE DATE HEREOF, THERE CAN BE NO ASSURANCE THAT: (A)
THE INFORMATION AND REPRESENTATIONS CONTAINED HEREIN ARE MATERIALLY ACCURATE,
AND (B) THIS DISCLOSURE STATEMENT CONTAINS ALL MATERIAL INFORMATION.
AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER ACTIONS OR
THREATENED ACTIONS, THIS DISCLOSURE STATEMENT SHALL NOT CONSTITUTE OR BE
CONSTRUED AS AN ADMISSION OF ANY FACT, LIABILITY, STIPULATION OR WAIVER BUT
RATHER AS A STATEMENT MADE IN SETTLEMENT NEGOTIATIONS.
THIS DISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY PROCEEDING
INVOLVING THE DEBTORS OR ANY OTHER PARTY, NOR SHALL IT BE CONSTRUED TO BE
CONCLUSIVE ADVICE ON THE TAX, SECURITIES LAW OR OTHER LEGAL EFFECTS OF THE PLAN
AS TO HOLDERS OF CLAIMS AGAINST OR INTERESTS IN THE DEBTORS.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"), NOR HAS THE SEC PASSED UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED HEREIN.
ALL CAPITALIZED TERMS AND PHRASES USED IN THIS DISCLOSURE STATEMENT
AND NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE
PLAN.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
INTRODUCTION...................................................................1
- ------------
SECTION ONE: SUMMARY..........................................................3
- -----------
I. Debtors..................................................................3
II. Plan of Reorganization...................................................3
III. Notice to Holders of Claims..............................................3
IV. Disclosure Statement Enclosures..........................................5
V. Voting Procedures, Ballots and Voting....................................5
VI. Convenience Class Election...............................................8
VII. Counting of Ballots for Claims Sold in Parts.............................8
VIII. Hearing on and Objections to the Plan....................................9
IX. Overall Structure of the Plan...........................................10
X. Summary of Classification and Treatment of Claims and Interests.........12
XI. Recommendation..........................................................15
SECTION TWO: GENERAL INFORMATION.............................................15
- ----------- -------------------
XII. Business and Competition................................................15
XIII. Senior Officers and Directors...........................................16
XIV. Corporate Structure.....................................................19
XV. History.................................................................20
A. 1961-1988...........................................................20
B. 1988-1992...........................................................20
C. 1992 - 1995.........................................................21
1. The Initial Public Offering....................................21
2. Operating Downturn.............................................22
3. New Management Team............................................26
4. May 24, 1995 -- Annual Meeting of Shareholders.................26
5. June 22, 1995 -- Layoffs.......................................26
XVI. 1995-present -- The Chapter 11 Cases....................................26
A. Filing..............................................................27
B. Administration of Cases.............................................27
C. Bankruptcy Court First Day Orders...................................27
D. Parties in Interest and Professionals...............................27
1. Bankruptcy Court...............................................27
2. Debtors........................................................27
3. Official Committee of Unsecured Creditors......................28
4. Secured Creditors..............................................28
5. Unofficial Committee of Trade Claim Holders....................29
E. Debtor-in-Possession Financing......................................29
F. Exclusivity Extensions..............................................31
G. Claims Process and Bar Date.........................................33
1. Alternative Dispute Resolution Program.........................33
2. Reconciliation of and Objections to Claims.....................34
3. Reclamation Claims.............................................34
i
<PAGE>
H. Real Estate Transactions............................................35
1. North Attleboro, Massachusetts.................................35
2. Westbury, New York.............................................35
3. Providence, Rhode Island.......................................36
I. Real Estate Leases and Executory Contracts..........................36
1. 365(d)(4) Extension Motion.....................................37
2. Lease Assumptions and Rejections...............................37
3. Recharacterization of the SPE Facility.........................40
4. Executory Contracts............................................40
J. Vendor Relations....................................................42
1. Merchandise Return Programs....................................42
2. Payment for Goods Delivered Post-Petition......................42
K. Employee Benefits...................................................42
1. Wages and Benefits.............................................43
2. Workers' Compensation..........................................43
3. Employee Bonuses/Retention Policy..............................43
4. Medical Benefits...............................................44
5. Collective Bargaining Agreements...............................45
L. Significant Litigation and Settlements..............................47
1. Westbury.......................................................47
2. Cardiff........................................................47
3. White City.....................................................47
4. Vornado........................................................48
5. Tomarc.........................................................49
6. Ventnor........................................................50
7. Mark Cohen Settlement..........................................50
8. Sybase.........................................................51
9. Homart.........................................................52
M. The IPO Investigation...............................................52
1. The Investigation..............................................52
2. Request for an Examiner........................................53
N. The Tolling Agreements..............................................54
O. Debtors' Common Stock...............................................55
P. Post-Petition Business Strategies and Plans.........................56
1. Cost Reductions................................................57
2. Merchandising Changes..........................................57
3. Marketing Strategy.............................................58
4. Management Changes.............................................59
Q. Marketing of Debtors' Assets........................................59
SECTION THREE: SUMMARY OF THE PLAN............................................61
- ------------- -------------------
I. Overview of the Plan.....................................................61
II. Plan Negotiations........................................................61
III. Classification and Treatment of Claims and Interests.....................62
A. Unclassified Claims.................................................62
1. Administrative Claims..........................................62
2. Federal Priority Tax Claims....................................62
ii
<PAGE>
3. Other Priority Tax Claims......................................63
4. Other Non-Tax Priority Claims..................................63
B. Classified Claims...................................................63
1. Bank Group Claim...............................................63
2. SPE Claim......................................................64
3. Other Classified Claims........................................65
4. Operation of Formula Pursuant to which New Common Stock is
Distributed....................................................69
IV. Continued Corporate Existence, Board of Directors, Management, and
Other Means for Implementation of the Plan...............................70
A. Reorganized BI and Reorganized BSI..................................70
B. Directors of the Reorganized Corporations...........................70
C. Employment, Retirement, Indemnification and Other Agreements
and Incentive Compensation Programs.................................71
D. Management Emergence Bonus..........................................72
E. Corporate Action....................................................72
F. Certain Retiree Health, Medical and Life
Insurance Benefits..................................................72
G. Combination Transactions............................................72
H. Cancellation of Capital Stock.......................................73
I. Cancellation of Bonds and Agreements................................73
J. Record Date for Distributions to Holders of Securities..............74
K. Surrender of Outstanding Securities.................................74
L. Termination of BankBoston DIP Facility..............................74
M. New Credit Facility.................................................75
N. Sale of Yonkers Property and Union Square Property..................75
O. Adequate Protection Payments........................................76
P. Consummation Funding................................................76
V. Distributions and Objections to Claims...................................76
A. Source of Cash and Reorganization Securities for Distributions......76
B. Initial Distributions...............................................76
C. Disputed Claims Reserves............................................77
D. Tax Requirements for Income Generated by Disputed Claims Reserves...77
E. Estimation of Claims................................................77
F. Initial Distribution When a Disputed Claim Becomes an Allowed Claim.78
G. Additional Quarterly Distributions on Account of Previously Allowed
Claims..............................................................78
H. Method of Cash Distributions........................................79
I. Distributions on Non-Business Days..................................79
J. Accrual of Postpetition Interest....................................79
K. No Distribution of Fractional Securities............................79
L. No Distribution in Excess of Allowed Amount of Claim................80
M. De Minimis Distributions............................................80
N. Compliance with Tax Requirements....................................80
O. Setoffs.............................................................80
P. Intercompany Claims.................................................80
Q. Escrow of Unclaimed Property........................................81
iii
<PAGE>
R. Investment of Unclaimed Cash.......................................81
S. Distribution of Unclaimed Property.................................81
T. Disputed Payments..................................................81
U. Withholding Taxes..................................................81
V. Claims and Interest Objections.....................................82
Termination of Subordination............................................82
VI. Effect of Plan..........................................................82
A. Discharge..........................................................82
1. Scope.........................................................82
2. Injunction....................................................83
3. Release of Collateral.........................................83
B. Revesting and Vesting..............................................84
C. Secondary Liability Claims.........................................84
D. Release of Primary Obligors........................................85
E. Survival of Certain Indemnification Obligations....................85
F. Release of Officers, Directors, Employees, and Representatives.....85
G. Retention of Certain Claims........................................86
H. Preservation of Insurance..........................................86
VII. Executory Contract and Leases...........................................86
A. Executory Contracts and Unexpired Leases...........................86
Lease Under Which Bradlees Leases Union Square Property.................87
B. Executory Contract of R.R. Donnelly & Sons Company.................87
Executory Contract J.Baker, Inc.........................................87
C. Cure Payments......................................................87
D. Rejection Damages Bar Date.........................................88
E. Executory Contracts and Unexpired Leases Entered into and Other
Obligations Incurred After the Petition Date.......................88
VIII. Conditions To Confirmation And Occurrence Of Effective Date.............88
A. Conditions to Confirmation.........................................88
B. Conditions to Occurrence of Effective Date.........................89
C. Waiver of Conditions to Confirmation and Occurrence of Effective
Date...............................................................91
D. Effect of Nonoccurrence of the Conditions to Occurrence of
Effective Date.....................................................91
IX. Retention of Jurisdiction...............................................92
X. Administrative Bar Date.................................................93
A. General Provisions.................................................93
B. Professionals......................................................93
C. Fees and Expenses of Bank Group....................................94
D. Fees and Expenses of Unofficial Committee..........................94
E. Professional Fees and Expenses of Loomis Sayles and Bond
Indenture Trustee..................................................94
F. Ordinary Course Liabilities........................................94
XI. Amendments..............................................................94
A. Preconfirmation Amendment..........................................94
B. Post-confirmation Amendment Not Requiring Resolicitation...........95
iv
<PAGE>
C. Post-confirmation Amendment Requiring Resolicitation..............95
XII. Committees.............................................................95
XIII. Valuation of the Debtors...............................................95
XIV. Estimation of Claims...................................................97
XV. Delivery of Distributions..............................................98
XVI. Undeliverable Distributions............................................98
XVII. Revocation, Withdrawal or Non-Consummation of the Plan.................98
SECTION FOUR: VOTING REQUIREMENTS, ACCEPTANCE, CONFIRMATION AND CONSUMMATION
- -----------------------------------------------------------------------------
OF THE PLAN............................................................99
-----------
XVIII. General................................................................99
XIX. Solicitation, Voting and Requirements.................................100
A. Eligibility to Vote..............................................100
B. Estimation and Temporary Allowance of Claims.....................101
C. Acceptance Requirements..........................................101
D. Transmission of Ballots..........................................101
E. Acceptances Required From Impaired Classes.......................101
F. Confirmation Without Acceptance of All Impaired Classes
("Cram-down")....................................................102
G. Feasibility of the Plan..........................................103
H. Best Interests of Creditors......................................104
XX. Certain Factors To Be Considered......................................107
A. Settlements Embodied in the Plan.................................107
B. Risk to Unsecured Creditors and Holders of Interests in the
Event of Subsequent Liquidation or Financial Reorganization......108
C. Factors Affecting the Value of the New Common Stock and Lack
of an Established Market.........................................108
1. Matters Affecting Trading...................................108
2. Dividends...................................................109
D. Projected Financial Information..................................109
E. Competition......................................................110
F. Dilution and Risk of Actual Distributions Being Less Than
Estimates........................................................110
G. Other Factors....................................................111
-------------
XXI. Compliance With Securities Laws.......................................111
A. Issuance of Reorganization Securities............................111
XXII. Subsequent Transfers of Reorganization Securities.....................111
XXIII. Certain Federal Income Tax Consequences...............................112
A. Federal Income Tax Consequences to the Debtors...................113
1. Cancellation of Indebtedness................................113
2. Limitation on Net Operating Losses..........................114
3. Alternative Minimum Tax.....................................114
Deductions of Accrued Interest...................................115
B. Federal Income Tax Consequences to Holders of Claims.............115
1. Tax Consequences to Holders of Claims Generally.............115
2. Holders of BI-GEN Claims....................................116
3. Holders of the BSI-GEN Claims...............................116
4. Holders of the Bank Group Claims............................117
v
<PAGE>
5. Holders of the SPE Claims...................................117
6. Other Classes of Creditors..................................118
7. Market Discount.............................................119
8. Accrued Interest............................................120
XXIV. Alternatives To Confirmation Of The Plan..............................121
XXV. Alternative Plans of Reorganization...................................121
XXVI. Liquidation Under Chapter 7 or Chapter 11.............................121
CONCLUSION...................................................................123
- ----------
vi
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - x
In re :
Chapter 11
BRADLEES STORES, INC., et al., : Case Nos. 95 B 42777
through 95 B 42784 (BRL)
Debtors. :
(Jointly Administered)
- - - - - - - - - - - - - - - - x
INTRODUCTION
------------
Bradlees Stores, Inc., New Horizons of Yonkers, Inc., Bradlees, Inc.,
Bradlees Administrative Co., Inc., Dostra Realty Co., Inc., Maximedia Services,
Inc., New Horizons of Bruckner, Inc., and New Horizons of Westbury, Inc.,
debtors and debtors-in-possession (collectively, the "Debtors" or "Plan
Proponents") in the above-captioned Chapter 11 cases pending in the United
States Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court") under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. (S)(S)
101 et seq. (the "Bankruptcy Code"), filed with the Bankruptcy Court a proposed
first amended plan of reorganization dated September 17, 1998 (the "Plan"), a
copy of which is annexed hereto as Exhibit "1." The Debtors are distributing
this first amended disclosure statement (the "Disclosure Statement") pursuant to
Section 1125 of the Bankruptcy Code, to provide the Debtors' creditors with
adequate information so that they can make an informed judgment on whether to
vote to accept or reject the Plan. Please read this Disclosure Statement and
the Plan carefully and follow the instructions set forth below to vote on the
Plan.
The Plan Proponents seek confirmation of the Plan and submit this
Disclosure Statement in connection with their solicitation of acceptances of the
Plan. The Debtors believe that the Plan provides the best recoveries possible
for the holders of Claims against the Debtors and strongly recommend that you
vote to accept the Plan.
The Plan is the product of extensive negotiations between and among
the Debtors and their major creditors. The Debtors believe that the recoveries
provided under the Plan and the other material provisions of the Plan give
substantial effect to the stated wishes of such creditors.
The requirements for confirmation of the Plan, including the vote of
creditors to accept the Plan and certain of the statutory findings that must be
made by the Bankruptcy Court, are described below under the caption "Voting
Requirements, Acceptance, Confirmation and Consummation of the Plan." The Plan
constitutes a separate plan of reorganization for each of the Debtors.
Accordingly, the voting and other confirmation requirements of the Bankruptcy
Code must be satisfied for each of the Debtors.
<PAGE>
FOR A DESCRIPTION OF THE OVERALL STRUCTURE OF THE PLAN AND THE
DISTRIBUTIONS TO BE MADE THEREUNDER, SEE SECTION THREE OF THIS DISCLOSURE
STATEMENT ENTITLED "SUMMARY OF THE PLAN." FOR A GENERAL DESCRIPTION OF THE
DEBTORS, THEIR HISTORY AND THE EVENTS WHICH TOOK PLACE DURING THESE CHAPTER 11
CASES, PLEASE SEE SECTION TWO OF THIS DISCLOSURE STATEMENT ENTITLED "GENERAL
INFORMATION."
Confirmation of the Plan and the occurrence of the Effective Date are
subject to a number of material conditions precedent, which are summarized in
this Disclosure Statement. There can be no assurance that these conditions will
be satisfied.
2
<PAGE>
SECTION ONE: SUMMARY
----------- -------
I. Debtors
On June 23, 1995, each of the Debtors filed a voluntary petition under
Chapter 11 of the Bankruptcy Code and continued to retain its property and
manage its business as a debtor-in-possession. No trustee or examiner has been
appointed for any of the Debtors or their property. On April 13, 1998, the
Debtors filed their Joint Plan of Reorganization. On September 17, 1998, the
Debtors filed their First Amended Joint Plan of Reorganization, a copy of which
is annexed hereto as Exhibit 1.
II. Plan of Reorganization
Chapter 11: In General
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Upon filing of a petition for reorganization under Chapter 11
an estate is created containing all of the debtor's property and, generally, the
debtor remains in control of its property and business as a debtor-in-
possession. Under Section 362 of the Bankruptcy Code, the commencement of a
case under the Bankruptcy Code invokes an automatic stay of all attempts to
collect claims or enforce liens against a debtor or the property of a debtor
that arose prior to the commencement of such debtor's case or that otherwise
interfere with the debtor's property. Under Chapter 11, a debtor is authorized
to reorganize its business and capital structure for the benefit of its estate,
creditors and stockholders.
The confirmation of a plan of reorganization is the principal
objective of a Chapter 11 case. A plan of reorganization sets forth the means
for treating claims against, and interests (e.g., common stock) in, a debtor. A
claim or interest is impaired under a plan of reorganization if the plan
provides that such claim will not be repaid in full or that the legal, equitable
or contractual rights of the holder of such claim or interest are altered. A
holder of an impaired claim or interest is entitled to vote to accept or reject
a plan of reorganization. Chapter 11 does not require every holder of claims and
interest to vote in favor of a plan of reorganization in order for the
Bankruptcy Court to confirm the plan. However, the Bankruptcy Court must find
that the plan of reorganization meets a number of statutory tests before it may
confirm, or approve, the plan of reorganization. Many of these tests are
designed to protect the interests of holders of claims or interests who do not
vote to accept the plan of reorganization but who will nonetheless be bound by
the plan's provisions if it is confirmed by the relevant bankruptcy court.
Generally, an official committee of unsecured creditors and, sometimes, an
official committee of equity interest holders are appointed by the United States
Trustee to, among other things, negotiate the plan of reorganization on behalf
of their constituencies. Additionally, creditors or stockholders may form
unofficial committees to facilitate negotiations.
III. Notice to Holders of Claims
This Disclosure Statement is being transmitted to holders of impaired
Claims against the Debtors that are entitled to vote to accept or reject the
Plan (i.e.,
3
<PAGE>
Classes BI-BANK, BI-GEN, BI-SPE, BSI-CAP, BSI-BANK, BSI-SPE, BSI-GEN, YON-BANK,
YON-SPE, YON-GEN, BRU-BANK, BRU-SPE, BRU-GEN, WES-BANK, WES-SPE and WES-GEN).
The purpose of this Disclosure Statement is to provide holders of impaired
Claims with adequate information to enable such holders to make a reasonably
informed decision with respect to the Plan prior to exercising the right to vote
to accept or reject the Plan.
On September 17, 1998 after notice and a hearing, the Bankruptcy Court
approved this Disclosure Statement as containing adequate information, of a kind
and in sufficient detail, to enable a hypothetical, reasonable investor typical
of holders of impaired claims against the Debtors to make an informed judgment
concerning acceptance or rejection of the Plan. THE BANKRUPTCY COURT'S APPROVAL
OF THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE EITHER A GUARANTY OF THE
ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN OR AN ENDORSEMENT
OF THE PLAN BY THE BANKRUPTCY COURT.
ALL CREDITORS ARE ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND ITS
EXHIBITS CAREFULLY AND IN THEIR ENTIRETY BEFORE DECIDING TO VOTE EITHER TO
ACCEPT OR REJECT THE PLAN. This Disclosure Statement contains important
information regarding (i) the Debtors' history; (ii) developments in the Chapter
11 cases; (iii) the Plan, including a summary and analysis thereof; and (iv)
considerations pertinent to acceptance or rejection of the Plan.
THIS DISCLOSURE STATEMENT IS THE ONLY DOCUMENT AUTHORIZED BY THE
BANKRUPTCY COURT TO BE USED IN CONNECTION WITH THE SOLICITATION OF VOTES
ACCEPTING THE PLAN. No solicitation of votes may be made except pursuant to
this Disclosure Statement, and no Person has been authorized by the Bankruptcy
Court or the Debtors to use or disclose any information concerning the Debtors
other than the information contained herein. Other than as explicitly set forth
in this Disclosure Statement, you should not rely upon any information relating
to the Debtors, their estates, the value of their assets, the nature or amounts
of their liabilities, their Creditors' Claims, or the amount or value of any
distributions made under the Plan.
All financial information contained in this Disclosure Statement has
been provided by the Debtors. THE FINANCIAL INFORMATION CONTAINED HEREIN HAS
NOT BEEN THE SUBJECT OF A CERTIFIED AUDIT AND HAS NOT BEEN PREPARED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. This Disclosure
Statement is accurate to the best of the Debtors' knowledge, information and
belief. The Debtors have endeavored to make this Disclosure Statement as clear
and comprehensive as possible in order to furnish Creditors with adequate
information to make an informed decision regarding acceptance or rejection of
the Plan.
4
<PAGE>
The Disclosure Statement contains information supplementary to the
Plan and is not intended to supplant or substitute for the Plan itself. THE
DISCLOSURE STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
SPECIFIC AND DETAILED INFORMATION SET FORTH IN THE PLAN. Any perceived
inconsistencies between the information contained in this Disclosure Statement
and the terms of the Plan or any Exhibit thereto are to be resolved in favor of
the actual terms as set forth in the Plan or its Exhibits.
Creditors in Classes BI-BANK, BI-GEN, BI-SPE, BSI-CAP, BSI-BANK, BSI-
SPE, BSI-GEN, YON-BANK, YON-SPE, YON-GEN, BRU-BANK, BRU-SPE, BRU-GEN, WES-BANK,
WES-SPE and WES-GEN, whose Claims are deemed "impaired," are entitled to vote on
the Plan. Generally, for the Plan to be confirmed by the Bankruptcy Court, two-
thirds in dollar amount of the Allowed Claims and a majority of the number of
Allowed Claims in each impaired Class of Claims that are actually voted must
vote to accept the Plan. The Plan, however, may be confirmed under certain
circumstances despite dissent by one or more impaired Classes, and the Debtors
reserve the right to seek such non-consensual confirmation of the Plan. SEE
SECTION 4.II.F OF THIS DISCLOSURE STATEMENT ENTITLED -- "CONFIRMATION WITHOUT
ACCEPTANCE OF ALL IMPAIRED CLASSES ("CRAM-DOWN")."
IV. Disclosure Statement Enclosures
Accompanying this Disclosure Statement are copies of the following:
(i) the Order of the Bankruptcy Court dated September 17, 1998
approving, among other things, this Disclosure Statement (the "Disclosure
Statement Order");
(ii) the notice of the time for filing acceptances or rejections of
the Plan, as well as the date, time and place of the hearing to consider
confirmation of the Plan and related matters, and the time for filing any
objections to confirmation of the Plan ("Notice of the Confirmation Hearing");
and
(iii) one or more Ballots by which holders of impaired Claims may
vote for acceptance or rejection of the Plan.
V. Voting Procedures, Ballots and Voting
If you are the holder of an impaired Claim in Classes BI-BANK, BI-GEN,
BI-SPE, BSI-CAP, BSI-BANK, BSI-SPE, BSI-GEN, YON-BANK, YON-SPE, YON-GEN, BRU-
BANK, BRU-SPE, BRU-GEN, WES-BANK, WES-SPE and WES-GEN, after carefully reviewing
the information contained in this Disclosure Statement, please indicate your
acceptance or rejection of the Plan by voting on the enclosed Ballot(s). Each
Ballot has been coded to reflect the Class of Claims it represents. Accordingly,
in voting to accept or reject the Plan, you must use only the coded Ballot or
Ballots sent to you with this Disclosure Statement. Please complete and sign
your original Ballot (copies, facsimiles and oral votes will not be accepted),
and return it to the Voting Agent at the address set forth on the Ballot.
5
<PAGE>
The number, amount, and classification that will be used to tabulate
acceptances and rejections of the Plan is exclusively as follows:
(a) in the case where no proof of claim has been timely filed or
deemed timely filed, the amount of a Claim shall be equal to the amount
listed, if any, in respect of such Claim in the relevant Debtor's Schedules
of Assets and Liabilities to the extent such Claim is not listed as
contingent, unliquidated or disputed, and in the Class specified in the
Schedules, and consistent with the relevant Debtor's Schedules of Assets
and Liabilities, and the records of the Clerk of the Court ("Clerk") or the
authorized claims agent, Donlin, Recano & Company, Inc. ("Donlin, Recano");
(b) in the case where a proof of claim has been timely filed and not
objected to on or before the Confirmation Hearing, the amount and
classification shall be that specified in the records of the Clerk or
Donlin, Recano;
(c) in the case where the Debtors have filed an objection to a Claim,
the Claim shall not be allowed for voting purposes, unless the Bankruptcy
Court, after a notice and a hearing, (a) has allowed such Claim in a
specific amount and classification for voting purposes pursuant to
Bankruptcy Rule 3018 or (b) has allowed such claim in a specific amount for
all purposes;
(d) the authority of the signatory of each Ballot to complete and
execute the Ballot will be presumed;
(e) holders of Claims must vote all of their Claims within a
particular Class under the Plan either to accept or reject the Plan and may
not split their vote. Accordingly, a Ballot (or multiple Ballots with
respect to separate Claims within a Class), that partially rejects and
partially accepts the Plan will not be counted. This provision shall not
apply to: (i) summary Ballots completed by the servicing agents to lending
groups or to the registered holders of the Debtors' securities that reflect
the votes of the beneficial owners of such securities or Claims and (ii)
Ballots for claims which have been sold in part (see Section 1.VII
entitled -- "Counting of Ballots for Claims Sold in Part");
(f) any Ballot that does not indicate whether the holder of the
relevant claim is voting for or against the Plan or which indicates a vote
both for and against the Plan or that is not signed will be deemed a vote
for the Plan; and
(g) any holder of a BSI-GEN Claim in excess of $500 may elect to
reduce such Claim to an allowed amount of $500. Accordingly, a Ballot of
any holder electing such Convenience Claim treatment will not be counted in
determining whether the relevant BSI-GEN Claims Class has voted to accept
or reject the Plan. Additionally, holders of claims that are deemed to be
Convenience Claims under the Plan (i.e. those Allowed Claims for $500 or
less) shall not have any vote in respect of such Claims counted in BSI-GEN
Class and will not receive a
6
<PAGE>
Ballot or Disclosure Statement. See Section 1.VI -- "Convenience Class
Election" for the procedures to make such an election.
In accordance with Bankruptcy Rule 3017(e), the Debtors will send,
where appropriate, Ballots to Intermediaries. Each Intermediary shall be
entitled to receive, upon request of the Debtors, reasonably sufficient copies
of Ballots to distribute to the beneficial owner of the Claims for which there
is an Intermediary, and the Debtors shall be responsible for and pay each
Intermediary's reasonable costs and expenses associated with the distribution of
Ballots to the beneficial owners of such Claims. Additionally, each
Intermediary shall receive returned Ballots and tabulate and return the results
to the Debtors in a Summary Ballot by 5:00 p.m., Eastern Time, on ____________,
1998 indicating the number and the dollar amount of cast Ballots in the
respective Class voting for the Plan. The Intermediaries must certify that each
beneficial holder has not cast more than one vote for any purposes, including
the number and Claim amount, even if he, she or it holds securities of the same
type in more than one account.
IN ORDER FOR YOUR BALLOT TO BE COUNTED, THE ORIGINAL BALLOT MUST BE
COMPLETED AND SIGNED AS SET FORTH ABOVE AND RECEIVED EITHER BY HAND, BY MAIL OR
BY OVERNIGHT DELIVERY SERVICE TO THE VOTING AGENT AT ONE OF THE ADDRESSES SET
FORTH BELOW NOT LATER THAN 5:00 P.M., EASTERN TIME, ON ________ , 1998. BALLOTS
SENT BY MAIL SHOULD BE SENT TO THE DEBTORS C/O THEIR CLAIMS AGENT (THE "CLAIMS
AGENT"):
Bradlees Stores, Inc., et al.
c/o Donlin, Recano & Company, Inc.
Murray Hill Station
P.O. Box 2034
New York, New York 10156-0701
BALLOTS SENT BY HAND SHOULD BE SENT TO:
Bradlees Stores, Inc., et al.
c/o Donlin, Recano & Company, Inc.
Re: Bradlees Stores, Inc.
419 Park Avenue South
Suite 1206
New York, New York 10016
BALLOTS DELIVERED VIA FACSIMILE WILL NOT BE ACCEPTED.
If you have a Claim that is impaired under the Plan, thereby entitling
you to vote, but did not receive a Ballot, received a damaged Ballot, or lost
your Ballot, or if you have any questions regarding the procedures for voting
your Claims, please contact:
7
<PAGE>
Donlin, Recano & Company, Inc.
Re: Bradlees Stores, Inc.
419 Park Avenue South
Suite 1206
New York, New York 10016
Tel: (212) 481-1411
As of the Effective Date, by virtue of the Plan and in all events without any
action on the part of the holders thereof, each share of Old Common Stock of BI
issued and outstanding or held in treasury, will be cancelled and retired and no
consideration will be paid or delivered with respect thereto. In addition,
holders of Classes BI-EQT, BAC-GEN, DOS-GEN and MAX-GEN will not receive or
retain any property under the Plan, and are therefore deemed to have rejected
the Plan pursuant to Section 1126(g) of the Bankruptcy Code.
VI. Convenience Class Election
If you hold a General Unsecured Claim against BSI in excess of $500
that would otherwise be classified in an Unsecured Claims Class under the Plan,
you may also indicate on the Ballot whether you wish to elect to reduce any such
Claim to $500 and waive the balance of your Claim in such BSI-GEN Class. If you
make such election, you will have your reduced Claim treated as a Claim in the
BSI-CON Class and be paid in full (up to $500), in Cash, in such reduced amount.
Under the Plan, you may elect to have your BSI-GEN treated as a Convenience
Claim only if you agree to reduce your General Unsecured Claim to $500. In the
case of Split Claims (as defined in Section 1. VII) in the BSI-GEN Class, all
portions of the Split Claim must elect to have the Split Claim treated as a BSI-
CON Claim in order for such Split Claim to be so treated; a portion of a Split
Claim may not elect convenience class status. If your Allowed Claim totals $500
---
or less, without any agreed reduction, such Claim will be treated solely as a
Convenience Class Claim without any election and be paid in full in Cash, in the
allowed amount of your Claim. If you elect to treat your Claim as a Convenience
Claim, your vote will not be counted in determining whether the BSI-GEN Class
has voted to accept or reject the Plan.
VII. Counting of Ballots for Claims Sold in Parts
Pursuant to section 1126(c), each Claim filed shall be entitled to
only one vote, regardless of whether such Claim has been sold in portions
("Split Claims"). The procedures for counting and balloting of such Split
Claims shall be as follows: (i) provided that the transferee of a Split Claim
shall have filed evidence of its interest in a Claim as required by Bankruptcy
Rule 3001(e) on or before the date set by the Bankruptcy Court, Donlin Recano
shall send to each transferee of a Split Claim a Ballot which represents such
transferee's proportionate interest in such Clam; (ii) a mini-vote within the
Split Claim shall then be held (the "Mini-Vote") with the vote of each
transferee counted as a proportion of the amount transferred to the total amount
of such Allowed Split Claim; and (iii) if a voting majority (weighted by dollar
amount) of such
8
<PAGE>
Split Claim should vote to accept the Plan in the Mini-Vote, then the holders of
the Split Claim shall be deemed to have cast one vote in the amount of the Split
Claim in favor of confirmation of the Plan (conversely, if the voting majority
(weighted by dollar amount) of such Split Claim should vote to reject the Plan
in the Mini-Vote, then the holders of the Split Claim shall be deemed to have
cast one vote in the amount of the Split Claim to reject the Plan). In
tabulating the Mini-Vote, only those claimants actually submitting valid Ballots
shall be counted. In the event that the Mini-Vote yields an equal vote, with
exactly half voting to confirm and exactly half voting to reject the Plan, then
such Split Claim shall be deemed to have voted to confirm the Plan.
For example, Split Claim Y totals $60,000. There are three
transferees of Split Claim Y with such transfers duly evidenced by filings
pursuant to Bankruptcy Rule 3001: (i) claimant A holds $10,000 in amount, (ii)
claimant B holds $20,000 and (iii) claimant C holds $30,000. If in the Mini-
Vote, C votes in favor of the Plan, A votes against the Plan and B does not
vote, Split Claim Y is deemed to have cast one vote to accept the Plan since B's
ballot is not counted, and C's vote counts for more than A's vote since C's
weighted interest in the Mini-Vote is greater than A's interest.
VIII. Hearing on and Objections to the Plan
Confirmation Hearing
The hearing to consider confirmation of the Plan (the "Confirmation
Hearing") has been scheduled for _________________, 1998 at 10:00 a.m., Eastern
Daylight Savings Time, in Room 623, United States Bankruptcy Court, The
Alexander Hamilton Customs House, One Bowling Green, New York, New York 10004.
Date Set for Filing Objections to Confirmation of the Plan
All objections to confirmation of the Plan must be filed with the
Bankruptcy Court in accordance with the Court's Order dated February 29, 1996
establishing electronic filing and notice requirements for these Chapter 11
Cases (with a courtesy copy delivered to the chambers of the Honorable Burton
Lifland) and received by the parties set forth below by 5:00 p.m., Eastern
Standard Time, on _________________, 1998:
DEWEY BALLANTINE LLP
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6092
(ATTN: STUART HIRSHFIELD, ESQ.)
COUNSEL TO THE DEBTORS
OTTERBOURG, STEINDLER, HOUSTON &
ROSEN, P.C.
230 PARK AVENUE
NEW YORK, NY 10169
(ATTN: GLENN B. RICE, ESQ.)
9
<PAGE>
COUNSEL TO THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS
IX. Overall Structure of the Plan
The Debtors' Chapter 11 Cases have been consolidated for procedural
purposes only and are being jointly administered pursuant to an order of the
Bankruptcy Court. The Plan, as presently constituted, does not contemplate the
substantive consolidation of any of the Debtors for any purpose, including
voting and Distribution purposes. For voting and Distribution purposes, the
Plan contemplates separate Classes for each Debtor. Cash and Reorganization
Securities of the Debtors, as reorganized, will be distributed to the claimants
and equity interest holders of Claims or Interests in each of the Classes of
each of the Debtors, as set forth in the Plan and herein.
Under the Plan, the Debtors will Distribute Cash and Reorganization
Securities, consisting of Tax Notes, New Notes, New Credit Facility Notes, CAP
Notes, Cure Notes, New Warrants and New Common Stock. Forms of certain
Reorganization Securities are annexed hereto as Exhibit 2.
1. Reorganization Securities
The following discussion summarizes the material terms and provisions
of the Reorganization Securities but is subject in its entirety by reference to
the provisions set forth in each instrument, as well as the provisions of the
Restated Certificates and By-laws of Reorganized BI and Reorganized BSI.
(a) Tax Notes
---------
Subject to the election of the relevant Debtor to distribute Cash to
any holder of an Allowed Tax Claim, each holder of an Allowed Tax Claim shall
receive a Tax Note. Tax Notes will be issued by Reorganized BSI with respect to
a particular Tax Claim which has a value equal to the Allowed amount of such Tax
Claim payable over the term set forth in Section 1129(a)(9)(C) of the Bankruptcy
Code.
(b) New Notes
---------
Reorganized BSI shall issue to the holders of (i) the Bank Group
Claims, (ii) the SPE Claims, (iii) YON-GEN Claims, (iv) BRU-GEN Claims and (v)
WES-GEN Claims, New Notes in an aggregate principal amount to be determined
prior to the Effective Date in an aggregate amount equal to the difference
between (a) $40 million and (b) any Required Prepayment. Required Prepayments
shall be distributed to holders of Claims in the foregoing classes in the
following proportion: (a) 0.83 percent to holders of YON-GEN Claims; (b) 0.83
percent to holders of BRU-GEN Claims; (c) 0.83 percent to holders of WES-GEN
Claims; (d) 9.75 percent to holder of SPE Claims; and (e) 87.75 percent to
holders of the Bank Group Claims. If not paid sooner, all amounts outstanding
with respect to the New Notes shall be due on the first Business Day after the
date which is five years after the Effective Date. The New Notes shall (a) be a
full recourse obligation of Reorganized BSI, (b) be secured by a first lien on
the Yonkers Property and
10
<PAGE>
the Union Square Property (provided that YON or BSI, as the case may be, have
not sold its interest in such property on the date of issuance of such New
Notes), (c) be prepaid Pro Rata without penalty from the Net Proceeds of any
equity offering and the sale of the Yonkers Property and the Union Square
Property and (d) bear interest at a rate equal to nine percent (9%) per annum
payable semi-annually on January 1 and July 1 of each year. The lien securing
the New Notes, as provided in this Section, shall be held by the Collateral
Agent in accordance with the Collateral Agent Agreement. The holders of the New
Notes shall have the option to convert the New Notes in accordance with the
terms set forth in Exhibit I to the Plan.
(c) New Credit Facility Notes
-------------------------
Reorganized BSI shall issue New Credit Facility Notes in a principal
amount to be determined prior to the Effective Date but in any event of at least
$250 million, on such reasonable terms and at such interest rates as shall be
agreed upon by Reorganized BSI and the Agent under the New Credit Facility.
(d) CAP Notes
---------
In accordance with Section 6.05 of the Plan, Reorganized BSI may issue
CAP Notes to holders of Class BSI-CAP Claims in a principal amount to be
determined prior to the Effective Date but, in any event, not to exceed
$560,000. The CAP Notes shall bear interest at a rate equal to nine percent
(9.0%) per annum, payable semi-annually on January 1 and July 1 of each year.
If not paid sooner, all amounts outstanding with respect to the CAP Notes shall
be due on the first Business Date after the date which is six years after the
Effective Date. Each of the CAP Notes shall be secured by a first lien on the
property on which the holder of a Class BSI-CAP Claim holds a valid first
priority security interest.
(e) Cure Notes
----------
In accordance with Section 9.05 of the Plan, Reorganized BSI may issue
Cure Notes in conjunction with the assumption of executory contracts in a
principal amount to be determined prior to the Effective Date but in any event
not to exceed $3,400,000. The Cure Notes shall be unsecured and shall bear
interest at the rate of nine percent (9%) per annum. If not paid sooner, all
amounts outstanding with respect to the Cure Notes shall be due on the first
Business Day after the date which is three years from the Effective Date.
(f) New Warrants
------------
Reorganized BI shall issue to holders of BI-GEN Claims a Ratable
Distribution of New Warrants to purchase an aggregate amount of 1,000,000 shares
of New Common Stock of Reorganized BI. The New Warrants shall be exercisable
over a five-year period after the Effective Date. The exercise price of the New
Warrants for each share of New Common Stock of Reorganized BI shall be $7.00 per
share. The Debtors intend to register the New Warrants with the Securities and
Exchange Commission under the Securities Act of 1934. The Debtors intend to
register the New
11
<PAGE>
Warrants with the Securities and Exchange Commission under the Securities Act of
1934. Reorganized BI shall use all reasonable efforts to have the New Warrants
listed on a nationally recognized stock exchange after the Effective Date. The
Debtors are currently not in a position to provide an opinion with respect to
the value, if any, of the New Warrants distributed pursuant to the Plan.
(a) New Common Stock of Reorganized BI
----------------------------------
Reorganized BI shall issue a single class of up to 40,000,000 shares of
New Common Stock. New Common Stock of Reorganized BI is to be distributed under
the Plan to holders of Allowed Claims in the BSI-GEN Class, holders of the Bank
Group Claim, and holders of the SPE Claim. In aggregate, no more than 10,909,090
of such shares shall be distributed to holders of Allowed Claims under the Plan.
Reorganized BI shall use all reasonable efforts to have its New Common Stock
listed on a nationally recognized stock exchange after the Effective Date. The
Debtors believe that there will be approximately 3,500 to 4,000 holders of New
Common Stock. The Debtors intend to register the New Common Stock with the
Securities and Exchange Commission under the Securities Act of 1934, and the
Debtors intend to continue to file periodic reports under such Act.
X. Summary of Classification and Treatment of Claims and Interests
<TABLE>
<CAPTION>
Summary of Estimated Distributions with respect to
Classes of Estimated Allowed Claims and Interest
($ in thousands)
Estimated Total
Amount of New Total Estimated
Allowed Tax Cap and Common Estimated Recovery
Debtor/Claim Class Claims(1) Cash(2) Notes Cure Notes New Notes Stock(4) Recovery Percentage
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
All Debtors
Chapter 11 administrative, $23,808 $18,128 $3,286 $3,394 $24,808 100.0%
priority claims and cure
costs (exclusive of DIP
Claims)
BANK Claims 96,000 7,000 36,000 29,088 72,088 75.1
SPE Claims(3) 11,742 208 4,000 918 5,126 43.7
Bradlees, Inc.
BI-PTY $0 N/A
0
BI-GEN 264,833 0
BI-EQT(6) N/A N/A
----------------------------------------------------------------------------------
$264,833 $0 $0 $0 $0
----------------------------------------------------------------------------------
Bradlees Administrative Co.,
Inc.
BAC-PTY $0 0
BAC-GEN 0 0
BAC-EQT(6) N/A N/A
----------------------------------------------------------------------------------
$0
----------------------------------------------------------------------------------
Bradlees Stores, Inc.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Summary of Estimated Distributions with respect to
Classes of Estimated Allowed Claims and Interest
($ in thousands)
Estimated Total
Amount of New Total Estimated
Allowed Tax Cap and Common Estimated Recovery
Debtor/Claim Class Claims(1) Cash(2) Notes Cure Notes New Notes Stock(4) Recovery Percentage
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BSI-CAP 560 $560 560 100.0
BSI-GEN(5) 253,090 6,792 29,994 36,786 14.5
BSI-CON(7) 1,000 1,000 1,000 100.0
BSI-EQT(6) N/A N/A
----------------------------------------------------------------------------------
$254,650 $7,792 $560 $29,994 $38,346
----------------------------------------------------------------------------------
Dostra Realty Co., Inc.
DOS-PTY $0 100.0
DOS-GEN 0 0
DOS-EQT(5) N/A N/A
----------------------------------------------------------------------------------
$0
----------------------------------------------------------------------------------
Maximedia Services, Inc.
MAX-PTY $0 100.0
MAX-GEN 0 0
MAX-EQT(6) N/A N/A
----------------------------------------------------------------------------------
$0
----------------------------------------------------------------------------------
New Horizons of Yonkers, Inc.
YON-PTY $0 100.0
YON-GEN 0 0
YON-EQT(6) N/A N/A
----------------------------------------------------------------------------------
$0
----------------------------------------------------------------------------------
New Horizons of Bruckner,
Inc.
BRU-PTY $0 100.0
BRU-GEN 0 0
BRU-EQT(6) N/A N/A
----------------------------------------------------------------------------------
$0
----------------------------------------------------------------------------------
New Horizons of Westbury,
Inc.
WES-PTY $0 100.0
WES-GEN 0 0
WES-EQT(6) N/A N/A
----------------------------------------------------------------------------------
$0
----------------------------------------------------------------------------------
Total All Debtors $33,128 $3,286 $3,954 $40,000 $60,000 $140,368
=====================================================================
</TABLE>
Note 1 -- Estimated Amount of Allowable Claims
The Estimated amount of Allowed Claims represent the Debtors' best estimate of
the amount of pre-petition obligations that would be Allowed against each of the
respective
13
<PAGE>
Debtors under a plan or reorganization. There can be no assurance, however, that
such estimates will prove accurate, actual amounts could be greater or less than
the amounts estimated and such differences could be material.
Note 2 -- Cash Distributions
Cash Distributions under the Plan will be adjusted to the extent that actual
Administrative Claims are greater than or less than the estimates contained
herein. Cash Distributions will also be adjusted to the extent that holders of
Allowed Claims in the BSI-GEN Claim Class elect to reduce the amount of their
Claims to $500 as Convenience Claims. The Plan provides that holders of
Convenience Claims receive Cash Distributions. Convenience Claim payments are
expected to aggregate approximately $1.0 million.
Note 3 -- BANK and SPE Claims
For purposes of this presentation and in accordance with the treatment of the
BANK and SPE Claims provided for in the Plan, all Claims against each Debtor and
the related recoveries have been aggregated. The SPE Group has received
property in the amount of $11.742 million in respect of the SPE Claims on
account of the payments to the SPE Group from the sale of the SPE Providence
Property and the transfer of title of SPE Philadelphia Property to the SPE
Group.
Note 4 -- New Common Stock
For purposes of calculating distributions to be made under the Plan, the Debtors
have estimated the aggregate value of New Common Stock at approximately $60.0
million or approximately $5.93 per share of New Common Stock based on an
estimated distribution of 10,125,911 shares. The estimate of value of the New
Common Stock does not purport to reflect or constitute appraisals or estimates
of the value that may be realized through the sale of any Reorganization
Securities to be issued under the Plan in public or private markets, which may
be significantly different than the estimated values set forth in the Plan and
herein. See "Plan of Reorganization Plan Negotiations Valuation of the
Debtors' Business"
Note 5 -- BSI-Gen Claims
Exclusive of the SPE Deficiency Claim and related recovery.
Note 6 -- Equity Claims
In accordance with the terms of the Plan, allowed Interests do not receive any
distribution.
Note 7 -- Convenience Claims
In accordance with Sections 2.07 and 6.05 of the Plan, certain claimants may
elect Convenience Claim treatment, reducing their Claim in Class BSI-GEN to $500
and
14
<PAGE>
receiving full payment in Cash. The Debtors estimate that approximately
$1.0 million in cash payments will be made for Claims that elect or are deemed
to have elected Convenience Claim treatment. The Debtors do not know, however,
the ultimate amount of Claims that holders of which will elect Convenience Claim
treatment.
XI. Recommendation
THE DEBTORS BELIEVE THAT CONFIRMATION OF THE PLAN IS DESIRABLE AND IN
THE BEST INTEREST OF THE CREDITORS. The Plan provides for an equitable and
quick distribution to Creditors. Any alternative to confirmation of the Plan,
such as conversion to a Chapter 7 case or attempts by another party-in-interest
to file a plan, would result in significant delays, litigation and cost. FOR
THESE REASONS, THE DEBTORS URGE YOU TO RETURN YOUR BALLOT ACCEPTING THE PLAN.
SECTION TWO: GENERAL INFORMATION
----------- -------------------
The Debtors have been a leading discount retailer in the Northeast for
more than thirty years. The Debtors' stores are generally located in shopping
centers situated in high traffic areas, and appeal to consumers seeking a wide
range of value-priced merchandise and shopping convenience. As of June 23, 1995
(the "Petition Date"), the date the Debtors filed their bankruptcy petitions,
the Debtors operated 136 stores. As a result of store closings during the
Debtors' Chapter 11 cases, the Debtors currently operate 103 stores primarily
located in the heavily populated corridor running from the Boston to the
Philadelphia metropolitan areas. The Debtors' executive offices are located at
One Bradlees Circle, Braintree, Massachusetts 02184-9051.
From their inception through the 1980's, the Debtors' share of the
Northeastern discount retail market grew steadily. However, during the early
1990s, due to a number of factors, including an urban expansion program, the
Debtors' financial position began to deteriorate. After expanding into costly
urban locations and becoming highly illiquid, the Debtors were forced to file
for Chapter 11 protection on June 23, 1995. While in Chapter 11, the Debtors
have implemented strategies to reverse the downward spiral. Specifically, the
Debtors have (i) significantly reduced operating costs, (ii) refocused the
merchandising strategy closer to that of a traditional discount retailer, (iii)
improved the quality of merchandise, especially in apparel and home decor and
(iv) redesigned the Debtors' marketing efforts to focus on their core customer.
The results of these initiatives have been positive.
I. Business and Competition
The Debtors' business is seasonal in nature (as it is generally within
the retail industry), with a significant portion of its net sales occurring in
the fourth quarter, which includes the pivotal holiday selling season. The
Debtors compete in most of their market regions with a variety of national,
regional and local discounters, as well as other department and specialty
stores. The Debtors' principal discount department store
15
<PAGE>
competitors are Caldor Corp., Kmart Corp. and Wal-Mart Stores Inc. and, in
certain limited markets, Target Stores and Ames Department Stores, Inc.
II. Senior Officers and Directors
<TABLE>
<CAPTION>
Name Title
- ---- -----
<S> <C>
Peter Thorner Chairman of the Board of Directors and Chief
Executive Officer
Robert Lynn President and Chief Operating Officer, Director
Robert W. Benenati Senior Vice President, Logistics
Gregory Dieffenbach Senior Vice President, Human Resources
Judith Dunning Senior Vice President, Planning and Allocation
Mark James Senior Vice President, Marketing
Cornelius F. Moses, III Senior Vice President, Chief Financial Officer
Ronald T. Raymond Senior Vice President, Asset Protection
David L. Schmitt Senior Vice President, General Counsel, Secretary and Clerk
Sandra Smith Senior Vice President, General Merchandise Manager-Hardlines
Thomas N. Smith Senior Vice President, Stores
James C. Sparks Senior Vice President, General Merchandise Manager-Softlines
Jack E. Bush Director
John A. Curry Director
John M. Friedman, Jr. Director
Patricia M. Pomerleau Director
Sheldon Rutstein Director
</TABLE>
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<PAGE>
Willis G. Ryckman Director
Mr. Thorner became Chairman and Chief Executive Officer ("CEO") of the
Debtors in December 1996. He was President and Chief Operating Officer ("COO")
of the Debtors from June 1995 until December 1996, and he was elected a Director
of the Board of Directors in July 1995. He was Vice Chairman of the Debtors
from March 1995 to June 1995. Prior to joining the Debtors, he was President
and COO, Acting CEO and a member of the Board of Directors of Ames Department
Stores, Inc. from 1992 to 1994, which he led out of Chapter 11 and returned to
profitability. He was Executive Vice President and Chief Financial Officer
("CFO") of Ames Department Stores, Inc. prior to 1992.
Mr. Lynn became Director, President and Chief Merchandising Officer of
the Debtors in April 1997. He was promoted to Chief Operating Officer in May
1998. Prior to joining the Debtors, he was a consultant to various retail and
manufacturing clients from December 1995 to April 1997. He was Vice Chairman
and COO of American Eagle Outfitters, Inc. from January 1995 to December 1995.
Mr. Lynn was a retail consultant to the creditors' committee in the McCrory
bankruptcy from December 1993 to January 1995. Mr. Lynn served as President and
CEO of the United States Division of F.W. Woolworth from prior to 1992 to
September 1993.
Mr. Benenati became Senior Vice President, Logistics of the Debtors in
February 1997. He was Senior Vice President, Distribution of the Debtors from
June 1995 to February 1997. Prior to joining the Debtors, he was Senior Vice
President, Distribution of QVC, Inc. from 1994 to June 1995. He was Vice
President, Operations and Administration for Simon and Schuster Publishing Co.
from 1992 to 1994.
Mr. Dieffenbach became Senior Vice President, Human Resources of the
Debtors in July 1997. Prior to joining the Debtors, Mr. Dieffenbach served as
Vice President, Human Resources for Uptons Department Stores, Inc. from prior to
1992 until May 1997.
Ms. Dunning became Senior Vice President, Planning and Allocation of
the Debtors in February 1997. Ms. Dunning served as Vice President, Strategic
Planning of the Debtors from January 1996 to February 1997. Prior to joining
the Debtors, she was Vice President, Merchandise Planning of
Rich's/Lazarus/Goldsmith's, a Division of Federated Department Stores, Inc.,
from February 1995 to January 1996 and Vice President, Merchandise Planning of
Lazarus from 1992 to February 1995.
Mr. James became Senior Vice President, Marketing of the Debtors in
May 1997. Prior to joining the Debtors, Mr. James served as Senior Vice
President, Marketing and Advertising for Best Products from 1992 until 1997.
Mr. Moses became Senior Vice President, CFO of the Debtors in July
1996. He was Senior Vice President, Finance from July 1995 to July 1996. Mr.
Moses was Vice President, Finance for the Debtors from April 1995 to July 1995.
Prior to
17
<PAGE>
joining the Debtors, Mr. Moses was Senior Vice President, Finance of Ames
Department Stores, Inc. from 1992 to 1995.
Mr. Raymond became Senior Vice President, Asset Protection of the
Debtors in July 1995. Prior to joining the Debtors, he was Senior Vice
President, Asset Protection for Ames Department Stores, Inc. from 1992 to July
1995.
Mr. Schmitt became Senior Vice President, General Counsel, Secretary
and Clerk of the Debtors in November 1995. He was Vice President, General
Counsel, Secretary and Clerk of the Debtors from July 1995 to November 1995.
Prior to joining the Debtors, he was Vice President, Business Development for
Wheelabrator Clean Water Systems, Inc. from 1994 to June 1995. He was President
of CP Consulting from 1992 to 1994.
Ms. Sandra Smith became Senior Vice President, General Merchandise
Manager - Hardlines of the Debtors in July 1995. She was Vice President,
General Merchandise Manager - Hardlines of the Debtors from February 1994 to
July 1995 and Divisional Merchandise Manager, Home Fashions of the Debtors from
prior to 1992 to February 1994.
Mr. Tom Smith became Senior Vice President, Stores in December 1997.
He was previously Director of Operations & Merchandising for Fry's Electronics,
a rapidly growing $1.6 billion retailer based in San Jose, California, which he
joined in 1995. 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 Debtors in July 1995. He was Vice President, General
Merchandise Manager - Softlines of the Debtors from October 1994 to July 1995.
Prior to joining the Debtors, Mr. Sparks was Vice President, General Merchandise
Manager of Belk Lindsey from August 1992 to October 1994. He was Senior Vice
President, General Merchandise Manager, Mens and Childrens of Caldor, Inc. from
prior to 1992 to August 1992.
Mr. Bush became a Director of the Debtors in July 1997. He founded
Raintree Partners, Inc. in 1995, which provides consulting services to retail
and service companies. He previously served as President and as a Director of
Michaels Stores, Inc. from prior to 1992 to 1995.
Mr. Curry became a Director of the Debtors in January 1994. He has
also served as President Emeritus of Northeastern University since September
1996.
Mr. Friedman became a Director of the Debtors in May 1996. Mr.
Friedman was a partner at Dewey Ballantine LLP (formerly Dewey Ballantine) from
1978 to April 1996.
Ms. Pomerleau became a Director of the Debtors in March 1993. She has
also served as President and CEO of AlphaSight Online Strategists since April
1996. She
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<PAGE>
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, COO 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 1991 to 1994.
Mr. Rutstein became a Director of the Debtors in April 1995. He has
served as a Consultant for Raytheon Co. since December 1994. He was Senior Vice
President and CFO of Raytheon Co. from February 1992 to December 1994. Mr.
Rutstein was Senior Vice President and Controller of Raytheon Co. prior to 1992.
Mr. Ryckman became a Director of the Debtors in June 1997. He founded
WGR, Inc. in 1990, and WGR Gold LP in 1994. He currently serves as the Chairman
of the Board of Tri Tech Labs, Inc. and Irma Shorell, Inc. and COO of Associated
Capital. He also serves as a Director of Omni Capital, Banyan Hotel Management
Corporation, Krasdale Foods, Inc., Arby Foods Development Corp., National
Propane Corp., and Panavision Inc.
III. Corporate Structure
Bradlees, Inc., is a publicly-owned Massachusetts corporation whose
sole business is holding the shares of common stock of Bradlees Administrative
Co., Inc. ("Admin"), a Massachusetts corporation, which in turn holds all of the
issued and outstanding shares of Bradlees Stores, Inc. ("Stores"), also a
Massachusetts corporation. As of the Petition Date, Stores operated 136 retail
discount department stores in the Northeast and was the parent company of five
subsidiaries related to the Bradlees' businesses (as shown on the following
organizational chart):
[FLOW CHART APPEARS HERE]
Bradlees, Inc.
Bradlees Administrative Co., Inc.
Bradlees Stores, Inc.
Maximedia Dostra New New New
Services, Realty Horizons Horizons Horizons
Inc. Co., Inc. of Bruckner, of Westbury, of Yonkers,
Inc. Inc. Inc.
19
<PAGE>
IV. History
Until the mid-1990s, the Debtors enjoyed growth and success. The
history of the Debtors may be divided into four distinct periods, each of which
is discussed below in greater detail:
. 1961 - 1988. Bradlees/1/ was owned by and operated as a division of The
Stop & Shop Companies, Inc. ("Stop & Shop"). During this period, Bradlees grew
from a small enterprise to become one of the leading discount retail chains in
the East.
. 1988 - 1992. In 1988, following a leveraged buy-out, the Bradlees'
businesses were incorporated as separate companies and became wholly-owned
subsidiaries of Stop & Shop. During this period, Bradlees continued to enjoy
growth in both sales and earnings.
. 1992 - 1995. In 1992, Stop & Shop "spun off" the Bradlees' businesses
through an initial public offering of Bradlees' stock. Following the spin-off,
Bradlees became an independent public company. Although investors and analysts
had great expectations for the company, during this period Bradlees began a
costly expansion to urban areas and saw its profit margins decline drastically.
. 1995 - Present. The first eighteen months after the Debtors' filed their
Chapter 11 petitions were difficult, as revenues, margins and earnings declined
substantially. With the implementation of new strategies, initiatives and cost
reduction programs, beginning in late 1996, the Debtors have begun to see
significant improvements in sales and earnings.
A. 1961-1988
Stop & Shop acquired the Bradlees' businesses in 1961 (which consisted
of six stores) and, until approximately 1988, the Bradlees' businesses were
operated as divisions of Stop & Shop and/or its affiliates. As divisions of
Stop & Shop, Bradlees operated with its own operating management, offices and
distribution facilities. During this period, Bradlees grew steadily and
eventually became one of the leading discount retailers in the East.
B. 1988-1992
In 1988, Stop & Shop agreed to a leveraged buyout ("LBO") proposed by
Kohlberg Kravis Roberts & Company ("KKR"). As part of the LBO, an acquisition
subsidiary of KKR tendered for all of the shares of Stop & Shop at a price of
$44 per
- ----------------
/1/ "Bradlees" refers to the Debtors as they existed prior to the Petition Date.
20
<PAGE>
share, for a total purchase price of approximately $1.2 billion. The amounts due
under the various debt agreements were allocated to Stop & Shop and its various
subsidiaries, including the Bradlees' businesses. As part of the post-LBO
structure, the Bradlees' businesses were allocated, for accounting purposes, 44%
of all debt of the Stop & Shop entities on a consolidated basis. Thus, Stop &
Shop allocated the Bradlees' businesses almost $600 million of debt arising out
of the LBO.
After the LBO, the Bradlees' businesses were organized in a number of
affiliated, separately incorporated companies focusing on different regions and
functions. Specifically, the Bradlees' businesses were divided into three
regions, New England, New York, and New Jersey, with operating companies
managing the stores and holding companies holding the stock. All of these
entities were wholly-owned subsidiaries of Stop & Shop. In January of 1989, as
part of an internal restructuring, Bradlees closed and sold thirty-seven stores
located in Virginia, North Carolina, Maryland and Delaware. Following the LBO,
the businesses of Bradlees and Stop & Shop continued to be closely intertwined.
Bradlees continued to share certain facilities and work functions with Stop &
Shop -- including their corporate headquarters, computer services, warehouse
facilities, and trucking capacity. In addition, Stop & Shop often purchased
merchandise for the entire Stop & Shop consolidated businesses, including the
Bradlees' businesses.
During this period, the number of Bradlees' stores and its earnings
continued to grow, and investor interest in the Bradlees' businesses and a
possible stock offering began to materialize. Among the factors which made
Bradlees an enticing investment opportunity at that time were that (i) Bradlees
had a leading market share in the Northeast as well as desirable and hard-to-
duplicate store locations, (ii) Bradlees emphasized soft goods, which had higher
margins than hard goods, and had recently invested in new technologies and store
layouts, and (iii) Bradlees had improving "EBITDA" (earnings before interest,
taxes, depreciation and amortization) even during the extended recession in the
Northeast.
C. 1992 - 1995
1. The Initial Public Offering
---------------------------
In 1992, Stop & Shop desired to capitalize on the growing investor
interest in the Bradlees' businesses. Accordingly, Stop & Shop sought to spin-
off the Bradlees' businesses and make Bradlees an independent public company.
As part of this process, an initial public offering ("IPO") was scheduled for
July 9, 1992. In projections distributed to lending institutions, Stop & Shop
projected that Bradlees' operating profit margin would grow from 3.54% in 1991
to 4.81% in 1997, and that net earnings would grow at a rate of 20-25% through
1997. At this rate, Bradlees was projected to attain earnings per share of
$5.58 in 1997.
In preparation for the IPO, Bradlees, Inc. was incorporated for the
purpose of acquiring the Bradlees' businesses. On May 6, 1992, the IPO and the
intent to sell between 11 and 12 million shares of Bradlees, Inc. were
announced. On July 9, 1992 (the
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<PAGE>
"Spin-Off Date"), the IPO and spin-off (the "Spin-Off") were effectively
consummated. As part of the Spin-Off, the parties carried out a number of
transactions, including:
(a) certain directors of Bradlees' subsidiaries resigned.
(b) Bradlees, Inc. issued 11,018,625 shares of common stock in
the IPO for $13 per share, receiving net proceeds of
$135,728,156.30.
(c) Bradlees, Inc. transferred the net proceeds of the IPO of
$135,728,156.30 as a capital contribution to Admin.
(d) Admin purchased the stock of the following entities from Stop
& Shop, using the downstreamed net proceeds from the IPO: (i)
NE Holdings for $75,003,379.15; (ii) NY Holdings for
$7,152,873.83; and (iii) Bradlees NJ for $53,571,903.27.
The total purchase price for the Spin-Off, including all stock and all
debt repayments, totaled $340,311,970.16. Of this amount, the purchase of stock
by Admin from Stop & Shop accounted for $135,728,156.30, and the repayment of
certain intercompany obligations between Bradlees and Stop & Shop accounted for
the remaining $204,583,813.86. The repayment of the intercompany obligations
was financed by the net proceeds of a $115 million bank term loan ("Term Loan")
and the issuance of a $100 million subordinated seller note ("Seller Note") to
Stop & Shop. In August of 1992, the Company issued in the public market $125
million senior subordinated notes due 2002, the net proceeds of which were used
to pay off the Seller Note and to pay down a portion of the Term Loan. In March
of 1993, the Company issued $100 million subordinated notes due 2003, the net
proceeds of which were used to pay off the balance of the Term Loan.
2. Operating Downturn
------------------
Although the Bradlees' businesses had been projected to excel during
the years following the Spin-Off, the projections never materialized.
Nationally, total sales in the retail market increased from $95 billion in 1991
to $137.5 billion in 1994 or approximately twelve percent (12%) annually.
However, Bradlees' own sales did not keep pace with those of other retailers.
While the bankruptcies of discount retailers such as Ames, Jamesway and Hills,
and the publicly reported financial difficulties of Kmart, indicated that
Bradlees' problems were not unique, other retailers such as Wal-Mart, and
certain department store chains, grew and even thrived in the period from 1992-
1995.
During this period, Bradlees developed profound and fundamental
problems. Indeed, before Bradlees filed their Chapter 11 petitions, Bradlees'
businesses had lost focus. Rather than appealing primarily to middle-market
consumers -- as Bradlees had successfully done during the 1980's -- Bradlees
drifted further and further into the realm of the low-end discount retailers
(such as Kmart and Wal-Mart) without the attendant benefit of a low-cost
operating infrastructure common to such retailers. Not
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<PAGE>
only did the quality of Bradlees' merchandise decline during the early 1990's,
but so did the gross margins on many of the hard goods being offered for sale.
In addition, in the three-years following the Spin-Off, Bradlees entered into a
significant number of costly leases to open new store locations primarily in
urban areas. These new store openings eroded Bradlees' cash resources and
reduced its borrowing capacity.
Among the numerous factors which led to Bradlees' downturn and
eventual Chapter 11 filing, the following may be considered the most important:
(a) Increased Competition
From 1992 to 1995, competition in the discount department store
industry increased in the already competitive Northeast region with the entry of
several new competitors into the area (such as Wal-Mart), and the expansion of
the operations of traditional competitors of Bradlees, such as Kmart and Caldor.
During this period, Wal-Mart, Kmart, and Caldor opened 53, 12, and 11 new stores
in the Northeast, respectively.
Bradlees responded to the increase in competition by deviating from
its traditional merchandising and marketing strategies. Bradlees had generally
differentiated itself from its competitors by emphasizing soft-line goods and
higher quality merchandise. In the post-Spin-Off period, however, in order to
increase store traffic, Bradlees changed its emphasis to commodity-type goods,
which yielded lower margins. In addition, Bradlees began to compete on the
basis of price alone. Although sales increased somewhat, the lower margins
ultimately hurt Bradlees' bottom line.
(b) Failure to Effectively Implement Programs to Expand
Operations
Management's growth strategy relied heavily on increasing revenues by
remodeling existing stores and opening new stores in both existing market areas
and new markets. In 1990, Bradlees launched a program to remodel existing
stores based upon a new store prototype. Bradlees had planned to remodel 75% of
its stores by the end of 1994 and open four to six new stores per year in malls
and shopping centers, locations in which Bradlees' stores typically had been
successful. However, Bradlees deviated considerably from this plan -- the store
remodeling program was substantially reduced and the new stores did not open on
time. The performance of remodeled and new stores did not meet projections and
management expended more capital on expansion than the businesses were
generating. In addition, despite the reduction in the number of remodeled and
new stores, the cost overruns for remodeling and new store preparation and
fixturing totaled $19.1 million.
Although Bradlees traditionally believed that one of its competitive
advantages was the hard-to-duplicate locations of Bradlees' stores in
established retail markets in the Northeast, Bradlees pursued certain new
markets that required large investments in real estate as well as higher
operating costs. Bradlees invested $39.9 million in land and lease acquisitions
from the Spin-Off Date through January 1995 that was not anticipated in its
projections. These expenditures impaired Bradlees' liquidity,
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<PAGE>
causing Bradlees to further curtail its remodeling program in favor of
maintaining the pace of new store openings. In total, Bradlees invested an
additional $59.0 million over budget in capital expenditures, land and lease
acquisitions while only marginally increasing sales.
(c) Liquidity Problems
By the end of 1994, the increased competition, poor performance of the
new and remodeled stores, and the expanded investment in capital expenditures
had seriously eroded Bradlees' liquidity. Bradlees' attempts to generate
additional capital through the refinancing of existing debt and other credit
facilities were insufficient to cover the excessive spending on new stores and
remodeling, and the shortfall in earnings from the Spin-Off Date through January
28, 1995. By early 1995, Bradlees had utilized $135 million of its $150 million
revolving credit facility established pursuant to the Credit Agreement among
Bradlees, Inc., various lending institutions and Bankers Trust Company, as
Agent, dated as of March 3, 1993. Additionally, working capital as of May 20,
1995 had eroded to just $2.9 million. In addition, Bradlees had violated its
loan covenants and was unable to negotiate satisfactory waivers and new
covenants. As such, Bradlees did not have the resources to purchase fall
merchandise for the "back-to-school" selling period and factors were
increasingly unwilling to extend credit to vendors. In sum, Bradlees faced a
(i) revolving credit facility approaching its limit on borrowings, and (ii)
diminished working capital position.
(d) Off-balance Sheet Financing
As part of Bradlees' efforts to increase new store openings, it
entered into an off-balance sheet financing arrangement. Specifically, in 1994
Bradlees entered into a $75 million lease financing revolving line of credit
(the "Lease Credit Line") to fund future store development. The Lease Credit
Line, provided by a syndicate of banks led by Bankers Trust (the "SPE Group"),
was intended to be a ready source of interim construction financing, with
permanent financing to be obtained separately on a store-by-store basis -- as
construction was completed and the stores were refinanced (most likely on a
sale-leaseback basis). In connection with the Lease Credit Line, the parties
thereto executed that certain Credit Agreement dated as of March 3, 1993, as
amended, among Bradlees, Inc., Various Lending Institutions and Bankers Trust
Company, as Agent, dated September 30, 1994, as amended (the "SPE Facility").
Through a series of reductions, the amount of the Lease Credit Line was reduced
to $24 million.
In order to obtain off-balance sheet treatment for the Lease Credit
Line, all loans had to be made directly to special purpose entities unaffiliated
with Bradlees. The basic structure of the Lease Credit Line was that the Banks
lent 97% of the development cost of a property to State Street Bank and Trust
Company, as trustee (the "SPE Owner Trustee") for the special purpose entity,
which loans were guaranteed by each of the Debtors. The remaining 3% was
provided in the form of a 3% equity investment in the SPE Owner Trustee by
another special purpose entity, BRE Funding, Inc. (the "Investor"). The SPE
Owner Trustee was a grantor trust created by the Investor, and the Investor
owned the entire beneficial interest in the SPE Owner Trustee. The Investor was
24
<PAGE>
a Delaware corporation, all the stock of which was owned by JH Holdings
Corporation, as trustee of the BRE Trust, a charitable trust ultimately for the
benefit of Harvard University.
The 3% invested by the Investor was financed entirely by a loan from
the SPE Group to the Investor. As a consequence, the SPE Group essentially
financed 100% of the development costs of the properties involved. The SPE
Owner Trustee used the loans at the direction of Bradlees to acquire fee title
and develop the properties.
At the time a property was first financed through the Lease Credit
Line, the SPE Owner Trustee leased the property to BSI pursuant to a master
lease and lease supplement under which BSI agreed to pay as rent amounts
sufficient to amortize all of the loans. Each of the other Debtors guaranteed
the leases.
All loans made under the Lease Credit Line were secured by senior
mortgages on the properties involved (including real property, fixtures and
related equipment). The loans were also secured by assignments from the SPE
Owner Trustee of the leases and its assignment of the development-related
contracts (e.g., agency agreement, development agreement, construction
agreement, completion guaranty and assignment of contracts).
Two properties, Philadelphia and Providence (the "SPE Properties"),
were financed through the Lease Credit Line, and the aggregate outstanding
principal balance at the time of the Petition Date was approximately $18.2
million.
(e) Management
In addition to its operating and expansion difficulties after the IPO,
Bradlees suffered from a lack of experienced management. Bradlees' two top
post-Spin-Off officers were relatively inexperienced in the discount retail
industry. Barry Berman, Chairman, President and CEO of Bradlees, had a
background in accounting and food marketing for the Supermarket Division of Stop
& Shop until March 1990, but no significant background in discount
merchandising. Samuel Mandell, who held the position of Executive Vice
President and COO of Bradlees (and later President) after the Spin-Off, had been
General Counsel of Stop & Shop with responsibility for a myriad of non-sales
functions, including legal and real estate. The third highest executive
position, CFO, was unfilled at the time of, and for two months after, the Spin-
Off. Joseph McGlinchey, CFO for pre-Spin-Off Bradlees and Stop & Shop, remained
behind at Stop & Shop, along with most of his staff.
The initial post-Spin-Off Board of Directors of Bradlees similarly
lacked discount merchandising experience. At the time of the Spin-Off, the
Board consisted of Messrs. Berman and Mandell, Lewis Schaeneman -- the Chairman
and CEO of Stop & Shop -- and James Greene, Paul Raether and Clifton Robbins --
three executives and partners of KKR. Notably absent from the Board immediately
following the Spin-Off were any independent directors.
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<PAGE>
3. New Management Team
-------------------
On December 3, 1994, Bradlees hired Mark A. Cohen to be Chairman and
CEO. Mr. Cohen had previously been the Chairman and CEO of Lazarus Department
Stores, a 51-store division of Federated Department Stores, Inc. ("Federated").
Mr. Cohen had more than 23 years of experience in the retail industry, and he
had held key executive positions in both department and chain store companies.
Mr. Cohen had joined Federated in 1987 as President and COO of Federated's
Goldsmith's Department Stores division. In 1988, he joined Lazarus Department
Stores as President and COO and was named Chairman and CEO in 1989. Bradlees
hired, through the latter part of 1994 and early 1995, several additional senior
level employees to serve on Mr. Cohen's management team.
4. May 24, 1995 -- Annual Meeting of Shareholders
----------------------------------------------
In light of the difficulties facing Bradlees, on the eve of its May
24, 1995 annual meeting of shareholders, Bradlees made several announcements:
(a) Bradlees expected to report a loss of $2.25 to $2.75 per share
when it released the fiscal first-quarter earnings in mid-
June. This expected loss was nearly twice as large as market
analysts had projected, as several analysts had projected
losses of approximately $1.40 per share.
(b) Bradlees would delay the store openings which it had planned
for 1996. Bradlees had expected to open at least five new
stores in 1996.
(c) Bradlees would suspend its dividend payment. Bradlees common
stock had paid a quarterly cash dividend of 15 cents per share
since the Spin-Off. Bradlees supported this announcement by
noting that the elimination of the dividend would save the
company approximately $6.8 million per year.
5. June 22, 1995 -- Layoffs
------------------------
On or about June 22, 1995, Bradlees terminated several senior
employees, including: Samuel Mandell, President and COO; Anne Terhune, Vice
President and General Counsel; and Barry Horowitz, Vice President, Marketing.
V. 1995-present -- The Chapter 11 Cases
As a result of increased competition, expansion into costly urban
locations, and resulting illiquidity, as discussed above, Bradlees was compelled
to seek Bankruptcy Court protection on June 23, 1995.
26
<PAGE>
A. Filing
On June 23, 1995, the Debtors each filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.
Pursuant to an Order of the Bankruptcy Court dated June 23, 1995, the Debtors'
Chapter 11 cases were consolidated for procedural purposes only and are being
jointly administered.
B. Administration of Cases
Since the commencement of the Chapter 11 cases, the Debtors have
continued to operate their businesses and manage their properties as debtors-in-
possession pursuant to Bankruptcy Code Sections 1107(a) and 1108, subject to the
jurisdiction and supervision of the Bankruptcy Court. No trustee or examiner
has been appointed in these cases.
C. Bankruptcy Court First Day Orders
On the first day of the Chapter 11 cases, the Bankruptcy Court entered
a number of orders granting the Debtors various forms of relief. In particular,
the Debtors obtained orders authorizing: (i) the joint administration of the
Debtors' Chapter 11 cases; (ii) the maintenance of business forms, bank
accounts, cash management system, and exempting the Debtors from investment and
certain bonding requirements of the Bankruptcy Code; (iii) the honoring of
certain prepetition obligations to customers; (iv) the payment of prepetition
wages, salaries and commissions; (v) the retention of Dewey Ballantine LLP
(formerly Dewey Ballantine) as bankruptcy counsel; and (vi) the retention of
Goodwin, Procter & Hoar as special corporate counsel to the Debtors.
D. Parties in Interest and Professionals
The parties described below have been the major parties in interest in
the Chapter 11 Cases to date:
1. Bankruptcy Court
----------------
The Honorable Burton R. Lifland, United States Bankruptcy Judge, has
presided over the Debtors' Chapter 11 Cases since the Petition Date.
2. Debtors
-------
During the pendency of the Chapter 11 Cases, it was necessary for the
Debtors to retain professionals to assist in a variety of areas:
Dewey Ballantine LLP Bankruptcy counsel.
Goodwin, Procter & Hoar LLP Special corporate counsel.
Zolfo Cooper, LLC -- Special financial advisors and bankruptcy
consultants.
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<PAGE>
Deloitte & Touche, LLP -- Accountants and auditors from September 15,
1995 through September 24, 1997.
Arthur Andersen LLP -- Accountants and auditors commencing on
September 24, 1997.
Schottenstein Bernstein Capital Group, LLC; Gordon Brothers Partners,
Inc.; the Nassi Group LLC; and Alco Capital, Inc. -- Consultants to assist in
certain going-out-of-business sales.
Squire, Sanders & Dempsey LLP -- Special real estate counsel.
Donlin, Recano & Company, Inc. -- Official Claims Agent for the Clerk
of the Bankruptcy Court.
In addition, other counsel have been retained to prosecute and defend,
to the limited extent necessary during the pendency of the Chapter 11 Cases,
actions which were pending as of the Petition Date. By Order dated December 21,
1995, the Bankruptcy Court authorized the Debtors to retain and compensate these
and various other professionals in the ordinary course of business.
3. Official Committee of Unsecured Creditors
-----------------------------------------
On July 6, 1995, the United States Trustee for the Southern District
of New York appointed an Official Committee of Unsecured Creditors (the
"Creditors' Committee"). The following professionals have been retained by
order of the Bankruptcy Court to act on behalf of the Creditors' Committee:
Otterbourg, Steindler, Houston & Rosen, P.C. -- Counsel to the
Creditors' Committee.
Ernst & Young LLP -- Accountants for the Creditors' Committee.
4. Secured Creditors
------------------
The Principal secured creditors in the cases are comprised of two
groups of lending institutions: (i) those lending institutions which are parties
to the Credit Agreement among Bradlees, Inc., various lending institutions and
Bankers Trust Company, as Agent, dated as of March 3, 1993 (the "Bank Group"),
and (ii) the SPE Group, i.e., those lending institutions providing a revolving
line of credit to fund future store development. (See Section 2.IV.C.2.(d)
entitled "Off-Balance Sheet Financing," above.) The following professionals
have been retained by the Secured Creditors:
Skadden, Arps, Slate, Meagher & Flom -- Counsel to the Bank Group.
Kasowitz Benson Torres & Friedman LLP -- Counsel to Gabriel Capital,
L.P., the majority holder of the Bank Group Claim.
28
<PAGE>
Policano & Manzo, LLC Financial advisors to the Bank Group.
5. Unofficial Committee of Trade Claim Holders
--------------------------------------------
The Unofficial Committee was formed to represent the interests of
those members of the Unofficial Committee who had purchased claims in Bradlees
Stores, Inc.'s Chapter 11 case. The current members of the Unofficial Committee
are Stonington Management Corporation and Anvil Investment Partners. The
Unofficial Committee retained the following professional:
Milbank, Tweed, Hadley & McCloy Counsel to the Unofficial Committee.
E. Debtor-in-Possession Financing
As previously mentioned, in the months prior to the Petition Date, the
Debtors were facing a severe liquidity crisis. As such, many of the Debtors'
vendors refused to ship goods and certain factors refused to extend credit based
upon shipments to the Debtors. In an effort to alleviate these problems, and in
order to continue to operate their businesses in a Chapter 11 context, on June
23, 1995, the Debtors entered into an agreement to provide them with a working
capital facility to meet their ongoing cash and credit requirements during these
Chapter 11 cases (the "Chase DIP Facility"). The Chase DIP Facility had a two-
year term, with an original maturity date of June 23, 1997. The Chase DIP
Facility was originally entered into by the Debtors and Chemical Bank and was
subsequently syndicated. The Chase Manhattan Bank ("Chase Bank") (successor by
merger with Chemical Bank) was agent under the Chase DIP Facility. By Order
dated June 26, 1995, the Bankruptcy Court authorized the Debtors to obtain
interim DIP financing in the amount of $100 million. On July 11, 1995, the
Bankruptcy Court entered a Final Order authorizing and approving the Chase DIP
Facility in the full amount of $250 million.
With the Chase DIP Facility in place, vendors resumed shipments to the
Debtors of new inventory on normal business terms. During the course of the
Chapter 11 Cases, the Debtors have negotiated several amendments to the Chase
DIP Facility. The following table summarizes the dates of each Amendment and
the primary function, inter alia, of each Amendment:
Amendment Date Purpose
- ---------------- ------------- -----------------------------
First Amendment June 30, 1995 Modified certain definitions
contained in the Chase DIP
Facility.
Second Amendment August 9, 1995 Provided for the syndication
of loans to be made under the
Chase DIP Facility to a group
of banks.
29
<PAGE>
Third Amendment March 15, 1996 Modified certain
definitions and financial
covenants contained in the
Chase DIP Facility.
Amendment by August 15, 1996 Permitted the closing of
Letter Agreement fourteen stores and the
establishment of a markdown
reserve in connection
therewith.
Fourth Amendment September 13, 1996 Provided for a reduction in
the funds available under
the DIP line due to closure
of store locations and
modified certain financial
covenants contained in the
Chase DIP Facility.
Fifth Amendment January 13, 1997 Provided for a modification
of the EBITDA covenant
contained in Section 6.05
of the Chase DIP Facility.
Amendment by February 20, 1997 Permitted the closure of
Letter Agreement the store located in New
Hyde Park, New York.
Sixth Amendment March 20, 1997 Extended the maturity date
of the Chase DIP Facility
for one year.
Seventh Amendment/2/ October 29, 1997 Increased the borrowing
base, increasing the amount
of available credit to the
Debtors.
In connection with the Chase DIP Facility, the Debtors also negotiated
with the Debtors' Bank Group and Chase Bank to obtain stand-by letters of credit
from Chase Bank to "back up" existing letters of credit issued by the Bank
Group. This enabled the Debtors, inter alia, to obtain certain imported goods
which vendors were unwilling to ship absent such assurances.
Toward the end of 1997, the Debtors believed that additional
availability under a new financing was necessary to provide liquidity levels
during the 1998 fiscal year which would be sufficient to satisfy the vendor
community. Thus, in anticipation of an exit from Chapter 11 in 1998, the
Debtors sought to replace their Chase DIP Facility
- --------------------
/2/ Technically, the Seventh Amendment to the Chase Dip Facility is the First
Amendment to the "Amended and Restated Revolving Credit and Guaranty Agreement"
which was executed as part of the Sixth Amendment, and restates and incorporates
all of the previous Amendments.
30
<PAGE>
with (a) a financing which would provide the Debtors with additional
availability by further increasing the percentage of eligible inventory on which
borrowing is based, and by defining eligible inventory more liberally and (b)
which would be convertible by replacement into an exit financing upon emergence
from Chapter 11.
After exploring the possibility of obtaining such financing and
soliciting bids from a number of financial institutions, the Debtors determined
that BankBoston, N.A. ("BankBoston") submitted the most favorable bid. On
December 3, 1997, the Debtors filed an Application with the Court seeking
authorization to obtain DIP Financing from BankBoston. On December 22, 1997,
the Bankruptcy Court entered an Order authorizing the Debtors to enter into the
DIP agreement with BankBoston (the "BankBoston DIP Facility"). As compared to
the Chase DIP Facility, the BankBoston DIP Facility provides the Debtors with
greater availability, and hence liquidity, for lesser fees and for a longer
term. The BankBoston DIP Facility is convertible by replacement, upon the
satisfaction of certain conditions, into exit financing for a term equal to the
earlier of (a) three years from the date of closing of the exit facility or (b)
four years from December 23, 1997. The possibility of converting the BankBoston
DIP Facility into exit financing was one of the reasons that Bradlees elected to
enter into the BankBoston DIP Facility.
F. Exclusivity Extensions
Section 1121 of the Bankruptcy Code grants a debtor-in-possession the
exclusive right to file a plan of reorganization for 120 days after the filing
of a voluntary petition for relief under Chapter 11 and the exclusive right to
solicit acceptances of that filed plan for 180 days after the date of the
petition. Section 1121 additionally provides that each of these periods may be
extended for cause before its expiration. Because of the size and complexity of
the Debtors' cases and the significant progress that the Debtors have made
towards reorganization, the Debtors' exclusivity periods have been extended five
times by Orders of the Bankruptcy Court.
. Toward the end of the Debtors' initial exclusivity period, which
expired on October 23, 1995, the Debtors successfully demonstrated to the
Bankruptcy Court that sufficient cause existed to extend the Debtors' exclusive
periods on the basis that the Debtors' management had expended significant time
since the Petition Date responding to numerous inquiries and information
requests made by the Creditors' Committee, the Bank Group, vendors, customers
and landlords. In addition, during their exclusive periods, the Debtors had
negotiated a DIP agreement and merchandise return program and that additional
time was needed to attend to Bradlees' other operational problems. By Order
dated November 20, 1995, the Debtors' motion was granted and the exclusive
filing period was extended through June 30, 1996 and the exclusive solicitation
period through August 29, 1996.
. On June 7, 1996, the Debtors filed a motion seeking to extend
their exclusivity periods. In the motion, the Debtors asserted that they needed
additional time to fully implement their business plan and evaluate the business
plan's results under the leadership of Mark Cohen (see discussion of Mark
Cohen's initiatives, below).
31
<PAGE>
Following a hearing held before the Bankruptcy Court on June 25, 1996, the
Bankruptcy Court signed an Order extending the Debtors' exclusive periods to
file a plan of reorganization through February 1, 1997, and extending the
Debtors' exclusive periods in which to solicit acceptances of a plan through
April 2, 1997.
. On January 10, 1997, the Debtors filed a motion with the
Bankruptcy Court seeking an additional extension of their exclusivity periods.
In the motion, the Debtors informed the Bankruptcy Court of the recent
appointment of Peter Thorner as Chairman and CEO (who replaced Mark Cohen in
this position). The Debtors asserted that additional time was needed to
successfully implement Mr. Thorner's strategies (see discussion of Peter
Thorner's initiatives, below). The Bankruptcy Court signed an Order on January
21, 1997, extending the Debtors' exclusive periods to file a plan of
reorganization through August 4, 1997, and extending the exclusive periods to
solicit acceptances of a plan through October 3, 1997.
. On July 3, 1997, the Debtors, with the support of the Official
Committee of Unsecured Creditors, filed a motion seeking the entry of an order
extending the Debtors' exclusive periods to file a plan of reorganization and
solicit acceptances of the plan through February 2, 1998 and April 3, 1998,
respectively. In the motion, the Debtors asserted that although the early signs
from Peter Thorner's initiatives were positive, the Debtors required additional
time to reorganize their operations and that the extension was necessary to
maintain the confidence of the vendor and factor communities and to preserve
continued credit support from these groups. By Order dated July 15, 1997, the
Bankruptcy Court authorized the extension of exclusivity over the objections of
certain creditor constituencies.
. On December 8, 1997, the Debtors with the support of the Official
Committee of Unsecured Creditors filed a motion with the Bankruptcy Court
seeking the entry of an order extending the Debtors' exclusive periods to file a
plan of reorganization and solicit acceptances of the Plan through August 3,
1998 and October 5, 1998, respectively. In the motion, the Debtors stated that
although the Debtors were at their healthiest position since entering Chapter
11, they were not yet ready to emerge from bankruptcy. The Debtors stated that
the additional time would allow for two pivotal steps toward the successful
confirmation of a plan of reorganization to occur: (i) the continued
strengthening of the Debtors' operational performance, and (ii) an agreement
among the Debtors' creditors on how their interests in the Debtors' estates
should be distributed among the creditors. Following the objections of several
parties to the Debtors' motion, the Bankruptcy Court, in an Order dated December
22, 1997, granted the Debtors' motion but provided that if the Debtors did not
by April 1, 1998 (or under certain circumstances, a later date), file a plan or
plans of reorganization and disclosure statement (a) that is reasonably capable
of obtaining exit financing and either (b) that is supported by each of the
principal interests in the case including the pre-petition bank groups, the
Official Creditors' Committee, the Unofficial Committee of Trade Claimants and
the Subordinated Debt, or (c) which, if not supported by each of the principal
interests referred to in (b) above, is supported by the beneficial holders of a
majority in amount of the pre-petition revolving bank debt and the pre-petition
vendor-trade claims as then reflected in the Debtors' books and records, then
certain creditors can also file and seek
32
<PAGE>
confirmation of a plan of reorganization. The Debtors believe that the proposed
Plan filed herewith is reasonably capable of obtaining financing and is
supported by each of the principal interests in these Chapter 11 cases and
accordingly, complies with the December 22, 1997 Order.
G. Claims Process and Bar Date
Because of the large number of creditors, the Debtors were required to
and did retain Donlin, Recano to receive and process the proofs of claim which
would be filed. The Debtors filed their Schedules of Assets and Liabilities on
October 20, 1995, and Stores amended its schedules on December 18, 1995./3/
Thereafter, by Order dated February 6, 1996, the Bankruptcy Court established
April 1, 1996 as the final time for filing proofs of claim in the Chapter 11
cases (the "Bar Date"). The Debtors, working closely with Donlin, Recano,
served notices of the Bar Date via first-class mail to the creditors and by
publication in four national newspapers: The New York Times (national edition),
------------------
The Wall Street Journal (national edition), The Boston Globe and Women's Wear
- ----------------------- ---------------- ------------
Daily.
- -----
1. Alternative Dispute Resolution Program
--------------------------------------
The Debtors have commenced a claims reconciliation process to resolve
several difficulties frequently encountered in cases of this magnitude,
including ascertaining claims which: (i) are filed in duplicate; (ii) consist of
amendments to previously filed claims; (iii) are asserted against multiple
Debtors; (iv) do not allege an obligation of any of the Debtors; (v) assert
contingent claims against multiple Debtors; or (vi) include postpetition
interest and other disallowable charges. See Section 3.XIV of Disclosure
Statement entitled "Estimation of Claims." Specifically, the Debtors filed a
Motion on August 26, 1996, seeking authorization to establish an Alternative
Dispute Resolution Procedures Program (the "ADR Program") for Personal Injury
and Tort Claims. Under the ADR Program, the Debtors should initially attempt to
settle, through negotiation or mediation, all tort claims. The ADR Program
established steps which the parties must follow in attempting to settle a claim.
By an Order dated September 12, 1996, the Bankruptcy Court authorized the
implementation of the ADR Program. Pursuant to the ADR Program, the Debtors
have filed four Applications for Omnibus Settlement of Personal Injury and Tort
Claims, all of which have been approved by the Bankruptcy Court.
Filing Date of Order Number of Claims Settled
- ---------------------------- ------------- ------------------------
First Omnibus Settlement 10/23/97 50
Second Omnibus Settlement 10/29/97 64
Third Omnibus Settlement 11/17/97 45
- --------------
/3/ The Debtors' schedules of assets and liabilities have been amended various
times to settle injury claims which were late-filed. However, these changes are
de minimis and such amendments were for the convenience of Donlin, Recano to
better track such settlements.
33
<PAGE>
Fourth Omnibus Settlement 2/17/98 55
Fifth Omnibus Settlement 2/24/98 24
Sixth Omnibus Settlement 3/23/98 14
Seventh Omnibus Settlement 7/9/98 17
The Debtors have also obtained approval from the Court for numerous
individual settlements of personal injury claims. To the extent that any
personal injury claims have been allowed, such claims have been allowed against
BSI.
2. Reconciliation of and Objections to Claims
------------------------------------------
Similarly, the Debtors filed a Motion on September 29, 1997, seeking
authorization to establish Procedures for Reconciliation of and Objection to
Claims (the "Procedures"). The Procedures include five steps to be followed in
resolving claims disputes. By an Order of the Court dated October 23, 1997, the
Court authorized the Procedures.
On January 29, 1998 and March 10, 1998, the Debtor, filed First and
Second, respectively, Omnibus Objections to Claims, in which the Debtors sought
to, inter alia, object to certain duplicate and other claims. On May 7, 1998
and June 18, 1998, the Debtors filed the Third and Fourth Omnibus Objections to
Claims, respectively, in which the Debtors sought to, inter alia, reduce and
allow certain claims. On July 17, 1998, the Debtors filed the Fifth and Sixth
Omnibus Objections to Claims, in which the Debtors sought to, inter alia,
expunge certain claims.
3. Reclamation Claims
------------------
During the course of the case, Bradlees had received approximately 290
reclamation demands seeking the return of goods with invoice values totaling
more than $27,400,000, which goods had allegedly been delivered during the
statutory reclamation period. Bradlees believes, however, that the actual
amount of valid reclamation claims is approximately $9.3 million. Certain
vendors proceeded to commence adversary proceedings against Bradlees in an
effort to reclaim their goods. Bradlees desired to adopt a uniform procedure
for determining and settling all reclamation claims, so that litigation
concerning such claims could not continue to interfere with Bradlees'
reorganization efforts.
Accordingly, on or about May 1, 1996, Bradlees filed a Motion with the
Court seeking approval of certain procedures to be used in settling and paying
reclamation claims. The first step of the procedure called for Bradlees to
reach an agreement with its vendors regarding the amount of each reclamation
claim. Once the amount of the claim was agreed upon, vendors holding such
reclamation claims were entitled to select one of two options for payment: (i)
payment in Cash of sixty-five percent of the amount of the reclamation claim
within forty-five days of agreement or approval of agreement, or (ii) an allowed
administrative claim in the full amount of the claim which will be paid pursuant
to the Debtors' Plan of Reorganization.
34
<PAGE>
On November 12, 1996, the Court signed an Order affording the relief
sought in the Motion. Since the Order was signed the Debtors have noticed three
omnibus settlements settling reclamation claims in accordance with the terms of
the above program.
H. Real Estate Transactions
During the latter stages of the Debtors' cases, the Debtors determined
that certain real property which was owned by the Debtors should be sold. Such
properties include (i) a store located in North Attleboro, Massachusetts, (ii)
unimproved real property located in Hempstead, New York and (iii) a store
located in Providence, Rhode Island.
1. North Attleboro, Massachusetts
------------------------------
After receiving an attractive offer for Bradlees' North Attleboro,
Massachusetts store, the Debtors determined in late 1997 that the store in North
Attleboro (the "N.A. Store") should be closed. The N.A. Store's performance was
resulting in marginal cash flow, and the N.A. Store was under intense
competitive pressure from other retailers nearby.
The Debtors applied to the Bankruptcy Court and received authorization
to close the N.A. Store and conduct a going-out-of-business sale. On December
24, 1997, the Debtors filed a motion seeking authorization to sell the N.A.
Store to Beckenstein Enterprises No. Attleboro L.L.C. ("Beckenstein") for a
payment in the amount of $8,400,000, subject to higher or better offers. At a
hearing held on the motion on January 7, 1998, Beckenstein's offer was deemed to
be the highest and best offer and the Bankruptcy Court authorized the sale of
the N.A. Store.
2. Westbury, New York
------------------
The Debtors had originally purchased property in Hempstead, New York
(the "Westbury Property") in 1994 for the purpose of building a new store on the
site. The Debtors' bankruptcy filing affected their plans to expand, however,
and management determined that the Debtors' efforts to reorganize would best be
served by selling the Westbury Property.
In 1996, the Debtors reached an agreement with Ellison Management
Corporation ("Ellison") to sell the Westbury Property to Ellison for
$12,000,000. However, Ellison never consummated the purchase. Pursuant to the
Purchase Agreement, the Debtors retained liquidated damages in the amount of
$1,600,000 which Ellison had provided to the Debtors as liquidated damages.
Following the aborted sale to Ellison, the Debtors resumed their
efforts to sell the Westbury Property. Although the Debtors received several
offers, none were as high as the $12,000,000 offered by Ellison. In mid-1997,
the Debtors received an offer from RM Westbury LLC ("RM") which the Debtors
determined to accept. RM agreed to purchase the "Westbury Property" for
$7,844,150, subject to higher and better offers. At
35
<PAGE>
a hearing held on February 24, 1998, the Westbury Property was sold for the
contract price.
3. Providence, Rhode Island
------------------------
As stated above (see Section 2.IV.C.2, supra), in order to fund future
---
store development, Bradlees entered into an off-balance sheet financing
arrangement. Specifically, in 1994 Bradlees entered into a $75 million lease
financing revolving line of credit (the "Lease Credit Line") with a syndicate of
banks led by Bankers Trust (the "SPE Group"). Two properties, one in
Providence, Rhode Island and one in Philadelphia, Pennsylvania, were financed
through the Lease Credit Line.
Bradlees constructed and opened a Bradlees store in Providence, Rhode
Island and operated the store through September 1996. In August 1996, however,
Bradlees received the Court's authorization to close the store. Immediately
after closing the store, Bradlees began efforts to sell the property. Bradlees
utilized the services of two real estate brokers to assist in marketing the
property. Bradlees received an offer from AAA Southern New England to purchase
the property for $4,250,000.
On April 13, 1998, Bradlees filed a Motion with the Court seeking
authorization to sell the property and to enter into a listing agreement to pay
the real estate broker upon the closing of the sale from the proceeds of the
sale. On May 6, 1998, the Court signed an Order authorizing Bradlees to sell
the Property and pay the commissions to the real estate broker.
4. Philadelphia, Pennsylvania
--------------------------
Bradlees partially constructed a store at the Philadelphia
location,/4/ and, in the first quarter of 1996, decided not to complete such
store. In early 1998, Bradlees' efforts to sell the Philadelphia property were
unsuccessful. Pursuant to a Stipulation and Order entered by the Court on May 5,
1998, Bradlees agreed that if the Philadelphia property was not sold by August
1, 1998, than Bradlees would, inter alia, be deemed to have deeded the
Philadelphia property to State Street Bank and Trust Company. The Philadelphia
property was not sold by August 1, 1998, and pursuant to the Stipulation and
Order, the property was deeded to State Street Bank and Trust Company.
I. Real Estate Leases and Executory Contracts
Prior to the Petition Date and continuing during the pendency of the
Chapter 11 cases, the Debtors have continually conducted reviews and analyses of
their operations, and, specifically, the past and potential contributions of
each store location. As of the Petition Date, the Debtors operated 136 stores.
Due to management's decisions regarding each store's potential profitability,
the Debtors have closed thirty-six stores
- ---------------
/4/ As set forth above, the Philadelphia property, like the Providence property,
was financed through the Lease Credit Line.
36
<PAGE>
while opening three stores, and currently operate 103 stores. As is set forth
below, in order to complete their review and analyses, the Debtors requested, on
several occasions, that the court extend their time, pursuant to Section 365 of
the Bankruptcy Code, to assume or reject certain leases.
1. 365(d)(4) Extension Motion
--------------------------
As of the Petition Date, the Debtors were party to nearly 200 leases
of real property. In order to afford the Debtors an opportunity to review each
of their leases in light of their overall Business Plan and reorganization
prospects, the Debtors filed a Motion on August 3, 1995 (the "August 3, 1995
Motion"), seeking to extend, through the date of confirmation of a plan or plans
of reorganization, the Debtors' time within which to assume or reject such
leases. The vast majority of the landlords under the Debtors' leases did not
object to the motion and, following a hearing, the Bankruptcy Court entered an
Order dated August 16, 1995, extending through confirmation of a plan or plans
of reorganization the Debtors' time to assume or reject their non-residential
leases with respect to the non-objecting landlords. With respect to those
landlords who did object to the motion, the Debtors negotiated with such
landlords and, eventually, settled each such objection. Specifically, the
Debtors and each objecting landlord agreed that the Debtors' time to assume or
reject such leases would be extended through June 30, 1996. The Bankruptcy
Court approved each such settlement (each, a "Landlord Stipulation").
By a Motion dated June 7, 1996, the Debtors again moved the Bankruptcy
Court for the entry of an order extending through the date of confirmation of a
plan or plans of reorganization this time to assume or reject each of the leases
which were the subject of a Landlord Stipulation. The majority of the landlords
under such leases did not object to the relief requested in the motion.
However, three landlords did object and each of their objections were overruled
by the Bankruptcy Court by orders which extended the Debtors' time to assume or
reject such leases through confirmation of a plan or plans of reorganization.
2. Lease Assumptions and Rejections
--------------------------------
As the Debtors have completed their reviews of each individual store,
they have, on several occasions, made determinations as to whether to assume or
reject the various leases. In those situations, the Debtors have filed the
appropriate motions with the Bankruptcy Court seeking such authorization.
(a) Assumptions
The Debtors have been authorized by the Bankruptcy Court to assume two
leases: (i) the lease for the store located in Peabody, Massachusetts, pursuant
to a Stipulation and Consent Order signed by the Bankruptcy Court on November
14, 1995, and (ii) the lease for a second store located in Worcester,
Massachusetts, by Order dated November 21, 1995.
37
<PAGE>
(b) Assumptions and Assignments
With the approval of the Bankruptcy Court, the following leases have
been assigned by the Debtors:
Lease Location Date Assigned
-------------- -------------
Schenectady, NY November 19, 1996
Marlton, NJ January 9, 1997
E. Hanover, NJ January 5, 1997
Montgomeryville, PA December 27, 1996
Troy, NY December 27, 1996
Meriden, CT January 21, 1997
New Hyde Park, NY September 16, 1997
Shrewsbury, MA March 18, 1997
(c) Rejections and GOB Sales
Following the Debtors' review of the leases, the Debtors have decided
to close certain stores and, in certain cases, to reject certain leases. In
connection with this process, the Debtors sought and obtained Bankruptcy Court
authorization to close the stores and conduct going-out-of-business sales (the
"GOB Sales"). For several of the GOB Sales, the Debtors retained consultants to
assist them with such sales. See Section 2.V.D hereof, entitled "Parties in
Interest and Professionals."
The Debtors have received Bankruptcy Court authorization to reject 28
leases as listed below:
Lease Location Lease Type Date Rejected
- -------------- ---------- -------------
Henrico, VA Store August 21, 1995
Cheltenham, PA Store October 23, 1995
Hempstead, NY Store September 1, 1995
73 Baystate Drive, Braintree, MA Office/Warehouse November 15, 1995
38
<PAGE>
Bridgeport, CT Off-site/Warehouse November 15, 1995
Staten Island, NY Store November 30, 1995
Medford, MA Off-site November 15, 1995
Dedham, MA Distribution Facility November 30, 1995
75 Northfield Avenue, Edison, NJ Office/Warehouse March 1, 1996
North Bergen, NJ Store December 14, 1995
106 Northfield Avenue, Edison, NJ Office/Warehouse March 1, 1996
Topsham, ME Store July 1, 1996
N. Windham, ME Store July 1, 1996
Lewiston, ME Store July 1, 1996
N. Brunswick, NJ Store July 1, 1996
Franklin Mills (Philadelphia), PA Store November 4, 1996
Jersey City, NJ Store November 4, 1996
Paramus, NJ Store November 4, 1996
Seekonk, MA Store November 4, 1996
Warwick, RI Store November 4, 1996
Latham, NY Store November 4, 1996
Burlington, NJ Store February 12, 1997
Levittown, PA Store November 4, 1996
Newington, CT Store November 4, 1996
Bensalem, PA Store November 4, 1996
Groton, CT Store March 13, 1998
Allentown, PA Store March 13, 1998
Utica, NY Store March 17, 1998
39
<PAGE>
3. Recharacterization of the SPE Facility
--------------------------------------
Pursuant to a Stipulation and Order Among the Debtors, State Street
Bank and Trust Company, as Owner Trustee, Bankers Trust Company, et al., dated
March 27, 1998 (the "SPE Stipulation"), the SPE Facility was recharacterized to
give effect to its actual substance a loan from the SPE Banks to BSI. In
addition, by virtue of the recharacterization of the SPE Facility, legal title
to the SPE Properties was deemed to vest with BSI, thereby permitting BSI to
sell the SPE Properties, subject to Bankruptcy Court approval. The SPE
Stipulation also addressed the distribution of the proceeds of the sale of
either of the SPE Properties and provided for the reimbursement of eighty
percent of Bradlees' costs, fees and expenses incurred in connection with the
maintenance and preservation of the SPE Properties since the Petition Date.
Finally, the SPE Stipulation limited the amount of the administrative claim that
could be asserted by State Street Bank and Trust Company based upon the SPE
Facility to $100,000, which amount is to be paid from the proceeds of the sale
of the Providence, Rhode Island property. On May 5, 1998, the Court approved
the SPE Stipulation.
4. Executory Contracts
-------------------
(a) Private Label Credit Card Program
---------------------------------
Prior to the Petition Date, the Debtors entered into an agreement with
Citicorp Retail Services, Inc. ("CRS") for the service of the Debtors' private
label credit card program. CRS had been providing the Debtors such services
since 1986 pursuant to a Purchase and Service Agreement dated March 31, 1986.
After the commencement of these Chapter 11 cases, the Debtors determined that
the retention of the private label credit card program was in the best interests
of the Debtors' businesses and estates. However, because the original agreement
had been amended many times and numerous provisions contained in such agreement
were no longer applicable, the Debtors and CRS decided that the original
agreement should be amended and restated before being assumed by the Debtors.
The Debtors negotiated with CRS and prepared an amended and restated agreement.
After the Debtors and CRS finalized the terms of the amended and restated
agreement, the Debtors filed a motion dated November 1, 1995 seeking the
Bankruptcy Court's authorization for the Debtors to assume the agreement with
CRS as amended and restated, and by Order of the Bankruptcy Court dated November
20, 1995, the Bankruptcy Court granted the motion.
The agreement with CRS provided that after July 31, 1998, either
Bradlees or CRS could terminate the agreement upon six months prior written
notice to the other party. In order to provide assurance to both parties
regarding the continuity of Bradlees' credit card program, Bradlees sought to
enter into a new agreement with Citibank (South Dakota), N.A. ("Citibank"), an
affiliate of CRS, which would enable Bradlees to continue its credit card
program on terms that were similar to those contained in the agreement with CRS.
On August 4, 1998, the Debtors filed a motion with the Court seeking
authorization to enter into the agreement with Citibank. On August 17, 1998,
the Court signed an Order approving the agreement with Citibank.
40
<PAGE>
(b) Comdisco and IBM
----------------
On or about May 24, 1996 and June 25, 1996, Comdisco, Inc.
("Comdisco") and IBM Credit Corporation ("IBM"), respectively, filed motions
with the Bankruptcy Court seeking to compel the Debtors to assume or reject
certain equipment leases (the "Equipment Leases") and to pay certain alleged
administrative expenses. The Equipment Leases covered point of sale and related
equipment including cash registers, computer inventory systems, and other point
of sale equipment necessary for the continued operations of the Debtors
(collectively, the "Equipment"). The Debtors were able to negotiate resolutions
with respect to both the Comdisco and IBM motions. Negotiations with Comdisco
ultimately concluded in a settlement agreement, the terms of which were set
forth in a stipulation (the "Comdisco Stipulation") filed with the Bankruptcy
Court and approved on or about December 12, 1996, which allowed the Debtors to
use the Equipment during the 1996 holiday season and provided a means for the
parties to terminate the Comdisco Equipment Lease. The Comdisco Stipulation
provided for the rejection of all the equipment leases between the Debtors and
Comdisco effective as of February 28, 1997. In addition, the Comdisco
Stipulation required the Debtors to make a payment to Comdisco in the amount of
approximately $1.1 million representing all post-petition amounts owed to
Comdisco by the Debtors on account of the equipment leases and set forth
procedures for the return of the equipment to Comdisco.
The Debtors also reached a settlement with IBM for the continued use
of the IBM Equipment. This stipulation (the "IBM Stipulation") was submitted to
the Court and was approved by Order dated December 12, 1996. The IBM
Stipulation provided for the purchase by the Debtors of the IBM equipment for
$1.85 million as well as an additional payment of approximately $1.7 million
representing outstanding post-petition amounts owed to IBM by the Debtors. In
addition, the IBM Stipulation provided for the exchange of general releases by
each party regarding all potential claims (except as enumerated therein) against
the other party arising out of the leases or the equipment, and waiver of all
penalties and interest charges.
The settlements reached by the Debtors with Comdisco and IBM saved the
Debtors approximately $2 million, while maintaining the continuity of the
Debtors' point of sale system.
(c) Ambassador Greeting Cards
-------------------------
Prior to the Petition Date, the Debtors had entered into a contract
with The Ambassador Division of Hallmark Marketing Corporation ("Ambassador"),
under which Ambassador was required to supply Bradlees with greeting cards and
related products for sale in all of Bradlees' stores. During the Debtors'
Chapter 11 case, the Debtors had become dissatisfied with the service they
received from Ambassador.
Accordingly, on July 31, 1998, Bradlees filed a Motion with the Court
seeking authorization to reject the contract with Ambassador. On August 13,
1998, the Court entered an Order authorizing the rejection of the contract with
Ambassador.
41
<PAGE>
Bradlees has entered into an agreement with American Greeting Corporation, under
which American Greeting Corporation has replaced Ambassador as Bradlees' primary
supplier of greeting cards.
J. Vendor Relations
Immediately after the Petition Date, the Debtors sought to re-
establish good relationships with vendors. As part of this process, the Debtors
undertook several initiatives:
1. Merchandise Return Programs
---------------------------
Historically, vendors accepted returns of goods that were: (1) out
of season; (2) skewed the balanced mix of sizes and colors; (3) were slow to
sell; (4) were damaged; or (5) did not conform to the Debtors' purchase orders.
However, after the Debtors filed for Chapter 11 protection, they were required
- -- absent authority from the Bankruptcy Court -- to suspend their regular
merchandise return programs in respect of goods that had been delivered
prepetition. Merchandise vendors were also unwilling to accept returns of
prepetition merchandise for credit against postpetition invoices. As a result,
unwanted and unsellable merchandise accumulated. The Debtors' inability to
return these unwanted goods for credit severely limited the Debtors' access to a
new supply of fresh and sellable goods, thereby hampering the Debtors' ability
to compete effectively with other retailers. To alleviate this problem, the
Debtors formulated a merchandise return program with its vendors, which program
was approved by the Bankruptcy Court pursuant to interim and final Orders dated
August 2 and 22, 1995, respectively. The implementation of the merchandise
return program enabled the Debtors to stock its stores with fresh sellable
merchandise.
2. Payment for Goods Delivered Post-Petition
-----------------------------------------
Prior to the Petition Date, the Debtors had numerous purchase
orders outstanding. However, many vendors who had received such purchase orders
declined to fill them because, as they advised the Debtors, they feared that
their claims for payment for goods they had shipped after the Petition Date
would be relegated to a prepetition claim. To allay these fears, the Debtors
sought and obtained Bankruptcy Court authorization pursuant to an order dated
July 6, 1995, to treat obligations with respect to goods delivered after the
Petition Date as administrative claims payable in the ordinary course of
business.
K. Employee Benefits
The commencement and continuation of the Chapter 11 cases led, not
unexpectedly, to uncertainty among the Debtors' employees regarding their future
with the Debtors. The Debtors found it increasingly difficult to retain key
personnel given the uncertainties which necessarily attend a restructuring
pursuant to a Chapter 11 proceeding. The Debtors realized that the departure of
experienced employees would significantly impair their ability to successfully
reorganize and would dampen employee
42
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morale. As such, after the Petition Date, the Debtors took numerous steps to
reduce departures and improve employee morale:
1. Wages and Benefits
------------------
On the Petition Date, the Debtors sought and the Bankruptcy Court
entered an Order authorizing the Debtors to pay certain prepetition employee
obligations in the nature of wages, salary and other compensation earned within
the ninety days prior to the Petition Date and to honor certain employee
reimbursement requests incurred in a manner consistent with the Debtors'
prepetition practices and policies. The Debtors were also authorized to
continue to honor and pay all employee benefit plans and policies for medical,
dental, disability and other types of insurance.
2. Workers' Compensation
---------------------
Prior to the Petition Date, the Debtors were self-insured for workers'
compensation coverage in seven of the nine states in which they operated. The
Debtors were concerned that their Chapter 11 filings would affect their
continued ability to remain self-insured for workers' compensation coverage.
After researching the issue, the Debtors determined that it was vital that they
continue to pay pre-petition workers' compensation claims, or they would risk
losing their right to self-insure -- and lose the attendant cost savings.
Accordingly, the Debtors sought and obtained authorization from the Bankruptcy
Court by Order dated July 6, 1995 to pay such claims in an aggregate amount not
to exceed $2,000,000.
3. Employee Bonuses/Retention Policy
---------------------------------
Shortly after the Debtors filed their Chapter 11 petitions, on or
about September 22, 1995, the Debtors moved, inter alia, for an order approving
and amending the Debtors' pre-petition employee incentives programs so as to
provide a select group of the Debtors' employees with certain incentives, such
as bonuses, in addition to their base salaries, in order to encourage a higher
level of performance and continued employment throughout the Chapter 11 cases.
Several creditor constituencies objected to the motion on the grounds that the
bonuses to be paid under the programs were unduly high and not sufficiently tied
to the Debtors' performance/5/. This motion was granted by Orders of the
Bankruptcy Court dated October 24, 1995 and November 14, 1995 after the Debtors
reached a compromise with the objecting creditor groups. Specifically, two
general employee incentive programs were approved: (1) the Enterprise
Appreciation Incentive Plan (which covers the CEO, COO, CFO and members of the
Senior Management Group, as defined within the program) and provides cash
benefits measured by the growth in the value of the Debtors from the date of
grant to the cash-out date; and (2) the Retention Bonus Plan which provided for
an annual cash payment to selected upper and mid-level
- --------------------------
/5/ The creditors' objections were primarily directed at the compensation
of Mark Cohen. (See Section 2.V.L.7 of the Disclosure Statement).
43
<PAGE>
employees, which payments were contingent upon a certain threshold performance
by the Debtors and continued employment of such employees with the Debtors.
On or about March 27, 1997, the Debtors moved to replace the Retention
Bonus Plan, with a "Corporate Bonus Plan" that provides annual bonuses to
certain eligible employees based upon the Debtors' performance as established in
their business plan and the eligible employee's performance review. Under the
Corporate Bonus Plan, the Debtors had to attain a minimum level of EBITDA of $28
million for the 1997 fiscal year before any employees are eligible for bonuses.
The EBITDA target was fixed by Bradlees' Board of Directors with input from the
Debtors' creditor constituencies. A "Discretionary Fund" in the amount of
$500,000 was also established to enable the Debtors to compensate an employee
solely based upon the employee's superior performance (therefore, even if the
Debtors were not to meet the minimum level of EBITDA or if an employee were not
otherwise eligible for a bonus under the plan, the Debtors can still provide a
bonus to recognize an employee's superior performance as an incentive for
maintenance of that performance level). As with the Retention Bonus Plan, under
the Corporate Bonus Plan, the CEO, the COO and members of the Senior Management
Group are subject to a 25% holdback on all the bonuses, which will be paid upon
the earliest of the date of substantial consummation of the plan or plans of
reorganization or the date of the termination of employment "without cause," as
that term is defined under the program.
The Debtors met their minimum EBITDA level for 1997 and paid bonuses
in 1998, in respect of the prior fiscal year, in the aggregate amount of
approximately $3.9 million.
4. Medical Benefits
----------------
Prior to the Petition Date, Blue Cross and Blue Shield of
Massachusetts ("Blue Cross") provided administrative services to the Debtors
under a self-insured plan called the Blue Cross and Blue Shield Indemnity
Medical Benefits Plan (the "Indemnity Plan"). Blue Cross received and processed
medical claims submitted by the Debtors' employees and then made appropriate
payments either to the employees or directly to the medical service providers.
The Debtors in due course reimbursed Blue Cross and were charged an
administrative fee of approximately $1.4 million. After the Petition Date,
however, the Debtors determined that it was in their best interests, both
economically and administratively, to discontinue the Indemnity Plan and enter
into a new point of service medical benefits plan with Blue Cross (the "POS
Plan"). The Debtors sought authorization from the Bankruptcy Court (i) to enter
into the POS Plan which would cover approximately 2,000 of the Debtors'
employees and, (ii) in connection with the approval of the new plan, to
reimburse Blue Cross for payments it made under the Indemnity Plan for medical
benefits that accrued prepetition but were not reported and paid by Blue Cross
until after the commencement of the Debtors' Chapter 11 cases. On July 30,
1996, the Bankruptcy Court entered an order approving the POS Plan and
authorizing the Debtors to make the requested payment to Blue Cross.
44
<PAGE>
5. Collective Bargaining Agreements
--------------------------------
During the course of the Debtors' Chapter 11 cases, several of the
collective bargaining agreements ("CBA") between the Debtors and the various
unions expired. Following negotiations with union representatives, the Debtors
have, on several occasions, requested and obtained authorization from the
Bankruptcy Court to enter into new CBAs with the various unions:
(a) United Food and Commercial Workers Local 72
-------------------------------------------
Approximately 140 employees at two of the Debtors' stores were members
of the United Food and Commercial Workers Local 72 ("Local 72"). A prior CBA
with Local 72 had expired on February 5, 1995. In a Motion dated July 12, 1996,
the Debtors sought authority to enter into a new CBA which was in large measure
consistent with the Debtors' pre-petition CBA. However, the new CBA authorized
the Debtors to pay retroactive salary increases not exceeding $20,000, a portion
of which accrued pre-petition. On July 30, 1996, the Bankruptcy Court entered
an Order authorizing the Debtors to enter into the CBA with Local 72.
(b) United Food and Commercial Workers
Locals 56, 1500 (North), 1500 (South) and 1776
----------------------------------------------
Approximately 1,578 employees (the "UFCW Employees") -- consisting of
359 full-time and 1,219 part-time employees -- at seventeen of the Debtors'
stores were members of the United Food and Commercial Workers ("UFCW") Locals
56, 1500 (North), 1500 (South) and 1776. The UFCW Employees were employed
pursuant to four CBAs, which the Debtors had entered into pre-petition.
On March 7, 1997, the Debtors sought entry of an Order approving and
authorizing the Debtors to enter into new CBAs with these four UFCW local
unions.
The new CBAs differed from the prior CBAs in that the new CBAs
contained provisions for (a) severance payments and (b) establishment of certain
privileges enabling an employee to transfer to another store, both being
effective only in the event that the Debtors closed any of the stores at which
the UFCW Employees were employed. By Order dated March 18, 1997, the Bankruptcy
Court granted the Debtors' motion.
(c) Refrigeration, Air Conditioning and Oil Burner Division of
Local 537 of the United Association of Journeymen and
Apprentices of the Plumbing and Pipe Fitting Industry of
the United States and Canada, AFL-CIO
----------------------------------------------------------
Approximately 20 of the Debtors' employees in the Debtors'
headquarters and warehouse were members of the Refrigeration, Air Conditioning
and Oil Burner Division of Local 537 of the United Association of Journeymen and
Apprentices of the Plumbing and Pipe Fitting Industry of the United States and
Canada, AFL-CIO ("Local
45
<PAGE>
537"), and were employed pursuant to a CBA which the Debtors had entered into
pre-petition. The CBA expired on April 26, 1997.
The Debtors filed an Application dated June 13, 1997 seeking approval
to enter into the new CBA. The new CBA was substantially similar to the prior
CBA but provided for modest increases in wages and pension payments, which were
consistent with those provided in previous contracts. In addition, the increase
in pension payments contemplated by the new CBA would not be effective until
January 1, 1999, and only for future years of service. By Order dated June 25,
1997, the Bankruptcy Court authorized the Debtors to enter into the new CBA with
Local 537.
(d) International Brotherhood of Teamsters,
Teamster Local Union Number 25
--------------------------------------
Approximately 202 employees were employed at the Debtors' distribution
facility in Braintree, Massachusetts, pursuant to a pre-petition CBA with the
International Brotherhood of Teamsters, Teamster Local Union Number 25 ("Local
25"), which expired on January 18, 1997.
By Motion dated August 1, 1997, the Debtors sought authorization to
enter into a CBA with Local 25. The new CBA was substantially similar to the
prior CBA. Wage increases and other payments contemplated by the new CBA were
expected to increase only modestly under the new CBA. Certain provisions of the
new CBA also promoted and enhanced the flexibility of the Debtors' operations.
In particular, the new CBA reduced the number of official company holidays and
reduced "functional reporting areas" of the facilities for full-time employees
from seven to five areas, which translated into a reduced need for supervisors.
In addition, the new CBA reduced the guaranteed minimum number of hours for
weekend and holiday overtime for full-time and part-time employees by three and
two hours, respectively. By Order dated August 12, 1997, the Bankruptcy Court
granted the Debtors' motion.
(e) United Food and Commercial Workers International Union,
Local Union Numbers 328 and 1445
--------------------------------
Approximately 658 employees -- consisting of 267 full-time and 391
part-time employees -- were members of the United Food and Commercial Workers
International Union, Local Union Number 328 ("Local 328"). Similarly,
approximately 1644 employees -- consisting of 602 full-time and 1042 part-time
employees -- were members of the United Food and Commercial Workers
International Union, Local Union Number 1445 ("Local 1445"). The terms of the
CBAs with Local 328 and Local 1445 expired on June 13, 1998.
On August 24, 1998, the Debtors filed a motion seeking the entry of an
order approving and authorizing the Debtors to enter into new CBAs with Local
328 and Local 1445. The new CBAs were substantially similar to the prior CBAs,
but provided for, inter alia, modest increases in wages and lump sum longevity
payments. The Motion was approved by the Court on September 10, 1998.
46
<PAGE>
L. Significant Litigation and Settlements
The Debtors have been involved in various litigations and settlements
since the Petition Date. The majority of the litigation arose from disputes
with the Debtors' various landlords. The following summarizes the significant
litigations and settlements:
1. Westbury
--------
In November 1995, Westbury Real Estate Ventures, Inc. ("Ventures")
commenced an adversary proceeding against the Debtors seeking (i) specific
performance of an alleged option agreement to sell the Debtors' Westbury, New
York property (the "Westbury Property") to Ventures, (ii) an order enjoining the
Debtors from transferring the Westbury Property to any other party and (iii) an
administrative claim against the Debtors in an amount of not less than $5
million. Because the Debtors wished to sell the Westbury Property and had
located a willing buyer, the Debtors sought to dispose of the adversary
proceeding quickly by moving for dismissal with prejudice of the complaint, or
in the alternative, the awarding of summary judgment to the Debtors. The
Bankruptcy Court, in a published decision, granted the Debtors' motion to
dismiss. See Westbury Real Estate Ventures, Inc. v. Bradlees, Inc. (In re
----------------------------------------------------- -----
Bradlees Stores, Inc.), 194 B.R. 555 (Bankr. S.D.N.Y. 1996) (the "Memorandum
- ----------------------
Decision").
Thereafter, after failing in attempts to have the Bankruptcy Court
reconsider its decision, on July 24, 1996, Ventures filed an appeal of the
Bankruptcy Court's decisions to the United States District Court for the
Southern District of New York. The Debtors asserted that the District Court
should not hear the appeal because the Bankruptcy Court's decision was
interlocutory. In addition, the Debtors argued that the Bankruptcy Court
correctly dismissed Ventures' Complaint on Rule Against Perpetuities grounds.
On July 25, 1997, the District Court issued an order dismissing Ventures'
appeal. See Westbury Real Estate Ventures, Inc. v. Bradlees, Inc. (In re
----------------------------------------------------- -----
Bradlees Stores, Inc.), 210 B.R. 506 (S.D.N.Y. 1997).
- ----------------------
2. Cardiff
-------
On November 13, 1995, Cardiff Associates, L.P. ("Cardiff") filed a
motion seeking to compel the Debtors to shorten the time within which to assume
a non-residential real property lease with Cardiff (for the premises located at
Cardiff Circle Shopping Center, Egg Harbor Township, New Jersey) to December 31,
1995. The Debtors opposed the motion and following a hearing held on December
7, 1995, the Bankruptcy Court denied Cardiff's motion. On December 18, 1995,
Cardiff filed a Motion for Reconsideration, which Cardiff subsequently withdrew.
3. White City
----------
On or about November 22, 1995, White City Shopping Centers, L.P.
("White City") filed an Application seeking relief from the automatic stay or,
alternatively, requiring the Debtors to provide White City with adequate
protection for the Debtors' continued use of the premises. White City was the
owner of property located
47
<PAGE>
at 50 Boston Turnpike, Shrewsbury, Massachusetts. The Debtors were "anchor
tenants" in the shopping center on the property under a lease dated August 8,
1962 (the "White City Lease"). White City alleged that the Debtors had failed to
meet its maintenance obligations in violation of the White City Lease, and White
City was, therefore, entitled to relief from the automatic stay to evict the
Debtors. On January 5, 1996, the Debtors filed an objection to the Application
of White City, arguing that (i) the Debtors were current on their postpetition
rent and maintenance obligations at the store, so there was no postpetition
default under the lease, (ii) certain of the conditions about which White City
complained existed prepetition and were not subject to Section 365(d)(3) of the
Bankruptcy Code, and (iii) in the alternative, the requested repairs were not
"obligations" within the meaning of that term under Section 365(d)(3) of the
Bankruptcy Code. The Bankruptcy Court denied White City's efforts to terminate
the lease.
On October 4, 1996, White City again filed a motion with the
Bankruptcy Court seeking an order shortening the Debtors' time to assume or
reject its unexpired nonresidential real property lease with White City or, in
the alternative, an order granting relief from the automatic stay. The White
City Lease provided that if the Debtors ceased operating at the store for six
months, the landlord could terminate the lease at any time after the expiration
of the six month period (the "Go Dark Provision"). The Debtors had closed the
White City store on or about March 1, 1996, and consequently had ceased
operations at that location. White City requested an order either shortening
the Debtors' time to assume or reject the lease or, alternatively, an order
lifting the stay to allow White City to proceed with eviction proceedings in
state court because the Debtors had been closed for over six months.
On December 9, 1996, the Debtors filed an Objection to the motion of
White City, arguing that White City should be denied its request for two
reasons. First, the Go Dark Provision conflicted with the policies behind
Section 365 of the Bankruptcy Code and did not create an obligation that must be
timely performed under Section 365(d)(3) of the Bankruptcy Code. Second,
contrary to White City's allegations, neither White City nor the tenants of
White City were being materially harmed by the closing of the store.
At a hearing to consider the Motion, the Bankruptcy Court established
a "drop dead" date of February 28, 1997 for the Debtors to file a motion to
assume or assign the lease. If no motion were filed by such date, the lease
would be deemed rejected. The Debtors subsequently filed an Order to Show Cause
seeking a hearing to consider an extension of the Debtors' time to assume or
reject the lease.
The Debtors finally determined to assign the lease back to White City.
Pursuant to an Order dated March 18, 1997, the Debtors were authorized to assign
the lease to White City.
4. Vornado
-------
The Debtors were party to twenty-one leases with Vornado Realty Trust
("Vornado") covering twenty-one of the Debtors' stores. Nineteen of the leases
were
48
<PAGE>
assigned to the Debtors in 1992 by Stop & Shop. To overcome the objections of
Vornado regarding such assignment, prior to the Petition Date, Vornado, the
Debtors, and Stop & Shop entered into a Master Agreement and Guaranty (the
"Lease Modification Agreement") pursuant to which, inter alia, (i) Vornado
authorized the assignment of the leases and (ii) the leases were modified in
certain respects. Among the modifications to the nineteen underlying leases,
Vornado purported to impose certain restrictions on the Debtors' ability to
assume, assign, or reject one or more of the leases.
The Debtors commenced an adversary proceeding on October 10, 1996
against Vornado and Stop & Shop seeking, inter alia, (i) a declaration that
certain provisions of the Lease Modification Agreement were invalid and (ii) the
award of certain monetary damages. In addition, on October 14 and 24, 1996,
respectively, the Debtors filed two motions seeking to (a) assume and assign one
lease with Vornado, (b) reject three leases with Vornado and (c) have declared
invalid certain provisions of the Lease Modification Agreement.
The Debtors and Vornado settled their disputes on terms set forth in
the Stipulation and Order, which was approved by the Bankruptcy Court on
December 23, 1996. In particular, the parties agreed that the adversary
proceeding should be dismissed without prejudice, the Debtors could assume and
assign one lease and reject three others, and certain ground rules for
addressing future dispositions of the remaining leases should be implemented.
The settlement allowed the Debtors to close the assignment of one lease for $1.0
million, and to cease lease and other related payments for several non-operating
stores.
5. Tomarc
------
On August 14, 1996, The Tomarc Company ("Tomarc"), the lessor of
property leased in Clark, New Jersey (the "Clark Lease"), filed a Motion seeking
an Order compelling the Debtors to reject the Clark Lease or, in the
alternative, deeming the Clark Lease rejected. Tomarc purportedly sought such
relief because (i) the insurance which the Debtors maintained with respect to
the property was inadequate and (ii) the Debtors did not adequately maintain the
property. The Debtors opposed Tomarc's Motion and following a hearing before
the Bankruptcy Court, the Bankruptcy Court issued a Memorandum Decision and
Order Denying Landlord's Motion to Compel Debtors to Reject Lease or Deem Lease
Rejected dated December 30, 1996.
On January 21, 1997, Tomarc filed a Motion to Deem the Extension of
the Lease Invalid and the Lease Terminated, and, to the Extent Not Granted, to
Compel the Debtors to Assume or Reject the Lease Prior to Confirmation of a
Plan. On February 28, 1997, the Debtors filed a Motion for Summary Judgment,
asserting that Tomarc's motion should be denied because (i) it was procedurally
improper because Tomarc could only obtain the declaratory relief it sought
through an adversary proceeding, (ii) the motion was untimely, and (iii) the
Bankruptcy Court had already denied the requested relief. In a Memorandum
Decision and Order dated October 9, 1997, the Bankruptcy Court granted summary
judgment in favor of the Debtors as to that part of Tomarc's motion seeking to
deem the extension of the lease invalid. The Bankruptcy Court, however, denied
the
49
<PAGE>
Debtors' motion for summary judgment as to that part of Tomarc's motion seeking
to shorten the Debtors' time to assume or reject the lease. The Bankruptcy Court
held that there was an outstanding question of fact whether the uncertainty of
the Debtors' continued tenancy was adversely impacting Tomarc's ability to
obtain new financing which precluded the granting of summary judgment.
6. Ventnor
-------
On May 2, 1997, Ventnor Plaza Company ("Ventnor") filed a motion with
the Bankruptcy Court seeking relief from the automatic stay. Ventnor was the
owner of a community shopping center located in Ventnor City, New Jersey. The
initial term of Bradlees' lease with Ventnor (the "Ventnor Lease") expired on
April 30, 1997, but contained five options to renew for five consecutive five-
year terms, provided that the option was exercised by giving notice to Ventnor
at least six months before the expiration of the term in effect. The exercise of
the option was conditioned upon (a) the tenant's exercise of all prior options,
and (b) there being no existing material default at the time of the exercise.
At least six months prior to the expiration of the Ventnor Lease, the Debtors,
by a letter dated October 18, 1996, attempted to exercise the option to extend
the lease for an additional five-year period. Ventnor argued that the option to
renew could not be exercised by the Debtors because there existed material pre-
and post-petition defaults under the lease. Specifically, Ventnor alleged that
the Debtors had not paid their management fee portion of the cost of operating
and maintaining the common facilities. Ventnor requested relief from the stay
to allow Ventnor to commence appropriate proceedings either in the Bankruptcy
Court or in a state court having jurisdiction over the property, in order to
terminate the Debtors' possession and occupancy of the property.
On July 31, 1997, the Debtors filed a Preliminary Objection to
Ventnor's motion, asserting that Ventnor's motion should be denied for numerous
reasons, including: (i) under the terms of the Ventnor Lease, the Debtors had no
obligation to pay the management fee, (ii) even if such an obligation existed,
Ventnor had waived any contractual right to the management fee by failing to
seek to collect it for almost twelve years, (iii) the Debtors actually paid what
they believed was the post-petition amount of the disputed management fee in
October 1996 at the time of the lease extension, (iv) even if the Debtors were
in default, it was not a "material default" to invalidate the extension, and (v)
even if a "material default" did exist, Ventnor waived any right to object to
the Debtors' lease extension by accepting the Debtors' rent payments for six
months after the Debtors extended the term of the lease. As of the date hereof,
the matter is still pending before the Court.
7. Mark Cohen Settlement
---------------------
Mark Cohen served as the Debtors' Chairman and CEO until the Board of
Directors voted on December 24, 1996 to relieve him of his duties. He had
entered into a pre-petition employment contract with the Debtors dated December
3, 1994, which contract was assumed, as modified, by agreement among the
creditor constituencies and
50
<PAGE>
approved, as amended, by the Bankruptcy Court by Order dated October 24,
1995/6/. Under the terms of Mr. Cohen's amended employment contract, the Debtors
were required to issue a letter of credit (the "Letter of Credit") after his
departure in the amount of $5.0 million. After issuance of the Letter of Credit,
Mr. Cohen thereafter drew the amount of $5.0 million.
Subsequent to his departure, disputes arose between Mr. Cohen, the
Debtors and certain creditor constituencies, regarding such issues as the amount
of severance payments, bonus and salary payments, retirement benefits and other
monetary benefits to which Mr. Cohen was entitled pursuant to the terms of his
employment contract. After extensive negotiations, the Debtors subsequently
entered into a confidential stipulation with Mr. Cohen which, upon approval by
the Bankruptcy Court, would have settled their disputes. On May 19, 1997, the
Debtors sought Bankruptcy Court approval for the terms of their settlement.
However, disputes arose among the Debtors and their creditor constituencies,
with certain creditor groups objecting to the terms of the settlement reached by
the Debtors and Mark Cohen. The matter was ultimately referred by the
Bankruptcy Court to mediation by Order dated July 2, 1997 and Thomas J. Moloney,
Esq., was appointed the mediator. Mediation sessions commenced in early July
1997. Eventually as a result of the mediation, the parties reached an agreement
on the appropriate severance benefits to which Mr. Cohen was entitled. This
settlement which was filed with the Bankruptcy Court under seal was approved by
Order of the Bankruptcy Court dated October 6, 1997.
8. Sybase
------
On or about March 25, 1994, Bradlees Stores, Inc. entered into a
software licensing agreement with Sybase, Inc. ("Sybase") under which Sybase
agreed to provide software which Bradlees intended to use as a key part of its
enterprise-wide client/server computing environment and which was anticipated to
support all aspects of Bradlees' business. However, the Sybase software was
incompatible with other software used by Bradlees and therefore did not perform
as Bradlees had expected. Accordingly, on June 10, 1997, Bradlees commenced a
lawsuit in the United States District Court for the District of Massachusetts
seeking damages from Sybase as well as an Order rescinding the contract.
On April 9, 1998, Bradlees filed with the Court a Motion seeking to
have the Sybase litigation assigned to mediation. Bradlees argued that
mediation was necessary because the Sybase litigation was languishing in the
Massachusetts District Court, and there was little prospect of the Sybase
litigation concluding at any time in the near future. On May 5, 1998, the Court
entered a Stipulation and Order referring the Sybase litigation to mediation.
As a result of the mediation process, Bradlees and Sybase
- ------------------------
/6/ The creditor constituencies had objected to the terms of his contract
arguing that they were overgenerous and above the market norm for positions in
the retail industry.
51
<PAGE>
reached a settlement of their dispute, the terms of which were set forth in a
Settlement Agreement.
On August 4, 1998, Bradlees filed a Motion with the Court seeking
approval of the Settlement Agreement, and on August 25, 1998, the Court entered
an order approving the settlement agreement.
9. Homart
------
Among Bradlees' assets is a certain sublease under which Bradlees
leases a store located in Framingham, Massachusetts. The landlord of the
overlease is Sears Development Corporation, formerly known as Homart Development
Company ("Sears"). On March 31, 1995, Bradlees commenced a civil action in the
United States District Court for the District of Massachusetts alleging that
Sears had breached the overlease. Sears defended its actions on the grounds
that Bradlees' use of the premises was not a permitted use under the overlease
because Stop & Shop was no longer the tenant under the overlease.
On October 31, 1997, Bradlees filed a Motion with the Bankruptcy Court
seeking to enjoin Sears from continuing to contest the validity of Bradlees
sublease because such action violates the automatic stay and could have a
collateral estoppel effect should Bradlees seek in the future to assume and
assign the sublease. After Sears responded to the Motion, the Court directed
the parties to mediation.
Following numerous mediation sessions over a two-month period,
Bradlees and the other parties reached an agreement. On April 8, 1998, Bradlees
filed a Motion seeking approval of a settlement among Bradlees, Sears, and
Shoppers World Community Center, L.P. ("Shoppers World"). The settlement
resolved all of the disputed matters between the parties. Under the settlement,
inter alia, Sears agreed to pay Bradlees $600,000 in full settlement of its
claims against Sears, and Shoppers World agreed to recognize Bradlees' occupancy
of the Framingham Store. On May 5, 1998, the Court signed an Order approving
the Settlement.
M. The IPO Investigation
1. The Investigation
-----------------
Throughout these Chapter 11 cases, the series of transactions which
culminated in the IPO and the Spin-Off were the subject of discussions among the
Debtors and various interested creditor constituencies. The discussions focused
on the possible existence of causes of action against third parties and the
validity of certain intercompany claims which arose as a result of the Spin-Off.
As of the Petition Date, the operating subsidiaries of Bradlees, Inc.
owed Bradlees, Inc. approximately $281.8 million resulting from the IPO and
Spin-Off. This intercompany debt was composed of three components:
52
<PAGE>
(a) $104.6 million in proceeds from the Term Loan related to the
Spin-Off "downstreamed" by Bradlees, Inc. to the operating
subsidiaries.
(b) $100 million related to the repayment by Bradlees, Inc. of
the Stop & Shop Subordinated Note given in satisfaction of
debt originally owed by NE Holdings to Stop & Shop.
(c) $93.5 million relating to the amount of proceeds from the
Revolver Facility that had been downstreamed by Bradlees,
Inc. to the subsidiaries for their operation.
At a chambers conference on August 8, 1995, the Bankruptcy Court, in
an effort to avoid duplication of work by professionals, directed that one
fiduciary of the Debtors' estates conduct a thorough legal and factual
investigation into whether the estates had any causes of action arising out of
the Spin-Off. The parties agreed that the Debtors' professionals, Dewey
Ballantine LLP and Zolfo Cooper, LLC, would conduct the investigation and report
their findings to the other parties. Accordingly, a thirteen-month
investigation followed.
As part of the investigation, the Debtors' professionals engaged in
extensive research regarding at least ten potential theories of recovery.
Following the investigation, the professionals concluded, in a 162-page report,
that the Debtors had no viable claims against third parties arising out of the
Spin-Off and that the debt incurred by the Debtors in connection with the Spin-
Off was not avoidable under Sections 544 or 548 of the Bankruptcy Code. The
investigation did conclude, however, that the intercompany debt, while valid on
its face, may be susceptible to challenge by creditors of Bradlees Stores, Inc.,
on various theories -- including recharacterization of the debt as equity or the
subordination thereof.
2. Request for an Examiner
-----------------------
On May 22, 1997, the Unofficial Committee filed a motion (the
"Examiner Motion") requesting an order directing the appointment of an examiner
pursuant to Section 1104(c) of the Bankruptcy Code to: (i) re-examine the
possible claims which arose from the Spin-Off and (ii) prosecute any litigation
on behalf of Bradlees Stores, Inc.
The Debtors, and nearly every other interested party/7/, filed
objections to the Examiner Motion arguing that the initial investigation was
sufficient and that the Claims Traders had waived their right to be heard by
their own delay. Following a hearing before the Bankruptcy Court on June 4,
1997, the Bankruptcy Court issued an
- ---------------------------
/7/ Among the parties objecting to the Examiner Motion were the Senior
Bank Agent, State Street Bank and Trust Company, the Creditors' Committee and
Stop & Shop.
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opinion in which it denied the motion to appoint an examiner. See In re Bradlees
--------------
Stores, Inc., 209 B.R. 36 (Bankr. S.D.N.Y. 1997). On June 13, 1997, the Claims
- -----------
Traders filed a Notice of Appeal, appealing the Bankruptcy Court's decision to
the United States District Court for the Southern District of New York. The
Unofficial Committee requested several adjournments of the hearing to consider
its appeal, and as of the date of the Disclosure Statement, the District Court
has not heard oral argument on the appeal.
N. The Tolling Agreements
After extensive review and research regarding potential avoidance
actions pursuant to Sections 547 and 553 of the Bankruptcy Code, the Debtors
determined that they were not in a position to commence any actions prior to the
expiration of the two year statute of limitations under Section 546(a) of the
Bankruptcy Code/8/. The Debtors believed that commencement of avoidance actions
at that time would have complicated plan negotiations and prematurely affected
the ultimate structure of the Debtors' plan or plans of reorganization while
diverting the Debtors' valuable time and resources at a crucial time in the
Debtors' Chapter 11 cases. In addition, the Debtors reasoned that if the
avoidance actions were commenced, the vendor constituencies' willingness to
extend trade credit to the Debtors may be impaired.
Accordingly, the Debtors and the Creditors' Committee determined that
the Debtors should enter into tolling agreements with individual creditors who
were determined to have received potentially significant avoidable transfers.
After an analysis by the Debtors and their professionals, the Debtors identified
the major creditors and insiders who may have potentially received avoidable
transfers. The Debtors subsequently entered into eighteen individual tolling
agreements with those identified creditors and insiders, including an inter-
company tolling agreement by and among the individual Debtors themselves.
However, to enter into individual tolling agreements with all of the
creditors who may have potentially received any avoidable transfers would have
been prohibitively expensive and impractical. Accordingly, on or about May 7,
1997, the Debtors and the Creditors' Committee jointly moved under Section
105(a) of the Bankruptcy Code to extend the statute of limitations under Section
546(a) of the Bankruptcy Code with respect to non-intercompany actions to the
later of either (a) 90 days after the date of the consummation of the Debtors'
plan or plans of reorganization or (b) June 23, 1998. This joint motion was
granted by the Bankruptcy Court by Order dated June 9, 1997.
Two of the individual tolling agreements -- the inter-company tolling
agreement by and among the individual Debtors themselves and the tolling
agreement
- -----------------------
/8/ Pursuant to Section 546(a), the Debtors had until two years after the
Petition Date, or June 23, 1997, to commence avoidance actions pursuant to,
inter alia, Sections 547 and 553 of the Bankruptcy Code.
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with the OBS Bank Group -- were set to expire on June 23, 1998. Accordingly, in
June 1998, the Debtors sought to extend such tolling agreements.
On June 5, 1998, the Debtors filed a motion seeking approval of a
Stipulation, pursuant to which, each of the Debtors agreed to further toll the
statutes of limitations for all causes of action, if any, specified in Section
546(a) of the Bankruptcy Code which one Debtor might bring against one or more
of the other Debtors. The Debtors sought to extend the statute of limitations
until the earlier of June 23, 1999 or the effective date of a plan of
reorganization. On June 10, 1998, the Court approved and signed the tolling
stipulation.
Similarly, in order to further toll the statute of limitations for all
avoidance claims which the Debtors could assert against the OBS Bank Group, and
with respect to any counterclaims which could be raised by the OBS Bank Group,
the Debtors prepared a tolling stipulation which further tolled the statute of
limitations until July 31, 1998. On June 23, 1998, the Court approved the
tolling stipulation.
At the end of July 1998, the tolling stipulation was once again set to
expire. Accordingly, the Debtors prepared a new tolling stipulation further
tolling the statute of limitations until the earlier of confirmation of a plan
of reorganization or September 30, 1998. On July 29, 1998, the Court approved
the tolling stipulation.
O. Debtors' Common Stock
Since the IPO, the Debtors' common stock (NYSE Symbol: BLE) was listed
on the New York Stock Exchange. As of April 1, 1998, the Debtors' common stock
was held by approximately 669 shareholders. Since the IPO, the Debtors' common
stock traded in the following price ranges:
Year High Low
---- ---- ---
7/10/92 - 1/30/93 $20.13 $10.63
Year Ended 1/29/94 $19.25 $11.00
Year Ended 1/28/95 $17.25 $10.00
Year Ended 2/3/96 $12.00 $0.88
Year Ended 2/1/97 $2.50 $0.62
Year Ended 1/31/98 $1.00 $0.03
In May of 1997, the Debtors issued a statement that the Debtors
expected to issue new stock and cancel its current common stock pursuant to any
plan of reorganization that they might file. As a result of the announcement
and the Debtors' inability to meet certain New York Stock Exchange listing
criteria -- including net tangible assets, net income and value of all
outstanding stock -- the New York Stock Exchange suspended trading in the
Debtors' common stock, and the stock was subsequently delisted.
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P. Post-Petition Business Strategies and Plans
Commencing immediately after the Petition Date, the Debtors
concentrated their efforts on: (i) repositioning Bradlees between traditional
discounters and department stores by focusing on better quality, higher margin
merchandise with an emphasis on softlines; (ii) evaluating each of the Debtors'
store locations, identifying underperforming stores, attempting to rehabilitate
such locations and closing those locations which could not be successfully
rehabilitated; (iii) implementing a new merchandising information system; and
(iv) undertaking other operating changes designed to enhance the Debtors'
operating efficiency.
Although entered into with high expectations, these initiatives, as a
whole, were largely unsuccessful. Rather than increasing profits, the Debtors
continued to lose money. In response to the continuing losses, on December 24,
1996, the Debtors' Board of Directors voted to relieve Mr. Cohen of his duties.
On that date, the Board of Directors, with the support of the Creditors'
Committee and the Bank Group, appointed Peter Thorner, the Debtors' then
President and COO, as Chairman and CEO.
Since Mr. Thorner accepted his position as CEO, the Debtors have
implemented the following initiatives:
. Implementing further cost reductions resulting from realignment of
the organization and improved operating efficiencies.
. Reintroducing certain basic convenience and commodity products which
are typical of a discount store and which are consistent with
customer expectations.
. Revising the markdown policy to better match seasonality attributes
and actual sales, thereby reducing unnecessary markdowns on
merchandise that is either selling well or that would otherwise be
subsequently repurchased, while improving margins.
. Reevaluating the Debtors' pricing policies and scaling back opening
price points on certain items to enhance the value of goods offered,
increase customer traffic and benefit margins.
. Reducing expenditures on less productive advertising media and
focusing on making the weekly circular more item intensive and price
point oriented, while at the same time expanding circular
distribution.
. Re-instituting the layaway program to recapture certain incremental
sales that may have been lost when the Debtors' layaway program was
eliminated.
.Eliminating a 10% discount given on initial charge purchases made by
new Bradlees' credit card applicants.
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. Introducing directional and departmental signage for each department
within each store.
. Instituting both a "Certified Value" program that provides
competitive everyday prices on certain highly recognizable items and
a "WOW" program that provides for opportunistic purchasing of goods
to enhance value of unadvertised merchandise.
. Attracting an experienced Management Team.
1. Cost Reductions
---------------
Late in 1996, the Debtors began an aggressive cost reduction program.
This program resulted in the elimination of approximately $100 million in
operating costs (excluding store closings) over a fifteen month period.
2. Merchandising Changes
---------------------
Prior to Mr. Thorner's promotion to CEO, the Debtors' merchandising
strategy sought to position the Debtors between traditional discount stores and
department stores. Pursuant to that merchandising strategy, the Debtors had
increased the quality of their merchandise and offered such merchandise at
higher prices. In carrying out this strategy, the Debtors abandoned or
significantly reduced sales of certain commodity goods traditionally found in
discount stores as well as certain merchandise which, in the past, had proven
popular with the Debtors' customers. The merchandising strategy did not appear
to be accepted by most of the Debtors' customers, many of whom resisted the
higher prices and the "department store" choice of merchandise.
The Debtors have endeavored to return to being a more traditional
discount retailer, carrying a selection of goods, albeit still of a higher
quality than most of its discount store competition, which are more consistent
with that of a traditional discount retailer and at competitive prices. The
Debtors believe that these merchandising changes have resulted in increased
customer traffic, and have begun to generate increased sales and will translate
into a more successful company.
The Debtors are focusing 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 Debtors believe they can
strategically leverage their strength in the fashion and quality content of its
apparel and decorative home product offerings while driving traffic with
selected hardlines merchandise.
In addition to the changes in the merchandising mix, the Debtors have
also changed their clearance markdown strategies to reflect the sell-through
pattern of merchandise, in contrast to the markdown policy based on elapsed time
used previously. Previously, in addition to the customary practice of taking
seasonal markdowns, the
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Debtors took markdowns in merchandise categories which were not subject to
either seasonal fluctuations or aging on the shelf. The change in the markdown
strategy will enable the Debtors to better control clearance markdowns and will
result in higher margins on such merchandise.
The Debtors have also lowered their opening price points on many
merchandise categories without sacrificing either the quality of the goods
offered or the margins earned on such goods. The Debtors have accomplished this
by obtaining better pricing from existing suppliers, modifying product
specifications to limit certain more fashionable components associated with
upscale products and identifying new sources for merchandise. The reduction of
the opening price points is intended to bring the Debtors' prices more in line
with their competitors. In addition, Bradlees has developed two innovative
programs designed to demonstrate to Bradlees' customers that Bradlees' prices
are competitive. Highly recognizable goods sold under Bradlees' "Certified
Value" program are consistently offered for sale at everyday prices which are
competitive with the prices of Bradlees' competitors, thereby assuring Bradlees'
customers that they are paying a reasonable price. Bradlees' "WOW" program
enables Bradlees to offer certain goods for sale at exceptionally favorable
prices which are not advertised and therefore create a level of excitement
within the store which, in turn, encourages consumers to shop Bradlees more
frequently.
3. Marketing Strategy
------------------
Following the Petition Date, the Debtors changed their weekly circular
to mirror that of a department store. The cover of the circular most often
advertised one item in that week's theme rather than a variety of traffic
building products as is more typical for a discount retailer. When it became
apparent that the theme-oriented circular was not producing sufficient sales,
Bradlees abandoned the theme-oriented circular in favor of a more traditional
circular. By departing from the theme orientation and implementing an item-
intensive, price-point oriented strategy, the Debtors have been able to increase
dramatically the productivity of the weekly circulars.
The Debtors have also decreased their use of television advertising
and eliminated the use of direct mail. The Debtors found that direct mail was
not effective and that the heavy use of television was costly and not an
efficient way of attracting customers. Instead, the Debtors have increased the
distribution of their circular by approximately seventeen percent, which equates
to approximately 800,000 households per week.
The Debtors also reintroduced the layaway program in 1997 which was
discontinued in 1995. Layaway had been popular with the Debtors' customers and
provided approximately $104 million of annual sales in 1994. Management
believed that the discontinuance of the Debtors' layaway program resulted in a
decrease of as much as $20 million in gross margin dollars as well as the loss
of some customers to other discount retailers who continued to offer a layaway
option. The Debtors anticipated that by reintroducing the layaway program the
Debtors would be able to recapture many of
58
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the sales lost to their competitors. During the 1997 fall season, the
reintroduction of layaway produced sales of approximately $30 million.
In conjunction with the discontinuance of the layaway program, the
Debtors had promoted heavily the use of their proprietary credit card through
signage, promotional events and a ten-percent discount on the initial purchase.
The promotion of the credit card was intended to replace the credit given to
customers under the prior layaway program as well as to generate additional
sales. This strategy proved to be unsuccessful as credit card sales failed to
replace the lost sales from layaway. In addition, the program proved to be
costly. The total cost of the credit card promotion, including initial
discounts for usage and additional credit card fees, was estimated at
approximately $12 million. With the return of layaway, the Debtors, while
maintaining the Bradlees' credit card as a possible competitive advantage, have
de-emphasized the credit card program and have eliminated most related
promotions, including the ten-percent discount.
The Debtors have also installed directional signage and reintroduced
Departmental signage for each department in their stores, which will allow the
customer to readily locate the department and merchandise sought at the stores.
Departmental signage had been removed from the stores because it was not
considered visually appealing to the customer. However, subsequent customer
research in early 1997 indicated that customers found that directional signage
permitted them to shop more efficiently.
4. Management Changes
------------------
Mr. Thorner has succeeded in attracting executives who share his
discount store philosophy. The most significant additions were Robert Lynn, who
joined the Debtors as its President and Chief Merchant and was subsequently
promoted to Chief Operating Officer, Mark James, who joined the Debtors as
Senior Vice President for Marketing, Thomas Smith, who joined the Debtors as
Senior Vice President, Stores and Gregory Dieffenbach, who joined the Debtors as
Senior Vice President, Human Resources.
Q. Marketing of Debtors' Assets
In conjunction with the Debtor's Motion in June 1996 to extend their
exclusive periods within which to file and solicit acceptances of a plan of
reorganization, the Debtors and the Creditors' Committee entered into a
Memorandum of Understanding. Pursuant to this agreement, which was filed with
the Bankruptcy Court under seal, the Debtors and the Creditors' Committee agreed
that in addition to pursuing a stand alone plan of reorganization, in order to
maximize creditor recoveries, the Debtors should seek, through a limited,
discreet marketing process a going concern sale of substantially all of their
assets. Ernst & Young LLP ("E&Y"), the Creditors' Committee's financial
advisors, was selected by the Debtors and the Creditors' Committee to pursue the
marketing of the Debtors' assets.
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During the summer of 1996, the Debtors and E&Y worked to identify
potential strategic and financial buyers who might be interested in acquiring
the Debtors' assets. A list of entities was prepared and E&Y solicited such
entities regarding their possible interest in a possible transaction with the
Debtors. While since the summer of 1996 several potential strategic and
financial acquirers executed confidentiality agreements and visited a due
diligence data room established by the Debtors, no going concern offer was ever
made for the Debtors' assets and accordingly, the Debtors determined to proceed
with a stand-alone plan of reorganization.
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SECTION THREE: SUMMARY OF THE PLAN
------------- -------------------
THIS SECTION PROVIDES A SUMMARY OF THE STRUCTURE, CLASSIFICATION,
TREATMENT AND IMPLEMENTATION OF THE PLAN. THIS DISCLOSURE STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE SPECIFIC DETAILED INFORMATION
SET FORTH IN THE PLAN, A COPY OF WHICH IS ATTACHED TO THIS DISCLOSURE STATEMENT
AS EXHIBIT 1, AND TO ALL EXHIBITS ANNEXED THERETO.
The Plan is the product of diligent efforts by the Debtors and their
creditor constituencies to formulate a plan which provides for a fair allocation
of the Debtors' assets in an orderly manner, consistent with the mandates of the
Bankruptcy Code and other applicable law.
I. Overview of the Plan
Under the Plan, which does not contemplate the substantive
consolidation of any of the Debtors for any purpose (including voting or
distribution purposes), Claims against and Interests in the Debtors are divided
into classes according to their seniority and other criteria. If the Plan is
confirmed by the Bankruptcy Court and is then consummated, as is set forth
below, holders of Claims in certain classes will receive Cash or Reorganization
Securities.
The terms of the Plan are based, among other things, upon the Debtors'
assessment of their ability to make the distributions under the Plan and repay
their remaining obligations. In conjunction with the Plan, the Debtors have
made financial projections of earnings and cash flows for each of the fiscal
years 1998 through 2000, which financial statements are attached as Exhibit 3 to
this Disclosure Statement.
II. Plan Negotiations
During the course of the Debtors' Chapter 11 Cases, numerous
discussions have been held between and among the Debtors, the Creditors'
Committee, the Bank Group, and the Unofficial Committee with respect to the
formulation of the Plan.
On or about January 11, 1998, the Bank Group and the Unofficial
Committee provided a term sheet to the Debtors which formed the basis for the
Plan. After delivery of the term sheet, various discussions were held among the
parties in interest regarding, inter alia, the amount of total Claims, the terms
and allocation of Cash and Reorganization Securities, tax issues and valuation
of the Debtors. Among the factors considered in the discussions were the effect
of various possible organizational structures on tax attributes, the amount and
nature of claims asserted in different Classes of Debtors, including the amount
and nature of the Disputed Claims, the feasibility of various capital structures
and the time and expense involved in resolving Plan disputes, as well as the
potential adverse impact on the business of the Debtors of prolonged Chapter 11
Cases.
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The terms of the Plan are the result of negotiations with many parties
and the weighing of a matrix of complex and competing considerations.
III. Classification and Treatment of Claims and Interests
A. Unclassified Claims
1. Administrative Claims
---------------------
Administrative Claims include the costs and expenses of administration
of the Chapter 11 Cases of a kind specified in Section 503(b) of the Bankruptcy
Code and entitled to priority under Section 507(a)(1) of the Bankruptcy Code,
including, among other things, (a) the actual, necessary costs and expenses
incurred after the Petition Date, of operating the Debtors' businesses and
preserving the Debtors' Estates, (b) Professional Fees for the legal, financial
and other advisors to the Debtors and the Creditors' Committee to the extent
Allowed by the Bankruptcy Court under Section 330(a) of the Bankruptcy Code and
(c) any fees or charges assessed against the Debtors' estates pursuant to
Section 1930, Chapter 123 of Title 28 of the United States Code. Each holder of
an Allowed Administrative Claim will receive (a) Cash equal to the full unpaid
portion of the Allowed Administrative Claim on the day, if any, specified by any
order of the Bankruptcy Court for payment of such Allowed Administrative Claim,
or if no such order exists, then on the later of (i) the Effective Date or (ii)
the date on which such Allowed Administrative Claim becomes due by its own term;
or (b) such other treatment as to which the Debtors and the holder of an Allowed
Administrative Claim shall agree upon in writing.
The Debtors estimate that the amount of Allowed Administrative Claims
(exclusive of the amount of the outstanding obligations, under the DIP Facility)
will aggregate $18.1 million. Of this amount, approximately $5.0 million is
represented by fees of professionals.
2. Federal Priority Tax Claims
---------------------------
Federal Priority Tax Claims are claims of the United States of a kind
specified in Section 507(a)(8) of the Bankruptcy Code. Pursuant to Section
1129(a)(9)(C) of the Bankruptcy Code, unless otherwise agreed to by the Debtors
and the IRS, the IRS shall receive from Reorganized BSI, on account of any
Allowed Federal Priority Tax Claims, deferred cash payments over a period not
exceeding six years from the date of assessment of such Claims. Payments shall
be made in six equal annual installments of principal, plus simple interest
accruing from the Effective Date at eight percent (8%) per annum on the unpaid
portion of each Federal Priority Tax Claim. The first payment shall be 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 that is agreed on by the IRS and BSI or Reorganized BSI;
provided, however, that Reorganized BSI shall have the right to pay any Allowed
Federal Priority Tax Claim, or any remaining balance of such Claim, in full, at
any time on or after the Effective Date, without premium or penalty.
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The Debtors estimate that the amount of Allowed Federal Priority Tax
Claims will aggregate $0.
3. Other Priority Tax Claims
-------------------------
Other Priority Tax Claims are claims (other than claims of the United
States of America) that are entitled to priority in payment pursuant to Section
507(a)(8) of the Bankruptcy Code, other than a Federal Priority Tax Claim.
Pursuant to Section 1129(a)(9)(C) of the Bankruptcy Code, unless otherwise
agreed to by the parties, each holder of an Allowed Other Priority Tax Claim
shall receive from Reorganized BSI, on account of such Claim, deferred cash
payments over a period not exceeding six years from the date of assessment of
such Claim. Payments shall be made in six 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 each Other Priority Tax
Claim. The first payment shall be 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 that is agreed on by the
holder of such Claim and BSI or Reorganized BSI; provided, however, that
Reorganized BSI shall have the right to pay any Allowed Other Priority Tax
Claim, or any remaining balance of such Claim, in full, at any time on or after
the Effective Date, without premium or penalty.
The Debtors estimate that the amount of Allowed Other Priority Tax
Claims will aggregate $3.3 million.
4. Other Non-Tax Priority Claims
-----------------------------
Priority Claims are claims, if Allowed, which are entitled to priority
pursuant to Section 507(a) of the Bankruptcy Code, other than: (a)
Administrative Claims or (b) Tax Claims. Except as otherwise provided below,
each holder of an Allowed Priority Claim shall receive one hundred percent
(100%) of the allowed amount of such Claim in Cash on the later of: (i) 30 days
after the Effective Date or as soon thereafter as reasonably practicable; or
(ii) the first Business Day after the date that is 30 days after the date such
Claim becomes an Allowed Claim or as soon thereafter as practicable.
The Debtors estimate that the amount of Allowed Other Non-Tax Priority
Claims will aggregate $4,000.
B. Classified Claims
1. Bank Group Claim
----------------
The Bank Group Claim consists of the Claims of the Bank Group against
each and every Debtor which arise under the Credit Agreement among Bradlees,
Inc., Various Lending Institutions and Bankers Trust Company, as Agent, dated as
of March 3, 1993, pursuant to which the Debtors maintained a revolving credit
facility. For purposes of the Plan, the Bank Group Claim shall be allowed, with
prejudice and without defense, as a claim against each of the Debtors' estates
in the amount of $96 million. Each holder
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of a BI-BANK Claim, BAC-BANK Claim, BSI-BANK Claim, DOS-BANK Claim, MAX-BANK
Claim, YON-BANK Claim, BRU-BANK Claim and WES-BANK Claim shall receive, in
respect of its Claim against each of BI, BAC, BSI, DOS, MAX, YON, BRU and WES,
and/or retain on the Effective Date, Pro Rata Distributions as follows:
(a) Cash equal to the sum of (a) all Adequate Protection
Payments heretofore and hereinafter received by the Bank
Group (less any disbursements thereof made or payments
required to be made by Bankers Trust, as the Agent Bank,
including without limitation any professional fees), which
shall continue unabated and without modification through the
Effective Date (and prorated for the month in which the
Effective Date occurs), (b) $7,000,000 and (c) any Required
Prepayments applicable to the Bank Group's Distribution of
New Notes pursuant to section 6.01(ii) of the Plan;
(b) New Notes in an original aggregate principal amount equal to
$36 million less the sum of (a) any Required Prepayments
applicable thereto, and (b) 90%, not to exceed $900,000, in an
aggregate principal amount, of the amount of any New Notes
distributed to holders of Allowed YON-GEN Claims, Allowed BRU-
GEN Claims and Allowed WES-GEN Claims; and
(c) 4,909,091 shares of New Common Stock of Reorganized BI and (b)
if the aggregate amount of Allowed General Unsecured Claims and
Disputed General Unsecured Claims asserted against BSI
(excluding the Bank Group Claim and the Intercompany Claim) is
less than $240,000,000, a supplemental Ratable Distribution in
the amount of 0.98 shares of New Common Stock of Reorganized BI
for every $100 by which the aggregate amount of Allowed General
Unsecured Claims plus Disputed General Unsecured Claims against
BSI (excluding the Bank Group Claim and the Intercompany Claim)
are less than $250,000,000 (such supplemental distribution of
shares of New Common Stock, the "Supplemental Bank Group
Distribution").
2. SPE Claim
---------
The SPE Claim consists of the Claims of the SPE Group arising under
the SPE Facility pursuant to which the SPE Properties were purchased. Each
holder of an Allowed BI-SPE Claim, BAC-SPE Claim, BSI-SPE Claim, DOS-SPE Claim,
MAX-SPE Claim, YON-SPE Claim, BRU-SPE Claim and WES-SPE Claim shall receive, in
respect of its aggregate Allowed Claim against BI, BAC, BSI, DOS, MAX, YON, BRU
and WES, a single Pro Rata Distributions as follows:
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(a) Cash from any Required Prepayments;
(b) New Notes in a principal amount equal to
$4,000,000 less the sum of (x) any Cash
Distributions received by holders of SPE
Claims from any Required Prepayments and (y)
10 percent (10%) of the aggregate original
principal amount of all New Notes issued to
holders of YON-GEN, WES-GEN and BRU-GEN
Claims under this Plan; and
(c) in accordance with Section 3.03 of the Plan,
the SPE Deficiency Claim will be treated as a
BSI-GEN Claim. The SPE Deficiency Claim
(which is estimated to be approximately
$11,742,000) represents the aggregate amount
of the SPE Claim ($18,233,000) minus the sum
of (i) the amount paid to the SPE Group from
the sale of SPE Providence Property
($3,491,000) and (ii) the estimated value of
the SPE Philadelphia Property ($3,000,000).
3. Other Classified Claims
-----------------------
(i) Bradlees, Inc.
Class BI-GEN (BI-General Unsecured Claims): Class BI-GEN
------------------------------------------
consists of all General Unsecured Claims against BI, including Bond Claims. Each
holder of an Allowed BI-GEN Claim shall receive a Ratable Distribution of New
Warrants. For purposes of the Plan, the Bond Claims shall be Allowed with
prejudice and without defense as Claims solely against BI in the aggregate
amount of $233,417,000.
The Debtors estimate that the aggregate amount of Allowed BI-GEN
Claims will be approximately $264,330,000.
Class BI-EQT (BI-Common Stock Interests): Class BI-EQT
----------------------------------------
consists of all Interests based on the Old Common Stock of BI. The holders of
Allowed BI-EQT Interests will not receive any distribution of property under the
Plan on account of their BI-EQT Interests. BI-EQT Interests are impaired under
the Plan but pursuant to Section 1126(g) of the Bankruptcy Code, are
conclusively deemed to reject the Plan.
(ii) Bradlees Administrative Co., Inc.
Class BAC-GEN (BAC-General Unsecured Claims): Class BAC-GEN
--------------------------------------------
consists of all General Unsecured Claims against BAC. The holders of Allowed
BAC-GEN Claims will not receive any distribution of property under the Plan on
account of their BAC-GEN Claims. BAC-GEN Claims are impaired under the Plan but
pursuant to Section 1126(g) of the Bankruptcy Code, are conclusively deemed to
reject the Plan.
Class BAC-EQT (BAC-Common Stock Interests): Class BAC-EQT
------------------------------------------
consists of all Interests based on the Old Common Stock of BAC. The holders of
Allowed BAC-EQT Interests will retain their Interests in BAC-EQT. BAC-EQT
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Interests are unimpaired and, therefore, are conclusively presumed to accept the
Plan pursuant to Section 1126(f) of the Bankruptcy Code.
(iii) Bradlees Stores, Inc.
Class BSI-CAP (BSI-Capital Lease Claims): Class BSI-CAP
----------------------------------------
consists of all Capital Lease Claims against BSI. Each Creditor holding a BSI-
CAP claim is separately subclassified as set forth in Exhibit C to the Plan.
Each holder of an Allowed BSI-CAP Claim shall receive, at the option of BSI, (i)
Cash or (ii) a CAP Note in an amount equal to the value of its collateral, or
(iii) the return of its collateral. Notwithstanding anything to the contrary set
forth in this Section, BSI shall continue to adhere to the terms of the
Settlement Stipulation dated June 4, 1996, approved by Bankruptcy Court Order
dated June 25, 1996, among BSI, BI and BTM Capital Corporation f/k/a BOT
Financial Corporation, with respect to the treatment hereunder of the claim of
BTM.
The Debtors estimate that the amount of Allowed BSI-CAP Claims
will be approximately $560,000.
Class BSI-INTER (BSI-Intercompany Claims): Class BSI-INTER
-----------------------------------------
consists of all Intercompany Claims of BI against BSI. The amount of the
Intercompany Claim, as allowed pursuant to the provisions of the Plan, gives
effect to a previous capital contribution by BI to BSI in an amount equal to
approximately $160.2 million. After giving effect to BI's capital contribution
to BSI, the amount of the Intercompany Claim shall be Allowed, with prejudice
and without defense in the amount of $96.0 million for purposes of the Plan
subject to the entry of the Confirmation Order and the occurrence of the
Effective Date. The entire Class BSI-INTER Claim shall be satisfied through the
issuance of shares of the New Common Stock of Reorganized BI and Cash, which
Distributions shall be made to the holders of the Bank Group Claims pursuant to
Section 6.01 of the Plan.
Class BSI-GEN (BSI-General Unsecured Claims): Class BSI-GEN
--------------------------------------------
consists of all General Unsecured Claims against BSI, including personal injury
claims, and the SPE Deficiency Claims. Each holder of an Allowed BSI-GEN Claim
shall receive (i) Cash equal to a Pro Rata Distribution of $7,000,000, (ii) two
shares of New Common Stock of Reorganized BI for every $100 in Allowed Claims,
and (iii) if the aggregate amount of Allowed General Unsecured Claims and
Disputed General Unsecured Claims against BSI (excluding the Bank Group Claim
and the Intercompany Claim) is less than $240,000,000, a supplemental Ratable
Distribution in the amount of 1.02 shares of New Common Stock for every $100
that the aggregate Allowed General Unsecured Claims plus Disputed General
Unsecured Claims against BSI (excluding the Bank Group Claim and the
Intercompany Claim) are less than $250,000,000 (such supplemental distribution
of shares of New Common Stock, the "Supplemental BSI-Gen Distribution").
The Debtors estimate that the aggregate amount of Allowed BSI-
GEN Claims will be approximately $253.1 million.
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Class BSI-EQT (BSI-Common Stock Interests): Class BSI-EQT
------------------------------------------
consists of all Interests based on the Old Common Stock of BSI. The holders of
Allowed BSI-EQT Interests will retain their Interests in BSI-EQT. BSI-EQT
Interests are unimpaired and, therefore, are conclusively presumed to accept the
Plan pursuant to Section 1126(f) of the Bankruptcy Code.
(iv) Dostra Realty Co., Inc.
-----------------------
Class DOS-GEN (DOS-General Unsecured Claims): Class DOS-GEN
--------------------------------------------
consists of all General Unsecured Claims against DOS. The holders of Allowed
DOS-GEN Claims will not receive any distribution of property under the Plan on
account of their DOS-GEN Claims. DOS-GEN Claims are impaired under the Plan, but
pursuant to Section 1126(g) of the Bankruptcy Code, are conclusively deemed to
reject the Plan.
Class DOS-EQT (DOS-Common Stock Interests): Class DOS-EQT
------------------------------------------
consists of all Interests based on the Old Common Stock of DOS. The holders of
Allowed DOS-EQT Interests will retain their Interests in DOS-EQT. DOS-EQT
Interests are unimpaired and, therefore, are conclusively presumed to accept the
Plan pursuant to Section 1126(f) of the Bankruptcy Code.
(v) Maximedia Services, Inc.
------------------------
Class MAX-GEN (MAX-General Unsecured Claims): Class MAX-GEN
--------------------------------------------
consists of all General Unsecured Claims against MAX. The holders of Allowed
MAX-GEN Claims will not receive any distribution of property under the Plan on
account of their MAX-GEN Claims. MAX-GEN Claims are impaired under the Plan, but
pursuant to Section 1126(g) of the Bankruptcy Code, are conclusively deemed to
reject the Plan.
Class MAX-EQT (MAX-Common Stock Interests): Class MAX-EQT
------------------------------------------
consists of all Interests based on the Old Common Stock of MAX. The holders of
Allowed MAX-EQT Interests will retain their Interests in MAX-EQT. MAX-EQT
Interests are unimpaired and, therefore, are conclusively presumed to accept the
Plan pursuant to Section 1126(f) of the Bankruptcy Code.
(vi) New Horizons of Yonkers, Inc.
-----------------------------
Class YON-GEN (YON-General Unsecured Claims): Class YON-GEN
--------------------------------------------
consists of all General Unsecured Claims against YON. On or about the Yonkers
Effective Date, each holder of a YON-GEN Claim shall receive a Ratable
Distribution of: (i) Cash equal to the Net Proceeds from the sale of the Yonkers
Property multiplied by the Yonkers Fraction, but not to exceed 0.83 percent of
such Net Proceeds and (ii) New Notes in a principal amount up to 0.83% of the
aggregate principal amount of the New Notes which are distributed under the Plan
minus Cash Distributions made to holders of YON-GEN Claims under the Plan. The
Yonkers Fraction is a fraction, the numerator of which shall be the amount of
YON-GEN Claims and the denominator of which shall be the sum of the amount of
(a) YON-Bank Claims, (b) YON-SPE Claims, and (c) YON-GEN Claims.
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The Debtors estimate that the amount of Allowed YON-GEN Claims will
aggregate $0.
Class YON-EQT (YON-Common Stock Interests): Class YON-EQT consists of
------------------------------------------
all Interests based on the Old Common Stock of YON. The holders of Allowed YON-
EQT Interests will retain their Interests in YON-EQT. YON-EQT Interests are
unimpaired and, therefore, are conclusively presumed to accept the Plan pursuant
to Section 1126(f) of the Bankruptcy Code.
(vii) New Horizons of Bruckner, Inc.
Class BRU-GEN (BRU-General Unsecured Claims): Class BRU-GEN consists
--------------------------------------------
of all General Unsecured Claims against BRU. Each holder of a BRU-GEN Claim
shall receive a Ratable Distribution of: (i) Cash equal to the Net Proceeds
from the sale of the real property formerly owned by BRU multiplied by the
Bruckner Fraction, and (ii) New Notes in a principal amount up to 0.83 percent
of the aggregate principal amount of the New Notes which are Distributed under
the Plan minus Cash Distributions made to holders of BRU-GEN Claims under the
Plan. The Cash Distribution set forth in this Section shall be made as soon as
practicable after the sale of the Union Square Property, or at such earlier time
as the Reorganized Corporations shall decide, but in no event, before the
Effective Date. The Bruckner Fraction is the fraction, the numerator of which
shall be the amount of BRU-GEN Claims and the denominator of which shall be the
sum of the amount of (a) BRU-BANK Claims, (b) BRU-SPE Claims and (c) BRU-GEN
Claims.
The Debtors estimate that the amount of Allowed BRU-GEN Claims will
aggregate $0.
Class BRU-EQT (BRU-Common Stock Interests): Class BRU-EQT consists of
------------------------------------------
all Interests based on the Old Common Stock of BRU. The holders of Allowed BRU-
EQT Interests will retain their Interests in BRU-EQT. BRU-EQT Interests are
unimpaired and, therefore, are conclusively presumed to accept the Plan pursuant
to Section 1126(f) of the Bankruptcy Code.
(viii) New Horizons of Westbury, Inc.
Class WES-GEN (WES-General Unsecured Claims): Class WES-GEN consists
--------------------------------------------
of all General Unsecured Claims against WES. Each holder of a WES-GEN Claim
shall receive a Ratable Distribution of: (i) Cash equal to the Net Proceeds
from the sale of the real property formerly owned by WES multiplied by the
Westbury Fraction, but not to exceed 0.83 percent of such Net Proceeds, and (ii)
New Notes in a principal amount up to 0.83 percent of the aggregate principal
amount of the New Notes which are Distributed under the Plan minus Cash
Distributions made to holders of WES-GEN Claims under the Plan. The Cash
Distribution set forth in this Section shall be made as soon as practicable
after the sale of the Union Square Property, or at such earlier time as the
Reorganized Corporations shall decide, but in no event, before the Effective
Date. The Westbury Fraction is the fraction, the numerator of which shall be
the amount of
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<PAGE>
WES-GEN Claims and the denominator of which shall be the sum of the amount of
(a) WES-BANK Claims, (b) WES-SPE Claims and (c) WES-GEN Claims.
The Debtors estimate that the amount of Allowed WES-GEN Claims will
aggregate $0.
Class WES-EQT (WES-Common Stock Interests): Class WES-EQT consists of
------------------------------------------
all Interests based on the Old Common Stock of WES. The holders of Allowed BRU-
EQT Interests will retain their Interests in BRU-EQT. BRU-EQT Interests are
unimpaired and, therefore, are conclusively presumed to accept the Plan pursuant
to Section 1126(f) of the Bankruptcy Code.
4. Operation of Formula Pursuant to which New Common Stock is
----------------------------------------------------------
Distributed
-----------
Set forth below is a chart which depicts the recoveries which various
entities are estimated to receive under the Plan depending on the amount which
BSI-GEN Claims total pursuant to the formula contained in Section 6.01 of the
Plan under which New Common Stock is granted:
Share Distribution % of Equity Distribution
------------------ ------------------------
BSI-GEN
Claims $
Amount Bank BSI-GEN Total Bank BSI-GEN Total
- ------------ --------- --------- ---------- ----- -------- ------
$300,000,000 4,909,091 6,000,000 10,909,091 45.0% 55.0% 100.0%
$290,000,000 4,909,091 5,800,000 10,709,091 45.8% 54.2% 100.0%
$280,000,000 4,909,091 5,600,000 10,509,091 46.7% 53.3% 100.0%
$270,000,000 4,909,091 5,400,000 10,309,091 47.6% 52.4% 100.0%
$260,000,000 4,909,091 5,200,000 10,109,091 48.6% 51.4% 100.0%
$250,000,000 4,909,091 5,000,000 9,909,091 49.5% 50.5% 100.0%
$240,000,000 4,909,091 4,800,000 9,709,091 50.6% 49.4% 100.0%
If the aggregate allowed Unsecured Claims asserted against BSI are less than
$240,000,000 (excluding the Bank Group Claim and the Intercompany Claim), the
formula provides for the incremental two shares between the aggregate allowed
Unsecured Claims and $250,000,000 to be split among BSI-Bank and BSI-Gen with
0.98 shares (or 49%) provided to the BSI-Bank and 1.02 shares (or 51%) provided
to BSI-Gen.
<TABLE>
<CAPTION>
Share Distribution % of Equity Distribution
------------------ ------------------------
BSI-GEN
Claims $
Amount Bank BSI-GEN Total Bank BSI-GEN Total
-------------- ----------- ------------ ----------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Share $235,000,000 4,909,091 4,700,000 9,609,091 51.1% 48.9% 100.0%
Incremental Share 147,000 153,000 300,000 49.0% 51.0% 100.0%
Total Share 5,056,091 4,853,000 9,909,091 51.0% 49.0% 100.0%
Initial Share $230,000,000 4,909,091 4,600,000 9,509,091 51.6% 48.4% 100.0%
Incremental Share 196,000 204,000 400,000 49.0% 51.0% 100.0%
Total Shares 5,105,091 4,804,000 9,909,091 51.5% 48.5% 100.0%
</TABLE>
69
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Share $225,000,000 4,909,091 4,500,000 9,409,091 52.2% 47.8% 100.0%
Incremental Shares 245,000 255,000 500,000 49.0% 51.0% 100.0%
Total Shares 5,154,091 4,755,000 9,909,091 52.0% 48.0% 100.0%
Initial Share $220,000,000 4,909,091 4,400,000 9,309,091 52.7% 47.3% 100.0%
Incremental Shares 294,000 306,000 600,000 49.0% 51.0% 100.0%
Total Shares 5,203,091 4,706,000 9,909,091 52.5% 47.5% 100.0%
</TABLE>
IV. Continued Corporate Existence, Board of Directors, Management, and
Other Means for Implementation of the Plan
A. Reorganized BI and Reorganized BSI
BI and BSI shall each continue to exist after the Effective Date
as Reorganized BI and Reorganized BSI, respectively, each with all of the
powers of a corporation under applicable law. The Certificate of
Incorporation and Amended By-Laws of each of Reorganized BI and Reorganized
BSI shall, inter alia, (i) prohibit the issuance of nonvoting stock to the
extent required by Section 1123(a) of the Bankruptcy Code and (ii) to the
extent permitted by applicable state law, contain no "anti-takeover"
provisions. After the Effective Date, Reorganized BI and Reorganized BSI
may each amend or modify their Certificate of Incorporation and Amended By-
Laws as permitted under applicable law and/or such certificate of
incorporation and Amended By-Laws.
B. Directors of the Reorganized Corporations
Upon the Effective Date, the existing Board of Directors of each
Reorganized Corporation shall be dismissed. At least 15 days before the
commencement of the hearing on the confirmation of the Plan, the Board of
Directors for Reorganized BI and Reorganized BSI, which shall each consist
of nine members, shall be selected as follows:
. BI and BSI shall designate Peter Thorner, one other member
of management of the Debtors and one outside individual;
. the Bank Group shall designate two individuals;
. the Unofficial Committee shall designate one individual;
. the Creditors' Committee shall designate one individual;
and
. the Bank Group, the Unofficial Committee and the
Creditors' Committee, acting collectively, shall designate
two individuals who shall be reasonably acceptable to the
Debtors.
Notwithstanding the foregoing selection process, in order to be
eligible to serve on the Board of Directors of each of Reorganized BI and
Reorganized BSI, (i) each proposed Board Member designated pursuant to this
provision shall have relevant
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<PAGE>
experience which would qualify him or her to so serve and (ii) the outside
individual selected by BI and BSI shall be reasonably acceptable to the Bank
Group, Unofficial Committee and Creditors' Committee. The initial term of each
Board Member shall be for one year from the Effective Date and Peter Thorner
shall serve as Chairman of the Board of Directors of each of Reorganized BI and
Reorganized BSI.
C. Employment, Retirement, Indemnification and Other Agreements and
Incentive Compensation Programs
To the extent that any of the Debtors have in place as of the
Effective Date employment, retirement, indemnification and other agreements with
their respective active directors, officers, and employees or retirement income
plans, welfare benefit plans and other plans for active employees, such
agreements, programs and plans shall remain in place after the Effective Date
and Reorganized BI and Reorganized BSI, as the case may be, shall continue to
honor such agreements, programs and plans including, without limitation, the
Bradlees Stores, Inc. Retirement Plan (the "Pension Plan"). However, as of the
Effective Date, Reorganized BI and Reorganized BSI shall each have the authority
to terminate, amend or enter into employment, retirement, indemnification and
other agreements with their respective active directors, officers and employees
and to terminate, amend or implement retirement income plans, welfare benefit
plans and other plans for active employees. Such agreements and plans may
include equity, bonus and other incentive plans in which officers and other
employees of the Reorganized Corporations may be eligible to participate;
provided, however, that management of Reorganized BI and Reorganized BSI shall
receive stock options in the amount of 750,000 shares of Reorganized BI which
vest according to the following schedule: one-third on the Effective Date, one-
third on the one year anniversary of the Effective Date, and one-third on the
two year anniversary of the Effective Date. All such options shall be
exercisable for a period of five years from the Effective Date. The exercise
price of such options shall be the lowest ten-day rolling average of closing
prices of Reorganized BI New Common Stock within the period between sixty and
ninety days after the Effective Date. In addition, the Board of Directors of
Reorganized BI shall have the right to distribute to management of Reorganized
BI and Reorganized BSI options with respect to 250,000 additional shares of
Reorganized BI at such price and on such terms as the Board of Directors of
Reorganized BI shall determine. On or before the Exhibit Filing Date, the
Debtors shall File forms of any such agreements or plans that are not in effect
prior to the Exhibit Filing Date and that are to take effect as of the Effective
Date as Exhibit D to the Plan. In addition, except for the retirement and
disability benefit plans referred to below in Section 3.IV.F, on the Exhibit
Filing Date, BI and BSI shall each file a schedule and general summary of the
existing employment, retirement, indemnification and other agreements and
incentive compensation programs that are to remain in effect as of the Effective
Date as Exhibit E to the Plan. The Pension Benefit Guaranty Corporation ("PBGC")
has advised the Debtors that it takes the position that if the Pension Plan is
terminated, pursuant to 29 U.S.C. (S)(S) 1341 or 1342, before the confirmation
of a Plan of Reorganization the statutory liability, under 29 U.S.C. (S) 1362,
arising from the termination would be a non-contingent claim against Debtors'
estates. The PBGC has filed contingent claims for estimated unfunded benefit
liabilities of the Pension Plan totaling $18,050,000.
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<PAGE>
D. Management Emergence Bonus
Except as provided in Section 7.03 of the Plan, the Plan provides no
Distribution to management as an emergence bonus. Management of the Debtors
believes that the Plan does not contain Distributions which adequately
compensate management for their efforts in reorganizing the Debtors or which are
sufficient to assure retention of the management of Reorganized BI.
Accordingly, the Debtors intend, subject to appropriate authorization from the
Board of Directors of the Debtors, to apply to the Bankruptcy Court for approval
of an emergence bonus payable in Cash, commencing on the Effective Date, outside
the scope of this Plan. The Debtors do not expect the cost of such cash
emergence bonus to exceed $5 million, do not intend to seek payment of the full
amount of such emergence bonus on the Effective Date, and do not believe that,
if the Bankruptcy Court fully approves the Debtors' application, there will be
any material effect on the financial condition of Reorganized BSI. The Debtors
are not able to predict what effect, if any, the absence of a management
emergence bonus may have on the ability of Reorganized BSI to retain management,
but do not expect the judicial resolution of this to affect the entry of the
Confirmation Order.
E. Corporate Action
Each of the matters provided for under the Plan involving the
corporate structure of any Debtor or Reorganized Corporation or corporate action
to be taken by or required of any Debtor or Reorganized Corporation shall, as of
the Effective Date, be deemed to have occurred and be effective as provided
herein, and shall be authorized and approved in all respects without any
requirement of further action by stockholders or directors of any of the Debtors
or the Reorganized Corporations.
F. Certain Retiree Health, Medical and Life Insurance Benefits
On and after the Effective Date, pursuant to Section 1129(a)(13) of
the Bankruptcy Code, Reorganized BSI shall continue to pay all retiree benefits
(as defined in Section 1114(a) of the Bankruptcy Code) of the Debtors'
respective nonunion employees who retired as of or prior to the Petition Date,
at the levels and for the duration established prior to the Effective Date in
either: (a) a Bankruptcy Court order entered pursuant to Section 1114(g) of the
Bankruptcy Code or (b) agreements reached pursuant to Section 1114(e) of the
Bankruptcy Code; provided, however, that prior to the Confirmation Date, the
Debtors reserve the right to seek an order declaring that the Debtors may amend
or terminate such retiree benefits at the conclusion of the period, if any, that
the Debtors are obligated to provide such retiree benefits under the terms of
their respective retiree benefit plans.
G. Combination Transactions
On the Effective Date (or in the case of YON, the Yonkers Effective
Date), each Combining Debtor shall take such actions as may be necessary or
appropriate to effect the relevant Combination Transaction. A Schedule of
Combining Debtors is annexed hereto as Exhibit 4. Such actions may include:
(a) the execution and delivery of
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<PAGE>
appropriate agreements or other documents of merger, consolidation or
reorganization containing terms that are consistent with the terms of the Plan
and that satisfy the requirements of applicable law; (b) the execution and
delivery of appropriate instruments of transfer, assignment, assumption or
delegation of any property, right, liability, duty or obligation on terms
consistent with the terms of the Plan; (c) the filing of appropriate
certificates of merger or consolidation with the appropriate governmental
authorities under applicable law; and (d) all other actions that such Debtor
determines are necessary or appropriate, including the making of filings or
recordings in connection with the relevant Combination Transaction. The form of
each Combination Transaction shall be determined by the respective Boards of
Directors of such Combining Debtor and Reorganized BI and Reorganized BSI. As
set forth on Exhibit 4 hereto, BAC and BSI shall merge with BSI as the surviving
entity. BI will then exchange its shares of BAC for the shares of BSI previously
held by BAC. In addition, all of the subsidiaries of BSI (MAX, DOS, YON, BRU and
WES) and BSI shall merge with BSI as the surviving entity. The final corporate
structure, after giving effect to the Combination Transactions, will have BI
directly holding all of the shares of BSI. Upon the consummation of a
Combination Transaction, each Combining Debtor shall cease to exist as a
separate corporate entity. On and after the Effective Date, Reorganized BSI
shall assume and perform the obligations of each Combining Debtor under the
Plan.
H. Cancellation of Capital Stock
As of the Effective Date, by virtue of the Plan and in all events
without any action on the part of the holders thereof, each share of Old Common
Stock of BI issued and outstanding or held in treasury, will be cancelled and
retired and no consideration will be paid or delivered with respect thereto.
Holders of Old Common Stock of BI shall not be required to surrender such stock
to the Debtors.
I. Cancellation of Bonds and Agreements.
On the Effective Date, except as otherwise provided for therein, (a)
the Bonds and any other note, bond, indenture or other instrument or document
evidencing or creating any indebtedness or obligation of the Debtors shall be
cancelled, (b) permitting such indenture trustee, agent or servicer to maintain
any rights or liens it may have for fees, costs, expenses and indemnification
under such indenture or other agreement and to be paid or reimbursed for such
prepetition and postpetition fees, costs, expenses and indemnification only from
the Distributions (until payment in full of such fees, costs, expenses or
indemnification) that are governed by the respective indenture or other
agreement in accordance with the provisions set forth therein and (c) the
obligations of, and /or Claims against, the Debtors under, relating or
pertaining to any agreements, indentures or certificates of designations,
governing the Bonds and any other note, bond, indenture or other instrument or
documents evidencing or creating any indebtedness or obligation of the Debtors
shall be released and discharged; provided, however, that each indenture or
other agreement that governs the rights of the holder of a Claim and that is
administered by an indenture trustee, an agent or a servicer shall continue in
effect solely for the purposes of allowing such indenture trustee, agent or
servicer to make the Distributions to be made on account of such claims under
this Plan; provided, further,
73
<PAGE>
that the provisions of the foregoing proviso shall not affect the discharge of
Debtors' liabilities under the Bankruptcy Code and the Confirmation Order or
result in any expense or liability to the Reorganized Corporations.
J. Record Date for Distributions to Holders of Securities
The record date, for purposes of distribution to holders of Bond
Claims will be five (5) Business Days following entry of the Confirmation Order
(the "Record Date"). At the close of business on the Record Date, the transfer
ledgers of the Reorganized Corporations and of the indenture trustees, agents
and servicers for such Bonds shall be closed, and there shall be no further
changes in the record holders of such Bonds. The Reorganized Corporations and
the indenture trustees, agents and servicers for such Bonds, and the Disbursing
Agent, will have no obligation to recognize any transfer of such Bonds occurring
on or after the Record Date. The Reorganized Corporations and the indenture
trustees, agents and servicers for such Bonds, and the Disbursing Agent will be
entitled instead to recognize and deal for all purposes under the Plan with only
those record holders set forth on the transfer ledgers for such Securities as of
the close of business on the Record Date.
K. Surrender of Outstanding Securities
Except as otherwise provided in the Plan, each holder of an
instrument or certificated security evidencing an Allowed Claim against a Debtor
(other than if the Claim or Interest that such instrument or certificated
security evidences is Reinstated) shall surrender such instrument or
certificated security to the relevant Debtor or Paying Agent with a duly
executed letter of transmittal. No Distribution hereunder shall be made to or on
behalf of any holder of such Claim unless and until such instrument or
certificated security is received or the nonavailability of such instrument or
certificated security is established to the satisfaction of the Disbursing Agent
or Paying Agent, as the case may be. Such Disbursing Agent or Paying Agent, as
the case may be, may reasonably require security and/or indemnity from the
purported holder of such instrument or certificated security to hold it harmless
in respect of such instrument or certificated security and any Distributions
made in respect thereof. Any such holder that fails to surrender such instrument
or satisfactorily explain its nonavailability to the Disbursing Agent or the
relevant Paying Agent, as the case may be, within 180 days of the Effective Date
shall be deemed to have no further Claim against the relevant Debtor,
Reorganized Corporation or its property in respect of such Claim and shall not
participate in any Distribution hereunder. Notwithstanding anything in the
immediately preceding sentence, any such holder of a Disputed Claim shall not be
required to surrender a required instrument or certificated security until the
time such Disputed Claim is allowed or disallowed.
L. Termination of BankBoston DIP Facility
Except to the extent that the DIP Facility otherwise provides, on
the Effective Date, all obligations of the Debtors under the BankBoston DIP
Facility shall be paid or otherwise satisfied in full in accordance with the
terms of the BankBoston DIP
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<PAGE>
Facility. Without limiting the foregoing, with the consent of the lenders under
the BankBoston DIP Facility, any letters of credit that have not expired shall
be replaced with or collateralized, by new letters of credit as a part of
Reorganized BSI's New Credit Facility. Upon payment or satisfaction in full of
all obligations under the BankBoston DIP Facility in accordance with the terms
thereof, all liens and security interests granted to secure such obligations
shall be deemed terminated and shall be of no further force and effect.
M. New Credit Facility
BSI expects to enter into a New Credit Facility and to issue the New
Credit Facility Notes effective as of the Effective Date. The initial advance
thereunder shall be used to satisfy in full the Debtors' obligations under the
BankBoston DIP Facility and to provide working capital to Reorganized BSI.
A copy of the New Credit Facility will be filed by BSI with the
Bankruptcy Court no later than the Exhibit Filing Date as Exhibit G to the Plan.
Notice of any modification to the New Credit Facility after its filing with the
Bankruptcy Court shall be provided to the Creditors' Committee, the Bank Group
and the Unofficial Committee. The terms and conditions of the New Credit
Facility shall include in all respects the terms and conditions of the
commitment letter which will be executed between BSI and the bank agent of the
New Credit Facility and a New Credit Facility term sheet, except to the extent
that BSI and the bank agent agree otherwise. BSI shall, on or after the
Confirmation Date, execute such other documents as the bank agent under the New
Credit Facility may require in order to effectuate the treatment afforded to the
lenders under the New Credit Facility. Copies of any such documents shall be
provided to the Creditors' Committee, the Bank Group and the Unofficial
Committee.
N. Sale of Yonkers Property and Union Square Property
Pursuant to the Section 9.02 of the Plan, Reorganized BSI shall have
until the date that is one year after the occurrence of the Effective Date, or
such later period as the Bankruptcy Court may grant, to exercise its rights
under sections 363 and 365 of the Bankruptcy Code with respect to BSI's
unexpired real property lease pursuant to which BSI leases the Union Square
Property, including, without limitation, the right to assume, assume and assign
or reject such lease. It is contemplated that YON will remain in Chapter 11
until such time as the Yonkers Property is sold.
In the event that either or both of the Yonkers Property and the
Union Square Property remains unsold on the Effective Date, the Yonkers Property
and the Union Square Property, as the case may be, shall be pledged to the
Collateral Agent pursuant to a first mortgage lien to secure obligations of
Reorganized BSI under the New Notes as is set forth in Section 4.02 of the Plan
and Reorganized BSI and Reorganized YON, as the case may be, shall continue the
Debtors' efforts to sell such properties. The Debtors shall use all reasonable
efforts to sell such properties. The Collateral Agent, who shall be reasonably
acceptable to Reorganized BSI shall be appointed by holders of the Bank Group
Claim.
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<PAGE>
O. Adequate Protection Payments
The Debtors will continue to pay to the Bank Group, through the
Effective Date, the Adequate Protection Payments in the amounts required by the
Agreed Order Regarding Adequate Protection of the Senior Bank Group's Interests
and Related Relief, dated October 24, 1995.
P. Consummation Funding
Consummation Costs shall be paid by the following: (i) the Westbury
Escrow Funds; (ii) the Bruckner Escrow Funds and (iii) the Tax Refund proceeds.
V. Distributions and Objections to Claims
A. Source of Cash and Reorganization Securities for Distributions
On the Effective Date, Reorganized BI and Reorganized BSI shall
each deliver to the Disbursing Agent sufficient Cash and Reorganization
Securities to make Distributions to: (a) the holders of each relevant Debtor's
Allowed Claims; and (b) the Disputed Claims Reserves, as set forth below.
Without any further act or action required, upon written request by the
Disbursing Agent (which may be made by telecopy or other electronic means
reducible to written form) received by Reorganized BI or Reorganized BSI at
least 10 Business Days prior to the relevant Distribution hereunder, Reorganized
BI or Reorganized BSI, as the case may be, is authorized to and shall timely
issue sufficient Reorganization Securities to permit the Disbursing Agent to
make Distributions required hereunder. Any reference herein to Reorganization
Securities in a Disputed Claims Reserve shall include any Reorganization
Securities that are available to be issued by the Reorganized Corporations
pursuant to this section.
B. Initial Distributions
For each Class, no Distributions will be made under the Plan
until an Initial Distribution Date is established for such Class. The Initial
Distribution Date shall be the Effective Date, or as soon thereafter as
practicable. On the applicable Initial Distribution Date, the Disbursing Agent
shall make a Distribution to: (i) each holder of an Allowed Claim in an amount
equal to its Ratable Share (calculated as of the applicable Initial Distribution
Date) of Cash or Reorganization Securities in accordance with the terms of the
Plan; (ii) each Paying Agent in an amount equal to the aggregate Ratable Share
(calculated as of the applicable Initial Distribution Date) of the Cash or
Reorganization Securities in accordance with the terms of the Plan that such
Paying Agent shall Distribute to holders of Allowed Claims in the relevant
Class; and (iii) if applicable, the Disbursing Agent shall make a Distribution
to the relevant Disputed Claims Reserve of the remaining Cash and Reorganization
Securities allocated in accordance with the terms of the Plan. The amount of
Cash to be paid on the Initial Distribution Date to holders of Allowed BSI-GEN
Claims will be calculated as if each Disputed Claim were an Allowed Claim in its
Face Amount.
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C. Disputed Claims Reserves
On the Effective Date, and after making all Distributions required
to be made on the Effective Date, Reorganized BI and Reorganized BSI shall each
establish a separate Disputed Claims Reserve for each of its Classes and the
Classes of the other Debtors, each of which shall be administered by the
Disbursing Agent. Cash placed into the Disputed Claims Reserve shall be held in
an interest bearing account. Any payment made to the holder of an Allowed Claim
which was previously a Disputed Claim from the Disputed Claims Reserve shall
include any accrued interest thereon at the rate earned in such interest bearing
account. If the Initial Distribution Date is not the Effective Date for a
particular Class, all Cash and Reorganization Securities allocable to the
relevant Class hereunder shall be distributed by the Disbursing Agent to the
relevant Disputed Claims Reserve on or as soon as practicable after the
Effective Date. Each Disputed Claims Reserve shall be terminated by Reorganized
BI or Reorganized BSI, as the case may be, upon the receipt of a written
certification of the Disbursing Agent that all Distributions and other
dispositions of all Cash and/or Reorganization Securities required hereunder
have been made in accordance with the terms of the Plan. Such written
certification shall be sent by the Disbursing Agent to Reorganized BI or
Reorganized BSI, as the case may be, within 15 days of the satisfaction of the
condition set forth in the immediately preceding sentence. With respect to the
Reorganization Securities held in the Disputed Claims Reserve, neither the
Disbursing Agent, nor any other party, shall be entitled to vote any shares of
the New Common Stock held in the Disputed Claims Reserve. In the event that any
matter requires the approval of the shareholders of Reorganized BI prior to the
Distribution of the Reorganization Securities held in the Disputed Claims
Reserve, solely with respect to such vote, the shares of New Common Stock held
by the Disbursing Agent shall be deemed not to have been issued.
D. Tax Requirements for Income Generated by Disputed Claims Reserves
The Disbursing Agent shall pay, or cause to be paid, out of the
funds held in a particular Disputed Claims Reserve, any tax imposed by any
federal, state or local taxing authority on the income generated by the funds
held in such Disputed Claims Reserve. The applicable Disbursing Agent shall also
file, or cause to be filed any tax or information return related to the Disputed
Claims Reserve that is required by any federal, state or local taxing authority.
E. Estimation of Claims
The Debtors or the Reorganized Corporations may, at any time,
request that the Bankruptcy Court estimate any Claim subject to estimation under
Section 502(c) of the Bankruptcy Code and for which the Debtors may be liable
under the Plan, including any Claim for Taxes, to the extent permitted by
section 502(c) of the Bankruptcy Code regardless of whether the Debtors, the
Creditors' Committee, the Unofficial Committee, the Bank Group or the
Reorganized Corporations have previously objected to such Claim, and the
Bankruptcy Court will retain jurisdiction to estimate any Claim pursuant to
Section 502(c) of the Bankruptcy Code at any time during litigation
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concerning any objection to any Claim, including during the pendency of any
appeal relating to any such objection. In the event that the Bankruptcy Court
estimates any contingent or unliquidated Claim, that estimated amount will
constitute either the Allowed amount of such Claim or a maximum limitation on
such Claim, as determined by the Bankruptcy Court. If the estimated amount
constitutes a maximum limitation on such Claim, the Debtors or the Reorganized
Corporations may elect to pursue any supplemental proceedings to object to any
ultimate allowance on such Claim. The Debtors may, at any time, request that the
Bankruptcy Court estimate any claim pursuant to Section 502(c) of the Bankruptcy
Code for purposes of satisfying the requirements of Section 10.02(e) of the
Plan. All of the aforementioned Claims objection, estimation and resolution
procedures are cumulative and not necessarily exclusive of one another. Claims
may be estimated and subsequently compromised, settled, withdrawn or resolved by
any mechanism approved by the Bankruptcy Court.
F. Initial Distribution When a Disputed Claim Becomes an Allowed Claim
On the first Business Day after the end of each calendar quarter
(i.e., March 31, June 30, September 30 and December 31 of each calendar year)
immediately following the applicable Initial Distribution Date, or as soon
thereafter as practicable (the "Quarterly Distribution Date"), the Disbursing
Agent shall make Ratable Distributions or other Distribution in accordance with
the provisions of the Plan (calculated as of the later of the: (i) immediately
preceding Quarterly Distribution Date, or (ii) the applicable Initial
Distribution Date) of Cash or Reorganization Securities reserved for any
Disputed Claim that has become an Allowed Claim during the preceding calendar
quarter to the holder of such Allowed Claim or the relevant Paying Agent, as the
case may be. Holders of Disputed Claims that are ultimately Allowed will also be
entitled to receive any dividends or other distributions received on and after
the Effective Date on account of the shares of the New Common Stock distributed
to such holder on account of its Allowed Claim.
G. Additional Quarterly Distributions on Account of Previously Allowed
Claims
On each Quarterly Distribution Date, the Disbursing Agent shall
distribute to each holder of a previously Allowed Claim or the relevant Paying
Agent, as the case may be, on account of such Claim an amount of Cash or
Reorganization Securities, as the case may be, equal to: (i) the Distribution
from the relevant Disputed Claims Reserve that such claimant would have received
in accordance with the Plan had it not received any prior Distributions in
respect of its Allowed Claim, less (ii) the total amount of any Distributions
previously received in respect of its Allowed Claim. The Supplemental Bank Group
Distribution and the Supplemental BSI-Gen Distribution shall be made from the
applicable Disputed Claims Reserve once the General Unsecured Claims against BSI
(excluding the Bank Group Claim and the Intercompany Claims) are reduced to
below $240 million in accordance with Sections 6.01 and 6.05 of the Plan. Such
Additional Quarterly Distributions shall continue until the relevant Disputed
Claims Reserve is depleted of Cash or Reorganization Securities held in such
Disputed Claims Reserve,
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other than as set forth in the next subsection. Notwithstanding anything to the
contrary herein, no Distribution shall be made on any Quarterly Distribution
Date unless the aggregate Distribution on such Quarterly Distribution Date would
be in excess of $10,000 in value (as such value is set forth herein and/or in
the Disclosure Statement). The restriction on Additional Quarterly Distributions
hereunder imposed by the immediately preceding sentence shall no longer apply as
of the date on which all Disputed Claims in the relevant Class have been
resolved. Each such Distribution shall also include, on the basis of the amount
so distributed, any dividends or other Distributions received on and after the
Effective Date on account of the shares of the New Common Stock or interest
earned on Cash distributed to each holder receiving a Distribution on a
Quarterly Distribution Date on account of its Allowed Claim.
H. Method of Cash Distributions
Cash payments made pursuant to the Plan shall be in United States
dollars by checks drawn on a domestic bank selected by the applicable Debtor or
Reorganized Corporation, or by wire transfer from a domestic bank, at the option
of the applicable Debtor or Reorganized Corporation; provided, however, that
cash payments made to foreign creditors, if any, holding Allowed Claims may be
paid, at the option of the applicable Debtor or Reorganized Corporation, in such
funds and by such means as are necessary or customary in a particular foreign
jurisdiction.
I. Distributions on Non-Business Days
Any payment or Distribution due on a day other than a Business Day
shall be made, without interest, on the next Business Day.
J. Accrual of Postpetition Interest
Unless otherwise provided for in the Plan, no holder of an Allowed
Prepetition Claim shall be entitled to the accrual of postpetition interest on
account of such Claim.
K. No Distribution of Fractional Securities
Notwithstanding any other provisions of the Plan, only whole numbers
of shares of New Common Stock shall be issued. When any Distribution on account
of an Allowed Claim would otherwise result in the issuance of a number of shares
of the New Common Stock that is not a whole number, the Disbursing Agent shall
aggregate and sell all fractional shares of the New Common Stock otherwise then
distributable in accordance with the Plan at then prevailing prices and
distribute the net proceeds to the Persons otherwise entitled thereto.
Notwithstanding the foregoing, if a Person holds more than one claim, the
fractional securities that such Person otherwise would be entitled to on account
of each such Claim held by such Person shall be aggregated and, after taking
into account such aggregation, such Person shall receive on account thereof (in
addition to any whole number of shares of New Common Stock or other Distribution
such Person is entitled to under the Plan prior to such aggregation) (i) any
resulting whole
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number of shares of New Common Stock and (ii) the net proceeds for any remaining
fractional share.
L. No Distribution in Excess of Allowed Amount of Claim
Notwithstanding anything to the contrary in the Plan, no holder of an
Allowed Claim shall receive in respect of such Claim any Distribution (of a
value set forth herein or in the Plan) in excess of the Allowed Amount of such
Claim. Except as expressly provided herein, no Prepetition Claim shall be
allowed to the extent that it is for Postpetition Interest or other similar
charges.
M. De Minimis Distributions
Notwithstanding anything to the contrary contained in the Plan, the
Disbursing Agents shall not be required to distribute Cash to the holder of an
Allowed Claim if the amount of cash to be distributed on account of such Claim
is less than $25. Any holder of an Allowed Claim on account of which the amount
of Cash to be distributed is less than $25 shall have such Claim discharged and
shall be forever barred from asserting any such Claim against the Debtors, the
Reorganized Corporations or their respective property. Any Cash not distributed
pursuant to this provision shall be the property of the applicable Reorganized
Corporation, free of any restrictions thereon, and any such Cash held by the
Disbursing Agent shall be returned to the applicable Reorganized Corporation.
N. Compliance with Tax Requirements
In connection with the Plan, to the extent applicable, each Disbursing
Agent shall comply with all withholding and reporting requirements imposed on it
by federal, state and local taxing authorities, and all Distributions pursuant
to the Plan shall be subject to such withholding and reporting requirements.
O. Setoffs
The Reorganized Corporations are authorized, pursuant to Section 553
of the Bankruptcy Code, to set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim, the
claims, rights and causes of action of any nature that the applicable Debtor may
hold against the holder of such Allowed Claim; provided, however, that neither
the failure to effect such a setoff nor the allowance of any Claim hereunder
shall constitute a waiver or release by the applicable Debtor of any such
claims, rights and causes of action that the Debtors may possess against such
holder.
P. Intercompany Claims
All Claims between and among the Debtors, except the Intercompany
Claim, which shall be treated in accordance with the provisions of Section 6.05
of the Plan, shall be deemed released, waived and discharged as of the Effective
Date.
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Q. Escrow of Unclaimed Property
Unclaimed Property (and all interest, dividends, and other
Distributions thereon) shall be delivered promptly to the Disbursing Agent by
each Paying Agent. The Disbursing Agent shall deposit such Unclaimed Property
and such Unclaimed Property held by the Disbursing Agent in trust (for the
benefit of the holders of Claims and Interests entitled thereto under the terms
of the Plan) in a subaccount of the relevant Disputed Claims Reserve. For a
period of two years following the Effective Date, Unclaimed Property, including
any interest, dividends, and other Distributions thereon shall be: (i) held in
such subaccount solely for the benefit of the holders of Allowed Claims that
have failed to claim such property; and (ii) released from such subaccount and
delivered to the holder of an Allowed Claim upon presentation of proper proof by
such holder of its entitlement thereto.
R. Investment of Unclaimed Cash
All Cash held in each such subaccount shall be invested in accordance
with Section 345 of the Bankruptcy Code, as modified by the relevant Orders of
the Court for investments made by the Debtors during the Chapter 11 Cases. The
earnings on such investments shall be held in trust as an addition to the
balance of the subaccount for the benefit of the holders of Allowed Claims
entitled to such Unclaimed Property, and shall not constitute property of the
Debtors' estate or the Reorganized Corporation.
S. Distribution of Unclaimed Property
At the end of two years following the relevant Distribution date of
particular Cash or Reorganization Securities, the holders of Allowed Claims
theretofore entitled to Unclaimed Property shall cease to be entitled thereto
(such holders, the "Unclaimed Holders"), and the Unclaimed Property for each
Unclaimed Holder shall then be distributed Pro Rata to the other holders of
Allowed Claims in the Class of that Unclaimed Holder in accordance with Section
7.08 of the Plan.
T. Disputed Payments
If any dispute arises as to the identity of a holder of an Allowed
Claim who is to receive any Distribution, the Disbursing Agent may, in lieu of
making such Distribution to such Person, make such Distribution into an escrow
account to be held in trust for the benefit of such holder and shall not
constitute property of the Debtors, their estates or the Reorganized
Corporations. Such Distribution shall be held in escrow until the disposition
thereof shall be determined by order of the Bankruptcy Court or by written
agreement among the interested parties to such dispute.
U. Withholding Taxes
Any federal or state withholding taxes or other amounts required to be
withheld under any applicable law shall be deducted and withheld from any
Distributions hereunder.
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V. Claims and Interest Objections
Unless otherwise ordered by the Bankruptcy Court, all Claims
objections shall be Filed and served on the applicable claimant no later than
the Effective Date or, if a Claim is permitted to be Filed thereafter, within
thirty (30) days after such Claim has been Filed. Any Claim which is (a)
Allowed under the terms of the Plan or pursuant to an Order of the Bankruptcy
Court prior to the Effective Date or (b) not the subject of a Claim objection
pending before the Bankruptcy Court by the Effective Date shall be deemed
Allowed for all purposes. After the Effective Date, subject to the procedures
set forth in Section 8.02 of the Plan, the Debtors and the Reorganized
Corporations may settle or compromise any Disputed Claim without prior approval
of the Bankruptcy Court.
Termination of Subordination.
As of the Effective Date, each holder of a Bank Group Claim shall be
deemed to have waived all contractual, legal and equitable subordination rights
which it may have, whether arising under general principles of equitable
subordination, section 510(c) of the Bankruptcy Code or otherwise, with respect
to the Distribution to be made hereunder to holders of Bond Claims. On the
Effective Date, all contractual, legal or equitable subordination rights that
each holder of a Bank Group Claim has individually and collectively with respect
to any Distribution made pursuant to the Plan to holders of Bond Claims shall be
discharged and terminated, and all actions related to the enforcement of such
subordination rights will be permanently enjoined.
VI.
Effect of Plan
A. Discharge.
1. Scope
-----
Except as otherwise provided in the Plan, Confirmation Order or DIP
Facility, in accordance with Section 1141(d)(1) of the Bankruptcy Code, when the
Confirmation Order becomes a Final Order, this shall act as a discharge
effective as of the Effective Date of all debts of, Claims against, liens on,
and Interests in each of the Debtors, their assets, or properties, which debts,
Claims, liens, and Interests arose at any time before the entry of the
Confirmation Order. The discharge of the Debtors shall be effective as to each
Claim or Interest, regardless of whether a proof of Claim or Interest therefor
was filed, whether the Claim is an Allowed Claim, or whether the holder thereof
votes to accept the Plan. On the Effective Date, as to every discharged Claim
and Interest, any holder of such Claim or Interest (including, without
limitation, any options to purchase Old Common Stock of BI) shall be precluded
from asserting against any Debtor formerly obligated with respect to such Claim
or Interest, or against such Debtor's assets or properties, any other or further
Claim or Interest based upon any document, instrument, act, omission,
transaction, or other activity of any kind or nature that occurred before the
Confirmation Date.
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2. Injunction
----------
Except as otherwise provided in the Plan or Confirmation Order, as of
the Effective Date, all entities that have held, currently hold or may hold a
Claim or other debt or liability that is discharged or an Interest or other
right of an equity security holder that is terminated pursuant to the terms of
the Plan are permanently enjoined from taking any of the following actions on
account of any such discharged Claims, debts or liabilities or terminated
Interests or rights: (1) commencing or continuing in any manner any action or
other proceeding against the Debtors, the Reorganized Debtors or their
respective property, officers, directors, agents, employees and representatives,
and others, including (without limitation) the Creditors' Committee (including
present and former members), the Bank Group, the Unofficial Committee and
professional persons retained by the Debtors, the Creditors' Committee, members
of the Creditors' Committee, the Bank Group and the Unofficial Committee; (2)
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order against the Debtors, the Reorganized Debtors or their
respective property, current and former officers, directors, agents, employees
and representatives, and others, including (without limitation) the Creditors'
Committee (including present and former members), the Bank Group, the Unofficial
Committee and professional persons retained by the Debtors, the Creditors'
Committee, members of the Creditors' Committee, the Bank Group and the
Unofficial Committee; (3) creating, perfecting or enforcing any lien or
encumbrance against the Debtors, the Reorganized Debtors or their respective
property, current and former officers, directors, agents, employees and
representatives, and others including (without limitation) the Creditors'
Committee (including present and former members), the Bank Group, the Unofficial
Committee and professional persons retained by the Debtors, the Creditors'
Committee, members of the Creditors' Committee, the Bank Group and the
Unofficial Committee; (4) asserting a setoff, right of subrogation or recoupment
of any kind against any obligation due to the Debtors, the Reorganized Debtors
or their respective property, current and former officers, directors, employees
and representatives, and others, including (without limitation) the Creditors'
Committee (including present and former members), the Bank Group, the Unofficial
Committee and professional persons retained by the Debtors, the Creditors'
Committee, members of the Creditors' Committee, the Bank Group and the
Unofficial Committee; and (5) commencing or continuing any action, in any
manner, in any place that does not comply with or is inconsistent with the
provisions of the Plan.
3. Release of Collateral
---------------------
Unless a particular Secured Claim is Reinstated or the holder thereof
receives a Distribution of a Reorganization Security in respect of such Claim
under the Plan: (i) each holder of: (A) a Secured Claim; and/or (B) a Claim
that is purportedly secured shall on or immediately before the Effective Date:
(x) turn over and release to the relevant Reorganized Corporation (or its
successor, as the case may be) any and all property of the relevant Debtor that
secures or purportedly secures such Claim; and (y) execute such documents and
instruments as such Reorganized Corporation requires to evidence such claimant's
release of such property; and (ii) on the Effective Date, all claims, right,
title and interest in such property shall revert to the relevant Reorganized
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Corporation (or the successor to any Debtor that does not survive a Combination
Transaction or to Reorganized BSI in respect of the property of a Dissolving
Debtor) free and clear of all Claims and Interests, including (without
limitation) liens, charges, pledges, encumbrances and/or security interests of
any kind. No Distribution under the Plan shall be made to or on behalf of any
holder of such Claim unless and until such holder executes and delivers to the
relevant Debtor or Reorganized Corporation such release of liens. Any such
holder that fails to execute and deliver such release of liens within 180 days
of the Effective Date shall be deemed to have no further Claim against the
relevant Debtor, Reorganized Corporation or their property in respect of such
Claim and shall not participate in any Distribution hereunder. Notwithstanding
the immediately preceding sentence, any such holder of a Disputed Claim shall
not be required to execute and deliver such release of liens until the time such
Claim is allowed or disallowed.
B. Revesting and Vesting
Subject to the Combination Transactions each of the Debtors shall, as
a Reorganized Corporation, continue to exist after the Effective Date as a
separate corporate entity, with all the powers of a corporation under applicable
law, without prejudice to any right to terminate such existence (whether by
merger or otherwise) under applicable law after the Effective Date. Except as
otherwise provided in the Plan, on the Effective Date all property comprising
the Estates of each Debtor (other than a Dissolving Debtor) shall revest in the
relevant Reorganized Corporation or its successor as a result of a Combination
Transaction, free and clear of all Claims, liens, charges, encumbrances and
Interests of creditors and equity security holders (other than as expressly
provided herein). On the Effective Date, any property of a Dissolving Debtor
not previously distributed under the Plan shall vest in Reorganized BSI, free
and clear of all Claims, liens, charges, encumbrances and Interests of creditors
and equity security holders of such Dissolving Debtor (other than as expressly
provided herein). As of the Effective Date, each Reorganized Corporation may
operate its businesses and use, acquire and dispose of property and settle and
compromise claims or interests arising after the Effective Date without
supervision of the Court free of any restrictions of the Bankruptcy Code or
Bankruptcy Rules, other than those restrictions expressly imposed by the Plan
and Confirmation Order. Without limiting the foregoing, each Reorganized
Corporation may pay the charges it incurs for Professional Fees, disbursements,
expenses, or related support services after the Effective Date without any
application to the Court.
C. Secondary Liability Claims
After notice and a hearing, Secondary Liability Claims shall be
estimated by the Court under Section 502(c) of the Bankruptcy Code. Each such
Claim against any Debtor in respect of such Debtor's guaranty of obligations of
any Primary Obligor that is a Debtor shall be allowed against such guarantor
Debtor in the amount of the deficiency in recovery on the related claim against
such Primary Obligor.
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D. Release of Primary Obligors
Except as otherwise provided in the Plan, all holders of Claims
against and Interests in any of the Debtors receiving, or entitled to receive,
payments or Distributions pursuant to the Plan, in consideration for the
promises and obligations of the Debtors under the Plan, shall be deemed to have
waived and released all rights or claims they had or might have had against any
current or former officer, director or employee of each of the Debtors based
upon any claim against a Primary Obligor that also gives rise to a Secondary
Liability Claim; provided, however, except as expressly provided above in this
subsection, no such Claim or Interest holder shall be deemed by virtue of this
subsection to have waived or released any right or claim it may have against any
person other than the Debtors or the current and former officers, directors and
employees of each of them. The release of any person or entity under this
section additionally acts as an injunction against the commencement or
continuation of any action, employment of process or act to collect, offset or
recover the claims released hereby.
E. Survival of Certain Indemnification Obligations
Except as otherwise provided in the Plan, the obligations of the
Debtors to indemnify individuals who serve or served as their respective
directors, officers, agents, employees, representatives, and others, including
(without limitation) professional persons retained by any Debtor, pursuant to
such Debtors' respective certificates of incorporation, Amended By-Laws,
applicable statutes and agreements in respect of all present and future actions,
suits, and proceedings against any of such officers, directors, agents,
employees, representatives, and others, including (without limitation)
professional persons retained by any Debtor, based upon any act or omission
related to service with, for, or on behalf of any of the Debtors on or after the
Petition Date as such obligations were in effect at the time of any such act or
omission, (but excluding such indemnity obligations, if any, arising under the
Bank Documents, SPE Documents, Indenture, or any other similar such agreement,
or any unexpired lease or executory contract which is not assumed by any Debtor
or Reorganized Corporation which gave rise to or could give rise to a Claim
against any of the Debtors prior to the Petition Date) shall not be discharged
or impaired by confirmation or consummation of the Plan but shall survive
unaffected by the reorganization contemplated by the Plan and shall be performed
and honored by each respective Debtor or Reorganized Corporation (or its
successor) regardless of such confirmation, consummation, and reorganization.
F. Release of Officers, Directors, Employees, and Representatives
Except as provided in Section 8.07 of the Plan, each Debtor (and its
successor Reorganized Corporation) hereby waives, releases and discharges: all
current and former officers, directors, agents, employees and representatives of
the Debtors, members of the Creditors' Committee, members of the Unofficial
Committee, members of the Bank Group and others including (without limitation)
professional persons retained by the Debtors and the Creditors' Committee, the
members of the Unofficial Committee, members of the Bank Group from any claim
(as such term "claim" is defined in section 101(5) of the Bankruptcy Code)
arising prior to the Confirmation Date. Claimants and
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holders of Interests in any of the Debtors shall be enjoined from commencing or
continuing any action, employment of process or act to collect, offset or
recover any such claim that could be brought on behalf of or in the name of any
of each such Debtor, without any independent cause of action belonging to the
claimant or equity interest holder asserting such claim.
G. Retention of Certain Claims
Except as otherwise provided in the Plan, or in any contract,
instrument, release or other agreement entered into in connection with the Plan
or by order of the Court, in accordance with section 1123(b) of the Bankruptcy
Code, the Reorganized Corporations shall release any claims, rights and causes
of action that any Debtor or estate may hold (including a cause of action held
by a Dissolving Debtor or a Debtor that does not survive a Combination
Transaction), including, without limitation, any claims, rights or causes of
action under sections 544 through 550, inclusive, of the Bankruptcy Code.
Notwithstanding anything to the contrary in the Plan or in any instrument,
contract, release or other agreement entered into in connection with the Plan or
an order of the Bankruptcy Court, on the Effective Date, each Debtor shall be
deemed to have released all claims, rights and causes of action arising under
section 547 of the Bankruptcy Code.
H. Preservation of Insurance.
The provisions of the Plan shall not diminish or impair in any manner
the enforceability and coverage of any insurance policies that may cover Claims
against the Debtors, Reorganized Corporations or any other Person.
VII. Executory Contract and Leases
A. Executory Contracts and Unexpired Leases
On the date which is thirty days after the date of entry of the
Confirmation Order (the "Final Rejection Date"), all executory contracts and
unexpired leases of each Debtor shall be deemed rejected by such Debtor pursuant
to the provisions of section 365 of the Bankruptcy Code, except: (a) any
executory contract or unexpired lease that has been or is the subject of a
motion to assume or assume and assign filed pursuant to section 365 of the
Bankruptcy Code by any of the Debtors before the Final Rejection Date; (b) any
executory contract or unexpired lease listed in the "Schedule of Assumed and
Assumed and Assigned Executory Contracts and Unexpired Leases" to be filed by
the Debtors with the Court before the entry of the Confirmation Order; (c) any
executory contract or unexpired lease assumed or assumed and assigned pursuant
to the provisions of this Plan; (d) any agreement, obligation, security
interest, transaction or similar undertaking that the relevant Debtor believes
is not executory or is not a lease, and which is later determined by the Court
to be an executory contract or unexpired lease that is subject to assumption or
rejection under section 365 of the Bankruptcy Code, and (e) the Union Square
Property which is subject to the provisions of Section 9.02 of the Plan. Any
order entered after the Confirmation Date by the Court authorizing the rejection
of
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an executory contract or unexpired lease shall cause such rejection to be a
breach prior to the Petition Date under sections 365(g) and 502(g) of the
Bankruptcy Code, as if such relief was granted and such order was entered prior
to the Confirmation Date.
Lease Under Which Bradlees Leases Union Square Property
Reorganized BSI shall have until the date that is one year after the
occurrence of the Effective Date, or such later period as the Bankruptcy Court
may grant, to exercise its rights under sections 363 and 365 of the Bankruptcy
Code with respect to BSI's unexpired real property lease pursuant to which BSI
leases the Union Square Property, including, without limitation, the right to
assume, assume and assign or reject the lease under which Bradlees leases the
Union Square Property. The Bankruptcy Court shall retain jurisdiction with
respect to such rights and any issues related thereto.
B. Executory Contract of R.R. Donnelly & Sons Company
BSI's executory contract with R.R. Donnelly & Sons Company ("R.R.
Donnelly") shall, as of the Effective Date, be deemed assumed by Reorganized
BSI. Pursuant to an agreement between BSI and R.R. Donnelly, (i) R.R. Donnelly
has agreed to waive any cure payments upon assumption of such executory contract
to which it might be entitled pursuant to the provisions of the Bankruptcy Code
and (ii) BSI will waive any cause of action which it may have against R.R.
Donnelly under Section 547 of the Bankruptcy Code.
Executory Contract J.Baker, Inc.
As of the Effective Date, BSI's executory contract with J.Baker, Inc.
("J.Baker") shall be deemed amended to, inter alia, extend the term of the
contract for three years following the Effective Date and, as amended, be
assumed by Reorganized BSI. In respect of the $1.8 million Claim of J.Baker,
Reorganized BSI shall, on the Effective Date or as soon thereafter as
practicable, make a Cash Distribution to J.Baker in the amount of $360,000.
Reorganized BSI shall make additional Cash Distributions to J.Baker in the
amount of $1,440,000, to be paid in equal monthly installments commencing thirty
days after the first payment with interest at a rate equal to J.Baker's
borrowing rate, but not to exceed nine percent (9%); provided, however, that no
interest shall be payable for the period through the end of Reorganized BSI's
1998 fiscal year; provided, further, however, that the obligation of Reorganized
BSI to make the foregoing payments owed to J.Baker shall accelerate and become
immediately due and payable should (a) Reorganized BSI enter into a third party
transaction which would constitute a change of control or (b) Peter Thorner's
employment with Reorganized BSI terminate for any reason.
C. Cure Payments
At the election of the relevant Debtor, any monetary defaults under
each executory contract and unexpired lease to be assumed under the Plan shall
be satisfied pursuant to Section 365(b)(1) of the Bankruptcy Code, in one of the
following ways: (a) by payment of the default amount in Cash on the Effective
Date; (b) by issuance of a Cure Note; or (c) on such other terms as agreed to by
the parties to such executory contract or unexpired lease. In the event of a
dispute regarding: (i) the amount of any Cure Payments; (ii) the ability of the
Debtor that is a party thereto to provide adequate assurance of future
performance under the contract or lease to be assumed; or (iii) any other matter
pertaining to assumption, the cure payments required by Section 365(b)(1) of the
Bankruptcy Code shall be made following the entry of a Final Order resolving the
dispute and approving assumption.
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D. Rejection Damages Bar Date
If the rejection by any Debtor, pursuant to the Plan or otherwise, of
an executory contract or unexpired lease results in a Claim, then such Claim
shall be forever barred and shall not be enforceable against such Debtor or
Reorganized Corporation or the properties of either of them unless a proof of
claim is filed with the clerk of the Bankruptcy Court and served upon counsel to
the Debtors within fifteen (15) days after service of the earlier of (a) notice
of the Confirmation Order, (b) other notice that the executory contract or
unexpired lease has been rejected, or (c) in the event that any Debtor rejects
any executory contract or unexpired lease after the Confirmation Date, within
fifteen (15) days of the date of such rejection.
E. Executory Contracts and Unexpired Leases Entered into and Other
Obligations Incurred After the Petition Date
Executory contracts and unexpired leases entered into and other
obligations incurred after the Petition Date by any Debtor shall be performed by
the Debtor or Reorganized Corporation liable thereunder in the ordinary course
of its business. Accordingly, such executory contracts, unexpired leases and
other obligations shall survive and remain unaffected by entry of the
Confirmation Order.
VIII. Conditions To Confirmation And Occurrence Of Effective Date
A. Conditions to Confirmation
The Plan may not be confirmed unless each of the conditions set forth
below is satisfied. Except as provided in section 10.03 of the Plan, any one or
more of the following conditions may be waived at any time by the Debtors with
the unanimous consent of the Creditors' Committee, the Unofficial Committee and
the Bank Group.
1. The Disclosure Statement Order shall have been entered and be a
Final Order.
2. The Confirmation Order shall be in form reasonably acceptable to
the Debtors, the Creditors' Committee, the Unofficial Committee
and the Bank Group. The Confirmation Order shall, among other
things, provide that:
(a) The Reorganized Corporation shall be deemed to succeed to, by
operation of law, all executory contracts or unexpired
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leases assumed by the Debtors during the Chapter 11 Case
(including pursuant to the provisions of the Plan), which
contracts and leases shall remain in full force and effect
notwithstanding any provision in such contract or lease
(including those described in Sections 365(b)(2) and (f) of
the Bankruptcy Code) that prohibits assignment or transfer or
that enables or requires the termination of such contract or
lease;
(b) except as expressly provided in the Plan, the Debtors are
discharged effective upon the Effective Date from any "debt"
(as that term is defined in Section 101(12) of the Bankruptcy
Code), and the liability in respect thereof is extinguished
completely, whether reduced to judgment or not, liquidated or
unliquidated, contingent or noncontingent, asserted or
unasserted, fixed or unfixed, matured or unmatured, disputed
or undisputed, legal or equitable, known or unknown, or that
arose from any agreement of the Debtors entered into or
obligation of the Debtors occurred before the Petition Date,
or from any conduct of the Debtors prior to the Petition
Date, or that arose before the Petition Date, including,
without limitation, all interest, if any, on any such debts,
whether such interest accrued before or after the Petition
Date;
(c) a finding by the Bankruptcy Court that the Plan complies with
all applicable provisions of the Bankruptcy Code, including
that the Plan was proposed in good faith and that the
Confirmation Order was not procured by fraud; and
(d) except as expressly provided in the Plan, all Interests shall
be terminated effective upon the Effective Date.
B. Conditions to Occurrence of Effective Date
The Effective Date for the Plan may not occur unless each of the
conditions set forth below is satisfied. Except as provided in section 10.03 of
the Plan, any one or more of the following conditions may be waived at any time
by the Debtors with the unanimous consent of the Creditors' Committee, the
Unofficial Committee and the Bank Group.
1. The Confirmation Order shall have been entered and be a Final
Order.
2. Each Reorganized Debtor's respective Certificate of Incorporation
and Amended By-Laws shall have been amended as provided in the
Plan.
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3. Reorganized BI and Reorganized BSI shall each have sufficient Cash
on hand to pay the Consummation Costs and make such other timely
Distributions of Cash as may be required hereunder.
4. Reorganized BSI shall have established a revolving line of credit
or other liquidity facility with a bank or other financial
institution in a drawable principal amount of at least $250
million, with terms satisfactory to Reorganized BSI and the
lenders under the New Credit Facility, in their sole discretion.
5. The aggregate amount of Allowed General Unsecured Claims and
Disputed General Unsecured Claims (i) against BSI (excluding the
Bank Group Claim and the Intercompany Claim) shall have been
reduced, either through agreement or order of the Bankruptcy
Court, to less than $300 million and (ii) against each Debtor
other than BI, BSI and BAC (other than the Intercompany Claims,
the Bank Group Claim and SPE Claims) shall have been reduced,
either through agreement or order of the Bankruptcy Court, to an
amount of less than $1 million.
6. Reorganized BSI shall have granted to vendors who provide retail
merchandise to Reorganized BSI after the Effective Date, or who
have provided merchandise to BSI before the Effective Date which
is not paid for as of the Effective Date, a Trade Vendors' Lien to
secure payment to such trade vendors of amounts owed by
Reorganized BSI. The Trade Vendors' Lien, which shall be held by
the Trade Vendors' Collateral Agent, shall be subordinated to the
lien securing the New Credit Facility to the satisfaction of the
holders of the liens securing the New Credit Facility and shall
attach to all of Reorganized BSI's inventory (but not any other
assets of Reorganized BSI). If a new lender or group of lenders
replaces the lenders under the New Credit Facility, then the Trade
Vendors' Lien shall be subordinated to the liens of such
replacement lender or lenders. The Trade Vendors' Lien shall
terminate on the earliest to occur of (i) two years after the Plan
Effective Date, (ii) at the sole option of Reorganized BSI the
date on which the ratio of the amount of accounts payable of
Reorganized BSI to the amount of Inventory of Reorganized BSI,
computed on a cost basis, for any rolling three-month period is
more than five percentage points less than such ratio on a
comparable store basis for the same period in the prior year,
(iii) the consummation of a transaction pursuant to which
Reorganized BI or Reorganized BSI merges or otherwise combines
with another company or companies, (iv) at the sole option of
Reorganized BSI as to any individual trade vendor, at such time as
such vendor fails to provide merchandise to Reorganized BSI on
terms which are at least as favorable to Reorganized BSI as the
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credit terms under which such vendor provided merchandise to BSI
in the year prior to the Effective Date and (v) at the sole option
of Reorganized BSI as to any individual trade vendor that
initially provides retail merchandise to Reorganized BSI after the
Effective Date, at such time as such vendor fails to provide
retail merchandise to Reorganized BSI on terms which are as
favorable to Reorganized BSI as the initial credit terms which
such vendor provide retail merchandise to Reorganized BSI;
provided, however, that any termination by Reorganized BSI of the
Trade Vendors' Lien will not be effective until the thirtieth
(30th) day after Reorganized BSI gives (a) actual notice to the
Trade Vendors' Collateral Agent and (b) (x) in the case of trade
vendors generally, notice by publication in The New York Times
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(national edition), of its intent to terminate the Trade Vendors
Lien or (y) in the case of an individual trade vendor, actual
notice of such termination to the trade vendor whose Trade
Vendors' Lien Reorganized BSI proposes to terminate. On or prior
to the Exhibit Filing Date, BSI shall file with the Bankruptcy
Court the form of all documents which will give rise to the Trade
Vendors' Lien pursuant to the Plan.
7. Each of the Creditors' Committee, the Bank Group and the
Unofficial Committee have approved in form and substance each of
the Exhibits to the Plan, such approval not to be unreasonably
withheld.
C. Waiver of Conditions to Confirmation and Occurrence of Effective Date
Each of the conditions to confirmation of the Plan or to the
occurrence of the Effective Date is for the benefit of the Debtors, the
Creditors' Committee, the Bank Group and the Unofficial Committee. Other than
the requirement that the Disclosure Statement Order and the Confirmation Order
must be entered, the requirement that a particular condition be satisfied may be
waived in whole or part by the Debtors, with the unanimous consent of the
Creditors' Committee, the Bank Group and the Unofficial Committee, without
notice and a hearing, and the relevant Debtors' benefits under the "mootness
doctrine" shall be unaffected by any provision hereof.
D. Effect of Nonoccurrence of the Conditions to Occurrence of Effective
Date
If each of the conditions to the occurrence of the Effective Date have
not been satisfied or duly waived on or before the date which would be the
Effective Date, or by such later date as is proposed by the Debtors and
approved, after notice and a hearing, by the Court, then upon motion by any
party-in-interest made before the time that each of the conditions has been
satisfied or duly waived, the Confirmation Order may be vacated by the Court;
provided, however, that notwithstanding the filing of such a motion, the
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Confirmation Order shall not be vacated if each of the conditions to the
occurrence of the Effective Date is either satisfied or duly waived before the
Court enters an order granting the relief requested in such motion. If the
Confirmation Order is vacated pursuant to Section 10.04 of the Plan, the Plan
shall be null and void in all respects, and nothing contained in the Plan shall:
(a) constitute a waiver or release of any Claims by or against or Interests in
the Debtors; or (b) prejudice in any manner the rights of any of the Debtors or
of any party in interest, including (without limitation) the right to seek a
further extension of the exclusivity periods under Section 1121(d) of the
Bankruptcy Code.
IX. Retention of Jurisdiction
Notwithstanding confirmation of the Plan or occurrence of the
Effective Date, the Court shall retain jurisdiction for all purposes permitted
under applicable law, including without limitation the following purposes:
(a) Determination of the allowability of Claims and Interests upon
objection to such Claims or Interests by a Debtor, the
Reorganized Corporations, other successors to any of the Debtors,
or any other party-in-interest and the validity, extent, priority
and nonavoidability of consensual and nonconsensual liens and
other encumbrances;
(b) Determination of tax liability pursuant to Section 505 of the
Bankruptcy Code;
(c) Approval, pursuant to Section 365 of the Bankruptcy Code, of all
matters related to the assumption, assumption and assignment, or
rejection of any executory contract or unexpired lease of any of
the Debtors, including, without limitation, assumption and
assignment of the Union Square Property;
(d) Determination of requests for payment of administrative expenses
entitled to priority under Section 507(a)(1) of the Bankruptcy
Code, including compensation of parties entitled thereto under
Section 330 of the Bankruptcy Code;
(e) Resolution of controversies and disputes regarding the
interpretation of the Plan;
(f) Implementation of the provisions of the Plan and entry of Orders
in aid of confirmation and consummation of the Plan including,
without limitation, appropriate Orders to protect the Debtors and
their successors from actions by creditors and/or Interest
holders of the Debtors or any of them and resolving disputes and
controversies regarding property of the Estates and the
Reorganized Corporations that is subject to restructuring
negotiations on and after the Confirmation Date;
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(g) Modification of the Plan pursuant to Section 1127 of the
Bankruptcy Code;
(h) Adjudication of any causes of action that arose prior to the
Confirmation Date or in connection with the implementation of the
Plan, including avoidance actions, brought by a Debtor,
Reorganized Corporation, other successors of any of the Debtors
as the representative of the Debtors' Estates or a party-in-
interest (as a representative of any Debtor's Estate); and
(i) Entry of a Final Order closing the Chapter 11 Cases.
X. Administrative Bar Date
A. General Provisions
Except as provided in Section 12.06(b) of the Plan for Administrative
Claims of Professionals requesting compensation or reimbursement of expenses and
in Section 12.06(c) of the Plan for liabilities incurred by a Debtor in the
ordinary course of its business, requests for payment of Administrative Claims
must be Filed no later than 30 days after the Effective Date. Holders of
Administrative Claims who are required to File a request for payment of such
Claims and who do not File such requests by the applicable bar date shall be
forever barred from asserting such Claims against the Debtors, the Reorganized
Corporations or their respective property.
B. Professionals
All professionals or other entities requesting compensation or
reimbursement of expenses pursuant to Sections 327, 328, 330, 331, 503(b) and
1103 of the Bankruptcy Code for services rendered before the Effective Date
(including compensation requested by any Professional or other entity for making
a substantial contribution in any Case) shall File an application for final
allowance of compensation and reimbursement of expenses no later than 45 days
after the Effective Date; provided, however, that any Professional who may
receive compensation or reimbursement of expenses pursuant to the Ordinary
Course Professionals' Compensation Order may continue to receive such
compensation and reimbursement of expenses for services rendered before the
Effective Date, without further Bankruptcy Court review or approval, pursuant to
the Ordinary Course Professionals' Compensation Order. Notwithstanding anything
to the contrary contained in the Ordinary Course Professionals Compensation
Order, no Professional subject that Order shall be required to apply to the
Bankruptcy Court for compensation and reimbursement of expenses. Objections to
applications of Professionals or other entities for compensation or
reimbursement of expenses must be Filed no later than 75 days after the
Effective Date. All compensation and reimbursement of expenses allowed by the
Bankruptcy Court shall be paid to the applicable Professional on or before ten
days after an order allowing such fees and expenses becomes a Final Order, or as
soon thereafter as practicable.
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C. Fees and Expenses of Bank Group
Subject to the approval of the Bankruptcy Court on appropriate
application as set forth in Section 12.06(b) of the Plan, the reasonable fees
and expenses of the Bank Group during the course of the Chapter 11 Cases shall
be allowed as administrative expenses of BSI, pursuant to 11 U.S.C. (S) 503(b).
To the extent that the Bank Group seeks to recover its fees and expenses, the
Debtors shall only pay such amounts to the extent that such fees and expenses
exceed the amount of the Adequate Protection Payments paid to the Bank Group.
D. Fees and Expenses of Unofficial Committee
Subject to the approval of the Bankruptcy Court on appropriate
application as set forth in Section 12.06(b) of the Plan, the reasonable fees
and expenses of the Unofficial Committee during the course of the Chapter 11
Cases shall be allowed as administrative expenses of BSI, pursuant to 11 U.S.C.
(S) 503(b).
E. Professional Fees and Expenses of Loomis Sayles and Bond Indenture
Trustee
Subject to the approval of the Bankruptcy Court on appropriate
application as set forth in Section 12.06(b) hereof, the reasonable fees and
expenses of Loomis Sayles and the Bond Indenture Trustee during the course of
these cases shall each be allowed as administrative expenses of the Debtors,
pursuant to 11 U.S.C. (S) 503(b), not to exceed, in the aggregate, the amount of
$600,000. In the event that the aggregate fees and expenses sought by such
professionals exceed the amount of $600,000, such professionals shall receive a
Pro Rata share of $600,000.
F. Ordinary Course Liabilities
Holders of Administrative Claims based on liabilities incurred by a
Debtor in the ordinary course of business shall not be required to File any
request for payment of such Claims. Such Administrative Claims shall be assumed
and paid by the applicable Reorganized Corporation pursuant to the terms and
conditions of the particular transaction giving rise to such Administrative
Claim, without any further action by the holders of such Claims.
XI. Amendments
A. Preconfirmation Amendment
The Debtors may modify the Plan at any time prior to the entry of the
Confirmation Order provided that the Plan, as modified, and this Disclosure
Statement pertaining thereto meet applicable Bankruptcy Code requirements.
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B. Post-confirmation Amendment Not Requiring Resolicitation
After the entry of the Confirmation Order, the Debtors may modify the
Plan to remedy any defect or omission or to reconcile any inconsistencies in the
Plan or in the Confirmation Order, as may be necessary to carry out the purposes
and effects of the Plan, provided that: (i) the Debtors obtain approval of the
Bankruptcy Court for such modification, after notice and a hearing; and (ii)
such modification shall not materially and adversely affect the interests,
rights, treatment, or Distributions of any Class under the Plan.
C. Post-confirmation Amendment Requiring Resolicitation
After the Confirmation Date and before the Effective Date of the Plan,
the Debtors may modify the Plan in a way that materially or adversely affects
the interests, rights, treatment, or Distributions of a class of Claims or
Interests, provided that: (i) the Plan, as modified, meets applicable
Bankruptcy Code requirements; (ii) the Debtors obtain Bankruptcy Court approval
for such modification, after notice and a hearing; (iii) such modification is
accepted by at least two-thirds in amount, and more than one-half in number, of
Allowed Claims voting in each class affected by such modification; and (iv) the
Debtors comply with Section 1125 of the Bankruptcy Code with respect to the Plan
as modified.
XII. Committees
On the Effective Date, the Creditors' Committee shall be deemed
dissolved and the members of the Creditors' Committee shall be deemed released
and discharged from all rights and duties arising from or related to the Cases.
The Professionals retained by the Creditors' Committee and the members thereof
shall not be entitled to compensation or reimbursement of expenses for any
services rendered after the Effective Date, except for services rendered and
expenses incurred in connection with any applications for allowance of
compensation and reimbursement of expenses pending on the Effective Date or
Filed after the Effective Date pursuant to Section 12.06(b) of the Plan. Prior
to the dissolution of the Creditors' Committee, the Creditors' Committee may
appoint a committee of one or more financial representatives to become effective
on the Effective Date, whose sole duties shall be to provide directions, on
behalf of the trade vendors, to the Trade Vendors' Collateral Agent appointed
pursuant to this Plan; provided however, that such appointee or appointees shall
serve without right to receive any fees, reimbursement of expenses or other
remuneration, directly or indirectly, from the Debtors' estates or the
Reorganized Corporations.
XIII. Valuation of the Debtors
For purposes of the Plan and to assist the creditors in assessing
their respective recoveries under the Plan, the Debtors directed its financial
advisors, Zolfo Cooper, LLC ("ZC") to estimate the range of enterprise value of
Reorganized BI and Subsidiary as of January 30, 1999, the expected consummation
date.
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In developing the estimated range of enterprise value, ZC, analyzed
the information set forth in this Disclosure Statement, the exhibits hereto, and
other information provided by management. Specifically, ZC considered: (i) the
Debtors' historical financial and operating information; (ii) management
prepared prospective financial and operating data for the ongoing business of
Reorganized BI and Subsidiary, including financial projections through February
3, 2001 included in Exhibit 3 to this Disclosure Statement; (iii) market values
of certain publicly traded companies whose operating businesses are believed to
be comparable to that of Reorganized BI and Subsidiary; (iv) the selling price,
to the extent available, of recently acquired companies whose operating
businesses are believed to be comparable to that of Reorganized BI and
Subsidiary; (v) general economic and industry conditions; (vi) the terms of the
Plan on a consensual basis; and (vii) other information as ZC deemed necessary
or appropriate.
In performing the valuation, ZC used information provided by
management, other firms retained by the Debtors or publicly available
information without independent challenge or verification as to their
completeness or accuracy. Thus, the range of enterprise value estimated by ZC
depends on the Debtors' achieving their financial projections, including their
projected revenue and sales growth, improvements in operating margins, earnings
and cash flows, management of inventory turns and working capital, expense
achievement goals and other elements of the projected financial information
(prior to as well as subsequent to the consummation of the Plan). Certain of the
projected results are materially better than recent historical results of
operations. To the extent that the analysis is dependent upon Reorganized BI and
Subsidiary achieving the projections, the analysis must be considered
speculative. The analysis contemplates a successful reorganization of the
Debtors' business and finances in accordance with the terms of the Plan, the
Debtors obtaining exit financing on commercially acceptable terms and many other
transactions and conditions as forth in management's financial projections
including, but not limited to, the continuity of the present senior management
of the Debtors following consummation of the Plan and that the general financial
and market conditions as of the expected Consummation Date of the Plan will not
differ materially from those conditions prevailing as of the date of this
Disclosure Statement. Therefore, no assurance can be given that the projected
results will be achieved.
As a result of its analyses, discussions and other considerations, ZC
estimated that the enterprise value of Reorganized BI and Subsidiary as of the
expected Consummation Date of the Plan would be in a range of $205 million to
$225 million. ZC based its estimate of the range of reorganized enterprise
value of Reorganized BI and Subsidiary on a multiple of normalized EBITDA
(earnings before interest, taxes, depreciation and amortization). The
reorganized enterprise value represents the estimated going concern value of
Reorganized BI and Subsidiary on an unleveraged basis. Based upon the estimated
reorganization enterprise value of Reorganized BI and Subsidiary projected
embedded debt of approximately $90 million (that portion of the ongoing revolver
facility that remains after the seasonal cleanup of the facility); the
liquidation of New Notes from the proceeds from certain assets sales with no
remaining amount due under the New Notes, and other terms and conditions as set
forth in the Plan, the Debtors have employed an assumed range of distributable
equity value of approximately $50 million to $65.0 million or approximately
$4.94 per share to $6.42 per
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share of New Common Stock based upon a distribution of 10,125,711 of shares of
New Common Stock (if the maximum number of shares of New Common Stock
distributable under the Plan of 10,909,090 were issued, the range of
distributable equity value would approximate $4.58 to $5.96). For purposes of
calculating distributions to be made under the Plan, the Debtors have estimated
the aggregate value of Reorganized BI's New Common Stock at approximately $60
million (approximately $5.93 per share of New Common Stock or approximately
$5.50 per share if the maximum number of shares of New Common Stock
distributable under the Plan of 10,909,090 were issued).
The value of an operating business such as the Debtors' is subject to
uncertainties and contingencies that are difficult to predict and will fluctuate
with changes in factors affecting the financial conditions and prospects of such
a business. As a result, the estimate of the reorganization value set forth
herein is not necessarily indicative of actual outcomes, which may be
significantly more or less favorable than those set forth herein. Because such
estimates are inherently subject to uncertainties, neither the Debtors, nor ZC
nor any other person assumes responsibility for its accuracy. Estimates of
value do not purport to be appraisals or necessarily reflect the values which
may be realized if assets are sold. Such valuations reflect computations of the
estimated reorganization enterprise value of Reorganized BI and Subsidiary
derived through the applications of various valuation techniques and do not
purport to reflect or constitute appraisals or estimates of value that may be
realized through the sale of any Reorganized Security to be issued pursuant to
the Plan in Public or Private markets, to the extent one exists which may be
significantly different than the amounts set forth herein, which amounts are
based on the estimated reorganization enterprise value used by the Debtors. The
valuation of newly issued securities is subject to uncertainties and
contingencies, all of which are difficult to predict. Actual market prices of
such securities at issuance will depend upon prevailing interest rates, market
conditions and prospects, financial and otherwise of the Debtors, including the
anticipated initial securities holdings of prepetition creditors some of which
may prefer to liquidate their investment rather than hold it on a long-term
basis, and other factors which generally influence the price of securities.
Actual market prices of such securities may be affected by the Debtors' history
in its Chapter 11 cases or by other factors not possible to predict.
Many of the analytical assumptions upon which this valuation is based
are beyond the Debtors' control and there will be variations between such
assumptions and actual facts. These variations may be material. See "Certain
Factors to be Considered" for a discussion of various other factors which could
materially affect the value of Reorganization Securities distributed pursuant to
the Plan.
XIV. Estimation of Claims
At the outset of these Chapter 11 cases, the Debtors formed a team to
evaluate and estimate Claims. Initially, an exhaustive review of the Debtors'
legal files was conducted for potential direct and indirect liability to the
Debtors' estates. Legal documents relating to the leased properties which the
Debtors expected to reject were given especially close scrutiny as were guaranty
and indemnity agreements. The Debtors
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also reviewed debt agreements and their related covenants. After reviewing these
documents and after consulting, as necessary, with the Debtors' professionals,
the teams determined the liability of the Debtors with respect to Claims
relating to each document.
The final result of this process was a schedule of estimated Allowed
Claims by the Debtors which provided the basis for the classifications in the
Plan.
XV. Delivery of Distributions
Distributions to holders of Allowed Claims will be made by the
Disbursing Agent selected by the Debtors (a) to the addresses set forth on the
proofs of claims filed by such holder; or (b) if no proof of claim has been
filed, to the address reflected in the Debtors' Schedules and Statements of
Financial Affairs; or (c) to the addresses set forth in any written notices of
transfer of Claim delivered to and actually received by the Debtors, the Claims
Agent or the Disbursing Agent.
XVI. Undeliverable Distributions
If a distribution of Cash is returned to the Debtors or the Disbursing
Agent, or if such Distribution is in the form of a check and is not presented
for payment within three months after delivery is attempted, or if distribution
of Reorganization Securities is returned to the Debtors or the Disbursing Agent
after two attempts of delivery, no further distribution will be made unless and
until the Debtors or the Disbursing Agent is notified in writing of the Claim
holder's then current address, at which time the previously undeliverable
distribution(s) will be made to the Claim holder without interest. For the
purposes of the Plan, undeliverable Distributions shall include checks sent to
the Claim Holders as Distributions, which checks have not been cashed within
three months following the date of issuance of such checks. Undeliverable
Distributions, including Cash held in connection with the uncashed checks, will
remain in the possession of the Disbursing Agent until the earlier of (a) such
time when the relevant distribution becomes deliverable or (b) one year after
the Effective Date.
XVII. Revocation, Withdrawal or Non-Consummation of the Plan
Each Debtor may only alter, amend, modify, revoke or withdraw the Plan
as the plan of reorganization for such Debtor's Case and the Cases of its
subsidiaries with the express unanimous consent of the Creditors' Committee, the
Bank Group and the Unofficial Committee. Each Debtor reserves the right to make
non-substantive changes in any Plan, which changes may be necessary to
facilitate the withdrawal of another Debtor from the Plan. See Section 3.XI
hereof entitled "Amendments". Any such revocation or withdrawal by a Debtor
shall not affect the Plan as the plan of reorganization of the other Debtors.
If a Debtor revokes or withdraws from the Plan: (a) nothing contained in the
Plan shall be deemed to constitute a waiver or release of any Claims by or
against such Debtor, including (without limitation) the Intercompany Claim or
any other claim of one Debtor against another Debtor, or to prejudice in any
manner the rights of such Debtor or any persons in any further proceedings
involving such Debtor, including (without limitation) objecting to any
Intercompany Claim; and (b) any
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provisions of any Confirmation Order with respect to such Debtor shall be null
and void (and such Debtor shall not be benefited by the Confirmation Order) and
all such rights of or against such Debtor shall exist as though the Plan had not
been filed and no actions taken to effectuate it.
If the Debtors withdraw or revoke the Plan, or if the Confirmation
Date does not occur, then the plan, any settlement or compromise thereunder, the
assumption or rejection of the executory contracts and unexpired leases and any
document or agreement executed pursuant to the Plan shall be null and void, and
nothing in the Plan shall: (a) constitute a waiver or release of any Claims by
or against, or any Interest in, the Debtors; (b) prejudice in any manner the
rights of the Debtors or any Person in any further proceedings involving the
Debtors; or (c) constitute an admission of any sort by the Debtors or any other
Person.
SECTION FOUR: VOTING REQUIREMENTS, ACCEPTANCE,
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CONFIRMATION AND CONSUMMATION OF THE PLAN
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I. General
To confirm the Plan, the Bankruptcy Code requires that the Bankruptcy
Court make a series of findings concerning the Plan and the Debtors, including
that: (i) the Plan classifies Claims and Interests in a permissible manner; (ii)
the Plan complies with the applicable provisions of the of the Bankruptcy Code;
(iii) the Debtors comply with the applicable provisions of the Bankruptcy Code;
(iv) the Debtors have proposed the Plan in good faith and not by any means
forbidden by law; (v) the disclosure required by Section 1125 of the Bankruptcy
Code has been made; (vi) the Plan has been accepted by the requisite votes of
holders of Claims or Interests (except to the extent that "cram-down" is
available under Section 1129(b) of the Bankruptcy Code (see Section 4.II.F
entitled "Confirmation Without Acceptance of All Impaired Classes ("Cram-down"),
(vii) the Plan is feasible and Confirmation will not likely be followed by the
liquidation or the need for further financial reorganization of the Debtors;
(viii) the Plan is in the "best interests" of all holders of Claims or Interests
in an impaired Class by providing to such holders on account of their Claims or
Interests property of a value, as of the Effective Date, that is not less than
the amount that such holder would receive or retain in a Chapter 7 liquidation,
unless each holder of a Claim or Interest in such Class has accepted the Plan
(see Section 4.II.H entitled "Best Interests of Creditors"); (ix) all fees and
expenses payable under 28 U.S.C. (S) 1930 (relating to bankruptcy fees payable
to the clerk of the Bankruptcy Court and the office of the United States
Trustee) have been paid or the Plan provides for the payment of such fees on the
Effective Date; (x) the Plan provides for the continuation after the Effective
Date of all retiree benefits, as defined in Section 1114 of the Bankruptcy Code,
at the level established at any time prior to Confirmation pursuant to Section
1114 of the Bankruptcy Code, for the duration of the period that the Debtors
have obligated themselves to provide such benefits; and (xi) the Plan Proponents
must have disclosed the identity and affiliations of any individual proposed to
serve, after confirmation of the Plan, as a director or officer of the Debtors
or a successor to the Debtors under the Plan, and the appointment to or
continuance in such office by such individual must be consistent with public
policy.
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The Plan constitutes a separate plan of reorganization for each of the
Debtors. Accordingly, for the plan to be confirmed for a particular Debtor, the
voting requirements described herein must be met for each such Debtor.
The Debtors believe that the Plan satisfies all of the statutory
requirements of Chapter 11 of the Bankruptcy Code. Certain of these
requirements are discussed in more detail below. The Debtors have proposed the
Plan in good faith.
II. Solicitation, Voting and Requirements
A. Eligibility to Vote
Pursuant to the Bankruptcy Code, only classes of claims against or
equity interests of a debtor that are "impaired" (within the meaning of 1124 of
the Bankruptcy Code) under the terms and provisions of a plan of reorganization
are entitled to vote to accept or reject a plan. A class is "impaired" if the
legal, equitable, or contractual rights attaching to the claims or interests of
that class are modified, other than by curing defaults and reinstating maturity
or by payment in full in cash. Classes of claims and interests that are not
impaired are not entitled to vote on a plan and, under Section 1126(f) of the
Bankruptcy Code, are conclusively presumed to have accepted a plan. Therefore,
holders of such unimpaired classes are not being solicited. In addition, under
1126(g), classes of claims and interests that receive no distributions are
deemed to have rejected the Plan and the votes of such holders will not be
solicited. See "Summary of Estimated Distributions With Respect to Classes of
Estimated Allowed Claims and Interests" for a summary of the classification and
treatment of Claims and Interests under the Plan, as well as a designation of
whether each Class is impaired or unimpaired.
The holder of a Claim in Classes BI-BANK, BI-GEN, BI-SPE, BSI-CAP,
BSI-BANK, BSI-SPE, BSI-GEN, YON-BANK, YON-SPE, YON-GEN, BRU-BANK, BRU-SPE, BRU-
GEN, WES-BANK, WES-SPE and WES-GEN is entitled to vote to accept or reject the
Plan if (a) such holder's Claim has been scheduled by the Debtors and such Claim
is not scheduled as disputed, contingent or unliquidated, or (b) such holder has
---
filed a proof of claim on or before April 1, 1996, pursuant to Section 502(a) of
the Bankruptcy Code, Bankruptcy Rule 3003 and the Bar Date Order, except where
the Debtors have specifically agreed to a late filed proof of claim. Any Claim
in the aforesaid Classes as to which an objection has been filed and has not
been withdrawn or dismissed is not entitled to vote unless the Bankruptcy Court,
------
pursuant to Bankruptcy Rule 3018(a) and upon application of the holder whose
Claim has been objected to, temporarily allows the Claim in an amount that the
Bankruptcy Court deems proper solely for the purpose of accepting or rejecting
the Plan (See Section 4.II.B entitled "Estimation and Temporary Allowance of
Claims," below).
A vote may be disregarded if the Bankruptcy Court determines, pursuant
to Section 1126(e) of the Bankruptcy Code, that it was not solicited or procured
in good faith or in accordance with the provisions of the Bankruptcy Code.
100
<PAGE>
B. Estimation and Temporary Allowance of Claims
Pursuant to Section 502 of the Bankruptcy Code and Bankruptcy Rule
3018, the Bankruptcy Court may estimate and temporarily allow a Claim for voting
and other purposes. The Debtors or holders of particular Claims may seek an
order of the Bankruptcy Court temporarily allowing, for voting purposes only,
certain Disputed Claims.
C. Acceptance Requirements
The Bankruptcy Code defines acceptance of a plan by a class of claims
as acceptance by creditors that hold at least two-thirds in dollar amount and
more than one-half in number of the allowed claims of such class who actually
vote for acceptance or rejection of a plan. The vote of a holder of a claim may
be disregarded if the bankruptcy court determines, after notice and a hearing,
that the acceptance or rejection was not solicited or procured in good faith or
in accordance with the provisions of the Bankruptcy Code.
D. Transmission of Ballots
All record holders of undisputed, Allowed Claims which are impaired
(including any Claims that are temporarily Allowed for voting purposes) as of
the date the order approving this Disclosure Statement was entered by the
Bankruptcy Court are entitled to vote to accept or reject the Plan and may do so
by completing the appropriate ballot which is enclosed with this Disclosure
Statement. In most cases, each ballot enclosed with this Disclosure Statement
has been encoded with the amount of your Claim for voting purposes (if your
Claim is a Disputed Claim, this amount may not be the amount ultimately allowed
for purposes of distributions under the Plan) and the Debtor and Class to which
your Claim relates. See also Section 1.V above entitled "Voting Procedures,
Ballots and Voting." PLEASE FOLLOW THE INSTRUCTIONS ACCOMPANYING THE ENCLOSED
BALLOT CAREFULLY.
VOTING ON THE PLAN BY EACH HOLDER OF AN IMPAIRED CLAIM ENTITLED TO
VOTE ON THE PLAN IS IMPORTANT. IF YOU HOLD CLAIMS IN MORE THAN ONE CLASS FOR A
PARTICULAR DEBTOR, OR AGAINST MORE THAN ONE DEBTOR, YOU MAY RECEIVE MORE THAN
ONE BALLOT. YOU SHOULD COMPLETE SIGN, AND RETURN EACH BALLOT THAT YOU RECEIVE.
E. Acceptances Required From Impaired Classes
In order for a plan to be confirmed without resort to the "cram-down"
provisions of the Bankruptcy Code, each Class of "impaired" Claims and Interests
must be determined to have accepted the Plan. As previously mentioned, each
Class of "impaired" Claims and Interests will be determined to have accepted the
Plan if Creditors and Interest holders who actually vote, accept the plan by
votes (i) representing at least two-thirds in amount of Allowed Claims or
Interests in such impaired Class and (ii) more than one-half in number of
Allowed Claims in such Class.
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Each of the following Classes of Claims is "impaired" under the Plan,
and the Debtors are soliciting acceptances for the Plan from the holders of
Claims in these Classes:
BI-BANK, BI-GEN, BI-SPE, BSI-CAP, BSI-BANK, BSI-SPE, BSI-GEN, YON-BANK, YON-SPE,
YON-GEN, BRU-BANK, BRU-SPE, BRU-GEN, WES-BANK, WES-SPE and WES-GEN.
All other Classes are either unimpaired under the Plan (Classes BI-
PTY, BAC-PTY, BSI-PTY, BSI-CON, DOS-PTY, MAX-PTY, YON-PTY, BRU-PTY and WES-PTY)
and are deemed to have accepted the Plan or will receive no distribution under
--
the Plan (Classes, BI-EQT, BAC-GEN, DOS-GEN) and MAX-GEN and are deemed to have
rejected the Plan. BAC-EQT, BSI-EQT, DOS-EQT, MAX-EQT, YON-EQT, BRU-EQT and
WES-EQT are not entitled to vote to accept or reject the Plan.
F. Confirmation Without Acceptance of All Impaired Classes ("Cram-down")
In the event that a plan otherwise satisfies the Bankruptcy Code's
requirements for confirmation, but one or more classes of Claims or Interests
votes to reject the Plan, a debtor has the right to seek confirmation of its
plan under the "cram-down" provisions of the Bankruptcy Code. The Debtors
intend to exercise their right to "cram-down" the Plan.
The Bankruptcy Court can "cram-down" the Plan at the Debtors' request
only if at least one impaired Class of Claims (excluding the votes of insiders)
in Classes BI-BANK, BI-GEN, BI-SPE, BSI-CAP, BSI-BANK, BSI-SPE, BSI-GEN, YON-
BANK, YON-SPE, YON-GEN, BRU-BANK, BRU-SPE, BRU-GEN, WES-BANK, WES-SPE and WES-
GEN has accepted the Plan and all other requirements of Section 1129(a) of the
Bankruptcy Code are satisfied.
In addition, the Bankruptcy Court must find that, as to each impaired
Class that has not accepted the Plan, the Plan does not "discriminate unfairly"
and is "fair and equitable" with respect to such non-accepting Class. Because
Classes BI-EQT, BAC-GEN, DOS-GEN and MAX-GEN are deemed to have rejected the
Plan, the Bankruptcy Court will have to determine at the Confirmation Hearing
whether the Plan is fair and equitable to, and does not discriminate unfairly
against, Classes BI-EQT, BAC-GEN, DOS-GEN and MAX-GEN and any rejecting impaired
Class of Claims.
A plan does not "discriminate unfairly" within the meaning of the
Bankruptcy Code if the dissenting class will receive value relatively equal to
the value given to all other similarly situated classes.
A plan of reorganization is "fair and equitable" within the meaning of
the Bankruptcy Code if no class receives more than it is legally entitled to
receive for its claims or interests.
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A plan is "fair and equitable" as to a class of secured claims that
rejects a plan if the plan provides (a)(i) that the holders of claims included
in the rejecting class retain the liens securing those claims whether the
property subject to those liens is retained by the debtors or transferred to
another entity, to the extent of the allowed amount of such claims, and (ii)
that each holder of a claim of such class receives on account of that claim
deferred cash payments totaling at least the allowed amount of that claim, of a
value, as of the effective date of the plan, equal to at least the value of the
holder's interest in the estate's interest in such property; or (b) for the
realization by such holders of the indubitable equivalent of such claims.
If a class of unsecured claims rejects a plan, the plan may still be
confirmed as long as the plan provides (a) for each holder of a claim included
in the rejecting class to receive or retain on account of that claim property
that has a value, as of the effective date of the plan, equal to the allowed
amount of such claim, or (b) that the holder of any claim or any interest that
is junior to the claims of such class will not receive or retain on account of
such junior claim or interest any property at all.
If a class of interests rejects a plan, the plan may still be
confirmed as long as the plan provides (a) that each holder of an interest
included in the rejecting class receive or retain on account of that interest
property that has a value, as of the effective date of the plan, equal to the
greatest of the allowed amount of any fixed liquidation preference to which such
holder is entitled, any fixed redemption price to which such holder is entitled,
or the value of such interest, or (b) that the holder of any interest that is
junior to the interest of such class will not receive or retain under the plan
on account of such junior interest any property at all.
Holders of Classes BI-EQT, BAC-GEN, DOS-GEN and MAX-GEN will not
receive or retain any property under the Plan, and are therefore deemed to have
rejected the Plan pursuant to Section 1126(g) of the Bankruptcy Code.
Accordingly, the Debtors intend to seek confirmation of the Plan pursuant to the
"cram-down" provisions of Section 1129(b) of the Bankruptcy Code. The Debtors
further believe that the Plan satisfies the requirements of Section 1129(b)
since the aforementioned Class will not receive any property under the Plan.
G. Feasibility of the Plan
The Debtors believe that, if they meet their current financial
projections, they will be able to perform their obligations under the Plan and
continue to operate their businesses without further financial reorganization or
liquidation. In connection with confirmation of the Plan, the Bankruptcy Court
will have to determine that the Plan is feasible pursuant to Section
1129(a)(11), which means that confirmation of the Plan is not likely to be
followed by the liquidation or the need for further financial reorganization of
the Debtors.
To support their belief in the Plan's feasibility, the Debtors have
prepared financial projections for fiscal years 1998 through 2000, which
projections are set forth in Exhibit 3 to this Disclosure Statement.
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<PAGE>
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH
THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS. FURTHERMORE, THE PROJECTIONS HAVE NOT BEEN AUDITED BY THE DEBTORS'
INDEPENDENT CERTIFIED ACCOUNTANTS. THE PROJECTIONS ARE BASED UPON A VARIETY OF
ASSUMPTIONS, WHICH ARE SUBJECT TO BUSINESS, ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE
DEBTORS. CONSEQUENTLY, THE PROJECTIONS SHOULD NOT BE REGARDED AS A
REPRESENTATION OR WARRANTY BY THE DEBTORS, OR ANY OTHER PERSON, THAT THE
PROJECTIONS WILL BE REALIZED. ACTUAL RESULTS MAY VARY FROM THOSE PRESENTED IN
THE PROJECTIONS. SEE SECTION ENTITLED "CERTAIN FACTORS, TO BE CONSIDERED -
---
PROJECTED FINANCIAL INFORMATION.
H. Best Interests of Creditors
To confirm the Plan over the objections of dissenting holders of
Claims and Interests, the Bankruptcy Court must also independently determine
that the Plan is in the "best interests" of all dissenting holders of Claims and
Interests impaired under the Plan. Under the "best interests" test, the
Bankruptcy Court must find that the Plan provides to each dissenting holder of
an impaired Claim or Interest a recovery of a value at least equal to the value,
as of the Effective Date, of the distribution that each such holder would
receive were the Debtors liquidated under Chapter 7 of the Bankruptcy Code. As
demonstrated in the liquidation analysis attached as Exhibit 5 to this
Disclosure Statement, the Debtors believe that a liquidation of the Debtors'
assets would produce lower recoveries for Persons seeking payment of
Administrative Claims and holders of Priority Tax Claims and no recovery for the
holders of Unsecured Claims.
To calculate the distribution that members of each impaired Class of
Claims and Interests would receive if the Debtors were liquidated under Chapter
7, the dollar amount generated from a liquidation would first be determined.
The amount of liquidation value available to Unsecured Creditors would be
reduced, first, by the Claims of Secured Creditors to the extent of the value of
their collateral and, second, by the costs and expenses of liquidation, as well
as by other administrative expenses and costs of both the Chapter 7 cases and
the Chapter 11 Cases. Costs of liquidation under Chapter 7 of the Bankruptcy
Code would include the compensation of a trustee, as well as of counsel and
other professionals retained by the trustee, asset disposition expenses, all
unpaid expenses incurred by the Debtors in the Chapter 11 Cases (such as
compensation of attorneys, financial advisors and accountants) that are allowed
in the Chapter 7 cases, and claims arising from the Debtors' operations during
the pendency of the Chapter 11 cases.
Once the court ascertains the recoveries in liquidation of secured
Creditors and priority claimants, it must then determine what General Unsecured
Creditors would receive out of the available proceeds. These recoveries are
then compared with the value of the distributions offered to Classes of Allowed
Claims and Interests under the Plan. The following chart depicts recoveries
under the Plan and a hypothetical liquidation:
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<TABLE>
<CAPTION> Liquidation
Estimated Plan Recovery Recovery(3)
($ in thousands) Allowable Claims Percentage (2) Percentage
------------------ ------------------ ------------------
<S> <C> <C> <C>
All Debtors
DIP BORROWINGS $103,344 100% 100%
CHAPTER 11 ADMINISTRATIVE CLAIMS 17,124 100% 100%
Bank Claims 96,000 75.1% 29.0%
SPE Claims 11,742 43.7% 36.2%
Bradlees, Inc.
BI-PTY $0 0% 0%
BI-GEN 264,833 0% 0%
BI-EQT(5) N/A N/A N/A
Bradlees Administrative Co., Inc.
BAC-PTY $0 0% 0%
BAC-GEN 0 0% 0%
BAC-EQT(5) N/A N/A N/A
Bradlees Stores, Inc.
BSI-PTY $3,290 100% 0%
BSI-CAP 560 100% 0%
BSI-GEN(6) 253,090 14.5% 1%
BSI-CON(4) 1,000 N/A N/A
BSI-EQT(5) N/A N/A N/A
Dostra Realty Co., Inc.
DOS-PTY $0 0% 0%
DOS-GEN 0 0% 0%
DOS-EQT(5) N/A N/A N/A
Maximedia Services, Inc.
MAX-PTY $0 0% 0%
MAX-GEN 0 0% 0%
MAX-EQT(5) N/A N/A N/A
New Horizons of Yonkers, Inc.
YON-PTY $0 0% 0%
YON-GEN 0 0% 0%
YON-EQT(5) N/A N/A N/A
New Horizons of Bruckner, Inc.
BRU-PTY $0 0% 0%
BRU-GEN 0 0% 0%
BRU-EQT(5) N/A N/A N/A
New Horizons of Westbury, Inc.
WES-PTY $0 0% 0%
WES-GEN 0 0% 0%
WES-EQT(5) N/A N/A N/A
</TABLE>
Note 1 -Estimated Allowable Claims
Estimated Allowed Claims represents the Debtors' best estimate of the amount of
prepetition obligations that would be allowed in each of the Respective Debtors
under a plan of reorganization. There can be no assurance, however, that such
estimates will prove accurate. The estimated amount of Allowed Claims does not
reflect adjustments within Claim Classes for reductions in asset values due to
liquidation. Under a liquidation scenario substantial amounts of additional
Claims could be expected to be filed, resulting from rejection of unexpired
leases and executory contracts, employee severance and other obligations that
would arise from the liquidation, which amounts could be material. See Exhibit
5, "Liquidation Analysis".
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Note 2 - Percentage Plan Recovery
Plan Recovery Percentages represent the estimated recovery percent by Class of
estimated Allowed Claims. See "Summary of Estimated Distributions with Respect
to Classes of Estimated Allowed Claims and Interests".
Note 3 - Liquidation Recovery Percentage
Liquidation Recovery Percentages are based on the estimated recoveries by Class
of estimated Allowed Claims under a Chapter 7 liquidation scenario. See Exhibit
5, "Liquidation Analysis".
Note 4 - Convenience Claim
In accordance with Sections 2.07 and 6.05 of the Plan, certain claimants may
elect Convenience Claim treatment, reducing their Claim in General Unsecured
Classes to $500 and receiving full payment in Cash. The Debtors estimate that
approximately $1.0 million in cash payments will be made for Claims which elect
or are deemed to elect Convenience Claim treatment. If the Debtors were
liquidated under Chapter 7 of the Bankruptcy Code, no Claims would be allowed as
Convenience Claims and such Claims would be treated under the respective General
Unsecured Claim Classes.
Note 5 - Equity Claims
Under both the Plan and a liquidation scenario, allowed interest claims are not
expected to receive a recovery.
Note 6 - BSI-GEN
Exclusive of the SPE Deficiency Claim and related recovery.
Conclusion
In summary, the Debtors believe that a chapter 7 liquidation of the
Debtors would result in substantial diminution in the value to be realized under
the Plan by holders of Claims because of, among other factors; (a) the failure
to realize the maximum value of the Debtors' assets as a going concern, (b)
additional administrative expenses involved in the appointment of a trustee,
attorneys, accountants and other professionals to assist in the Chapter 7
liquidation of the estate, (c) the loss of certain tax benefits and potential
incurrence of additional tax liabilities in the event of liquidation, (d)
additional expenses and Claims, (e) potential litigation for inter-Debtor Claims
or preference actions, and (f) substantial time which would elapse prior to
creditors receiving any distribution against their respective Claims.
Consequently, the Debtors believe that the Plan, which provides for the
continuation of the Debtors' businesses, will provide a substantially greater
ultimate return to holders of Allowed Claims in all Classes of all Debtors than
would a liquidation.
106
<PAGE>
III. Certain Factors To Be Considered
The holder of an impaired Claim should consider carefully the
following risk factors as well as all of the other information contained in this
Disclosure Statement, including the Plan and other exhibits hereto, before
deciding whether to vote to accept or reject the Plan.
The formulation of a plan of reorganization is the principal purpose
of a Chapter 11 case. The Plan sets forth the means for satisfying the holders
of Claims against the Debtors.
The reorganization of the Debtors under the proposed Plan will
preserve jobs for over 10,000 people currently employed by the Debtors and will
avoid the potentially adverse impact of a liquidation on the thousands of trade
vendors, other suppliers of goods and services and lessors of the Debtors.
A. Settlements Embodied in the Plan
The Plan contains various debtor-creditor and inter-creditor
settlements that are reflected in the relative recoveries of the creditor groups
and that are designed to achieve a global resolution of these Chapter 11 Cases.
The Plan is premised upon settlement, rather than litigation of these disputes.
The Plan represents, in effect, a linked series of concessions by
creditors in separate classes of Claims. In proposing the Plan, the Debtors
intend to offer a non-litigation alternative to creditors in the context of the
reorganization of the Debtors' businesses.
The Debtors believe that settlement of these disputes is the best way
to ensure a prompt resolution of the Chapter 11 Cases. They further believe
that although litigation may produce somewhat different absolute and relative
recoveries from those embodied in the Plan, such litigation may not increase the
values to be distributed under the Plan and may not be finally resolved for
years, thus delaying distributions to creditors and will be costly to the
Estates. Thus, the settlement of the following disputes is the cornerstone of
the Plan:
(i) Any disputes regarding the validity and amount of the
Intercompany Claim.
(ii) Any disputes regarding preferential transfer and fraudulent
transfer claims, including the amount of the potential preference claims of
BSI against persons that sold merchandise to BSI (or that factored invoices
from such vendors to BSI).
107
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B. Risk to Unsecured Creditors and Holders of Interests in the Event of
Subsequent Liquidation or Financial Reorganization
Upon consummation of the Plan, Reorganized BI and Reorganized BSI will
have a significant amount of debt on their balance sheets and the financial
obligations borne by Reorganized BSI, as compared to its ability to generate
cash flow, could impair its ability to respond appropriately to changing
economic or market conditions. In addition, forecasting sales and operating
results during the Chapter 11 Cases has been difficult, and the Debtors have
revised their business plan and financial projections downward on several
occasions during the course of the Chapter 11 Cases. Moreover, the success of
the Plan also depends upon the ability of BSI to continue to obtain merchandise
on reasonable credit terms. Although the Debtors' management believes that (a)
the Debtors will meet their current financial projections, and most important,
their sales and EBITDA projections for the next several months, and (b) the
confirmation of the Plan is not likely to be followed by a liquidation, or the
need for further financial reorganization, of Reorganized BI or Reorganized BSI,
there can be no assurance that such liquidation will not occur or that the need
for such financial reorganization will not arise. Under the Plan, substantially
all the assets of Reorganized BSI will be pledged to secure new borrowings under
the New Credit Facility. Accordingly, after consummation of the Plan, if
Reorganized BSI and Reorganized BI were to be liquidated or if the need for a
further financial reorganization were to arise, in the opinion of the Debtors
and their financial advisors, the unencumbered assets of Reorganized BSI
probably would be insufficient to provide the holders of (i) unsecured claims
against BSI with a significant recovery and (ii) equity interests in Reorganized
BI with any recovery. Such holders of unsecured Claims against, or interests
in, Reorganized BSI and Reorganized BI might include holders of Allowed Claims
that are entitled to, but have not yet received, Reorganization Securities under
the Plan. Post-consummation trade credit of Reorganized BSI will be secured by
a subordinate lien on BSI's inventory and hence would be paid off before general
unsecured claims are paid to the extent that the lien held by the trade vendors
has value.
C. Factors Affecting the Value of the New Common Stock and Lack of an
Established Market
The following additional matters should be considered in evaluating
the Plan, particularly with respect to the value of the New Common Stock and the
Warrants, the reorganization value of BSI, the liquidation analysis, and the
financial projections. (See "Section Four entitled VOTING REQUIREMENTS,
ACCEPTANCE, CONFIRMATION AND CONSUMMATION OF THE PLAN. -- D. Best Interest of
Holders of Claims and Interests; -- E. Liquidation Analysis; -- F.
Reorganization Value; and -- G. Feasibility of the Plan".)
1. Matters Affecting Trading
-------------------------
There is no assurance that an active market will exist for trading the
New Common Stock or the Warrants. No trading market currently exists for the
New
108
<PAGE>
Common Stock or the Warrants. The Debtors will use all reasonable efforts to
have the New Common Stock listed on a national exchange.
The New Common Stock will be issued pursuant to the Plan to
prepetition creditors, some of whom may prefer to liquidate their New Common
Stock rather than to hold it on a long-term basis. Accordingly, it is
anticipated that the market, to the extent one exists, may be volatile.
Moreover, while the Plan was developed based upon an estimated range of possible
values of the price per share of New Common Stock, such valuation was not an
estimate of the prices at which the New Common Stock may trade in the market,
and the Debtors have not attempted to make any such estimate in connection with
the development of the Plan. No assurance can be given as to the market price
that will prevail following the Effective Date.
On the Effective Date, holders of Bank Group Claims will be issued New
Common Stock representing approximately 48.5% of the voting stock of Reorganized
BI based on the Debtors' estimate of Allowed Claims. A large amount of shares
of New Common Stock will also be distributed on the Effective Date to holders of
Allowed BSI-GEN claims.
The issuance of substantial amounts of New Common Stock on the
Effective Date may result in a low market price for the New Common Stock for
some time following the Effective Date and may restrict the marketability of the
New Common Stock. Sales of or offers to sell a substantial number of the shares
of the New Common Stock could affect adversely the market for and price of the
New Common Stock.
2. Dividends
---------
Reorganized BI does not anticipate that any dividends will be paid
with respect to the New Common Stock in the near term. The projections
contemplate no payment of dividends through fiscal year 2000. (See "IX. VOTING
REQUIREMENTS, ACCEPTANCE AND CONFIRMATION OF THE PLAN. -- G. Feasibility of the
Plan.")
D. Projected Financial Information
The financial projections included in this Disclosure Statement are
dependent upon the successful implementation of the Debtors' Business Plan and
the reliability of the assumption contained therein. These projections reflect
numerous assumptions, including confirmation and consummation of the Plan in
accordance with its terms, the anticipated future performance of Reorganized
BSI, industry performance, general business and economic conditions and other
matters, most of which are beyond the control of Reorganized BI and Reorganized
BSI and some of which may well not materialize. In addition, unanticipated
events and circumstances occurring subsequent to the preparation of the
projections may affect the actual financial results of Reorganized BSI.
Therefore, the actual results achieved throughout the period covered by the
projections will vary from the projected results. The variations may be
material.
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E. Competition
Reorganized BSI will be subject to the risk generally related to
businesses operating in a highly competitive business. As a result, Reorganized
BSI will be subject to continued competitive pressure from regional and national
competitors as such competitors open new stores and strive to gain market share.
F. Dilution and Risk of Actual Distributions Being Less Than Estimates
A substantial amount of time may elapse between the Effective Date and
the receipt of total Distributions under the Plan for certain Classes. Also, if
there are substantial Disputed Claims in any particular Class, the Distribution
made in respect of Allowed Claims in such Class on the Initial Distribution Date
(which will occur on or shortly after the Effective Date for all Classes) may be
small compared to the ultimate Distribution to be received by the holder of such
Claim over time as Additional Quarterly Distributions.
The Distributions and recoveries set forth herein are based on the
Debtors' estimate of Allowed Claims against each Debtor. The Debtors project
that the Claims asserted against them will be resolved in and reduced to an
amount that approximates the Debtors' estimates. There can be no assurance that
any of such estimates will prove accurate. Therefore, the estimates set forth
herein could significantly differ from the actual Distributions made under the
Plan. The risk that actual Distributions will differ from the Debtors'
estimates set forth herein is particularly applicable to General Unsecured
Claims Classes by reason of the nature of the Claims filed in those Classes
(i.e., many disputed, contingent and unliquidated Claims) in comparison to
Classes that contain Claims for funded debt where there are few, if any,
Disputed Claims.
Also, the Debtors reserve the right to object to the amount of
classification of any Claim. Thus, the estimates set forth in this Disclosure
Statement cannot be relied upon by any creditor whose Claim is subject to a
successful objection. Any such creditor may not receive the estimated
Distributions set forth herein.
Additionally, in respect of holders of Bond Claims, the Indenture
Trustee under the Indenture has the right under the terms of such Indenture to
liquidate New Warrants to pay its fees and expenses received for Distribution to
such holders. The Indenture Trustee for the holders of Bond Claims has
estimated that its aggregate costs and expenses will be approximately $________
(it being understood that such estimate is not a guarantee of or limitation on
the total amount of expenses which may accrue). Such liquidation of New
Warrants could be made at a time when few holders of New Warrants would exist.
Therefore, such Indenture Trustee may need to sell more shares of New Warrants
at a lower price than the market price that might exist if all shares of New
Warrants were fully distributed under the Plan and such shares were more widely
held. See "Risk Factors to be Considered--Lack of Established Market for the
Reorganization Securities; Volatility" and "Plan of Reorganization--Plan
Negotiations--Valuation of the Debtors." Any such liquidation would reduce or
eliminate Distributions to such holders from the estimated amounts set forth
herein.
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G. Other Factors
-------------
Management of the Debtors believes that the Plan does not provide
Distribution, which are sufficient to assure retention of the management of
Reorganized BI. For this reason, the Debtors intend, subject to appropriate
authorization from the Board of Directors of the Debtors, to apply to the
Bankruptcy court for approval of an emergence bonus payable in Cash.
IV. Compliance With Securities Laws
Certain creditors of the Debtors will receive Reorganization
Securities pursuant to the Plan. Section 1145 of the Bankruptcy Code provides
certain exemptions from the securities registration requirements of the federal
and state securities laws with respect to the Distribution of Reorganization
Securities pursuant to the Plan.
A. Issuance of Reorganization Securities
Section 1145 of the Bankruptcy Code exempts the original issuance of
securities under a plan of reorganization from registration under the Securities
Act of 1933, as amended (the "Securities Act") and state law. Under Section
1145, the issuance of the Reorganization Securities is exempt from registration
if three principal requirements are satisfied: (1) the securities must be issued
by a debtor, its successor, or an affiliate participating in a joint plan of
reorganization with the debtor; (2) the recipients of the securities must hold a
claim against the debtor or such affiliate, an interest in the debtor or such
affiliate; and (3) the securities must be issued entirely in exchange for the
recipient's claim against or interest in the debtor or such affiliate; or
"principally" in such exchange and "partly" for cash or property. The Debtors
believe that the issuance of the Reorganization Securities under the Plan will
satisfy all three conditions because: (a) the issuance of such securities are
expressly contemplated under the Plan; (b) the recipients are holders of
"Claims" against the Debtors; and (c) the recipients would obtain the
Reorganization Securities in exchange for their pre-petition Claims.
Notwithstanding the foregoing, the Debtors intend to register the New Common
Stock and New Warrants with the Securities and Exchange Commission, for the
reasons described below.
V. Subsequent Transfers of Reorganization Securities
The Reorganization Securities to be issued pursuant to the Plan may be
freely transferred by most recipients following Distribution under the Plan, and
all the re-sales and subsequent transactions in the Reorganization Securities
are exempt from federal and state securities registration under federal and
state securities laws, unless the holder is an "underwriter" with respect to
such securities. Section 1145(b) of the Bankruptcy Code defines four types of
"underwriters:"
(i) persons who purchase a claim against, an interest in, or a claim
for an administrative expense against the debtor with a view to
distributing any security received in exchange for such a claim or
interest;
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(ii) persons who offer to sell securities offered under a plan for the
holders of such securities;
(iii) persons who offer to buy such securities for the holders of such
securities, if the offer to buy is: (a) with a view to distributing such
securities; or (b) made under a distribution agreement; and
(iv) a person who is an "issuer" with respect to the securities, as
the term "issuer" is defined in Section 2(11) of the Securities Act.
Under Section 2(11) of the Securities Act, an "issuer" includes any
person directly or indirectly controlling or controlled by the issuer, or any
person under direct or indirect common control of the issuer.
To the extent that persons who are deemed to be "underwriters" receive
Reorganization Securities or other securities under the Plan, re-sales by such
persons would not be exempted by Section 1145 of the Bankruptcy Code from
registration under the Securities Act or other applicable law. Persons deemed
to be underwriters, however, may be able to sell such securities without
registration pursuant to the provisions of Rule 144 under the Securities Act,
which permits the public sale of securities received pursuant to the Plan by
"underwriters," subject to the availability to the public of current information
regarding the issuer and to volume limitations and certain other conditions.
Whether or not any particular person would be deemed to be an
"underwriter" with respect to any Reorganization Securities or other security
issued pursuant to the Plan would depend upon various facts and circumstances
applicable to that person. Accordingly, the Debtors express no view as to
whether any particular person receiving Distributions under the Plan would be an
"underwriter" with respect to any Reorganization Security or other security to
be issued pursuant to the Plan.
GIVEN THE COMPLEX AND SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A
PARTICULAR HOLDER MAY BE AN UNDERWRITER, THE DEBTORS MAKE NO REPRESENTATION
CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE REORGANIZATION SECURITIES.
THE DEBTORS RECOMMEND THAT POTENTIAL RECIPIENTS OF REORGANIZATION SECURITIES
CONSULT WITH THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH
SECURITIES WITHOUT COMPLIANCE WITH THE SECURITIES ACT.
VI. Certain Federal Income Tax Consequences
The following is a general summary of certain material federal income
tax consequences of the Plan to the Debtors and their creditors. This summary
does not discuss all aspects of federal income taxation that may be relevant to
the Debtors or to a particular creditor in light of its personal investment
circumstances or to certain creditors subject to special treatment under the
federal income tax laws (for example, life insurance companies, tax-exempt
organizations, foreign corporations and individuals who are not citizens or
residents of the United States) and does not discuss any aspects of state, local
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or foreign taxation. The summary does not discuss the tax consequences to the
current stockholders of BI who will not receive any distribution under the Plan
in exchange for their equity interests and, accordingly, such stockholders
should consult their own tax advisors regarding their ability to recognize a
loss for tax purposes and any other tax consequences to them of the Plan.
This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Tax Code"), the Treasury regulations (including temporary
regulations) promulgated thereunder, judicial authorities and current
administrative rulings, all as in effect on the date hereof and all of which are
subject to change (possibly with retroactive effect) by legislation,
administrative action or judicial decision. Moreover, due to a lack of
definitive judicial or administrative authority and interpretation, substantial
uncertainties exist with respect to various tax consequences of the Plan as
discussed herein. FOR THE FOREGOING REASONS, CREDITORS ARE URGED TO CONSULT
WITH THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES (FEDERAL, STATE,
LOCAL AND FOREIGN) TO THEM OF THE PLAN. THE DEBTORS ARE NOT MAKING ANY
REPRESENTATIONS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE CONFIRMATION
AND CONSUMMATION OF THE PLAN AS TO ANY CREDITOR, NOR ARE THE DEBTORS OR THEIR
COUNSEL RENDERING ANY FORM OF LEGAL OPINION AS TO SUCH TAX CONSEQUENCES.
No private letter rulings have been or are expected to be requested
from the Internal Revenue Service (the "Service") concerning any of the tax
matters described herein, and there can be no assurance that the Service will
not challenge the positions taken or expected to be taken by the Debtors with
respect to any of the issues addressed herein or that a court would not sustain
such a challenge.
A. Federal Income Tax Consequences to the Debtors
In general, the Debtors do not expect to recognize a significant
amount of taxable income, and accordingly do not expect to incur any substantial
tax liability as a result of implementation of the Plan. Moreover, the Debtors
expect that in the future an amount of their potential taxable income will be
able to be sheltered by existing net operating loss carryovers despite
reductions and limitations on the utilization of such tax attributes caused by
the issuance of substantial amounts of stock and warrants to creditors, as
discussed below.
1. Cancellation of Indebtedness
----------------------------
Under general tax principles, each Debtor would realize cancellation
of debt ("COD") income to the extent that such Debtor pays a creditor pursuant
to the Plan an amount of consideration in respect of a Claim against such Debtor
that is worth less than the amount of such Claim. For this purpose, the amount
of consideration paid to a creditor generally would equal the amount of cash or
the fair market value of the Reorganization Securities or other property paid to
such creditor. However, because each Debtor will be in a bankruptcy case at the
time the COD income is realized, under Tax
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Code section 108 the relevant Debtor will not be required to include COD income
in gross income, but rather will be required to reduce certain of its tax
attributes by the amount of COD income so excluded. A portion of the
Intercompany Claim that is not an Allowed Claim was previously contributed to
the capital of BSI (subject to confirmation of the Plan). BI and BSI intend, for
U.S. federal income tax purposes, to treat such contribution as a nonrecognition
event, but there can be no assurance that such treatment will be respected.
Under the general rules of Tax Code section 108, the required
attribute reduction would be applied first to reduce the relevant Debtor's net
operating loss carry-forwards ("NOLs") to the extent of such NOLs, with any
excess excluded COD income applied to reduce certain other tax attributes. Tax
Code section 108(b)(5) provides an election pursuant to which the relevant
Debtor can elect to apply the required attribute reduction to first reduce the
basis of its depreciable property to the extent of such basis, with any excess
applied next to reduce its NOLs and then certain other tax attributes.
2. Limitation on Net Operating Losses
----------------------------------
BI will experience an "ownership change" (within the meaning of Tax
Code section 382) on the Effective Date as a result of the issuance of New
Common Stock of Reorganized BI to holders of the BSI-GEN Claims, the Bank Group
Claims and the SPE Claims. As a result, Reorganized BI's ability to use any
pre-Effective Date NOL's, capital loss carryovers and certain net unrealized
built-in losses (as defined in section 382(h) of the Tax Code) to offset its
income in any post-Effective Date taxable year (and in the portion of the
taxable year of the ownership change following the Effective Date) to which such
a carryover is made, generally (subject to various exceptions and adjustments,
some of which are described below) will be limited to the sum of (i) a regular
annual limitation (prorated for the portion of the taxable year of the ownership
change following the Effective Date), (ii) the amount of the "recognized built-
in gain" for the year which does not exceed the excess of its "net unrealized
built-in gain" over previously recognized built-in gains (as the quoted terms
are defined in section 382(h) of the Tax Code) and (iii) any carryforward of
unused amounts described in (i) and (ii) from prior years. The regular annual
limitation will generally be equal to the product of (x) the value of the stock
of Reorganized BI (increased to reflect the increase in value of Reorganized BI
resulting from the surrender of the creditors' Claims under the Plan) and (y)
the "long-term tax-exempt rate" (as defined in Tax Code section 382(f)). In
September 1998, the long-term tax-exempt rate was 5.88 %; however, the rate in
effect on the Effective Date may be different from the September 1998 rate. The
loss carryovers will be subject to further limitations if Reorganized BI
experiences additional future ownership changes or if it does not continue its
business enterprise for at least two years following the Effective Date.
3. Alternative Minimum Tax
-----------------------
For purposes of computing the Debtors' regular tax liability, all of
the taxable income recognized in a taxable year generally may be offset by the
carryover of tax attributes (to the extent permitted under, among other
sections, sections 269, 382, and
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383 of the Tax Code). Although all of the Debtors' regular tax liability for a
given year may be reduced to zero by virtue of their tax attributes, the Debtors
in any given year may be subject to the alternative minimum tax ("AMT"). The AMT
imposes a tax equal to the amount by which 20% of a corporation's alternative
minimum taxable income ("AMTI") exceeds the corporation's regular tax liability.
AMTI is calculated pursuant to specific rules in the Tax Code which eliminate or
limit the availability of certain tax deductions and other beneficial allowances
and which include as income certain amounts not generally included in computing
regular tax liability, but, significantly, do not include discharge of
indebtedness income excluded under section 108 of the Tax Code. Of particular
importance to the Debtors is that in calculating AMTI, only 90% of a
corporation's AMTI may be offset by net operating losses. Thus, in any year for
which either Debtor may be subject to the AMTI, such Debtor may not totally
eliminate all tax liability on recognized income through the use of net
operating losses. Any AMTI would be taxable at an effective rate of 2% (i.e.,
10% of the 20% AMT tax rate).
Deductions of Accrued Interest
------------------------------
To the extent a portion of the consideration issued to creditors
pursuant to the Plan is attributable to accrued and unpaid interest on their
Claims, the relevant Debtor should be entitled to interest deductions in the
amount of such accrued interest, to the extent it has not already deducted such
amounts.
B. Federal Income Tax Consequences to Holders of Claims
The federal income tax consequences of the implementation of the Plan
to a creditor will depend upon a number of factors, including whether the
creditor is deemed to have participated in an exchange for federal income tax
purposes, and, if so, whether such exchange transaction constitutes a tax-free
recapitalization or a taxable transaction, whether the creditor's present debt
claim constitutes a "security" for federal income tax purposes, the type of
consideration received by the creditor in exchange for its Allowed Claim, and
whether the creditor reports the income on the accrual basis.
1. Tax Consequences to Holders of Claims Generally
-----------------------------------------------
When a holder of an Allowed Claim receives a distribution of cash or,
unless as part of a reorganization in whole or in part, other property pursuant
to the Plan in satisfaction of such Allowed Claim, it will realize income, gain
or loss measured by the difference between (i) the cash and the fair market
value of the property received (or in the case of property that constitutes a
debt instrument for U.S. federal income tax purposes the issue price of such
debt instrument as determined under sections 1273 and 1274 of the Tax Code) and
(ii) its adjusted tax basis in the Claim. Subject to the market discount rules
discussed below, this income, gain or loss will be a capital gain or loss if the
Allowed Claim was a capital asset in the holder's hands. Such gain or loss will
be long-term capital gain or loss if such holder's holding period for the Claim
surrendered exceeded one year at the time of the exchange. If the distribution
is in satisfaction of accounts or other receivables acquired by a holder of an
Allowed Claim in the ordinary course of its business for the performance of
services or for the sale of inventory, any
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income, gain or loss recognized will be characterized as ordinary income, gain
or loss. Moreover, if a holder of a Claim has claimed an ordinary deduction for
the worthlessness of the Claim under Tax Code section 166 in a prior taxable
year, any income or gain realized will be taxed as ordinary income to the extent
of the ordinary deduction.
2. Holders of BI-GEN Claims
------------------------
The issuance of the New Warrants to holders of the BI-GEN Claims
pursuant to the Plan will each constitute an exchange for federal income tax
purposes. The federal income tax consequences of such exchange will depend on
whether the obligations underlying such Claims and the New Warrants both
constitute "securities." The term "security" is not defined in the Tax Code or
applicable Regulations and has not been clearly defined by court decisions.
Whether an instrument constitutes a "security" for federal income tax purposes
depends upon all of the facts and circumstances including the term of the
instrument, security for the instrument, the degree of subordination of the
instrument, the ratio of debt-to-equity of the issuer, the riskiness of the
business of the issuer and the negotiability of the instrument.
Generally (as described above), a holder of the BI-GEN Claims will
realize gain or loss on the exchange in an amount equal to the difference
between (i) the "amount realized" in respect of such Claim and (ii) the holder's
tax basis in his existing claim (other than any claim in respect of accrued
interest). For these purposes, the "amount realized" will be equal to the fair
market value of the New Warrants on the Effective Date.
If the obligations underlying the BI-GEN Claims and the New Warrants
for which they are exchanged pursuant to the Plan both constitute securities,
the exchange of such Claims should qualify as a "recapitalization." In such
case, the entire amount of the holder's realized gain or loss would not be
recognized for federal income tax purposes and the initial tax basis of the New
Warrants would generally be equal to the adjusted tax basis of the obligations
underlying the Claims surrendered (other than any claims in respect of accrued
interest). Moreover, if the obligations underlying the BI-GEN Claims are
securities but the New Warrants are not for purposes of section 368 of the Tax
Code, it is possible that, if one of the exchanges discussed below constitutes a
recapitalization, the exchange of the BI-GEN Claims for the New Warrants may be
considered part of such recapitalization, with the same results as described in
the second sentence of this paragraph.
3. Holders of the BSI-GEN Claims
-----------------------------
Because the majority of BSI-GEN Claims relate to claims of trade
creditors, which type of obligations are not generally considered "securities,"
it is likely that the federal income tax consequences to holders of the BSI-GEN
Claims of receiving New Common Stock in Reorganized BI in exchange for such
Claims will be that such holders recognize gain or loss on the exchange. In
such case, a holder's tax basis in the New Common Stock will be equal to the
fair market value of such stock on the Effective Date.
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If, however, any such exchanged obligations were to constitute
securities, the federal income tax consequences to holders of such Claims could
be similar to those described with respect to the SPE Claims relating to the
receipt of New Common Stock of Reorganized BI. As with the SPE Claims, holders
are urged to consult their own tax advisors.
4. Holders of the Bank Group Claims
--------------------------------
The federal income tax consequences to holders of the Bank Group
Claims of receiving New Notes and New Common Stock of Reorganized BI in exchange
for such Claims will depend on whether the obligations underlying the Bank Group
Claims constitute securities.
With respect to any such obligation that does not constitute a
security, the holder thereof will recognize gain or loss on the exchange and
such holder's tax basis in the New Notes and the New Common Stock, respectively,
will be equal to the issue price of such notes (determined under sections 1273
and 1274 of the Tax Code) and the fair market value of such stock on the
Effective Date.
However, with respect to any such exchanged obligations that
constitute securities, the exchange for New Common Stock and New Notes should
qualify as a "recapitalization" for federal income tax purposes. In such case,
holders of such Claims may recognize gain, but not loss, on receipt of the Cash,
New Notes and New Common Stock. If the New Notes are not securities, the amount
of the holders' gain realized on the exchange will not exceed the issue price of
the New Notes and the amount of the Cash received. If the New Notes do
constitute securities, then no gain should be recognized on the exchange unless
Cash is received, and then only to the extent of such Cash.
In the case of a recapitalization, if the New Notes are securities,
the holder's initial tax basis, respectively, in the New Notes and the New
Common Stock will be equal to such holder's adjusted tax basis in the
obligations underlying the Bank Group Claims, allocated between the New Notes
and the New Common Stock in accordance with their relative fair market values on
the Effective Date. If on the other hand the New Notes are not securities, the
holder's initial tax basis in the New Common Stock will be equal to such
holder's adjusted tax basis in the obligations underlying the Bank Group Claims
increased by the amount of gain recognized on the exchange and such holder's
initial basis in the New Notes will be equal to the issue price.
5. Holders of the SPE Claims
--------------------------
The federal income tax consequences to holders of the SPE Claims of
receiving New Notes and New Common Stock in Reorganized BI in exchange for such
Claims will depend, in part, on whether the obligations underlying such Claims
constitute securities.
If the obligations underlying such claims do not constitute
securities, then a holder of such claims will recognize gain or loss on the
exchange and such holder's tax
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basis, respectively, in the New Notes and New Common Stock will be equal to the
issue price of such notes and the fair market value of such stock on the
Effective Date.
If, on the other hand, such exchanged obligations constitute
securities, it is possible that the exchange for New Notes and New Common Stock
would be deemed for federal income tax purposes to be a "recapitalization" of
BSI, whereby holders of the SPE Claims would be deemed to receive stock and
notes in BSI, followed by a tax-free exchange of such BSI stock for New Common
Stock and in certain circumstances, a tax-free exchange of such BSI notes for
New Notes. In such case, the holders of the SPE Claims would not recognize gain
or loss on the exchange. A holder's initial tax basis in the New Common Stock
and New Notes would generally be equal in the aggregate to the holder's adjusted
tax basis in the obligations underlying the SPE Claims surrendered (other than
any such claims in respect of accrued interest).
It is also possible that the exchange with respect to the New Common
Stock, but not with respect to the New Notes, would qualify as a
"recapitalization" of BSI followed by a tax-free exchange of the BSI stock for
the New Common Stock, and the exchange with respect to the New Notes would cause
a holder of the SPE Claims to recognize gain or loss on the receipt of New
Notes.
In short, there is no definitive authority indicating whether an
exchange may qualify as a "recapitalization" and a tax-free exchange where a
creditor exchanges a security evidencing the obligation of one entity (BSI) for
a security evidencing the obligation of an entity that is the 100 percent parent
(Reorganized BI) of the first entity (BSI). Thus, as is touched upon by the
foregoing, there are at least several possible alternative characterizations of
the exchange of the obligations underlying the SPE Claims for New Notes and New
Common Stock for federal income tax purposes, which alternative
characterizations could result in varying federal income tax consequences.
Moreover, in light of the uncertainty, the tax consequences of any of such
alternative characterizations could vary in one or more respects from the
consequences articulated above. Accordingly, holders of the SPE Claims are
advised to consult their own tax advisors concerning the tax consequences of the
satisfaction of their Claims with New Common Stock and New Notes.
6. Other Classes of Creditors
--------------------------
Under the Plan, other classes of creditors will (i) be paid in full on
the Effective Date, (ii) have their Allowed Claims reinstated pursuant to their
original terms, (iii) be paid in full the amount of their Allowed Claims over
time with interest, or (iv) receive no consideration for their Allowed Claims.
The tax consequences to such creditors of receiving, having a right to receive,
or not receiving payments under the Plan will depend on, among other things,
whether the holder of the Allowed Claim acquired it in exchange for goods or
services provided to any of the Debtors or acquired it from a third party,
whether the holder is a cash or accrual method taxpayer, whether the right to
receive payments under the Plan constitutes a new property right separate from
the original Claim and whether the Claim is held as a capital asset.
Accordingly, other
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classes of creditors should consult their tax advisors in determining the
specific tax consequences of the Plan to them.
7. Market Discount
---------------
To the extent (i) the instruments constituting creditors' Allowed
Claims are "market discount bonds" for federal income tax purposes, (ii) the
creditors acquired such instruments other than at original issue, and (iii) the
creditors holding such instruments would recognize gain upon consummation of the
transactions contemplated by the Plan, all or a portion of such gain may be
recharacterized as ordinary interest income for federal income tax purposes, up
to the amount of accrued "market discount" on the relevant instrument.
In general, a "market discount bond" is any bond with an original term
in excess of one year, other than bonds acquired by the holder upon their
original issue, for which the holder's tax basis immediately after the holder
acquired the bond was less than the face amount of the bond (or, in the case of
a bond having OID, its issue price as increased by the amounts of undistributed
OID accrued by previous holders) by more than a de minimis amount. Instruments
(including contracts) the terms of which provide for payment over one year after
issuance may constitute "bonds" for these purposes.
Upon disposition of a market discount bond, including the receipt of
cash, New Common Stock of Reorganized BI, New Notes, New Warrants or other
consideration, the holder must treat any gain recognized as ordinary interest
income to the extent of such holder's "accrued market discount," provided such
holder has not previously elected to include market discount in gross income on
a current basis.
A holder's "accrued market discount" at the time of a disposition is
determined by first calculating the aggregate market discount on the relevant
bond, and then calculating the portion of such market discount that has accrued
to the date of disposition. The aggregate market discount is the excess of the
bond's face amount (or, if the bond had original issue discount, its revised
issue price) over the holder's tax basis immediately after acquisition of the
bond (generally, the amount paid therefor). The portion of such market discount
that has accrued on the date of disposition is a fraction, the numerator of
which is the number of days after the date the holder acquired the bond up to
(and including) the date of disposition, and the denominator of which is the
number of days after the date the holder acquired the bond up to (and including)
the original maturity date. Alternatively, a holder may elect to accrue market
discount with respect to a particular bond on a constant yield to maturity
basis, similar to that used in accruing OID for federal income tax purposes,
which will result in smaller amounts of accrued market discount prior to
maturity of the bond.
Because the distribution of New Common Stock to holders of the BSI-GEN
Claims, the Bank Group Claims and the SPE Claims may qualify as an exchange
under Tax Code section 351 as well as a recapitalization, it is possible that
Treasury regulations authorized but not yet promulgated will provide that
holders of such Claims
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will be required to recognize accrued but unrecognized market discount upon such
exchange to the extent of gain realized.
Each holder of an Allowed Claim hereunder should consult its own tax
advisor regarding the market discount rules and the elections available to such
holder under these rules.
8. Accrued Interest
----------------
To the extent that the provisions of the Plan do not provide for any
portion of the New Notes or the New Warrants to be paid in consideration of
accrued interest, the holders of any Allowed Claims that receive New Notes or
New Warrants and that have not previously included in income accrued but unpaid
interest attributable to such Claims may recognize an ordinary loss on the
exchange of such Claims for such New Notes or New Warrants, as the case may be.
However, to the extent that all or any portion of the New Notes or New Warrants,
as the case may be, received by such a holder in exchange for its Allowed Claim,
are considered for federal income tax purposes to be attributable to accrued but
unpaid interest (not previously included in income) attributable to such Claim,
such creditor would recognize ordinary income in the amount of such interest,
whether or not the creditor realizes an overall gain or loss upon the surrender
of its Claim or whether such gain or loss is recognized.
Under the Plan, some New Common Stock may be distributed to holders of
Allowed Claims with respect to their Claims for accrued interest. Holders of
such Claims for accrued interest which have not previously included such accrued
interest in taxable income will be required to recognize ordinary income equal
to the fair market value of the New Common Stock received with respect to such
Claims for accrued interest. Holders of such Claims for accrued interest which
have included such accrued interest in taxable income generally may take an
ordinary deduction to the extent that such Claim is not fully satisfied under
the Plan (after allocating the distribution between principal and accrued
interest), even if the underlying Claim is held as a capital asset. The tax
basis of the New Common Stock received in exchange for such Claims for accrued
interest will be the fair market value of such New Common Stock on the Effective
Date.
9. Original Issue Discount
-----------------------
The Tax Code and regulations thereunder provide rules for the
inclusion of "original issue discount" ("OID") income by holders of debt
instruments. Under such rules, the Cure Notes would be issued with OID because
their "stated redemption price at maturity" exceeds their "issue price."
A debt instrument's "stated redemption price at maturity" includes all
payments required to be made over the term of the instrument other than payments
of interest which are actually and unconditionally payable at fixed, periodic
intervals of one year or less (called qualified stated interest). Because no
interest will be due on the Cure
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Notes and, therefore, no qualified stated interest, the "stated redemption price
at maturity" of the Cure Notes will be their principal amount.
The "issue price" of Cure Notes will be such Cure Notes' "imputed
principal amount." The "imputed principal amount" of the Cure Notes will be the
sum of the present values of all payments due under the instruments, discounted
from the date of payment to the issue date at the appropriate "applicable
Federal rate" published by the Service.
Holders of the Cure Notes will generally be required to include in
gross income an amount equal to the sum of the "daily portions" of such OID for
all days during the taxable year in which it holds the debt instrument. These
daily portions will be determined based on a constant yield method by allocating
to each day during the taxable year a pro rata portion of the OID on such debt
instrument which is attributable to the "accrual period" in which such day is
included. The amount of the OID that is attributable to each full accrual
period will be the product of the Cure Note's adjusted issue price at the
beginning of such accrual period, multiplied by the yield to maturity of the
debt instrument (as determined by semi-annual compounding). The adjusted issue
price of the Cure Notes will initially be equal to their issue price.
Thereafter, the adjusted issue price at the beginning of any subsequent accrual
period will be equal to the adjusted issue price at the beginning of the
preceding accrual period, plus the amount of OID allocable to the preceding
accrual period, minus any payments of amounts other than qualified periodic
payments made during the preceding accrual period.
VII. Alternatives To Confirmation Of The Plan
The Debtors believe that the Plan affords the holders of Claims the
potential for the greatest realization on the Debtors' assets and, thus, is in
the best interests of such holders. If the Plan is not confirmed, however,
alternatives include (a) alternative plans of reorganization or (b) liquidation
of the Debtors under Chapter 7 or Chapter 11.
VIII. Alternative Plans of Reorganization
If the Plan is not confirmed, the Debtors, or if the Bankruptcy Court
did not grant further extensions of the Debtors' exclusive period in which to
solicit votes for a plan of reorganization, any other party-in-interest in the
Chapter 11 cases could propose a different plan or plans. Such plans might
involve either a reorganization and continuation of the Debtors' businesses, or
an orderly liquidation of its assets or a combination of both. The Debtors do
not believe that an alternative plan could provide greater recoveries than those
provided in the Plan. Moreover, the filing of alternative plans would result in
additional costs in administering the Chapter 11 cases and significant delays in
making distributions.
IX. Liquidation Under Chapter 7 or Chapter 11
Another alternative to confirmation of the Plan would be liquidation
of the Debtors' assets under either Chapter 7 or Chapter 11 of the Bankruptcy
Code. If the
121
<PAGE>
Chapter 11 Cases are converted to Chapter 7 cases, a trustee would be elected or
appointed to liquidate the assets of the Debtors.
The Debtors' liquidation value is approximately $125 million less than
their reorganization value. Moreover, in a liquidation under Chapter 7, before
creditors receive any distribution, additional administrative expenses would be
incurred as a result of the appointment of a trustee, and attorneys, accountants
and other professionals to assist the trustee. These costs and expenses would
exhaust the value that would remain for holders of Unsecured Claims after
distributions are made to holders of Secured Claims.
The Debtors' assets may also be liquidated pursuant to a Chapter 11
plan of liquidation. This would allow the sale of the Debtors' assets to occur
in a more orderly fashion over an extended period of time, which could result in
larger recoveries than under a Chapter 7 liquidation. While the fees and
expenses associated with the appointment of a Chapter 7 trustee and his
professionals would be avoided, substantial administrative expenses would be
incurred as a result of the asset sales and a continuation of the Chapter 11
cases. In addition, distributions under a Chapter 11 plan of liquidation would
be delayed substantially.
The Debtors' liquidation analysis, a copy of which is attached as
Exhibit 5 to this Disclosure Statement, assumes a liquidation under Chapter 7 of
the Bankruptcy Code. The analysis takes into account the nature and realizable
value of their assets in a Chapter 7 liquidation, and the extent to which these
assets are subject to liens and security interests. Based upon this analysis,
it is clear that a liquidation of the Debtors' assets would produce far less
value available for distribution to Creditors than Creditors are receiving under
the Plan.
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CONCLUSION
----------
This Disclosure Statement was approved by the Bankruptcy Court after
notice and a hearing. The Bankruptcy Court has determined that this Disclosure
Statement contains information adequate to permit holders of Claims to make an
informed judgment about the Plan. Such approval, however, does not mean that
the Bankruptcy Court recommends either acceptance or rejection of the Plan.
THE DEBTORS BELIEVE THAT CONFIRMATION OF THE PLAN IS DESIRABLE. The
Plan provides for an equitable and early distribution to most classes of
Creditors. Any alternative to confirmation of the Plan, such as liquidation or
attempts by another party-in-interest to file a Plan, would result in
significant delays and additional administrative expenses. Moreover, as
described in "VOTING REQUIREMENTS, ACCEPTANCE, CONFIRMATION AND CONSUMMATION OF
THE PLAN -- 'Best Interests of Creditors'," the Debtors believe that their
Creditors will receive greater and earlier recoveries under the Plan than those
that could be achieved in liquidation. FOR THESE REASONS, THE DEBTORS URGE YOU
TO RETURN YOUR BALLOT ACCEPTING THE PLAN.
Dated: Braintree, Massachusetts
September __, 1998
Bradlees Stores, Inc., New Horizons of Yonkers,
Inc., Bradlees, Inc., Bradlees Administrative Co.,
Inc., Dostra Realty Co., Inc., Maximedia Services,
Inc., New Horizons of Bruckner, Inc., and New
Horizons of Westbury, Inc., Debtors and Debtors-
in-Possession
By:
--------------------------
Name: Peter Thorner
Title: Chairman and Chief
Executive Officer
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EXHIBIT 2.2
-----------------------------------------------------
INDENTURE
dated as of [ ], 1999
between
BRADLEES STORES, INC.,
as Issuer,
BRADLEES, INC.,
and
[ ],
as Trustee
-----------------------------------------------------
<PAGE>
DB DRAFT 12/18/98
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1.................. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION........................................... 2
SECTION 1.1 Definitions; Construction......................................................................... 2
SECTION 1.2 Compliance Certificates and Opinions.............................................................. 8
SECTION 1.3 Form of Documents Delivered to Trustee............................................................ 9
SECTION 1.4 When Securities Disregarded....................................................................... 9
SECTION 1.5 Conflict with Trust Indenture Act................................................................. 10
SECTION 1.6 Execution in Counterparts......................................................................... 10
SECTION 1.7 Effect of Headings and Table of Contents.......................................................... 10
SECTION 1.8 Successors and Assigns............................................................................ 10
SECTION 1.9 Severability Clause............................................................................... 10
SECTION 1.10 Benefits of Indenture............................................................................. 10
SECTION 1.11 GOVERNING LAW..................................................................................... 10
SECTION 1.12 Legal Holidays.................................................................................... 10
SECTION 1.13 No Recourse Against Others........................................................................ 11
SECTION 1.14 Notices........................................................................................... 11
ARTICLE 2.................. THE NOTES......................................................................................... 12
SECTION 2.1 Title and Terms................................................................................... 12
SECTION 2.2 Execution, Authentication, Delivery and Dating.................................................... 13
SECTION 2.3 Temporary Notes................................................................................... 13
SECTION 2.4 Registration; Registration of Transfer and Exchange............................................... 14
SECTION 2.5 Mutilated, Destroyed, Lost and Stolen Notes....................................................... 15
SECTION 2.6 Payments; Interest and Principal Rights Preserved................................................. 16
SECTION 2.7 Persons Deemed Owners............................................................................. 17
SECTION 2.8 Cancellation; Purchase by the Issuer.............................................................. 17
SECTION 2.9 Dating of Notes................................................................................... 17
SECTION 2.10 CUSIP Numbers..................................................................................... 17
SECTION 2.11 Parity and Ranking of Notes....................................................................... 17
SECTION 2.12 Book Entry........................................................................................ 17
ARTICLE 3.................. REDEMPTION OF NOTES............................................................................... 18
SECTION 3.1 Mandatory Redemption of Notes..................................................................... 18
SECTION 3.2 Optional Redemption of Notes...................................................................... 18
SECTION 3.3 Delivery of Notices, Certificates and Opinions.................................................... 18
SECTION 3.4 Redemption of and Payment on Notes................................................................ 19
SECTION 3.5 Notes Redeemed in Part............................................................................ 20
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 3.6 Cancellation of Notes............................................................................. 20
ARTICLE 4.................. CONCERNING THE TRUSTEE............................................................................ 20
SECTION 4.1 Duties and Responsibilities of Trustee; During Default; Prior to Default.......................... 20
SECTION 4.2 Certain Rights and Duties of Trustee.............................................................. 21
SECTION 4.3 Trustee Not Responsible for Recitals, Etc......................................................... 23
SECTION 4.4 Trustee and Others May Hold Notes................................................................. 23
SECTION 4.5 Monies Held by Trustee or Paying Agent............................................................ 23
SECTION 4.6 Compensation of Trustee and Its Lien.............................................................. 23
SECTION 4.7 Right of Trustee to Rely on Officer's Certificates and Opinions of Counsel........................ 24
SECTION 4.8 Persons Eligible for Appointment as Trustee....................................................... 24
SECTION 4.9 Conflicting Interests; Resignation and Removal of Trustee; Appointment of Successor............... 24
SECTION 4.10 Acceptance of Appointment by Successor Trustee.................................................... 26
SECTION 4.11 Merger, Conversion or Consolidation of Trustee.................................................... 26
SECTION 4.12 Preferential Collection of Claims Against Issuer.................................................. 26
SECTION 4.13 Maintenance of Offices and Agencies............................................................... 27
SECTION 4.14 Trustee Risk...................................................................................... 29
ARTICLE 5.................. HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER.................................................. 29
SECTION 5.1 Issuer to Furnish Trustee Names and Addresses of Holders.......................................... 29
SECTION 5.2 Preservation of Information; Communications to Holders............................................ 29
SECTION 5.3 Reports by Trustee................................................................................ 30
SECTION 5.4 Reports by Issuer and BI.......................................................................... 30
ARTICLE 6.................. COVENANTS......................................................................................... 30
SECTION 6.1 Payment of Notes.................................................................................. 30
SECTION 6.2 Corporate Existence............................................................................... 30
SECTION 6.3 Compliance Certificate; Notice of Default......................................................... 31
SECTION 6.4 Impairment of Security Interest................................................................... 31
SECTION 6.5 Amendments to Security Documents.................................................................. 31
SECTION 6.6 Reports of Holders................................................................................ 31
ARTICLE 7.................. SUCCESSOR CORPORATION; MERGER, CONSOLIDATION AND SALE OF ASSETS 32
SECTION 7.1 Merger, Consolidation and Sale of Assets.......................................................... 32
SECTION 7.2 Successor Corporation Substituted................................................................. 32
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 8.................. DEFAULT........................................................................................... 32
SECTION 8.1 Events of Default................................................................................. 32
SECTION 8.2 Acceleration...................................................................................... 33
SECTION 8.3 Collection of Indebtedness by Trustee; Trustee May Prove Debt..................................... 34
SECTION 8.4 Application of Proceeds........................................................................... 34
SECTION 8.5 Other Remedies.................................................................................... 35
SECTION 8.6 Restoration of Rights on Abandonment of Proceedings............................................... 35
SECTION 8.7 Limitations on Suits by Noteholders............................................................... 35
SECTION 8.8 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default........................... 36
SECTION 8.9 Control by Noteholders............................................................................ 36
SECTION 8.10 Waiver of Defaults................................................................................ 37
SECTION 8.11 Unconditional Right of Holders to Receive Principal and Interest.................................. 37
SECTION 8.12 Undertaking for Costs............................................................................. 37
SECTION 8.13 Trustee May File Proofs of Claim.................................................................. 37
ARTICLE 9.................. CONVERSION OF NOTES............................................................................... 38
SECTION 9.1 Conversion Privilege.............................................................................. 38
SECTION 9.2 Exercise of Conversion Privilege.................................................................. 38
SECTION 9.3 Fractional Interests.............................................................................. 39
SECTION 9.4 Conversion Price.................................................................................. 40
SECTION 9.5 Adjustment of Conversion Price; Notice of Adjustments............................................. 40
SECTION 9.6 Continuation of Conversion Privilege in Case of Reclassification, Change, Merger, Consolidation or
Sale of Assets................................................................................... 44
SECTION 9.7 Notice of Certain Events.......................................................................... 45
SECTION 9.8 Taxes on Conversion............................................................................... 46
SECTION 9.9 BI to Provide Stock............................................................................... 46
SECTION 9.10 Disclaimer of Responsibility for Certain Matters.................................................. 47
SECTION 9.11 Return of Funds Deposited for Redemption of Converted Notes....................................... 47
SECTION 9.12 Registrar and Paying Agent........................................................................ 47
ARTICLE 10................. SATISFACTION AND DISCHARGE........................................................................ 48
SECTION 10.1 Defeasance of Notes............................................................................... 48
SECTION 10.2 Satisfaction and Discharge of the Indenture....................................................... 49
SECTION 10.3 Application of Trust Money........................................................................ 50
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 10.4 Return of Moneys Held by Trustee and Paying Agent Unclaimed for One Year.......................... 50
ARTICLE 11................. AMENDMENTS, SUPPLEMENTS AND WAIVERS............................................................... 50
SECTION 11.1 Without Consent of Holders........................................................................ 50
SECTION 11.2 With Consent of Holders........................................................................... 51
SECTION 11.3 Compliance with Trust Indenture Act............................................................... 52
SECTION 11.4 Revocation and Effect of Consents................................................................. 52
SECTION 11.5 Notation on or Exchange of Notes.................................................................. 53
SECTION 11.6 Trustee To Sign Amendments, Etc................................................................... 53
ARTICLE 12................. COLLATERAL AND SECURITY DOCUMENTS................................................................. 53
SECTION 12.1 Collateral and Security Documents................................................................. 53
SECTION 12.2 Release of Lien................................................................................... 53
SECTION 12.3 Recording, Certificates and Opinions.............................................................. 54
SECTION 12.4 Authorization of Actions to Be Taken by the Trustee Under the Security Documents.................. 54
SECTION 12.5 Authorization of Receipt of Funds by the Trustee Under the Security Documents..................... 55
SECTION 12.6 Trustee's Disclaimer.............................................................................. 55
SECTION 12.7 Release upon Termination of the Issuer's Obligations.............................................. 55
ARTICLE 13................. GUARANTEE......................................................................................... 55
SECTION 13.1 Guarantee......................................................................................... 55
SECTION 13.2 Guarantee Subordinated to Credit Facility Guarantee............................................... 56
SECTION 13.3 Liquidation, Dissolution, Bankruptcy.............................................................. 56
SECTION 13.4 Default on Credit Facility Guarantee.............................................................. 57
SECTION 13.5 When Distribution Must Be Paid Over............................................................... 57
SECTION 13.6 Relative Rights................................................................................... 57
SECTION 13.7 Rights of Trustee and Paying Agent................................................................ 57
SECTION 13.8 Trustee Entitled to Rely.......................................................................... 57
SECTION 13.9 Trustee to Effectuate Subordination............................................................... 58
SECTION 13.10 Trustee not Fiduciary for Holders of the Credit Facility Guarantee................................ 58
SECTION 13.11 Execution and Delivery of Guarantee............................................................... 58
SECTION 13.12 Limitation of BI's Liability...................................................................... 58
</TABLE>
EXHIBIT A FORM OF NOTE
<PAGE>
INDENTURE, dated as of [ ], 1999, among Bradlees Stores,
Inc., a Massachusetts corporation, as reorganized pursuant to the Plan described
below (together with its successors and assigns, the "Issuer"), [
], a New York banking corporation (the "Trustee") and Bradlees, Inc., a
Massachusetts corporation, as reorganized pursuant to the Plan (together with
its successors and assigns, "BI").
W I T N E S S E T H:
WHEREAS, the Issuer and certain of its Affiliates filed a voluntary
petition (Case Nos. 95 B 42777 through 95 B 42784 (BRL)) (the "Bankruptcy
Proceeding") under Chapter 11 of the Bankruptcy Code on June 23, 1995 with the
United States Bankruptcy Court Southern District of New York (the "Bankruptcy
Court");
WHEREAS, the Bankruptcy Court confirmed the First Amended Joint Plan
of Reorganization of Bradlees Stores, Inc. and Certain Affiliates Under Chapter
11 of the Bankruptcy Code on November 17, 1998 (the "Plan");
WHEREAS, the Plan contemplates the issuance of the Notes (as
hereinafter defined) hereunder to certain of the Issuer's pre-petition creditors
(together with certain other consideration provided for in the Plan) in exchange
for relinquishment by such creditors of their claims filed in connection with
the Bankruptcy Proceeding;
WHEREAS, as contemplated by the Plan, the Notes issued hereunder shall
be a full recourse obligation of the Issuer and shall be secured by a first
priority Lien on the Yonkers Property and the Union Square Property and the
Proceeds of the conversion of the Yonkers Property and the Union Square
Property, as described hereunder and in the Security Documents (as hereinafter
defined);
WHEREAS, BI has duly authorized the full and unconditional guarantee
on an unsecured basis by BI of the Issuer's due and punctual payment of the
principal of and interest on the Notes and any other amounts payable on the
Notes, whether at maturity, by declaration of acceleration, upon redemption or
otherwise;
WHEREAS, all acts necessary (i) to make this Indenture a valid and
binding agreement and instrument for the security of the Notes, in accordance
with its and their terms and (ii) to make the Notes, when executed by the Issuer
and authenticated and delivered by the Trustee, valid and binding obligations of
the Issuer, have been done, and the Issuer has duly authorized the execution and
delivery of this Indenture to secure the Notes and to provide for the
authentication and delivery thereof by the Trustee;
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in
consideration of the premises and of the covenants continued herein, it is
mutually covenanted and agreed, for the benefit of the parties hereto and the
equal and proportionate benefit of all Noteholders, as follows:
<PAGE>
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1 Definitions; Construction.
-------------------------
(a) For all purposes of this Indenture capitalized terms used herein shall have
the meanings set forth below. For purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
"Acceleration Notice" has the meaning specified in Section 8.2.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" shall mean any Person acting as Authenticating
Agent hereunder pursuant to Section 4.13.
"Authorized Agent" shall mean any Paying Agent, Authenticating Agent
or Security Registrar or other agent appointed by the Trustee in accordance with
this Indenture to perform any function that this Indenture authorizes the
Trustee or such agent to perform.
"Authorized Representative" means, with respect to any Person, the
officer or officers authorized to act on behalf of such Person by its Board of
Directors or any other governing body of such Person in matters relating to the
Notes and this Indenture.
"Authorized Signatory" shall mean any officer of the Trustee or any
other individual who shall be duly authorized by appropriate corporate action on
the part of the Trustee to authenticate Notes.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended,
as codified under Title 11 of the United States Code, 11 U.S.C. (S)(S) 101 et
--
seq., and the Bankruptcy Rules promulgated thereunder, as the same may be in
- ---
effect from time to time.
"Bankruptcy Court" shall have meaning specified in the recitals
hereto.
"Bankruptcy Law" means Title 11 of the United States Code, or any
similar Federal or state law for the relief of debtors.
"Bankruptcy Proceeding" shall have meaning specified in the recitals
hereto.
2
<PAGE>
"BI" has the meaning specified in the introductory paragraph hereof.
"Board of Directors", when used with respect to a corporation, shall
mean either the board of directors of the corporation, or any committee of that
board duly authorized to act for it hereunder.
"Board Resolution" shall mean a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Issuer to have been adopted by the
Board of Directors of the Issuer and to be in full force and effect on the date
of such certification, and delivered to the Trustee.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in New York, New York, or in the city and State
where the Trustee's Corporate Trust Office is located, are authorized or
obligated by law, executive order or governmental decree to be closed.
"Collateral" means, collectively, all of the property and assets that
are from time to time subject to the Lien of any of the Security Documents.
"Conversion Price" has the meaning specified in Section 9.4.
"Conversion Shares" has the meaning specified in Section 9.5(k).
"Corporate Trust Office" means the principal office of the Trustee at
which any particular time corporate trust business of the Trustee shall be
administered, which at the date hereof is [ ], or such other office
as may be designated by the Trustee to the Issuer and each Noteholder.
"Credit Facility Guarantee" means the indebtedness represented by the
guarantee by BI of the Obligations of the Borrower (each as defined in the New
Credit Facility) under the New Credit Facility.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under the Bankruptcy Law.
"Date of Conversion" has the meaning specified in Section 9.2.
"Depository" means DTC, together with any Person succeeding thereto by
merger, consolidation or acquisition of all or substantially all of its assets,
including substantially all of its securities payment and transfer operations.
"Distribution Date" has the meaning specified in Section 9.5(k).
"Dollars" means the lawful currency of the United States of America.
"DTC" means The Depository Trust Company, having a principal office at
55 Water Street, New York, New York 10041-0099.
3
<PAGE>
"Equity Offering" shall mean an offering for cash by BI of its common
stock, other than offerings to officers, directors, employees or consultants
pursuant to the Plan or pursuant to any compensation, incentive or benefit plan
or arrangement adopted by BI.
"Events of Default" has the meaning specified in Section 8.1 hereof.
"`ex' date" has the meaning specified in Section 9.5(f).
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC promulgated
thereunder.
"Expiration Date" has the meaning specified in Section 9.5(e).
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar function of comparable stature and authority within the accounting
profession), or in such other statements by such other entity as may be in
general use by significant segments of the U.S. accounting profession, which are
applicable to the circumstances as of the date of determination.
"Global Note" means any global security in registered form
representing all or a portion of the Notes.
"Guarantee" means the guarantee by BI of the Guarantee Obligations, as
provided in Article 13.
"Guarantee Obligations" has the meaning specified in Section 13.1.
"Indenture" means this instrument as amended or supplemented from time
to time pursuant to the terms hereof.
"Issue Date" means the date the Notes are issued pursuant to this
Indenture.
"Issuer" means Bradlees Stores, Inc., a Massachusetts corporation,
together with its successors and assigns.
"Issuer Request" and "Issuer Order" mean, respectively, a written
request or order signed in the name of the Issuer by its Authorized
Representative and delivered to the Trustee.
"Last Sale Price" has the meaning specified in Section 9.3.
"Leasehold Mortgage" means the Leasehold Mortgage and Security
4
<PAGE>
Agreement from New Horizons and Bradlees to the Trustee, on behalf of the
Holders, dated as of ________, 1998, as the same may be amended from time to
time in accordance with its terms.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Maturity Date" means the date, as set forth on the face of the Notes,
on which the Notes will mature.
"Mortgagee" and "Mortgagor" have the meanings specified in the
Leasehold Mortgage.
"Net Proceeds" means, as appropriate, (i) the proceeds of an Equity
Offering minus all costs of such Equity Offering or (ii) the proceeds of the
sale of the Yonkers Property or the Union Square Property minus all costs of
such sale. For purposes of clause (ii) hereof, "Net Proceeds" shall be deemed
to be all proceeds required to be paid to the Mortgagee upon a sale of the
Yonkers Property or the Union Square Property, as the case may be, in order to
release such property from the Lien of the Leasehold Mortgage.
"New Common Stock" means the common stock, par value $____, of BI
authorized under the amended certificate of incorporation of BI and issued
pursuant to the Plan.
"New Credit Facility" has the meaning specified in the Plan.
"non-electing shares" has the meaning specified in Section 9.6.
"Notes" means the notes issued to the Holders in accordance with the
terms of this Indenture.
"Noteholders" or "Holders" means the registered owners of the Notes as
shown on the Security Register maintained for that purpose.
"Offer" has the meaning specified in Section 9.5(e).
"Officer's Certificate" of any Person means a certificate signed by an
Authorized Representative of such Person.
"Opinion of Counsel" means a written opinion of counsel for any Person
reasonably satisfactory to the intended recipient thereof.
"Outstanding" shall mean, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture, except:
5
<PAGE>
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes or portions thereof deemed to have been paid within the
meaning of Section 10.1;
(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture; and
(iv) Notes converted to New Common Stock pursuant to Article 9;
provided, however, that in determining whether the Holders of the requisite
principal of Notes outstanding have given any request, demand, authorization,
direction, notice, consent or waiver hereunder or whether or not a quorum is
present at a meeting of Holders, Notes owned by the Issuer or any Affiliate
thereof shall be disregarded and deemed not to be outstanding as provided in
Section 1.4.
"Paying Agent" means any Person acting as Paying Agent pursuant to
this Indenture.
"Person" means an individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, limited liability partnership, institution, public benefit
corporation, firm, joint stock company, estate, government (or agency or
political subdivision thereof) or other entity.
"Place of Payment", when used with respect to the Notes, shall mean
the office or agency maintained pursuant to Section 2.4 hereof.
"Plan" shall have the meaning specified in the recitals hereto.
"Predecessor Notes", with respect to any particular Note, shall mean
any previous Note evidencing all or a portion of the same debt as that evidenced
by such particular Note; for the purposes of this definition, any Note
authenticated and delivered under Section 2.5 in lieu of a lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed or
stolen Note.
"Proceeds" has the meaning specified in the Leasehold Mortgage.
"Purchased Shares" has the meaning specified in 9.5(e).
"Redemption Date" means a date set forth for the redemption of Notes
pursuant to Section 3.3.
"Redemption Price" means the price to be paid by the Issuer for the
Notes that are redeemed under Article 3.
6
<PAGE>
"Registered Depositary" shall mean DTC, together with any Person
succeeding thereto by merger, consolidation or acquisition of all or
substantially all of its assets, including substantially all of its securities
payment and transfer operations.
"Regular Record Date", for the Stated Maturity of any installment of
principal of any Note or payment of interest thereon, shall mean the 15th day
(whether or not a Business Day) next preceding such Stated Maturity, or any
other date specified for such purpose in the form of the Note.
"Responsible Officer" means, when used with respect to the Trustee,
any officer assigned to the Corporate Trust Office, including any managing
director, vice president, assistant vice president, assistant treasurer,
assistant secretary or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
having direct responsibility for the administration of this Indenture, and also,
with respect to a particular matter, any other officer, to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"SEC" means the Securities and Exchange Commission of the United
States or any successor agency.
"Securities Act" means the United States Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Security Documents" means the Leasehold Mortgage and any other
instruments or documents entered into in connection therewith, as such
instruments and documents may from time to time be amended in accordance with
the terms hereof and thereof.
"Security Register" means any register which the Issuer shall cause to
be kept at the Corporate Trust Office of the Trustee (and in any other office or
agency of the Issuer in a place of payment) in which, subject to such reasonable
regulations as it may prescribe, the Issuer provides for the registration of
Notes and of transfers and exchanges of Notes.
"Security Registrar" means any person acting as Security Registrar
pursuant to this Indenture.
"Stated Maturity" when used with respect to any Note or any
installment of principal thereof or payment of interest thereon, shall mean the
date specified in such Note as the fixed date on which such Note or such
installment of principal or payment of interest is due and payable.
"Surviving Entity" has the meaning specified in Section 7.1.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
7
<PAGE>
Friday, other than any day on which securities are not traded on the NASDAQ.
"Trustee" means [ ], named as "Trustee" in the
introductory paragraph hereof until a successor Trustee shall have been
appointed pursuant to the applicable provisions hereof, and thereafter means
such successor Trustee.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as
amended, and the rules and regulations promulgated thereunder.
"Union Square Property" means that certain leasehold interest owned by
the Issuer, located at 14th Street and Broadway in New York, New York, as
further described in the Leasehold Mortgage.
"Yonkers Property" means that certain leasehold interest owned by New
Horizons located in Yonkers, New York, as further described in the Leasehold
Mortgage.
(i) the terms defined in this Indenture have the meanings assigned to them in
this Indenture and include the plural as well as the singular, and the use of
any gender herein shall be deemed to include the other gender;
(ii) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP as in effect on the date hereof;
(iii) references herein to "Articles", "Sections", "Subsections", "Paragraphs"
and other subdivisions without reference to a document are to designated
Articles, Sections, Subsections, Paragraphs and other subdivisions of this
Indenture;
(iv) a reference to a Subsection without further reference to a Section is a
reference to such Subsection as contained in the same Section in which the
reference appears, and this rule shall also apply to Paragraphs and other
subdivisions;
(v) the words "herein", "hereof", "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular provision;
and
(vi) the term "include" or "including" shall mean without limitation by
reason of enumeration.
SECTION 1.2 Compliance Certificates and Opinions.
------------------------------------
Except as otherwise expressly provided by this Indenture, upon any
application or request by the Issuer to the Trustee to take any action under any
provision of this Indenture, the Issuer shall furnish to the Trustee an
Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any particular application or request as to which the furnishing of documents
is specifically required by any provision of this Indenture relating to such
particular
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application or request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or opinion or such
other officer or employee of the Issuer on whom such individual has relied in
good faith has read such covenant or condition and the definitions relating
thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, or such officer or
employee, such examination or investigation as is necessary to enable such
individual to express an informed opinion as to whether or not such covenant or
condition has been complied with has been made;
(d) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with; and
(e) in the case of an Officer's Certificate, a statement that no Event of
Default has occurred and is continuing.
SECTION 1.3 Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by or covered
by an opinion of any specified Person, it is not necessary that all such matters
be certified by or covered by the opinion of only one such Person, or that they
be so certified by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matter in one or several documents.
Any certificate or opinion of an officer of the Issuer may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows or has reason to believe
that the certificate or opinion or representations with respect to the matters
upon which his certificate or opinion is based are erroneous. Any such
certificate, opinion or an Opinion of Counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Issuer stating that the information with
respect to each factual matters is in the possession of the Issuer unless such
counsel knows or in the exercise of reasonable care (without independent
investigation) should know that the certificate or opinion or representations
with respect to such matters are erroneous.
Any Opinion of Counsel stated to be based on the opinion of other
counsel shall be accompanied by a copy of such other opinion.
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Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4 When Securities Disregarded.
---------------------------
In determining whether the Holders of the required principal amount of Notes
have concurred in any direction, waiver or consent, Notes owned by the Issuer or
by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Issuer shall be disregarded and
deemed not to be outstanding, except that, for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Notes which the Trustee knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Outstanding Notes shall be
considered in any such determination.
SECTION 1.5 Conflict with Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with another provision
hereof which is required to be included in this Indenture by any of the
provisions of the Trust Indenture Act, such required provisions shall control.
SECTION 1.6 Execution in Counterparts.
-------------------------
This instrument may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one of the same instrument.
SECTION 1.7 Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.8 Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Trustee, the Issuer and
BI shall bind and, to the extent permitted hereby, shall inure to the benefit of
and be enforceable by their respective successors and assigns, whether so
expressed or not. The Issuer may not assign or otherwise transfer any of its
rights under this Agreement.
SECTION 1.9 Severability Clause.
-------------------
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.10 Benefits of Indenture.
---------------------
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. Nothing in this Indenture or in the Notes, expressed or implied, shall give
to any Person, other than the parties hereto and their successors hereunder and
the Holders of Notes, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
SECTION 1.11 GOVERNING LAW.
-------------
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK.
SECTION 1.12 Legal Holidays.
--------------
In any case where the Redemption Date or the Stated Maturity of any Note or
of any installment of principal thereof or payment of interest thereon, is
proposed to be paid, shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or such Note) payment of interest or
principal, if any, need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the
Redemption Date or at the Stated Maturity, and if such payment is timely made,
no interest shall accrue for the period from and after such Redemption Date or
Stated Maturity, as the case may be, to the date of such payment.
SECTION 1.13 No Recourse Against Others.
--------------------------
A director, officer, employee, stockholder or incorporator, as such, of the
Issuer or BI shall not have any liability for any obligations of the Issuer or
BI under the Notes or this Indenture or for any claim based on, in respect of or
by reason of such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. Such waiver and release are part
of the consideration for the issuance of the Notes.
SECTION 1.14 Notices.
-------
Any notices or other communications required or permitted hereunder shall be
in writing, and shall be sufficiently given if made by hand delivery, by
commercial courier service, by telex, by telecopier or registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
(a) if to the Issuer, to:
Bradlees Stores, Inc.
____________________________________________
____________________________________________
____________________________________________
Attention: ________________________
Telephone: _______________________
Telecopy: ________________________
(b) if to BI, to:
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Bradlees, Inc.
____________________________________________
____________________________________________
____________________________________________
Attention: ________________________
Telephone: _______________________
Telecopy: ________________________
and
(c) if to the Trustee, to:
____________________________________________
____________________________________________
____________________________________________
Attention: ________________________
Telephone: _______________________
Telecopy: ________________________
Each of the Issuer, BI and the Trustee by written notice to each other
such Person may designate additional or different addresses for notices to such
Person. Any notice or communication to the Issuer, BI or the Trustee shall be
deemed to have been given or made as of the date so delivered if personally
delivered; when receipt is confirmed if delivered by commercial courier service;
when answered back, if telexed; when receipt is acknowledged, if faxed; and five
(5) calendar days after mailing if sent by registered or certified mail, postage
prepaid (except that a notice of change of address shall not be deemed to have
been given until actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed to him
by first class mail or other equivalent means at his address as it appears on
the registration books of the Security Registrar and shall be sufficiently given
to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
ARTICLE 2
THE NOTES
SECTION 2.1 Title and Terms.
---------------
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $[40,000,000], except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes
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pursuant to Sections 2.3, 2.4, 2.5 or 3.5.
The Maturity Date of the Notes shall be [January 31, 2004] and they
shall bear interest at the rate of 9% per annum, from and including the date of
issuance thereof until maturity or earlier redemption, payable semi-annually on
January 1 and July 1, commencing July 1, 1999, until the principal thereof is
paid or made available for payment. It is acknowledged and agreed that the
principal of the Notes may not be repaid prior to the Maturity Date except as
specifically provided in this Indenture.
The principal of and interest on the Notes shall be payable at the
office or agency of the Issuer maintained by the Issuer for such purpose;
provided, however, that at the option of the Issuer, payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
The Notes shall be redeemable as provided in Article 3.
The Notes shall be convertible as provided in Article 9.
The Notes shall be secured by a Lien on (i) the leasehold interest of
New Horizons in the Yonkers Property, (ii) the leasehold interest of the Issuer
in the Union Square Property and (iii) the Proceeds of the conversion of the
Yonkers Property and the Union Square Property, as provided in Article 12.
The Guarantee Obligations under the Notes shall be fully and
unconditionally guaranteed on an unsecured basis by BI, as provided in Article
13.
SECTION 2.2 Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Notes shall be executed on behalf of the Issuer by two Authorized
Representatives of the Issuer. The signature of any Authorized Representative
on the Notes may be manual or facsimile.
Notes bearing the manual or facsimile signatures of individuals who
were at the time of execution the proper officers of the Issuer shall bind the
Issuer, notwithstanding that such individuals or any of them have ceased to hold
such offices prior to the authentication and delivery of such Notes or did not
hold such offices at the date of such Notes.
Subject to Section 2.4 hereof, the Issuer shall deliver the Notes
executed by the Issuer to the Trustee for authentication, together with an
Issuer Order for the authentication and delivery of such Notes, and the Trustee
in accordance with the Issuer Order shall authenticate and deliver the Notes.
The Trustee shall at all times act as the sole authenticating agent for the
authentication of the Notes hereunder unless, and until, the Trustee may appoint
a successor Authenticating Agent pursuant to Section 4.13(c) hereof.
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No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder. Notwithstanding the foregoing, if
any Note shall have been authenticated and delivered hereunder but never issued
and sold by the Issuer, and the Issuer shall deliver such Note to the Trustee
for cancellation as provided in Section 2.8 hereof, for all purposes of this
Indenture such Note shall be deemed never to have been authenticated and
delivered hereunder and shall never be entitled to the benefits of this
Indenture.
SECTION 2.3 Temporary Notes.
---------------
Pending the preparation of definitive Notes, the Issuer may execute, and upon
Issuer Order the Trustee shall authenticate and deliver, temporary Notes which
are printed, lithographed, typewritten, mimeographed or otherwise produced, in
any authorized denomination, substantially of the tenor of the definitive Notes
in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers of the Issuer
executing the same may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer in a
Place of Payment, without charge to the Holder. Upon surrender for cancellation
of any one or more temporary Notes, the Issuer shall execute and the Trustee
shall authenticate and deliver in exchange therefor one or more definitive Notes
of any authorized denominations and of like tenor and aggregate principal
amount. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 2.4 Registration; Registration of Transfer and Exchange.
---------------------------------------------------
(a) General. The Issuer shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency of the Issuer in a Place of Payment being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Issuer shall provide for the
registration of Notes and of transfers and exchanges of Notes. The Trustee is
hereby appointed "Security Registrar" for the purpose of registering Notes and
transfers and exchanges of Notes as herein provided.
Notwithstanding anything to the contrary set forth herein, the Trustee
shall not be required and shall have no obligation to monitor compliance with
any federal or state securities laws.
Upon surrender for registration of transfer of any Notes at the office
or
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<PAGE>
agency of the Issuer in a Place of Payment, the Issuer shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Notes of any authorized denominations and of
like tenor and aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes,
of any authorized denominations and of like tenor and aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Issuer shall execute,
and the Trustee shall authenticate and deliver, the Notes which the Holder
making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall be duly endorsed, or be accompanied by a written instrument
of transfer in form satisfactory to the Issuer and the Security Registrar duly
executed, by the Holder thereof or its attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes, other than exchanges
pursuant to Section 2.3, 2.4, 2.5, or 3.5 hereof not involving any transfer.
If any Notes are to be redeemed in part, the Issuer shall not be
required (A) to issue, register the transfer or exchange such Notes during a
period beginning at the opening of business 15 days before the day of the
mailing of a notice of redemption of any such Notes selected for redemption
under Section 3.4 hereof and ending at the close of business on the day of such
mailing or (B) to issue, register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
As used in this Section 2.4, the term "transfer" encompasses any sale,
pledge or other transfer of any Notes referred to herein.
(b) Global Notes. This Section 2.4(b) shall apply to Global Notes.
(i) Each Global Note authenticated under this Indenture shall be registered in
the name of the Depositary designated for such Global Note or a nominee thereof
and delivered to such Depositary or a nominee thereof or custodian therefor, and
each such Global Note shall constitute a single Note for all purposes of this
Indenture. The Notes may be represented by one or more Global Notes.
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<PAGE>
(ii) Notwithstanding any other provision in this Indenture, no Global Note may
be exchanged in whole or in part for Notes registered, and no transfer of a
Global Note in whole or in part may be registered, in the name of any Person
other than the Depositary for such Global Note or a nominee thereof unless (A)
such Depositary (1) has notified the Issuer that it is unwilling or unable to
continue as Depositary for such Global Note or (2) has ceased to be a clearing
agency registered under the Exchange Act, and, in either case, a successor
Depositary is not appointed within 90 days thereof, (B) the Issuer executes and
delivers to the Trustee an Issuer Order providing that such Global Note shall be
so transferable, registrable and exchangeable, and such transfers shall be
registrable or (C) there shall have occurred and be continuing an Event of
Default with respect to the Notes. Any Global Note exchanged pursuant to
subclause (A) above shall be so exchanged in whole and not in part and any
Global Note exchanged pursuant to subclause (B) or (C) above may be exchanged in
whole or from time to time in part as directed by the Depositary for such Global
Note. Notwithstanding any other provision in this Indenture, a Global Note to
which the restriction set forth in the second preceding sentence shall have
ceased to apply may be transferred only to, and may be registered and exchanged
for Notes registered only in the name or names of, such Person or Persons as the
Depositary for such Global Note shall have directed, and no transfer thereof
other than such a transfer may be registered.
(iii) Subject to clause (ii) above, any exchange of a Global Note for other
Notes may be made in whole or in part, and all Notes issued in exchange for a
Global Note or any portion thereof shall be registered in such name or names as
the Depositary for such Global Note shall direct.
(iv) Every Note authenticated and delivered upon registration of transfer of,
or in exchange for or in lieu of, a Global Note or any portion thereof, whether
pursuant to this Section, Section 2.3 or 3.5 hereof or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Note, unless
such Note is registered in the name of a Person other than the Depositary for
such Global Note or a nominee thereof.
SECTION 2.5 Mutilated, Destroyed, Lost and Stolen Notes.
-------------------------------------------
If (a) any mutilated Note is surrendered to the Trustee or the Issuer, or if
the Security Registrar and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Note and (b) there is delivered to the
Issuer, the Security Registrar and the Trustee evidence to their satisfaction of
the ownership and authenticity thereof, and such security or indemnity as may be
required by them to save each of them harmless, then, in the absence of notice
to the Issuer, the Security Registrar or the Trustee that such Note has been
acquired by a bona fide purchaser, the Issuer shall execute and, upon the
Issuer's request, the Trustee shall authenticate and make available for delivery
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Note, a new Note, of like tenor (including the same date of issuance) and equal
face amount of principal, registered in the same manner, dated the date of its
authentication and bearing interest from the date to which interest has been
paid on such Note, in lieu of and substitution for such Note. If, after
delivery of such new Note, a bona fide purchaser of the original Note in lieu of
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<PAGE>
which such new Note was issued presents for payment such original Note, the
Issuer and the Trustee shall be entitled to recover such new Note from the
Person to whom it was delivered or any Person taking therefrom, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expenses incurred
by the Issuer or the Trustee in connection therewith.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable (excluding any payment of principal other
than the final installment of principal) the Issuer in its discretion may,
instead of issuing a new Note, pay such Note without surrender thereof (except
in the case of a mutilated Note) if the applicant for such payment shall furnish
to the Issuer and the Trustee such reasonable security or indemnity as they may
require to save each of them harmless, and in case of destruction, loss or
theft, evidence to the satisfaction of the Issuer and the Trustee of the
destruction, loss or theft of such Note.
Upon the issuance of any new Note under this Section, the Issuer may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the security and benefits of this Indenture equally and proportionately with
any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.6 Payments; Interest and Principal Rights Preserved.
-------------------------------------------------
Principal and interest on any Note which is payable, and is punctually paid
or duly provided for, on any Stated Maturity shall be paid to the Person in
whose name that Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such principal or interest.
Each Note delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.
SECTION 2.7 Persons Deemed Owners.
---------------------
Subject to Section 2.4, prior to due presentment of a Note for registration
of transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee
shall treat the Person in whose name such Note is registered as the owner of
such Note for the purpose of
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receiving payment of principal of and any interest on such Note and for all
other purposes whatsoever, whether or not such Note be overdue, and neither the
Issuer, the Trustee nor any agent of the Issuer or the Trustee shall be affected
by notice to the contrary.
SECTION 2.8 Cancellation; Purchase by the Issuer.
------------------------------------
All Notes surrendered for payment, redemption, conversion, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly canceled by it. The Issuer may at any time deliver to the
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Issuer may have acquired in any manner whatsoever, and may
deliver to the Trustee (or to any other Person for delivery to the Trustee) for
cancellation any Notes previously authenticated hereunder which the Issuer has
not issued and sold, and all Notes so delivered shall be promptly canceled by
the Trustee. No Notes shall be authenticated in lieu of or in exchange for any
Notes canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Notes held by the Trustee shall be disposed of in
accordance with its customary procedure in effect from time to time.
SECTION 2.9 Dating of Notes.
---------------
Each Note shall be dated the date of its authentication.
SECTION 2.10 CUSIP Numbers.
-------------
The Issuer in issuing the Notes may use "CUSIP" numbers (if then generally in
use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption
and related materials as a convenience to Holders; provided that the Trustee
shall assume no responsibility for the accuracy of such numbers and any such
redemption or other notice shall not be affected by any defect in or omission of
such numbers.
SECTION 2.11 Parity and Ranking of Notes.
---------------------------
All Notes issued and Outstanding hereunder rank on a parity with each other
Note, and each Note shall be guaranteed equally and ratably under the Guarantee
and secured equally and ratably by this Indenture and the Security Documents.
SECTION 2.12 Book Entry.
----------
In the event the Notes are issued as Global Notes with the Depository: (i)
the Trustee may deal with the Depository as the authorized representative of the
Holders; (ii) the rights of the Holders shall be exercised only through the
Depository and shall be limited to those established by law and agreement
between the Holders and the Depository and/or direct participants of the
Depository; (iii) the Depository will make book-entry transfers among the direct
participants of the Depository and will receive and transmit distributions of
principal and interest on the Notes to such direct participants; and (iv) the
direct
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<PAGE>
participants of the Depository shall have no rights under this Indenture under
or with respect to any of the Notes held on their behalf by the Depository, and
the Depository may be treated by the Trustee and its agents, employees, officers
and directors as the absolute owner of the Notes for all purposes whatsoever.
ARTICLE 3
REDEMPTION OF NOTES
SECTION 3.1 Mandatory Redemption of Notes.
-----------------------------
The Outstanding Notes shall be redeemed pro rata with (a) the Net Proceeds of
the sale of the Yonkers Property, (b) the Net Proceeds of the sale of the Union
Square Property and (c) the Net Proceeds of any Equity Offering. The Redemption
Price shall equal 100% of the unpaid principal amount of the Notes to be
redeemed plus accrued and unpaid interest thereon to the Redemption Date. The
Redemption Date shall be a date determined by the Issuer which shall be no later
than 60 days following receipt by the Trustee or the Issuer, as the case may be,
of the Net Proceeds referred to in the first sentence of this Section 3.1.
SECTION 3.2 Optional Redemption of Notes.
----------------------------
The Issuer shall have the right at any time and from time to time to redeem
the Outstanding Notes, in whole or in part, at a Redemption Price equal to 100%
of the unpaid principal amount thereof plus accrued and unpaid interest thereon
to the Redemption Date. The Redemption Date shall be a date determined by the
Issuer.
SECTION 3.3 Delivery of Notices, Certificates and Opinions.
----------------------------------------------
(a) The Issuer shall notify the Trustee of any mandatory or optional
redemption of Notes at least 10 days prior to the applicable Redemption Date
(unless a shorter notice shall be satisfactory to the Trustee), specifying the
Redemption Date and the principal amount of Notes to be redeemed. In the case of
an optional redemption, such notice shall be accompanied by an Issuer Order. In
the case of a mandatory redemption, such notice shall be accompanied by a
written calculation by the Issuer of the amount of the Net Proceeds, which
amount shall be used for the redemption.
(b) Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 5 days prior to the Redemption Date, to each
Holder of Notes to be redeemed, at his or her address, appearing in the Security
Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Notes are to be redeemed, the
identification (and, in the
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case of partial redemption, the principal amounts) of the particular Notes
to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due and
payable upon each such Note to be redeemed and that interest thereon will
cease to accrue on and after said date,
(5) the Conversion Price, the date on which the right to convert the principal
of the Notes to be redeemed will terminate and the place or places where
such Notes may be surrendered for conversion, and
(6) the place or places where such Notes are to be surrendered for payment of
the Redemption Price.
Notice of redemption of Notes to be redeemed at the election of the
Issuer shall be given by the Issuer or, at the Issuer's request, by the Trustee
in the name and at the expense of the Issuer.
(c) If fewer than all the Notes are to be redeemed, the Trustee shall select
the Notes to be redeemed pro rata or by lot or by a method that complies
with applicable legal and securities exchange requirements, if any, and
that the Trustee in its sole discretion considers fair and appropriate;
provided, however, that in the case of a mandatory redemption, selection of
the portion of Notes for redemption shall be made by the Trustee only on a
pro rata basis unless such method is otherwise prohibited by law. Notes and
portions thereof that the Trustee selects shall be in amounts of $1,000 or
a whole multiple of $1,000. Provisions of this Indenture that apply to
Notes called for redemption also apply to portions of Notes called for
redemption. The Trustee shall notify the Issuer promptly of the Notes or
portions of Notes to be redeemed.
SECTION 3.4 Redemption of and Payment on Notes.
----------------------------------
Notice of redemption having been given as aforesaid, and the conditions, if
any, set forth in such notice having been satisfied, the Notes or portions
thereof so to be redeemed shall, on the Redemption Date, become due and payable,
and from and after such date such Notes or portions thereof shall cease to bear
interest. Upon delivery of any notice of redemption pursuant to Section 3.3
hereof, the Trustee shall establish a special purpose account (the "Redemption
Account"). Following the sale of each of the Yonkers Property and the Union
Square Property, the Trustee, prior to the Redemption Date, shall, in accordance
with the terms of the Security Documents, transfer the full Redemption Price in
Dollars to the Redemption Account which shall be held by the Trustee in the
Redemption Account and applied to the redemption of such Notes on the Redemption
Date. Following any Equity Offering, the Issuer shall transfer, or cause to be
transferred, to the Trustee, prior to the Redemption Date, the full Redemption
Price in Dollars, which amount after transfer to the Trustee by the Issuer shall
be held by the Trustee in the Redemption Account and applied to the redemption
of such Notes on the Redemption Date. Upon surrender of any such Note for
redemption in accordance with the notice thereof to Holders sent pursuant to
Section 3.3 hereof, the Trustee shall pay an amount in
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<PAGE>
respect of such Note or portion thereof as provided in such notice; provided,
however, that any payment of interest on any Note, the Stated Maturity of which
payment of interest is on or prior to the Redemption Date, shall be payable to
the Holder of such Note or one or more Predecessor Notes, registered as such at
the close of business on the related Regular Record Date according to the terms
of such Note and subject to the provisions of Section 2.6 hereof.
SECTION 3.5 Notes Redeemed in Part.
----------------------
Any Note that is to be redeemed only in part shall be surrendered at a Place
of Payment therefor (with due endorsement by, or a written instrument of
transfer in form satisfactory to the Issuer and the Trustee duly executed by,
the Holder thereof or its attorney duly authorized in writing), and the Issuer
shall execute, and the Trustee shall authenticate and make available for
delivery to the Holder of such Note without service charge, a new Note or Notes,
of any authorized denomination requested by such Holder and of like tenor and in
aggregate principal amount equal to and in exchange for the remaining unpaid
principal amount of the Note so surrendered.
SECTION 3.6 Cancellation of Notes.
---------------------
All Notes redeemed under any of the provisions of this Indenture shall
forthwith be canceled.
ARTICLE 4
CONCERNING THE TRUSTEE
SECTION 4.1 Duties and Responsibilities of Trustee; During Default; Prior to
----------------------------------------------------------------
Default.
- -------
With respect to the Holders of Notes issued hereunder, the Trustee, prior to
the occurrence of an Event of Default with respect to the Notes and after the
curing or waiving of all Events of Default which may have occurred with respect
to the Notes, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee. In case an
Event of Default with respect to the Notes has occurred (which has not been
cured or waived), the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default with respect to the Notes
and after the curing or waiving of all such Events of Defaults with respect
to the Notes which may have occurred:
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(i) the duties and obligations of the Trustee with respect to the Notes
shall be determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Indenture, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Trustee and conforming to
the requirements of this Indenture; but in the case of any such
statements, certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee
shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Indenture (but need not
confirm or investigate the accuracy of mathematical computations or
other facts stated therein);
(b) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining
the pertinent facts;
(c) the Trustee shall not be liable with respect to any action taken or omitted
to be taken by it in good faith in accordance with the direction of the
Holders relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture; and
(d) none of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if there shall be reasonable
ground for believing that the repayment of such funds or adequate indemnity
against such liability is not reasonably assured to it.
Except as otherwise specifically provided herein, (i) all references
in this Indenture to the Trustee shall be deemed to refer to the Trustee in its
capacity as Trustee and in its capacity as Security Registrar and Paying Agent
and (ii) every provision of this Indenture relating to the conduct or affecting
the liability or offering protection, immunity or indemnity to the Trustee shall
be deemed to apply with the same force and effect to the Trustee acting in its
capacity as Security Registrar and Paying Agent.
SECTION 4.2 Certain Rights and Duties of Trustee.
------------------------------------
Subject to Section 4.1 hereof and the Trust Indenture Act, in performing its
duties and exercising its powers hereunder:
(a) The Trustee may conclusively rely and shall be fully protected in acting,
or refraining from acting, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond,
debenture or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties or with
respect to any action it takes or omits to take in good faith in accordance
with a direction
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received by it from Holders holding a sufficient percentage of Notes to
give such direction as permitted by this Indenture.
(b) Any request, direction, order or demand of the Issuer or BI mentioned
herein shall be sufficiently evidenced by an instrument signed in the name
of the Issuer or BI, as the case may be, by an Authorized Representative
(unless other evidence in respect thereof be herein specifically
prescribed); and any Board Resolution may be evidenced to the Trustee by a
copy thereof certified by the Secretary or an Assistant Secretary of the
Issuer.
(c) The Trustee may consult with counsel, and the advice of counsel or any
Opinion of Counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(d) The Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by this Indenture and may refuse to perform any duty or
exercise any such rights or powers unless it shall have been offered
security or indemnity satisfactory to it against the costs, expenses and
liabilities which may be incurred therein or thereby.
(e) The Trustee shall not be liable for any action taken, suffered or omitted
by it in good faith and reasonably believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Indenture or with respect to any action it takes or omits to take in good
faith in accordance with a direction received by it from Holders holding a
sufficient percentage of Notes to give such direction as permitted by this
Indenture.
(f) The Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, appraisal,
bond, debenture or other paper or document unless requested in writing so
to do by the Holders of not less than a majority in aggregate principal
amount of the Notes then Outstanding; provided, that, if the payment within
a reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the Trustee may
require reasonable indemnity against such expenses or liabilities as a
condition to so proceeding. The reasonable expense of every such
investigation shall be paid by the Issuer or, if paid by the Trustee, shall
be repaid by the Issuer upon demand.
(g) The Trustee may execute any of the trusts or powers hereunder or perform
any duties hereunder either directly or by or through agents or attorneys,
and the Trustee shall not be responsible for the willful misconduct or
negligence on the part of or for the supervision of any agent or attorney
appointed with due care by it hereunder.
(h) If an Event of Default known to the Trustee has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by
this Indenture and use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the
conduct of his or her own affairs.
(i) Every provision of this Indenture that in any way relates to the Trustee is
subject to this Article 4.
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(j) The Trustee shall not be charged with knowledge of an Event of Default
unless a Responsible Officer of the Trustee obtains actual knowledge of
such event or the Trustee receives written notice of such event from the
Issuer, BI or Holders owning Notes aggregating not less than 10% of the
outstanding principal amount of the Notes.
(k) The Trustee shall have no duty to monitor the performance of the Issuer,
nor shall it have any liability in connection with the malfeasance or
nonfeasance by the Issuer or BI. The Trustee shall have no liability in
connection with compliance by the Issuer or BI with statutory or regulatory
requirements related to the transactions contemplated by this Indenture and
the Security Documents.
SECTION 4.3 Trustee Not Responsible for Recitals, Etc.
-----------------------------------------
The recitals contained herein and in the Notes, except the Trustee's
certificate of authentication, shall be taken as the statements of the Issuer or
BI, as the case may be, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations as to the
validity or sufficiency of this Indenture or of the Notes or of the offering
materials used in connection with the offering for sale or sale of the Notes.
The Trustee shall not be accountable for the use or application by the Issuer of
any of the Notes or of the proceeds of such Notes.
SECTION 4.4 Trustee and Others May Hold Notes.
---------------------------------
The Trustee, or any Paying Agent or Security Registrar or any other
Authorized Agent of the Trustee, or any Affiliate thereof, in its individual or
any other capacity, may become the owner or pledgee of Notes and may otherwise
deal with the Issuer or any other obligor on the Notes with the same rights it
would have if it were not Trustee, Paying Agent, Security Registrar or such
other Authorized Agent.
SECTION 4.5 Monies Held by Trustee or Paying Agent.
--------------------------------------
All monies received by the Trustee or any Paying Agent shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by law.
SECTION 4.6 Compensation of Trustee and Its Lien.
------------------------------------
The Issuer covenants and agrees to pay to the Trustee (all references in this
Section 4.6 to the Trustee shall be deemed to apply to the Trustee in its
capacities as Trustee, Paying Agent and Securities Registrar) from time to time,
and the Trustee shall be entitled to, compensation for all services rendered by
it hereunder in such amounts as may be agreed to from time to time by the
Trustee and the Issuer, and, except as herein otherwise expressly provided, the
Issuer will pay or reimburse the Trustee upon its request for all reasonable
expenses and disbursements incurred or made by the Trustee in accordance with
any of the provisions of this Indenture and the Security Documents (including
the reasonable compensation and the reasonable expenses and disbursements of its
counsel
24
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and of all persons not regularly employed by it) except any such expense or
disbursement as may arise from its negligence or bad faith. If any property
other than cash shall at any time be subject to the Lien of this Indenture, the
Trustee, if and to the extent authorized by a receivership or bankruptcy court
of competent jurisdiction or by the supplemental instrument subjecting such
property to such Lien, shall be entitled, but shall not be required, to make
advances for the purpose of preserving such property or of discharging tax liens
or other prior liens or encumbrances thereon. The Issuer also covenants and
agrees to indemnify the Trustee and its officers, directors, employees and
agents for, and to hold them harmless against, any loss, liability, claim,
damage or expense (including the reasonable compensation and expenses and
disbursements of its counsel) incurred without negligence or bad faith on the
part of the Trustee, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder and the performance of its
duties and the exercise of its powers under this Indenture and the Security
Documents, including the costs and expenses of defending itself against any
claim or liability in the premises. The obligations of the Issuer under this
Section 4.6 shall constitute additional indebtedness hereunder. The rights of
the Trustee and the obligations of the Issuer under this Section 4.6 shall
survive the resignation or removal of the Trustee, the payment of the Notes, and
the satisfaction, discharge or termination of this Indenture.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 8.1(d) or (e) hereof, the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
SECTION 4.7 Right of Trustee to Rely on Officer's Certificates and Opinions
---------------------------------------------------------------
of Counsel.
- ----------
Before the Trustee acts or refrains from acting with respect to any matter
contemplated by this Indenture, it may require an Officer's Certificate or an
Opinion of Counsel, which shall conform to the provisions of Section 1.2 hereof.
The Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such certificate or opinion.
SECTION 4.8 Persons Eligible for Appointment as Trustee.
-------------------------------------------
The Trustee shall at all times be a corporation which complies with the
requirements of the Trust Indenture Act, having a combined capital and surplus
of at least US$100,000,000. If such corporation publishes reports of condition
at least annually, then, for the purposes of this Section 4.8, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. In case at any time the Trustee shall cease to be eligible in
accordance with this Section 4.8, the Trustee shall resign immediately in the
manner and with the effect specified in Section 4.9 hereof.
SECTION 4.9 Conflicting Interests; Resignation and Removal of Trustee;
----------------------------------------------------------
Appointment of Successor.
- ------------------------
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<PAGE>
(a) If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and
subject to the provisions of, the Trust Indenture Act and this Indenture.
To the extent permitted by the Trust Indenture Act, the Trustee shall not
be deemed to have a conflicting interest by virtue of being a trustee under
this Indenture with respect to the Notes.
(b) The Trustee, or any trustee or trustees hereafter appointed, may at any
time resign by giving written notice to the Issuer and by giving notice of
such resignation to the Holders of such Notes in the manner provided in
Section 1.14 hereof. Upon receiving such notice of resignation, the Issuer
shall promptly appoint a successor trustee or trustees by written
instrument executed by order of the Board of Directors, one copy of which
instrument shall be delivered to each of the resigning trustee and the
successor trustee. If no successor trustee shall have been so appointed and
shall have accepted appointment within 30 days after the mailing of such
notice of resignation, the resigning trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee, or any
Holder who has been a bona fide Holder of a Note for at least six months
may, on behalf of himself and all others similarly situated, petition any
such court for the appointment of a successor trustee. Such court may
thereupon after such notice, if any, as it may deem proper, appoint a
successor trustee.
(c) In case at any time any of the following shall occur:
(i) the Trustee shall cease to be eligible under Section 4.8 hereof with
respect to the Notes and shall fail to resign after written request
therefor by the Issuer or by any Holder, or
(ii) the Trustee shall become incapable of acting with respect to the
Notes, or shall be adjudged bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation
or liquidation;
then, in any such case, the Issuer may remove the Trustee with respect to the
Notes and appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors of the Issuer, one copy of which
instrument shall be delivered to each of the Trustee so removed and the
successor Trustee, or, subject to the Trust Indenture Act, any Holder who has
been a bona fide Holder of a Note for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee. Such court may thereupon after such notice, if any, as it may deem
proper and prescribe, remove the Trustee and appoint a successor Trustee.
(d) The Holders of a majority in aggregate principal amount of the Notes at
the time Outstanding may at any time remove the Trustee and appoint a
successor Trustee by delivering to the Trustee so removed, the successor
Trustee so appointed and the Issuer a written instrument executed by such
Holders evidencing the action taken by the Holders.
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(e) Any resignation or removal of the Trustee and any appointment of a
successor Trustee pursuant to this Section 4.9 shall become effective only
upon acceptance of appointment by the successor Trustee as provided in
Section 4.10 hereof.
SECTION 4.10 Acceptance of Appointment by Successor Trustee.
----------------------------------------------
Any successor Trustee appointed under Section 4.9 hereof shall execute,
acknowledge and deliver to the Issuer and to its predecessor Trustee an
instrument accepting such appointment hereunder, and thereupon the resignation
or removal of the predecessor Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts, duties and obligations of its predecessor
Trustee hereunder, with like effect as if originally named as Trustee herein;
but, nevertheless, on the written request of the Issuer or of the successor
Trustee, the Trustee ceasing to act shall, upon payment of any such amounts then
due it pursuant to the provisions of Section 4.6 hereof, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers and
trusts of the Trustee so ceasing to act. Upon request of any such successor
Trustee, the Issuer shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a
Lien upon all property or funds held or collected by such Trustee to secure any
amounts then due it pursuant to Section 4.6 hereof.
No successor Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Trustee shall be
qualified under the requirements of the Trust Indenture Act and eligible under
the provisions of Section 4.8.
Upon acceptance of appointment by a successor Trustee, the Issuer
shall give notice of the succession of such Trustee hereunder to the Holders of
Notes in the manner provided in Section 1.14 hereof. If the Issuer fails to
give such notice within 10 days after acceptance of appointment by the successor
Trustee, the successor Trustee shall cause such notice to be given at the
expense of the Issuer.
SECTION 4.11 Merger, Conversion or Consolidation of Trustee.
----------------------------------------------
Any Person into which the Trustee may be merged or converted or with which it
may be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
all or substantially all the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided that
such successor Trustee shall be eligible under the provisions of Section 4.8
hereof and Section 310(a) of the Trust Indenture Act.
SECTION 4.12 Preferential Collection of Claims Against Issuer.
------------------------------------------------
If and when the Trustee shall be or become a creditor of the Issuer (or any
other obligor upon the Notes), the Trustee shall be subject to the provisions of
the Trust Indenture Act
27
<PAGE>
regarding the collection of claims against the Issuer (or any such other
obligor).
SECTION 4.13 Maintenance of Offices and Agencies.
-----------------------------------
(a) There shall at all times be maintained in the Borough of Manhattan, The
City of New York, an office or agency where Notes may be presented or
surrendered for registration of transfer or exchange and for payment of
principal and interest, and where notices and demands to or upon the
Trustee in respect of such Notes or this Indenture may be served. Such
office or agency shall be initially at the Corporate Trust Office. Written
notice of the location of each of such other office or agency and of any
change of location thereof shall be given by the Trustee to the Issuer and
the Holders in the manner specified in Section 1.14 hereof. In the event
that no such office or agency shall be maintained or no such notice of
location or of change of location shall be given, presentations, surrenders
and demands may be made and notices may be served at the Corporate Trust
Office.
(b) There shall at all times be a Security Registrar and a Paying Agent
hereunder. Any Paying Agent (other than the Trustee) from time to time
appointed hereunder shall execute and deliver to the Trustee an instrument
in which said Paying Agent shall agree with the Trustee, subject to the
provisions of this Section 4.13, that such Paying Agent will:
(i) hold all sums held by it for the payment of principal and interest on
the Notes in trust for the benefit of the Persons entitled thereto
until such sums shall be paid to such Persons or otherwise disposed
of as herein provided;
(ii) give the Trustee within five days thereafter notice of any default by
any obligor upon the Notes in the making of any such payment of
principal or interest; and
(iii) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent.
Notwithstanding any other provision of this Indenture, any payment required to
be made to or received or held by the Trustee may, to the extent authorized by
written instructions of the Trustee, be made to or received or held by a Paying
Agent in the Borough of Manhattan, The City of New York, for the account of the
Trustee.
The Trustee at its Corporate Trust Office is hereby appointed as a
Paying Agent hereunder.
(c) At any time when any Notes remain Outstanding, the Trustee may appoint an
Authenticating Agent or Agents with respect to the Notes which shall be
authorized to act on behalf of the Trustee to authenticate Notes issued
upon original issuance, exchange, registration of transfer or partial
redemption thereof or pursuant to Section 2.4 hereof, and Notes so
authenticated shall be entitled to the benefits of this Indenture and shall
be valid and obligatory for all purposes as if authenticated by the Trustee
hereunder (it being understood that wherever reference is made in this
Indenture to the authentication and
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delivery of Notes by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication
and delivery on behalf of the Trustee by an Authenticating Agent and a
certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent). If an appointment of an Authenticating Agent shall
be made pursuant to this Section 4.13(c) with respect to the Notes, the
Notes may have endorsed thereon, in addition to the Trustee's certificate
of authentication, an alternate certificate of authentication in the
following form:
This Note is one of the Notes referred to in the within-mentioned
Indenture.
[ ], as Trustee
By:
Authenticating Agent
By:
Authorized Signatory
(d) Any Authorized Agent shall be a bank or trust company, shall be a Person
organized and doing business under the laws of the United States or any
State thereof, with a combined capital and surplus of at least
US$100,000,000, and shall be authorized under such laws to exercise
corporate trust powers, subject to supervision by Federal or state
authorities. If such Authorized Agent publishes reports of its condition
at least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section
4.13, the combined capital and surplus of such Authorized Agent shall be
deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authorized
Agent shall cease to be eligible in accordance with the provisions of this
Section 4.13, such Authorized Agent shall resign immediately in the manner
and with the effect specified in this Section 4.13.
(e) Any Person into which any Authorized Agent may be merged or converted or
with which it may be consolidated, or any Person resulting from any merger,
consolidation or conversion to which any Authorized Agent shall be a party,
or any corporation succeeding to the corporate trust business of any
Authorized Agent, shall be the successor of such Authorized Agent
hereunder, if such successor Person is otherwise eligible under this
Section 4.13, without the execution or filing of any paper or any further
act on the part of the parties hereto or such Authorized Agent or such
successor Person.
(f) Any Authorized Agent may at any time resign by giving written notice of
resignation to the Trustee and the Issuer. The Issuer may, and at the
request of the Trustee shall, at any time, terminate the agency of any
Authorized Agent by giving written notice of such
29
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termination to the Authorized Agent and to the Trustee. Upon the
resignation or termination of an Authorized Agent or in case at any time
any such Authorized Agent shall cease to be eligible under this Section
4.13 (when, in either case, no other Authorized Agent performing the
functions of such Authorized Agent shall have been appointed), the Issuer
shall promptly appoint one or more qualified successor Authorized Agents
approved by the Trustee to perform the functions of the Authorized Agent
which has resigned or whose agency has been terminated or who shall have
ceased to be eligible under this Section 4.13. The Issuer shall give
written notice of any such appointment to all Holders pursuant to Section
1.14 hereof.
(g) The Paying Agent shall comply with all applicable withholding, information
reporting and back-up withholding tax requirements under the United States
Internal Revenue Code of 1986, as amended, and the Treasury regulations
issued thereunder in respect of any payment on, or in respect of a Note.
SECTION 4.14 Trustee Risk.
------------
None of the provisions contained in this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur personal financial liability
in the performance of any of its duties or in the exercise of any of its rights
or powers, if it shall have reasonable ground for believing that the repayment
of such funds or liability is not reasonably assured to it. Whether or not
expressly provided herein, every provision of this Indenture relating to the
conduct or affecting the liability of or affording protection to the Trustee
shall be subject to Section 4.2 hereof and the requirements of the Trust
Indenture Act.
ARTICLE 5
HOLDERS' LISTS AND REPORTS
BY TRUSTEE AND ISSUER
SECTION 5.1 Issuer to Furnish Trustee Names and Addresses of Holders.
--------------------------------------------------------
The Issuer will furnish or cause to be furnished to the Trustee
(1) semi-annually, not later than January 15 and July 15 in each
year, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders of Notes as of a date not more than 15 days prior
to the time such list is furnished, and
(2) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Issuer of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 5.2 Preservation of Information; Communications to Holders.
------------------------------------------------------
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The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 5.1 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 5.1 upon receipt of a new list so furnished.
The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Notes, and the corresponding
rights and privileges of the Trustee, shall be as provided by the Trust
Indenture Act.
Every Holder of Notes, by receiving and holding the same, agrees with
the Issuer and the Trustee that neither the Issuer nor the Trustee nor any agent
of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.
SECTION 5.3 Reports by Trustee.
------------------
On or before June 1 in every year, so long as any Notes are Outstanding
hereunder, the Trustee shall transmit to the Holders a brief report, dated as of
the preceding December 31, to the extent required by Section 313(a) of the Trust
Indenture Act in accordance with the procedures set forth in said Section. The
Trustee shall also transmit to the Holders any report required by Section 313(b)
during the time specified in such subsection. A copy of each such report at the
time of its mailing to Holders shall be filed with the SEC and each stock
exchange, if any, on which the Notes are listed. The Issuer shall promptly
notify the Trustee if the Notes become listed on any stock exchange, and the
Trustee shall comply with Section 313(d) of the Trust Indenture Act.
SECTION 5.4 Reports by Issuer and BI.
------------------------
The Issuer and BI shall file with the Trustee and the SEC, and transmit to
Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner provided pursuant to such Act.
ARTICLE 6
COVENANTS
SECTION 6.1 Payment of Notes.
----------------
The Issuer shall pay the principal of and interest on the Notes on the dates
and in the manner provided in the Notes and in this Indenture. An installment of
principal of or interest on the Notes shall be considered paid on the date it is
due if the Trustee or Paying Agent holds on that date U.S. legal tender
designated for and sufficient to pay the installment in full and is not
prohibited from paying such money to the Holders pursuant to the terms of this
Indenture. Notwithstanding anything to the contrary contained in this
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Indenture, the Issuer may, to the extent it is required to do so by law, deduct
or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
SECTION 6.2 Corporate Existence.
-------------------
Except as otherwise permitted by Article 7, the Issuer shall do or cause to
be done, at its own cost and expense, all things necessary to preserve and keep
in full force and effect its corporate existence in accordance with its
organizational documents.
SECTION 6.3 Compliance Certificate; Notice of Default.
-----------------------------------------
(a) The Issuer shall deliver to the Trustee within 120 days after the end of
the Issuer's fiscal year, an Officer's Certificate stating that a review of
its activities and the activities of its subsidiaries during the preceding
fiscal year, has been made under the supervision of the signing officer
with a view to determining whether the Issuer has complied with its
obligations under this Indenture and further stating that to the best of
such officer's knowledge the Issuer during such preceding fiscal year has
complied with each and every such covenant and no Event of Default occurred
during such year and at the date of such certificate there is no Event of
Default that has occurred and is continuing or, if such officer does know
of such Event of Default, the certificate shall describe the Event of
Default and its status with particularity.
(b) Upon becoming aware of any Event of Default in the performance of any
covenant agreement or condition contained in this Indenture, the Issuer
shall deliver to the Trustee, at its address set forth in Section 1.14
hereof, by registered or certified mail or by telegram, telex or facsimile
transmission followed by hard copy by registered or certified mail, an
Officer's Certificate specifying such event, notice or other action.
SECTION 6.4 Impairment of Security Interest.
-------------------------------
The Issuer shall not, and the Issuer shall not permit any of its subsidiaries
to, take or knowingly or negligently omit to take, any action which would have
the result of impairing or adversely affecting the security interest with
respect to the Collateral for the benefit of the Holders of the Notes.
Notwithstanding the foregoing, nothing herein or in the Security Documents shall
prohibit (i) the sale, at any time and from time to time, of all or any portion
of the Collateral so long as the Net Proceeds of any such sale are applied in
accordance with the provisions of the Security Documents and this Indenture or
(ii) the release of any Collateral or Lien in accordance with the provisions of
the Security Documents.
SECTION 6.5 Amendments to Security Documents.
--------------------------------
The Issuer shall not, and the Issuer shall not permit any of its
subsidiaries to, amend, modify or supplement, or permit or consent to any
amendment, modification or supplement of, the Security Documents in any way that
would be adverse
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to the Holders of the Notes, other than amendments, modifications or supplements
which are otherwise permitted pursuant to the provisions of this Indenture and
the Security Documents.
SECTION 6.6 Reports of Holders.
------------------
The Issuer will file with the Trustee and provide to the Holders of
the Notes, within 15 days after it files them with the SEC, copies of the
quarterly and annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Issuer files with the SEC pursuant to the
Section 13 or 15(d) of the Exchange Act.
ARTICLE 7
SUCCESSOR CORPORATION;
MERGER, CONSOLIDATION AND SALE OF ASSETS
SECTION 7.1 Merger, Consolidation and Sale of Assets.
----------------------------------------
The Issuer will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose all or substantially all of the
Issuer's assets whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Issuer shall be the surviving or continuing
entity or (2) the Person (if other than the Issuer) formed by such consolidation
or into which the Issuer is merged or the Person which acquires by sale,
assignment, transfer, lease, conveyance or other disposition the properties and
assets of the Issuer substantially as an entirety (the "Surviving Entity") shall
expressly assume, by supplemental indenture (in form and substance satisfactory
to the Trustee), executed and delivered to the Trustee, the due and punctual
payment of the principal and interest on all of the Notes and the performance of
every covenant of the Notes and the Indenture on the part of the Issuer to be
performed or observed; (ii) immediately before and immediately after giving
effect to such transaction and the assumption contemplated above, no Event of
Default shall have occurred or be continuing; and (iii) the Issuer or the
Surviving Entity shall have delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of this Indenture
and that all conditions precedent in this Indenture relating to such transaction
have been satisfied. Notwithstanding clause (ii) of the preceding sentence, (a)
any subsidiary of the Issuer may consolidate with, merge into or transfer all or
part of its properties and assets to the Issuer; (b) the Issuer may merge with
an Affiliate incorporated solely for the purpose of reincorporating the Issuer
in another jurisdiction; and (c) the Issuer may merge with or into BI.
SECTION 7.2 Successor Corporation Substituted.
---------------------------------
Upon any consolidation, combination or merger or any transfer of all or
substantially all
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of the assets of the Issuer in accordance with the foregoing, in which the
Issuer is not the continuing corporation, the successor Person formed by such
consolidation or into which the Issuer is merged or to which such conveyance,
lease or transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under this Indenture and the Notes
with the same effect as if such surviving entity had been named as such.
ARTICLE 8
DEFAULT
SECTION 8.1 Events of Default.
-----------------
It shall be an Event of Default hereunder if any of the following events
shall have occurred and be continuing:
(a) the Issuer fails to pay interest on any Notes when the same becomes
due and payable and such default continues for a period of 30 days; or
(b) failure to pay the principal on any Notes when such principal becomes
due and payable, at maturity, upon redemption or otherwise; or
(c) the Issuer or BI defaults in the observance or performance of any
other covenant or agreement on its part contained in this Indenture, which
default continues for a period of 60 days after the Issuer and BI receive
written notice specifying the default (and demanding that such default be
remedied) from the Holders of at least a majority of the outstanding principal
amount of the Notes; or
(d) the Issuer or BI (A) commences a voluntary case or proceeding under
any Bankruptcy Law with respect to itself, (B) consents to the entry of a
judgment, decree or order for relief against it in an involuntary case or
proceeding under any Bankruptcy Law, (C) consents to the appointment of a
Custodian of it or for substantially all of its property, (D) consents to or
acquiesces in the institution of a bankruptcy or an insolvency proceeding
against it, (E) makes a general assignment for the benefit of its creditors, or
(F) takes any corporate action to authorize or effect any of the foregoing; or
(e) a court of competent jurisdiction enters a judgment, decree or order
for relief in respect of the Issuer or BI in an involuntary case or proceeding
under any Bankruptcy Law, which shall (A) approve as properly filed a petition
seeking reorganization, arrangement, adjustment or composition in respect of the
Issuer or BI, (B) appoint a Custodian of the Issuer or BI or for substantially
all of its property or (C) order the winding-up or liquidation of the affairs of
the Issuer or BI; and such judgment, decree or order shall remain unstayed and
in effect for a period of 60 consecutive days; or
(f) the Lien created by the Security Documents shall cease to be
enforceable and of the same effect and priority purported to be created thereby,
which cessation has a material adverse effect on the Holders; provided that the
Issuer shall have 30 days to cure any such cessation (or, to the extent such
default is curable but cannot be cured
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within such 30 day period, so long as the Issuer is diligently pursuing a cure,
such longer period of time which may be necessary in good faith to cure the
same, but in no event to exceed 120 days).
SECTION 8.2 Acceleration.
------------
If an Event of Default (other than an Event of Default specified in Section
8.1(d) or (e) with respect to the Issuer or BI) occurs and is continuing and has
not been waived pursuant to Section 8.10, then the Holders of at least a
majority in principal amount of outstanding Notes may declare the principal of
and accrued interest on all the Notes to be due and payable by notice in writing
to the Issuer and the Trustee specifying the respective Event of Default and
that it is a "notice of acceleration" (the "Acceleration Notice"), and the same
shall become immediately due and payable after receipt by the Issuer of such
Acceleration Notice but only if such Event of Default is then continuing. Upon
any such declaration, but subject to the immediately preceding sentence, such
amount shall be immediately due and payable.
If an Event of Default specified in Section 8.1(d) or (e) occurs and
is continuing with respect to the Issuer or BI, all unpaid principal and accrued
and unpaid interest on all of the outstanding Notes shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder.
At any time after a declaration of acceleration with respect to the
Notes in accordance with this Section 8.2, the Holders of a majority in
principal amount of the outstanding Notes may, on behalf of the Holders of all
of the Notes, rescind and cancel such declaration and its consequences (i) if
the rescission would not conflict with any judgment or decree, (ii) if all
existing Events of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of the acceleration,
(iii) to the extent the 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) if the Issuer
has paid the Trustee its reasonable compensation and reimbursed the Trustee for
its expenses, disbursements and advances, and all other amounts due the Trustee
under Section 4.6. No such rescission shall affect any subsequent Event of
Default or impair any right consequent thereto.
SECTION 8.3 Collection of Indebtedness by Trustee; Trustee May Prove Debt.
-------------------------------------------------------------
In case the Issuer shall default in its obligations to pay the
principal of or interest on, each of the Notes, the Trustee, in its own name and
as trustee of an express trust, shall be entitled and empowered to institute any
action or proceedings at law or in equity for the collection of the sums so due
and unpaid, and may prosecute any such action or proceedings to judgment or
final decree, and may enforce any such judgment or final decree against the
Issuer upon such Notes and collect in the manner provided by law out of the
property of the Issuer upon such Notes, wherever situated, the moneys adjudged
or decreed to be payable.
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All rights of action and of asserting claims under this Indenture or
under any of the Notes may be enforced by the Trustee without the possession of
any of the Notes or the production thereof on any trial or other proceedings
relative thereto, and any such action or proceedings instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment, subject to the payment of the expenses, disbursements and
compensation of the Trustee, each predecessor Trustee and their respective
agents and attorneys, shall be for the ratable benefit of the Holders of the
Notes in respect of which such action was taken.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all the
Holders of the Notes in respect to which such action was taken, and it shall not
be necessary to make any Holders of such Notes parties to any such proceedings.
SECTION 8.4 Application of Proceeds.
-----------------------
If the Trustee collects any money or property pursuant to this Article 8, it
shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 4.6;
-----
Second: to Holders for amounts due and unpaid on the Notes for
------
principal and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal and
interest, respectively; and
Third: to the Issuer or any other obligor on the Notes, as their
-----
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior notice to the Issuer, may fix a record date and payment
date for any payment to Holders pursuant to this Section 8.4.
SECTION 8.5 Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of or interest on the Notes or to enforce the performance of any
provision of the Notes, this Indenture or the Security Documents.
Each Noteholder, by accepting a Note, acknowledges that the exercise
of remedies by the Trustee with respect to the Collateral is subject to the
terms and conditions of the Security Documents and the proceeds received upon
realization of the Collateral shall be applied by the Trustee in accordance with
Section 8.4 hereof and applicable law.
SECTION 8.6 Restoration of Rights on Abandonment of Proceedings.
---------------------------------------------------
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In case the Trustee shall have proceeded to enforce any right under this
Indenture or the Security Documents and such proceedings shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely to the Trustee, then and in every such case the Issuer and the Trustee
shall be restored respectively to their former positions and rights hereunder,
and all rights, remedies and powers of the Issuer, the Trustee and the
Noteholders shall continue as though no such proceedings had been taken.
SECTION 8.7 Limitations on Suits by Noteholders.
-----------------------------------
No Holder of any Note shall have any right by virtue or by availing itself of
any provision of this Indenture or of the Notes to institute any action or
proceeding at law or in equity or in bankruptcy or otherwise upon or under or
with respect to this Indenture or the Security Documents, or for the appointment
of a trustee, receiver, liquidator, custodian or other similar official or for
any other remedy hereunder or under the Notes, unless such Holder previously
shall have given to the Trustee written notice of default and of the continuance
thereof, as hereinbefore provided, and unless also the Holders of not less than
a majority in aggregate principal amount of the Notes then Outstanding shall
have made written request upon the Trustee to institute such action or
proceedings in its own name as trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby and the Trustee for 60 days
after its receipt of such notice, request and offer of indemnity shall have
failed to institute any such action or proceeding and no direction inconsistent
with such written request shall have been given to the Trustee pursuant to
Section 8.9, it being understood and intended, and being expressly covenanted by
the taker and Holder of every Note with every other taker and Holder and the
Trustee, that no one or more Holders of Notes shall have any right in any manner
whatever by virtue or by availing itself of any provision of this Indenture to
affect, disturb or prejudice the rights of any other Holder of Notes, or to
obtain or seek to obtain priority over or preference to any other Holder or to
enforce any right under this Indenture or under the Notes, except in the manner
herein provided and for the equal, ratable and common benefit of all Holders of
Notes. For the protection and enforcement of the provisions of this Section,
each and every Noteholder and the Trustee shall be entitled to such relief as
can be given either at law or in equity.
SECTION 8.8 Powers and Remedies Cumulative; Delay or Omission Not Waiver of
---------------------------------------------------------------
Default.
- -------
Except as provided in Section 8.5 and 8.6 hereof, no right or remedy herein
conferred upon or reserved to the Trustee or to the Noteholders is intended to
be exclusive or any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
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No delay or omission of the Trustee or of any Noteholder to exercise
any right or power accruing upon any Event of Default occurring and continuing
as aforesaid shall impair any such right or power or shall be construed to be a
waiver of any such Event of Default or an acquiescence therein; and, subject to
Section 8.5 hereof and Section 8.6 hereof, every power and remedy given by this
Indenture or the Security Documents or by law to the Trustee or to the
Noteholders may be exercised from time to time, and as often as shall be deemed
expedient, by the Trustee or by the Noteholders.
SECTION 8.9 Control by Noteholders.
----------------------
The Holders of a majority in aggregate principal amount of the Notes at the
time Outstanding shall have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee with respect to the Notes by this
Indenture or the Security Documents; provided that such direction shall not be
otherwise than in accordance with applicable law (including, without limitation,
the Trust Indenture Act) and the provisions of this Indenture and provided
further that (subject to the provisions of Section 4.1 hereof) the Trustee shall
have the right to decline to follow any such direction if the Trustee, being
advised by counsel, shall determine that the action or proceeding so directed
may not lawfully be taken or if the Trustee in good faith by action of
Responsible Officers of the Trustee shall determine that the action or
proceedings so directed would involve the Trustee in personal liability or if
the Trustee in good faith shall so determine that the actions or forbearance
specified in or pursuant to such direction would be unduly prejudicial to the
interests of Holders of the Notes not joining in the giving of said direction,
it being understood that (subject to Section 4.1 hereof) the Trustee shall have
no duty to ascertain whether or not such actions or forbearance are unduly
prejudicial to such Holders.
Nothing in this Indenture or the Security Documents shall impair the
right of the Trustee in its discretion to take any action deemed proper by the
Trustee and which is not inconsistent with such direction or directions by
Noteholders.
SECTION 8.10 Waiver of Defaults.
------------------
The Holders of a majority of the aggregate principal amount of the Notes
Outstanding (or of such lesser percentage as may act at a meeting of
Noteholders) may on behalf of the Holders of all the Notes Outstanding waive any
past default or Event of Default with respect to the Notes, except a default in
the payment of the principal of or interest on any Note or a default in respect
of a covenant or provision hereof that cannot be modified or amended without the
consent of each Holder affected as provided in Section 11.2 hereof. In case of
any such waiver, the Issuer, the Trustee and the Holders of the Notes shall be
restored to their former positions and rights hereunder, respectively.
Upon any such waiver, such default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured, and not to have occurred for every
purpose of this
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Indenture; but no such waiver shall extend to any subsequent or other default or
Event of Default or impair any right consequent thereon.
SECTION 8.11 Unconditional Right of Holders to Receive Principal and Interest.
----------------------------------------------------------------
Notwithstanding any other provision in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest on such Note on its Stated
Maturity as expressed in such Note (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder.
SECTION 8.12 Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Note by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit other than the Trustee of an undertaking to pay the costs of such suit and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Noteholder or group of
Noteholders holding in aggregate more than 10% in principal amount of
Outstanding Notes, or any suit instituted by a Noteholder for enforcement of
payment of the principal of, or interest on, any Note on or after the date such
amount is required to be paid or for the enforcement of the right to convert any
Note in accordance with Article 9.
SECTION 8.13 Trustee May File Proofs of Claim.
--------------------------------
In case of any judicial proceeding relative to the Issuer (or any other
obligor upon the Notes), its property or its creditors, the Trustee shall be
entitled and empowered, by intervention in such proceeding or otherwise, to take
any and all actions authorized under the Trust Indenture Act in order to have
claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys or
other property payable or deliverable on any such claims and to distribute the
same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 4.6.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of
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reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any proceeding; provided, however, that the
Trustee may, on behalf of the Holders, vote for the election of a trustee in
bankruptcy or similar official and be a member of a creditors' or other similar
committee.
ARTICLE 9
CONVERSION OF NOTES
SECTION 9.1 Conversion Privilege.
--------------------
Subject to and upon compliance with the provisions of this Article 9, at the
option of the Holder thereof, the then outstanding principal amount of any Note
may at any time after the first anniversary of the original issuance of the
Notes be converted, in whole, or in part in multiples of $1,000 principal
amount, into fully paid and non-assessable shares of New Common Stock issuable
upon conversion of the Notes, at the Conversion Price in effect at the Date of
Conversion, until and including, but not after the close of business on the
second Business Day prior to the Maturity Date, or unless such Note or some
portion thereof shall have been called for redemption prior to such date and no
default is made in making due provision for the payment of the Redemption Price
in accordance with the terms of this Article 9 and the Notes, in which case,
with respect to such Note or portion thereof as has been so called for
redemption, such Note or portion thereof may be so converted until and
including, but not after, the close of business on the second Business Day prior
to the Redemption Date for such Note, unless the Issuer subsequently fails to
pay the applicable Redemption Price.
SECTION 9.2 Exercise of Conversion Privilege.
--------------------------------
In order to exercise the conversion privilege, the Holder of any Note to be
converted shall surrender such Note to BI at any time during usual business
hours at its office or agency maintained for the purpose as provided in this
Indenture, accompanied by a fully executed written notice, in substantially the
form set forth on the reverse of the Note, that the Holder elects to convert
such Note or a stated portion thereof constituting a multiple of $1,000
principal amount, and, if such Note is surrendered for conversion during the
period between the close of business on any Regular Record Date and the opening
of business on the next following Stated Maturity for the payment of interest
and has not been called for redemption on a Redemption Date which occurs within
such period, accompanied also by payment to the Issuer of an amount equal to the
interest payable on such Stated Maturity on the principal amount of the Note
being surrendered for conversion, notwithstanding such conversion. The Holder
of any Note at the close of business on a Regular Record Date will be entitled
to receive the interest payable on such Note on the corresponding Stated
Maturity for the payment of interest notwithstanding the conversion thereof
after such Regular Record Date. The interest payment with respect to a Note
called for redemption on a date during the period from the close of business on
or after any Determination Date to the close of business on the Business Day
following
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the corresponding Payment Date to the registered Holder at the close of business
on that Determination Date (notwithstanding the conversion of such Note after
the corresponding Payment Date) and a Holder who elects to convert need not
include funds equal to the interest paid.
A notice of conversion shall state the name or names (with address) in
which the certificate or certificates for shares of New Common Stock shall be
issued. Notes surrendered for conversion shall (if reasonably required by BI or
the Trustee) be duly endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to BI duly executed by the Holder
or his attorney duly authorized in writing. As promptly as practicable after
the receipt of such notice and the surrender of such Note as aforesaid, BI
shall, subject to the provisions of Section 9.9 herein, issue and deliver at
such office or agency to such Holder, or in accordance with the written
instruction of the Holder, a certificate or certificates for the number of full
shares of New Common Stock issuable on such conversion of New Notes in
accordance with the provisions of this Article 9 and cash, as provided in
Section 9.3 in respect of any fraction of a share of New Common Stock otherwise
issuable upon such conversion.
Such conversion shall be deemed to have been effected immediately
prior to the close of business on the date (the "Date of Conversion") on which
such Note shall have been surrendered as aforesaid, and the person or persons in
whose name or names any certificate or certificates for shares of New Common
Stock shall be issuable upon such conversion shall be deemed to have become on
the Date of Conversion the holder or holders of record of the shares represented
thereby; provided, however, that any such surrender on any date when the stock
transfer books of BI are closed shall cause the person or persons in whose name
or names the certificate or certificates for such shares are to be issued to be
deemed to have become the recordholder or holders thereof for all purposes at
the opening of business on the next succeeding day on which such stock transfer
books are open but such conversion shall nevertheless be at the Conversion Price
in effect at the close of business on the date when such Note shall have been so
surrendered with the conversion notice. In the case of conversion of a portion,
but less than all, of a Note, the Issuer shall as promptly as practicable
execute, and the Trustee shall authenticate and deliver to the Holder thereof,
at the expense of the Issuer, a Note or Notes in the aggregate principal amount
of the unconverted portion of the Note surrendered. Except as otherwise
expressly provided in this Indenture, no payment or adjustment shall be made for
interest accrued on any Note (or portion thereof) converted or for dividends or
distributions on any New Common Stock issued upon conversion of any Note.
SECTION 9.3 Fractional Interests.
--------------------
No fractions of shares or scrip representing fractions of shares shall be
issued upon conversion of any Note. If more than one Note shall be surrendered
for conversion at one time by the same holder, the number of full shares which
shall be issuable upon conversion thereof shall be computed on the basis of the
aggregate principal amount of
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the Notes so surrendered. If any fraction of a share of New Common Stock would,
except for the foregoing provisions of this Section 9.3, be issuable on the
conversion of any Note or Notes, The Issuer shall make payment in lieu thereof
in an amount of cash equal to the value of such fraction computed on the basis
of the last sale price of the New Common Stock as reported on the NASDAQ (or if
not listed for trading thereon, then on the principal national securities
exchange on which the New Common Stock is listed or admitted to trading) at the
close of business on the Date of Conversion or if no such sale takes place on
such day, the last sale price for such day shall be the average of the closing
bid and asked prices regular way on the NASDAQ (or if not listed for trading
thereon, on the principal national securities exchange on which the New Common
Stock is listed or admitted to trading) for such day (any such last sale price,
the "Last Sale Price"). If on such Trading Day the New Common Stock is not
quoted by any such organization, the closing price on the prior Trading Day
shall be used.
SECTION 9.4 Conversion Price.
----------------
The Conversion Price per share of New Common Stock issuable upon conversion
of the Notes shall initially be the price equal to the arithmetic unweighted
average closing price of such stock during the 20 Business Days prior to the one
year anniversary of the original issuance of the Notes.
SECTION 9.5 Adjustment of Conversion Price; Notice of Adjustments.
-----------------------------------------------------
The Conversion Price shall be subject to adjustment from time to time as
follows:
(a) In case BI shall (1) make or pay a dividend (or other distribution) in
shares of New Common Stock on any class of capital stock of BI, (2) subdivide
its outstanding shares of New Common Stock into a greater number of shares, or
(3) combine or reclassify its outstanding shares of New Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such action shall be adjusted so that the Holder of any Note thereafter
surrendered for conversion shall be entitled to receive the number of shares of
New Common Stock that such Holder would have owned immediately following such
action had such Note been converted immediately prior thereto. An adjustment
made pursuant to this subsection (a) shall become effective immediately, except
as provided in subsection (h) below, after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination.
(b) In case BI shall issue rights, options or warrants to all holders of New
Common Stock entitling them to subscribe for or purchase shares of New Common
Stock at a price per share less than the then current market price per share of
the New Common Stock (as determined pursuant to subsection (f) below) on the
record date mentioned below, the Conversion Price shall be adjusted to a price,
computed to the nearest cent, so that the same shall equal the price determined
by multiplying the Conversion Price in effect immediately prior to the date of
issuance of such rights or warrants by a fraction of which:
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(i) the numerator shall be (A) the number of shares of New Common Stock
outstanding on the date of issuance of such rights, options or warrants,
immediately prior to such issuance, plus (B) the number of shares which the
aggregate offering price of the total number of shares so offered for
subscription or purchase at such current market price (determined by multiplying
such total number of shares by the exercise price of such rights, options or
warrants and dividing the product so obtained by such current market price); and
(ii) the denominator shall be (A) the number of shares of New Common Stock
outstanding on the date of issuance of such rights, options or warrants,
immediately prior to such issuance, plus (B) the number of additional shares of
New Common Stock which are so offered for subscription or purchase.
Such adjustment shall become effective immediately, except as provided in
subsection (h) below, after the record date for the determination of holders
entitled to receive such rights, options or warrants; provided, however, that if
any such rights, options or warrants issued by BI as described in this
subsection (b) are only exercisable upon the occurrence of certain triggering
events relating to control and provided for in shareholder rights plans, then
the Conversion Price will not be adjusted as provided in this subsection (b)
until such triggering events occur.
(c) In case BI or any subsidiary of BI shall distribute to all holders of New
Common Stock, any of its assets, evidences of indebtedness, cash or other assets
or shares of capital stock other than New Common Stock (including securities,
but other than (x) dividends or distributions exclusively in cash or (y) any
dividend or distribution for which an adjustment is required to be made in
accordance with subsection (a) or (b) above), then in each such case the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the date of such distribution by a fraction of which the numerator shall be the
then current market price per share of the New Common Stock (determined as
provided in subsection (f) below) on the record date mentioned below less the
then fair market value (as reasonably determined in good faith by the Board of
Directors of BI) of the portion of the assets so distributed applicable to one
share of New Common Stock, and of which the denominator shall be such current
market price per share of the New Common Stock. Such adjustment shall become
effective immediately, except as provided in subsection (h) below, after the
record date for the determination of stockholders entitled to receive such
distribution. Notwithstanding the foregoing, in the event that the fair market
value of the assets, evidences of indebtedness or other securities so
distributed applicable to one share of New Common Stock equals or exceeds such
current market price per share of New Common Stock, or such current market price
exceeds such fair market value by less than $0.10 per share, the Conversion
Price shall not be adjusted pursuant to this subsection (c) and, to the extent
applicable, the provisions of subsection (k) shall apply to such distribution.
(d) In case BI or any subsidiary of BI shall make any distribution consisting
exclusively of cash
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(excluding any cash portion of distributions for which an adjustment is required
to be made in accordance with (c) above, or cash distributed upon a merger or
consolidation) to all holders of New Common Stock in an aggregate amount that,
combined together with (i) all other such all-cash distributions made within the
then preceding 12 months in respect of which no adjustment has been made and
(ii) any cash and the fair market value of other consideration paid or payable
in respect of any tender offer by BI or any of its subsidiaries for New Common
Stock concluded within the preceding 12 months in respect of which no adjustment
has been made, exceeds 15% of BI's market capitalization (defined as being the
product of the then current market price of the New Common Stock (determined as
provided in subsection (f) below) times the number of shares of New Common Stock
then outstanding) on the record date of such distribution, then in each such
case the Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect immediately prior
to the date of such distribution by a fraction of which the numerator shall be
the then current market price per share of the New Common Stock on such record
date less the amount of the cash so distributed applicable to one share of New
Common Stock, and of which the denominator shall be such current market price
per share of the New Common Stock. Such adjustment shall become effective
immediately, except as provided in subsection (h) below, after the record date
for the determination of stockholders entitled to receive such distribution.
Notwithstanding the foregoing, in the event that the cash so distributed
applicable to one share of New Common Stock equals or exceeds such current
market price per share of New Common Stock, or such current market price exceeds
such amount of cash by less than $0.10 per share, the Conversion Price shall not
be adjusted pursuant to this subsection (d), and, to the extent applicable, the
provisions of subsection (k) shall apply to such distribution.
(e) In case there shall be completed a tender or exchange offer made by BI or
any subsidiary of BI for all or any portion of the New Common Stock (any such
tender or exchange offer being referred to as an "Offer") that involves an
aggregate consideration having a fair market value as of the expiration of such
Offer (the "Expiration Date") that, together with (i) any cash and the fair
market value of any other consideration payable in respect of any other Offer,
as of the expiration of such other Offer, expiring within the 12 months
preceding the expiration of such Offer and in respect for which no Conversion
Price adjustment pursuant to this subsection (e) has been made and (ii) the
aggregate amount of any all-cash distributions referred to in subsection (d) of
this Section 9.5 to all holders of New Common Stock within the 12 months
preceding the expiration of such Offer for which no conversion price adjustment
pursuant to such subsection (d) has been made, exceeds 15% of the product of the
then current market price per share (determined as provided in subsection (f)
below) of the New Common Stock on the Expiration Date times the number of shares
of New Common Stock outstanding (including any tendered shares) on the
Expiration Date, the Conversion Price shall be reduced by multiplying such
Conversion Price in effect immediately prior to the Expiration Date by a
fraction of which the numerator shall be (i) the product of the then current
market price per share (determined as provided in subsection (f) below) of the
New Common Stock on the Expiration Date times the number of shares of New Common
Stock outstanding
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(including any tendered shares) on the Expiration Date minus (ii) the fair
market value of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the Offer) of all shares
validly tendered and not withdrawn as of the Expiration Date (the shares deemed
so accepted being referred to as the "Purchased Shares") and the denominator
shall be the product of (i) such current market price per share on the
Expiration Date times (ii) such number of outstanding shares on the Expiration
Date less the number of Purchased Shares, such reduction to become effective
immediately prior to the opening of business on the day following the Expiration
Date. For purposes of this subsection (e), the fair market value of any
consideration with respect to an Offer shall be reasonably determined in good
faith by the Board of Directors of BI and described in a board resolution.
(f) For the purpose of any computation under subsections (b), (c), (d) and (e)
above, the current market price per share of New Common Stock on any date shall
be deemed to be the average of the Last Sale Prices of a share of New Common
Stock for the five consecutive Trading Days selected by BI commencing not more
than 20 Trading Days before, and ending not later than the earlier of the date
in question and the date before the "`ex' date" with respect to the issuance,
distribution or Offer requiring such computation. If on any such Trading Day the
New Common Stock is not quoted by any organization referred to in the definition
of Last Sale Price in Section 9.3, the fair value of the New Common Stock on
such day, as reasonably determined in good faith by the Board of Directors of
BI, shall be used. For purposes of this paragraph, the term "`ex' date" when
used with respect to any issuance, distribution or payments with respect to an
Offer, means the first date on which the New Common Stock trades regular way on
the NASDAQ (or if not listed or admitted to trading thereon, then on the
principal national securities exchange on which the New Common Stock is listed
or admitted to trading) without the right to receive such issuance, distribution
or Offer.
(g) In addition to the foregoing adjustments in subsections (a), (b), (c), (d)
and (e) above, BI will be permitted to make such reductions in the Conversion
Price as it considers to be advisable in order that any event treated for
Federal income tax purposes as a dividend of stock or stock rights will not be
taxable to the holders of the shares of New Common Stock.
(h) In the event BI elects to make such a reduction in the Conversion Price, BI
will comply with the requirements of Rule 14e-1 of the Exchange Act and any
other Federal and state laws and regulations thereunder if and to the extent
that such laws and regulations are applicable in connection with the reduction
of the Conversion Price of the Notes; provided that any provisions of this
Indenture which conflict with such laws shall be deemed to be superseded by the
relevant provisions of such laws.
(i) In any case in which this Section 9.5 shall require that an adjustment
(including by reason of the last sentence of subsection (a) or (c) above) be
made immediately following a record date, BI may elect to defer the
effectiveness of such adjustment (but in no event until a date later than the
effective time of the event giving rise to such adjustment), in which case BI
shall, with respect to any Note converted after such record date and on and
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before such adjustment shall have become effective, (i) defer paying any cash
payment pursuant to Section 9.3 or issuing to the Holder of such Note the number
of shares of New Common Stock and other capital stock of BI (or other assets or
securities) issuable upon such conversion in excess of the number of shares of
New Common Stock and other capital stock of BI issuable thereupon only on the
basis of the Conversion Price prior to adjustment, and (ii) not later than five
Business Days after such adjustment shall have become effective, pay to such
Holder the appropriate cash payment pursuant to Section 9.3 of this Article 9
and issue to such Holder the additional shares of New Common Stock and other
capital stock of BI issuable on such conversion.
(j) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least one percent (1.0%)
of the Conversion Price; provided, that any adjustments which by reason of this
subsection (i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article 9
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be. Whenever the Conversion Price is adjusted as herein provided,
BI shall promptly (i) file with the Trustee and each conversion agent an
Officer's Certificate setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment,
which certificate shall be conclusive evidence of the correctness of such
adjustment, and (ii) mail or cause to be mailed a notice of such adjustment to
each Holder of Notes at the Holder's address as the same appears on the Security
Register.
(k) In the event that BI distributes rights (including rights to distributions
referred to by paragraphs (c) and (d) of this Section 9.5 to the extent this
paragraph (k) applies thereto) or warrants (other than those referred to in
subsection (b) above) pro rata to holders of New Common Stock, so long as any
such rights or warrants have not expired or been redeemed by BI, BI shall make
proper provision so that the Holder of any Note surrendered for conversion will
be entitled to receive upon such conversion, in addition to the shares of New
Common Stock issuable upon such conversion (the "Conversion Shares"), a number
of rights or warrants to be determined as follows: (i) if such conversion occurs
on or prior to the date for the distribution to the holders of rights or
warrants of separate certificates evidencing such rights or warrants (the
"Distribution Date"), the same number of rights or warrants to which a holder of
a number of shares of New Common Stock equal to the number of Conversion Shares
is entitled at the time of such conversion in accordance with the terms and
provisions of and applicable to the rights or warrants, and (ii) if such
conversion occurs after such Distribution Date, the same number of rights or
warrants to which a holder of the number of shares of New Common Stock into
which the principal amount of such Note so converted was convertible immediately
prior to such Distribution Date would have been entitled on such Distribution
Date in accordance with the terms and provisions of and applicable to the rights
or warrants.
SECTION 9.6 Continuation of Conversion Privilege in Case of Reclassification,
----------------------------------------------------------------
Change, Merger, Consolidation or Sale of Assets
- -----------------------------------------------
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. If any of the following shall occur, namely: (a) any reclassification or
change of outstanding shares of New Common Stock issuable upon conversion of the
Notes (other than a change in par value, or from par value to no par value, or
from no par value, to par value, or as a result of a subdivision or
combination), (b) any consolidation or merger of BI with or into any other
Person, or the merger of any other Person with or into BI (other than a merger
which does not result in any reclassification, change, conversion, exchange or
cancellation of outstanding shares of New Common Stock) or (c) any sale,
transfer or conveyance of all or substantially all of the assets of BI (computed
on a consolidated basis), then BI, or such successor or purchasing entity, as
the case may be, shall, as a condition precedent to such reclassification,
change, consolidation, merger, sale or conveyance, execute and deliver to the
Trustee a supplemental indenture providing that the Holder of each Note then
outstanding shall have the right to convert such Note only into the kind and
amount of shares of stock and other securities and property (including cash)
receivable upon such reclassification, change, consolidation, merger, sale,
transfer or conveyance by a holder of the number of shares of New Common Stock
issuable upon conversion of such Note immediately prior to such
reclassification, change, consolidation, merger, sale, transfer or conveyance
assuming such holder of New Common Stock of BI failed to exercise his rights of
an election, if any, as to the kind or amount of securities, cash and other
property receivable upon such reclassification, change, consolidation, merger,
sale, transfer or conveyance (provided that if the kind or amount of securities,
cash, and other property receivable upon such reclassification, change,
consolidation, merger, sale, transfer or conveyance is not the same for each
share of New Common Stock of BI held immediately prior to such reclassification,
change, consolidation, merger, sale, transfer or conveyance in respect of which
such rights of election shall not have been exercised ("non-electing share"),
then for the purpose of this Section 9.6 the kind and amount of securities, cash
and other property receivable upon such reclassification, change, consolidation,
merger, sale, transfer or conveyance by each non-electing share shall be deemed
to be the kind and amount so receivable per share by a plurality of the non-
electing shares). Such supplemental indenture shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 9. If, in the case of any such consolidation,
merger, sale or conveyance, securities and property (including cash) receivable
thereupon by a holder of shares of New Common Stock includes shares of stock or
other securities and property (including cash) of a corporation other than the
successor or purchasing corporation, as the case may be, in such consolidation,
merger, sale or conveyance, then such supplemental indenture shall also be
executed by such other corporation and shall contain such additional provisions
to protect the interests of the Holders of the Notes as the Board of Directors
of BI shall reasonably consider necessary by reason of the foregoing. The
provisions of this Section 9.6 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
Notice of the execution of each such supplemental indenture shall be
mailed to each Holder of Notes at his address as the same appears in the
Security Register.
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SECTION 9.7 Notice of Certain Events.
------------------------
In the event (a) BI shall declare a dividend (or any other
distribution) payable to the holders of New Common Stock (other than cash
dividends);
(b) BI shall authorize the grant to holders of New Common Stock of
rights, warrants or options to subscribe for or purchase any shares of stock of
any class or of any other rights;
(c) BI shall authorize any reclassification or change of the New
Common Stock (including a subdivision or combination of its outstanding shares
of New Common Stock), or any consolidation or merger to which BI is a party and
for which approval of any stockholders of BI is required, or the sale or
conveyance of all or substantially all the property or business of BI;
(d) there shall be proposed any voluntary or involuntary dissolution,
liquidation or winding-up of BI; or
(e) BI or any of its subsidiaries shall complete an Offer;
then, BI shall cause to be filed at the office or agency maintained for the
purpose of conversion of the Notes as provided in Section 9.12 and shall cause
to be mailed to each Holder of Notes, at its address as it shall appear on the
registry books of BI, at least 20 days before the date hereinafter specified (or
the earlier of the dates hereinafter specified, in the event that more than one
date is specified), a notice stating the date on which (1) a record is expected
to be taken for the purpose of such dividend, distribution, rights, warrants or
options or Offer, or if a record is not to be taken, the date as of which the
holders of New Common Stock of record to be entitled to such dividend,
distribution, rights, warrants or options or to participate in such Offer are to
be determined, or (2) such reclassification, change, consolidation, merger,
sale, conveyance, dissolution, liquidation or winding-up is expected to become
effective and the date, if any is to be fixed, as of which it is expected that
holders of New Common Stock of record shall be entitled to exchange their shares
of New Common Stock for securities or other property deliverable upon such
reclassification, change, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding-up.
SECTION 9.8 Taxes on Conversion.
-------------------
BI will pay any and all documentary, stamp or similar taxes payable to the
United States of America or any political subdivision or taxing authority
thereof or therein in respect of the issue or delivery of shares of New Common
Stock on conversion of Notes pursuant thereto; provided, however, that BI shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issue or delivery of shares of New Common Stock in a name other
than that of the Holder of the Notes to be converted and no such issue or
delivery shall be made unless and until the person requesting such issue or
delivery has paid to BI the amount of any such tax or has established, to the
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satisfaction of BI, that such tax has been paid. BI extends no protection
with respect to any other taxes imposed in connection with conversion of Notes.
SECTION 9.9 BI to Provide Stock.
-------------------
BI shall reserve, free from preemptive rights, out of its authorized but
unissued shares, sufficient shares to provide for the conversion of the Notes
from time to time as such Notes are presented for conversion, provided, that
nothing contained herein shall be construed to preclude BI from satisfying its
obligations in respect of the conversion of Notes by delivery of repurchased
shares of New Common Stock which are held in the treasury of BI.
If any shares of New Common Stock to be reserved for the purpose of
conversion of Notes hereunder require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon conversion, then BI covenants that it will in
good faith and as expeditiously as possible use its best efforts to secure such
registration or approval, as the case may be, provided, however, that nothing in
this Section 9.9 shall be deemed to limit in any way the obligations of BI
provided in this Article 9.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the New Common Stock, BI
will take all corporate action which may be necessary in order that BI may
validly and legally issue fully paid and non-assessable shares of New Common
Stock at such adjusted Conversion Price.
BI covenants that all shares of New Common Stock which may be issued
upon conversion of Notes will upon issue be fully paid and non-assessable by BI
and free of preemptive rights.
SECTION 9.10 Disclaimer of Responsibility for Certain Matters.
------------------------------------------------
Neither the Trustee nor any agent of the Trustee shall at any time be under
any duty or responsibility to any Holder of Notes to determine whether any facts
exist which may require any adjustment of the Conversion Price, or with respect
to the Officer's Certificate referred to in Section 9.5 or with respect to the
nature or extent of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same. Neither the Trustee nor any agent of the Trustee shall be
accountable with respect to the validity or value (or the kind or amount) of any
shares of New Common Stock, or of any securities or property (including cash),
which may at any time be issued or delivered upon the conversion of any Note;
and neither the Trustee nor any conversion agent makes any representation with
respect thereto. Neither the Trustee nor any agent of the Trustee shall be
responsible for any failure of BI to issue, register the transfer of or deliver
any shares of New Common Stock or stock certificates or other securities or
property (including cash) upon the surrender of any Note for the purpose of
conversion or to comply with any of the
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covenants of BI contained in this Article 9.
SECTION 9.11 Return of Funds Deposited for Redemption of Converted Notes.
-----------------------------------------------------------
Any funds which at any time shall have been deposited with the Trustee or any
other Paying Agent for the purpose of paying the principal of and interest on
any of the Notes and which shall not be required for such purposes because of
the conversion of such Notes, as provided in this Article 9, shall after such
conversion be repaid to the Issuer by the Trustee or such other Paying Agent.
SECTION 9.12 Registrar and Paying Agent.
--------------------------
The Issuer shall maintain or cause to be maintained an office or agency in
the Borough of Manhattan, The City of New York, where Notes may be presented for
conversion and where notices and demands to or upon the Issuer in respect of the
conversion of the Notes may be served. Such office or agency shall initially be
the Corporate Trust Office.
ARTICLE 10
SATISFACTION AND DISCHARGE
SECTION 10.1 Defeasance of Notes
-------------------
. Except as otherwise provided in the terms of any Notes, the Issuer shall be
deemed to have made all payments due on the Notes prior to the Maturity Date
thereof for all purposes of this Indenture, and the entire indebtedness of the
Issuer in respect thereof shall be deemed to have been satisfied and discharged,
upon satisfaction of each of the following conditions:
(a) The Issuer shall have irrevocably deposited with the Trustee, in trust, for
the benefit of the Holders, cash in Dollars or obligations of the United States
Government, or a combination thereof, in such amount as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of and interest on, the Outstanding Notes on and prior to
the Maturity Date thereof or upon redemption;
(b) If any such deposit of money shall have been made prior to the Maturity Date
or Redemption Date of such Notes, the Issuer shall have delivered to the Trustee
an Issuer Order stating that such money shall be held by the Trustee, in trust,
as provided in Section 10.3 hereof;
(c) In the case of redemption of Notes, the notice requisite to the validity of
such redemption shall have been given, or irrevocable instructions shall have
been given by the Issuer to the Trustee to give such notice, under arrangements
satisfactory to the Trustee;
(d) The Issuer shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the Outstanding Notes will not recognize income, gain
or loss for U.S. federal income tax purposes as a result of such defeasance as
set forth in this Section 10.1 and will be subject to U.S. federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred, and
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such opinion must refer to and be based upon a published ruling of the U.S.
Internal Revenue Service or a change in applicable federal U.S. income tax laws
since the date hereof;
(e) No Event of Default shall have occurred and be continuing on the date of
such deposit;
(f) The Issuer shall have delivered to the Trustee an Opinion of Counsel to the
effect that, after the 91st day following the deposit referred to above, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and
(g) The Issuer shall have delivered to the Trustee an Officer's Certificate and
an Opinion of Counsel satisfactory to the Trustee which, taken together, shall
state that all conditions precedent under this Indenture to such defeasance have
been complied with.
Upon satisfaction of the aforesaid conditions with respect to the
Notes, the Trustee shall, upon receipt of an Issuer Request, acknowledge in
writing that the Notes are deemed to have been paid for all purposes of this
Indenture and that the entire indebtedness of the Issuer in respect thereof is
deemed to have been satisfied and discharged.
In the event that Notes which shall be deemed to have been paid as
provided in this Section 10.1 do not mature and are not to be redeemed within
the 60-day period commencing on the date of the deposit with the Trustee of
monies, the Issuer shall, as promptly as practicable, give or cause to be given
a notice, in the same manner as a notice of redemption with respect to such
Notes, to the Holders of such Notes to the effect that the Issuer is deemed to
have made full payment on such Notes and the circumstances thereof.
Notwithstanding the satisfaction and discharge of any Notes as
aforesaid, the obligations of the Issuer and the Trustee in respect of such
Notes under Sections 2.5, 2.6, 2.7 and 2.12, Section 4.6 and this Article 10
hereof shall survive.
SECTION 10.2 Satisfaction and Discharge of the Indenture.
-------------------------------------------
This Indenture shall upon Issuer Request cease to be of further effect
(except as hereinafter expressly provided), and the Trustee, at the expense of
the Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when:
(a) the Issuer has paid and discharged the entire indebtedness by (i) paying in
full the outstanding principal of, and accrued and unpaid interest, on, the
Notes as and when payable, (ii) depositing with the Trustee cash in a sufficient
amount to redeem all outstanding Notes in accordance with their terms together
with proof that notice of redemption has been given or waived or an irrevocable
order of the Issuer directing the Trustee to give such notice together with an
amount sufficient to pay any and all amounts
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due and owing to the Trustee or (iii) delivering to the Trustee for cancellation
all Outstanding Notes; and
(b) the Issuer has delivered to the Trustee an Officer's Certificate and an
Opinion of Counsel, each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of this Indenture have been
complied with.
Upon satisfaction of the aforesaid conditions, the Trustee shall, upon
receipt of an Issuer Request, acknowledge in writing the satisfaction and
discharge of this Indenture and take all other action reasonably requested by
the Issuer to evidence the termination of any and all Liens created by or with
respect to this Indenture.
Notwithstanding the satisfaction and discharge of this Indenture as
aforesaid, the obligations of the Issuer and the Trustee under Sections 2.5,
2.6, 2.7 and 2.14, Section 4.6 and this Article 10 hereof shall survive.
Upon satisfaction and discharge of this Indenture as provided in this
Section 10.2, the Trustee shall assign, transfer and turn over to or upon the
order of the Issuer any and all money, securities and other property then held
by the Trustee for the benefit of the Holders, other than money deposited with
the Trustee pursuant to Section 10.1(a) hereof and interest and other amounts
earned or received thereon.
SECTION 10.3 Application of Trust Money.
--------------------------
The money deposited with the Trustee pursuant to Section 10.1 hereof shall
not be withdrawn or used for any purpose other than, and shall be held in trust
for, the payment of the principal of, and interest on, the Notes or portions of
principal amount thereof in respect of which such deposit was made.
SECTION 10.4 Return of Moneys Held by Trustee and Paying Agent Unclaimed for
---------------------------------------------------------------
One Year.
- --------
Unless otherwise required by mandatory provisions of the applicable escheat
or abandoned or unclaimed property law, any moneys deposited with or paid to the
Trustee or any Paying Agent for the payment of principal of, or interest on, any
Note, other than amounts held pursuant to Section 10.1 hereof and not applied
but remaining unclaimed for one year after the date upon which such principal or
interest shall have become due and payable, shall, upon written request of the
Issuer, unless otherwise required by mandatory provisions of applicable escheat
or abandoned or unclaimed property law, be repaid to the Issuer by the Trustee
or such Paying Agent, and the Holder of such Note shall thereafter look only to
the Issuer for any payment that such Holder may be entitled to collect, and all
liability of the Trustee or any paying agent with respect to such moneys shall
thereupon cease.
ARTICLE 11
AMENDMENTS, SUPPLEMENTS AND WAIVERS
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SECTION 11.1 Without Consent of Holders.
--------------------------
The Issuer, when authorized by a Board Resolution, BI and the Trustee,
together, may amend or supplement this Indenture, any Security Document or the
Notes without notice to or consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency, provided that such amendment
or supplement does not, in the opinion of the Trustee, adversely affect the
rights of any Holder in any material respect; in formulating its opinion on such
matters, the Trustee will be entitled to rely on such evidence as it deems
appropriate, including, without limitation, solely an Opinion of Counsel;
(b) to give effect to the release of any Collateral or of any Lien in accordance
with the provisions of the Security Documents;
(c) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(d) to make any other change that does not adversely affect the rights of any
Noteholder hereunder in any material respect;
(e) to maintain compliance with any requirements of the SEC in order to effect
or maintain the qualification of this Indenture under the Trust Indenture Act;
(f) to evidence the succession of another Person to the Issuer as obligor
under the Indenture;
(g) 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; or
(h) to make any change that would provide any additional benefit or rights to
the Holders or that does not adversely affect in any material respect the rights
of any Holder;
provided that the Issuer has delivered to the Trustee an Opinion of Counsel and
an Officer's Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 11.1.
SECTION 11.2 With Consent of Holders.
-----------------------
The Issuer, when authorized by a Board Resolution, BI and the Trustee,
together, with the written consent of the Holder or Holders of at least a
majority in aggregate principal amount of the outstanding Notes, may amend or
supplement this Indenture, any Security Document or the Notes, without notice to
any other Holders or other holders, and the Holder or Holders of a majority in
aggregate principal amount of the outstanding Notes may waive compliance by the
Issuer with any provision of this Indenture or the Notes without notice to any
other Holder; provided, however, no amendment, supplement or waiver, including a
waiver pursuant to Section 8.10, shall, without the consent of each Holder of
each Note:
(a) reduce the percentage of any outstanding Notes necessary to modify or
amend the
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Indenture with respect to such Notes or to waive compliance with certain
provisions thereof or certain Events of Default and consequences
thereunder;
(b) reduce the rate of or change or have the effect of changing the Stated
Maturity for payment of interest on any Notes;
(c) reduce the principal of or change or have the effect of changing the
Stated Maturity of any Notes, or change the date on which any Notes may be
subject to redemption, or reduce the Redemption Price therefor;
(d) change the Place of Payment or make any Notes payable in money other than
that stated in the Notes;
(e) make any change in the provisions of this Indenture protecting the right
of each Holder to receive payment of principal of and interest on such Note
on or after the due date thereof or to bring suit to enforce such payment,
or permitting Holders of a majority in principal amount of Notes to waive
Events of Default;
(f) change any material provision of any of the Security Documents that
releases the Collateral securing the Notes (other than a release in
accordance with the provisions of the Security Documents) or adversely
affects the interest of any Holder of the Notes;
(g) adversely affect the right of the Holders of the Notes to convert the
Notes into New Common Stock as provided in Article 9; or
(h) amend, modify, change or waive any provision of this Section 11.2 to
adversely affect the Holders of the Notes in any material respect.
It shall not be necessary for the consent of the Holders under this
Section 11.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 11.2
becomes effective, the Issuer shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Issuer to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 11.3 Compliance with Trust Indenture Act.
-----------------------------------
Every amendment, waiver or supplement of this Indenture or the Notes shall
comply with the Trust Indenture Act as then in effect.
SECTION 11.4 Revocation and Effect of Consents.
---------------------------------
Until an amendment, waiver or supplement becomes effective, a consent to it
by a Holder is a continuing consent by the Holder and every subsequent Holder of
a Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if
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<PAGE>
notation of the consent is not made on any Note. Subject to the following
paragraph, any such Holder or subsequent Holder may revoke the consent as to
such Holder's Note or portion of such Note by notice to the Trustee or the
Issuer received before the date on which the Trustee receives an Officer's
Certificate certifying that the Holders of the requisite principal amount of
outstanding Notes have consented (and not theretofore revoked such consent) to
the amendment, supplement or waiver (at which time such amendment, supplement or
waiver shall become effective).
The Issuer may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the last
sentence of the immediately preceding paragraph, those Persons who were Holders
at such record date (or their duly designated proxies), and only those Persons,
shall be entitled to revoke any consent previously given, whether or not such
Persons continue to be Holders after such record date. No such consent shall be
valid or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (a)
through (h) of Section 11.2, in which case, the amendment, supplement or waiver
shall bind only each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note; provided that any such waiver shall not impair or
affect the right of any Holder to receive payment of principal of and interest
on a Note, on or after the respective due dates expressed in such Note, or to
bring suit for the enforcement of any such payment on or after such respective
dates without the consent of such Holder.
SECTION 11.5 Notation on or Exchange of Notes.
--------------------------------
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder of such Note to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder. Alternatively, if the Issuer or the Trustee so
determines, the Issuer in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Any such notation
or exchange shall be made at the sole cost and expense of the Issuer.
SECTION 11.6 Trustee To Sign Amendments, Etc.
-------------------------------
The Trustee shall execute any amendment, supplement or waiver authorized
pursuant to this Article 11; provided that the Trustee may, but shall not be
obligated to, execute any such amendment, supplement or waiver which affects the
Trustee's own rights, duties or immunities under this Indenture. The Trustee
shall be entitled to receive, and shall be fully protected in relying upon, an
Opinion of Counsel and an Officer's Certificate each complying with Sections
11.4 and 11.5 and stating that the execution of any amendment, supplement or
waiver authorized pursuant to this Article 11 is authorized or permitted by
55
<PAGE>
this Indenture. Such Opinion of Counsel shall not be an expense of the Trustee.
ARTICLE 12
COLLATERAL AND SECURITY DOCUMENTS
SECTION 12.1 Collateral and Security Documents.
----------------------------------
(a) To secure the due and punctual payment of the principal of and interest on
the Notes when and as the same shall become due and payable, whether on an
interest payment date, at maturity, by acceleration, redemption or
otherwise, and the performance of all other obligations of the Issuer to
the Holders under this Indenture and the Notes, the Issuer, New Horizons
and the Trustee have entered into the Security Documents pursuant to which
the Issuer and New Horizons have granted to the Trustee, for the benefit of
the Holders, a Lien on the Union Square Property and the Yonkers Property
and the Proceeds of the conversion of the Yonkers Property and the Union
Square Property, respectively, which Lien shall be a first priority Lien.
Such Lien shall be subject to modification, and certain portions of the
Collateral shall be subject to release, upon the terms and provisions set
forth in the Security Documents.
(b) Each Holder of a Note, by accepting a Note, agrees to all of the terms and
provisions of the Security Documents, as the same may be amended from time
to time pursuant to the provisions of the Security Documents and this
Indenture.
SECTION 12.2 Release of Lien.
---------------
The Trustee, in its capacity as trustee for the Holders under this Indenture,
will not at any time permit the release of any Collateral from the security
interest created by the Security Documents unless such release is in accordance
with the provisions of this Indenture and the Security Documents. To the extent
applicable, the Issuer shall cause (S) 314(d) of the Trust Indenture Act
relating to the release of property or securities from the security interest
pursuant hereto and the Security Documents to be complied with. Any certificate
or opinion required by (S) 314(d) of the Trust Indenture Act may be made by an
Officer of the Issuer, except in cases which (S) 314(d) of the Trust Indenture
Act requires that such certificate or opinion be made by an independent person.
SECTION 12.3 Recording, Certificates and Opinions.
------------------------------------
(a) The Issuer will take or cause to be taken all action required to perfect,
maintain, preserve and protect the security interest in the Collateral
granted by or pursuant to this Indenture and the Security Documents.
(b) The Issuer shall deliver to the Trustee promptly after the execution and
delivery of this Indenture, an Opinion of Counsel either stating that in
the opinion of such counsel the Indenture has been properly recorded and
filed so as to perfect and make effective the security interest intended to
be created for the benefit of the Holders of Notes, and reciting the
details of such action, or stating that in the opinion of such counsel no
such action is necessary to perfect
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<PAGE>
and make effective such security interest.
(c) The Issuer shall deliver to the Trustee on or before [January 1] of each
year, an Opinion of Counsel either stating that in the opinion of such
counsel such action has been taken with respect to the recording, filing,
re-recording and re-filing of the Indenture as is necessary to maintain the
security interest intended to be created thereby for the benefit of the
Holders of Notes, and reciting the details of such action, or stating that
in the opinion of such counsel no such action is necessary to maintain such
security interest.
(d) The Issuer shall comply with Trust Indenture Act (S) 314(d), relating to,
among other matters, the release of Collateral from the Lien of the
Security Documents and Officer's Certificates or other documents regarding
fair value of the Collateral, to the extent such provisions are applicable.
Any certificate or opinion required by Trust Indenture Act (S) 314(d) may
be executed and delivered by an Authorized Representative of the Issuer to
the extent permitted by Trust Indenture Act (S) 314(d).
SECTION 12.4 Authorization of Actions to Be Taken by the Trustee Under the
-------------------------------------------------------------
Security Documents.
- ------------------
Subject to the provisions of the Security Documents, (i) the Trustee, in its
sole discretion and without the consent of the Holders, may take all actions it
deems necessary or appropriate in order to (x) enforce any of the terms of the
Security Documents, and (y) collect and receive any and all amounts payable in
respect of the obligations of the Issuer; and (ii) the Trustee may institute and
maintain such suits and proceedings, as it may deem expedient to prevent any
impairment of the Collateral by any acts that may be unlawful or in violation of
this Indenture or the Security Documents, and such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Collateral (including the power to institute and
maintain suits or proceedings to restrain the enforcement of or compliance with
any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security interest thereunder or
be prejudicial to the interests of the Holders or of the Trustee). Article 4 of
this Indenture applies to all duties and obligations of the Trustee with respect
to the Security Documents and the Collateral.
SECTION 12.5 Authorization of Receipt of Funds by the Trustee Under the
----------------------------------------------------------
Security Documents.
- ------------------
The Trustee is authorized to receive any funds for the benefit of Holders
received under the Security Documents, and to make further distributions of such
funds to the Holders in accordance with the provisions of this Indenture, the
Security Documents and applicable law.
SECTION 12.6 Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of the Security Documents, the Collateral or the
perfection of the Collateral (except with respect to taking the actions
specifically set forth in Opinions of Counsel
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<PAGE>
delivered to the Trustee pursuant to Section 12.3(b) with respect to the
perfection of the Collateral) and it shall not be responsible for any statement
contained in the Security Documents.
SECTION 12.7 Release upon Termination of the Issuer's Obligations.
----------------------------------------------------
In the event that the Issuer delivers an Officer's Certificate certifying
that all the obligations under this Indenture, the Notes and the Security
Documents have been satisfied and discharged by complying with the provisions of
Article 10, the Trustee shall deliver to the Issuer a notice stating that the
Trustee, on behalf of the Holders, disclaims and gives up any and all rights it
has in or to the Collateral and any rights it has under the Security Documents,
and, upon and after receipt by the Issuer of such notice, the Trustee shall not
be deemed to hold a Lien in the Collateral for the benefit of the Holders.
ARTICLE 13
GUARANTEE
SECTION 13.1 Guarantee.
---------
BI hereby fully and unconditionally guarantees to each Holder of a Note
authenticated and delivered by the Trustee, and to the Trustee on behalf of each
such Holder, the due and punctual payment of the principal of and interest on
such Note, and the due and punctual payment of any redemption payment with
respect to such Note, when and as the same shall become due and payable, whether
at Stated Maturity, upon redemption, upon acceleration or otherwise, according
to the terms thereof and of this Indenture (the "Guarantee Obligations"). In
case of the failure of the Issuer punctually to pay any such principal, interest
or redemption payment, BI hereby agrees to cause any such payment to be made
punctually when and as the same shall become due and payable, whether at Stated
Maturity, upon redemption, upon declaration of acceleration or otherwise, as if
such payment were made by the Issuer.
BI hereby agrees that its Guarantee Obligations hereunder shall be as
if it were principal debtor and not merely surety and shall be absolute and
unconditional, irrespective of the validity, regularity or enforceability of any
such Note or this Indenture, the absence of any action to enforce the same, any
waiver or consent by the Holder of any such Note with respect to any provisions
thereof, the recovery of any judgment against the Issuer or any action to
enforce the same, or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. BI hereby waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Issuer, any right to require a
proceeding first against the Issuer, protest, notice and all demands whatsoever
and covenants that its Guarantee will not be discharged except by complete
performance of its obligations contained in such Note and in this Guarantee.
BI agrees, to the fullest extent that it may lawfully do so, that, as
between
58
<PAGE>
BI, on the one hand, and the Holders and the Trustee, on the other hand, the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article 8 hereof for the purposes of this Guarantee, notwithstanding any stay,
injunction or other prohibition extant under any applicable bankruptcy law
preventing such acceleration in respect of the obligations guaranteed hereby.
BI shall be subrogated to all rights of the Holders of the Notes
against the Issuer in respect of any amounts paid by BI on account of such Notes
or this Indenture; provided, however, that BI shall not be entitled to enforce
or to receive any payments arising out of, or based upon, such right of
subrogation until the principal of and interest, if any, on all such Notes shall
have been paid in full.
SECTION 13.2 Guarantee Subordinated to Credit Facility Guarantee.
---------------------------------------------------
BI and the Trustee each covenants and agrees, and each Holder, by
its acceptance of a Note and the corresponding Guarantee, likewise covenants and
agrees, that the Guarantee Obligations shall, to the extent and in the manner
set forth in this Article 13, be unsecured obligations of the Guarantor, ranking
equally in right of payment with other nonsubordinated indebtedness of BI,
except that the Guarantee Obligations shall be expressly subordinated in right
of payment to the Credit Facility Guarantee.
SECTION 13.3 Liquidation, Dissolution, Bankruptcy.
------------------------------------
Upon any payment or distribution of the assets of BI to creditors
upon a liquidation or dissolution of BI or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to BI or its property:
(1) holders of the Credit Facility Guarantee shall be entitled to
receive payment in full of such Credit Facility Guarantee in cash or cash
equivalents before Noteholders shall be entitled to receive any payment
pursuant to the Guarantee Obligations; and
(2) until the Credit Facility Guarantee is paid or discharged in
full, any distribution to which Noteholders would be entitled but for this
Article 13 shall be made to holders of such Credit Facility Guarantee as
their interests may appear, except that Noteholders may receive shares of
stock and any debt securities of BI that are subordinated to the Credit
Facility Guarantee, and to any debt securities received by holders of such
Credit Facility Guarantee, of BI to at least the same extent as the
Guarantee Obligations are subordinated to the Credit Facility Guarantee.
SECTION 13.4 Default on Credit Facility Guarantee.
------------------------------------
BI may not make any payment pursuant to the Guarantee Obligations
("pay its Guarantee") if the Credit Facility Guarantee is not paid when due
unless the Credit Facility Guarantee has been paid or discharged in full;
provided, however, that BI
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<PAGE>
may pay its Guarantee without regard to the foregoing if BI and the Trustee
receive written notice approving such payment from the representative of the
holders of the Credit Facility Guarantee.
SECTION 13.5 When Distribution Must Be Paid Over.
-----------------------------------
If a distribution is made to Noteholders that because of this
Article 13 should not have been made to them, the Noteholders who receive the
distribution shall hold it in trust for holders of the Credit Facility Guarantee
and pay it over to them or their representative as their interests may appear.
SECTION 13.6 Relative Rights.
---------------
This Article 13 defines the relative rights of holders of Notes and
holders of the Credit Facility Guarantee. Nothing in this Indenture shall:
(1) impair, as between BI and the holders of Notes, the obligation
of BI, which is absolute and unconditional, to pay its Guarantee
Obligations to the extent set forth in this Article 13; or
(2) prevent the Trustee or any holder of Notes from exercising its
available remedies upon a default by BI under its Guarantee Obligations,
subject to the rights of holders of the Credit Facility Guarantee to
receive distributions otherwise payable to holders of Notes.
SECTION 13.7 Rights of Trustee and Paying Agent.
----------------------------------
The Trustee or Paying Agent may continue to make payments pursuant
to the Guarantee and shall not be charged with knowledge of the existence of
facts that would prohibit the making of any such payments unless BI and a trust
officer of the Trustee receives written notice from the representative of the
Credit Facility Guarantee that payments may not be made under this Article 13.
SECTION 13.8 Trustee Entitled to Rely.
------------------------
Upon any payment or distribution pursuant to this Article 13, the
Trustee and the holders of Notes shall be entitled to rely (i) upon any order or
decree of a court of competent jurisdiction in which any proceedings of the
nature referred to in Section 13.3 are pending, (ii) upon a certificate of the
liquidating trustee or agent or other Person making such payment or distribution
to the Trustee or to the holders of Notes or (iii) upon the representative for
the holders of the Credit Facility Guarantee for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
such Credit Facility Guarantee, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 13. In the event that the Trustee determines, in
good faith, that evidence is required with respect to the right of any Person as
a holder of the Credit Facility
60
<PAGE>
Guarantee to participate in any payment or distribution pursuant to this Article
13, the Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of the Credit Facility Guarantee
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and other facts pertinent to the rights of such
Person under this Article 13, and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such person to receive such payment.
SECTION 13.9 Trustee to Effectuate Subordination.
-----------------------------------
Each holder of Notes by accepting a Note authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the holders of Notes and the
holders of the Credit Facility Guarantee as provided in this Article 13 and
appoints the Trustee as attorney-in-fact for any and all such purposes.
SECTION 13.10 Trustee not Fiduciary for Holders of the Credit Facility
--------------------------------------------------------
Guarantee.
- ---------
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of the Credit Facility Guarantee and shall not be liable to any such
holders if it shall mistakenly pay over or distribute to holders of Notes or the
Issuer or any other Person money or assets to which any holders of such Credit
Facility Guarantee shall be entitled by virtue of this Article 13 or otherwise.
SECTION 13.11 Execution and Delivery of Guarantee.
-----------------------------------
To evidence its Guarantee with respect to the Notes, BI hereby agrees to
execute the Guarantee, substantially in the form of Exhibit B hereto, to be
endorsed on each Note authenticated and delivered by the Trustee. Each such
Guarantee shall be executed on behalf of BI by an Authorized Representative and
attested by its Secretary or one of its Assistant Secretaries or an Authorized
Representative. The signature of any of these officers on the Guarantee may be
manual or facsimile.
A Guarantee bearing the manual or facsimile signatures of the
individuals who were the proper officers of BI shall bind BI, notwithstanding
that such individuals or any of them have ceased to hold such offices prior to
the authentication and delivery of the Notes upon which such Guarantee is
endorsed or did not hold such offices at the date of such Notes.
The delivery of any Notes by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee endorsed
thereon on behalf of BI. BI hereby agrees that its Guarantee set forth in this
Article shall remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of such Guarantee.
SECTION 13.12 Limitation of BI's Liability.
----------------------------
61
<PAGE>
BI, and by its acceptance of a Note each Holder, hereby confirms that it is
the intention of all such parties that in no event shall any Guarantee
Obligations under the Guarantee constitute or result in a fraudulent transfer or
conveyance for purposes of, or resulting a violation of, any United States
federal, or applicable United States state, fraudulent transfer or conveyance or
similar law. To effectuate the foregoing intention, in the event that the
Guarantee Obligations, if any, in respect of the Notes would, but for this
sentence, constitute or result in such a fraudulent transfer or conveyance or
violation, then the liability of BI under its Guarantee in respect of the Notes
shall be reduced to the extent necessary to eliminate such fraudulent transfer
or conveyance or violation under the applicable fraudulent transfer or
conveyance or similar law.
62
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed by their respective officers duly authorized as of the day and year
first above written.
BRADLEES STORES, INC., as the Issuer
By:________________________________
Name: _________________________
Title: _________________________
BRADLEES, INC.
By:________________________________
Name: _________________________
Title: _________________________
[ ], as Trustee
By:________________________________
Name: _________________________
Title: _________________________
63
<PAGE>
EXHIBIT A
---------
FORM OF NOTE
<PAGE>
EXHIBIT B
---------
FORM OF NOTATION RELATING TO GUARANTEED
<PAGE>
EXHIBIT 2.3
FORM OF NOTE
BRADLEES STORES, INC.
9% SECURED CONVERTIBLE NOTE DUE 2004
Number: CUSIP Number:
Principal
Amount Maturity Date Issue Date
------ ------------- ----------
$__________ $_________, 2004 __________, 1999
REGISTERED HOLDER: _______________________
PRINCIPAL AMOUNT: _______________________ Dollars
INTEREST RATE: Nine percent (9%) per annum
BRADLEES STORES, INC., a corporation duly organized and existing under
the laws of the Commonwealth of Massachusetts (hereinafter called the "Issuer",
which term includes any successor or assign under the Indenture referred to
below), for value received hereby promises to pay to [_____________], or its
registered assigns, the outstanding Principal Amount hereof on the Maturity Date
set forth above, and to pay interest on the unpaid portion of the Principal
Amount semi-annually on January 1 and July 1 of each year (each of such dates
and the Maturity Date are hereinafter individually referred to as the "Stated
Maturity") at the Interest Rate set forth above from the most recent Stated
Maturity for which interest has been paid or duly provided for or, if no
interest has been paid or duly provided for, from the Issue Date set forth
above, until the Principal Amount is paid in full or payment thereof is duly
provided for. It is acknowledged and agreed that the principal of the Notes may
not be repaid prior to the Maturity Date except as specifically provided in the
Indenture (as hereinafter defined). The principal and interest so payable on
any Stated Maturity shall, as provided in the Indenture, be paid to the person
in whose name this Note is registered in the Security Register at the close of
business on the Regular Record Date for such payment of principal and interest,
which shall be the fifteenth day preceding each Stated Maturity, respectively.
Any such principal and interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the person in whose name this Note was
registered in the Security Register at the close of business on such Regular
Record Date, and may be paid to the person in whose name this Note is registered
at the close of business on a special record date for the payment of such
overdue interest and/or overdue principal, to be fixed by the Trustee, notice of
which shall be given to the Holder hereof at least 15 days prior to such special
record date, or may be paid at
<PAGE>
any time in any other lawful manner. Payment of the principal amount of this
Note (or any outstanding installment thereof) upon final maturity (whether by
redemption, acceleration or otherwise) shall be made only upon presentation and
surrender of this Note. All payments in respect of this Note shall be made in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of debts.
Whenever any amount to be paid hereunder is stated to be due on a day
that is not a Business Day, such amount shall be payable on the next succeeding
Business Day and shall continue to bear interest at the rate set forth herein
until paid.
This Note is one of an authorized issue of Notes of the Issuer known
as its 9% Secured Convertible Notes Due ______, 2004 (the "Notes") and ranks
equally in right of payment with other non-subordinated indebtedness of the
Issuer. The Notes are issued under the Indenture, dated as of January ___, 1999
(the "Indenture"), among the Issuer, [ ] (the "Trustee," which term includes
any successor indenture trustee under the Indenture) and, solely for the
purposes of the conversion provisions therein, Bradlees, Inc. ("BI"). All
capitalized terms used herein, unless defined herein, shall have the meanings
ascribed to them in the Indenture. All rights, powers and remedies available to
any Holder of this Note shall be subject to the provisions of the Indenture.
Reference is hereby made to the Indenture for a description of the nature and
extent of the Notes and the respective rights of the Holders of the Notes, the
Indenture Trustee, the Issuer and BI in respect of the Notes and the terms upon
which the Notes are made and are to be authenticated and delivered.
The principal of, and interest on, and all other amounts payable under
this Note are secured by a first priority Lien on the Yonkers Property and the
Union Square Property and the Proceeds of the conversion of the Yonkers
Property and the Union Square Property as described in the Indenture and the
Security Documents. Such Lien shall be subject to modification, and certain
portions of the Collateral shall be subject to release, upon the terms and
provisions set forth in the Security Documents. Each Holder of a Note, by
accepting a Note, shall be deemed to have agreed to all of the terms and
provisions of the Security Documents, as the same may be amended from time to
time pursuant to the provisions thereof, the Notes and the Indenture.
Payment and performance of the Guarantee Obligations in connection
with the Notes are fully and unconditionally guaranteed on an unsecured basis by
BI in accordance with the terms of Article 13 of the Indenture.
The Indenture permits, with certain exceptions, as therein provided,
the amendment thereof and the Security Documents and the modification of the
rights and obligations of the Issuer and the rights of the Holders of the Notes
to be affected under the Indenture or the Security Documents at any time by the
Issuer with the consent of the Holders of a majority in aggregate principal
amount of the Outstanding Notes. The Indenture also contains provisions
permitting the Holders of a majority in aggregate principal amount of the
Outstanding Notes, on behalf of the Holders of all the Notes, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver or direction by the Holder of this Note shall be conclusive and binding
upon such Holder and upon
<PAGE>
all future Holders of this Note and of any security issued upon the transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
The Notes shall be redeemed pro rata with (a) the Net Proceeds of the
sale of the Yonkers Property, (b) the Net Proceeds of the sale of the Union
Square Property and (c) the Net Proceeds of any Equity Offering, in each case at
a Redemption Price equal to 100% of the unpaid principal amount of the Notes to
be redeemed plus accrued and unpaid interest thereon to the Redemption Date.
The Notes may be redeemed in whole or in part at any time at the
option of the Issuer at a Redemption Price equal to 100% of the unpaid principal
amount thereof plus accrued and unpaid interest thereon to the Redemption Date.
Notice of any redemption of Notes will be given at least 5 days before
the Redemption Date to each Holder at its registered address. Notes (or
portions thereof as aforesaid) for the redemption of which provision is made in
accordance with the Indenture shall thereupon cease to be entitled to the Lien
of the Security Documents and shall cease to bear interest from and after the
Redemption Date.
The Notes are, subject to the terms of the Indenture, convertible in
whole or in part at the option of the Holder thereof into shares of New Common
Stock of BI at any time after the first anniversary of the original issuance of
the Notes. The Conversion Price per share of New Common Stock shall initially
be equal to the arithmetic unweighted average closing price of such stock during
the 20 Business Days prior to the first anniversary of the original issuance of
the Notes. The Conversion Price shall be adjusted from time to time in the case
of certain dividends and distributions in respect of the New Common Stock, in
the event of certain tender or exchange offers for the New Common Stock and
under certain other circumstances, as further provided in the Indenture.
If an Event of Default occurs and is continuing, the Holders of at
least a majority in aggregate principal amount of the Notes Outstanding may
declare the principal amount of, and any accrued and unpaid interest on, all the
Notes to be due and payable immediately; provided, that in the case of an Event
--------
of Default arising from certain events of bankruptcy or insolvency with respect
to the Issuer, all outstanding Notes shall become due and payable immediately
without further action or notice.
The Notes are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. The transfer of Notes may be
registered and Notes may be exchanged as provided in the Indenture. The
Registrar and the Trustee may require a Noteholder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture.
The person in whose name this Note is registered shall be deemed to be
the owner and holder hereof for the purpose of receiving payment as herein
provided and for all other purposes.
<PAGE>
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
A director, officer, employee, stockholder or incorporator, as such,
of the Issuer or BI shall not have any liability for any obligations of the
Issuer under the Notes or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. Such waiver and release are part
of the consideration for the issuance of the Notes.
<PAGE>
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee by manual or facsimile signature, this Note shall not be
entitled to any benefit under such Indenture, or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.
BRADLEES STORES, INC.
By:
Name:
Title:
By:
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
[ ], as Indenture Trustee
By:
Authorized Signatory
<PAGE>
EXHIBIT A
CONVERSION NOTICE
To BRADLEES STORES, INC. and BRADLEES, INC.
The undersigned registered holder of this Note hereby irrevocably exercises
the option to convert this Note, or portion hereof, which is $1,000 or a
multiple thereof below designated into shares of common stock of BRADLEES, INC.
in accordance with the terms of the Indenture referred to in this Note and
directs that the shares issuable and deliverable upon the conversion, together
with any check in payment for fractional shares be issued and delivered to the
registered holder hereof unless a different name has been indicated below.
Unless otherwise directed, a new Note representing any unconverted principal
amount hereof shall be delivered to the registered holder hereof. If shares are
to be issued in the name of a person other than the undersigned, this Note must
be duly endorsed by or accompanied by instruments of transfer in form
satisfactory to BRADLEES STORES, INC. and BRADLEES, INC. duly executed by the
undersigned and the undersigned will pay all transfer taxes payable with respect
thereto. Any amount required to be paid by the undersigned on account of
interest accompanies this Note.
Dated:
If different from that of Noteholder,
print name, address (including ZIP
code) and Social Security or other Signature of Noteholder
taxpayer identification number of
person in whose name the New Common Signature Guaranteed
Stock will be issued.
SOCIAL SECURITY OR OTHER Principal amount to be
TAXPAYER IDENTIFYING NUMBER converted (if less than all)
Name ($1,000 or an integral
multiple thereof)
Address
$
<PAGE>
EXHIBIT A
TRANSFER FORM
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
Please print or typewrite name and address including postal zip code of
assignee
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing attorney
to transfer said Note on the books of the Company, with full power of
substitution in the premises.
Signature: Dated:
Signature Guaranteed:
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever.
<PAGE>
EXHIBIT B
FORM OF NOTATION RELATING
TO GUARANTEE
Bradlees, Inc. ("BI") has fully and unconditionally guaranteed, to the
extent set forth in Article 13 of the Indenture and subject to the provisions of
the Indenture, the complete and punctual payment by the Issuer of the Guarantee
Obligations in connection with the Notes. The Guarantee Obligations shall rank
equally in right of payment with other non-subordinated indebtedness of BI,
except that the Guarantee Obligations shall be expressly subordinated in right
of payment to the Credit Facility Guarantee, as more particularly set forth in
the Indenture.
The obligations of BI to the Holders of Notes and to the Trustee pursuant
to the Guarantee are expressly set forth in Article 13 of the Indenture and
reference is hereby made to the Indenture for the precise terms of the
Guarantee. Capitalized terms used herein and not defined herein have the
meanings ascribed thereto in the Indenture.
BRADLEES, INC.
By
Title:
Attest:
Title:
<PAGE>
EXHIBIT 2.4
If Premises located in State of New York:
SECTION _____
BLOCK _____
LOT _____
Premises:
As of November ___, 1998
LEASEHOLD MORTGAGE AND SECURITY AGREEMENT
("this Mortgage")
FROM
NEW HORIZONS OF YONKERS, INC.,
a Delaware corporation
and
BRADLEES STORES, INC.,
a Massachusetts corporation
(collectively, "Mortgagor")
Address of Mortgagor: One Bradlees Circle
Braintree, Massachusetts 02184
TO
[______________________________________]
("Mortgagee")
Address of Mortgagee: _____________________________
_____________________________
_____________________________
Mortgage Amount: $40,000,000.00
This instrument prepared by, and after recording please return to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITAL 1
CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION 1
GRANTING CLAUSE 2
ARTICLE I COVENANTS OF MORTGAGOR 3
Section 1.01. Warranty of Title; Power and Authority......... 3
Section 1.02. Good Faith Contests............................ 3
Section 1.03. Taxes on Mortgagee............................. 3
Section 1.04. Insurance...................................... 3
ARTICLE II EVENTS OF DEFAULTS AND REMEDIES 3
Section 2.01. Events of Default and Certain Remedies......... 3
ARTICLE III MISCELLANEOUS 4
Section 3.01. Modifications and Waivers in Writing........... 4
Section 3.02. Security Agreement............................. 4
Section 3.03. Notices........................................ 4
Section 3.04. Successors and Assigns......................... 4
Section 3.05. Counterparts................................... 4
Section 3.06. Substitute Mortgages........................... 5
Section 3.07. Releases....................................... 5
Section 3.08. No Merger of Interests......................... 5
Section 3.09. New York Provisions............................ 5
Section 3.10. Further Encumbrances........................... 6
</TABLE>
<PAGE>
DOCUMENT NUMBER: 250418.6
ATTORNEY NAME: Napjus
ROOM: 2942
PHONE: 6306
CLIENT NAME/NUMBER: 020513
MATTER NAME/NUMBER: 53311
DOCUMENT NAME: Leasehold Mortgage
<PAGE>
Attention: Val A. Soupios, Esq.
<PAGE>
THE AMOUNT OF THIS MORTGAGE IS FORTY MILLION AND NO/100THS DOLLARS
($40,000,000).
RECITAL
New Horizons of Yonkers, Inc., a wholly owned subsidiary of Bradlees
Stores, Inc., is the owner of a leasehold interest in the premises described in
SCHEDULE A-1 (the "Yonkers Property") and Bradlees Stores, Inc. is the owner of
a leasehold interest in the premises described in SCHEDULE A-2 (the "Union
Square Property") (Schedule A-1 and Schedule A-2, collectively, "Schedule A").
Bradlees Stores, Inc. ("Issuer") will issue notes in an aggregate amount of
FORTY MILLION AND NO/100THS DOLLARS ($40,000,000) (the "Loan") to "Noteholders"
pursuant to the Indenture identified below, and in order to secure FORTY MILLION
AND NO/100THS DOLLARS ($40,000,000) (the "Mortgage Amount") of the obligations
of Issuer under the Notes, Mortgagor has granted this Mortgage to Mortgagee as
Trustee for the Noteholders. The maximum amount secured hereby at execution or
which under any contingency may become secured hereby at any time hereafter is
the Mortgage Amount and all interest in respect thereof, plus all amounts
expended by Mortgagee following a default hereunder in respect of insurance
premiums and real estate taxes.
CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION
Mortgagor and Mortgagee agree that, unless otherwise defined herein or
unless the context otherwise specifies or requires, capitalized terms in the
Recital and elsewhere in this Mortgage shall have the meanings ascribed to them
in the Indenture.
"Events of Default" means the events and circumstances described as such in
Section 2.01.
"Ground Lease" means the leases identified in SCHEDULE A covering the
property described in SCHEDULE A.
"Improvements" means the leasehold interest in all structures or buildings,
and replacements thereof, now or hereafter located upon the Premises created by
the Ground Lease.
"Indenture" means that certain Indenture by and among Bradlees Stores,
Inc., Bradlees, Inc. and [TRUSTEE] dated the date hereof, as the same may
hereafter be amended, modified or supplemented from time to time.
"Loan" means the loan made by Mortgagee to Issuer pursuant to the Indenture
evidenced by the Notes and secured hereby.
"Premises" means the leasehold interests in the premises described in
SCHEDULE A created by the Ground Lease, including all of the easements, rights,
<PAGE>
privileges and appurtenances (including air or development rights) thereunto
belonging or in anywise appertaining, and all of the estate, right, title,
interest, claim or demand whatsoever of Mortgagor therein and in the streets and
ways adjacent thereto, either in law or in equity, in possession or expectancy,
now or hereafter acquired, and as used herein shall, unless the context
otherwise requires, be deemed to include the Improvements.
"Proceeds" means all proceeds of the conversion, voluntary or involuntary,
of any of the Premises or Improvements into cash or liquidated claims,
including, without limitation, proceeds of any sale or assignment of the
Premises, insurance and condemnation awards.
Except as expressly indicated otherwise, when used in this Mortgage (i)
"or" is not exclusive, (ii) "hereunder", "herein", "hereof" and the like refer
to this Mortgage as a whole, (iii) "Article", "Section" and "Schedule" refer to
Articles, Sections and Schedules of this Mortgage, (iv) terms defined in the
singular have a correlative meaning when used in the plural and vice versa, (v)
a reference to a law or statute includes any amendment or modification to, or
replacement of, such law or statute and (vi) a reference to an agreement,
instrument or document means such agreement, instrument or document as the same
may be amended, modified or supplemented from time to time in accordance with
its terms and as permitted hereby and by the other documents executed or
delivered to Mortgagee in connection with the Loan. The cover page and all
Schedules hereto are incorporated herein and made a part hereof. Any table of
contents and the headings and captions herein are for convenience only and shall
not affect the interpretation or construction hereof. Unless the context
otherwise requires, the term "Mortgagor" as used herein shall mean New Horizons
of Yonkers, Inc. with respect to the Yonkers Property and Bradlees Stores, Inc.
with respect to the Union Square Property, mutatis mutandis.
GRANTING CLAUSE
NOW, THEREFORE, Mortgagor, in consideration of the premises and in order to
secure the payment of both the principal of, and the interest and any other sums
payable under the Notes or the Indenture and the performance and observance of
all the provisions hereof and of the Notes or the Indenture, hereby gives,
grants, bargains, sells, warrants, aliens, remises, releases, conveys, assigns,
transfers, mortgages, hypothecates, deposits, pledges, sets over and confirms
unto Mortgagee, all its estate, right, title and interest in, to and under the
Premises and the Improvements (hereinafter, the "Mortgaged Property") whether
now owned or held or hereafter acquired and all Proceeds.
TO HAVE AND TO HOLD unto Mortgagee, its successors and assigns forever,
provided, however, that this Mortgage is being delivered to you upon the express
condition that if the Loan is repaid in full in accordance with the Indenture,
this Mortgage and the lien created hereby shall cease, terminate and be void.
ARTICLE I
4
<PAGE>
COVENANTS OF MORTGAGOR
Mortgagor covenants and agrees as follows:
Section 1.01. Warranty of Title; Power and Authority.
- ------------- --------------------------------------
Mortgagor warrants that it is the owner of a valid and subsisting interest as
tenant under the Ground Lease, that the Ground Lease is in full force and
effect, that the Ground Lease is subject to no lien, charge or encumbrance of
any kind except as disclosed pursuant to the Bankruptcy Proceedings.
Section 1.02. Good Faith Contests.
- ------------- -------------------
Nothing in this Article shall require the payment or discharge of any obligation
imposed upon Mortgagor by this Article so long as Mortgagor shall in good faith
and at its own expense contest the same or the validity thereof by appropriate
legal proceedings which shall operate to prevent the collection thereof or other
realization thereon and the sale or forfeiture of the Mortgaged Property or any
part thereof to satisfy the same.
Section 1.03. Taxes on Mortgagee.
- ------------- ------------------
Mortgagor will pay any taxes, except income taxes, imposed on Mortgagee by
reason of its ownership of the Notes or this Mortgage.
Section 1.04. Insurance.
- ------------- ---------
Mortgagor will at all times provide, maintain and keep in force the insurance
required by the Ground Lease.
ARTICLE II
EVENTS OF DEFAULTS AND REMEDIES
Section 2.01. Events of Default and Certain Remedies.
- ------------- --------------------------------------
If an Event of Default occurs and is continuing under the Indenture, or then,
upon acceleration of the obligations incurred by the Notes:
I. Mortgagee, with or without entry, personally or by its agents or
attorneys, insofar as applicable, may :
(1) sell the Mortgaged Property to the extent permitted and
pursuant to the procedures provided by law, and all estate, right, title
and interest, claim and demand therein, and right of redemption thereof, at
one (1) or more sales as an entity or in parcels or parts, and at such time
and place upon such terms and after such notice thereof as may be required
or permitted by law; or
(2) institute proceedings for the complete or partial
foreclosure hereof; or
5
<PAGE>
(3) take such steps to protect and enforce its rights whether by
action, suit or proceeding in equity or at law, or in aid of the execution
of any power herein granted, or for any foreclosure hereunder, or for the
enforcement of any other appropriate legal or equitable remedy or otherwise
as Mortgagee shall elect.
ARTICLE III
MISCELLANEOUS
Section 3.01. Modifications and Waivers in Writing.
- ------------- ------------------------------------
No provision hereof may be changed, waived, discharged or terminated orally or
by any other means except an instrument in writing signed by the party against
whom enforcement of the change, waiver, discharge or termination is sought. Any
agreement hereafter made by Mortgagor and Mortgagee relating hereto shall be
superior to the rights of the holder of any intervening or subordinate lien or
encumbrance.
Section 3.02. Security Agreement.
- ------------- ------------------
This Mortgage constitutes a security agreement under the applicable Uniform
Commercial Code with respect to the Proceeds. In addition to the rights and
remedies granted to Mortgagee by other applicable law or hereby, Mortgagee shall
have all of the rights and remedies with respect to the Proceeds as are granted
to a secured party under the applicable Uniform Commercial Code. Upon
Mortgagee's request, Mortgagor shall promptly make the Proceeds available to
Mortgagee in a manner acceptable to Mortgagee. Any notice of sale, disposition
or other intended action by Mortgagee with respect to Proceeds sent to Mortgagor
in accordance with the provisions hereof at least five (5) days prior to such
action shall constitute reasonable notice to Mortgagor. The proceeds of any
such sale or disposition, or any part thereof, shall be applied by Mortgagee to
the payment of the indebtedness secured hereby in accordance with the applicable
provisions of the Indenture.
Section 3.03. Notices.
- ------------- -------
All notices, demands, consents, approvals and statements required or permitted
hereunder shall be in writing and shall be deemed to have been sufficiently
given or served for all purposes, if to Mortgagor or Mortgagee at its respective
address stated above, when given or served in accordance with the terms and
provisions of Section 1.15 of the Indenture, or at such other address of which a
party shall have notified the party giving such notice in accordance with the
provisions of this Section.
Section 3.04. Successors and Assigns.
- ------------- ----------------------
All of the grants, covenants, terms, provisions and conditions herein shall run
with the land and shall apply to, bind and inure to the benefit of, the
respective successors and assigns of Mortgagor and Mortgagee.
Section 3.05. Counterparts.
- ------------- ------------
This Mortgage may be executed in any number of counterparts and each of such
6
<PAGE>
counterparts shall for all purposes be deemed to be an original; and all such
counterparts shall together constitute but one and the same mortgage.
Section 3.06. Substitute Mortgages.
------------- --------------------
Mortgagor and Mortgagee shall, upon their mutual agreement to do so, execute
such documents as may be necessary in order to effectuate the modification
hereof, including the execution of substitute mortgages, so as to create two (2)
or more liens on the Mortgaged Property in such amounts as may be mutually
agreed upon but in no event to exceed, in the aggregate, the Mortgage Amount; in
such event, Mortgagor covenants and agrees to pay the reasonable fees and
expenses of Mortgagee and its counsel in connection with any such modification.
Section 3.07. Releases.
------------- --------
Mortgagee agrees to release the Premises and the Improvements in
the Union Square Property or the Yonkers Property, as the case may be, from the
lien of this Mortgage upon the sale thereof pursuant to an agreement approved by
Mortgagor's Board of Directors (the "Sale Agreement") and the receipt by
Mortgagee of the proceeds payable to Mortgagor pursuant to the Sale Agreement
net of (i) all costs arising from or relating to the sale of the Mortgaged
Property (including, but not limited to, attorneys' fees) and (ii) adjustments
applicable to title closings as recommended by the Real Estate Board of New
York, Inc.;
Mortgagee agrees to release the Premises and the Improvements in
the Union Square Property or the Yonkers Property, as the case may be, from the
lien of this Mortgage upon receipt by Mortgagee of a written request therefor
accompanied by a copy of a written notice of default from the landlord under the
Ground Lease in question citing the granting of this Mortgage as the basis for
the default so noticed (the "Default Release Request").
Any release requested by Mortgagor pursuant to (b) above shall
not include a release of the security interest in the Proceeds created hereby
and any release pursuant to (b) above shall expressly reserve Mortgagee's
security interest in the Proceeds. Mortgagee agrees to deliver a release
pursuant to a Default Release Request no later than five days prior to the
expiration of any grace period provided for in the notice of default
accompanying the Default Release Request.
Section 3.08. No Merger of Interests.
------------- ----------------------
Unless expressly provided otherwise, in the event that ownership hereof and
title to the fee and/or leasehold estates in the Premises encumbered hereby
shall become vested in the same person or entity, this Mortgage shall not merge
in said title but shall continue to be and remain a valid and subsisting lien on
said estates in the Premises for the amount secured hereby.
Section 3.09. New York Provisions.
------------- -------------------
Mortgagor hereby makes the following statements: "This Mortgage does not cover
real property principally improved or to be improved by one (1) or more
structures containing
7
<PAGE>
in the aggregate not more than six (6) residential dwelling units, each having
its own separate cooking facilities." and (b) the covenants and conditions
contained herein, other than those included in the New York Statutory Short Form
of Mortgage, shall be construed as affording to Mortgagee rights additional to,
and not exclusive of, the rights conferred under the provisions of Sections 254,
271 and 272 of the Real Property Law of the State of New York, all of which are
incorporated herein by reference to the extent applicable.
Section 3.10. Further Encumbrances.
------------- --------------------
In consideration of the granting of this Mortgage, Mortgagee hereby agrees that
Mortgagor may grant easements, enter into subleases or other agreements further
encumbering the Mortgaged Property without the consent of Mortgagee. Mortgagee
agrees that at the request of Mortgagor, Mortgagee shall consent to and
subordinate the lien of this Mortgage to any easements, subleases or further
encumbrances against the Mortgaged Property. Notwithstanding the foregoing, no
encumbrance securing any indebtedness will be permitted unless such encumbrance
is expressly subordinate to this Mortgage.
IN WITNESS WHEREOF, this Mortgage has been duly executed and delivered by
Mortgagor.
BRADLEES STORES, INC.
By [SEAL]
Name:
Title:
NEW HORIZONS OF YONKERS, INC.
By [SEAL]
Name:
Title:
Attest:
____________________
Name:
Title:
Witnesses:
8
<PAGE>
____________________
Name:
____________________
Name:
9
<PAGE>
State of New York )
) ss.:
County of New York )
On the ____ day of _____________ in the year 1998, before me, the
undersigned, a notary public in and for said state, personally appeared
_______________ ______________, personally known to me or proved to me on the
basis of satisfactory evidence to be the individual whose name is subscribed to
the within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
______________________________
Notary Public
My Commission Expires:
_____________________
10
<PAGE>
State of New York )
) ss.:
County of New York )
On the ____ day of _____________ in the year 1998, before me, the undersigned,
a notary public in and for said state, personally appeared _______________
______________, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
______________________________
Notary Public
My Commission Expires:
_____________________
11
<PAGE>
SCHEDULE A-1
[Legal Description of Yonkers Property]
12
<PAGE>
SCHEDULE A-2
[Legal Description of Union Square Property]
13
<PAGE>
EXHIBIT 2.5
FORM OF CAP NOTE
----------------
THIS NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY BE OFFERED OR SOLD
ONLY IF REGISTERED UNDER SAID ACT AND SUCH LAWS OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
______________________________________
$___________ ___________, 199_
FOR VALUE RECEIVED, the undersigned, Bradlees Stores, Inc., a
Massachusetts corporation (the "Company"), hereby covenants and promises to pay
to the order of __________ (the "Holder"), the principal sum of ________ Dollars
($________) in twelve equal quarterly installments commencing on _______, 1999,
together with interest (computed on the basis of a 360-day year of twelve 30-day
months) on the unpaid principal amount at a rate of nine percent (9%) per annum,
also payable quarterly on the same date as principal is paid hereon. Upon
payment in full, this Note shall be cancelled and returned to the Company.
This Note is a CAP Note which is referred to in the Joint Plan of
Reorganization of Bradlees Stores, Inc. and Affiliates under Chapter 11 of the
Bankruptcy Code confirmed by the United States Bankruptcy Court, Southern
District of New York on November 18, 1998 (the "Plan"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings set forth in the
Plan.
The Company shall have the right to prepay this Note, in whole or in
part, at any time or from time to time, without premium or penalty.
Payments of principal shall be made in lawful currency of the United
States of America by wire transfer of immediately available funds to the account
of _________________ at _____________, or in such other manner or such other
place in the United States of America as the Holder shall designate to the
Company in writing.
Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by first-class mail addressed, if to the
Company, to Bradlees Stores, Inc., One Bradlees Circle, P.O. Box 9051,
Braintree, Massachusetts 02184-9051, Attn: General Counsel, and if to the
Holder, to ___________________________. The Company or the Holder by notice to
the other may designate additional or different addresses for subsequent notices
or communications.
If a payment date is a legal holiday for banks at a place of payment,
payment may be made at that place on the next succeeding day that is not a legal
holiday for banks, and no interest shall accrue for the intervening period.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the Holder or his attorney duly authorized in writing, a new Note will be issued
to, and registered in the name of, the
<PAGE>
transferee. Prior to due presentment for registration of transfer, the Company
shall treat the person in whose name this Note is registered as the owner hereof
for the purpose of receiving payment and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
Upon the occurrence of an Event of Default hereunder, the undersigned
agrees to pay all of the Holder's costs of collection, including reasonable
attorneys' fees and disbursements of counsel.
No delay or omission on the part of the Holder in exercising any right
hereunder shall operate as a waiver of such right or of any other rights under
this Note. No waiver of any right shall be effective unless in writing and
signed by the Holder nor shall a waiver on one occasion be construed as a bar to
or waiver of any such right on any future occasion.
An Event of Default shall have occurred and this Note shall become due and
payable immediately, without notice or demand, upon the occurrence of any one of
the following events in respect to the undersigned:
(a) the failure of the undersigned to pay any quarterly installment due
hereunder; provided however, that Bradlees shall have the right within
seven (7) days of receipt of notice from the Holder of such a default
to cure any such default, and upon such cure, Holder may not treat
such default as an Event of Default;
(b) the making by the undersigned of an assignment for the benefit of
creditors, or the consent of the undersigned to the appointment of a
receiver, or the appointment without its consent, of a receiver for
the undersigned or for a substantial part of its property;
(c) the institution by the undersigned of any bankruptcy or reorganization
proceeding; and
(d) the institution against the undersigned of any bankruptcy or
reorganization proceeding not dismissed within forty-five (45) days
after commencement.
For the purposes of subparagraph (a) above, notice of a default shall be
sufficient if delivered in person or via certified or registered mail, return
receipt requested to the following:
Bradlees Stores, Inc.
One Bradlees Circle
Braintree, Massachusetts 02184-9051
Attention: Chief Financial Officer
with a copy to:
Bradlees Stores, Inc.
One Bradlees Circle
Braintree, Massachusetts 02184-9051
Attention: General Counsel
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under this Note
or for any claim based on, in respect of or by reason of such obligation or
their creation.
This Note has been executed in the State of New York and is governed
by and is to be interpreted in accordance with the laws of the State of New
York, without regard to the law thereof with respect to conflict of laws.
IN WITNESS HEREOF, the Company has executed and delivered this Note as
of the date first written above.
BRADLEES STORES, INC.
By:
--------------------------
Name:
Title:
This Note is secured by a security interest in certain personal property as more
particularly described and/or referenced in the Plan.
<PAGE>
EXHIBIT 2.6
FORM OF CURE NOTE
-----------------
THIS NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY BE OFFERED OR SOLD
ONLY IF REGISTERED UNDER SAID ACT AND SUCH LAWS OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
________________________________________
$_____________ ________________, 199_
FOR VALUE RECEIVED, the undersigned, Bradlees Stores, Inc., a
Massachusetts corporation (the "Company"), hereby covenants and promises to pay
________________ (the "Holder"), the principal sum of ______________________
Dollars ($__________) on __________________ [three years after Effective Date]
(the "Maturity Date") together with interest (computed on the basis of a 360-day
year of twelve 30-day months) on the unpaid principal amount hereunder at a rate
of nine percent (9%) per annum. Upon payment in full, this Note shall be
cancelled and returned to the Company.
This Note is one of the Cure Notes referred to in the Joint Plan of
Reorganization of Bradlees Stores, Inc. and Affiliates under Chapter 11 of the
Bankruptcy Code confirmed by the United States Bankruptcy Court, Southern
District of New York on ___________________, 199_ (the "Plan"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings set
forth in the Plan.
The Company shall have the right to prepay this Note, in whole or in
part, at any time or from time to time, without premium or penalty.
Payments of principal shall be made in lawful currency of the United
States of America by wire transfer of immediately available funds to the account
of ________________________ at ___________________, or in such other manner or
such other place in the United States of America as the Holder shall designate
to the Company in writing.
Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by first-class mail addressed, if to the
Company, to Bradlees Stores, Inc., One Bradlees Circle, P.O. Box 9051,
Braintree, Massachusetts 02184-9051, Attn: General Counsel, and if to the
Holder, to ______________________. The Company or the Holder by notice to the
other may designate additional or different addressed for subsequent notices or
communications.
<PAGE>
If a payment date is a legal holiday for banks at a place of payment,
payment may be made at that place on the next succeeding day that is not a legal
holiday for banks, and no interest shall accrue for the intervening period.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the Holder or his attorney duly authorized in writing, a new Note will be issued
to, and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company shall treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under this Note
or for any claim based on, in respect of or by reason of such obligation or
their creation.
This Note has been executed in the State of New York and is governed
by and is to be interpreted in accordance with the laws of the State of New
York, without regard to the law thereof with respect to conflict of laws.
IN WITNESS HEREOF, the Company has executed and delivered this Note as
of the date first written above.
BRADLEES STORES, INC.
By: ________________________________
Name:
Title:
2
<PAGE>
EXHIBIT 2.7
FORM OF TAX NOTE
----------------
FOR OTHER PRIORITY TAX CLAIMS
-----------------------------
THIS NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY BE OFFERED OR SOLD
ONLY IF REGISTERED UNDER SAID ACT AND SUCH LAWS OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
______________________________________
$__________ ___________, 199_
FOR VALUE RECEIVED, the undersigned, Bradlees Stores, Inc., a
Massachusetts corporation (the "Company"), hereby covenants and promises to pay
__________ (the "Holder"), the principal sum of ________ Dollars ($________) on
__________, ______ (the "Maturity Date") in equal quarterly installments,
together with interest (computed on the basis of a 360-day year of twelve 30-day
months) on the unpaid principal amount accruing after the earlier of (a) the
Effective Date and (b) February 1, 1999, at a rate of nine percent (9%) per
annum, also payable annually on the same date as principal is paid hereon.
The first payment shall be due on the latest of: (i) 90 days after the
Effective Date, (ii) 90 days after the date on which an order allowing the Other
Priority Tax Claim of the Holder becomes a Final Order, and (iii) such other
date that is agreed upon by the Holder and the Company. Upon payment in full,
this Note shall be cancelled and returned to the Company.
This Note is one of the Tax Notes referred to in the Joint Plan of
Reorganization of Bradlees Stores, Inc. and Affiliates under Chapter 11 of the
Bankruptcy Code confirmed by the United States Bankruptcy Court, Southern
District of New York on __________, 199_ (the "Plan"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings set forth in the
Plan.
The Company shall have the right to prepay this Note, in whole or in
part, at any time or from time to time after the Effective Date, without premium
or penalty.
Payments of principal and interest shall be made in lawful currency of
the United States of America by wire transfer of immediately available funds to
the account of __________ at __________, or in such other manner or such other
place in the United States of America as the Holder shall designate to the
Company in writing.
Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by first-class mail addressed, if to the
Company, to Bradlees Stores, Inc., One Bradlees Circle, P.O. Box 9051,
Braintree, Massachusetts 02184-9051, Attn: General Counsel, and if to the
Holder, to ___________________________. The Company or the Holder by notice to
the other may designate additional or different addresses for subsequent
<PAGE>
notices or communications.
If a payment date is a legal holiday for banks at a place of payment,
payment may be made at that place on the next succeeding day that is not a legal
holiday for banks, and no interest shall accrue for the intervening period.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the Holder or his attorney duly authorized in writing, a new Note will be issued
to, and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company shall treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
Except to the extent the Plan otherwise provides, a director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Note or for any claim based on, in
respect of or by reason of such obligation or their creation.
This Note has been executed in the State of New York and is governed
by and is to be interpreted in accordance with the laws of the State of New
York, without regard to the law thereof with respect to conflict of laws.
IN WITNESS HEREOF, the Company has executed and delivered this Note as
of the date first written above.
BRADLEES STORES, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT 2.8
FORM OF TAX NOTE
----------------
FOR FEDERAL PRIORITY TAX CLAIMS
-------------------------------
THIS NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY BE OFFERED OR SOLD
ONLY IF REGISTERED UNDER SAID ACT AND SUCH LAWS OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
_____________________________
$________ ________,199_
FOR VALUE RECEIVED, the undersigned, Bradlees Stores, Inc., a
Massachusetts corporation (the "Company"), hereby covenants and promises to pay
__________ (the "Holder"), the principal sum of ________ Dollars ($________) on
__________, ____ (the "Maturity Date") in equal quarterly installments, together
with interest (computed on the basis of a 360-day year of twelve 30-day months)
on the unpaid principal amount accruing after the earlier of (a) Effective Date
and (b) February 1, 1999, at a rate of nine percent (9%) per annum, also payable
annually on the same date as principal is paid hereon.
The first payment shall be due on the latest of: (i) 90 days after the
Effective Date, (ii) 90 days after the date on which an order allowing the
Federal Priority Tax Claim of the Holder becomes a Final Order, and (iii) such
other date that is agreed upon by the Holder and the Company. Upon payment in
full, this Note shall be cancelled and returned to the Company.
This Note is one of the Tax Notes referred to in the Joint Plan of
Reorganization of Bradlees Stores, Inc. and Affiliates under Chapter 11 of the
Bankruptcy Code confirmed by the United States Bankruptcy Court, Southern
District of New York on __________, 199_ (the "Plan"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings set forth in the
Plan.
The Company shall have the right to prepay this Note, in whole or in
part, at any time or from time to time after the Effective Date, without premium
or penalty.
Payments of principal and interest shall be made in lawful currency of
the United States of America by wire transfer of immediately available funds to
the account of __________ at __________, or in such other manner or such other
place in the United States of America as the Holder shall designate to the
Company in writing.
Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by first-class mail addressed, if to the
Company, to Bradlees Stores, Inc., One Bradlees Circle, P.O. Box 9051,
Braintree, Massachusetts 02184-9051, Attn: General Counsel, and if to the
Holder, to ___________________________. The Company or the Holder by notice to
the other may designate additional or different addresses for subsequent
<PAGE>
notices or communications.
If a payment date is a legal holiday for banks at a place of payment,
payment may be made at that place on the next succeeding day that is not a legal
holiday for banks, and no interest shall accrue for the intervening period.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the Holder or his attorney duly authorized in writing, a new Note will be issued
to, and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company shall treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
Except to the extent the Plan otherwise provides, a director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under this Note or for any claim based on, in
respect of or by reason of such obligation or their creation.
This Note has been executed in the State of New York and is governed
by and is to be interpreted in accordance with the laws of the State of New
York, without regard to the law thereof with respect to conflict of laws.
IN WITNESS HEREOF, the Company has executed and delivered this Note as
of the date first written above.
BRADLEES STORES, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT G
CONVERSION OF NEW NOTES
SECTION 1.01 CONVERSION PRIVILEGE.
--------------------
Subject to and upon compliance with the provisions of this
Exhibit G, at the option of the holder thereof, any New Note may at any time
after the first anniversary of their issuance be converted, in whole, or in part
in multiples of $1,000 principal amount, into fully paid and non-assessable
shares of New Common Stock issuable upon conversion of the New Notes, at the
Conversion Price in effect at the Date of Conversion, until and including, but
not after the close of business on the second Business Day prior to Stated
Maturity, or unless such New Note or some portion thereof shall have been called
for redemption or delivered for repurchase prior to such date and no default is
made in making due provision for the payment of the redemption price in
accordance with the terms of the Plan (including this Exhibit) and the New
Notes, in which case, with respect to such New Note or portion thereof as has
been so called for redemption or delivered for repurchase, such New Note or
portion thereof may be so converted until and including, but not after, the
close of business on the Second Business Day prior to the Redemption Date or
Repurchase Date, as applicable, for such New Note, unless the Reorganized BSI
subsequently fails to pay the applicable Redemption Price or Repurchase Price,
as the case may be.
SECTION 1.02 EXERCISE OF CONVERSION PRIVILEGE.
--------------------------------
In order to exercise the conversion privilege, the Holder of any
New Note to be converted shall surrender such New Note to the Reorganized BI at
any time during usual business hours at its office or agency maintained for the
purpose as provided in this Indenture, accompanied by a fully executed written
notice, in substantially the form set forth on the reverse of the New Note, that
the Holder elects to convert such New Note or a stated portion thereof
constituting a multiple of $1,000 principal amount, and, if such New Note is
surrendered for conversion during the period between the close of business on
any Record Date and the opening of business on the next following Interest
Payment Date and has not been called for redemption on a Redemption Date which
occurs within such period, accompanied also by payment to the Reorganized BSI of
an amount equal to the interest payable on such Interest Payment Date on the
principal amount of the New Note being surrendered for conversion,
notwithstanding such conversion. The Holder of any New Note at the close of
business on a Record Date will be entitled to receive the interest payable on
such New Note on the corresponding Interest Payment Date notwithstanding the
conversion thereof after such Record Date. The interest payment with respect to
a Note called for redemption on a date during the period from the close of
business on or after any Record Date to the close of business on the Business
Day following the corresponding Interest Payment Date will be payable on the
corresponding Interest Payment Date to the registered Holder at the close of
business on that Record Date (notwithstanding the conversion of such Note before
the corresponding Interest Payment Date) and a Holder who elects to convert need
not include funds equal to the interest paid. Such notice of conversion
<PAGE>
shall also state the name or names (with address) in which the certificate or
certificates for shares of New Common Stock shall be issued. New Notes
surrendered for conversion shall (if reasonably required by the Reorganized BI
or the Trustee) be duly endorsed by, or be accompanied by a written instrument
or instruments of transfer in form satisfactory to the Reorganized BI duly
executed by, the Holder or his attorney duly authorized in writing. As promptly
as practicable after the receipt of such notice and the surrender of such New
Note as aforesaid, the Reorganized BI shall, subject to the provisions of
Section 1.08 of this Exhibit I, issue and deliver at such office or agency to
such Holder, or on his written order, a certificate or certificates for the
number of full shares of New Common Stock issuable on such conversion of New
Notes in accordance with the provisions of this Exhibit I and Cash, as provided
in Section 1.03 of this Exhibit I, in respect of any fraction of a share of New
Common Stock otherwise issuable upon such conversion. Such conversion shall be
deemed to have been effected immediately prior to the close of business on the
date (herein called the "Date of Conversion") on which such New Note shall have
been surrendered as aforesaid, and the person or persons in whose name or names
any certificate or certificates for shares of New Common Stock shall be issuable
upon such conversion shall be deemed to have become on the Date of Conversion
the holder or holders of record of the shares represented thereby; provided,
--------
however, that any such surrender on any date when the stock transfer books of
- -------
the Reorganized BI shall be closed shall cause the person or persons in whose
name or names the certificate or certificates for such shares are to be issued
to be deemed to have become the recordholder or holders thereof for all purposes
at the opening of business on the next succeeding day on which such stock
transfer books are open but such conversion shall nevertheless be at the
Conversion Price in effect at the close of business on the date when such New
Note shall have been so surrendered with the conversion notice. In the case of
conversion of a portion, but less than all, of a New Note, the Reorganized
Corporations shall as promptly as practicable execute, and the Trustee shall
authenticate and deliver to the Holder thereof, at the expense of the
Reorganized BI, a New Note or New Notes in the aggregate principal amount of the
unconverted portion of the New Note surrendered. Except as otherwise expressly
provided in this Indenture, no payment or adjustment shall be made for interest
accrued on any New Note (or portion thereof) converted or for dividends or
distributions on any New Common Stock issued upon conversion of any New Note.
SECTION 1.03 FRACTIONAL INTERESTS.
--------------------
No fractions of shares or scrip representing fractions of shares
shall be issued upon conversion of New Notes. If more than one New Note shall be
surrendered for conversion at one time by the same holder, the number of full
shares which shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the New Notes so surrendered. If any
fraction of a share of New Common Stock would, except for the foregoing
provisions of this Section 1.03, be issuable on the conversion of any New Note
or New Notes, the Reorganized BSI shall make payment in lieu thereof in an
amount of Cash equal to the value of such fraction computed on the basis of the
last sale price of the New Common Stock as reported on the NASDAQ (or if not
listed for trading thereon, then on the principal national securities exchange
on which the New Common Stock is listed or admitted to trading) at the close of
business on the Date of Conversion or if no such sale takes place on such day,
the last
2
<PAGE>
sale price for such day shall be the average of the closing bid and asked prices
regular way on the NASDAQ (or if not listed for trading thereon, on the
principal national securities exchange on which the New Common Stock is listed
or admitted to trading) for such day (any such last sale price being hereinafter
referred to as the "Last Sale Price"). If on such Trading Day the New Common
Stock is not quoted by any such organization, the closing price on the prior
Trading Day shall be used.
SECTION 1.04 CONVERSION PRICE.
----------------
The Conversion Price per share of New Common Stock issuable upon
conversion of the New Notes shall initially be the price equal to the arithmetic
unweighted average closing price of such stock during the twenty (20) business
days prior to the one year anniversary of the issuance of the New Notes.
SECTION 1.05 ADJUSTMENT OF CONVERSION PRICE.
------------------------------
The Conversion Price (herein called the "Conversion Price") shall
be subject to adjustment from time to time as follows:
(a) In case the Reorganized BI shall (1) make or pay a dividend
(or other distribution) in shares of New Common Stock on any class of Capital
Stock of the Reorganized BI, (2) subdivide its outstanding shares of New Common
Stock into a greater number of shares or (3) combine or reclassify its
outstanding shares of New Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such action shall be adjusted so
that the Holder of any New Note thereafter surrendered for conversion shall be
entitled to receive the number of shares of New Common Stock that he would have
owned immediately following such action had such New Note been converted
immediately prior thereto. An adjustment made pursuant to this subsection (a)
shall become effective immediately, except as provided in subsection (h) below,
after the record date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination.
(b) In case the Reorganized BI shall issue rights, options or
warrants to all holders of New Common Stock entitling them to subscribe for or
purchase shares of New Common Stock at a price per share less than the then
current market price per share of the New Common Stock (as determined pursuant
to subsection (f) below) on the record date mentioned below, the Conversion
Price shall be adjusted to a price, computed to the nearest cent, so that the
same shall equal the price determined by multiplying:
(i) the Conversion Price in effect immediately prior to the date
of issuance of such rights or warrants by a fraction, of which
(ii) the numerator shall be (A) the number of shares of New
Common Stock outstanding on the date of issuance of such rights, options or
warrants, immediately prior to such issuance, plus (B) the number of shares
which the aggregate offering price of the total number of shares so offered
for subscription or purchase would purchase at such current market price
(determined by multiplying such total number of shares by the
3
<PAGE>
exercise price of such rights, options or warrants and dividing the product
so obtained by such current market price), and of which
(iii) the denominator shall be (A) the number of shares of New
Common Stock outstanding on the date of issuance of such rights, options or
warrants, immediately prior to such issuance, plus (B) the number of
additional shares of New Common Stock which are so offered for subscription
or purchase.
Such adjustment shall become effective immediately, except as provided in
subsection (h) below, after the record date for the determination of holders
entitled to receive such rights, options or warrants; provided, however, that if
-------- -------
any such rights, options or warrants issued by the Reorganized BI as described
in this subsection (b) are only exercisable upon the occurrence of certain
triggering events relating to control and provided for in shareholder rights
plans, then the Conversion Price will not be adjusted as provided in this
subsection (b) until such triggering events occur.
(c) In case the Reorganized BI or any subsidiary of the
Reorganized BI shall distribute to all holders of New Common Stock, any of its
assets, evidences of indebtedness, cash or other assets or shares of Capital
Stock other than New Common Stock (including securities, but other than (x)
dividends or distributions exclusively in cash or (y) any dividend or
distribution for which an adjustment is required to be made in accordance with
subsection (a) or (b) above), then in each such case the Conversion Price shall
be adjusted so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date of such distribution by
a fraction of which the numerator shall be the then current market price per
share of the New Common Stock (determined as provided in subsection (f) below)
on the record date mentioned below less the then fair market value (as
reasonably determined in good faith by the Board of Directors of the Reorganized
BI) of the portion of the assets so distributed applicable to one share of New
Common Stock, and of which the denominator shall be such current market price
per share of the New Common Stock. Such adjustment shall become effective
immediately, except as provided in subsection (h) below, after the record date
for the determination of stockholders entitled to receive such distribution.
Notwithstanding the foregoing, in the event that the fair market value of the
assets, evidences of indebtedness or other securities so distributed applicable
to one share of New Common Stock equals or exceeds such current market price per
share of New Common Stock, or such current market price exceeds such fair market
value by less than $0.10 per share, the Conversion Price shall not be adjusted
pursuant to this subsection (c) and, to the extent applicable, the provisions of
subsection (k) shall apply to such distribution.
(d) In case the Reorganized BI or any subsidiary of the
Reorganized BI shall make any distribution consisting exclusively of cash
(excluding any cash portion of distributions for which an adjustment is required
to be made in accordance with (c) above, or cash distributed upon a merger or
consolidation) to all holders of New Common Stock in an aggregate amount that,
combined together with (i) all other such all-cash distributions made within the
then preceding 12 months in respect of which no adjustment has been made and
(ii) any cash and the fair market value of other consideration paid or payable
in respect of any tender offer by the Reorganized BI or any of its subsidiaries
for New Common Stock concluded within the preceding 12 months in respect of
which no adjustment has been made, exceeds 15% of the
4
<PAGE>
Reorganized BI's market capitalization (defined as being the product of the then
current market price of the New Common Stock (determined as provided in
subsection (f) below) times the number of shares of New Common Stock then
outstanding) on the record date of such distribution, then in each such case the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the date of such distribution by a fraction of which the numerator shall be the
then current market price per share of the New Common Stock on such record date
less the amount of the cash so distributed applicable to one share of New Common
Stock, and of which the denominator shall be such current market price per share
of the New Common Stock. Such adjustment shall become effective immediately,
except as provided in subsection (h) below, after the record date for the
determination of stockholders entitled to receive such distribution.
Notwithstanding the foregoing, in the event that the cash so distributed
applicable to one share of New Common Stock equals or exceeds such current
market price per share of New Common Stock, or such current market price exceeds
such amount of cash by less than $0.10 per share, the Conversion Price shall not
be adjusted pursuant to this subsection (d), and, to the extent applicable, the
provisions of subsection (k) shall apply to such distribution.
(e) In case there shall be completed a tender or exchange offer
made by the Reorganized BI or any subsidiary of the Reorganized BI for all or
any portion of the New Common Stock (any such tender or exchange offer being
referred to as an "Offer") that involves an aggregate consideration having a
fair market value as of the expiration of such Offer (the "Expiration Time")
that, together with (i) any cash and the fair market value of any other
consideration payable in respect of any other Offer, as of the expiration of
such other Offer, expiring within the 12 months preceding the expiration of such
Offer and in respect for which no Conversion Price adjustment pursuant to this
subsection (e) has been made and (ii) the aggregate amount of any all-cash
distributions referred to in subsection (d) of this Section 1.05 to all holders
of New Common Stock within the 12 months preceding the expiration of such Offer
for which no conversion price adjustment pursuant to such subsection (d) has
been made, exceeds 15% of the product of the then current market price per share
(determined as provided in subsection (f) below) of the New Common Stock on the
Expiration Time times the number of shares of New Common Stock outstanding
(including any tendered shares) on the Expiration Time, the Conversion Price
shall be reduced by multiplying such Conversion Price in effect immediately
prior to the Expiration Time by a fraction of which the numerator shall be (i)
the product of the then current market price per share (determined as provided
in subsection (f) below) of the New Common Stock on the Expiration Time times
the number of shares of New Common Stock outstanding (including any tendered
shares) on the Expiration Time minus (ii) the fair market value of the aggregate
consideration payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the Offer) of all shares validly tendered and not
withdrawn as of the Expiration Time (the shares deemed so accepted being
referred to as the "Purchased Shares") and the denominator shall be the product
of (i) such current market price per share on the Expiration Time times (ii)
such number of outstanding shares on the Expiration Time less the number of
Purchased Shares, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time.
For purposes of this subsection (e), the fair market value of any consideration
with respect to an Offer shall be reasonably determined in good faith by the
Board of Directors of the Reorganized
5
<PAGE>
BI and described in a Board Resolution.
(f) For the purpose of any computation under subsections (b),
(c), (d) and (e) above, the current market price per share of New Common Stock
on any date shall be deemed to be the average of the Last Sale Prices of a share
of New Common Stock for the five consecutive Trading Days selected by the
Reorganized BI commencing not more than 20 Trading Days before, and ending not
later than, the earlier of the date in question and the date before the " `ex'
date," with respect to the issuance, distribution or Offer requiring such
computation. If on any such Trading Day the New Common Stock is not quoted by
any organization referred to in the definition of Last Sale Price in Section
1.03 of this Exhibit I, the fair value of the New Common Stock on such day, as
reasonably determined in good faith by the Board of Directors of the Reorganized
BI, shall be used. For purposes of this paragraph, the term "'ex' date," when
used with respect to any issuance, distribution or payments with respect to an
Offer, means the first date on which the New Common Stock trades regular way on
the NASDAQ (or if not listed or admitted to trading thereon, then on the
principal national securities exchange on which the New Common Stock is listed
or admitted to trading) without the right to receive such issuance, distribution
or Offer.
(g) In addition to the foregoing adjustments in subsections (a),
(b), (c), (d) and (e) above, the Reorganized BI will be permitted to make such
reductions in the Conversion Price as it considers to be advisable in order that
any event treated for Federal income tax purposes as a dividend of stock or
stock rights will not be taxable to the holders of the shares of New Common
Stock.
(h) In the event the Reorganized BI elects to make such a
reduction in the Conversion Price, the Reorganized BI will comply with the
requirements of Rule 14e-1 of the Exchange Act and any other Federal and state
laws and regulations thereunder if and to the extent that such laws and
regulations are applicable in connection with the reduction of the Conversion
Price of the New Notes; provided that any provisions of this Indenture which
conflict with such laws shall be deemed to be superseded by the provisions of
such laws.
(i) In any case in which this Section 1.05 shall require that an
adjustment (including by reason of the last sentence of subsection (a) or (c)
above) be made immediately following a record date, the Reorganized BI may elect
to defer the effectiveness of such adjustment (but in no event until a date
later than the effective time of the event giving rise to such adjustment), in
which case the Reorganized BI shall, with respect to any New Note converted
after such record date and on and before such adjustment shall have become
effective (i) defer paying any Cash payment pursuant to Section 1.03 of this
Exhibit I or issuing to the Holder of such New Note the number of shares of New
Common Stock and other Capital Stock of the Reorganized BI (or other assets or
securities) issuable upon such conversion in excess of the number of shares of
New Common Stock and other Capital Stock of the Reorganized BI issuable
thereupon only on the basis of the Conversion Price prior to adjustment, and
(ii) not later than five Business Days after such adjustment shall have become
effective, pay to such Holder the appropriate Cash payment pursuant to Section
1.03 of this Exhibit I and issue to such Holder the additional shares of New
Common Stock and other Capital Stock of the Reorganized BI issuable on such
conversion.
6
<PAGE>
(j) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least one
percent (1.0%) of the Conversion Price; provided, that any adjustments which by
--------
reason of this subsection (i) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Exhibit I shall be made to the nearest cent or to the nearest one-
hundredth of a share, as the case may be.
Whenever the Conversion Price is adjusted as herein provided, the Reorganized BI
shall promptly (i) File with the Trustee and each conversion agent an Officers'
Certificate setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment, which
certificate shall be conclusive evidence of the correctness of such adjustment,
and (ii) mail or cause to be mailed a notice of such adjustment to each holder
of New Notes at his address as the same appears on the registry books of the
Reorganized BI.
(k) In the event that the Reorganized BI distributes rights
(including rights to distributions referred to by paragraphs (c) and (d) of this
Section 1.05 to the extent this paragraph (k) applies thereto) or warrants
(other than those referred to in subsection (b) above) pro rata to holders of
New Common Stock, so long as any such rights or warrants have not expired or
been redeemed by the Reorganized BI, the Reorganized BI shall make proper
provision so that the Holder of any New Note surrendered for conversion will be
entitled to receive upon such conversion, in addition to the shares of New
Common Stock issuable upon such conversion (the "Conversion Shares"), a number
of rights or warrants to be determined as follows: (i) if such conversion occurs
on or prior to the date for the distribution to the holders of rights or
warrants of separate certificates evidencing such rights or warrants (the
"Distribution Date"), the same number of rights or warrants to which a holder of
a number of shares of New Common Stock equal to the number of Conversion Shares
is entitled at the time of such conversion in accordance with the terms and
provisions of and applicable to the rights or warrants, and (ii) if such
conversion occurs after such Distribution Date, the same number of rights or
warrants to which a holder of the number of shares of New Common Stock into
which the principal amount of such Note so converted was convertible immediately
prior to such Distribution Date would have been entitled on such Distribution
Date in accordance with the terms and provisions of and applicable to the rights
or warrants.
SECTION 1.06 CONTINUATION OF CONVERSION PRIVILEGE IN CASE OF RECLASSIFICATION,
-----------------------------------------------------------------
CHANGE, MERGER, CONSOLIDATION OR SALE OF ASSETS.
- -----------------------------------------------
If any of the following shall occur, namely: (a) any
reclassification or change of outstanding shares of New Common Stock issuable
upon conversion of the New Notes (other than a change in par value, or from par
value to no par value, or from no par value, to par value, or as a result of a
subdivision or combination), (b) any consolidation or merger of the Reorganized
BI with or into any other Person, or the merger of any other Person with or into
the Reorganized BI (other than a merger which does not result in any
reclassification, change, conversion, exchange or cancellation of outstanding
shares of New Common Stock) or (c) any sale, transfer or conveyance of all or
substantially all of the assets of the Reorganized BI (computed on a
consolidated basis), then the Reorganized BI, or such successor or purchasing
7
<PAGE>
entity, as the case may be, shall, as a condition precedent to such
reclassification, change, consolidation, merger, sale or conveyance, execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each New Note then outstanding shall have the right to convert such New Note
only into the kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reclassification, change,
consolidation, merger, sale, transfer or conveyance by a holder of the number of
shares of New Common Stock issuable upon conversion of such New Note immediately
prior to such reclassification, change, consolidation, merger, sale, transfer or
conveyance assuming such holder of New Common Stock of the Reorganized BI failed
to exercise his rights of an election, if any, as to the kind or amount of
securities, cash and other property receivable upon such reclassification,
change, consolidation, merger, sale, transfer or conveyance (provided that if
--------
the kind or amount of securities, cash, and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance is
not the same for each share of New Common Stock of the Reorganized BI held
immediately prior to such reclassification, change, consolidation, merger, sale,
transfer or conveyance in respect of which such rights of election shall not
have been exercised ("non-electing share"), then for the purpose of this Section
1.06 the kind and amount of securities, cash and other property receivable upon
such reclassification, change, consolidation, merger, sale, transfer or
conveyance by each non-electing share shall be deemed to be the kind and amount
so receivable per share by a plurality of the non-electing shares). Such
supplemental indenture shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Exhibit
I. If, in the case of any such consolidation, merger, sale or conveyance,
securities and property (including cash) receivable thereupon by a holder of
shares of New Common Stock includes shares of stock or other securities and
property (including cash) of a corporation other than the successor or
purchasing corporation, as the case may be, in such consolidation, merger, sale
or conveyance, then such supplemental indenture shall also be executed by such
other corporation and shall contain such additional provisions to protect the
interests of the Holders of the New Notes as the Board of Directors of the
Reorganized BI shall reasonably consider necessary by reason of the foregoing.
The provisions of this Section 1.06 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
Notice of the execution of each such supplemental indenture shall
be mailed to each Holder of New Notes at his address as the same appears on the
registry books of the Reorganized BI.
SECTION 1.07 NOTICE OF CERTAIN EVENTS.
In case:
(a) the Reorganized BI shall declare a dividend (or any other
distribution) payable to the holders of New Common Stock (other than cash
dividends);
(b) the Reorganized BI shall authorize the granting to the
holders of New Common Stock of rights, warrants or options to subscribe for or
purchase any shares of stock of any class or of any other rights;
(c) the Reorganized BI shall authorize any reclassification or
change of the
8
<PAGE>
New Common Stock (including a subdivision or combination of its outstanding
shares of New Common Stock), or any consolidation or merger to which the
Reorganized BI is a party and for which approval of any stockholders of the
Reorganized BI is required, or the sale or conveyance of all or substantially
all the property or business of the Reorganized BI;
(d) there shall be proposed any voluntary or involuntary
dissolution, liquidation or winding-up of the Reorganized BI; or
(e) the Reorganized BI or any of its subsidiaries shall complete
an Offer; then, the Reorganized BI shall cause to be Filed at the office or
agency maintained for the purpose of conversion of the New Notes as provided in
the Section 1.12 of this Exhibit I, and shall cause to be mailed to each Holder
of New Notes, at his address as it shall appear on the registry books of the
Reorganized BI, at least 20 days before the date hereinafter specified (or the
earlier of the dates hereinafter specified, in the event that more than one date
is specified), a notice stating the date on which (1) a record is expected to be
taken for the purpose of such dividend, distribution, rights, warrants or
options or Offer, or if a record is not to be taken, the date as of which the
holders of New Common Stock of record to be entitled to such dividend,
distribution, rights, warrants or options or to participate in such Offer are to
be determined, or (2) such reclassification, change, consolidation, merger,
sale, conveyance, dissolution, liquidation or winding-up is expected to become
effective and the date, if any is to be fixed, as of which it is expected that
holders of New Common Stock of record shall be entitled to exchange their shares
of New Common Stock for securities or other property deliverable upon such
reclassification, change, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding-up.
SECTION 1.08 TAXES ON CONVERSION.
-------------------
The Reorganized BI will pay any and all documentary, stamp or
similar taxes payable to the United States of America or any political
subdivision or taxing authority thereof or therein in respect of the issue or
delivery of shares of New Common Stock on conversion of New Notes pursuant
thereto; provided, however, that the Reorganized BI shall not be required to pay
-------- -------
any tax which may be payable in respect of any transfer involved in the issue or
delivery of shares of New Common Stock in a name other than that of the Holder
of the New Notes to be converted and no such issue or delivery shall be made
unless and until the person requesting such issue or delivery has paid to the
Reorganized BI the amount of any such tax or has established, to the
satisfaction of the Reorganized BI, that such tax has been paid. The Reorganized
BI extends no protection with respect to any other taxes imposed in connection
with conversion of New Notes.
SECTION 1.09 REORGANIZED BI TO PROVIDE STOCK.
-------------------------------
The Reorganized BI shall reserve, free from preemptive rights,
out of its authorized but unissued shares, sufficient shares to provide for the
conversion of the New Notes from time to time as such New Notes are presented
for conversion, provided, that nothing contained herein shall be construed to
--------
preclude the Reorganized BI from satisfying its obligations in respect of the
conversion of New Notes by delivery of repurchased shares of New
9
<PAGE>
Common Stock which are held in the treasury of the Reorganized BI.
If any shares of New Common Stock to be reserved for the purpose
of conversion of New Notes hereunder require registration with or approval of
any governmental authority under any Federal or state law before such shares may
be validly issued or delivered upon conversion, then the Reorganized BI
covenants that it will in good faith and as expeditiously as possible use its
best efforts to secure such registration or approval, as the case may be,
provided, however, that nothing in this Section 1.09 shall be deemed to limit in
- -------- -------
any way the obligations of the Reorganized BI provided in this Exhibit I.
Before taking any action which would cause an adjustment reducing
the Conversion Price below the then par value, if any, of the New Common Stock,
the Reorganized BI will take all corporate action which may be necessary in
order that the Reorganized BI may validly and legally issue fully paid and non-
assessable shares of New Common Stock at such adjusted Conversion Price.
The Reorganized BI covenants that all shares of New Common Stock
which may be issued upon conversion of New Notes will upon issue be fully paid
and non-assessable by the Reorganized BI and free of preemptive rights.
SECTION 1.10 DISCLAIMER OF RESPONSIBILITY FOR CERTAIN MATTERS.
------------------------------------------------
Neither the Trustee nor any agent of the Trustee shall at any
time be under any duty or responsibility to any Holder of New Notes to determine
whether any facts exist which may require any adjustment of the Conversion
Price, or with respect to the Officers' Certificate referred to in Section 1.05
of this Exhibit I, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed, or herein or in
any supplemental indenture provided to be employed, in making the same. Neither
the Trustee nor any agent of the Trustee shall be accountable with respect to
the validity or value (or the kind or amount) of any shares of New Common Stock,
or of any securities or property (including cash), which may at any time be
issued or delivered upon the conversion of any New Note; and neither the Trustee
nor any conversion agent makes any representation with respect thereto. Neither
the Trustee nor any agent of the Trustee shall be responsible for any failure of
the Reorganized BI to issue, register the transfer of or deliver any shares of
New Common Stock or stock certificates or other securities or property
(including cash) upon the surrender of any New Note for the purpose of
conversion or to comply with any of the covenants of the Reorganized BI
contained in this Exhibit I.
SECTION 1.11 RETURN OF FUNDS DEPOSITED FOR REDEMPTION OF CONVERTED NEW NOTES.
---------------------------------------------------------------
Any funds which at any time shall have been deposited by the
Reorganized BSI or on its behalf with the Trustee or any other Paying Agent for
the purpose of paying the principal of and interest on any of the New Notes and
which shall not be required for such purposes because of the conversion of such
New Notes, as provided in this Exhibit I, shall after such conversion be repaid
to the Reorganized BSI by the Trustee or such other Paying Agent.
10
<PAGE>
SECTION 1.12 REGISTRAR AND PAYING AGENT.
--------------------------
Reorganized BSI shall maintain an office or agency in the Borough
of Manhattan, The City of New York, where New Notes may be presented for
registration of transfer or for exchange ("Registrar") and an office or agency
where New Notes may be presented for payment ("Paying Agent") and where notices
and demands to or upon Reorganized BSI in respect of the New Notes may be
served. Except as otherwise prohibited in the New Notes, Reorganized BSI may act
as Registrar or Paying Agent. The Registrar shall keep a register of the New
Notes and of their transfer and exchange. Reorganized BSI may have one or more
co-Registrars and one or more additional Paying Agents. The term "Paying Agent"
includes any additional Paying Agent. Reorganized BSI hereby initially appoints
______________ as Registrar and Paying Agent, and ________ has agreed to so act.
Reorganized BSI shall enter into an appropriate written agency
agreement with any Agent, which agreement shall implement the provisions of the
Plan, the New Notes and this Exhibit I that relate to such Agent. Reorganized
BSI shall promptly notify the Trustee in writing of the name and address of any
such Agent. If Reorganized BSI fails to maintain a Registrar or Paying Agent,
the Trustee shall act as such.
SECTION 1.13 DEFINITIONS USED IN EXHIBIT I.
-----------------------------
As used in Exhibit I, the following terms shall have the meanings set forth
below. Capitalized terms not otherwise defined below shall have the meanings
ascribed to such terms in the Plan. Article I of the Plan shall apply to this
Exhibit I.
"Agent" means any Registrar, Paying Agent or co-Registrar.
-----
"Capital Stock" means, with respect to any corporation, any and
-------------
all shares, interests, rights to purchase (other than convertible or
exchangeable indebtedness), warrants, options, participations or other
equivalents of or interests (however designated) in stock issued by that
corporation.
"Conversion Price" shall have the meaning specified in Section
----------------
1.05 of this Exhibit I.
"Conversion Shares" shall have the meaning specified in Section
-----------------
1.05 of this Exhibit I.
"Date of Conversion" shall have the meaning specified in Section
------------------
1.02 of this Exhibit I.
"Distribution Date" shall have the meaning specified in Section
-----------------
1.05 of this Exhibit I.
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations promulgated by the United States
Securities and Exchange Commission thereunder.
"Expiration Time" shall have the meaning specified in Section
---------------
1.05 of this
11
<PAGE>
Exhibit I.
"Holder" means the person in whose name a New Note is registered
------
on the Registrar's books.
"Interest Payment Date" means the stated due date of an
---------------------
installment of interest on the New Notes.
"Last Sale Price" shall have the meaning specified in Section
---------------
1.03 of this Exhibit I.
"non-electing share" shall have the meaning specified in Section
------------------
1.06 of this Exhibit I.
"Offer" shall have the meaning specified in Section 1.05 of this
-----
Exhibit I.
"Officers' Certificate" means, with respect to the Reorganized
---------------------
BI, a certificate signed by two officers of the Reorganized BI and otherwise in
form and substance acceptable to the Trustee.
"Paying Agent" shall have the meaning specified in Section 1.12
------------
of this Exhibit I.
"Purchased Shares" shall have the meaning specified in Section
----------------
1.05 of this Exhibit I.
"Record Date" means a Record Date specified in the New Notes
-----------
whether or not such Record Date is a Business Day.
"Registrar" shall have the meaning specified in Section 1.12 of
---------
this Exhibit I.
"Redemption Date," when used with respect to any New Note to be
----------------
redeemed, means the date fixed for such redemption pursuant to the terms of the
New Note.
"Redemption Price," when used with respect to any New Note to be
----------------
redeemed, means the redemption price for such redemption pursuant to the terms
of the New Note, which shall include, without duplication, in each case, accrued
and unpaid interest, if any, to and including the Redemption Date, excluding the
date of issuance.
"Repurchase Date" shall have the meaning ascribed to such term in
---------------
the New Note.
"Repurchase Price" shall have the meaning specified the New
----------------
Notes.
"Stated Maturity," when used with respect to any New Note, means
----------------
August 1, 2003.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
-----------
Friday, other than any day on which securities are not traded on the NASDAQ.
"Trustee" means the ___________, the trustee for the New Notes.
-------
12
<PAGE>
EXHIBIT 2.9
FORM OF NEW WARRANT
-------------------
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE
PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SO
REGISTERED OR AN EXCEPTION THEREFROM IS AVAILABLE.
WARRANT TO PURCHASE COMMON STOCK
OF BRADLEES, INC.
_____________, 199__
Bradlees, Inc., a corporation organized under the laws of the
Commonwealth of Massachusetts (the "Company"), hereby certifies that, for value
received, _____________, or registered assigns (the "Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company at any time
or from time to time during the five-year period following the Effective Date
(as defined in the Joint Plan of Reorganization of Bradlees Stores, Inc. and
Affiliates under Chapter 11 of the Bankruptcy Code (the "Plan")) and before 5:00
p.m., New York time on ____________, 200__ (the "Expiration Date"), up to
__________ fully paid and nonassessable shares of Common Stock (as hereinafter
defined), ___________ Dollars ($________) par value per share, of the Company,
at a purchase price of Seven Dollars ($7.00) per share (the "Purchase Price").
The number and character of such shares of Common Stock and the Purchase Price
are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term Company shall include Bradlees, Inc. and any corporation
which shall succeed or assume the obligations of Bradlees, Inc. hereunder.
(b) The term "Common Stock" includes (i) the shares of the Company's
common stock provided for under the Plan and authorized under the amended
and restated articles of organization of the Company, and (ii) any other
securities into which or for which any of the securities described in (i)
may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(c) The term "Plan Warrants" shall mean warrants to purchase Common
Stock, of a like term to this Warrant, 1,000,000 shares originally issued
<PAGE>
on ________ pursuant to the Plan.
Section 1. Exercise of Warrant.
-------------------
1.1. Number of Shares Issuable upon Exercise. The Holder shall be
---- ---------------------------------------
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock, subject to adjustment
pursuant to Section 5.
1.2. Full Exercise. This Warrant may be exercised in full by the
---- -------------
Holder by surrender of this Warrant, with the form of subscription attached as
Exhibit A hereto (the "Subscription Form") duly executed by the Holder, to the
Company at its principal office or at the office of its Warrant agent (as
provided in Section 11), accompanied by payment in cash or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying the number of shares of Common Stock for which this Warrant is
then exercisable by the Purchase Price then in effect.
1.3. Conversion. The Holder may convert this Warrant (the
---- ----------
"Conversion Right"), in whole or in part, into the number of shares of Common
Stock of the Company calculated pursuant to the following formula by
surrendering this Warrant (with the notice of exercise form attached hereto as
Exhibit C duly executed) at the principal office of the Company specifying the
number of shares of Common Stock of the Company, the rights to purchase which
the Holder desires to convert:
Y (A - B)
---------
X = A
where: X = the number of shares of Common Stock to be issued to the Holder;
Y = the number of shares of Common Stock subject to this Warrant for
which the Conversion Right is being exercised;
A = the Fair Market Value of one share of Common Stock (as calculated
in Section 1.5 hereof);
B = the Purchase Price
The Company agrees that the shares so converted shall be deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered as
aforesaid. In the event of any conversion of this Warrant, certificates for the
shares of stock so converted shall be delivered to the holder hereof within 15
days thereafter and, unless this Warrant has been fully converted or expired, a
new Warrant representing the portion of the shares, if
2
<PAGE>
any, with respect to which this Warrant shall not then have been converted,
shall also bc issued to the holder hereof within such 15 day period.
1.4. Partial Exercise. This Warrant may be exercised in part (but
---- ----------------
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
Holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the Holder in the
Subscription Form by (b) the Purchase Price then in effect. The method of
payment shall be as permitted by Section 1.2. On any such partial exercise, the
Company, at its expense, will forthwith issue and deliver to or upon the order
of the Holder a new Warrant of like tenor, in the name of the Holder hereof or
as the Holder (upon payment by such Holder of any applicable transfer taxes),
may request, subject to compliance with applicable securities laws, exercisable
for the number of shares of Common Stock not purchased under this Warrant.
1.5. Fair Market Value. Fair Market Value of a share of Common
---- -----------------
Stock as of a particular date (the "Determination Date") shall mean:
(a) If the Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers,
Inc. Automated Quotation ("NASDAQ") National Market System,
then the average of the closing or last sale price,
respectively, reported for the five business days
immediately preceding the Determination Date.
(b) If the Common Stock is not traded on an exchange or on
the NASDAQ National Market System but is traded in the over-
the-counter market or other similar organization (including
the Bulletin Board), then the average of the mean of the
closing bid and asked prices reported for the five business
days immediately preceding the Determination Date.
(c) If the Common Stock is not traded as provided above,
then the price determined in good faith by the Board of
Directors of the Company, provided that (1) the basis or
bases of each such determination shall be set forth in the
corporate records of the Company pertaining to meetings and
other actions of such board, and (2) such records are
available to the Holder for inspection during normal
business hours of the Company upon the giving of reasonable
prior notice.
(d) If the Determination Date is the date of a
3
<PAGE>
liquidation, dissolution or winding up, or any event deemed
to be a liquidation, dissolution or winding up pursuant to
the Company's charter, then all amounts to be payable per
share to Holders of the Common Stock pursuant to the charter
in the event of such liquidation, dissolution or winding up,
plus all other amounts to be payable per share in respect of
the Common Stock in liquidation under the charter, assuming
for the purposes of this clause (d) that all of the shares
of Common Stock then issuable upon exercise of all of the
Plan Warrants are outstanding at the Determination Date.
1.6. Company Acknowledgment. The Company will, at the time of the
---- ----------------------
exercise of this Warrant, upon the request of the Holder acknowledge in writing
its continuing obligation to afford to the Holder any rights to which the Holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant. If the Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to the Holder any such rights.
1.7. Trustee for Warrant Holders. In the event that a bank or
---- ---------------------------
trust company shall have been appointed as trustee for the Holder pursuant to
Subsection 4.2, such bank or trust company shall have all the powers and duties
of a Warrant agent appointed pursuant to Section 11 and shall accept, in its own
name for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1.
Section 2. Delivery of Stock Certificates, etc. on Exercise. The
------------------------------------------------
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the Holder as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the Holder, or as the Holder (upon payment by such Holder of
any applicable transfer taxes) may direct, subject to compliance with applicable
securities laws, a certificate or certificates for the number of duly and
validly issued, fully paid and nonassessable shares of Common Stock to which the
Holder shall be entitled on such exercise, plus, in lieu of any fractional share
to which the Holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which the Holder is entitled upon such exercise pursuant to Section 1 or
otherwise.
Section 3. Adjustment for Dividends in Other Stock,
----------------------------------------
4
<PAGE>
Property, etc. Reclassification. In case at any time or from time to time, the
- -------------------------------
holders of Common Stock shall have received, or (on or after the record date
fixed for the determination of shareholders eligible to receive) shall have
become entitled to receive, without payment therefor, any of the following:
(a) other or additional stock or other securities or property
(other than cash) by way of dividend (other than a dividend of
shares of Common Stock which is covered by Section 5 hereof), or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement, other than additional shares of Common Stock
issued as a stock dividend or in a stock split (adjustments in
respect of which are provided for in Section 5),
then and in each such case the Holder, on the exercise hereof as provided in
Section 1, shall be entitled to receive the amount of stock and other securities
and property (including cash in the cases referred to in subdivisions (b) and
(c) of this Section 3) which the Holder would hold on the date of such exercise
if on the date of original issuance of this Warrant the Holder had been the
holder of record of the number of shares of Common Stock called for on the face
of this Warrant and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and all such other
or additional stock and other securities and property (including cash in the
cases referred to in subdivisions (b) and (c) of this Section 3) receivable by
the Holder as aforesaid during such period, giving effect to all adjustments
called for during such period by Section 4 and 5.
Section 4. Adjustment for Reorganization Consolidation, Merger, etc.
---------------------------------------------------------
4.1. Reorganization, Consolidation, Merger etc. In case at any time
---- ------------------------------------------
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder, on the
exercise hereof as provided in Section 1 at any time after the consummation of
such reorganization, consolidation or merger or the
5
<PAGE>
effective date of such dissolution, as the case may be, shall receive, in lieu
of the Common Stock issuable on such exercise prior to such consummation, the
stock and other securities ("Other Securities") and property (including cash) to
which the Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if the Holder had so
exercised this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in Sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the Company
---- -----------
following the transfer of all or substantially all of its properties or assets
in a transaction contemplated by subsection 4.1(c), the Company, prior to such
dissolution, shall at its expense deliver or cause to be delivered the stock and
other securities and property (including cash, where applicable) receivable by
the Holder after the effective date of such dissolution pursuant to this Section
4 to a bank or trust company having its principal office in New York, New York,
as trustee for the Holder.
4.3. Continuation of Terms. Upon any reorganization, consolidation,
---- ---------------------
merger or transfer (and any dissolution following any transfer) referred to in
this Section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant.
Section 5. Extraordinary Events Regarding Common Stock. In the
-------------------------------------------
event that the Company shall (a) issue additional shares of the Common Stock as
a dividend or other distribution on outstanding Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares of the
Common Stock into a smaller number of shares of the Common Stock, then, in each
such event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 5.
The number of shares of Common Stock that the Holder shall thereafter, on the
exercise hereof as provided in Section 1, be entitled to receive shall be
adjusted to a number determined by multiplying the number of shares of Common
Stock that would otherwise (but for the provisions of this Section 5) be
issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 5)
be in effect, and (b) the denominator is the Purchase Price in effect on the
date of such exercise.
6
<PAGE>
Section 6. Chief Financial Officer's Certificate as to Adjustments.
-------------------------------------------------------
In each case of any adjustment or readjustment in the shares of Common Stock (or
Other Securities) issuable on the exercise of the Warrants, the Company at its
expense will promptly cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the terms of the Warrant and
prepare a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based,
including a statement of [(a) the consideration received or receivable by the
Company for any additional shares of Common Stock issued or sold or deemed to
have been issued or sold, (b) the number of shares of Common Stock outstanding
or deemed to be outstanding,] and (c) the Purchase Price and the number of
shares of Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted or
readjusted as provided in this Warrant. The Company will forthwith mail a copy
of each such certificate to the Holder and any Warrant agent of the Company
(appointed pursuant to Section 11 hereof).
Section 7. Reservation of Stock etc. Issuable on Exercise of
--------------------------------------------------
Warrant. Upon the Effective Date (as that term is defined in the Plan), the
- -------
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
Section 8. Assignment; Exchange of Warrant. Subject to compliance
-------------------------------
with applicable Securities laws, this Warrant, and the rights evidenced hereby,
may be transferred by the Holder (the "Transferor") with respect to any or all
of the shares of Common Stock underlying this Warrant. On the surrender for
exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B attached hereto (the "Transferor Endorsement Form"), to the Company,
the Company at its expense (but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor. Each Transferee shall be entitled (pro rata
according to the number of shares of Common Stock issuable under the
Transferee's new Warrant) to those benefits accruing to the Transferor under
this Warrant prior to the date of issue of such new Warrant or Warrants.
Section 9. Registration Rights; Procedure; Indemnification.
-----------------------------------------------
9.1. Registration Rights
---- -------------------
(a) On one occasion, on and after the date hereof
(exercisable immediately) but not later than the anniversary
date of this Warrant, the Company, upon a
7
<PAGE>
written request therefor from any registered holder or
holders of more than [fifty percent (50%)] of the total
number of shares of Common Stock owned or to be owned upon
exercise of this Warrant and all other Plan Warrants (the
"Warrant Stock"), shall prepare and file a registration
statement with the Securities and Exchange Commission (the
"Commission'') under the Securities Act of 1933, as amended
(the "Securities Act"), covering the Warrant Stock that is
the subject of such request to the extent required to permit
the sale or other disposition of the Warrant Stock so
registered by the holders thereof (collectively, the
"Seller"). The underwriter, if any, of an offering
registered pursuant to this Subsection 9.1(a) shall be
selected by the holders or persons entitled to be holders of
at least a majority of the Warrant Stock for which
registration has been requested and shall be reasonably
acceptable to the Company. In the event the Warrant Stock is
included in a registration statement that includes
securities to be sold for the account of the Company, such
written request for registration shall be deemed to have
been given pursuant to Subsection 9.1(b), rather than this
Subsection 9.1(a), and the rights of the holders of Warrant
Stock covered by such written request shall be governed by
Subsection 9.1(b).
(b) On and after the date hereof, if the Company at any
time proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own
account or for the account of other security holders
(including a registration requested by other Holders of Plan
Warrants under Section 9.1(a)) or both (except with respect
to registration statements on Forms S-4, S-8 or another form
not available for registering the Common Stock that may be
acquired upon exercise of this Warrant for sale to the
public), it shall give at least 45 days' prior written
notice to the Holder of its intention to do so. Upon the
written request of the Holder, received by the Company
within 30 days after the giving of any such notice by the
Company, to register any of the Warrant Stock owned or to be
owned by the Holder pursuant to the exercise of this
Warrant, the Company will cause such Warrant Stock as to
which registration shall have been so requested to be
included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the
extent required to permit the sale or other disposition of
the Warrant Stock so registered by the Seller. In the event
that
8
<PAGE>
any registration pursuant to this Section 9 shall be, in
whole or in part, an underwritten public offering of Common
Stock for the account of the company, the number of shares
of Warrant Stock to be included in such an underwriting may
be reduced by the Company and the managing underwriter if
and to the extent that the Company and the underwriter shall
be of the opinion that such inclusion would adversely affect
the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify
the Seller in writing of any such reduction. Notwithstanding
the forgoing provisions, the Company may withdraw any
registration statement referred to in this Section 9 without
thereby incurring any liability to the Seller.
9.2. Registration Procedures. If and whenever the Company is
---- -----------------------
required by the provisions hereof to effect the registration of any shares of
Warrant Stock under the Securities Act, the company will, as expeditiously as
possible:
(a) prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with
respect to such securities and use its best efforts to cause
such registration statement to become and remain effective
for the period of the distribution contemplated thereby
(determined as hereinafter provided):
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary
to keep such registration statement effective for the period
specified in paragraph (a) above and comply with the
provisions of the Securities Act with respect to the
disposition of all of the Warrant Stock covered by such
registration statement in accordance with the Seller's
intended method of disposition set forth in such
registration statement for such period;
(c) furnish to the Seller, and to each underwriter, if any,
such number of copies of the registration statement and the
prospectus included therein (including each preliminary
prospectus) as such persons reasonably may request in order
to facilitate the public sale or their disposition of the
securities covered by such registration statement;
9
<PAGE>
(d) use its best efforts to register or qualify the
Seller's Warrant Stock covered by such registration
statement under the securities or "blue sky" laws of such
jurisdictions as the Seller or, in the case of an
underwritten public offering, the managing underwriter
reasonably shall request, provided, however, that the
Company shall not for any such purpose be required to
qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified
or to consent to general service of process in any such
jurisdiction;
(e) list the Warrant Stock covered by such registration
statement with any securities exchange or quotation system
on which the Common Stock of the Company is then listed or
traded;
(f) immediately notify the Seller and each underwriter, if
any, at any time when a prospectus relating to the Warrant
Stock is required to be delivered under the Securities Act,
of the happening of any event of which the Company has
knowledge as a result of which such prospectus, as then in
effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading
in light of the circumstances then existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to
such registration statement, and any attorney, accountant or
other agent retained by the Seller or underwriter, all
financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's
officers, directors and employees to supply all information
reasonably requested by the Seller, underwriter, attorney,
accountant or agent in connection with such registration
statement.
For purposes of this Section 9, the period of distribution of
securities in a firm commitment underwritten public offering shall be deemed to
extend until each underwriter has completed the distribution of all securities
purchased by it, or sooner if the managing underwriter consents, and the period
of distribution of securities in any other registration shall be deemed to
extend until the earlier of the sale of all securities covered thereby and one
year after the effective date thereof.
10
<PAGE>
In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information with respect to itself and
the proposed distribution by it as reasonably shall be necessary in order to
assure compliance with federal and applicable state securities laws. In
connection with each registration pursuant to this Section 9 covering an
underwritten public offering, the Company and the Seller agree to enter into a
written agreement with the managing underwriter in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such underwriter and companies of the Company's size and investment
stature.
9.3. Expenses. All expenses incurred by the Company in complying
---- --------
with this Section 9, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars and costs of insurance are called
"Registration Expenses." All underwriting discounts and selling commissions
applicable to the sale of Warrant Stock, including any fees and disbursements of
any special counsel to the Seller, are called "Selling Expenses."
The Company will pay all Registration Expenses in connection with up
to the registration statement filed under Section 9.1(a) and all Registration
Expenses in connection with any registration statement filed under 9.1(b). All
Selling Expenses in connection with each registration statement under this
Section 9 shall be borne by the Seller in proportion to the number of shares
sold by the Seller relative to the number of shares sold under such registration
statement or as all sellers thereunder may agree.
9.4. Indemnification and Contribution.
---- --------------------------------
(a) In the event of a registration of any Warrant Stock under
the Securities Act pursuant to this Section 9, the Company will
indemnify and hold harmless the Seller, each underwriter of such
Warrant Stock thereunder and each other person, if any, who
controls such Seller or underwriter within the meaning of the
Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration
statement under which such Warrant Stock was registered under the
Securities Act pursuant to this Section 9, any preliminary
prospectus or final prospectus contained
11
<PAGE>
therein, or any amendment or supplement thereof, or arise out of
or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will
reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case if
and to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, the
underwriter or any such controlling person in writing
specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of the Warrant Stock
under the Securities Act pursuant to Section 9, the Seller will
indemnify and hold harmless the Company, each person, if any, who
controls the Company within the meaning of the Securities Act,
each officer of the Company who signs the registration statement,
each director of the Company, each underwriter, and each person
who controls any underwriter within the meaning of the Securities
Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration
statement under which such Warrant Stock was registered under the
Securities Act pursuant to this Section 9, any preliminary
prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company
and each such officer, director, underwriter and controlling
person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss,
claim,
12
<PAGE>
damage, liability or action; provided, however, that the Seller
will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such Seller, as
such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or
prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the proportion of any
such loss, claim, damage, liability or expense which is equal to
the proportion that the public offering price of the Warrant
Stock sold by the Seller under such registration statement bears
to the total public offering price of all securities sold
thereunder, but not in any event to exceed the proceeds received
by the Seller from the sale of Warrant Stock covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9.4(c)
and shall only relieve it from any liability which it may have to
such indemnified party under this Section 9.4(c) if and to the
extent the indemnifying party is prejudiced by such omission. In
case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from
the indemnifying party to such indemnified party of its election
so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this
Section 9.4(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof
other than reasonable costs of investigation and of liaison with
counsel so selected; provided, however, that, if the defendants
in any such action include both the
13
<PAGE>
indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or
additional to those available to the indemnifying party or if the
interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party or if the
indemnifying party shall not have assumed or undertaken the
defense of such action with counsel reasonably satisfactory to
such indemnified party, the indemnified party shall have the
right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by
the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which
either (i) the Seller, or any controlling person of the Seller,
makes a claim for indemnification pursuant to this Section 9.4
but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9.4 provides for
indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which
indemnification is provided under this Section 9.4; then, and in
each such case, the Company and the Seller will contribute to the
aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such
proportion so that the Seller is responsible for the portion
represented by the percentage that the public offering price of
its securities offered by the registration statement bears to the
public offering price of all securities offered by such
registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A)
the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities
offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within
the meaning of Section 10(f) of the Securities Act) will be
entitled to contribution from any
14
<PAGE>
person or entity who was not guilty of such fraudulent
misrepresentation.
Section 10. Replacement of Warrant. On receipt of evidence
----------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, on surrender and cancellation of this Warrant, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
Section 11. Warrant Agent. The Company may, by written notice to
-------------
the Holder, appoint an agent having an office in New York, New York for the
purpose of issuing Common Stock on the exercise of this Warrant pursuant to
Section 1, exchanging this Warrant pursuant to Section 8, and replacing this
Warrant pursuant to Section 10, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
Section 12. Transfer on the Company's Books. Until this Warrant is
-------------------------------
transferred on the books of the Company, the Company may treat the registered
holder hereof as the absolute owner hereof for all purposes, notwithstanding any
notice to the contrary.
Section 13. Notices. Any notice pursuant to this Warrant by the
-------
Company or the Holder shall be mailed by first class registered or certified
mail, postage prepaid, to (a) the Company, at its principal office at One
Bradlees Circle, P.O. Box 9051, Braintree, MA 02184-9051, Attention: David L.
Schmitt, Esq.; or (b) the Holder, at its principal office at _______________,
Attention: __________. Notices shall be deemed given 48 hours after mailing.
Section 14. Miscellaneous. This Warrant and any term hereof may be
-------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York. The headings
in this Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. The invalidity or unenforceability of
any provision hereof shall in no way affect the validity or enforceability of
any other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal
as of the date first written above.
BRADLEES, INC.
By:
15
<PAGE>
Name:
Title:
Attest:
By:
Title:
16
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: BRADLEES, INC.
The undersigned, the Holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder, __________ shares of
Common Stock of Bradlees, Inc. and herewith makes payment of $______________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to _______________________ whose address is
______________________________.
Dated:
(Signature must conform to name of Holder as
specified on the face of the Warrant)
(Address)
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferee" the
right represented by the within Warrant to purchase the number of shares of
Common Stock of Bradlees, Inc. to which the within Warrant relates specified
under the heading "Number Transferred," respectively, opposite the name(s) of
such person(s) and appoints each such person Attorney to transfer its respective
right on the books of Bradlees, Inc. with full power of substitution in the
premises.
- --------------------------------------------------------------------------------
Transferee Percentage Number
----------
Transferred Transferred
----------- -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ___________________, 19__
(Signature must conform to name of
Holder as specified on the face of
the warrant)
Signed in the presence of:
(Name) (Address)
ACCEPTED AND AGREED:
[TRANSFEREE]
(Address)
(Name) (Address Cont.)
<PAGE>
Exhibit C
NOTICE OF EXERCISE
TO: BRADLEES, INC.
1. Check Box that Applies:
[_] The undersigned hereby elects to purchase _____ shares of Common Stock
of BRADLEES, INC. pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in fall.
[_] The undersigned hereby elects to convert the attached warrant into
_____ shares of Common Stock of BRADLEES, Inc. pursuant to the terms of the
attached Warrant.
2. Please issue a certificate or certificates representing said shares of'
Common Stock in the name of the undersigned or in such other name as is
specified below:
--------------------------------------------
(Name)
--------------------------------------------
--------------------------------------------
(Address)
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares.
Signature
<PAGE>
Exhibit 3.1
FEDERAL IDENTIFICATION
NO. __________________
__________ The Commonwealth of Massachusetts
Examiner William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
__________
Name
Approved
We, Robert G. Lynn, , *President
----------------------------------------------------------------
and David L. Schmitt , *Clerk
--------------------------------------------------------------------
of Bradlees, Inc. ,
-----------------------------------------------------------------------------
(Exact name of corporation)
located at One Bradlees Circle, Braintree, MA 02184 ,
--------------------------------------------------------------------
(Street address of corporation Massachusetts)
do hereby certify that the following Restatement of the Articles of Organization
was duly adopted on __________________________, 19__ by order of the Bankruptcy
Court
____ shares of ________________________________ of ____ shares outstanding,
(type, class & series, if any)
____ shares of ________________________________ of ____ shares outstanding, and
(type, class & series, if any)
____ shares of ________________________________ of ____ shares outstanding,
(type, class & series, if any)
**being at least a majority of each type, class or series outstanding and
entitled to vote thereon: /**being at least two-thirds of each type, class or
series outstanding and entitled to vote thereon and each type, class or series
of stock whose rights are adversely affected thereby:
C [_] ARTICLE I
P [_] The name of the corporation is:
M [_]
R.A. [_] Bradlees, Inc.
ARTICLE II
The purpose of the corporation is to engage in the following
business activities:
1. To own, operate and maintain discount department stores, and
2. to conduct all lawful acts and activities for which corporations may be
organized under the Massachusetts Business Corporation Law.
__________
P.C.
*Delete the inapplicable words. **Delete the inapplicable clause.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper with a left margin of at least 1 inch. Additions to more than one article
may be made on a single sheet so long as each article requiring each addition is
clearly indicated.
<PAGE>
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
Common: Common: 40,000,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred: 1,000,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
See Addendum A.
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None.
ARTICLE VI
**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
See Addendum B.
**If there are no provisions state "None".
Note: The preceding six (6) articles are considered to be permanent and may ONLY
be changed by filing appropriate Articles of Amendment.
<PAGE>
ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.
ARTICLE VIII
The information contained in Article VIII is not a permanent part of the
Articles of Organization.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is:
One Bradlees Circle, Braintree, MA 02184
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
President: Robert G. Lynn 35 Cattle Pen Lane One Bradlees Circle
Ridgefield, CT 06877 Braintree, MA 02184
Treasurer: Paul R. McKelvey 30 Planting Field Road One Bradlees Circle
Medfield, MA 02052 Braintree, MA 02184
Clerk: David L. Schmitt 84 Broadreach Road, #601B One Bradlees Circle
Weymouth, MA 02191 Braintree, MA 02184
Directors: See Addendum C.
c. The fiscal year (i.e., tax year) of the corporation shall end on the
Saturday nearest January 31 of each year.
d. The name and business address of the resident agent, if any, of the
corporation is:
** We further certify that the foregoing Restated Articles of Organization
affect no amendments to the Articles of Organization of the corporation as
heretofore amended, except amendments to the following articles. Briefly
describe amendments below:
See Addendum D.
SIGNED UNDER THE PENALTIES OF PERJURY, this ______day of _______________,19____.
/s/ Robert G. Lynn , *President
- --------------------------------------------------------------
/s/ David L. Schmitt , *Clerk
- -----------------------------------------------------------------
*Delete the inapplicable words. **If there are no amendments, state "None".
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
================================================================================
I hereby approve the within Restated Articles of Organization and, the filing
fee in the amount of $ __________ having been paid, said articles are deemed to
have been filed with me this _______ day of _______________, 19__.
Effective Date: _______________________________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
William V. Buccella
- --------------------------------------------------------------------------------
Goodwin, Procter & Hoar LLP
- --------------------------------------------------------------------------------
53 State Street
- --------------------------------------------------------------------------------
Exchange Place
Boston, MA 02109-2881
Telephone: (617) 570-1000
----------------------------------------------------------------------
<PAGE>
EXHIBIT 3.1
ADDENDA TO THE RESTATED
ARTICLES OF ORGANIZATION OF
BRADLEES, INC.
Addendum A
----------
ARTICLE IV
CAPITAL STOCK
-------------
The authorized capital stock of BRADLEES, INC. (the "Corporation") shall
consist of (i) common stock, $.01 par value per share (the "Common Stock"), and
(ii) preferred stock, $.01 par value per share (the "Preferred Stock").
A. Common Stock
------------
1. The holders of shares of Common Stock shall be entitled to one
vote for each share so held with respect to all matters voted on by the
stockholders of the Corporation, subject in all cases to the voting rights of
any holders of Preferred Stock.
2. Subject to the rights of the Preferred Stock upon any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the net assets of the Corporation shall be distributed pro rata to
the holders of the Common Stock in accordance with their respective rights and
interests.
3. Subject to the rights, if any, of any holders of Preferred Stock,
dividends may be paid on the Common Stock as and when declared by the Board of
Directors of the Corporation (the "Board of Directors") out of funds legally
available therefor.
B. Preferred Stock
---------------
Subject to any limitations prescribed by law or these Articles, the Board
of Directors or any authorized committee thereof is expressly authorized to
provide for the issuance of up to 1,000,000 shares of Preferred Stock in one or
more series of stock, and by filing a certificate pursuant to applicable law of
the Commonwealth of Massachusetts, to establish or change from time to time the
number of shares to be included in each series, and to fix the designation,
voting powers, preferences, qualifications, privileges and rights of the shares
of each series and any qualifications, limitations and restrictions thereof. The
Board of Directors or any authorized committee thereof shall have the right to
determine or fix by vote or votes providing for the issuance of the shares
thereof one or more of the following with respect to each series of such
Preferred Stock:
<PAGE>
1. The distinctive serial designation and the number of shares
constituting such series;
2. The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
3. The voting powers, full or limited, of the shares of such series;
4. Whether the shares of such series shall be redeemable (at the
option of the holder or of the Corporation or otherwise) and, if so, the price
or prices at which, and the terms and conditions on which, such shares may be
redeemed;
5. The amount or amounts payable upon the shares of such series and
any preferences applicable thereto in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
6. Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
7. Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other series of the same or any other class or
classes of stock of the Corporation or the securities of any other entity or any
other assets and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof, if any,
at which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
8. The price or other consideration for which the shares of such
series shall be issued;
9. Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of Preferred Stock and
whether such shares may be reissued as shares of the same or any other class or
series of stock; and
10. Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
2
<PAGE>
Subject to the authority of the Board of Directors or any authorized
committee thereof as set forth in Paragraph 9 above, any shares of Preferred
Stock shall, upon reacquisition thereof by the Corporation, be restored to the
status of authorized but unissued Preferred Stock under this Section B.
Except as specifically provided in these Articles, the holders of Preferred
Stock or Common Stock shall not be entitled to any vote and shall not have any
voting rights concerning the designation or issuance of any shares of Preferred
Stock authorized by and complying with the conditions of these Articles, and
subject to the authority of the Board of Directors or any authorized committee
thereof as set forth above, the right to any such vote is expressly waived by
all present and future holders of the capital stock of the Corporation.
C. Issuance of Capital Stock
-------------------------
The Corporation shall not (a) issue non-voting equity securities, (b)
create a class of equity securities having a preference over any other class of
equity securities with respect to dividends unless adequate provision is made
for the election of Directors representing the preferred class in the event of a
default in the payment of its dividends, or (c) create any other class of equity
securities unless an appropriate distribution of voting power is made among all
such classes.
3
<PAGE>
Addendum B
----------
ARTICLE VI (A)
CLASSIFICATION OF DIRECTORS
---------------------------
The initial Directors shall serve for a term expiring at the annual meeting
of stockholders to be held in 1999, which meeting shall be held no sooner than
following the close of the 1999 fiscal year. At each annual meeting of
stockholders, the successors of the Directors whose term expires at such meeting
shall be elected by a plurality of the votes cast at such meeting and shall hold
office for a term expiring at the annual meeting of stockholders held in the
year following the year of their election. The Directors elected shall hold
office until their successors are duly elected and qualified or until their
earlier resignation or removal.
ARTICLE VI (B)
LIMITATION OF LIABILITY OF DIRECTORS
------------------------------------
A. No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director notwithstanding any provision of law imposing such liability;
provided, however, that this Article shall not eliminate or limit any 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 a knowing violation of law, (iii) under
Sections 61 or 62 of Chapter 156B of the General Laws of the Commonwealth of
Massachusetts, or (iv) with respect to any transaction from which the Director
derived an improper personal benefit.
B. No amendment or repeal of this Article shall adversely affect the
rights and protection afforded to a Director of this Corporation under this
Article for acts or omissions occurring prior to such amendment or repeal. If
the Massachusetts Business Corporation Law is hereafter amended to further
eliminate or limit the personal liability of Directors or to authorize corporate
action to further eliminate or limit such liability, then the liability of the
Directors of this Corporation shall be eliminated or limited to the fullest
extent permitted by the Massachusetts Business Corporation Law as so amended.
4
<PAGE>
ARTICLE VI (C)
TRANSACTIONS WITH INTERESTED PERSONS
------------------------------------
A. Unless entered into in bad faith, no contract or transaction by the
Corporation shall be void, voidable or in any way affected by reason of the fact
that it is with an Interested Person.
B. For the purposes of this Article, "Interested Person" means any person
or organization in any way interested in the Corporation whether as an officer,
Director, stockholder, employee or otherwise, and any other entity in which any
such person or organization or the Corporation is in any way interested.
C. Unless such contract or transaction was entered into in bad faith, no
Interested Person, because of such interest, shall be liable to the Corporation
or to any other person or organization for any loss or expense incurred by
reason of such contract or transaction or shall be accountable for any gain or
profit realized from such contract or transaction.
D. The provisions of this Article shall be operative notwithstanding the
fact that the presence of one or more Interested Persons was necessary to
constitute a quorum at a meeting of Directors or stockholders of the Corporation
at which such contract or transaction was authorized or that the vote of one or
more Interested Persons was necessary for the authorization of such contract or
transaction.
E. Business Combination with Interested Shareholders. The provisions of
-------------------------------------------------
Chapter 110F of the General Laws of the Commonwealth of Massachusetts ("Chapter
110F"), as it may be amended from time to time, shall, except to the extent set
forth in Chapter 110F, not apply to "business combinations with interested
shareholders" of the Corporation within the meaning of Chapter 110F.
ARTICLE VI (D)
STOCKHOLDERS' MEETINGS
----------------------
A. Action by Written Consent
-------------------------
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, provided that all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders.
Such consents shall be treated for all purposes as a vote at a meeting of
stockholders.
B. Location of Meetings
--------------------
Meetings of stockholders of the Corporation may be held anywhere within the
United States.
5
<PAGE>
ARTICLE VI (E)
ACTING AS A PARTNER
-------------------
The Corporation may be a partner in any business enterprise which it would
have power to conduct by itself.
ARTICLE VI (F)
EXAMINATION OF BOOKS
--------------------
Except as otherwise provided by law, no stockholder shall have any right to
examine any property or any books, accounts or other writings of the Corporation
if there is reasonable ground for belief that such examination will for any
reason be adverse to the interests of the Corporation, and a vote of the
Directors refusing permission to make such examination and setting forth that in
the opinion of the Directors such examination would be adverse to the interests
of the Corporation shall be prima facie evidence that such examination would be
adverse to the interests of the Corporation. Every such examination which is
permitted shall be subject to such reasonable requirements as the Corporation
may establish in regard thereto.
ARTICLE VI (G)
AMENDMENT OF BY-LAWS
--------------------
A. Amendment by Directors
----------------------
Except as otherwise required by law, the By-laws of the Corporation may be
amended or repealed by the affirmative vote of a majority of the Directors then
in office. Not later than the time of giving notice of the annual meeting of
stockholders next following the amending or repealing by the Directors of any
By-law, notice thereof stating the substance of such change shall be given to
all stockholders entitled to vote on amending the By-laws.
B. Amendment by Stockholders
-------------------------
The By-laws of the Corporation may be amended or repealed at any annual
meeting of stockholders, or special meeting of stockholders called for such
purpose, by the affirmative vote of at least two-thirds of the total votes
eligible to be cast on such amendment or repeal by holders of voting stock,
voting together as a single class; provided, however, that if the Board of
Directors recommends that stockholders approve such amendment or repeal at such
meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class.
6
<PAGE>
ARTICLE VI (H)
STOCKHOLDER VOTE REQUIRED FOR AMENDMENT OF
------------------------------------------
ARTICLES OF ORGANIZATION
------------------------
These Articles may be amended at any annual meeting of stockholders, or
special meeting of stockholders called for such purpose, by the affirmative vote
of at least two-thirds of the total votes eligible to be cast on such amendment
by holders of voting stock, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment at such meeting of stockholders, such amendment shall only
require the affirmative vote of a majority of the total votes eligible to be
cast on such amendment by holders of voting stock, voting together as a single
class.
7
<PAGE>
Addendum C
----------
<TABLE>
<CAPTION>
POST OFFICE
NAME RESIDENTIAL ADDRESS ADDRESS
---- ------------------- -----------
<S> <C> <C> <C>
Directors Peter Thorner 1243 Adams Street Bradlees, Inc.
Dorchester, MA 02124 One Bradlees Circle
Braintree, MA 02184
Robert G. Lynn 35 Cattle Pen Lane Bradlees, Inc.
Ridgefield, CT 06877 One Bradlees Circle
Braintree, MA 02184
Robert Altschuler 200 Long Lots Road Marx Realty &
Westport, CT 06880 Improvement Co., Inc.
708 Third Avenue
New York, NY 10017
Lawrence Lieberman 64 Wright Street 888 Broadway
Westport, CT 06880 New York, NY 10003
William H. Roth 144 East 84th Street 36 West 44th Street
New York, NY 10028 New York, NY 10036
Charles K. MacDonald 5120 NE 29th Avenue Mongandane Management Corp.
Lighthouse Point, FL 33064 5120 NE 29th Avenue
Lighthouse Point, FL 33064
Stephen J. Blauner 449 Hudson Street One Chase Manhattan Plaza
New York, NY 10014 New York, NY 10005
W. Edward Clingman, Jr. 7371 Beulah Church Road c/o Best Products Co., Inc.
Mechanicsville, VA 23111 P. O. Box 26303
Richmond, VA 23260
John M. Friedman, Jr. 62 Barner Road 62 Barner Road
New Milford, CT 06776 New Milford, CT 06776
</TABLE>
8
<PAGE>
Addendum D
----------
Article IV(A) Description of Voting Rights, Liquidation Rights, and
Dividends of Common Stock.
Article IV(B) Description of powers and rights of Board of Directors
with respect to Preferred Stock.
Article IV(C) Description of the Corporation's rights with respect to
issuance of capital stock.
Article VI(A) Provision regarding classification of directors.
Article VI(B) Provision regarding the limitation of liability of directors.
Article VI(C) Provision regarding transactions with interested persons.
Article VI(D) Provision regarding action of stockholders by written
consent and location of stockholder meetings.
Article VI(E) Provision permitting the Corporation to act as a
partner in any business enterprise.
Article VI(F) Provision regarding stockholders' rights to examine
books of the Corporation.
Article VI(G) Provision regarding amendment of the By-laws of the
Corporation.
Article VI(H) Provision describing stockholder vote required for
amendment of the Articles of Organization of the Corporation.
9
<PAGE>
Exhibit 3.2
FEDERAL IDENTIFICATION
NO. __________________
__________ The Commonwealth of Massachusetts
Examiner William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
__________
Name
Approved
We, Robert G. Lynn, , *President
----------------------------------------------------------------
and David L. Schmitt , *Clerk
--------------------------------------------------------------------
of Bradlees Stores, Inc. ,
-----------------------------------------------------------------------------
(Exact name of corporation)
located at One Bradlees Circle, Braintree, MA 02184 ,
--------------------------------------------------------------------
(Street address of corporation Massachusetts)
do hereby certify that the following Restatement of the Articles of Organization
was duly adopted on __________________________, 19__ by order of the Bankruptcy
Court
____ shares of ________________________________ of ____ shares outstanding,
(type, class & series, if any)
____ shares of ________________________________ of ____ shares outstanding, and
(type, class & series, if any)
____ shares of ________________________________ of ____ shares outstanding,
(type, class & series, if any)
**being at least a majority of each type, class or series outstanding and
entitled to vote thereon: /**being at least two-thirds of each type, class or
series outstanding and entitled to vote thereon and each type, class or series
of stock whose rights are adversely affected thereby:
C [_] ARTICLE I
P [_] The name of the corporation is:
M [_]
R.A. [_] Bradlees Stores, Inc.
ARTICLE II
The purpose of the corporation is to engage in the following
business activities:
1. To own, operate and maintain discount department stores, and
2. to conduct all lawful acts and activities for which corporations may be
organized under the Massachusetts Business Corporation Law.
__________
P.C.
*Delete the inapplicable words. **Delete the inapplicable clause.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper with a left margin of at least 1 inch. Additions to more than one article
may be made on a single sheet so long as each article requiring each addition is
clearly indicated.
<PAGE>
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
Common: Common: 150,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred: 50,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
See Addendum A.
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None.
ARTICLE VI
**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
See Addendum B.
**If there are no provisions state "None".
Note: The preceding six (6) articles are considered to be permanent and may ONLY
be changed by filing appropriate Articles of Amendment.
<PAGE>
ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.
ARTICLE VIII
The information contained in Article VIII is not a permanent part of the
Articles of Organization.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is:
One Bradlees Circle, Braintree, MA 02184
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C>
President: Robert G. Lynn 35 Cattle Pen Lane One Bradlees Circle
Ridgefield, CT 06877 Braintree, MA 02184
Treasurer: Paul R. McKelvey 30 Planting Field Road One Bradlees Circle
Medfield, MA 02052 Braintree, MA 02184
Clerk: David L. Schmitt 84 Broadreach Road, #601B One Bradlees Circle
Weymouth, MA 02191 Braintree, MA 02184
Directors: Peter Thorner 1243 Adams Street One Bradlees Circle
Dorchester, MA 02124 Braintree, MA 02184
David L. Schmitt 84 Broadreach Road, #601B One Bradlees Circle
Weymouth, MA 02191 Braintree, MA 02184
Cornelius F. Moses, III 8 Quail Run One Bradlees Circle
Medfield, MA 02052 Braintree, MA 02184
</TABLE>
c. The fiscal year (i.e., tax year) of the corporation shall end on the
Saturday nearest January 31 of each year.
d. The name and business address of the resident agent, if any, of the
corporation is:
** We further certify that the foregoing Restated Articles of Organization
affect no amendments to the Articles of Organization of the corporation as
heretofore amended, except amendments to the following articles. Briefly
describe amendments below:
See Addendum C.
SIGNED UNDER THE PENALTIES OF PERJURY, this ______day of _______________,19____.
/s/ Robert G. Lynn , *President
- --------------------------------------------------------------
/s/ David L. Schmitt , *Clerk
- -----------------------------------------------------------------
*Delete the inapplicable words. **If there are no amendments, state "None".
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
================================================================================
I hereby approve the within Restated Articles of Organization and, the filing
fee in the amount of $ __________ having been paid, said articles are deemed to
have been filed with me this _______ day of _______________, 19__.
Effective Date: _______________________________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
William V. Buccella
- --------------------------------------------------------------------------------
Goodwin, Procter & Hoar LLP
- --------------------------------------------------------------------------------
53 State Street
- --------------------------------------------------------------------------------
Exchange Place
Boston, MA 02109-2881
Telephone: (617) 570-1000
----------------------------------------------------------------------
<PAGE>
ADDENDA TO THE RESTATED
ARTICLES OF ORGANIZATION OF
BRADLEES STORES, INC.
Addendum A
----------
ARTICLE IV
CAPITAL STOCK
-------------
The authorized capital stock of BRADLEES STORES, INC. (the
"Corporation") shall consist of (i) common stock, $.01 par value per share (the
"Common Stock"), and (ii) preferred stock, $.01 par value per share (the
"Preferred Stock").
A. Common Stock
------------
1. The holders of shares of Common Stock shall be entitled to
one vote for each share so held with respect to all matters voted on by the
stockholders of the Corporation, subject in all cases to the voting rights of
any holders of Preferred Stock.
2. Subject to the rights of the Preferred Stock upon any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the net assets of the Corporation shall be distributed pro
rata to the holders of the Common Stock in accordance with their respective
rights and interests.
3. Subject to the rights, if any, of any holders of Preferred
Stock, dividends may be paid on the Common Stock as and when declared by the
Board of Directors of the Corporation (the "Board of Directors") out of funds
legally available therefor.
B. Preferred Stock
---------------
Subject to any limitations prescribed by law or these Articles, the
Board of Directors or any authorized committee thereof is expressly authorized
to provide for the issuance of up to 50,000 shares of Preferred Stock in one or
more series of stock, and by filing a certificate pursuant to applicable law of
the Commonwealth of Massachusetts, to establish or change from time to time the
number of shares to be included in each series, and to fix the designation,
voting powers, preferences, qualifications, privileges and rights of the shares
of each series and any qualifications, limitations and restrictions thereof. The
Board of Directors or any authorized committee thereof shall have the right to
determine or fix by vote or votes providing for the issuance of the shares
thereof one or more of the following with respect to each series of such
Preferred Stock:
<PAGE>
1. The distinctive serial designation and the number of shares
constituting such series;
2. The dividend rates or the amount of dividends to be paid on
the shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
3. The voting powers, full or limited, of the shares of such
series;
4. Whether the shares of such series shall be redeemable (at the
option of the holder or of the Corporation or otherwise) and, if so, the price
or prices at which, and the terms and conditions on which, such shares may be
redeemed;
5. The amount or amounts payable upon the shares of such series
and any preferences applicable thereto in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
6. Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
7. Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other series of the same or any other class
or classes of stock of the Corporation or the securities of any other entity or
any other assets and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof, if any,
at which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
8. The price or other consideration for which the shares of such
series shall be issued;
9. Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of Preferred
Stock and whether such shares may be reissued as shares of the same or any other
class or series of stock; and
10. Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
2
<PAGE>
Subject to the authority of the Board of Directors or any authorized
committee thereof as set forth in Paragraph 9 above, any shares of Preferred
Stock shall, upon reacquisition thereof by the Corporation, be restored to the
status of authorized but unissued Preferred Stock under this Section B.
Except as specifically provided in these Articles, the holders of
Preferred Stock or Common Stock shall not be entitled to any vote and shall not
have any voting rights concerning the designation or issuance of any shares of
Preferred Stock authorized by and complying with the conditions of these
Articles, and subject to the authority of the Board of Directors or any
authorized committee thereof as set forth above, the right to any such vote is
expressly waived by all present and future holders of the capital stock of the
Corporation.
C. Issuance of Capital Stock
-------------------------
The Corporation shall not (a) issue non-voting equity securities, (b)
create a class of equity securities having a preference over any other class of
equity securities with respect to dividends unless adequate provision is made
for the election of Directors representing the preferred class in the event of a
default in the payment of its dividends, or (c) create any other class of equity
securities unless an appropriate distribution of voting power is made among all
such classes.
3
<PAGE>
Addendum B
----------
ARTICLE VI (A)
CLASSIFICATION OF DIRECTORS
---------------------------
The initial Directors shall serve for a term expiring at the annual
meeting of stockholders to be held in 1999, which meeting shall be held no
sooner than following the close of the 1999 fiscal year. At each annual meeting
of stockholders, the successors of the Directors whose term expires at such
meeting shall be elected by a plurality of the votes cast at such meeting and
shall hold office for a term expiring at the annual meeting of stockholders held
in the year following the year of their election. The Directors elected shall
hold office until their successors are duly elected and qualified or until their
earlier resignation or removal.
ARTICLE VI (B)
LIMITATION OF LIABILITY OF DIRECTORS
------------------------------------
A. No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director notwithstanding any provision of law imposing such liability;
provided, however, that this Article shall not eliminate or limit any 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 a knowing violation of law, (iii) under
Sections 61 or 62 of Chapter 156B of the General Laws of the Commonwealth of
Massachusetts, or (iv) with respect to any transaction from which the Director
derived an improper personal benefit.
B. No amendment or repeal of this Article shall adversely affect the
rights and protection afforded to a Director of this Corporation under this
Article for acts or omissions occurring prior to such amendment or repeal. If
the Massachusetts Business Corporation Law is hereafter amended to further
eliminate or limit the personal liability of Directors or to authorize corporate
action to further eliminate or limit such liability, then the liability of the
Directors of this Corporation shall be eliminated or limited to the fullest
extent permitted by the Massachusetts Business Corporation Law as so amended.
4
<PAGE>
ARTICLE VI (C)
TRANSACTIONS WITH INTERESTED PERSONS
------------------------------------
A. Unless entered into in bad faith, no contract or transaction by the
Corporation shall be void, voidable or in any way affected by reason of the fact
that it is with an Interested Person.
B. For the purposes of this Article, "Interested Person" means any
person or organization in any way interested in the Corporation whether as an
officer, Director, stockholder, employee or otherwise, and any other entity in
which any such person or organization or the Corporation is in any way
interested.
C. Unless such contract or transaction was entered into in bad faith,
no Interested Person, because of such interest, shall be liable to the
Corporation or to any other person or organization for any loss or expense
incurred by reason of such contract or transaction or shall be accountable for
any gain or profit realized from such contract or transaction.
D. The provisions of this Article shall be operative notwithstanding
the fact that the presence of one or more Interested Persons was necessary to
constitute a quorum at a meeting of Directors or stockholders of the Corporation
at which such contract or transaction was authorized or that the vote of one or
more Interested Persons was necessary for the authorization of such contract or
transaction.
E. Business Combination with Interested Shareholders. The provisions of
-------------------------------------------------
Chapter 110F of the General Laws of the Commonwealth of Massachusetts ("Chapter
110F"), as it may be amended from time to time, shall, except to the extent set
forth in Chapter 110F, not apply to "business combinations with interested
shareholders" of the Corporation within the meaning of Chapter 110F.
ARTICLE VI (D)
STOCKHOLDERS' MEETINGS
----------------------
A. Action by Written Consent
-------------------------
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, provided that all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders.
Such consents shall be treated for all purposes as a vote at a meeting of
stockholders.
B. Location of Meetings
--------------------
Meetings of stockholders of the Corporation may be held anywhere within
the United States.
5
<PAGE>
ARTICLE VI (E)
ACTING AS A PARTNER
-------------------
The Corporation may be a partner in any business enterprise which it
would have power to conduct by itself.
ARTICLE VI (F)
EXAMINATION OF BOOKS
--------------------
Except as otherwise provided by law, no stockholder shall have any
right to examine any property or any books, accounts or other writings of the
Corporation if there is reasonable ground for belief that such examination will
for any reason be adverse to the interests of the Corporation, and a vote of the
Directors refusing permission to make such examination and setting forth that in
the opinion of the Directors such examination would be adverse to the interests
of the Corporation shall be prima facie evidence that such examination would be
adverse to the interests of the Corporation. Every such examination which is
permitted shall be subject to such reasonable requirements as the Corporation
may establish in regard thereto.
ARTICLE VI (G)
AMENDMENT OF BY-LAWS
--------------------
A. Amendment by Directors
----------------------
Except as otherwise required by law, the By-laws of the Corporation may
be amended or repealed by the affirmative vote of a majority of the Directors
then in office. Not later than the time of giving notice of the annual meeting
of stockholders next following the amending or repealing by the Directors of any
By-law, notice thereof stating the substance of such change shall be given to
all stockholders entitled to vote on amending the By-laws.
B. Amendment by Stockholders
-------------------------
The By-laws of the Corporation may be amended or repealed at any annual
meeting of stockholders, or special meeting of stockholders called for such
purpose, by the affirmative vote of at least two-thirds of the total votes
eligible to be cast on such amendment or repeal by holders of voting stock,
voting together as a single class; provided, however, that if the Board of
Directors recommends that stockholders approve such amendment or repeal at such
meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class.
6
<PAGE>
ARTICLE VI (H)
STOCKHOLDER VOTE REQUIRED FOR AMENDMENT OF
------------------------------------------
ARTICLES OF ORGANIZATION
------------------------
These Articles may be amended at any annual meeting of stockholders, or
special meeting of stockholders called for such purpose, by the affirmative vote
of at least two-thirds of the total votes eligible to be cast on such amendment
by holders of voting stock, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment at such meeting of stockholders, such amendment shall only
require the affirmative vote of a majority of the total votes eligible to be
cast on such amendment by holders of voting stock, voting together as a single
class.
7
<PAGE>
Addendum C
----------
Article IV(A) Description of Voting Rights, Liquidation Rights, and
Dividends of Common Stock.
Article IV(B) Description of powers and rights of Board of Directors with
respect to Preferred Stock.
Article IV(C) Description of the Corporation's rights with respect to
issuance of capital stock.
Article VI(A) Provision regarding classification of directors.
Article VI(B) Provision regarding the limitation of liability of directors.
Article VI(C) Provision regarding transactions with interested persons.
Article VI(D) Provision regarding action of stockholders by written
consent and location of stockholder meetings.
Article VI(E) Provision permitting the Corporation to act as a partner in
any business enterprise.
Article VI(F) Provision regarding stockholders' rights to examine books
of the Corporation.
Article VI(G) Provision regarding amendment of the By-laws of the
Corporation.
Article VI(H) Provision describing stockholder vote required for
amendment of the Articles of Organization of the Corporation.
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EXHIBIT 3.3
AMENDED AND RESTATED BY-LAWS
----------------------------
of
BRADLEES, INC.
ARTICLE I
---------
Stockholders
------------
1. Annual Meeting. The annual meeting of stockholders shall be held at
--------------
the hour, date and place within or without the United States which is fixed by
the majority of the Board of Directors, the Chairman of the Board or the
President, which time, date and place may subsequently be changed at any time by
vote of the Board of Directors. The purposes for which such annual meeting is
to be held, in addition to those prescribed by law, by the Articles of
Organization (which, as used herein, means the Restated Articles of Organization
of the Corporation, as amended and restated from time to time), or by these By-
laws (which, as used herein, means the Amended and Restated By-laws of the
Corporation, as amended and restated from time to time) may be specified by the
Board of Directors, the Chairman of the Board or the President. If no annual
meeting of stockholders has been held within six months after the end of the
fiscal year of the Corporation, a special meeting in lieu thereof may be held,
and such special meeting shall have, for purposes of these By-laws or otherwise,
all the force and effect of an annual meeting. Any and all references hereafter
in these By-laws to an annual meeting or annual meetings shall be deemed to
refer also to any special meeting(s) in lieu thereof.
2. Special Meetings. Special meetings of stockholders may be called by
----------------
the Board of Directors. Special meetings shall be called by the Clerk or in
case of the death, absence, incapacity or refusal of the Clerk, by any other
officer, upon written application of one or more stockholders who hold at least
(i) a majority in interest of the capital stock entitled to vote at such meeting
or (ii) such lesser percentage, if any, as shall be determined to be the maximum
percentage which the Corporation is permitted by applicable law to establish for
the call of such a meeting. Application to a court pursuant to Section 34(b) of
Chapter 156B of the General Laws of the Commonwealth of Massachusetts requesting
the call of a special meeting of stockholders because none of the officers is
able and willing to call such a meeting may be made only by stockholders who
hold at least (i) a majority in interest of the capital stock entitled to vote
at such meeting or (ii) such lesser percentage, if any, as shall be determined
to be the maximum percentage which the Corporation is permitted by applicable
law to establish for the call of such a meeting. The hour, date and place of any
special meeting and the record date for determining the stockholders having the
right to notice of and to vote at such meeting shall be determined by the Board
of Directors or the President. At a special meeting of stockholders, only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been stated in the written notice of the special meeting and
otherwise properly brought before the special meeting.
<PAGE>
3. Matters to be Considered at Annual Meetings. At any annual meeting of
-------------------------------------------
stockholders or any special meeting in lieu of annual meeting of stockholders
(the "Annual Meeting"), only such business shall be conducted, and only such
proposals shall be acted upon, as shall have been properly brought before such
Annual Meeting. To be considered as properly brought before an Annual Meeting,
business must be: (a) specified in the notice of meeting, (b) otherwise
properly brought before the meeting by, or at the direction of, the Board of
Directors, or (c) otherwise properly brought before the meeting by any holder of
record (both as of the time notice of such proposal is given by the stockholder
as set forth below and as of the record date for the Annual Meeting in question)
of any shares of capital stock of the Corporation entitled to vote at such
Annual Meeting who complies with the requirements set forth in this By-law.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this By-law to the
Clerk of the Corporation and (ii) be present at such meeting, either in person
or by a representative. For the first Annual Meeting following the Effective
Date of the Joint Plan of Reorganization of Bradlees Stores, Inc. and Affiliates
under Chapter 11 of the Bankruptcy Code (the "Effective Date"), a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the later of (A) the 75th day prior to the scheduled date of such
Annual Meeting or (B) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
For purposes of these By-laws, "public announcement" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (ii) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (iii) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Clerk shall set forth as to each matter
proposed to be brought before an Annual Meeting: (i) a brief description of the
business the stockholder
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desires to bring before such Annual Meeting and the reasons for conducting such
business at such Annual Meeting, (ii) the name and address, as they appear on
the Corporation's stock transfer books, of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation's capital
stock beneficially owned by the stockholder proposing such business, (iv) the
names and addresses of the beneficial owners, if any, of any capital stock of
the Corporation registered in such stockholder's name on such books, and the
class and number of shares of the Corporation's capital stock beneficially owned
by such beneficial owners, (v) the names and addresses of other stockholders
known by the stockholder proposing such business to support such proposal, and
the class and number of shares of the Corporation's capital stock beneficially
owned by such other stockholders, and (vi) any material interest of the
stockholder proposing to bring such business before such meeting (or any other
stockholders known to be supporting such proposal) in such proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with the
provisions of this By-law or that the information provided in a stockholder's
notice does not satisfy the information requirements of this By-law in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If neither the Board of Directors nor such committee makes
a determination as to the validity of any stockholder proposal in the manner set
forth above, the presiding officer of the Annual Meeting shall determine whether
the stockholder proposal was made in accordance with the terms of this By-law.
If the presiding officer determines that any stockholder proposal was not made
in a timely fashion in accordance with the provisions of this By-law or that the
information provided in a stockholder's notice does not satisfy the information
requirements of this By-law in any material respect, such proposal shall not be
presented for action at the Annual Meeting in question. If the Board of
Directors, a designated committee thereof or the presiding officer determines
that a stockholder proposal was made in accordance with the requirements of this
By-law, the presiding officer shall so declare at the Annual Meeting and ballots
shall be provided for use at the meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this By-law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this By-law and nothing in
this By-law shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
4. Notice of Meetings. A written notice of each meeting of stockholders
------------------
(other than adjournments governed by Section 5 of this Article I) stating the
place, date and hour and the purpose or purposes of such meeting shall be given
by the Clerk or an Assistant Clerk (or other officer designated by the Board of
Directors) at least 7 days before the meeting to each stockholder entitled to
vote thereat and to each stockholder who, by law, under the Articles of
Organization or under these By-laws, is entitled to such notice, by delivering
such notice
3
<PAGE>
to him or by mailing it, postage prepaid, and addressed to such stockholder at
his address as it appears in the Corporation's stock transfer books. Such notice
shall be deemed to be delivered when hand delivered to such address or deposited
in the mail so addressed, with postage prepaid.
Notice of an annual or special meeting of stockholders need not be given to
a stockholder if a written waiver of notice is signed before or after such
meeting by such stockholder or such stockholder's authorized attorney, if
communication with such stockholder is unlawful, or if such stockholder attends
such meeting, unless such attendance was for the express purpose of objecting at
the beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any annual Meeting or special meeting of
stockholders need be specified in any written waiver of notice.
5. Rescheduling of Meetings; Adjournments. The Board of Directors may
--------------------------------------
postpone and reschedule any previously scheduled annual or special meeting of
stockholders, and a record date with respect thereto, regardless of whether any
notice or public disclosure with respect to any such meeting or record date has
been sent or made pursuant to Section 3 of this Article I or Section 3 of
Article II hereof or otherwise. In no event shall the public announcement of an
adjournment, postponement or rescheduling of any previously scheduled Annual
Meeting of stockholders commence a new time period for the giving of a
stockholder's notice under Section 3 of Article I and Section 3 of Article II of
these By-laws.
When any meeting is convened, the presiding officer may adjourn the meeting
if (a) no quorum is present for the transaction of business, (b) the Board of
Directors determines that adjournment is necessary or appropriate to enable the
stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders,
or (c) the Board of Directors determines that adjournment is otherwise in the
best interests of the Corporation. When any annual Meeting or special meeting
of stockholders is adjourned to another hour, date or place, notice need not be
given of the adjourned meeting other than an announcement at the meeting at
which the adjournment is taken of the hour, date and place to which the meeting
is adjourned.
6. Quorum. The holders of a majority in interest of all capital stock of
------
the Corporation issued, outstanding and entitled to vote at a meeting of
stockholders shall constitute a quorum, but if a quorum is not present, a
majority in interest of the stockholders present or the presiding officer may
adjourn the meeting from time to time and the meeting may be held as adjourned
without further notice other than an announcement at the meeting at which the
adjournment is taken of the hour, date and place to which the meeting is
adjourned. At such adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
noticed. The stockholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
4
<PAGE>
7. Voting and Proxies. Unless otherwise provided by law or by the
------------------
Articles of Organization, stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the books of the
Corporation. Stockholders entitled to vote may vote either in person or by
written proxy dated not more than six months before the meeting named therein,
unless the proxy is coupled with an interest and provides otherwise. Except as
otherwise permitted by law or limited therein, proxies shall entitle the persons
authorized thereby to vote at any adjournment of such meeting but shall not be
valid after final adjournment of such meeting. A proxy with respect to stock
held in the name of two or more persons shall be valid if executed by one of
them unless at or prior to exercise of the proxy the Corporation receives a
specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed valid
unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. The Corporation shall not directly or
indirectly vote any share of its own stock.
8. Action at Meeting. When a quorum is present, any matter before a
-----------------
meeting of stockholders shall be decided by vote of the holders of a majority of
the shares of stock voting on such matter, except where a larger vote is
required by law, by the Articles of Organization or by these By-laws. Any
election by stockholders shall be determined by a plurality of the votes cast,
except where a greater vote is required by law, by the Articles of Organization
or by these By-laws. No ballot shall be required for any election unless
requested by a stockholder present or represented at the meeting and entitled to
vote in the election.
9. Action without Meeting. Any action required or permitted to be taken
----------------------
at any annual or special meeting of stockholders (including any actions or
powers reserved to the stockholders under these By-laws) may be taken without a
meeting, provided that all stockholders entitled to vote on the matter consent
to the action in writing and the written consents are filed with the records of
the meetings of stockholders. Such consents shall be treated for all purposes
as a vote at a meeting.
10. Control Share Acquisition. The provisions of Chapter 110D of the
-------------------------
General Laws of the Commonwealth of Massachusetts ("Chapter 110D"), as it may be
amended from time to time, shall not apply to "control share acquisitions" of
the Corporation within the meaning of Chapter 110D.
11. Presiding Officer. The Chairman or, in his absence, the President or,
-----------------
in his absence, such other officer as shall be designated by the Board of
Directors, shall preside at all annual or special meetings of stockholders and
shall have the power, among other things, to
5
<PAGE>
adjourn such meetings at any time and from time to time in accordance with the
provisions of Sections 5 and 6 of this Article I. The order of business and all
other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
12. Voting Procedures and Inspectors of Elections. In advance of any
---------------------------------------------
meeting of stockholders, the Board of Directors may appoint one or more
inspectors to act at an annual or special meeting of stockholders and make a
written report thereon. Any inspector may, but need not, be an officer,
employee or agent of the Corporation. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his or
her ability. The inspector(s) shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspector(s) may appoint
or retain other persons or entities to assist the inspector(s) in the
performance of the duties of the inspector(s). The presiding officer may review
all determinations made by the inspector(s), and in so doing the presiding
officer shall be entitled to exercise his sole judgment and discretion and he
shall not be bound by any determinations made by the inspector(s). All
determinations by the inspector(s) and, if applicable, presiding officer shall
be subject to further review by any court of competent jurisdiction.
ARTICLE II
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Directors
---------
1. Classes of Directors; Term of Office; Qualification. The number of
---------------------------------------------------
Directors of the Corporation shall be fixed at nine or such larger number of
directors as may be fixed by the Board of Directors from time to time after the
annual meeting of the Corporation for the fiscal year 1999. The Directors shall
hold office in the manner provided in the Articles. No Director need be a
stockholder of the Corporation.
2. Powers. The business of the Corporation shall be managed by a Board
------
of Directors who may exercise all the powers of the Corporation except as
otherwise provided by law, by the Articles of Organization or by these By-laws.
In particular, and without limiting the generality of the foregoing, the
Directors may at any time issue all or from time to time any part of the
unissued capital stock of the Corporation from time to time authorized under the
Articles of Organization and may determine, subject to any requirements of law,
the consideration for which stock is to be issued and the manner of allocating
such consideration between capital and surplus.
6
<PAGE>
3. Director Nominations. Nominations of candidates for election as
--------------------
Directors of the Corporation at any Annual Meeting may be made only (a) by, or
at the direction of, the Nominating Committee established in accordance with
Article II, Section 14 of these By-laws or (b) by any holder of record (both as
of the time notice of such nomination is given by the stockholder as set forth
below and as of the record date for the Annual Meeting in question) of any
shares of the capital stock of the Corporation entitled to vote at such Annual
Meeting who complies with the timing, informational and other requirements set
forth in this By-law. Any stockholder who has complied with the timing,
informational and other requirements set forth in this By-law and who seeks to
make such a nomination, or his, her or its representative, must be present in
person at the Annual Meeting. Only persons nominated in accordance with the
procedures set forth in this By-law shall be eligible for election as Directors
at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the
Nominating Committee, shall be made pursuant to timely notice in writing to the
Clerk of the Corporation as set forth in this By-law. For the first Annual
Meeting following the Effective Date, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (A) the
75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day
following the day on which public announcement of the date of such Annual
Meeting is first made by the Corporation. For all subsequent Annual Meetings, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not less than 75 days nor
more than 120 days prior to the Anniversary Date; provided, however, that in the
event the Annual Meeting is scheduled to be held on a date more than 30 days
before the Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (i) the 75th day prior to the scheduled date of such
Annual Meeting or (ii) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
A stockholder's notice to the Clerk shall set forth as to each person whom
the stockholder proposes to nominate for election or re-election as a Director
(i) the name, age, business address and residence address of such person, (ii)
the principal occupation or employment of such person, (iii) the class and
number of shares of the Corporation's capital stock which are beneficially owned
by such person on the date of such stockholder notice, and (iv) the consent of
each nominee to serve as a Director if elected. A stockholder's notice to the
Clerk shall further set forth as to the stockholder giving such notice (i) the
name and address, as they appear on the Corporation's stock transfer books, of
such stockholder and of the beneficial owners (if any) of the Corporation's
capital stock registered in such stockholder's name and the name and address of
other stockholders known by such stockholder to be supporting such nominee(s),
(ii) the class and number of shares of the Corporation's capital stock which are
held of record, beneficially owned or represented by proxy by such
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<PAGE>
stockholder and by any other stockholders known by such stockholder to be
supporting such nominee(s) on the record date for the Annual Meeting in question
(if such date shall then have been made publicly available) and on the date of
such stockholder's notice, and (iii) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this By-
law or that the information provided in a stockholder's notice does not satisfy
the informational requirements of this By-law in any material respect, then such
nomination shall not be considered at the Annual Meeting in question. If
neither the Board of Directors nor such committee makes a determination as to
whether a nomination was made in accordance with the provisions of this By-law,
the presiding officer of the Annual Meeting shall determine whether a nomination
was made in accordance with such provisions. If the presiding officer
determines that any stockholder nomination was not made in accordance with the
terms of this By-law or that the information provided in a stockholder's notice
does not satisfy the informational requirements of this By-law in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If the Board of Directors, a designated committee thereof or the
presiding officer determines that a nomination was made in accordance with the
terms of this By-law, the presiding officer shall so declare at the Annual
Meeting and ballots shall be provided for use at the meeting with respect to
such nominee.
Notwithstanding anything to the contrary in the second sentence of the
second paragraph of this By-law, in the event that the number of Directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least 75
days prior to the Anniversary Date, a stockholder's notice required by this By-
law shall also be considered timely, but only with respect to nominees for any
new positions created by such increase, if such notice shall be delivered to, or
mailed to and received by, the Corporation at its principal executive office not
later than the close of business on the 15th day following the day on which such
public announcement is first made by the Corporation.
No person shall be elected by the stockholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
By-law. Election of Directors at the Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the Annual Meeting in accordance with the procedures set forth in this Section
shall be provided for use at the Annual Meeting.
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4. Application of Section 50A of Chapter 156B of the General Laws of the
---------------------------------------------------------------------
Commonwealth of Massachusetts. Notwithstanding anything to the contrary in the
- -----------------------------
Articles of Organization or these By-laws, the provisions of Section 50A of
Chapter 156B of Massachusetts General Laws shall not be applicable to the
Corporation.
5. Vacancies. The Board of Directors may act notwithstanding a vacancy
---------
or vacancies in its membership. Any and all vacancies in the Board of
Directors, however occurring including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director shall be nominated by the Nominating
Committee and shall be filled by the affirmative vote of a majority of the
Directors then in office, even though less than a quorum. Any Director elected
in accordance with this Section 5 shall hold office for the remainder of the
full term of the vacancy filled and until his or her successor is duly elected
and qualified.
6. Resignation. Any Director may resign by delivering his written
-----------
resignation to the Corporation at its principal executive office or to the
President or Clerk. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
7. Removal.
-------
(a) Removal by Directors. Except as set forth in the following sentence,
--------------------
a Director may not be removed by the other Directors then in office. A Director
who (i) is the subject of any regulatory or judicial order or decree barring or
suspending such individual from engaging in any activity related to the
purchase, sale or trading of securities or commodities, or (ii) is indicted for
any criminal charge relating to the purchase, sale or trading of securities or
commodities, may be removed by a vote of a majority of the other Directors then
in office.
(b) Removal by Stockholders. Stockholders may remove a Director only with
-----------------------
cause and only by the affirmative vote of at least two-thirds of the total votes
which would be eligible to be cast by stockholders in the election of such
Director.
For purposes of this Section 7, "cause," with respect to the removal of any
Director shall mean only (i) conviction of a felony, (ii) declaration of unsound
mind by order of court, (iii) gross dereliction of duty, (iv) commission of any
action involving moral turpitude, or (v) commission of an action which
constitutes intentional misconduct or a knowing violation of law if such action
in either event results both in an improper substantial personal benefit and a
material injury to the Corporation. A Director may be removed for cause only
after reasonable notice and opportunity to be heard before the body proposing
removal.
8. Meetings. Regular meetings of the Board of Directors may be held
--------
without notice at such time, date and place as the Board of Directors may from
time to time determine provided that reasonable notice of the first regular
meeting following such determination shall be given to absent Directors. A
regular meeting of the Board of Directors may be held without notice at the same
place as the annual meeting of stockholders, or the special meeting held in lieu
thereof, following such meeting of stockholders.
9
<PAGE>
Special meetings of the Board of Directors may be called, orally or in
writing, by the Board of Directors, by the Chairman of the Board or by the
President designating the time, date and place thereof.
9. Notice of Meetings. Notice of the time, date and place of all special
------------------
meetings of the Board of Directors shall be given to each Director by the Clerk
or Assistant Clerk, or in case of the death, absence, incapacity or refusal of
such persons, by the officer or one of the Directors calling the meeting.
Notice shall be given to each Director in person or by telephone or by facsimile
sent to his business or home address, at least twenty-four hours in advance of
the meeting, or by written notice mailed to his business or home address at
least forty-eight hours in advance of the meeting. Notice need not be given to
any Director if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any Director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
10. Quorum. At any meeting of the Board of Directors, a majority of the
------
Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time and the meeting may be held as adjourned
without further notice.
11. Action at Meeting. At any meeting of the Board of Directors at which
-----------------
a quorum is present, a majority of the Directors present may take any action on
behalf of the Board of Directors, unless a larger number is required by law, by
the Articles of Organization or by these By-laws.
12. Presence Through Communications Equipment. Unless otherwise provided
-----------------------------------------
by law or the Articles of Organization, members of the Board of Directors may
participate in a meeting of the Board of Directors by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
13. Action by Consent. Unless the Articles of Organization otherwise
-----------------
provide, any action by the Board of Directors may be taken without a meeting if
all the Directors consent to the action in writing and the written consents are
filed with the records of the meetings of the Board of Directors. Such consents
shall be treated for all purposes as a vote at a meeting of the Board of
Directors.
14. Nominating Committee. The Board of Directors shall establish and at
--------------------
all times maintain a Nominating Committee consisting of the Chairman of the
Board and two non-employee Directors selected by the Chairman of the Board. The
duties and responsibilities of the Nominating Committee shall be to select and
nominate candidates for election as Directors of the Corporation.
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15. Audit Committee. The Board of Directors shall establish and at all
---------------
times maintain an Audit Committee consisting of three non-employee Directors
selected by a vote of a majority of the members of the Board of Directors. The
duties and responsibilities of the Audit Committee shall be determined by the
Board of Directors from time to time.
16. Compensation Committee. The Board of Directors shall establish and at
----------------------
all times maintain a Compensation Committee consisting of three non-employee
Directors selected by a vote of a majority of the members of the Board of
Directors. The duties and responsibilities of the Compensation Committee shall
be determined by the Board of Directors from time to time.
17. Other Committees. In addition to the Nominating Committee provided
----------------
for in Article III, Section 14 of these By-laws, the Audit Committee provided
for in Article III, Section 15 of these By-laws and the Compensation Committee
provided for in Article III, Section 16 of these By-laws, the Board of
Directors, by vote of a majority of the Directors then in office, may elect from
its number an Executive Committee or other committees and may delegate thereto
some or all of its powers except those which by law, by the Articles of
Organization, or by these By-laws may not be delegated. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-laws for the Board of Directors. All members
of such committees shall hold such offices at the pleasure of the Board of
Directors. The Board of Directors by vote of a majority of the Directors then in
office may abolish any such committee at any time. Any committee to which the
Board of Directors delegates any of its powers or duties shall keep records of
its meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, but no such
rescission shall have retroactive effect.
ARTICLE III
-----------
Officers
--------
1. Enumeration. The officers of the Corporation shall consist of a
-----------
Chairman of the Board, a President, a Treasurer, a Clerk, and such other
officers, including a Chairman of the Board or one or more Vice Presidents,
Assistant Treasurers or Assistant Clerks, as the Board of Directors may
determine.
2. Election. The Chairman of the Board, President, Treasurer and Clerk
--------
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of stockholders. Other officers may be chosen by
the Board of Directors at such meeting or at any other meeting.
3. Qualification. No officer need be a Director of the Corporation
-------------
except for the Chairman of the Board. Any two or more offices may be held by
any person. The Clerk shall be a resident of Massachusetts unless the
Corporation has a resident agent appointed for the purpose of service of
process. Any officer may be required by the Board of Directors to give bond for
the faithful performance of his duties in such amount and with such sureties as
the Board of Directors may determine.
4. Tenure. Except as otherwise provided by law, by the Articles of
------
Organization or by these By-laws, the Chairman of the Board, the President,
Treasurer and Clerk shall hold office until the first meeting of the Board of
Directors following the next annual meeting of stockholders and until their
respective successors are chosen and qualified; and all other officers shall
hold office until the first meeting of the Board of Directors following the next
11
<PAGE>
annual meeting of stockholders and until their successors are chosen and
qualified, or for such shorter term as the Board of Directors may fix at the
time such officers are chosen.
5. Resignation. Any officer may resign by delivering his written
-----------
resignation to the Corporation at its principal office, to the Chairman of the
Board or to the President or Clerk, and such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
6. Removal. The Board of Directors may remove any officer with or
-------
without cause by a vote of a majority of the entire number of Directors then in
office; provided, that an officer may be removed for cause only after reasonable
notice and opportunity to be heard by the Board of Directors.
7. Vacancies. Any vacancy in any office may be filled for the unexpired
---------
portion of the term by the Board of Directors. The Board of Directors shall
elect a successor if the office of Chairman of the Board, President, Treasurer
or Clerk becomes vacant and may elect a successor if any other office becomes
vacant.
8. Chairman of the Board. The Chairman of the Board shall preside at all
---------------------
meetings of the Stockholders and of the Board of Directors. Unless the Board of
Directors shall otherwise determine, the Chairman of the Board shall be the
Chief Executive Officer and general manager of the Corporation, shall in general
supervise and control all of the business and affairs of the Corporation, and
shall perform all duties incident to the office of Chairman of the Board and
such other duties as may be prescribed by the Board of Directors from time to
time.
9. President and Vice Presidents. The President shall, in the absence of
-----------------------------
the Chairman of the Board preside, when present, at all meetings of stockholders
and, if the Chairman of the Board is absent, at meetings of the Board of
Directors. The President shall exercise and perform such other powers and
duties as the Board of Directors or these By-laws may designate.
Any Vice President shall have such powers and shall perform such duties as
the Board of Directors may from time to time designate.
10. Chief Financial Officer, Treasurer and Assistant Treasurers. The
-----------------------------------------------------------
Chief Financial Officer or the Treasurer shall, subject to the direction of the
Board of Directors, have general charge of the financial affairs of the
Corporation and shall cause to be kept accurate books of account. Such officer
shall have custody of all funds, securities, and valuable documents of the
Corporation, except as the Board of Directors may otherwise provide.
12
<PAGE>
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors may from time to time designate.
11. Clerk and Assistant Clerks. The Clerk shall keep a record of the
--------------------------
meetings of stockholders. In case a Clerk is not elected or is absent, the
Clerk or an Assistant Clerk shall keep a record of the meetings of the Board of
Directors. In the absence of the Clerk from any meeting of stockholders, an
Assistant Clerk if one be elected, otherwise a Temporary Clerk designated by the
person presiding at the meeting, shall perform the duties of the Clerk.
12. Other Powers and Duties. Subject to these By-laws, each officer of
-----------------------
the Corporation shall have in addition to, and to the extent not inconsistent
with, the duties and powers specifically set forth in these By-laws, such duties
and powers as are customarily incident to his office, and such duties and powers
as may be designated from time to time by the Board of Directors.
ARTICLE IV
----------
Capital Stock
-------------
1. Certificates of Stock. The Board of Directors may provide by
---------------------
resolution that some or all of any or all classes and series of shares shall be
uncertificated shares. Unless such a resolution has been adopted, each
stockholder shall be entitled to a certificate of the capital stock of the
Corporation in such form as may from time to time be prescribed by the Board of
Directors. Such certificate shall be signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer. Such signatures may
be facsimile if the certificate is signed by a transfer agent, or by a
registrar, other than a Director, officer or employee of the Corporation. In
case any officer who has signed or whose facsimile signature has been placed on
such certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the time of its issue. Every certificate for shares of stock
which are subject to any restriction on transfer and every certificate issued
when the Corporation is authorized to issue more than one class or series of
stock shall contain such legend with respect thereto as is required by law.
2. Transfers. Subject to any restrictions on transfer, shares of stock
---------
may be transferred on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate therefor properly endorsed
or accompanied by a written assignment and power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the Corporation or its transfer agent may
reasonably require.
3. Record Holders. Except as may be otherwise required by law, by the
--------------
Articles of Organization or by these By-laws, the Corporation shall be entitled
to treat the record holder
13
<PAGE>
of stock as shown on its books as the owner of such stock for all purposes,
including the payment of dividends and the right to vote with respect thereto,
regardless of any transfer, pledge or other disposition of such stock, until the
shares have been transferred on the books of the Corporation in accordance with
the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of his
post office address.
4. Record Date. The Board of Directors may fix in advance a time of not
-----------
more than sixty days preceding the date of any meeting of stockholders, or the
date for the payment of any dividend or the making of any distribution to
stockholders, or the last day on which the consent or dissent of stockholders
may be effectively expressed for any purpose, as the record date for determining
the stockholders having the right to notice of and to vote at such meeting, and
any adjournment thereof, or the right to receive such dividend or distribution
or the right to give such consent or dissent. In such case only stockholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the Corporation after the record date. Without fixing
such record date the Board of Directors may for any of such purposes close the
transfer books for all or any part of such period.
If no record date is fixed and the transfer books are not closed, (a) the
record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
5. Replacement of Certificates. In case of the alleged loss, destruction
---------------------------
or mutilation of a certificate of stock, a duplicate certificate may be issued
in place thereof, upon such terms as the Board of Directors may prescribe.
6. Issuance of Capital Stock. The Board of Directors shall have the
-------------------------
authority to issue or reserve for issue from time to time the whole or any part
of the capital stock of the Corporation which may be authorized from time to
time, to such persons or organizations, for such consideration, whether cash,
property, services or expenses, and on such terms as the Board of Directors may
determine, including without limitation the granting of options, warrants, or
conversion or other rights to subscribe to said capital stock. The Board of
Directors may delegate some or all of its authority under this Section 6 to one
or more committees of Directors.
14
<PAGE>
ARTICLE V
---------
Indemnification
---------------
1. Actions, Suits and Proceedings. The Corporation shall indemnify each
------------------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a Director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of the
Corporation, as a Director or officer of, or in a similar capacity with, another
organization or in any capacity with respect to any employee benefit plan of the
Corporation or any subsidiary of the Corporation (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted to be taken in such capacity, against all expenses
(including reasonable attorneys' fees), judgments and fines incurred by him or
on his behalf in connection with such action, suit, proceeding or investigation,
and any appeal therefrom, unless the Indemnitee shall be finally adjudicated in
such action, suit, proceeding or investigation, not to have acted in good faith
in the reasonable belief that his action was in the best interests of the
Corporation or, to the extent such matter relates to service with respect to an
employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan. Notwithstanding anything to the
contrary in this Article V, except as set forth in Section 7 of this Article V,
the Corporation shall not indemnify an Indemnitee seeking indemnification in
connection with an action, suit, proceeding or investigation (or part thereof)
initiated by the Indemnitee unless the initiation thereof was approved by the
Board of Directors of the Corporation.
2. Employees and Agents. The Corporation may, at the discretion of the
--------------------
Board of Directors, indemnify employees and agents of the Corporation as if they
were included in Section 1 of this Article V.
3. Settlements. The right to indemnification conferred in this Article V
-----------
shall include the right to be paid by the Corporation for amounts paid in
settlement of any such action, suit, proceeding or investigation and any appeal
therefrom, and all expenses (including reasonable attorneys' fees) incurred in
connection with such settlement, pursuant to a consent decree or otherwise,
unless and to the extent it is determined pursuant to Section 6 of this Article
V that the Indemnitee did not act in good faith in the reasonable belief that
his or her action was in the best interests of the Corporation or, to the extent
such matter relates to service with respect to an employee benefit plan, in the
best interests of the participants or beneficiaries of such employee benefit
plan.
4. Notification and Defense of Claim. As a condition precedent to his or
---------------------------------
her right to be indemnified, the Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving such Indemnitee or with respect to which indemnity will or could be
sought. With respect to any action, suit, proceeding or
15
<PAGE>
investigation of which the Corporation is so notified, the Corporation will be
entitled to participate therein at its own expense and/or to assume the defense
thereof at its own expense, with legal counsel reasonably acceptable to the
Indemnitee. After notice from the Corporation to the Indemnitee of its election
so to assume such defense, the Corporation shall not be liable to the Indemnitee
for any legal or other expenses subsequently incurred by the Indemnitee in
connection with such claim, other than as provided below in this Section 4 of
this Article V. The Indemnitee shall have the right to employ his of her own
counsel in connection with such claim, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the employment of
counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel
to the Indemnitee shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the Corporation, except as otherwise expressly provided by
this Article V. The Corporation shall not be entitled, without the consent of
the Indemnitee, to assume the defense of any claim brought by or in the right of
the Corporation or as to which counsel for the Indemnitee shall have reasonably
made the conclusion provided for in clause (ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 of this
-------------------
Article V, in the event that the Corporation does not assume the defense, or
unless and until the Corporation assumes the defense, pursuant to Section 4 of
this Article V of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article V, any expenses (including
reasonable attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter,
provided, however, that the payment of such expenses incurred by an Indemnitee
- -------- -------
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article V. Such undertaking may be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Sections 1, 3 or 5 of this Article V, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification pursuant to Section 1 of this Article V shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless a court of competent jurisdiction
finally adjudicates that the Indemnitee did not meet the applicable standard of
conduct set forth in Section 1 of this
16
<PAGE>
Article V. Any such indemnification pursuant to Section 3 of this Article V or
advancement of expenses pursuant to Section 5 of this Article V shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless the Corporation determines, by
clear and convincing evidence, within such 60-day period that the Indemnitee did
not meet the applicable standard of conduct set forth in Sections 1 or 3 of this
Article V, as the case may be. Such determination by the Corporation shall be
made in each instance by (a) a majority vote of a quorum of the Directors of the
Corporation, (b) a majority vote of a quorum of the outstanding shares of stock
of all classes entitled to vote for Directors, voting as a single class, which
quorum shall consist of stockholders who are not at that time parties to the
action, suit, proceeding or investigation in question, or (c) independent legal
counsel (who may be regular legal counsel to the Corporation).
7. Remedies. The right to indemnification or advances as granted by this
--------
Article V shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6 of this Article V. Unless otherwise provided by law, the Corporation
shall have the burden of proving that the Indemnitee is not entitled to
indemnification or advancement of expenses under this Article V. Neither the
failure of the Corporation to have made a determination prior to the
commencement of any such action by the Indemnitee that indemnification is proper
in the circumstances because the Indemnitee has met the applicable standard of
conduct, nor an actual determination by the Corporation pursuant to Section 6 of
this Article V that the Indemnitee has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct. The Indemnitee's
expenses (including attorneys' fees) incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
--------------------
Article V or of the relevant provisions of Chapter 156B of the Massachusetts
General Laws or any other applicable laws shall affect or diminish in any way
the rights of any Indemnitee to indemnification under the provisions hereof with
respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
------------
provided by this Article V shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or Directors or otherwise, both as to action in his or her official capacity and
as to action in any other capacity while holding office for the Corporation, and
shall continue as to an Indemnitee who has ceased to be a Director or officer,
and shall inure to the benefit of the estate, heirs, executors, personal
representatives and administrators of the Indemnitee. Nothing contained in this
Article V shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers
17
<PAGE>
and Directors providing indemnification rights and procedures different from
those set forth in this Article V. In addition, the Corporation may, to the
extent authorized from time to time by its Board of Directors pursuant to
Section 2 of this Article V or otherwise, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article V.
10. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article V to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by such Indemnitee or on
such Indemnitee's behalf in connection with any action, suit, proceeding or
investigation and any appeal therefrom but not, however, for the total amount
thereof, the Corporation shall nevertheless indemnify the Indemnitee for the
portion of such expenses (including reasonable attorneys' fees), judgments,
fines or amounts paid in settlement to which such Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
---------
its expense, to protect itself and any Director, officer, employee or agent of
the Corporation, any subsidiary, another organization or employee benefit plan
against any expense, liability or loss incurred by him of her in any such
capacity, or arising out of his of her status as such, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Chapter 156B of the Massachusetts General Laws.
12. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving Corporation shall assume the obligations of the
Corporation under this Article V with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring at or prior to the date of such merger or consolidation.
13. Savings Clause. If this Article V or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement in connection with any action, suit, proceeding or investigation,
whether civil, criminal or administrative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article V that shall not have been invalidated and to the
fullest extent permitted by applicable law.
14. Subsequent Legislation. If the Massachusetts General Laws are amended
----------------------
after adoption of this Article V to expand further the indemnification permitted
to Indemnitees, then the Corporation shall indemnify such persons to the fullest
extent permitted by the Massachusetts General Laws, as so amended.
18
<PAGE>
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
1. Fiscal Year. Except as otherwise determined by the Board of
-----------
Directors, the fiscal year of the Corporation shall be the twelve months ending
on the Saturday nearest January 31 of each year.
2. Seal. The Board of Directors shall have power to adopt and alter the
----
seal of the Corporation.
3. Execution of Instruments. All deeds, leases, transfers, contracts,
------------------------
bonds, notes and other obligations to be entered into by the Corporation in the
ordinary course of its business without Director action, may be executed on
behalf of the Corporation by the President or the Treasurer except as the Board
of Directors may generally or in particular cases otherwise determine.
4. Voting of Securities. Unless otherwise provided by the Board of
--------------------
Directors, the President or Treasurer may waive notice of and act on behalf of
this Corporation, or appoint another person or persons to act as proxy or
attorney in fact for this Corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other corporation or organization, any of whose securities are held by this
Corporation.
5. Resident Agent. The Board of Directors may appoint a resident agent
--------------
upon whom legal process may be served in any action or proceeding against the
Corporation. Said resident agent shall be either an individual who is a
resident of and has a business address in Massachusetts, a corporation organized
under the laws of Massachusetts, or a corporation organized under the laws of
any other state of the United States, which has qualified to do business in, and
has an office in, Massachusetts.
6. Corporate Records. The original, or attested copies, of the Articles
-----------------
of Organization, By-laws and records of all meetings of the incorporators and
stockholders, and the stock and transfer records, which shall contain the names
of all stockholders and the record address and the amount of stock held by each,
shall be kept in Massachusetts at the principal office of the Corporation, or at
an office of its transfer agent, Clerk or resident agent, and shall be open at
all reasonable times to the inspection of any stockholder for any proper
purpose, but not to secure a list of stockholders for the purpose of selling
said list or copies thereof or of using the same for a purpose other than in the
interest of the applicant, as a stockholder, relative to the affairs of the
Corporation.
19
<PAGE>
7. Articles of Organization. All references in these By-laws to the
------------------------
Articles of Organization shall be deemed to refer to the Amended and Restated
Articles of Organization of the Corporation, as amended and in effect from time
to time.
8. Amendment
---------
(a) Amendment by Directors. Except with respect to any provisions of these
----------------------
By-laws which by law, the Articles of Organization or these By-laws require
action by the stockholders, these By-Laws may be amended or repealed by the
affirmative vote of a majority of the Directors then in office. Not later than
the time of giving notice of the annual meeting of stockholders next following
the amending or repealing by the Directors of any By-law, notice thereof stating
the substance of such change shall be given to all stockholders entitled to vote
on amending the By-laws.
(b) Amendment by Stockholders. These By-laws may be amended or repealed at
-------------------------
any annual meeting of stockholders, or special meeting of stockholders called
for such purpose, by the affirmative vote of at least two-thirds of the total
votes eligible to be cast on such amendment or repeal by holders of voting
stock, voting together as a single class; provided, however, that if the Board
of Directors recommends that stockholders approve such amendment or repeal at
such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class. Notwithstanding the foregoing, no shareholder approval shall be required
unless mandated by the Articles of Organization, these By-laws, or other
applicable law.
20
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BY-LAWS
----------------------------
of
BRADLEES STORES, INC.
ARTICLE I
---------
Stockholders
------------
1. Annual Meeting. The annual meeting of stockholders shall be
--------------
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board or
the President, which time, date and place may subsequently be changed at any
time by vote of the Board of Directors. The purposes for which such annual
meeting is to be held, in addition to those prescribed by law, by the Articles
of Organization (which, as used herein, means the Restated Articles of
Organization of the Corporation, as amended and restated from time to time), or
by these By-laws (which, as used herein, means the Amended and Restated By-laws
of the Corporation, as amended and restated from time to time) may be specified
by the Board of Directors, the Chairman of the Board or the President. If no
annual meeting of stockholders has been held within six months after the end of
the fiscal year of the Corporation, a special meeting in lieu thereof may be
held, and such special meeting shall have, for purposes of these By-laws or
otherwise, all the force and effect of an annual meeting. Any and all references
hereafter in these By-laws to an annual meeting or annual meetings shall be
deemed to refer also to any special meeting(s) in lieu thereof.
2. Special Meetings. Special meetings of stockholders may be
----------------
called by the Board of Directors. Special meetings shall be called by the Clerk
or in case of the death, absence, incapacity or refusal of the Clerk, by any
other officer, upon written application of one or more stockholders who hold at
least (i) a majority in interest of the capital stock entitled to vote at such
meeting or (ii) such lesser percentage, if any, as shall be determined to be the
maximum percentage which the Corporation is permitted by applicable law to
establish for the call of such a meeting. Application to a court pursuant to
Section 34(b) of Chapter 156B of the General Laws of the Commonwealth of
Massachusetts requesting the call of a special meeting of stockholders because
none of the officers is able and willing to call such a meeting may be made only
by stockholders who hold at least (i) a majority in interest of the capital
stock entitled to vote at such meeting or (ii) such lesser percentage, if any,
as shall be determined to be the maximum percentage which the Corporation is
permitted by applicable law to establish for the call of such a meeting. The
hour, date and place of any special meeting and the record date for determining
the stockholders having the right to notice of and to vote at such meeting shall
be determined by the Board of Directors or the President. At a special meeting
of stockholders, only such business shall be conducted, and only such proposals
shall be acted upon, as shall have been stated in the written notice of the
special meeting and otherwise properly brought before the special meeting.
<PAGE>
3. Matters to be Considered at Annual Meetings. At any annual
-------------------------------------------
meeting of stockholders or any special meeting in lieu of annual meeting of
stockholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
By-law.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this By-law to the
Clerk of the Corporation and (ii) be present at such meeting, either in person
or by a representative. For the first Annual Meeting following the Effective
Date of the Joint Plan of Reorganization of Bradlees Stores, Inc. and Affiliates
under Chapter 11 of the Bankruptcy Code (the "Effective Date"), a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the later of (A) the 75th day prior to the scheduled date of such
Annual Meeting or (B) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
For purposes of these By-laws, "public announcement" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (ii) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (iii) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Clerk shall set forth as to each
matter proposed to be brought before an Annual Meeting: (i) a brief description
of the business the stockholder
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desires to bring before such Annual Meeting and the reasons for conducting such
business at such Annual Meeting, (ii) the name and address, as they appear on
the Corporation's stock transfer books, of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation's capital
stock beneficially owned by the stockholder proposing such business, (iv) the
names and addresses of the beneficial owners, if any, of any capital stock of
the Corporation registered in such stockholder's name on such books, and the
class and number of shares of the Corporation's capital stock beneficially owned
by such beneficial owners, (v) the names and addresses of other stockholders
known by the stockholder proposing such business to support such proposal, and
the class and number of shares of the Corporation's capital stock beneficially
owned by such other stockholders, and (vi) any material interest of the
stockholder proposing to bring such business before such meeting (or any other
stockholders known to be supporting such proposal) in such proposal.
If the Board of Directors or a designated committee thereof
determines that any stockholder proposal was not made in a timely fashion in
accordance with the provisions of this By-law or that the information provided
in a stockholder's notice does not satisfy the information requirements of this
By-law in any material respect, such proposal shall not be presented for action
at the Annual Meeting in question. If neither the Board of Directors nor such
committee makes a determination as to the validity of any stockholder proposal
in the manner set forth above, the presiding officer of the Annual Meeting shall
determine whether the stockholder proposal was made in accordance with the terms
of this By-law. If the presiding officer determines that any stockholder
proposal was not made in a timely fashion in accordance with the provisions of
this By-law or that the information provided in a stockholder's notice does not
satisfy the information requirements of this By-law in any material respect,
such proposal shall not be presented for action at the Annual Meeting in
question. If the Board of Directors, a designated committee thereof or the
presiding officer determines that a stockholder proposal was made in accordance
with the requirements of this By-law, the presiding officer shall so declare at
the Annual Meeting and ballots shall be provided for use at the meeting with
respect to such proposal.
Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder with respect to the matters set forth in this By-law and
nothing in this By-law shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
4. Notice of Meetings. A written notice of each meeting of
------------------
stockholders (other than adjournments governed by Section 5 of this Article I)
stating the place, date and hour and the purpose or purposes of such meeting
shall be given by the Clerk or an Assistant Clerk (or other officer designated
by the Board of Directors) at least 7 days before the meeting to each
stockholder entitled to vote thereat and to each stockholder who, by law, under
the Articles of Organization or under these By-laws, is entitled to such notice,
by delivering such notice to
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him or by mailing it, postage prepaid, and addressed to such stockholder at his
address as it appears in the Corporation's stock transfer books. Such notice
shall be deemed to be delivered when hand delivered to such address or deposited
in the mail so addressed, with postage prepaid.
Notice of an annual or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or such stockholder's authorized attorney, if
communication with such stockholder is unlawful, or if such stockholder attends
such meeting, unless such attendance was for the express purpose of objecting at
the beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any annual Meeting or special meeting of
stockholders need be specified in any written waiver of notice.
5. Rescheduling of Meetings; Adjournments. The Board of Directors
--------------------------------------
may postpone and reschedule any previously scheduled annual or special meeting
of stockholders, and a record date with respect thereto, regardless of whether
any notice or public disclosure with respect to any such meeting or record date
has been sent or made pursuant to Section 3 of this Article I or Section 3 of
Article II hereof or otherwise. In no event shall the public announcement of an
adjournment, postponement or rescheduling of any previously scheduled Annual
Meeting of stockholders commence a new time period for the giving of a
stockholder's notice under Section 3 of Article I and Section 3 of Article II of
these By-laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any annual Meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned.
6. Quorum. The holders of a majority in interest of all capital
------
stock of the Corporation issued, outstanding and entitled to vote at a meeting
of stockholders shall constitute a quorum, but if a quorum is not present, a
majority in interest of the stockholders present or the presiding officer may
adjourn the meeting from time to time and the meeting may be held as adjourned
without further notice other than an announcement at the meeting at which the
adjournment is taken of the hour, date and place to which the meeting is
adjourned. At such adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
noticed. The stockholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
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7. Voting and Proxies. Unless otherwise provided by law or by the
------------------
Articles of Organization, stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the books of the
Corporation. Stockholders entitled to vote may vote either in person or by
written proxy dated not more than six months before the meeting named therein,
unless the proxy is coupled with an interest and provides otherwise. Except as
otherwise permitted by law or limited therein, proxies shall entitle the persons
authorized thereby to vote at any adjournment of such meeting but shall not be
valid after final adjournment of such meeting. A proxy with respect to stock
held in the name of two or more persons shall be valid if executed by one of
them unless at or prior to exercise of the proxy the Corporation receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. The Corporation shall not directly or indirectly
vote any share of its own stock.
8. Action at Meeting. When a quorum is present, any matter before
-----------------
a meeting of stockholders shall be decided by vote of the holders of a majority
of the shares of stock voting on such matter, except where a larger vote is
required by law, by the Articles of Organization or by these By-laws. Any
election by stockholders shall be determined by a plurality of the votes cast,
except where a greater vote is required by law, by the Articles of Organization
or by these By-laws. No ballot shall be required for any election unless
requested by a stockholder present or represented at the meeting and entitled to
vote in the election.
9. Action without Meeting. Any action required or permitted to be
----------------------
taken at any annual or special meeting of stockholders (including any actions or
powers reserved to the stockholders under these By-laws) may be taken without a
meeting, provided that all stockholders entitled to vote on the matter consent
to the action in writing and the written consents are filed with the records of
the meetings of stockholders. Such consents shall be treated for all purposes as
a vote at a meeting.
10. Control Share Acquisition. The provisions of Chapter 110D of
-------------------------
the General Laws of the Commonwealth of Massachusetts ("Chapter 110D"), as it
may be amended from time to time, shall not apply to "control share
acquisitions" of the Corporation within the meaning of Chapter 110D.
11. Presiding Officer. The Chairman or, in his absence, the
-----------------
President or, in his absence, such other officer as shall be designated by the
Board of Directors, shall preside at all annual or special meetings of
stockholders and shall have the power, among other things, to
5
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adjourn such meetings at any time and from time to time in accordance with the
provisions of Sections 5 and 6 of this Article I. The order of business and all
other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
12. Voting Procedures and Inspectors of Elections. In advance of
---------------------------------------------
any meeting of stockholders, the Board of Directors may appoint one or more
inspectors to act at an annual or special meeting of stockholders and make a
written report thereon. Any inspector may, but need not, be an officer, employee
or agent of the Corporation. Each inspector, before entering upon the discharge
of his duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector(s) shall (i) ascertain the number of shares outstanding
and the voting power of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspector(s) may appoint or retain other
persons or entities to assist the inspector(s) in the performance of the duties
of the inspector(s). The presiding officer may review all determinations made by
the inspector(s), and in so doing the presiding officer shall be entitled to
exercise his sole judgment and discretion and he shall not be bound by any
determinations made by the inspector(s). All determinations by the inspector(s)
and, if applicable, presiding officer shall be subject to further review by any
court of competent jurisdiction.
ARTICLE II
----------
Directors
---------
1. Classes of Directors; Term of Office; Qualification. The number
---------------------------------------------------
of Directors of the Corporation shall be fixed at three or such larger number of
directors as may be fixed by the Board of Directors from time to time after the
annual meeting of the Corporation for the fiscal year 1999. The Directors shall
hold office in the manner provided in the Articles. No Director need be a
stockholder of the Corporation.
2. Powers. The business of the Corporation shall be managed by a
------
Board of Directors who may exercise all the powers of the Corporation except as
otherwise provided by law, by the Articles of Organization or by these By-laws.
In particular, and without limiting the generality of the foregoing, the
Directors may at any time issue all or from time to time any part of the
unissued capital stock of the Corporation from time to time authorized under the
Articles of Organization and may determine, subject to any requirements of law,
the consideration for which stock is to be issued and the manner of allocating
such consideration between capital and surplus.
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3. Director Nominations. Nominations of candidates for election as
--------------------
Directors of the Corporation at any Annual Meeting may be made only (a) by, or
at the direction of, the Nominating Committee established in accordance with
Article II, Section 14 of these By-laws or (b) by any holder of record (both as
of the time notice of such nomination is given by the stockholder as set forth
below and as of the record date for the Annual Meeting in question) of any
shares of the capital stock of the Corporation entitled to vote at such Annual
Meeting who complies with the timing, informational and other requirements set
forth in this By-law. Any stockholder who has complied with the timing,
informational and other requirements set forth in this By-law and who seeks to
make such a nomination, or his, her or its representative, must be present in
person at the Annual Meeting. Only persons nominated in accordance with the
procedures set forth in this By-law shall be eligible for election as Directors
at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the
Nominating Committee, shall be made pursuant to timely notice in writing to the
Clerk of the Corporation as set forth in this By-law. For the first Annual
Meeting following the Effective Date, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (A) the
75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day
following the day on which public announcement of the date of such Annual
Meeting is first made by the Corporation. For all subsequent Annual Meetings, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not less than 75 days nor
more than 120 days prior to the Anniversary Date; provided, however, that in the
event the Annual Meeting is scheduled to be held on a date more than 30 days
before the Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (i) the 75th day prior to the scheduled date of such
Annual Meeting or (ii) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
A stockholder's notice to the Clerk shall set forth as to each
person whom the stockholder proposes to nominate for election or re-election as
a Director (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation's capital stock which are
beneficially owned by such person on the date of such stockholder notice, and
(iv) the consent of each nominee to serve as a Director if elected. A
stockholder's notice to the Clerk shall further set forth as to the stockholder
giving such notice (i) the name and address, as they appear on the Corporation's
stock transfer books, of such stockholder and of the beneficial owners (if any)
of the Corporation's capital stock registered in such stockholder's name and the
name and address of other stockholders known by such stockholder to be
supporting such nominee(s), (ii) the class and number of shares of the
Corporation's capital stock which are held of record, beneficially owned or
represented by proxy by such
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stockholder and by any other stockholders known by such stockholder to be
supporting such nominee(s) on the record date for the Annual Meeting in question
(if such date shall then have been made publicly available) and on the date of
such stockholder's notice, and (iii) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
If the Board of Directors or a designated committee thereof
determines that any stockholder nomination was not made in accordance with the
terms of this By-law or that the information provided in a stockholder's notice
does not satisfy the informational requirements of this By-law in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this By-law, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not made in
accordance with the terms of this By-law or that the information provided in a
stockholder's notice does not satisfy the informational requirements of this By-
law in any material respect, then such nomination shall not be considered at the
Annual Meeting in question. If the Board of Directors, a designated committee
thereof or the presiding officer determines that a nomination was made in
accordance with the terms of this By-law, the presiding officer shall so declare
at the Annual Meeting and ballots shall be provided for use at the meeting with
respect to such nominee.
Notwithstanding anything to the contrary in the second sentence of
the second paragraph of this By-law, in the event that the number of Directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
75 days prior to the Anniversary Date, a stockholder's notice required by this
By-law shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if such notice shall be delivered
to, or mailed to and received by, the Corporation at its principal executive
office not later than the close of business on the 15th day following the day on
which such public announcement is first made by the Corporation.
No person shall be elected by the stockholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
By-law. Election of Directors at the Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the Annual Meeting in accordance with the procedures set forth in this Section
shall be provided for use at the Annual Meeting.
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4. Application of Section 50A of Chapter 156B of the General Laws
--------------------------------------------------------------
of the Commonwealth of Massachusetts. Notwithstanding anything to the contrary
- ------------------------------------
in the Articles of Organization or these By-laws, the provisions of Section 50A
of Chapter 156B of Massachusetts General Laws shall not be applicable to the
Corporation.
5. Vacancies. The Board of Directors may act notwithstanding a
---------
vacancy or vacancies in its membership. Any and all vacancies in the Board of
Directors, however occurring including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director shall be nominated by the Nominating
Committee and shall be filled by the affirmative vote of a majority of the
Directors then in office, even though less than a quorum. Any Director elected
in accordance with this Section 5 shall hold office for the remainder of the
full term of the vacany filled and until his or her successor is duly elected
and qualified.
6. Resignation. Any Director may resign by delivering his written
-----------
resignation to the Corporation at its principal executive office or to the
President or Clerk. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
7. Removal.
-------
(a) Removal by Directors. Except as set forth in the following
--------------------
sentence, a Director may not be removed by the other Directors then in office. A
Director who (i) is the subject of any regulatory or judicial order or decree
barring or suspending such individual from engaging in any activity related to
the purchase, sale or trading of securities or commodities, or (ii) is indicted
for any criminal charge relating to the purchase, sale or trading of securities
or commodities, may be removed by a vote of a majority of the other Directors
then in office.
(b) Removal by Stockholders. Stockholders may remove a Director
-----------------------
only with cause and only by the affirmative vote of at least two-thirds of the
total votes which would be eligible to be cast by stockholders in the election
of such Director.
For purposes of this Section 7, "cause," with respect to the removal
of any Director shall mean only (i) conviction of a felony, (ii) declaration of
unsound mind by order of court, (iii) gross dereliction of duty, (iv) commission
of any action involving moral turpitude, or (v) commission of an action which
constitutes intentional misconduct or a knowing violation of law if such action
in either event results both in an improper substantial personal benefit and a
material injury to the Corporation. A Director may be removed for cause only
after reasonable notice and opportunity to be heard before the body proposing
removal.
8. Meetings. Regular meetings of the Board of Directors may be
--------
held without notice at such time, date and place as the Board of Directors may
from time to time determine
9
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provided that reasonable notice of the first regular meeting following such
determination shall be given to absent Directors. A regular meeting of the Board
of Directors may be held without notice at the same place as the annual meeting
of stockholders, or the special meeting held in lieu thereof, following such
meeting of stockholders.
Special meetings of the Board of Directors may be called, orally or
in writing, by the Board of Directors, by the Chairman of the Board or by the
President designating the time, date and place thereof.
9. Notice of Meetings. Notice of the time, date and place of all
------------------
special meetings of the Board of Directors shall be given to each Director by
the Clerk or Assistant Clerk, or in case of the death, absence, incapacity or
refusal of such persons, by the officer or one of the Directors calling the
meeting. Notice shall be given to each Director in person or by telephone or by
facsimile sent to his business or home address, at least twenty-four hours in
advance of the meeting, or by written notice mailed to his business or home
address at least forty-eight hours in advance of the meeting. Notice need not be
given to any Director if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Director
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. A notice or waiver of notice of a meeting of the
Board of Directors need not specify the purposes of the meeting.
10. Quorum. At any meeting of the Board of Directors, a majority of
------
the Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time and the meeting may be held as adjourned
without further notice.
11. Action at Meeting. At any meeting of the Board of Directors at
-----------------
which a quorum is present, a majority of the Directors present may take any
action on behalf of the Board of Directors, unless a larger number is required
by law, by the Articles of Organization or by these By-laws.
12. Presence Through Communications Equipment. Unless otherwise
-----------------------------------------
provided by law or the Articles of Organization, members of the Board of
Directors may participate in a meeting of the Board of Directors by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
13. Action by Consent. Unless the Articles of Organization
-----------------
otherwise provide, any action by the Board of Directors may be taken without a
meeting if all the Directors consent to the action in writing and the written
consents are filed with the records of the meetings of the Board of Directors.
Such consents shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
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14. Nominating Committee. The Board of Directors shall establish and
--------------------
at all times maintain a Nominating Committee consisting of the Chairman of the
Board and two other Directors selected by the Chairman of the Board. The duties
and responsibilities of the Nominating Committee shall be to select and nominate
candidates for election as Directors of the Corporation.
15. Other Committees. In addition to the Nominating Committee
----------------
provided for in Article III, Section 14 of these By-laws, the Board of
Directors, by vote of a majority of the Directors then in office, may elect from
its number an Executive Committee or other committees and may delegate thereto
some or all of its powers except those which by law, by the Articles of
Organization, or by these By-laws may not be delegated. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-laws for the Board of Directors. All members
of such committees shall hold such offices at the pleasure of the Board of
Directors. The Board of Directors by vote of a majority of the Directors then in
office may abolish any such committee at any time. Any committee to which the
Board of Directors delegates any of its powers or duties shall keep records of
its meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, but no such
rescission shall have retroactive effect.
ARTICLE III
-----------
Officers
--------
1. Enumeration. The officers of the Corporation shall consist of a
-----------
Chairman of the Board, a President, a Treasurer, a Clerk, and such other
officers, including a Chairman of the Board or one or more Vice Presidents,
Assistant Treasurers or Assistant Clerks, as the Board of Directors may
determine.
2. Election. The Chairman of the Board, President, Treasurer and
--------
Clerk shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of stockholders. Other officers may be chosen by
the Board of Directors at such meeting or at any other meeting.
3. Qualification. No officer need be a Director of the Corporation
-------------
except for the Chairman of the Board. Any two or more offices may be held by any
person. The Clerk shall be a resident of Massachusetts unless the Corporation
has a resident agent appointed for the purpose of service of process. Any
officer may be required by the Board of Directors to give bond for the faithful
performance of his duties in such amount and with such sureties as the Board of
Directors may determine.
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4. Tenure. Except as otherwise provided by law, by the Articles of
------
Organization or by these By-laws, the Chairman of the Board, the President,
Treasurer and Clerk shall hold office until the first meeting of the Board of
Directors following the next annual meeting of stockholders and until their
respective successors are chosen and qualified; and all other officers shall
hold office until the first meeting of the Board of Directors following the next
annual meeting of stockholders and until their successors are chosen and
qualified, or for such shorter term as the Board of Directors may fix at the
time such officers are chosen.
5. Resignation. Any officer may resign by delivering his written
-----------
resignation to the Corporation at its principal office, to the Chairman of the
Board or to the President or Clerk, and such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
6. Removal. The Board of Directors may remove any officer with or
-------
without cause by a vote of a majority of the entire number of Directors then in
office; provided, that an officer may be removed for cause only after reasonable
notice and opportunity to be heard by the Board of Directors.
7. Vacancies. Any vacancy in any office may be filled for the
---------
unexpired portion of the term by the Board of Directors. The Board of Directors
shall elect a successor if the office of Chairman of the Board, President,
Treasurer or Clerk becomes vacant and may elect a successor if any other office
becomes vacant.
8. Chairman of the Board. The Chairman of the Board shall preside
---------------------
at all meetings of the Stockholders and of the Board of Directors. Unless the
Board of Directors shall otherwise determine, the Chairman of the Board shall be
the Chief Executive Officer and general manager of the Corporation, shall in
general supervise and control all of the business and affairs of the
Corporation, and shall perform all duties incident to the office of Chairman of
the Board and such other duties as may be prescribed by the Board of Directors
from time to time.
9. President and Vice Presidents. The President shall, in the
-----------------------------
absence of the Chairman of the Board preside, when present, at all meetings of
stockholders and, if the Chairman of the Board is absent, at meetings of the
Board of Directors. The President shall exercise and perform such other powers
and duties as the Board of Directors or these By-laws may designate.
Any Vice President shall have such powers and shall perform such
duties as the Board of Directors may from time to time designate.
10. Chief Financial Officer, Treasurer and Assistant Treasurers. The
-----------------------------------------------------------
Chief Financial Officer or the Treasurer shall, subject to the direction of the
Board of Directors, have general charge of the financial affairs of the
Corporation and shall cause to be kept
12
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accurate books of account. Such officer shall have custody of all funds,
securities, and valuable documents of the Corporation, except as the Board of
Directors may otherwise provide.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors may from time to time designate.
11. Clerk and Assistant Clerks. The Clerk shall keep a record of the
--------------------------
meetings of stockholders. In case a Clerk is not elected or is absent, the Clerk
or an Assistant Clerk shall keep a record of the meetings of the Board of
Directors. In the absence of the Clerk from any meeting of stockholders, an
Assistant Clerk if one be elected, otherwise a Temporary Clerk designated by the
person presiding at the meeting, shall perform the duties of the Clerk.
12. Other Powers and Duties. Subject to these By-laws, each officer
-----------------------
of the Corporation shall have in addition to, and to the extent not inconsistent
with, the duties and powers specifically set forth in these By-laws, such duties
and powers as are customarily incident to his office, and such duties and powers
as may be designated from time to time by the Board of Directors.
ARTICLE IV
----------
Capital Stock
-------------
1. Certificates of Stock. The Board of Directors may provide by
---------------------
resolution that some or all of any or all classes and series of shares shall be
uncertificated shares. Unless such a resolution has been adopted, each
stockholder shall be entitled to a certificate of the capital stock of the
Corporation in such form as may from time to time be prescribed by the Board of
Directors. Such certificate shall be signed by the President or a Vice President
and by the Treasurer or an Assistant Treasurer. Such signatures may be facsimile
if the certificate is signed by a transfer agent, or by a registrar, other than
a Director, officer or employee of the Corporation. In case any officer who has
signed or whose facsimile signature has been placed on such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at the
time of its issue. Every certificate for shares of stock which are subject to
any restriction on transfer and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
2. Transfers. Subject to any restrictions on transfer, shares of
---------
stock may be transferred on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate therefor properly endorsed
or accompanied by a written assignment and power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such
13
<PAGE>
proof of the authenticity of signature as the Corporation or its transfer agent
may reasonably require.
3. Record Holders. Except as may be otherwise required by law, by
--------------
the Articles of Organization or by these By-laws, the Corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the Corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of
his post office address.
4. Record Date. The Board of Directors may fix in advance a time of
-----------
not more than sixty days preceding the date of any meeting of stockholders, or
the date for the payment of any dividend or the making of any distribution to
stockholders, or the last day on which the consent or dissent of stockholders
may be effectively expressed for any purpose, as the record date for determining
the stockholders having the right to notice of and to vote at such meeting, and
any adjournment thereof, or the right to receive such dividend or distribution
or the right to give such consent or dissent. In such case only stockholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the Corporation after the record date. Without fixing
such record date the Board of Directors may for any of such purposes close the
transfer books for all or any part of such period.
If no record date is fixed and the transfer books are not closed,
(a) the record date for determining stockholders having the right to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
5. Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
6. Issuance of Capital Stock. The Board of Directors shall have the
-------------------------
authority to issue or reserve for issue from time to time the whole or any part
of the capital stock of the Corporation which may be authorized from time to
time, to such persons or organizations, for such consideration, whether cash,
property, services or expenses, and on such terms as the Board of Directors may
determine, including without limitation the granting of options, warrants, or
conversion or other rights to subscribe to said capital stock. The Board of
Directors may delegate some or all of its authority under this Section 6 to one
or more committees of Directors.
14
<PAGE>
ARTICLE V
---------
Indemnification
---------------
1. Actions, Suits and Proceedings. The Corporation shall indemnify
------------------------------
each person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a Director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of the
Corporation, as a Director or officer of, or in a similar capacity with, another
organization or in any capacity with respect to any employee benefit plan of the
Corporation or any subsidiary of the Corporation (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted to be taken in such capacity, against all expenses
(including reasonable attorneys' fees), judgments and fines incurred by him or
on his behalf in connection with such action, suit, proceeding or investigation,
and any appeal therefrom, unless the Indemnitee shall be finally adjudicated in
such action, suit, proceeding or investigation, not to have acted in good faith
in the reasonable belief that his action was in the best interests of the
Corporation or, to the extent such matter relates to service with respect to an
employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan. Notwithstanding anything to the
contrary in this Article V, except as set forth in Section 7 of this Article V,
the Corporation shall not indemnify an Indemnitee seeking indemnification in
connection with an action, suit, proceeding or investigation (or part thereof)
initiated by the Indemnitee unless the initiation thereof was approved by the
Board of Directors of the Corporation.
2. Employees and Agents. The Corporation may, at the discretion of
--------------------
the Board of Directors, indemnify employees and agents of the Corporation as if
they were included in Section 1 of this Article V.
3. Settlements. The right to indemnification conferred in this
-----------
Article V shall include the right to be paid by the Corporation for amounts paid
in settlement of any such action, suit, proceeding or investigation and any
appeal therefrom, and all expenses (including reasonable attorneys' fees)
incurred in connection with such settlement, pursuant to a consent decree or
otherwise, unless and to the extent it is determined pursuant to Section 6 of
this Article V that the Indemnitee did not act in good faith in the reasonable
belief that his or her action was in the best interests of the Corporation or,
to the extent such matter relates to service with respect to an employee benefit
plan, in the best interests of the participants or beneficiaries of such
employee benefit plan.
4. Notification and Defense of Claim. As a condition precedent to
---------------------------------
his or her right to be indemnified, the Indemnitee must notify the Corporation
in writing as soon as practicable of any action, suit, proceeding or
investigation involving such Indemnitee or with respect to which indemnity will
or could be sought. With respect to any action, suit, proceeding or
15
<PAGE>
investigation of which the Corporation is so notified, the Corporation will be
entitled to participate therein at its own expense and/or to assume the defense
thereof at its own expense, with legal counsel reasonably acceptable to the
Indemnitee. After notice from the Corporation to the Indemnitee of its election
so to assume such defense, the Corporation shall not be liable to the Indemnitee
for any legal or other expenses subsequently incurred by the Indemnitee in
connection with such claim, other than as provided below in this Section 4 of
this Article V. The Indemnitee shall have the right to employ his of her own
counsel in connection with such claim, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the employment of
counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel
to the Indemnitee shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the Corporation, except as otherwise expressly provided by
this Article V. The Corporation shall not be entitled, without the consent of
the Indemnitee, to assume the defense of any claim brought by or in the right of
the Corporation or as to which counsel for the Indemnitee shall have reasonably
made the conclusion provided for in clause (ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 of
-------------------
this Article V, in the event that the Corporation does not assume the defense,
or unless and until the Corporation assumes the defense, pursuant to Section 4
of this Article V of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article V, any expenses (including
reasonable attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter,
provided, however, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article V. Such undertaking may be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain
-----------------------------
indemnification or advancement of expenses pursuant to Sections 1, 3 or 5 of
this Article V, the Indemnitee shall submit to the Corporation a written
request, including in such request such documentation and information as is
reasonably available to the Indemnitee and is reasonably necessary to determine
whether and to what extent the Indemnitee is entitled to indemnification or
advancement of expenses. Any such indemnification pursuant to Section 1 of this
Article V shall be made promptly, and in any event within 60 days after receipt
by the Corporation of the written request of the Indemnitee, unless a court of
competent jurisdiction finally adjudicates that the Indemnitee did not meet the
applicable standard of conduct set forth in Section 1 of this
16
<PAGE>
Article V. Any such indemnification pursuant to Section 3 of this Article V or
advancement of expenses pursuant to Section 5 of this Article V shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless the Corporation determines, by
clear and convincing evidence, within such 60-day period that the Indemnitee did
not meet the applicable standard of conduct set forth in Sections 1 or 3 of this
Article V, as the case may be. Such determination by the Corporation shall be
made in each instance by (a) a majority vote of a quorum of the Directors of the
Corporation, (b) a majority vote of a quorum of the outstanding shares of stock
of all classes entitled to vote for Directors, voting as a single class, which
quorum shall consist of stockholders who are not at that time parties to the
action, suit, proceeding or investigation in question, or (c) independent legal
counsel (who may be regular legal counsel to the Corporation).
7. Remedies. The right to indemnification or advances as granted by
--------
this Article V shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6 of this Article V. Unless otherwise provided by law, the Corporation
shall have the burden of proving that the Indemnitee is not entitled to
indemnification or advancement of expenses under this Article V. Neither the
failure of the Corporation to have made a determination prior to the
commencement of any such action by the Indemnitee that indemnification is proper
in the circumstances because the Indemnitee has met the applicable standard of
conduct, nor an actual determination by the Corporation pursuant to Section 6 of
this Article V that the Indemnitee has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct. The Indemnitee's
expenses (including attorneys' fees) incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of
--------------------
this Article V or of the relevant provisions of Chapter 156B of the
Massachusetts General Laws or any other applicable laws shall affect or diminish
in any way the rights of any Indemnitee to indemnification under the provisions
hereof with respect to any action, suit, proceeding or investigation arising out
of or relating to any actions, transactions or facts occurring prior to the
final adoption of such amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
------------
provided by this Article V shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or Directors or otherwise, both as to action in his or her official capacity and
as to action in any other capacity while holding office for the Corporation, and
shall continue as to an Indemnitee who has ceased to be a Director or officer,
and shall inure to the benefit of the estate, heirs, executors, personal
representatives and administrators of the Indemnitee. Nothing contained in this
Article V shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers
17
<PAGE>
and Directors providing indemnification rights and procedures different from
those set forth in this Article V. In addition, the Corporation may, to the
extent authorized from time to time by its Board of Directors pursuant to
Section 2 of this Article V or otherwise, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article V.
10. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article V to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by such Indemnitee or on
such Indemnitee's behalf in connection with any action, suit, proceeding or
investigation and any appeal therefrom but not, however, for the total amount
thereof, the Corporation shall nevertheless indemnify the Indemnitee for the
portion of such expenses (including reasonable attorneys' fees), judgments,
fines or amounts paid in settlement to which such Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance,
---------
at its expense, to protect itself and any Director, officer, employee or agent
of the Corporation, any subsidiary, another organization or employee benefit
plan against any expense, liability or loss incurred by him of her in any such
capacity, or arising out of his of her status as such, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Chapter 156B of the Massachusetts General Laws.
12. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving Corporation shall assume the obligations of the
Corporation under this Article V with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring at or prior to the date of such merger or consolidation.
13. Savings Clause. If this Article V or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement in connection with any action, suit, proceeding or investigation,
whether civil, criminal or administrative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article V that shall not have been invalidated and to the
fullest extent permitted by applicable law.
14. Subsequent Legislation. If the Massachusetts General Laws are
----------------------
amended after adoption of this Article V to expand further the indemnification
permitted to Indemnities, then the Corporation shall indemnify such persons to
the fullest extent permitted by the Massachusetts General Laws, as so amended.
18
<PAGE>
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
1. Fiscal Year. Except as otherwise determined by the Board of
-----------
Directors, the fiscal year of the Corporation shall be the twelve months ending
on the Saturday nearest January 31 of each year.
2. Seal. The Board of Directors shall have power to adopt and
----
alter the seal of the Corporation.
3. Execution of Instruments. All deeds, leases, transfers,
------------------------
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Director action, may
be executed on behalf of the Corporation by the Chairman of the Board, the
President, any Vice President or the Treasurer except as the Board of Directors
may generally or in particular cases otherwise determine.
4. Voting of Securities. Unless otherwise provided by the Board of
--------------------
Directors, the President or Treasurer may waive notice of and act on behalf of
this Corporation, or appoint another person or persons to act as proxy or
attorney in fact for this Corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other corporation or organization, any of whose securities are held by this
Corporation.
5. Resident Agent. The Board of Directors may appoint a resident
--------------
agent upon whom legal process may be served in any action or proceeding against
the Corporation. Said resident agent shall be either an individual who is a
resident of and has a business address in Massachusetts, a corporation organized
under the laws of Massachusetts, or a corporation organized under the laws of
any other state of the United States, which has qualified to do business in, and
has an office in, Massachusetts.
6. Corporate Records. The original, or attested copies, of the
-----------------
Articles of Organization, By-laws and records of all meetings of the
incorporators and stockholders, and the stock and transfer records, which shall
contain the names of all stockholders and the record address and the amount of
stock held by each, shall be kept in Massachusetts at the principal office of
the Corporation, or at an office of its transfer agent, Clerk or resident agent,
and shall be open at all reasonable times to the inspection of any stockholder
for any proper purpose, but not to secure a list of stockholders for the purpose
of selling said list or copies thereof or of using the same for a purpose other
than in the interest of the applicant, as a stockholder, relative to the affairs
of the Corporation.
19
<PAGE>
7. Articles of Organization. All references in these By-laws to the
------------------------
Articles of Organization shall be deemed to refer to the Amended and Restated
Articles of Organization of the Corporation, as amended and in effect from time
to time.
8. Amendment
---------
(a) Amendment by Directors. Except with respect to any provisions of
----------------------
these By-laws which by law, the Articles of Organization or these By-laws
require action by the stockholders, these By-Laws may be amended or repealed by
the affirmative vote of a majority of the Directors then in office. Not later
than the time of giving notice of the annual meeting of stockholders next
following the amending or repealing by the Directors of any By-law, notice
thereof stating the substance of such change shall be given to all stockholders
entitled to vote on amending the By-laws.
(b) Amendment by Stockholders. These By-laws may be amended or
-------------------------
repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose, by the affirmative vote of at least
two-thirds of the total votes eligible to be cast on such amendment or repeal by
holders of voting stock, voting together as a single class; provided, however,
that if the Board of Directors recommends that stockholders approve such
amendment or repeal at such meeting of stockholders, such amendment or repeal
shall only require the affirmative vote of a majority of the total votes
eligible to be cast on such amendment or repeal by holders of voting stock,
voting together as a single class. Notwithstanding the foregoing, no shareholder
approval shall be required unless mandated by the Articles of Organization,
these By-laws, or other applicable law.
20
<PAGE>
EXHIBIT 4.1
BRADLEES
NUMBER SHARES
BRADLEES, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR
IN BOSTON, MA OR NEW YORK, NY CERTAIN DEFINITIONS
AND TRANSFER RESTRICTIONS
COMMON STOCK
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT CUSIP 104449 20 7
IS THE OWNER OF
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER
SHARE, OF
BRADLEES, INC.
(hereinafter called the "Corporation") transferable on the books of the
Corporation by the holder of record hereof in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed or assigned.
This Certificate and the shares represented hereby are issued and held subject
to the laws of the Commonwealth of Massachusetts and the Amended and Restated
Articles of Organization and Amended and Restated Bylaws of the Corporation,
each as from time to time amended (copies of which are on file with the
Corporation), to all of which the holder, by acceptance hereof, assents.
This Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
IN WITNESS WHEREOF, Bradlees, Inc. has caused this Certificate to be executed
by the facsimile signatures of its duly authorized officers and sealed with the
facsimile seal of the Corporation.
Dated
/s/ Paul R. McKelvey /s/ Peter Thorner
__________________________ ---------------------------
TREASURER CHAIRMAN OF THE BOARD
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
[SEAL OF BRADLEES, INC. APPEARS HERE]
<PAGE>
BRADLEES, INC.
The Corporation has more than one class of stock authorized to be issued.
The Corporation will furnish without charge to each stockholder upon written
request a copy of the full text of the preferences, voting powers,
qualifications and special and relative rights of the shares of each class of
stock (and any series thereof) authorized to be issued by the Corporation as set
forth in the Amended and Restated Articles of Organization and amendments
thereto filed with the Secretary of State of the Commonwealth of Massachusetts.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as through they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties UNIF GIFT MIN ACT--....... Custodian...............
JT TEN -- as joint tenants with right - (Cust) (Minor)
or survivorship and not as under Uniform Gifts to Minors
tenants in common Act..........................................
(State)
</TABLE>
Additional abbreviations may also be used through not in the above list.
For Value Received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the common shares represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said shares on the books of the within named Corporation with
full power or substitution in the premises.
Dated___________________
______________________________________________________________________
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed: __________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO SEC RULE 17Ad-15.
<PAGE>
Exhibit 5.1
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP]
January 27, 1999
Bradlees, Inc. and Bradlees Stores, Inc.
One Bradlees Circle
Braintree, MA 02184
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
This opinion is delivered in our capacity as corporate counsel to Bradlees,
Inc. ("Bradlees") and Bradlees Stores, Inc. ("Bradlees Stores" and together
with Bradlees, the "Companies") in connection with the preparation and filing
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended (the "Act") of a Registration Statement on Form S-1 (the
"Registration Statement") relating to 7,267,424 shares of Common Stock, par
value $.01 per share (the "Shares"), of Bradlees and $36,000,000 aggregate
principal amount of 9% Convertible Notes (the "Notes") of Bradlees Stores to be
offered from time to time by certain selling securityholders pursuant to Rule
415 promulgated under the Act. The securities are being issued by each of the
Companies pursuant to the Companies' plan of reorganization under Chapter 11 of
the United States Bankruptcy Code, as described in the Registration Statement
(the "Plan of Reorganization").
As counsel for the Companies, we have examined the Companies' Plan of
Reorganization, the Articles of Organization and By-laws of each of the
Companies, each as presently in effect, the indenture under which the Notes
will be issued, as described in the Registration Statement (the "Indenture")
and such records, certificates and other documents of each of the Companies as
we have deemed necessary or appropriate for the purposes of this opinion.
We are attorneys admitted to practice in the Commonwealth of Massachusetts.
We express no opinion concerning the laws of any jurisdiction other than the
laws of the United States of America and the Commonwealth of Massachusetts.
Based on the foregoing, we are of the opinion that:
1. The Shares have been duly authorized by all necessary corporate action on
the part of Bradlees and upon issuance of the Shares pursuant to and in
accordance with the Plan of Reorganization, will be legally issued, fully paid
and non-assessable by Bradlees under the Massachusetts Business Corporation
Law; and
2. The Notes have been duly authorized by all necessary corporate action on the
part of Bradlees Stores and, upon issuance of the Notes pursuant to and in
accordance with the Plan of Reorganization and the Indenture, will constitute
valid and binding obligations of Bradlees Stores, enforceable in accordance
with their terms, except as limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws now or hereafter in effect
regarding creditors' rights generally and (ii) principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity).
In rendering the opinions set forth above, we express no opinion as to the
adequacy or sufficiency of the consideration received or to be received in
connection with the Plan of Reorganization.
We hereby consent to being named as counsel to the Company in the
Registration Statement, to the references therein to our firm under the caption
"Legal Matters," and to the inclusion of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is entered into as of
January __, 1999 by and between Bradlees, Inc., a Massachusetts corporation
("BI"), Bradlees Stores, Inc., a Massachusetts corporation ("BSI" and,
collectively with BI, the "Companies") and each of the parties executing a
signature page hereto (each a "Holder" and collectively the "Holders").
WHEREAS, the Holders are to receive a number of shares of common stock,
$.01 par value (together with any additional shares of Common Stock that may be
issued upon the conversion of the Notes (as defined below), the "Common Stock")
of BI and certain 9% Convertible Notes, due 2004, of BSI (the "Notes"), issued
in connection with the Plan of Reorganization of BI and BSI on the date
prescribed therein (the "Effective Date") without registration under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to the
exemption under Section 1145 of the Bankruptcy Code from the registration
requirements of Section 5 of the Securities Act.
WHEREAS, the Holders may, as a result of the amount of Common Stock and/or
Notes they hold, be restricted under applicable securities laws in their ability
to freely transfer or resell the shares of Common Stock or Notes held by them
absent the registration of such transfer or resale of such securities under the
Securities Act.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Registration of Securities.
--------------------------
(a) Filing of Registration Statement. As of or prior to the Effective
--------------------------------
Date, the Companies shall cause to be filed a registration statement (the
"Registration Statement") under Rule 415 promulgated under the Securities Act
relating to the sale by such Holders of their shares of Common Stock and their
Notes (the "Registered Securities") in accordance with the terms hereof.
Thereupon, the Companies shall use their best efforts to cause such Registration
Statement to be filed and declared effective by the Securities and Exchange
Commission (the "SEC") for all Registered Securities as soon as practicable
thereafter, but in any event prior to the Effective Date. The Companies agree,
subject to the provisions of Sections 2, 5, 6 and 7 hereof, to use reasonable
efforts to maintain the continuous effectiveness of the Registration Statement,
and to update and correct the information contained in the Registration
Statement, until the date on which no Holder holds 10% or more of the BI's
outstanding Common Stock, provided that if one or more Holders hold less than
10% of BI's outstanding Common Stock but greater than 5% of BI's outstanding
Common Stock, such Holder or Holders may request that the Companies continue to
attempt to maintain the effectiveness of the Registration Statement at the
expense of such Holder or Holders as provided in Section 3.
<PAGE>
(b) Conditions to Companies' Obligations. The Companies shall have no
------------------------------------
obligation to a Holder under Section 1(a) unless such Holder provides to the
Companies all of the information regarding the Holders and their affiliates
required to be included in the Registration Statement for it to be complete.
2. Registration Procedures.
-----------------------
(a) The Companies shall notify each Holder of the effectiveness of the
Registration Statement and shall furnish to each such Holder such number of
copies of the Registration Statement (including any amendments, supplements and
exhibits), the prospectus contained therein, any documents incorporated by
reference in the Registration Statement and such other documents as such Holder
may reasonably request in order to facilitate its sale of the Registered
Securities in the manner described in the Registration Statement.
(b) The Companies shall prepare and file with the SEC from time to
time such amendments and supplements to the Registration Statement and
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all the Registered Securities
until the date on which the Registration Statement ceases to be effective in
accordance with the terms of Section 1. The Companies shall promptly respond to
all comments from the SEC regarding the Registration Statement and any
amendments and/or supplements thereto. Upon twenty (20) business days' written
notice from any Holder, the Companies shall file any supplement or post-
effective amendment to the Registration Statement with respect to such Holder's
interests in or plan of distribution of Registered Securities that is reasonably
necessary to permit the sale of the Holder's Registered Securities pursuant to
the Registration Statement. For so long as the Companies are obligated to
maintain the effectiveness of the Registration Statement with respect to
Registered Securities owned by any Holder under this Agreement, such Holder
shall be afforded a reasonable opportunity to review the Registration Statement
and any amendments and/or supplements thereto prior to filing.
(c) The Companies shall notify each Holder of any request by the SEC
for amendments or supplements to the Registration Statement or the prospectus
related thereto or for additional information. In addition, the Companies shall
notify each such Holder of the filing of the Registration Statement, any
prospectus supplement related thereto or any post-effective amendment to the
Registration Statement and the effectiveness of any post-effective amendment.
(d) For so long as the Registration Statement remains effective, the
Companies shall promptly notify each Holder of the happening of any event as a
result of which the prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which
2
<PAGE>
they were made, not misleading. In such event and subject to Sections 2(b), 6
and 7 of this Agreement, the Companies shall prepare and furnish to each such
Holder a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of Registered Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(e) Subject to the conditions set forth in this Agreement, the
Companies shall, upon the reasonable request of any Holder, file such documents
as may be necessary to register or qualify the Registered Securities under the
state securities or "Blue Sky" laws of such states as any Holder requesting
registration may reasonably request, and the Companies shall use reasonable
efforts to cause such filings to become qualified; provided, however, that
-------- -------
neither of the Companies shall be obligated to qualify as a foreign corporation
to do business under the laws of any such state in which it is not then
qualified or to file any general consent to service of process in any such
state. Once qualified, the Companies shall use reasonable efforts to keep such
filings qualified until the earlier of (a) such time as all of the Registered
Securities have been disposed of in accordance with the intended methods of
disposition by the Holder as set forth in the Registration Statement, (b) in the
case of a particular state, a Holder has notified the Companies that it no
longer requires qualified filing in such state in accordance with its original
request for filing or (c) the date on which the Registration Statement ceases to
be effective with the SEC. The Companies shall promptly notify each Holder
requesting registration of, and confirm in writing, the receipt by the Companies
of any notification with respect to the suspension of the qualification of the
Registered Shares for sale under the securities or "Blue Sky" laws of any
jurisdiction or the initiation or threat of any proceeding for such purpose, and
shall use its reasonable efforts to cause the termination of any such suspension
or proceeding.
(f) BI will use its best efforts to cause the listing of the Common
Stock on the NASDAQ National Market System ("NASDAQ") and prepare any related
filings necessary to maintain such listing.
3. Expenses.
--------
(a) Subject to the provisions of Section 3(b), the Companies shall
bear all expenses incurred in connection with the registration of the Registered
Securities until such time as no Holder holds 10% or more of the outstanding
Common Stock of BI. Such expenses shall include, without limitation, all
printing, legal and accounting expenses incurred by the Companies and all
registration and filing fees imposed by the SEC or the principal national
securities exchange or national market system on which the Registered Securities
are then traded or quoted (the "Registration Expenses"). The Holders shall be
responsible for any brokerage or underwriting commissions and taxes of any kind
(including, without limitation, transfer taxes) with respect to any disposition,
sale or transfer of Registered Securities and for
3
<PAGE>
any legal, accounting and other expenses incurred by them in connection with the
Registration Statement.
(b) After such time as no Holder holds 10% or more of the outstanding
Common Stock of BI, in the event that one or more Holders hold less than 10% of
the BI's outstanding Common Stock but greater than 5% of the BI's outstanding
Common Stock, such Holder or Holders may request that the Companies continue to
maintain the effectiveness of the Registration Statement, provided that such
Holder or Holders bear all of the Registration Expenses associated with such
maintenance of the effectiveness of the Registration Statement.
(c) For the purposes of Section 1(a) and this Section 3, Holders that
would constitute a group for the purposes of Section 13(d) of the Securities
Exchange Act of l934, as amended, shall be aggregated to determine whether the
5% or 10% ownership levels referred therein are met.
4. Indemnification by the Companies. Each of the Companies jointly and
--------------------------------
severally agrees to indemnify each of the Holders and their respective officers,
directors, employees, agents, representatives, partners and affiliates, and each
person or entity, if any, that controls a Holder within the meaning of the
Securities Act, and each other person or entity, if any, subject to liability
because of his, her or its connection with a Holder, and any underwriter and any
person who controls the underwriter within the meaning of the Securities Act (an
"Indemnitee") against any and all losses, claims, damages, actions, liabilities,
costs and expenses (including without limitation reasonable attorneys' fees,
expenses and disbursements documented in writing), joint or several, arising out
of or based upon any untrue or alleged untrue statement of material fact
contained in the Registration Statement or any prospectus contained therein, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as and
to the extent that such statement or omission arose out of or was based upon
information regarding the Indemnitee or its plan of distribution which was
furnished to the Companies in writing by the Indemnitee for use therein,
provided, further that the Companies shall not be liable to any person who
participates as an underwriter in the offering or sale of Registered Securities
or any other person, if any, who controls such underwriter within the meaning of
the Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon (i) an untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration Statement, final
prospectus, amendment or supplement in reliance upon and in conformity with
information furnished to the Companies for use in connection with the
Registration Statement or the prospectus contained therein by such Indemnitee or
(ii) such Indemnitee's failure to send or give a copy of the prospectus,
amendment or supplement furnished to it by the Companies at or prior to the time
such action is required by the Securities Act to the person claiming an untrue
statement or alleged untrue statement or omission or alleged omission if such
statement or omission was corrected in such prospectus, amendment or supplement.
The obligations of the Companies under this Section 4 shall survive the
completion of any offering of Registered
4
<PAGE>
Securities pursuant to the Registration Statement and shall survive the
termination of this Agreement.
5. Covenants of Holders. Each of the Holders hereby severally and not
--------------------
jointly agrees (a) to cooperate with the Companies and to furnish to the
Companies all such information in connection with the preparation of the
Registration Statement as the Companies may reasonably request, (b) to the
extent required by the Securities Act, to deliver or cause delivery of the
prospectus contained in the Registration Statement to any purchaser of the
securities covered by the Registration Statement from the Holder, (c) to
promptly notify the Companies of any sale of Registered Securities by such
Holder that results in such Holder holding less than either 10% or 5% of BI's
outstanding Common Stock and upon any change in the information regarding such
Holder in the Registration Statement that would require amendment of the
Registration Statement and (d) to indemnify the Companies, their respective
officers, directors, employees, agents, representatives and affiliates, and each
person, if any, who controls either of the Companies within the meaning of the
Securities Act, and each other person, if any, subject to liability because of
his connection with the Companies, against any and all losses, claims, damages,
actions, liabilities, costs and expenses arising out of or based upon (i) any
untrue statement or alleged untrue statement of material fact contained in
either the Registration Statement or the prospectus contained therein, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, if and to the extent
that such statement or omission was based upon information regarding the Holder
or its plan of distribution which was furnished to the Companies in writing by
the Holder for use therein, or (ii) the failure by the Holder to deliver or
cause to be delivered the prospectus contained in the Registration Statement (as
amended or supplemented, if applicable) furnished by the Companies to the Holder
to any purchaser of the Securities covered by the Registration Statement from
the Holder. Notwithstanding the foregoing, the total amount for which a Holder
shall be liable under this Section 5 shall not in any event exceed the aggregate
proceeds received by him or it from the sale of the Holder's Registered
Securities in such registration. The obligations of the Holders under this
Section 5 shall survive the completion of any offering of Registered Securities
pursuant to the Registration Statement and shall survive the termination of this
Agreement.
6. Suspension of Registration Requirement.
--------------------------------------
(a) The Companies shall promptly notify each Holder requesting
registration of, and confirm in writing, the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or the threat
of or initiation of any proceedings for that purpose. The Companies shall use
their reasonable efforts to prevent the issuance of or to obtain the withdrawal
of any SEC order suspending the effectiveness of the Registration Statement the
earliest possible time.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, the Companies' obligation under this Agreement to use reasonable
efforts to amend or supplement
5
<PAGE>
the Registration Statement shall be suspended in the event of the occurrence of
an event that would require additional disclosure of material information by the
Companies in the Registration Statement and the Board of Directors of the
Companies in good faith determine that the disclosure relating to such event or
pending transaction would have a material adverse effect upon the Companies
(such circumstances being hereinafter referred to as a "Suspension Event"), but
such suspension shall continue only for so long as such event or pending
transaction is continuing and the Companies shall use reasonable efforts to
cause any such suspension to terminate at the earliest possible date. In any
event, the Companies agree not to exercise the rights set forth in this Section
7(b) more than three times in any twelve month period, one period which shall
not exceed forty-five (45) days, one period which shall not exceed twenty-five
(25) days, and one period which shall not exceed fifteen (15) days.
(c) Each holder of Registered Securities agrees if requested by the
managing underwriter or underwriters in a fixed price, firm commitment
underwritten offering by either of the Companies of any of its securities (an
"Offering"), not to effect any public sale or distribution of any of the
Registered Securities, during the 5-day period prior to, and during the 10-day
period (or such longer period as may be required by the managing underwriter or
underwriters) beginning on, the date of pricing of each Offering, to the extent
timely notified in writing by the Companies or the managing underwriters.
Furthermore, notwithstanding anything to the contrary set forth in this
Agreement, the Companies' obligation under this Agreement to amend or supplement
the Registration Statement shall be suspended in the event and during such
period as BI or BSI are proceeding with an Offering if the Companies are advised
by the underwriters that the sale of Registered Securities under the
Registration Statement would have a material adverse effect on the Offering.
7. Black-Out Period. Following the effectiveness of the Registration
----------------
Statement, the Holders agree that they will not effect any sales of the
Registered Securities pursuant to the Registration Statement at any time after
they have received notice from the Companies to suspend sales (i) as a result of
the occurrence or existence of any Suspension Event, (ii) pursuant to Section
6(c) hereof as a result of any Offering, or (iii) so that the Companies may
correct or update the Registration Statement or such filing pursuant to Section
2(c) or 2(d) of this Agreement. The Holder may recommence effecting sales of
the Registered Securities pursuant to the Registration Statement following
further notice to such effect from the Companies as soon as practicable after
the conclusion of any such Suspension Event or Offering.
8. Remedies.
--------
(a) In the event that the Registration Statement has not been
declared effective prior to the Effective Date, then the Company shall pay in
cash to each Holder, on the request of such Holder, a default payment equal to
one percent (1%) for the first 30-day period or portion thereof and two percent
(2%) for each subsequent 30-day period or portion thereof, beginning on the 1st
day after the Effective Date, of (a) the Outstanding Principal Amount of the
Notes held by such Holder (the "Note Amount"); and (b) the Fair Market Value
6
<PAGE>
of the shares of Common Stock held by such Holder. The "Fair Market Value" shall
be (i) the average of the closing or last sale price of the Common Stock on
NASDAQ reported for the five immediately prior business days, or (ii) if the
Common Stock is not then traded on NASDAQ but is traded on the over-the-counter
market or other similar market, then the average of the closing bid and asked
prices on such market reported for the five immediately prior business days, or
(iii) if the Common Stock is not traded on either the NASDAQ or an over-the-
counter market, the price determined in good faith by the Company's Board of
Directors.
(b) In the event that, as a result of the willful breach or gross
negligence of the Company, the Company fails or refuses to cause the Registered
Securities covered by the Registration Statement to be listed on NASDAQ at all
times during the period ("Listing Period") from the Effective Date until the
date the Registration Statement is no longer required to be effective with
respect to such Holder's Registered Securities pursuant to Section 1(a) or 1(b)
hereunder, then the Company shall pay in cash to each Holder, at the request of
such Holder, a default payment at a rate equal to 1% for the first 30-day period
(or portion thereof), and equal to 2% for each 30-day period (or portion
thereof) thereafter during the Listing Period from and after such failure or
refusal to so list the Registered Securities until the Registered Securities are
so listed, of (a) as to the Notes held by such Holder, the Note Amount and of
(b) as to the shares of Common Stock held by such Holder, the Fair Market Value
of such shares.
(c) In the event that, as a result of the willful breach or gross
negligence of the Company, any Holder's ability to sell Registered Securities
under the Registration Statement is suspended more than three times in any
twelve month period, one period which shall not exceed forty-five (45) days, one
period which shall not exceed twenty-five (25) days, and one period which shall
not exceed fifteen (15) days (any such period, a "Suspension Grace Period"),
including without limitation by reason of a suspension of trading of the Common
Stock on NASDAQ, any suspension or stop order with respect to the Registration
Statement or the fact that an event has occurred as a result of which the
prospectus (including any supplements thereto) included in such Registration
Statement then in effect includes an untrue statement of material fact or omits
to state a material fact required to be stated therein or necessary to make the
statements therein no misleading in light of the circumstances then existing, or
is undeliverable for any other reason, then, commencing with the expiration of
the Suspension Grace Period, the Company shall pay in cash to each Holder a
default payment at a rate equal to one percent (1%) for the first 30-day period
or portion thereof and two percent (2%) for each subsequent 30-day period or
portion thereof, of the Note Amount for the Notes held by such Holder and of the
Fair Market Value of the shares of Common Stock held by such Holder.
(d) In the event that, as a result of the willful breach or gross
negligence of the Company, the Company does not have a sufficient number of
shares of Common Stock available to satisfy the Company's obligations to any
Holder upon receipt of a [Conversion Notice] (as defined in the Note) or is
otherwise unable or unwilling to issue such shares of
7
<PAGE>
Common Stock (each, a "Conversion Deficiency") in accordance with the terms of
the Note for any reason after receipt of a [Conversion Notice], then the Company
shall pay in cash to each Holder a default payment at a rate equal to one
percent (1%) for the first 30-day period or portion thereof and two percent (2%)
for each subsequent 30-day period or portion thereof, of the Note Amount for the
Notes held by such Holder, commencing on the date that the Company fails or
refuses to issue the shares of Common Stock in accordance with the Note.
(e) Notwithstanding the foregoing, in no event shall the Companies be
required to make any default payments under this Section 8 in excess of Two
Hundred Thousand Dollars ($200,000) in the aggregate.
(f) The Company acknowledges that any failure, refusal or inability by
the Company to perform the obligations described in the foregoing paragraphs (i)
through (iv) as a result of the willful breach or gross negligence of the
Company will cause the Holders to suffer damages in an amount that will be
difficult to ascertain, including without limitation damages resulting from the
loss of liquidity in the Registered Securities and the additional investment
risk in holding the Registered Securities. Accordingly, the parties agree,
after consulting with counsel, that it is appropriate to include in this
Agreement the foregoing provisions for default adjustments in order to
compensate the Holders for such damages. The parties acknowledge and agree that
the default adjustments set forth above represent the parties' good faith effort
to quantify such damages and, as such, agree that the form and amount of such
default adjustments are reasonable and will not constitute a penalty.
9. Contribution. If the indemnification provided for in Sections 4 and 5
------------
is unavailable to an indemnified party with respect to any losses, claims,
damages, actions, liabilities, costs or expenses referred to therein or is
insufficient to hold the indemnified party harmless as contemplated therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, actions, liabilities, costs or expenses
in such proportion as is appropriate to reflect the relative fault of the
Companies, on the one hand, and the Holder, on the other hand, in connection
with the statements or omissions which resulted in such losses, claims, damages,
actions, liabilities, costs or expenses as well as any other relevant equitable
considerations. The relative fault of the Companies, on the one hand, and of
the Holder, on the other hand, shall be determined by reference to, among other
factors, whether the untrue or alleged untrue statement of a material fact or
omission to state a material fact relates to information supplied by the
Companies or by the Holder and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission;
provided, however, that in no event shall the obligation of any indemnifying
- -------- -------
party to contribute under this Section 9 exceed the amount that such
indemnifying party would have been obligated to pay by way of indemnification if
the indemnification provided for under Sections 4 or 5 hereof had been available
under the circumstances.
The Companies and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 9 were determined by pro rata
allocation or by any other
8
<PAGE>
method of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph.
No indemnified party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any indemnifying party who was not guilty of such fraudulent
misrepresentation.
The obligation of the parties under this Section 9 shall survive the
completion of any offering of Registered Securities pursuant to the Registration
Statement and the termination of this Agreement.
10. Certificates. All certificates evidencing shares of Common Stock
------------
issued to the Holders shall be delivered free of any legends or stop transfer
restrictions unless required by Massachusetts law or the federal securities
laws.
11. Amendments and Waivers. The provisions of this Agreement may not be
----------------------
amended, modified or supplemented without the prior written consent of each of
the Companies and Holders holding in excess of 50% of the outstanding shares of
Common Stock and principal amount of the Notes, provided that each Holder shall
receive notice of such amendment or modification.
12. Notices. Except as set forth below, all notices and other
-------
communications provided for or permitted hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by telex or
telecopier, registered or certified mail (return receipt requested), postage
prepaid or courier or overnight delivery service to the Companies at the
following addresses and to the Holder at the address set forth on his or her
signature page to this Agreement (or at such other address for any party as
shall be specified by like notice, provided that notices of a change of address
shall be effective only upon receipt thereof), and further provided that in case
of notifications to amend the Registration Statement pursuant to Section 2(b) or
2(e) or notifications pursuant to Section 5, the sender must confirm such notice
in writing by overnight express delivery:
If to BI or BSI: Bradlees, Inc.
Bradlees Stores, Inc.
One Bradlees Circle
Braintree, MA 02184
Attn: Peter Thorner, Chief Executive Officer
David Schmitt, Senior Vice President and
General Counsel
Telephone: (781) 380-3000
Telecopy: (781) 380-8096
9
<PAGE>
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Raymond C. Zemlin, P.C.
Telephone: (617) 570-1000
Telecopy: (617) 523-1231
13. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the successors and assigns of the Companies. This
Agreement may not be assigned by any Holder other than as permitted by Section
16 and any attempted assignment hereof by any Holder other than as permitted by
Section 16 will be void and of no effect and shall terminate all obligations of
the Companies hereunder with respect to such Holder.
14. Information by Holders. Each Holder shall furnish to the Companies
----------------------
such information regarding such Holder and the distribution and/or sale proposed
by such Holder as the Companies may reasonably request in writing and as shall
be reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement. If necessary for the Holder to effect
such disposition and/or sale covering the Registered Securities, the intended
method or methods of disposition and/or sale of such securities as so provided
by such Holder shall be included without alteration in the Registration
Statement and shall not be changed without written consent of such Holder.
15. Replacement Certificates. The certificate(s) representing the shares
------------------------
of Common Stock held by any Holder may be exchanged by such Holder at any time
and from time to time for certificates with different denominations representing
an equal aggregate number of shares of Common Stock, as reasonably requested by
such Holder upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
16. Transfer or Assignment. Except as otherwise provided herein, this
----------------------
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights granted to the Holders by
the Companies under this Agreement may only be transferred or assigned (in whole
or in part) to a transferee or assignee of Registered Securities that receives
an amount of Registered Securities equal to at least [50,000 shares of] Common
Stock of BI (or, in the case of Notes, which are convertible into at least
[50,000 shares of] Common Stock of BI); provided that the Companies must be
given written notice by such Holder at the time of or within a reasonable time
after said transfer or assignment, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned; and provided further that
the transferee or assignee of such rights agrees in writing to be bound by the
registration provisions of this Agreement.
10
<PAGE>
17. Miscellaneous.
-------------
(a) Remedies. The Companies and the Holders acknowledge and agree
that irreparable damage would occur in the event that any of the provisions
of this Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions thereof, in addition to any other
remedy to which any of them may be entitled by law or equity.
(b) Jurisdiction. The Companies and each of the Holders (i) hereby
irrevocably submit to the exclusive jurisdiction of the United States
District Court, the Massachusetts State Courts and other courts of the
United States sitting in Boston, Massachusetts for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement and
(ii) hereby waive, and agree not to assert in any such suit action or
proceeding, any claim that it is not personally subject to the jurisdiction
of such court, suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. The
Companies and each of the Holders consent to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at
the address in effect for notices to it under this Agreement and agree that
such service shall constitute good and sufficient serve of process and
notice thereof. Nothing in this paragraph shall affect or limit any right
to serve process in any other manner permitted by law.
(c) Waivers. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed
to be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any
party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
(d) Severability. The parties acknowledge and agree that the Holders
are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Holders
hereunder are several and not joint, that no Holder shall have any
responsibility or liability for the representations, warrants, agreements,
acts or omissions of any other Holder, and that any rights granted to
"Holders" hereunder shall be enforceable by each Holder hereunder.
(e) Titles. The titles used in this Agreement are for convenience
only and are not to be considered in construing or interpreting this
Agreement.
(f) No Strict Construction. The language used in this Agreement will
be deemed to be the language chose by the parties to express their mutual
intent, and no rule of strict consideration will be applied against any
party.
11
<PAGE>
(g) Jury Trial. Each party hereto waives the right to a trial by
jury.
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
19. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of The Commonwealth of Massachusetts applicable to
contracts made and to be performed wholly within said Commonwealth.
20. Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
21. Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to such subject matter. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
[Remainder of Page Intentionally Left Blank]
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
BRADLEES, INC.
--------------------------------
Name:
Title:
BRADLEES STORES, INC.
--------------------------------
Name:
Title:
13
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
--------------------------------
Name:
Address for Notice:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
14
<PAGE>
[EXECUTION COPY]
EXHIBIT 10.41
December 16, 1998
Bradlees Stores, Inc.
One Bradlees Circle,
P.O. Box 859051
Braintree, MA 02185-9051
Attention: Cornelius F. Moses, III
Senior Vice President and
Chief Financial Officer
Re: Second Consent to Modification of Commitment Letter
---------------------------------------------------
Gentlemen:
Reference is made to (i) that certain commitment letter (including the
Term Sheet attached thereto, the "Commitment Letter"), dated December 23, 1997,
-----------------
among Bradlees Stores, Inc., as debtor and debtor-in-possession (the "Debtor")
------
in a case (the "Case") filed under Chapter 11 of the United States Bankruptcy
----
Code (the "Code") in the United States Bankruptcy Court for the Southern
----
District of New York (the "Bankruptcy Court"), and the lenders party thereto
----------------
(the "Lenders"), regarding post-confirmation financing in connection with a plan
-------
of reorganization to be filed by the Debtor with the Bankruptcy Court and (ii)
that certain consent to modification of commitment letter, dated as of April 7,
1998, among the Debtor and the Lenders (the "Consent," and the Commitment Letter
-------
as modified by the Consent, the "Existing Commitment Letter"). Capitalized
--------------------------
terms used herein without definition shall have the meanings given to such terms
in the Commitment Letter or the Consent, as applicable.
You have advised the Lenders that the Debtor currently anticipates
seeking confirmation of a plan of reorganization (the "Plan") that will not
----
satisfy all of the conditions to the Lenders' commitment under the Existing
Commitment Letter (the "Existing Commitment"), thus rendering the Existing
-------------------
Commitment and the Existing Commitment Letter null and void and of no further
force or effect. In addition, you have informed us that the Debtor wishes to
make certain further modifications to the Existing Commitment Letter.
Therefore, the Debtor has requested that the Lenders consent to a modification
of the Existing Commitment Letter to provide for (i) additional availability to
the Debtor under a "Tranche B" facility to be provided by certain Lenders and
other lenders (collectively, the "Tranche B Lenders") and (ii) certain other
-----------------
modifications to the Facility as more specifically set forth herein.
Subject to such approval by the Bankruptcy Court as may be necessary
in the opinion of the Administrative Agent of the Consent and this letter
agreement (including all exhibits, annexes and schedules hereto, this "Second
------
Consent"), the Existing Commitment Letter
- -------
<PAGE>
Bradlees Stores, Inc
December 16,1998
Page 2
as modified by this Second Consent (the "Modified Commitment Letter"), and the
--------------------------
transactions contemplated by the Modified Commitment Letter, including such
approval by the Bankruptcy Court as may be necessary in the opinion of the
Administrative Agent of payment by the Debtor of the expenses (the "Expenses")
--------
set forth in the Modified Commitment Letter (such approval of the Bankruptcy
Court being evidenced by the entry of one or more orders satisfactory in form
and substance to the Lenders, which orders shall not vary the express terms of
the Consent, the Second Consent or the Modified Commitment Letter), and subject
to the payment of the Second Consent Fee set forth below and payment of the fees
set forth in that separate fee letter of even date herewith (the "Tranche B Fee
-------------
Letter") between the Debtor and BankBoston, N.A., as agent for the Tranche B
- ------
Lenders (the "Tranche B Agent"), the Lenders' commitment to provide the Facility
---------------
as set forth in the Existing Commitment Letter is modified as set forth in the
modifications summary attached hereto as Exhibit A (which modifications shall
include several changes required by the Lenders in exchange for their consent
hereto)./1/
In consideration for the Lenders' agreement to modify the Existing
Commitment Letter as set forth herein, the Debtor shall pay to the
Administrative Agent, for the pro rata benefit of the Lenders, a consent fee
equal to $750,000 (the "Second Consent Fee"), payable in immediately available
------------------
funds on the Plan Effective Date. Such Second Consent Fee supersedes and
replaces the Consent Fee set forth in the Consent.
Except as specifically provided herein, this Second Consent does not
in any way affect or impair the terms, conditions and other provisions of the
Commitment Letter, the Existing Commitment Letter or the Consent and all terms,
conditions (including all conditions precedent, except as provided in paragraph
3 of the Consent) and other provisions of the Commitment Letter, the Existing
Commitment Letter and the Consent shall remain in full force and effect. Any
modifications or amendments herein are limited to the specific provisions
described and shall not be deemed to (i) be amendments of any other term or
condition of the Commitment Letter, the Existing Commitment Letter or the
Consent or (ii) prejudice any rights not specifically addressed herein which the
Debtor, the Administrative Agent, any Lender or any Tranche B Lender may now
have or may have in the future under the Commitment Letter, the Existing
Commitment Letter or the Consent. Furthermore, nothing herein shall be deemed
to be a waiver of such rights as the Lenders (as Lenders under the DIP Facility)
may otherwise have to object to any Plan as creditors under such facility.
_____________________
/1/ Exhibit A is only a summary of the agreed upon modifications to the
Commitment Letter. The actual language to be included in the Form Credit
Agreement to reflect these changes--as well as any additional changes
necessitated thereby--are subject to the approval of the Debtor, the
Administrative Agent, the Lenders and the Tranche B Lenders.
<PAGE>
Bradlees Stores, Inc
December 16,1998
Page 3
For the avoidance of doubt, the terms and conditions of the Lenders'
and the Tranche B Lenders' commitment under the Modified Commitment Letter with
respect to the Facility are not limited to the terms and conditions set forth in
the Commitment Letter, the Existing Commitment Letter, the Consent or this
Second Consent (the "Commitment Documents"). Those matters that are not covered
--------------------
by or made clear under the provisions of the Commitment Documents are subject to
the approval and agreement of the Lenders, the Tranche B Lenders and the Debtor.
The expense reimbursement, indemnity and confidentiality provisions of
the Commitment Letter shall apply with equal force to this Second Consent except
as expressly modified herein.
This Second Consent shall be governed by, and construed in accordance
with, the laws of the State of New York.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof by signing and returning to the
Administrative Agent by telecopy not later than 5:00 p.m., Boston time, on
December 16, 1998 (with an original to follow by overnight mail), the enclosed
duplicate original of this Second Consent. The modifications to the Existing
Commitment Letter contained herein shall terminate if (a) you shall have failed
to accept this Second Consent in the time and manner set forth in the previous
sentence or (b) the Administrative Agent, the Lenders, the Tranche B Lenders or
the Tranche B Agent, as applicable, shall not have received payment of the
Expenses, the Second Consent Fee and the fees set forth in the Tranche B Fee
Letter no later than the Plan Effective Date.
By executing this Second Consent, the Tranche B Lenders agree to be
bound by the terms of the Modified Commitment Letter and the Debtor agrees that
the Tranche B Lenders shall be entitled to all of the benefits inuring to the
"Lenders" thereunder.
<PAGE>
Bradlees Stores, Inc
December 16,1998
Page 4
This Second Consent may be executed in any number of counterparts,
each of which shall be an original and all of which, when taken together, shall
constitute one agreement.
Without limiting the other conditions set forth herein, this Second
Consent shall not be effective unless and until signed by all of the Lenders,
all of the Tranche B Lenders and the Debtor.
Very truly yours,
BANKBOSTON, N.A.
By:
Name:
Title:
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY,
as a Lender
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
FIRSTRUST BANK,
as a Lender
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
FLEET NATIONAL BANK,
as a Lender
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC.,
as a Lender
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
CONGRESS FINANCIAL CORPORATION (NEW ENGLAND),
as a Lender
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
FREMONT FINANCIAL CORPORATION,
as a Lender
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
GREEN TREE FINANCIAL SERVICING CORPORATION,
as a Lender
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
HELLER FINANCIAL, INC.,
as a Lender
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
NATIONAL CITY COMMERCIAL FINANCE, INC.,
as a Lender
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
FOOTHILL CAPITAL CORPORATION,
as a Lender
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
LASALLE BUSINESS CREDIT, INC.
as a Lender
By:
---------------------------
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
BANKBOSTON, N.A.,
as a Tranche B Lender
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
ACKNOWLEDGED:
BANKBOSTON, N.A.,
as Administrative Agent
By:______________________________
Name:
Title:
<PAGE>
Agreed to and accepted as of the date first above written:
BRADLEES STORES, INC.,
as Debtor and Debtor-in-Possession
By:
------------------------------
Name:
Title:
<PAGE>
Exhibit A to Second Consent to Modification of Commitment Letter
----------------------------------------------------------------
Capitalized terms used herein without definition shall have the meanings given
to such terms in the Second Consent to Modification of Commitment Letter to
which this Exhibit A is attached or in the Commitment Letter or the Consent, as
applicable.
MODIFICATIONS TO COMMITMENT LETTER:
The Facility may include up to an additional $20,000,000 of availability
pursuant to a "Tranche B" facility (the "Tranche B Facility"),
substantially on the terms set forth on Annex I hereto (with such other
modifications to the Form Credit Agreement as are necessary in the opinion
of the Lenders and the Tranche B Lenders to reflect the inclusion of such
Tranche B (including, without limitation, intercreditor arrangements
between the Lenders and the Tranche B Lenders)).
In addition to the modifications to the Plan set forth in the Consent, the
Plan may also provide for the following:
(a) The issuance of warrants for the purchase of up to 1,000,000
shares of common stock of BI in the aggregate, on the terms set forth in
the Plan and otherwise reasonably acceptable to the Administrative Agent;
(b) the issuance of stock options to certain members of management of
the Debtor and BI for the purchase of up to 750,000 shares of common stock
of BI in the aggregate, on the terms set forth in the Plan;
(c) cash payments not in excess of $14,000,000 in the aggregate to
certain creditors of the Debtor as set forth in the Plan; and
(d) such other cash payments to be made on or about the Plan Effective
Date in respect of (i) allowed administrative claims (the total dollar
amount of all such payments the Debtor currently estimates in good faith to
be approximately $16,000,000), (ii) allowed "convenience claims" (the total
dollar amount of all such payments the Debtor currently estimates in good
faith to be approximately $1,000,000) and (iii) an allowed pre-petition
claim evidenced by a mechanic's lien (the dollar amount of such payment the
Debtor currently estimates in good faith to be approximately $5,000).
The maximum permissible interest rate for the Cure Notes shall be 9% per
annum (in lieu of 8%). In addition, the Debtors shall be permitted to pay
cash to certain landlords in lieu of the issuance of Cure Notes in an
aggregate amount which the Debtor currently estimates in good faith to be
approximately $650,000.
The maximum permissible interest rate for the CAP Notes shall be 9% per
annum (in lieu
<PAGE>
of 8%) and the maximum aggregate principal amount thereof shall not exceed
$628,000. In addition, the CAP Notes shall have a term of not less than
three years (in lieu of six years) and shall require principal to be paid
in 12 equal quarterly installments commencing three months following the
Plan Effective Date. Accrued interest on the CAP Notes shall be paid on
each principal payment date.
In addition to prepayments from the sale of the Permissible Collateral (as
defined in the Consent), the Notes may be prepaid by the Debtor (i) with
the proceeds of any equity offering by reorganized Bradlees, Inc.,
consummated after the Plan Effective Date or (ii) with other funds,
provided that, with respect to this clause (ii), immediately after giving
effect to such prepayment the Debtor has excess borrowing availability
under the Facility of at least the amount set forth below opposite the
month in which such prepayment occurs:
<TABLE>
<S> <C>
February $39,000,000
March $46,000,000
April $49,000,000
May $48,000,000
June $36,000,000
July $38,000,000
August $31,000,000
September $34,000,000
October $47,000,000
November $43,000,000
December $47,000,000
January $46,000,000
</TABLE>
No other prepayments of the Notes shall be permitted. For the avoidance of
doubt, the "Permissible Collateral" shall not include any Inventory. The
Debtor's obligations under the Notes shall be guaranteed by reorganized
Bradlees, Inc.; provided, however, that such guaranty shall be unsecured,
shall be expressly subordinate to the guaranty by reorganized Bradlees,
Inc., of the obligations of the Debtor under the Facility and shall be
otherwise reasonably satisfactory to the Administrative Agent.
The advance rate to be applied against the Loan Value of Eligible
Receivables shall be increased from 60% to 80%.
The Form Credit Agreement shall be revised to make clear that the
Collateral shall include substantially all assets (other than Real
Property) of the Debtor and the Guarantors.
---
The definition of "Closing Date" in the Form Credit Agreement shall be
revised to make clear that the Closing Date shall not occur unless all
conditions precedent thereto have been satisfied or waived in writing by
the Administrative Agent, the Tranche B Agent, the Issuing Bank the
Collateral Agent and the Required Lenders.
2
<PAGE>
The definition of "Eligible Receivables" in the Form Credit Agreement shall
be revised to permit such Receivables to be subject to the Lien of the
Collateral Agent and other Permitted Liens (provided that the Collateral
Agent's Lien is first-priority).
The definition of "Obligations" in the Form Credit Agreement shall be
revised to include the due and punctual payment of any obligations of the
Debtor and the Guarantors under (i) interest rate agreements entered into
with BBNA and (ii) that certain Master Lease Agreement, as amended, between
BankBoston Leasing, Inc., as lessor, and the Debtor, as lessee (the "Master
------
Lease Agreement"), concerning lighting fixtures in certain of the Debtor's
---------------
stores. In addition, upon the occurrence and during the continuance of a
Default or an Event of Default under the Facility, the Administrative Agent
shall be entitled to create a reserve against the Borrowing Base for
amounts outstanding under the Master Lease Agreement.
The definition of "Overadvance Amount" in the Form Credit Agreement shall
be revised by changing the figure "75%" to "77%".
The definition of "Permitted Investments" in the Form Credit Agreement
shall be revised by replacing the designation "A2" with the designation "P-
2".
Supermajority and tiered voting provisions will be added to the Form Credit
Agreement with respect to certain matters to be agreed between the Lenders
and the Tranche B Lenders and reasonably acceptable to the Debtor. By way
of example, any agreement to permit the Debtor to permanently close more
than the number of its retail locations permitted under the Credit
Agreement will require the consent of a majority of the Lenders and the
Tranche B Lenders (taken as two separate groups, and determined based on
Loans outstanding or Commitment amounts, as applicable).
Section 2.14 of the Form Credit Agreement shall be revised to include in
the payment "waterfall" those amounts received by the Administrative Agent,
the Tranche B Agent, the Issuing Bank, the Collateral Agent, the Co-Agents,
any Lender or any Tranche B Lender as contemplated by Section 2.17 of the
Form Credit Agreement.
The tax and ERISA provisions in the Form Credit Agreement shall be updated.
Section 3.04 of the Form Credit Agreement shall be revised to reflect the
new corporate structure of the Debtor and the Guarantors as contemplated by
the Plan.
A standard representation and warranty regarding Year 2000 issues shall be
added to the Form Credit Agreement.
Section 4.01 of the Form Credit Agreement shall be revised to include as
conditions precedent delivery by the Borrower of (i) a certificate of good
standing for the Borrower and any each Guarantor from each state where the
Borrower or such Guarantor is qualified to do business and (ii) a standard
compliance certificate (i.e., no defaults, all representations and
warranties true, all covenants complied with , all corporate fees and
3
<PAGE>
franchise taxes paid, etc,).
The required EBITDA condition precedent set forth in Section 4.01 (t) of
the Form Credit Agreement shall be revised (i) to exclude from cash
restructing costs (which are subtracted from the calculation of EBITDA
under such section) up to $3,500,000 of cash restructuring costs incurred
during the 12-month period ending on the Closing Date and (ii) to add back
to EBITDA up to $4,400,000 of "SG&A" expenses relating to emergence and
other bonuses.
The required excess availability condition precedent set forth in Section
4.01(u) of the Form Credit Agreement shall be revised as follows: (i) the
introductory sentence to this subsection shall be replaced in its entirety
with a statement which conveys that the minimum excess availability
required to exit will be determined after giving effect to the repayment in
full of the Existing Credit Facility and to the cash payments under the
Plan of Reorganization to be made on or shortly after the Plan Effective
Date (such determination of excess availability will specifically exclude
payments under the Tax Payment Plan), (ii) by replacing the figure
"$42,000,000" with "$35,000,000" and (iii) by replacing the figure
"$53,000,000" with "$40,000,000".
The date "January 30, 1999" shall be inserted in subsections 5.01(b) and
(d) of the Form Credit Agreement.
A covenant regarding the use of proceeds of the Loans (similar in substance
to the representation and warranty contained in Section 3.10 of the Form
Credit Agreement) shall be added to the Form Credit Agreement.
Section 6.03 of the Form Credit Agreement shall be revised to permit the
incurrence of Indebtedness (not in excess of $3,300,000) pursuant to the
Tax Payment Plan.
Section 6.04 of the Form Credit Agreement shall be revised to permit the
carryover to the immediately following fiscal year of up to $5,000,000 of
the permitted Capital Expenditures basket unused in a given fiscal year.
Section 6.05 of the Form Credit Agreement shall be revised by replacing (i)
the figure "$15,000,000" with the figure "$17,500,000"; (ii) the figure
"$17,500,000" with the figure "$20,000,000"; (iii) the figure "$20,000,000"
with the figure "$22,500,000"; and (iv) the figure "$25,000,000" with the
figure "$27,500,000".
Section 6.06 of the Form Credit Agreement shall be revised by replacing the
(i) the figure "32.5%" with the figure "37%" and (ii) each "37.5%" figure
with the figure "40.0%".
Section 6.07 of the Form Credit Agreement shall be revised by postponing
the first test of the Debtor's debt coverage ratio to the fiscal quarter of
the Borrower ending on or about January 31, 2001, and reducing the required
minimum debt coverage ratio of the Debtor for such fiscal quarter to 1:1.
4
<PAGE>
Subsection 6.13(c) of the Form Credit Agreement shall be revised by
inserting at the end thereof (before the period) the following clause: "and
except as set forth in subsection 7.01(k)".
A covenant shall be added to the Form Credit Agreement prohibiting any
amendments to the documents evidencing the Notes, the CAP Notes, the Cure
Notes, the Tax Payment Plan or the Trade Lien, or any prepayment with
respect to any of the foregoing not expressly permitted under the Modified
Commitment Letter, in each case without the prior written consent of the
Administrative Agent.
Subsection 7.01(h) of the Form Credit Agreement shall be revised to remove
clause (ii) thereof.
Subsection 7.01(k) of the Form Credit Agreement shall be revised by
inserting immediately after the word "close" therein the following
parenthetical: "(temporarily or otherwise)".
Subsection 7.01(s) of the Form Credit Agreement shall be revised by: (i)
changing the term "Filing Date" to "Plan Effective Date"; (ii) changing the
phrase "fifty percent (50%)" to the phrase "thirty percent (30%); provided
--------
that, with respect only to direct purchasers from Gabriel Capital L.P.
("Gabriel") and Elliott Associates, L.P. and Westgate International, L.P.
-------
(collectively, "Elliott") of shares of voting securities owned by Gabriel
-------
or Elliott on the Plan Effective Date representing more than thirty percent
(30%) of the voting securities of BI, the applicable percentage shall be
fifty percent (50%)"; and (iii) making clear that when calculating the
amount of voting stock of BI owned by any Person, such calculation shall be
made on a fully-diluted basis.
Section 10.01 of the Form Credit Agreement shall be revised to reflect the
Debtor's correct P.O. Box (9051) and area code (781).
Section 10.03 of the Form Credit Agreement shall be revised to add to those
issues with respect to which a participant may be given the right to
consent the release of a material portion of the Collateral (other than as
expressly permitted under the Loan Documents).
The Form Credit Agreement shall be revised to make clear that the
"Borrower" under the Facility will be the reorganized Bradlees Stores, Inc.
(as contemplated by the Plan) and the "Guarantors" will include the
reorganized Bradlees, Inc. (as contemplated by the Plan) and all present
and future direct and indirect subsidiaries of each such entity.
Certain typographical errors and other minor inconsistencies in the Form
Credit Agreement shall be corrected and certain drafting clarifications
shall be made.
5
<PAGE>
ANNEX I TO EXHIBIT A TO SECOND CONSENT TO MODIFICATION OF COMMITMENT LETTER
---------------------------------------------------------------------------
BRADLEES STORES, INC.
PROPOSED TERMS AND CONDITIONS FOR TRANCHE B FACILITY
Capitalized terms used herein without definition shall have the meanings given
to such terms in the Second Consent to Modification of Commitment Letter to
which this Annex I is attached (as an annex to Exhibit A thereto) or in the
Commitment Letter or the Consent, as applicable.
Borrower: Reorganized Bradlees Stores, Inc. (the "Borrower").
- -------- --------
Guarantors: Reorganized Bradlees, Inc. ("BI"), and all present and future
- ---------- --
direct and indirect subsidiaries of BI and the Borrower
(collectively, the "Guarantors").
----------
Agent: BankBoston, N.A. (the "Tranche B Agent").
- ----- ---------------
Lenders: The banks and other financial institutions party to the
- -------
Second Consent as "Tranche B Lenders" and their successors and
assigns (the "Tranche B Lenders").
-----------------
Facility: $20,000,000 junior secured "last in-last out"/1/ subfacility
- --------
(the "Tranche B Facility") under the Facility (that portion of
------------------
the Facility other than the Tranche B Facility is referred to
herein as the "Senior Facility"). Except as provided herein,
---------------
or as otherwise agreed among the Lenders, the Tranche B
Lenders and the Borrower, the Tranche B Lenders shall be
entitled to all of the benefits inuring to the "Lenders" under
the Facility (including, without limitation, provisions
relating to expense reimbursement and indemnity and all
representations, warranties and covenants of the Borrower and
the Guarantors contained therein) and the administrative and
mechanical provisions of the Credit Agreement will apply with
equal force to the Tranche B Facility.
Availability: Availability under the Tranche B Facility will be limited to
- ------------
the lesser of (i) $20,000,000 and (ii) when combined with
amounts borrowed under the Senior Facility, 93% of the net
recovery value of Eligible Inventory (as determined by the
Tranche B Agent). Based on current estimates, the advance
rates to be applied against Eligible Inventory are expected to
be as follows (subject to an initial appraisal and continued
validations by periodic appraisals):
_____________________________
\1\ i.e., no principal payments on outstanding amounts under Tranche B Facility
until Senior Facility is paid in full (with exceptions for permanent
reduction or termination of Tranche B Facility).
<PAGE>
<TABLE>
<CAPTION>
SENIOR FACILITY TRANCHE B FACILITY
INVENTORY INVENTORY
PERIOD ADVANCE RATE ADVANCE RATE
----------------------------------------------------------------------
<S> <C> <C>
March 1 - June 30 77% 85%
----------------------------------------------------------------------
July 1 - Sept. 30 77% 84%
----------------------------------------------------------------------
Oct. 1 - Dec. 15 77% 85%
----------------------------------------------------------------------
Dec. 16 - Feb. 28 72% 80%
----------------------------------------------------------------------
</TABLE>
Purpose: Same as for Senior Facility (other than to support the
- -------
issuance of Letters of Credit).
Final Maturity: Three years from the Closing Date. The Borrower may cancel
- --------------
the Tranche B Facility at any time if it has excess
borrowing availability under the Facility of at least the
amount set forth below opposite the month in which such
prepayment occurs (after giving effect to the cancellation
of the Tranche B Facility):
February $ 39,000,000
March $ 46,000,000
April $ 49,000,000
May $ 48,000,000
June $ 36,000,000
July $ 38,000,000
August $ 31,000,000
September $ 34,000,000
October $ 47,000,000
November $ 43,000,000
December $ 47,000,000
January $ 46,000,000
Any optional permanent reduction by the Borrower of the
maximum amount of the Senior Facility shall require a pro
---
rata reduction of the Tranche B Facility as well.
----
Security: Last-out position in the Collateral securing the Facility
- --------
(substantially all assets of the Borrower and the Guarantors
(excluding Real Property)).
Interest Rate: Prime plus 7%, payable monthly.
- -------------
Fees: As set forth in the Tranche B Fee Letter.
- -----
Defaults: Same as under the Senior Facility; provided that, except in
- -------- --------
the case of certain "super-defaults" to be agreed between
the Lenders and the Tranche B Lenders, in the event of a
Default or an Event of Default under the Facility, and prior
to any acceleration by the Lenders under the Senior
Facility, the Tranche B Lenders will be obligated to
continue to make Loans under the Tranche B Facility for ten
(10) additional days in an amount not to exceed $5,000,000
(provided that borrowing availability exists under
2
<PAGE>
the Tranche B Facility).
Conditions Precedent: In addition to those contained in the Modified
- --------------------
Commitment Letter, completion of an appraisal of the
Borrower's Inventory satisfactory to the Tranche B
Agent by a third-party appraiser satisfactory to the
Borrower and the Tranche B Agent.
Voting: "Supermajority" and tiered voting provisions will be
- ------
included in the Facility where appropriate to reflect
the relationship between the Lenders and the Tranche B
Lenders.
Intercreditor Issues: The Facility will be revised as necessary in the
- ---------------------
opinion of the Lenders and the Tranche B Lenders to
reflect the intercreditor arrangements contemplated by
this Annex I.
Tranche B Agent: The Tranche B Agent will be entitled to all indemnity,
- ---------------
exculpation and expense reimbursement provisions
applicable to the Administrative Agent.
Governing Law: State of New York.
- -------------
3
<PAGE>
Bradlees Stores, Inc.
April 7, 1998
Page 1
[EXECUTION COPY]
April 7, 1998
Bradlees Stores, Inc.
One Bradlees Circle,
P.O. Box 859051
Braintree, MA 02185-9051
Attention: Cornelius F. Moses, III
Senior Vice President and
Chief Financial Officer
Re: Consent to Modification of Commitment Letter
--------------------------------------------
Gentlemen:
Reference is made to that certain commitment letter (including the
Term Sheet attached thereto, the "Commitment Letter") dated December 23, 1997,
among Bradlees Stores, Inc., as debtor and debtor-in-possession (the "Debtor")
in a case (the "Case") filed under Chapter 11 of the United States Bankruptcy
Code (the "Code") in the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court"), and the lenders party thereto
(the "Lenders"), regarding post-confirmation financing in connection with a plan
of reorganization to be filed by the Debtor with the Bankruptcy Court.
Capitalized terms used herein without definition shall have the meanings given
to such terms in the Commitment Letter.
You have advised the Lenders that the Debtor currently anticipates
seeking confirmation of a plan of reorganization (the "Plan") that will not
satisfy all of the conditions to the Lenders' commitment under the Commitment
Letter (the "Commitment") and, thus, would render the Commitment and the
Commitment Letter null and void and of no further force or effect. Therefore,
the Debtor has requested that the Lenders consent to a modification of the
Commitment Letter to provide for (i) the issuance of certain specified secured
indebtedness to certain pre-petition creditors of the Debtor and (ii) the
granting to certain of the Debtor's pre-petition trade creditors of a second-
priority lien on the Debtor's
<PAGE>
Bradlees Stores, Inc.
April 7, 1998
Page 2
Inventory, in each case in connection with the Plan and as more specifically set
forth below.
Subject to the approval by the Bankruptcy Court of all aspects of this
letter agreement (this "Consent"), the Commitment Letter as modified by this
Consent (the "Modified Commitment Letter"), and the transactions contemplated by
the Modified Commitment Letter (such approval of the Bankruptcy Court being
evidenced by the entry of one or more orders satisfactory in form and substance
to the Lenders), and subject to the payment of the Consent Fee set forth below,
the Lenders' commitment to provide the Facility as set forth in the Commitment
Letter is modified as follows:
1. The Plan may provide for the issuance of notes by the Debtor in an
aggregate principal amount not to exceed $40,000,000 bearing interest
at a rate not to exceed 9% per annum (the "Notes") in favor of (to the
extent provided in the Plan) (i) the banks and other financial
institutions (the "Pre-Petition Revolver Bank Group") holding pre-
petition claims under that certain Credit Agreement among Bradlees,
Inc., the Pre-Petition Revolver Bank Group and Bankers Trust Company,
as Agent, dated as of March 3, 1993, (ii) the banks and other
financial institutions (the "SPE Group") holding pre-petition claims
under the SPE Documents (as defined in the Plan)/1/ and (iii) to the
extent allowed by order of the Bankruptcy Court, holders of pre-
petition, general unsecured claims against certain of the Debtor's
subsidiaries, in partial satisfaction of such claims.
a. The Notes shall have a term of not less than five (5) years from
date of issuance, may require equal semi-annual payments of
accrued interest (but not principal), and shall be subject to
prepayment without penalty from the proceeds of the sale of the
Permissible Collateral (as defined below) and the net proceeds of
any equity offering by the Debtor on or after the Plan Effective
Date.
b. The Notes may be secured by the Debtors's or the Guarantors'
interest in the real property and improvements located at the
site of the Debtor's locations in Yonkers, New York (the "Yonkers
Store") and Union Square, New York, New York (the "Union Square
Store") (and the proceeds of any disposition of any of the
foregoing) (collectively, the "Permissible Collateral").
/1/ When this Consent refers to definitions contained in "the Plan", such
definitions are those contained in the draft Plan, dated March 27,
1998, provided to the Administrative Agent on March 30, 1998.
<PAGE>
Bradlees Stores, Inc.
April 7, 1998
Page 3
c. All other terms and provisions of the Notes, as well as all
documentation relating to the Permissible Collateral, shall be
reasonably satisfactory to the Administrative Agent and, in any
event, shall not contain any cross-default or cross-acceleration
rights to the Facility.
2. The Plan may also provide for the issuance by the Debtor of unsecured
notes in an aggregate principal amount not to exceed $3.5 million
bearing interest at a rate not to exceed 8% per annum (the "Cure
Notes") in favor of non-debtor parties to executory contracts that are
to be assumed pursuant to the Plan for the purpose of paying "cure
amounts" as required by section 365 of the Bankruptcy Code.
a. The Cure Notes shall have a term of not less than three years and
may be subject to equal periodic payments of principal and
accrued interest over such three-year period. In addition, the
Cure Notes may be prepaid by the Debtor, without premium or
penalty, with the prior written consent of the Administrative
Agent, such consent not to be unreasonably withheld.
b. All other terms and provisions of the Cure Notes shall be
reasonably satisfactory to the Administrative Agent and, in any
event, shall not contain any cross-default or cross-acceleration
rights to the Facility.
3. The Plan may also provide for the issuance of notes by the Debtor in
an aggregate principal amount not to exceed $840,000 bearing interest
at a rate not to exceed 8% per annum (the "CAP Notes") in favor of the
holders of Capital Lease Claims (as defined in the Plan).
a. The CAP Notes shall have a term of not less than six years and
may require equal semi-annual payments of accrued interest (but
not principal). In addition, the CAP Notes may be prepaid by the
Debtor, without premium or penalty, with the prior written
consent of the Administrative Agent, such consent not to be
unreasonably withheld.
b. The CAP Notes may be secured by a first lien on the property on
which the holder of a Capital Lease Claim is determined by the
Bankruptcy Court to have held a valid first priority security
interest as of the Petition Date (the "CAP Collateral").
c. All other terms and provisions of the CAP Notes, as well as all
documentation related to the CAP Collateral, shall be reasonably
<PAGE>
Bradlees Stores, Inc.
April 7, 1998
Page 4
satisfactory to the Administrative Agent and, in any event, shall
not contain any cross-default or cross-acceleration rights to the
Facility.
4. The Plan may also provide that certain trade creditors of the Debtor
be granted a second-priority Lien on the Debtor's Inventory to secure
the extension of trade credit by such trade creditors subsequent to
confirmation of the Plan (the "Trade Lien"). All terms and conditions
of the Trade Lien (including all documentation relating thereto) shall
be reasonably satisfactory to the Administrative Agent and, in any
event, shall include the following:
a. The Trade Lien shall be junior and subordinate to the Lien of the
Lenders securing the Obligations and shall provide that the
holders of the Trade Lien shall have no right to exercise or
enforce any rights with respect to the Trade Lien or the
Inventory (or to consent to or approve any such exercise or
enforcement by the Administrative Agent), or to receive any
payment from the proceeds of the Inventory, unless and until the
Obligations are finally and indefeasibly paid in full.
b. The documentation evidencing the Trade Lien shall not contain any
cross-default or cross-acceleration rights to the Facility. In
addition, the holders of the Trade Lien shall have no right to
consent to or approve any amendments, modifications, refinancings
or other changes to the Facility, including, without limitation,
increases in advance rates, interest rates and principal amount
and the creation or elimination of any reserves or categories of
ineligible Inventory.
c. The Trade Lien shall be available to vendors who provide retail
merchandise to the reorganized Debtor after the Plan Effective
Date or to vendors who have provided retail merchandise to the
Debtor before the Plan Effective Date which is not paid for as of
the Plan Effective Date, in each case subject to the release
provisions set forth in paragraph d. below.
d. The Trade Lien shall be automatically released upon the earliest
to occur of (i) two (2) years after the Plan Effective Date, (ii)
the date on which the ratio of the amount of accounts payable of
the Debtor to the amount of Inventory of the Debtor, computed on
a cost basis, for any rolling three-month period is more than
five percentage points less than such ratio on a comparable store
basis for the same period in the prior year, (iii) the
consummation of a transaction pursuant to which the reorganized
Debtor or the reorganized Bradlees, Inc. merges or otherwise
combines with another company or companies, (iv) as to any
<PAGE>
Bradlees Stores, Inc.
April 7, 1998
Page 5
individual trade vendor that has provided retail merchandise
during the pendency of the Case, at such time as such vendor
fails to provide retail merchandise to the Debtor on terms which
are at least as favorable to the Debtor as the credit terms under
which such vendor provided retail merchandise to the Debtor in
the year prior to the Plan Effective Date and (v) as to any
individual trade vendor that initially provides retail
merchandise to the Debtor after the Plan Effective Date, at such
time as such vendor fails to provide retail merchandise to the
Debtor on terms which are as least as favorable to the Debtor as
the initial credit terms under which such vendor first provided
retail merchandise to the Debtor. The Administrative Agent shall
have access to all information necessary to determine if the
vendors are providing sufficient credit support, as determined by
the formulas set forth in subparagraphs (ii) and (iv) above, and
shall have the authority to execute and file all documents
necessary to effectuate any such release.
5. In connection with the above-described modifications to the Commitment
Letter, the Debtor and the Lenders agree that the EBITDA condition
precedent to lending set forth in Sections 4.01(t) of the Term Sheet
shall be calculated without giving effect to any revenues attributable
-------
to the operations of the Yonkers Store and the Union Square Store for
the entire periods for which such condition precedent is measured.
In consideration for the Lenders' agreement to modify the Commitment
Letter as set forth above, the Debtor shall pay to the Administrative Agent, for
the pro rata benefit of the Lenders, a consent fee equal to $500,000 (the
"Consent Fee"), payable in immediately available funds on the Plan Effective
Date.
Except as specifically provided herein, this Consent does not in any
way affect or impair the terms, conditions and other provisions of the
Commitment Letter, and all terms, conditions (including all conditions
precedent, except as provided in paragraph 3 above) and other provisions of the
Commitment Letter shall remain in full force and effect. Any modifications or
amendments herein are limited to the specific provisions described and shall not
be deemed to (i) be amendments of any other term or condition of the Commitment
Letter or (ii) prejudice any rights not specifically addressed herein which the
Administrative Agent or any Lender may now have or may have in the future under
the Commitment Letter. Furthermore, nothing herein shall be deemed to be a
waiver of the rights of the Lenders (as Lenders under the DIP Facility) to
object to any Plan as creditors under such facility.
For the avoidance of doubt, the terms and conditions of the Lenders'
commitment under the Modified Commitment Letter with respect to the Facility are
not limited to the terms and conditions set forth in the Modified Commitment
Letter or this
<PAGE>
Bradlees Stores, Inc.
April 7, 1998
Page 6
Consent. Those matters that are not covered by or made clear under the
provisions of the Modified Commitment Letter or this Consent are subject to the
approval and agreement of the Lenders and the Debtor.
The expense reimbursement, indemnity and confidentiality provisions of
the Commitment Letter shall apply with equal force to this Consent.
This Consent shall be governed by, and construed in accordance with,
the laws of the State of New York.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof by signing and returning to the
Administrative Agent by telecopy not later than 5:00 p.m., Boston time, on April
__, 1998 (with an original to follow by overnight mail), the enclosed duplicate
original of this Consent. The modifications to the Commitment Letter contained
herein shall terminate if (a) you shall have failed to accept this Consent in
the time and manner set forth in the previous sentence or (b) the Lenders shall
not have received payment of the Consent Fee no later than the Plan Effective
Date.
This Consent may be executed in any number of counterparts, each of
which shall be an original and all of which, when taken together, shall
constitute one agreement.
Very truly yours,
BANKBOSTON, N.A.
By:__________________________
Name: Elizabeth A. Ratto
Title: Vice President
<PAGE>
Bradlees Stores, Inc.
April 7, 1998
Page 7
[OTHER LENDERS]
[SIGNATURES CONTINUED ON NEXT PAGE]
Agreed to and accepted as of the date first above written:
BRADLEES STORES, INC.,
as Debtor and Debtor-in-Possession
By:
Name:
Title:
<PAGE>
Bradlees Stores, Inc.
December 23, 1997
Page 1
Commitment Letter
-----------------
December 23, 1997
Bradlees Stores, Inc.
One Bradlees Circle,
P.O. Box 859051
Braintree, MA 02185-9051
Attention: Cornelius F. Moses, III
Senior Vice President and
Chief Financial Officer
Re: Commitment Letter
-----------------
Gentlemen:
You have advised BankBoston, N.A. ("BBNA") and the other financial
institutions listed on Schedule A to this Commitment Letter (together with BBNA,
the "Lenders") that Bradlees Stores, Inc., as debtor and debtor-in-possession
(the "Debtor") in a case (the "Case") filed under Chapter 11 of the United
States Bankruptcy Code (the "Code") in the United States Bankruptcy Court for
the Southern District of New York (the "Bankruptcy Court"), is seeking post-
confirmation financing in connection with a plan of reorganization to be filed
by the Debtor (the "Plan"). In that regard, the Lenders are pleased to advise
you of their commitment, upon the terms and subject to the conditions set forth
in this Commitment Letter and in the Term Sheet attached as Exhibit A to this
Commitment Letter and incorporated herein by this reference (including the
Schedules attached thereto, the "Term Sheet")/1/ (this Commitment Letter and the
Term Sheet are referred to collectively
/1/ Not later than the closing date of the DIP Facility (as defined below), the
Term Sheet shall be replaced by a Form of Revolving Credit and Guarantee
Agreement (the "Form Credit Agreement") which will incorporate the terms of the
Term Sheet and will otherwise be satisfactory in form and substance to the
Lenders and the Borrower, after which time the defined term "Term Sheet," as
used herein, will be deemed to refer to the Form Credit Agreement.
<PAGE>
Bradlees Stores, Inc.
December 23, 1997
Page 2
herein as the "Commitment Letter"), to provide a senior secured $250,000,000
revolving credit facility (the "Facility") to the post-confirmation reorganized
Debtor.
It is the understanding of the Lenders that the proceeds of the
Facility will be used for the working capital and general business needs of the
Debtor following the effective date of the Plan (the "Plan Effective Date"), as
well as to repay in full the Debtor's debtor-in-possession credit facility,
dated the date hereof (the "DIP Facility"), among the Debtor, as borrower,
Bradlees, Inc., Bradlees Administrative Co., Inc., and each of the subsidiaries
of the Debtor, as guarantors (the "Guarantors"), the lenders party thereto,
BBNA, as administrative agent and as issuing bank, and BankBoston Retail
Finance, Inc., as agent.
Each Lender, severally and not jointly, agrees to provide its share of
the Facility as set forth opposite its name on Schedule A attached hereto. The
Lenders' commitment to provide the Facility in accordance with Schedule A hereto
is subject to the negotiation, execution and delivery of a Revolving Credit and
Guarantee Agreement which shall be substantially in the form of the Form Credit
Agreement (with such changes as the parties shall agree) (the "Credit
Agreement"), appropriate security documents in connection
<PAGE>
Bradlees, Stores, Inc.
December 23, 1997
Page 3
therewith and other definitive documentation (collectively, the "Definitive
Documentation") with respect to the Facility, satisfactory in form and substance
to the Lenders and the Borrower.
The Lenders' commitment to provide the Facility is also subject to:
(A) The approval by the Bankruptcy Court of all aspects of this
Commitment Letter and the transactions contemplated by this
Commitment Letter. Such approval of the Bankruptcy Court shall
be evidenced by the entry of one or more orders satisfactory in
form and substance to the Lenders;
(B) The satisfaction of each of the conditions precedent to
effectiveness and to funding set forth in the Term Sheet and in
the Credit Agreement, including, without limitation:
(i) The final terms of the Plan and the order of the Bankruptcy
Court approving the Plan (the "Confirmation Order") shall
be reasonably satisfactory to the Requisite Lenders (as
defined in the DIP Facility) and shall provide that all
pre-petition claims of creditors of the Debtor and the
Guarantors will be, on or prior to the Plan Effective Date,
converted into equity interests of the Debtor;
(ii) All conditions precedent to the confirmation of the Plan
and to the Plan Effective Date shall have been met (or the
waiver thereof shall have been consented to by the
Administrative Agent (as defined below)) and the Plan
Effective Date and substantial consummation of the Plan
shall have occurred or shall be scheduled to occur, except
for the initial extension of credit under the Facility;
(iii) Except as consented to by the Administrative Agent, the
Bankruptcy Court's retention of jurisdiction under the
Confirmation Order shall not govern the enforcement of the
Definitive Documentation after the Plan Effective Date or
any rights or remedies relating thereto;
(iv) There shall exist no defaults or events of defaults under
the DIP Facility or prospective defaults based on
projections provided by the Debtor in connection with the
Facility; and
<PAGE>
Bradlees Stores, Inc.
December 23, 1997
Page 4
(v) Each financial closing condition set forth on Schedule A to
----------
the Term Sheet shall be satisfied; and
(C) There not having occurred or become known to any Lender any
material adverse change in the condition (financial and
otherwise), operations or assets of the Debtor or the Guarantors
(including, without limitation, any material reduction in the
value of the assets of the Debtor and the Guarantors) from that
shown in the information made available to the Lenders on or
prior to the date of this Commitment Letter.
The terms and conditions of the Lenders' commitment under this
Commitment Letter with respect to the Facility are not limited to the terms and
conditions set forth in this Commitment Letter. Those matters that are not
covered by or made clear under the provisions of this Commitment Letter
(including, without limitation, the Term Sheet) are subject to the approval and
agreement of the Lenders and the Debtor.
Although the Term Sheet sets forth the principal terms of the proposed
financing, you should understand that we reserve the right to propose terms in
addition to those terms which will not materially change or alter the terms of
this Commitment Letter (including the Term Sheet). We understand that you
reserve the right to propose such additional terms as well (other than any
modifications of the conditions precedent to effectiveness and lending contained
herein and in the Term Sheet).
Each Lender reserves the right, prior to or after the execution of the
Definitive Documentation, to syndicate part of its commitment to one or more
banks, commercial finance companies or other financial institutions that will
become parties to such Definitive Documentation, with each syndicate member
having a minimum commitment of at least $7,500,000. Accordingly, you agree to
actively assist the Lenders in completing a timely syndication that is
reasonably satisfactory to them. Such assistance shall be accomplished by a
variety of means, including direct contact during the syndication process
between senior officers and representatives of the Debtor and the Guarantors and
representatives of advisors and consultants retained by the Debtor on the one
hand, and the proposed syndicate assignees and participants, on the other hand,
and the participation at reasonably convenient times and places by senior
officers and representatives of the Debtor and the Guarantors (and
representatives of advisors and consultants retained by the Debtor) in one or
more meetings to be arranged by the Lenders with the proposed syndicate
assignees and participants.
To assist the Lenders in their syndication efforts, you agree promptly
to provide, and to cause your advisors to provide, the Lenders, upon request,
with all information deemed reasonably necessary by the Lenders to complete
successfully the syndication, including, without limitation, all information
that is reasonably available and
<PAGE>
Bradlees Stores, Inc.
December 23, 1997
Page 5
projections prepared by you or on your behalf relating to the transactions
contemplated hereby.
You hereby represent and covenant that (a) all information concerning
the Debtor and the Guarantors (the "Information") that has been or will be made
available to the Lenders and any other financial institutions that become
parties to the Facility by you or any of your authorized representatives in
connection with the transactions contemplated by this Commitment Letter is and
will be, as of the date when so made available (or, if later, the date of this
Commitment Letter), complete and correct in all material respects and does not
and will not, as of the date when so made available (or, if later, the date of
this Commitment Letter), contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements contained in
such Information, taken as a whole, not materially misleading in light of the
circumstances under which such statements are made and (b) all financial
projections concerning the Debtor and the Guarantors (the "Projections") that
have been or will be prepared by you and made available to the Lenders have been
or will be prepared in good faith based upon reasonable assumptions. You agree
to revise the Information and Projections from time to time in order that the
foregoing representations and warranties remain true from time to time. In
arranging and syndicating the Facility, the Lenders will be using and relying on
the Information and Projections.
BBNA will serve as administrative agent (the "Administrative Agent")
for the Lenders and will perform the customary duties related to that function.
In addition, BankBoston Retail Finance, Inc., an affiliate of BBNA, will act as
collateral agent (the "Collateral Agent") for itself and the Lenders and will
perform the customary duties related to that function.
By your signature below, you further agree (a) to pay all reasonable
out-of-pocket costs and expenses incurred by BBNA, the Administrative Agent and
the Collateral Agent in connection with this Commitment Letter, the fee letter
of even date herewith (the "Agent's Fee Letter") concerning fees payable to the
Administrative Agent in connection with the Facility, the transactions
contemplated hereby and thereby (including, without limitation, preparation of
the Definitive Documentation) and BBNA's ongoing due diligence in connection
therewith (including, without limitation, reasonable travel expenses; reasonable
attorneys' fees and expenses; reasonable asset evaluation and audit expenses
(including, without limitation, tradename appraisals); reasonable syndication
expenses; and other reasonable charges and disbursements and any other
reasonable out-of-pocket costs and expenses of BBNA, the Administrative Agent
and the Collateral Agent), from time to time promptly upon request whether or
not such transactions are consummated, (b) to pay all fees and other amounts
contemplated by this Commitment Letter and the Agent's Fee Letter when such
amounts are due and (c) to indemnify and hold harmless the Administrative Agent,
the Collateral Agent, BancBoston Securities Inc., the Issuing Bank (as defined
in the Term Sheet), the Lenders, the other financial institutions that become
parties to the Credit Agreement and
<PAGE>
Bradlees Stores, Inc.
December 23, 1997
Page 6
each of their respective officers, directors, partners, beneficiaries, trustees,
employees, professionals, affiliates, agents and controlling persons
(collectively, the "Indemnified Persons") from and against any and all losses,
claims, damages and liabilities to which any such Indemnified Person may become
subject arising out of, or in connection with, this Commitment Letter or the
Agent's Fee Letter, the transactions contemplated hereby or thereby or any
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether or not any of such Indemnified Persons is a party thereto, and to
reimburse each of such Indemnified Persons, from time to time upon their demand,
for any reasonable legal or other expenses incurred in connection with
investigating or defending any of the foregoing, whether or not the transactions
contemplated hereby or thereby are consummated, provided that the foregoing
--------
indemnity set forth in this clause (c) will not, as to any Indemnified Person,
apply to losses, claims, damages, liabilities or related expenses to the extent
that they have been determined by a court of competent jurisdiction by final
non-appealable order to arise from the bad faith, willful misconduct or gross
negligence of such Indemnified Person. All such out-of-pocket costs and
expenses, fees and other amounts and indemnities shall be considered and treated
as superpriority administrative expenses of the Debtor in the Case and in any
subsequent or superseding bankruptcy proceeding of the Debtor.
You agree that this Commitment Letter and the Agent's Fee Letter are
for your confidential use only and that they will not be disclosed by you or any
of the Guarantors to any person (including any lender bidding for any portion of
the financing contemplated by this Commitment Letter) other than to your
employees, officers, accountants, attorneys, and other advisors (subject to
appropriate confidentiality restrictions) and, to the extent necessary for
acceptance of this Commitment Letter and the Agent's Fee Letter, to the
Bankruptcy Court (and any creditors' committee of the Debtor) and then only in
connection with the transactions contemplated hereby and thereby and on a
confidential basis. However, upon your acceptance of this Commitment Letter and
the Agent's Fee Letter, this Commitment Letter and the Agent's Fee Letter may be
disclosed in connection with obtaining Bankruptcy Court approval of the terms
and conditions contemplated herein and therein.
Each Lender agrees to keep any information delivered or made available
by you to it confidential from anyone other than such Lenders' employees,
officers, partners, beneficiaries, trustees, attorneys and other advisors who
are or are expected to become engaged in evaluating, approving, structuring or
administering the Facility or rendering legal advice in connection therewith,
provided that nothing herein shall prevent the Lenders from disclosing such
- --------
information (a) upon the order of any court or administrative agency or upon the
request of any administrative agency or authority, (b) upon the request or
demand of any regulatory agency or authority, (c) to the extent that such
information has been publicly disclosed other than as a result of a disclosure
by the Lenders, (d) to any other Lender, (e) to any actual or potential
syndicate assignee or participant, provided that each such assignee or
participant has been notified of the provisions of this paragraph and agrees to
be bound by them, or (f) otherwise as required by law.
<PAGE>
Bradlees Stores, Inc.
December 23, 1997
Page 7
For the avoidance of doubt, you hereby agree that your obligation to
repay all amounts outstanding under the DIP Facility on the Termination Date (as
defined therein) is absolute and unconditional and not subject to or conditioned
upon the closing of the Facility or the making of any loans thereunder.
This Commitment Letter shall not be assignable by you without the
prior written consent of the Lenders and may not be amended or any provision
hereof waived or modified except by an instrument in writing signed by you and
the Lenders.
This Commitment Letter supersedes all our prior letters to you
regarding the subject of this Commitment Letter.
This Commitment Letter shall be governed by, and construed in
accordance with, the laws of the State of New York.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof by signing and returning to the
Administrative Agent by telecopy not later than 5:00 p.m., Boston time, today,
December 23, 1997 (with an original to follow by overnight mail), the enclosed
duplicate originals of this Commitment Letter and the Agent's Fee Letter. The
commitments contained herein shall be terminated if (a) you shall have failed to
accept this Commitment Letter and the Agent's Fee Letter in the time and manner
set forth in the previous sentence or (b) the Lenders shall not have received
evidence of the Bankruptcy Court's approval of your executing this Commitment
Letter and the Agent's Fee Letter, and the payment of the fees, expenses or
other amounts as contemplated hereby and thereby on or prior to December 23,
1997.
If the initial funding under the Credit Agreement has not previously
or contemporaneously occurred, this Commitment Letter (other than the indemnity
and confidentiality provisions hereof) shall expire and be of no further force
and effect on the earlier to occur of (i) termination of the DIP Facility in
accordance with the terms thereof and (ii) one (1) Business Day (as defined in
the DIP Facility) after the Plan Effective Date.
This Commitment Letter may be executed in any number of counterparts,
each of which shall be an original and all of which, when taken together, shall
constitute one agreement.
We are pleased to have been given the opportunity to participate in
the transaction contemplated hereby.
Very truly yours,
<PAGE>
Bradlees Stores, Inc.
December 23, 1997
Page 8
BANKBOSTON, N.A.
By: ____________________________
Name: Elizabeth A. Ratto
Title: Vice President
<PAGE>
[LENDER]
By: __________________________
Name:
Title:
<PAGE>
Schedule A to Commitment Letter
-------------------------------
<TABLE>
<CAPTION>
Commitment Commitment
Lender Percentage Amount
- ------ ---------- ------------
<S> <C> <C>
BankBoston, N.A. 22% $ 55,000,000
The CIT Group/Business Credit, Inc. 10% $ 25,000,000
Congress Financial Corporation 16% $ 40,000,000
(New England)
FirstTrust Bank 4% $ 10,000,000
AT&T Commercial Finance Corporation 6% $ 15,000,000
Green Tree Financial 8% $ 20,000,000
Heller Financial,Inc. 8% $ 20,000,000
Fremont Financial Corporation 6% $ 15,000,000
Fleet National Bank 6% $ 15,000,000
National City Commercial Finance, Inc. 6% $ 15,000,000
LaSalle National Bank 8% $ 20,000,000
---- ------------
Total 100% $250,000,000
=====
</TABLE>
<PAGE>
Agreed to and accepted as of the date first above written:
BRADLEES STORES, INC.,
as Debtor and Debtor-in-Possession
By:
Name:
Title:
<PAGE>
REVOLVING CREDIT AND GUARANTY AGREEMENT
REVOLVING CREDIT AND GUARANTY AGREEMENT (as amended, supplemented or
otherwise modified from time to time, this "Agreement"), dated as of ________,
---------
199_, among BRADLEES STORES, INC., a Massachusetts corporation (the "Borrower"),
--------
BRADLEES, INC., a Massachusetts corporation ("BI"), BRADLEES ADMINISTRATIVE CO.,
--
INC., a Massachusetts corporation ("BAC"), and each of the other guarantors
---
listed in Schedule 3.04 (together with BI and BAC, each a "Guarantor" and
collectively, the "Guarantors"), the Lenders named on Annex A hereto and each
----------
other Person from time to time party hereto as a Lender, BANKBOSTON, N.A., a
national banking association ("BBNA"), as the issuer of Letters of Credit (in
----
such capacity, together with any successor issuer of Letters of Credit
hereunder, the "Issuing Bank") and as administrative agent for the Issuing Bank,
------------
the Collateral Agent and the Lenders (in such capacity, the "Administrative
--------------
Agent"), BANKBOSTON RETAIL FINANCE, INC., a subsidiary of BBNA ("BBRF"), as
- ----- ----
collateral agent (in such capacity, the "Collateral Agent"), and THE CIT
----------------
GROUP/BUSINESS CREDIT, INC. and CONGRESS FINANCIAL CORPORATION (NEW ENGLAND),
each as co-agents (collectively, the "Co-Agents").
---------
INTRODUCTORY STATEMENT
On June 23, 1995, the Borrower and the Guarantors filed voluntary petitions
with the Bankruptcy Court, each initiating a case under Chapter 11 of the
Bankruptcy Code (the cases of the Borrower and the Guarantors, each a "Case" and
----
collectively, the "Cases"), and have continued in the possession of their assets
-----
and in the management of their businesses pursuant to Sections 1107 and 1108 of
the Bankruptcy Code. The Borrower and Guarantors currently are parties to a
$250,000,000 debtor-in-possession Revolving Credit and Guaranty Agreement (as
amended, the "Existing Credit Facility"), dated as of December 23, 1997, with
------------------------
the Lenders, the Issuing Bank, the Administrative Agent, the Co-Agents and the
Collateral Agent.
The Borrower has applied to the Lenders and the Issuing Bank for a
revolving credit and letter of credit facility in an aggregate principal amount
not to exceed $250,000,000, all of the Borrower's obligations under which are to
be guaranteed by the Guarantors and secured by substantially all assets (other
than Real Property) of the Borrower.
The extensions of credit hereunder will be used, first, to repay in full
all amounts outstanding under the Existing Credit Facility and thereafter to
provide working capital for and to finance Inventory purchases by the Borrower
and otherwise for general corporate purposes.
Accordingly, the parties hereto hereby agree as follows:
<PAGE>
I. DEFINITIONS
SECTION 1.01. DEFINED TERMS.
-------------
As used in this Agreement, the following terms shall have the meanings
specified below:
"ABR Loan" shall mean any Loan bearing interest at a rate determined by
--------
reference to the Alternate Base Rate in accordance with the provisions of
Article II.
"Accounts Payable" shall mean amounts owing by the Borrower on open account
----------------
to creditors for purchases of goods and services, determined on a consolidated
basis pursuant to GAAP.
"Adjusted LIBOR Rate" shall mean, with respect to any Eurodollar Borrowing
-------------------
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the quotient of (a) the LIBOR Rate
in effect for such Interest Period divided by (b) a percentage (expressed as a
decimal) equal to 100% minus Statutory Reserves.
"Affiliate" shall mean, as to any Person, any other Person which, directly
---------
or indirectly, is in control of, is controlled by, or is under common control
with such Person. For purposes of this definition, a Person (a "Controlled
----------
Person") shall be deemed to be "controlled by" another Person (a "Controlling
- ------ -----------
Person") if the Controlling Person possesses, directly or indirectly, power to
- ------
direct or cause the direction of the management and policies of the Controlled
Person whether by contract or otherwise.
"Agent Advance" shall mean a Loan made by the Administrative Agent to the
-------------
Borrower pursuant to Section 2.03(c) hereof.
"Agents" shall mean the Administrative Agent and the Collateral Agent.
------
"Agreement" shall mean this Revolving Credit and Guaranty Agreement, as the
---------
same may from time to time be amended, modified or supplemented.
"Alternate Base Rate" shall mean, for any day, the higher of (a) the annual
-------------------
rate of interest then most recently announced by BBNA at its head office in
Boston, Massachusetts as its "Base Rate" and (b) the Federal Funds Effective
Rate in effect on such day plus 1/2 of 1% (0.50%) per annum. If for any reason
the Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations thereof in accordance with
the terms hereof, the Alternate Base Rate shall be determined without regard to
clause (b) of the first sentence of this definition, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in BBNA's Base Rate or the Federal Funds Effective Rate
shall be effective on the effective date of such change in BBNA's Base Rate or
the Federal Funds Effective Rate, respectively.
"Assignment and Acceptance" shall mean an assignment and acceptance entered
-------------------------
into by a Lender and an Eligible Assignee, and accepted by the Administrative
Agent, in a form supplied by the Administrative Agent.
"Bankruptcy Code" shall mean The Bankruptcy Reform Act of 1978, codified as
---------------
11 U.S.C.
2
<PAGE>
Section 101 et seq., as heretofore and hereafter amended from time to time, and
any successor act or statute.
"Bankruptcy Court" shall mean the United States Bankruptcy Court for the
----------------
Southern District of New York, or any other court having jurisdiction over the
Cases.
"BBNA Concentration Account" shall have the meaning set forth in Section
--------------------------
2.13(a).
"BBNA Disbursement Accounts" shall have the meaning set forth in Section
--------------------------
2.13(d).
"Blocked Account Agreements" has the meaning set forth in Section 2.13(a).
--------------------------
"Blocked Account Banks" shall mean the banks with whom the Borrower has
---------------------
entered into Blocked Account Agreements.
"Blocked Accounts" shall have the meaning set forth in Section 2.13(a).
----------------
"Board" shall mean the Board of Governors of the Federal Reserve System of
-----
the United States.
"Borrowing" shall mean the incurrence of Loans of a single Type made from
---------
all the Lenders on a single date and having, in the case of Eurodollar Loans, a
single Interest Period (with any ABR Loan made pursuant to Section 2.16 being
considered a part of the related Borrowing of Eurodollar Loans).
"Borrowing Base" shall mean, on any day, an amount equal to (a) 60% of the
--------------
then Loan Value of the then Eligible Receivables, plus (b) the Exit Base Advance
----
Rate multiplied by the then Loan Value of Eligible Inventory and (without
duplication) the Exit Base Advance Rate multiplied by the then Loan Value of the
then applicable Eligible LC Inventory Sublimit plus (c) the Overadvance Amount,
----
if any, minus (d) the then amount of all Borrowing Base Reserves.
-----
"Borrowing Base Certificate" shall mean a certificate substantially in the
--------------------------
form of Exhibit A-1 or, in the case of the first Borrowing Base Certificate that
is delivered after the close of each of the Borrower's fiscal months, Exhibit A-
2 (in each case with such changes therein as may be required by the
Administrative Agent to reflect the components of, and reserves against, the
Borrowing Base as provided for hereunder from time to time), executed and
certified by a Financial Officer of the Borrower, which shall include
appropriate exhibits and schedules as referred to therein.
"Borrowing Base Reserves" shall mean such reserves against the Borrowing
-----------------------
Base as the Administrative Agent from time to time may elect, in its reasonable
discretion and on 7 days' notice to the Borrower, to apply for purposes of
determining the Borrowing Base on account of any matter, contingency or risk
which the Administrative Agent may in good faith deem potentially material to
the prospect of payment of the Credit Extensions, including (by way solely of
illustration and without in any manner limiting the Administrative Agent's right
to apply a reserve on account of any other matter, contingency or risk, whether
similar or not) such items as the Customer Credits Reserve.
"Breakage Costs" shall have the meaning set forth in Section 2.11(b).
--------------
"BSI" shall mean BancBoston Securities Inc.
---
3
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or other
------------
day on which banks in the States of New York or Massachusetts are required or
permitted to close (and, for a Letter of Credit, other than a day on which the
bank issuing such Letter of Credit is closed); provided, however, that when used
-------- -------
in connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits on the
London interbank market.
"Business Plan" shall mean a three year business plan prepared by the
-------------
Borrower, dated ________________, setting forth the business objectives for the
Borrower and the Guarantors for the _____, ______ and ______ fiscal years, which
plan includes, among other things: for the first fiscal year, a monthly, and
for the following two fiscal years, a yearly (i) balance sheet, (ii) income
statement, and (iii) statement of cash flows.
"Capital Expenditures" shall mean, for any period, the aggregate of all
--------------------
expenditures (whether paid in cash or accrued as liabilities during such period
and excluding that portion of Capitalized Leases which is capitalized on the
consolidated balance sheet of the Borrower and the Guarantors) by the Borrower
and the Guarantors during such period that, in conformity with GAAP, are
required to be included in or reflected by the property, plant, equipment or
intangibles or similar fixed asset accounts reflected in the consolidated
balance sheet of the Borrower and the Guarantors net of cash amounts received
during such period in reimbursement of Capital Expenditures made by the Borrower
and the Guarantors, excluding interest capitalized during construction, by the
Borrower and the Guarantors during such period that, in conformity with GAAP,
are required to be included in or reflected by the property, plant, equipment or
intangibles or similar fixed asset accounts reflected in the consolidated
balance sheet of the Borrower and the Guarantors (including equipment which is
purchased simultaneously with the trade-in of existing equipment owned by the
Borrower or any of the Guarantors to the extent of the gross amount of such
purchase price less the book value of the equipment being traded in at such
time), but excluding expenditures made in connection with the replacement or
restoration of assets to the extent reimbursed or financed from insurance
proceeds paid on account of the loss of or the damage to the assets being
replaced or restored, or from awards of compensation arising from the taking by
condemnation or eminent domain of such assets being replaced.
"Capitalized Lease" shall mean, as applied to any Person, any lease of
-----------------
property by such Person as lessee which would be capitalized on a balance sheet
of such Person prepared in accordance with GAAP.
"Cases" shall have the meaning set forth in the introductory paragraph to
-----
this Agreement.
"Cash Collateral Account" shall mean an interest-bearing account
-----------------------
established by the Borrower with the Administrative Agent at BBNA under the sole
and exclusive dominion and control of the Administrative Agent at the office of
BBNA at 100 Federal Street, Boston, Massachusetts 02110 designated as the
"Bradlees Stores, Inc. Cash Collateral Account" that shall be used solely for
the purposes set forth in Sections 2.02, 2.10(a) and 2.14.
"Cash Receipts" shall have the meaning set forth in Section 2.13(a).
-------------
"Closing Date" shall mean the date on which this Agreement has been
------------
executed and the conditions precedent to the making of the initial Loans set
forth in Sections 4.01 and 4.02 have been
4
<PAGE>
satisfied or waived in writing by the Administrative Agent, the Issuing Bank,
the Collateral Agent and the Required Lenders, which date shall occur on or
within one (1) Business Day after the Plan Effective Date.
"Closing Documents List" shall mean the list of required closing documents
----------------------
attached hereto as Schedule 4.01(q).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Collateral" shall mean any and all assets, properties, and rights of the
----------
Borrower pledged from time to time pursuant hereto or to the Security Documents
as security for the Obligations, which shall include, without limitation,
substantially all assets, properties and rights of the Borrower (other than Real
Property) and all proceeds thereof.
"Collateral Access Agreements" shall mean any landlord waivers, mortgagee
----------------------------
waivers, bailee letters or any similar acknowledgment agreements of any
warehouseman or processor in possession of Inventory of the Borrower or any
Guarantor, in form and substance satisfactory to the Collateral Agent.
"Commitment" shall mean, with respect to each Lender, the aggregate
----------
commitment of such Lender hereunder in the amount set forth opposite its name on
Annex A hereto or as may subsequently be set forth in the Register from time to
time, as the same may be reduced from time to time pursuant to Section 2.07.
"Commitment Fee" shall have the meaning set forth in Section 2.20.
--------------
"Commitment Percentage" shall mean at any time, with respect to each
---------------------
Lender, the percentage obtained by dividing its Commitment at such time by the
Total Commitment at such time.
"Confirmation Order" means an order of the Bankruptcy Court confirming the
------------------
Plan of Reorganization pursuant to sections 1128 and 1129 of the Bankruptcy
Code.
"Credit Card Obligor" shall mean any of National Bancard Corporation, Novus
-------------------
Services, Inc., American Express Travel Related Services Company, Inc. and
Citicorp Retail Services, Inc., and any other Person acceptable to the
Administrative Agent in its sole discretion, provided that each of the above
entities and each such other Person has executed and delivered to the
Administrative Agent a Payment Direction Agreement with respect to the
Receivables due to the Borrower from such Obligor.
"Credit Extensions" shall be equal, as of any day, to the sum of (a) the
-----------------
principal balance of all Loans then outstanding, and (b) the then amount of the
Letter of Credit Outstandings.
"Customer Credits Reserve" shall mean a reserve established by the
------------------------
Administrative Agent from time to time in an amount equal to the sum of (i)
fifty percent (50%) of the dollar value of gift certificates outstanding and
(ii) fifty percent (50%) of the dollar value of customer merchandise credits.
"Default" shall mean any event which, upon the giving of any notice or the
-------
lapse of any period of time expressly set forth in Section 7.01, or both, would
constitute an Event of Default.
5
<PAGE>
"Dollars" and "$" shall mean lawful money of the United States of America.
------- -
"EBITDA" shall mean, for any period, all as determined in accordance with
------
GAAP, the net income (or net loss) of the Borrower for such period, plus (to the
----
extent taken into account in determining such net income or net loss) (a) the
sum of (i) depreciation expense, (ii) amortization expense, (iii) provision for
LIFO adjustment for Inventory valuation, (iv) net total Federal, state and local
income tax expense, (v) gross interest expense for such period less gross
interest income for such period, (vi) any non-recurring charge or restructuring
charge which in accordance with GAAP is excluded from operating income, (vii)
the cumulative effect of any change in accounting principles, (viii)
extraordinary losses and (ix) "Chapter 11 expenses" (or "administrative costs
reflecting Chapter 11 expenses") as shown on the Borrower's statement of income
for such period, minus (b) extraordinary gains, and plus (c) the amount of cash
----- ----
received (and minus the amount of cash expended) in such period in respect of
any amount which, under clause (vi) above, was taken into account in determining
EBITDA for such or any prior period.
"Eligible Assignee" shall mean (a) a commercial bank having total assets in
-----------------
excess of $500,000,000, (b) a finance company, insurance company or other
financial institution (in each case with total assets in excess of $200,000,000)
or fund (with total assets in excess of $50,000,000) reasonably acceptable to
the Administrative Agent which in the ordinary course of business extends credit
or purchases debt of the type evidenced by the Notes and whose becoming an
assignee would not constitute a prohibited transaction under Section 4975 of
ERISA, and (c) any other financial institution, fund or other Person reasonably
satisfactory to the Administrative Agent and approved by the Borrower, which
approval shall not be unreasonably withheld or delayed, and which approval shall
not be required upon the occurrence and during the continuance of an Event of
Default.
"Eligible Inventory" shall mean, as of the date of determination thereof,
------------------
items of Inventory of the Borrower that are finished goods, merchantable and
readily saleable to the public in the ordinary course and goods ("L/C Goods") as
---------
to which a documentary Letter of Credit has been issued and which, if in the
possession of the Borrower, would be treated as the Borrower's Inventory
hereunder, but only if such goods have been consigned to the Issuing Bank or the
Borrower (along with delivery to the Issuing Bank or the Borrower, as
applicable, of the documents of title with respect thereto), in each case deemed
by the Administrative Agent in its reasonable discretion to be eligible for
inclusion in the calculation of the Borrowing Base. Without limiting the
foregoing, unless otherwise approved in writing by the Administrative Agent,
none of the following shall be deemed to be Eligible Inventory, and Eligible
Inventory shall be reduced by the following:
(a) Inventory (other than L/C Goods) that is not owned solely by the
Borrower or with respect to which the Borrower does not have good, valid and
marketable title, free and clear of any Lien;
(b) Inventory that is not located on, or in transit directly to,
property leased by the Borrower or in a contract warehouse or other third party
location, in each case, located in the United States and segregated or otherwise
separately identifiable from goods of others, if any, stored on the premises;
(c) Inventory that is not reflected in the Borrower's stock ledger
report, warehouse status report or the "in-transit" account in the general
ledger;
(d) Inventory that has been returned or rejected by any of the
Borrower's
6
<PAGE>
customers and which is damaged or defective or to be returned to vendor;
(e) Inventory not held for resale in the ordinary course, including
samples, publicity, display or demonstration Inventory, packaway Inventory, and
piece goods;
(f) consigned and leased Inventory;
(g) special order Inventory;
(h) supplies and packing or shipping materials;
(i) Inventory in which the Collateral Agent does not have a first-
priority perfected security interest pursuant to the Security Agreement or which
is not in transit to a location where the Collateral Agent will immediately have
such a first-priority perfected security interest therein; and
(j) Inventory reserves that may be required by the Administrative
Agent in the exercise of its reasonable discretion and on 7 days' notice to the
Borrower based on a change in the value of the Inventory as determined by the
Administrative Agent in its reasonable discretion (including, by way of example,
a Shrink Reserve, inventory obsolescence, seasonality, imbalance, change in
Inventory character, composition or mix, change in mark-down practices both
permanent and point of sale and change in retail mark-on or mark-up practices).
"Eligible LC Inventory" shall mean, as of the date of determination
---------------------
thereof, documentary Letters of Credit (i) that have been issued with an expiry
date within 75 days of such date of determination, (ii) that have been issued
for the acquisition by the Borrower of Inventory which would otherwise be
Eligible Inventory if owned by the Borrower, and (iii) that may include Letters
of Credit issued as described in the third paragraph of the Introductory
Statement above, so long as such Letter of Credit would otherwise satisfy the
requirements hereof.
"Eligible LC Inventory Sublimit" shall mean, for any fiscal month of the
------------------------------
Borrower, the dollar amount set forth opposite such fiscal month below:
Month Eligible LC Inventory Sublimit
----- ------------------------------
January $20,000,000
February $20,000,000
March $20,000,000
April $24,000,000
May $33,000,000
June $34,000,000
July $35,000,000
August $38,000,000
September $30,000,000
October $20,000,000
November $20,000,000
December $20,000,000
"Eligible Receivables" shall mean, as of the date of determination thereof,
--------------------
Receivables of the Borrower payable in Dollars and deemed by the Administrative
Agent in its reasonable discretion to
7
<PAGE>
be eligible for inclusion in the calculation of the Borrowing Base. Without
limiting the foregoing, unless otherwise approved in writing by the
Administrative Agent, none of the following shall be deemed to be Eligible
Receivables:
(a) Receivables that have been outstanding for more than 5 Business
Days;
(b) Receivables not owned solely by the Borrower or the Borrower does
not have good, valid and marketable title thereto, free and clear of any Lien;
(c) Receivables which the Administrative Agent determines in its
reasonable discretion to be uncertain of collection; and
(d) with respect to Receivables created under the Purchase and Service
Agreement, a notice of termination has been delivered thereunder.
"Environmental Lien" shall mean a Lien in favor of any Governmental
------------------
Authority for (i) any liability under federal or state environmental laws or
regulations, or (ii) damages arising from or costs incurred by such Governmental
Authority in response to a release or threatened release of a hazardous or toxic
waste, substance or constituent, or other substance into the environment.
"Equity Interests" shall mean any and all shares, interests, participations
----------------
or other equivalents (however designated) of capital stock in a corporation and
all warrants or options to purchase any of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
---------------
incorporated) which is a member of a group of which the Borrower is a member and
which is under common control within the meaning of Section 414(b) or (c) of the
Code and the regulations promulgated and rulings issued thereunder.
"Escrow Proceeds" shall have the meaning set forth in Section 2.13(c).
---------------
"Eurocurrency Liabilities" shall have the meaning assigned thereto in
------------------------
Regulation D issued by the Board, as in effect from time to time.
"Eurodollar Applicable Margin" shall mean 2.25% per annum.
----------------------------
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
--------------------
Loans.
"Eurodollar Interest Rate" shall have the meaning set forth in Section
------------------------
2.05(b).
"Eurodollar Loan" shall mean any Loan bearing interest at a rate determined
---------------
by reference to Adjusted LIBOR Rate in accordance with the provisions of Article
II.
"Event of Default" shall have the meaning set forth in Section 7.01.
----------------
"Exit Base Advance Rate" shall mean, on any date, the lesser of (a) 72% or
----------------------
(b) 80% of the
8
<PAGE>
Loan to Value Ratio on such date.
"Federal Funds Effective Rate" shall mean, for any day, the rate per annum
----------------------------
equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York or,
if such rate is not published for any day that is a Business Day, the average of
the quotations for such day on such transactions received by the Administrative
Agent from three funds brokers of recognized standing selected by the
Administrative Agent.
"Fee Letter" shall mean that certain agent's fee letter, dated December 23,
----------
1997, between the Borrower and the Administrative Agent.
"Fees" shall collectively mean the Commitment Fees, the Letter of Credit
----
Fees, the fees and charges described in Section 2.02(c) and the fees referred to
in Section 2.19.
"Filing Date" shall mean June 23, 1995.
-----------
"Financial Officer" shall mean the Chief Executive Officer, the Chief
-----------------
Financial Officer, the Vice President - Controller or the Treasurer of the
Borrower.
"GAAP" shall mean generally accepted accounting principles applied on a
----
basis consistent with those used in preparing the financial statements referred
to in Section 3.05.
"Governmental Authority" shall mean any Federal, state, municipal or other
----------------------
governmental department, commission, board, bureau, agency or instrumentality or
any court, in each case whether of the United States or any foreign
jurisdiction.
"Guaranteed Parties" shall mean the Lenders, the Administrative Agent, the
------------------
Collateral Agent, the Co-Agents and the Issuing Bank.
"Indebtedness" shall mean, at any time and with respect to any Person, (i)
------------
all indebtedness of such Person for borrowed money, (ii) all indebtedness of
such Person for the deferred purchase price of property or services (other than
property, including inventory, and services purchased, and expense accruals and
deferred compensation items arising, in the ordinary course of business), (iii)
all obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments (other than performance, surety and appeal bonds arising in
the ordinary course of business), (iv) all indebtedness of such Person created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), (v) all obligations of such Person
under leases which have been or should be, in accordance with GAAP, recorded as
capital leases, to the extent required to be so recorded, (vi) all
reimbursement, payment or similar obligations of such Person, contingent or
otherwise, under acceptance, letter of credit or similar facilities, (vii) all
Indebtedness referred to in clauses (i) through (vi) above guaranteed directly
or indirectly by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement (A) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (B) to
purchase, sell or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment of
such Indebtedness or to assure the holder of such Indebtedness
9
<PAGE>
against loss in respect of such Indebtedness, (C) to supply funds to or in any
other manner invest in the debtor (including any agreement to pay for property
or services irrespective of whether such property is received or such services
are rendered) or (D) otherwise to assure a creditor against loss in respect of
such Indebtedness, and (viii) all Indebtedness referred to in clauses (i)
through (vii) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
in any property owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness.
"Insufficiency" shall mean, with respect to any Plan, the amount, if any,
-------------
of its unfunded benefit liabilities within the meaning of Section 4001(a)(18) of
ERISA.
"Interest Coverage Ratio" shall mean, for each fiscal quarter of the
-----------------------
Borrower, the ratio of the Borrower's (a) EBITDA less Capital Expenditures to
----
(b) cash Interest Expense, for the 12-month period ending on the last day of
such fiscal quarter.
"Interest Expense" shall mean interest expense as determined in accordance
----------------
with GAAP.
"Interest Payment Date" shall mean (i) as to any Eurodollar Loan having an
---------------------
Interest Period of 1, 2 or 3 months, the last day of such Interest Period and
(ii) as to all ABR Loans outstanding at any time during any month, the first
Business Day of the next succeeding month.
"Interest Period" shall mean, as to any Borrowing of Eurodollar Loans, the
---------------
period commencing on and including the date of such Borrowing (including as a
result of a refinancing of ABR Loans) or on the last day of the preceding
Interest Period applicable to such Borrowing and ending on and excluding the
numerically corresponding day (or if there is no corresponding day, the last
day) in the calendar month that is 1, 2 or 3 months thereafter, as the Borrower
may elect in the related notice delivered pursuant to Sections 2.03(b) or 2.09;
provided, however, that (i) if any Interest Period would end on a day which
- -------- -------
shall not be a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day, and (ii) no Interest Period shall end later than
the Termination Date.
"Inventory" shall mean all goods, wares and merchandise owned and held for
---------
sale by the Borrower.
"Investments" shall have the meaning set forth in Section 6.11.
-----------
"Lenders" shall mean the Persons identified on Annex A hereto and each
-------
assignee that becomes a party to this Agreement as set forth in Section
10.03(b).
"Letter of Credit" shall mean a letter of credit that is (i) issued for
----------------
account of the Borrower, (ii) a standby or documentary letter of credit, (iii)
issued in connection with the purchase of Inventory by the Borrower and for
other purposes for which the Borrower has historically obtained letters of
credit, or for any other purpose that is reasonably acceptable to the
Administrative Agent (including, without limitation, the Letters of Credit
issued as described in the third paragraph of the Introductory Statement above),
and (iv) in form and substance reasonably satisfactory to the Issuing Bank.
"Letter of Credit Fees" shall mean the fees payable in respect of Letters
---------------------
of Credit pursuant to Section 2.21.
10
<PAGE>
"Letter of Credit Outstandings" shall mean, at any time, the sum of (a)
-----------------------------
with respect to Letters of Credit outstanding at such time, the aggregate
maximum amount that then is or at any time thereafter may become available for
drawing or payment thereunder plus (b) all amounts theretofore drawn or paid
----
under Letters of Credit for which the Issuing Bank has not then been reimbursed.
"LIBOR Rate" shall mean, for any Interest Period for any Eurodollar
----------
Borrowing, the rate (rounded upwards, if necessary, to the next 1/16 of 1%) at
which dollar deposits approximately equal in principal amount to such Eurodollar
Borrowing and for a maturity comparable to such Interest Period are offered to
the principal London office of the Administrative Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
----
lien or charge of any kind whatsoever (including any conditional sale or other
title retention agreement or any lease in the nature thereof).
"Loan Documents" shall mean this Agreement, the Notes, the Letters of
--------------
Credit, the Fee Letter, all Borrowing Base Certificates, the Blocked Account
Agreements, the Access Agreements, the Payment Direction Agreements, the
Security Documents and any other instrument or agreement executed and delivered
in connection herewith.
"Loan to Value Ratio" shall mean the ratio expressed as a percentage of (i)
-------------------
the annual average net appraised liquidation value at cost of the Borrower's
Inventory on or about the Plan Effective Date to (ii) the Loan Value of the
Debtor's Inventory.
"Loan Value" shall mean the amount determined by the Administrative Agent
----------
from time to time, in its reasonable discretion and consistent with the
Administrative Agent's usual business practices and policies for similar
borrowers similarly situated, as an appropriate estimate of the value of
Eligible Receivables, Eligible LC Inventory (which shall not exceed the amount
that may be drawn under such Letters of Credit), and Eligible Inventory (which
determination shall take into account the following factors, among others: (i)
the cost thereof, (a) as determined under the retail method of accounting as
reflected in the Borrower's stock ledger (the cost value of the Inventory in the
stock ledger will be adjusted based upon the lowest ticketed retail price at
which such Inventory is offered to the public, after all permanent mark-downs
(whether or not such price is then reflected on the Borrower's accounting
system)) or, (b) with respect to warehouse and in-transit inventory, determined
under the cost method of accounting, (ii) the first-in, first-out accounting
valuation method, (iii) the Borrower's accounting practices, known to the
Administrative Agent and in effect on the date hereof, and (iv) excluding any
capitalization costs or other non-purchase price charges (other than "freight-
in"), such as intracompany freight, used in the Borrower's calculation of cost
of goods sold.
"Loans" shall mean all loans (including, without limitation, Agent
-----
Advances) at any time made to the Borrower or for account of the Borrower
pursuant to this Agreement.
"Maturity Date" shall mean the earlier to occur of (a) three years from the
-------------
Closing Date or (b) four years from the closing date of the Existing Credit
Facility.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is
making or accruing an obligation to make
11
<PAGE>
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"Multiple Employer Plan" shall mean a Single Employer Plan, which (i) is
----------------------
maintained for employees of the Borrower or an ERISA Affiliate and at least one
Person other than the Borrower and its ERISA Affiliates or (ii) was so
maintained and in respect of which the Borrower or an ERISA Affiliate could have
liability under Section 4064 or 4069 of ERISA in the event such Plan has been or
were to be terminated.
"Notes" shall mean the promissory notes of the Borrower (i) substantially
-----
in the form of Exhibit B-1, each payable to the order of a Lender, evidencing
the Loans and (ii) substantially in the form of Exhibit B-2, payable to the
Administrative Agent, evidencing the Agent Advances.
"Obligations" shall mean (a) the due and punctual payment of principal of
-----------
and interest on the Loans and the Notes and the reimbursement of all amounts
drawn under Letters of Credit, and (b) the due and punctual payment of the Fees
and all other present and future, fixed or contingent, monetary obligations of
the Borrower and the Guarantors to the Lenders, the Issuing Bank, the Collateral
Agent, the Co-Agents and the Administrative Agent under the Loan Documents.
"Other Taxes" shall have the meaning set forth in Section 2.18(b).
-----------
"Overadvance Amount" shall mean on any day from and including March 1
------------------
through and including December 15 of any year, the lesser of (x) up to 5% of the
then Loan Value of the then Eligible Inventory plus (without duplication) 5% of
----
the then Loan Value of the then Eligible LC Inventory; provided, that the
--------
overadvance rate and the Exit Base Advance Rate, when combined, shall not cause
the advance rate applied against Eligible Inventory and the Eligible LC
Inventory Sublimit to be greater than 75%, and (y) an amount, when added to an
amount represented by the Exit Base Advance Rate, will not cause the Loan to
Value Ratio to exceed 85%.
"Overadvance Margin" shall mean (i) .50% per annum for any month in which
------------------
the Borrower has any Loans outstanding by utilizing the Overadvance Amount under
the Borrowing Base, or (ii) at all other times, zero.
"Payment Direction Agreement" shall mean an agreement among the Borrower,
---------------------------
the Administrative Agent and each Credit Card Obligor, in form and substance
satisfactory to the Administrative Agent, providing for the direct payment to
the BBNA Concentration Account of all amounts due to the Borrower from such
Credit Card Obligor
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
----
successor agency or entity performing substantially the same functions.
"Pension Plan" shall mean a defined benefit pension or retirement plan
------------
which meets and is subject to the requirements of Section 401(a) of the Code.
"Permitted Investments" shall mean:
---------------------
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed by
the full faith and credit of the United States of America), in each case
12
<PAGE>
payable in Dollars and maturing within twelve months from the date of
acquisition thereof;
(b) investments in certificates of deposit, banker's acceptances and
time deposits (including Eurodollar time deposits) payable in Dollars and
maturing within six months from the date of acquisition thereof issued or
guaranteed by or placed with (i) any domestic office of the Administrative Agent
or (ii) any domestic office of any other commercial bank of recognized standing
organized under the laws of the United States of America or any State thereof
that has a combined capital and surplus and undivided profits of not less than
$250,000,000 and is the principal banking Subsidiary of a bank holding company
having a long-term unsecured debt rating of at least "A" or the equivalent
thereof from Standard & Poor's Corporation or at least "A2" or the equivalent
thereof from Moody's Investors Service, Inc.;
(c) investments in commercial paper payable in Dollars and maturing
within six months from the date of acquisition thereof and issued by (i) the
holding company of the Administrative Agent or (ii) the holding company of any
other commercial bank of recognized standing organized under the laws of the
United States of America or any State thereof that has (A) a combined capital
and surplus in excess of $250,000,000 and (B) commercial paper rated at least
"A" or the equivalent thereof from Standard & Poor's Corporation or of at least
"A2" or the equivalent thereof from Moody's Investors Service, Inc.;
(d) investments in repurchase obligations payable in Dollars with a
term of not more than seven days for underlying securities of the types
described in clause (a) above entered into with any office of a bank or trust
company meeting the qualifications specified in clause (b) above;
(e) investments in money market funds substantially all the assets of
which are comprised of securities of the types described in clauses (a) through
(d) above; and
(f) to the extent owned on the Closing Date, investments in the
capital stock or partnership interests of any direct or indirect subsidiary of
the Borrower.
"Permitted Liens" shall mean (i) Liens imposed by law (other than
---------------
Environmental Liens and any Lien imposed under ERISA) for taxes, assessments or
charges of any Governmental Authority for claims not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained in
accordance with GAAP; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens (other than Environmental
Liens and any Lien imposed under ERISA) imposed by law created in the ordinary
course of business for amounts not yet due or which are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with GAAP; (iii)
Liens (other than any Lien imposed under ERISA) incurred or deposits made in the
ordinary course of business (including, without limitation, surety bonds and
appeal bonds) in connection with workers' compensation, unemployment insurance
and other types of social security benefits or to secure the performance of
tenders, bids, leases, contracts (other than for the repayment of Indebtedness),
statutory obligations and other similar obligations or arising as a result of
progress payments under government contracts; (iv) easements (including, without
limitation, reciprocal easement agreements and utility agreements), rights-of-
way, covenants, consents, reservations, encroachments, variations and zoning and
other restrictions, charges or encumbrances (whether or not recorded), which do
not interfere materially with the ordinary conduct of the business of the
Borrower or any Guarantor, as the case may be, and which do not materially
detract from the value of the property to which they attach
13
<PAGE>
or materially impair the use thereof to the Borrower or any Guarantor, as the
case may be; (v) purchase money Liens (a) existing on the Closing Date upon or
in any property (other than Inventory) acquired or held in the ordinary course
of business to secure the purchase price of such property and (b) to secure
Indebtedness permitted by Section 6.03(ii) and solely for the purpose of
financing the acquisition of such property and (vi) extensions, renewals or
replacements of any Lien referred to in paragraphs (i) through (v) above;
provided that the principal amount of the obligation secured thereby is not
- --------
increased and that any such extension, renewal or replacement is limited to the
property originally encumbered thereby.
"Person" shall mean any natural person, corporation, partnership, limited
------
liability company, trust, joint venture, association, company, estate,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" shall mean a Single Employer Plan or a Multiemployer Plan.
----
"Plan Effective Date" shall have the meaning set forth in Section 4.01(e).
-------------------
"Plan of Reorganization" shall mean a plan of reorganization under chapter
----------------------
11 of the Bankruptcy Code for all of the debtors in the Cases.
"Pledge Agreement" shall have the meaning set forth in Section 4.01(g).
----------------
"Purchase and Service Agreement" shall mean that certain Amended and
------------------------------
Restated Purchase and Service Agreement dated as of August 1, 1995, among
Bradlees Stores, Inc., as seller, Bradlees, Inc., as guarantor, and Citicorp
Retail Services, Inc., as purchaser and servicer.
"Real Property" shall mean all interests of the Borrower and the
-------------
Guarantors, as applicable, in their respective owned or leased real property.
"Receivables" shall mean, with respect to any Credit Card Obligor, the
-----------
indebtedness of such Credit Card Obligor to the Borrower under a charge account
agreement arising from a sale of merchandise or services by the Borrower.
"Register" shall have the meaning set forth in Section 10.03(d).
--------
"Required Lenders" shall mean, at any time, Lenders having Loans
----------------
outstanding representing at least 51% of the total Loans outstanding; provided,
--------
however, that if no Loans are outstanding, Required Lenders shall be those
- -------
Lenders having Commitments representing at least 51% of the Total Commitment
(without giving effect to any termination of all of the Commitments pursuant to
Section 7.01).
"Security Agreement" shall have the meaning set forth in Section 4.01(f).
------------------
"Security Documents" shall mean the Security Agreement, the Pledge
------------------
Agreement, the Trademark Security Agreement and each other document executed in
connection with the grant by the Borrower of a security interest in the
Collateral to the Collateral Agent, for its benefit and the ratable benefit of
the Administrative Agent, the Issuing Bank, the Co-Agents and the Lenders.
"Settlement Date" shall have the meaning set forth in Section 2.03(d).
---------------
14
<PAGE>
"Shrink Reserve" shall mean, as of the date of any determination thereof,
--------------
(A) the positive result, if any, of subtracting (i) the shrinkage percentage
reserve then maintained by the Borrower in its stock ledger from (ii) shrinkage
(book to physical differences), calculated as a percentage of cumulative net
sales since the last physical inventory, for the Borrower's most recent physical
inventory with respect to Inventory located at stores and distribution centers,
multiplied by (B) cumulative sales since the last physical adjustment by the
- -------------
Borrower.
"Single Employer Plan" shall mean a single employer plan, as defined in
--------------------
Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the
Borrower or an ERISA Affiliate or (ii) was so maintained and in respect of which
the Borrower could have liability under Section 4069 of ERISA in the event such
Plan has been or were to be terminated.
"Specified Location Sales" shall have the meaning set forth in Section
------------------------
2.13(c).
"Statutory Reserves" shall mean, on any date, the percentage (expressed as
------------------
a decimal) established by the Board and any other banking authority which is the
then stated maximum rate for all reserves (including but not limited to any
emergency, supplemental or other marginal reserve requirements) applicable to
any member bank of the Federal Reserve System in respect of Eurocurrency
Liabilities (or any successor category of liabilities under Regulation D issued
by the Board, as in effect from time to time). Such reserve percentages shall
include, without limitation, those imposed pursuant to said Regulation. The
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in such percentage.
"Subsidiary" shall mean, with respect to any Person (herein referred to as
----------
the "parent"), any corporation, association or other business entity (whether
------
now existing or hereafter organized) of which at least a majority of the
securities or other ownership interests having ordinary voting power for the
election of directors is, at the time as of which any determination is being
made, owned or controlled by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.
"Tax Payment Plan" shall have the meaning set forth in Section 4.01(c).
----------------
"Tax Refund Account" shall have the meaning set forth in Section 2.13(c).
------------------
"Taxes" shall have the meaning set forth in Section 2.18(a).
-----
"Termination Date" shall mean the earliest to occur of (i) the Maturity
----------------
Date and (ii) the date on which the maturity of the Loans is accelerated and the
commitments of the Lenders are terminated in accordance with Section 7.01.
"Termination Event" shall mean (i) a "reportable event", as such term is
-----------------
described in Section 4043 of ERISA and the regulations issued thereunder (other
than a "reportable event" not subject to the provision for 30-day notice to the
PBGC under Section 4043 of ERISA or such regulations) or an event described in
Section 4068 of ERISA excluding events described in Section 4043(c)(9) of ERISA
or 29 CFR 2615.21 or 2615.23, or (ii) the withdrawal of the Borrower or any
ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was
a "substantial employer", as such term is defined in Section 4001(c) of ERISA,
or the incurrence of liability by the Borrower or any ERISA Affiliate under
Section 4064 of ERISA upon the termination of a Multiple Employer Plan, or
15
<PAGE>
(iii) providing notice of intent to terminate a Plan pursuant to Section 4041(c)
of ERISA or the treatment of a Plan amendment as a termination under Section
4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the
PBGC under Section 4042 of ERISA, or (v) any other event or condition which
would reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of or the appointment of a trustee to administer, any Plan,
or the imposition of any liability under Title IV of ERISA (other than for the
payment of premiums to the PBGC).
"Total Commitment" shall mean, at any time, the sum of the Commitments at
----------------
such time.
"Trademark Security Agreement" shall have the meaning set forth in Section
----------------------------
4.01(h).
"Transferee" shall have the meaning set forth in Section 2.18(a).
----------
"Type" when used in respect of any Loan or Borrowing shall refer to the
----
rate of interest by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined.
"Unused Commitment" shall mean, on any day, (a) the then aggregate amount
-----------------
of the Commitments minus (b) the sum of (i) the principal amount of Loans then
-----
outstanding and (ii) the then Letter of Credit Outstandings.
"Withdrawal Liability" shall have the meaning set forth under Part I of
--------------------
Subtitle E of Title IV of ERISA.
"Yonkers Location Sale" shall have the meaning set forth in Section
---------------------
2.13(c).
SECTION 1.02. TERMS GENERALLY. The definitions in Section 1.01 shall
---------------
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. All references herein to Articles,
Sections, Exhibits and Schedules shall be deemed references to Articles and
Sections of, and Exhibits and Schedules to, this Agreement unless the context
shall otherwise require. Except as otherwise expressly provided herein, all
terms of an accounting or financial nature shall be construed in accordance with
GAAP, as in effect from time to time; provided, however, that for purposes of
-------- -------
determining compliance with any covenant set forth in Article VI, such terms
shall be construed in accordance with GAAP as in effect on the date of this
Agreement applied on a basis consistent with the application used in the
Borrower's audited financial statements for the fiscal year ended on February 1,
1997.
II. AMOUNT AND TERMS OF CREDIT
SECTION 2.01. COMMITMENT OF THE LENDERS.
-------------------------
(a) Each Lender severally and not jointly with any other Lender
agrees, upon the terms and subject to the conditions herein set forth, to extend
credit to the Borrower on a revolving basis, in the form of Credit Extensions
and in an amount equal to such Lender's Commitment Percentage thereof, subject
to the following limitations:
(1) The aggregate outstanding amount of the Credit Extensions
shall not at any time exceed the lowest of (i) $250,000,000 or any lesser
amount to which the
16
<PAGE>
Commitments have then been reduced by the Borrower pursuant to Sections
2.07 or 2.10, and (ii) the then amount of the Borrowing Base, plus the cash
held in the Cash Collateral Account pursuant to Sections 2.02, 2.10(a) and
2.14(a) (item "fourth").
------
(2) No Lender shall be obligated to issue any Letter of Credit,
and Letters of Credit shall be available from the Issuing Bank, subject to
the ratable participation of all Lenders, as set forth in Section 2.02.
The Borrower will not at any time permit the aggregate Letter of Credit
Outstandings to exceed $125,000,000.
(3) Subject to all of the other provisions of this Agreement,
Loans that are repaid may be reborrowed prior to the Termination Date. No
new Credit Extension, however, shall be made to the Borrower after the
Termination Date.
(b) Each Borrowing of Loans (other than Agent Advances) shall be made
by the Lenders pro rata in accordance with their respective Commitments. The
--- ----
failure of any Lender to make any such Loan shall neither relieve any other
Lender of its obligation to fund its Loan in accordance with the provisions of
this Agreement nor increase the obligation of any such other Lender.
SECTION 2.02. LETTERS OF CREDIT.
-----------------
(a) Upon the terms and subject to the conditions herein set forth, the
Borrower may request the Issuing Bank, at any time and from time to time after
the date hereof and prior to the Termination Date, to issue, and subject to the
terms and conditions contained herein, the Issuing Bank shall issue, for the
account of the Borrower one or more Letters of Credit; provided that no Letter
--------
of Credit shall be issued if after giving effect to such issuance (i) the
aggregate Letter of Credit Outstandings shall exceed $125,000,000, or (ii) the
aggregate Credit Extensions would exceed the limitation set forth in Section
2.01(a)(1); and provided further that no Letter of Credit shall be issued if the
-------- -------
Issuing Bank shall have received notice from the Administrative Agent or the
Required Lenders that the conditions to such issuance have not been met.
(b) No Letter of Credit shall have an Expiry Date later than the 90th
day after the Maturity Date. In the case of each Letter of Credit issued with
an expiry date later than the Termination Date, the Borrower shall, on or prior
to the Termination Date, either (i) cause such Letter of Credit to be returned
to the Issuing Bank undrawn and marked "cancelled" and otherwise discharged in a
manner satisfactory to the Issuing Bank or (ii) if the Borrower is unable to
return and discharge such Letter of Credit, either (x) provide a "back-to-back"
letter of credit issued by a bank and on terms in form and substance
satisfactory to the Issuing Bank and the Administrative Agent (in their sole and
absolute discretion), in an amount equal to 105% of the undrawn amount of such
Letter of Credit or (y) deposit cash in the Cash Collateral Account in an amount
equal to 105% of the undrawn amount under such Letter of Credit.
(c) The Borrower shall pay to the Administrative Agent, for the
account of the Issuing Bank and in addition to all Letter of Credit Fees
provided for in Section 2.21, a fronting fee equal to 0.125% per annum of the
average daily balance of the maximum amount that at any time is available for
drawing or payment under each Letter of Credit, payable quarterly in arrears, as
well as such fees and charges in connection with the issuance, negotiation,
settlement, amendment and processing of each Letter of Credit issued by the
Issuing Bank as are customarily imposed by the Issuing Bank from time to time in
connection with letter of credit transactions.
17
<PAGE>
(d) Drafts drawn under each Letter of Credit shall be reimbursed by
the Borrower in Dollars not later than the first Business Day following the date
of draw and shall bear interest from the date of draw until the first Business
Day following the date of draw at a rate per annum equal to the Alternate Base
Rate and thereafter until reimbursed in full at a rate per annum equal to the
Alternate Base Rate plus 2.00% per annum (computed on the basis of the actual
----
number of days elapsed over any year of 360 days). The Borrower shall effect
such reimbursement (x) if such draw occurs prior to the Termination Date (or the
earlier date of termination of the Total Commitment), through a Borrowing of
Loans without the satisfaction of the conditions precedent set forth in Section
4.02, or (y) if such draw occurs on or after the Termination Date (or the
earlier date of termination of the Total Commitment), in cash. Each Lender
agrees to fund its Commitment Percentage of the Loans described in clause (x) of
the preceding sentence notwithstanding a failure to satisfy the applicable
lending conditions thereto or the provisions of Sections 2.01 and 2.02 or the
occurrence of the Termination Date.
(e) Immediately upon the issuance of any Letter of Credit by the
Issuing Bank, the Issuing Bank shall be deemed to have sold to each Lender and
each such Lender shall be deemed unconditionally and irrevocably to have
purchased from the Issuing Bank, without recourse or warranty, an undivided
interest and participation, to the extent of such Lender's Commitment
Percentage, in such Letter of Credit, each drawing thereunder and the
obligations of the Borrower and the Guarantors under this Agreement with respect
thereto. Upon any change in the Commitments pursuant to Section 10.03, it is
hereby agreed that with respect to all Letter of Credit Outstandings, there
shall be an automatic adjustment to the participations hereby created to reflect
the new Commitment Percentages of the assigning and assignee Lenders. Any
action taken or omitted by the Issuing Bank under or in connection with a Letter
of Credit, if taken or omitted in the absence of gross negligence or wilful
misconduct, shall not create for the Issuing Bank any resulting liability to any
Lender.
(f) In the event that the Issuing Bank makes any payment under any
Letter of Credit and the Borrower shall not have reimbursed such amount in full
to the Issuing Bank pursuant to this Section 2.02, the Issuing Bank shall
promptly notify the Administrative Agent, which shall promptly notify each
Lender of such failure, and each Lender shall promptly and unconditionally pay
to the Administrative Agent for the account of the Issuing Bank the amount of
such Lender's Commitment Percentage of such unreimbursed payment in Dollars and
in same day funds. If the Issuing Bank so notifies the Administrative Agent,
and the Administrative Agent so notifies the Lenders prior to 11:00 a.m., Boston
time, on any Business Day, each such Lender shall make available to the Issuing
Bank such Lender's Commitment Percentage of the amount of such payment on such
Business Day in same day funds. If and to the extent such Lender shall not have
so made its Commitment Percentage of the amount of such payment available to the
Issuing Bank, such Lender agrees to pay to the Issuing Bank, forthwith on demand
such amount, together with interest thereon, for each day from such date until
the date such amount is paid to the Administrative Agent for the account of the
Issuing Bank at the Federal Funds Effective Rate. The failure of any Lender to
make available to the Issuing Bank its Commitment Percentage of any payment
under any Letter of Credit shall neither relieve any Lender of its obligation
hereunder to make available to the Issuing Bank its Commitment Percentage of any
payment under any Letter of Credit on the date required, as specified above, nor
increase the obligation of such other Lender. Whenever any Lender has made
payments to the Issuing Bank in respect of any reimbursement obligation for any
Letter of Credit, such Lender shall be entitled to share ratably, based on its
Commitment Percentage, in all payments and collections thereafter received on
account of such reimbursement obligation.
18
<PAGE>
(g) Whenever the Borrower desires that the Issuing Bank issue a Letter
of Credit, it shall give to the Issuing Bank at least two Business Days' prior
written (including telegraphic, telex, facsimile or cable communication) notice
(or such shorter period as may be agreed upon in writing by the Issuing Bank and
the Borrower) specifying the date on which the proposed Letter of Credit is to
be issued (which shall be a Business Day), the stated amount of the Letter of
Credit so requested, the expiration date of such Letter of Credit, the name and
address of the beneficiary thereof, and the provisions thereof.
(h) The obligations of the Borrower to reimburse the Issuing Bank for
drawings made under any Letter of Credit shall be unconditional and irrevocable
and shall be paid strictly in accordance with the terms of this Agreement under
all circumstances, including, without limitation (it being understood that any
such payment by the Borrower shall be without prejudice to, and shall not
constitute a waiver of, any rights the Borrower might have or might acquire as a
result of the payment by the Issuing Bank of any draft or the reimbursement by
the Borrower thereof): (i) any lack of validity or enforceability of any Letter
of Credit; (ii) the existence of any claim, setoff, defense or other right which
the Borrower or any Guarantor may have at any time against a beneficiary of any
Letter of Credit or against any of the Lenders, whether in connection with this
Agreement, the transactions contemplated herein or any unrelated transaction;
(iii) any draft, demand, certificate or other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(iv) payment by the Issuing Bank of any Letter of Credit against presentation of
a demand, draft or certificate or other document which does not comply with the
terms of such Letter of Credit; (v) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing; or (vi) the fact
that any Event of Default shall have occurred and be continuing.
SECTION 2.03. MAKING OF LOANS.
---------------
(a) Except as set forth in Section 2.09, Loans by the Lenders shall be
either ABR Loans or (so long as no Event of Default has occurred and is
continuing and the making of Eurodollar Loans by any Lender is not illegal or
impractical) Eurodollar Loans as the Borrower may request subject to and in
accordance with this Section 2.03. All Loans made pursuant to the same
Borrowing shall, unless otherwise specifically provided herein, be Loans of the
same Type. Each Lender may fulfill its Commitment with respect to any Loan by
causing any lending office of such Lender to make such Loan; but any such use of
a lending office shall not affect the obligation of the Borrower to repay such
Loan in accordance with the terms of the applicable Note. Each Lender shall,
subject to its overall policy considerations, use reasonable efforts (but shall
not be obligated) to select a lending office which will not result in the
payment of increased costs by the Borrower pursuant to Section 2.15. Subject to
the other provisions of this Section 2.03 and the provisions of Section 2.16,
Borrowings of Loans of more than one Type may be incurred at the same time, but
no more than five Borrowings of Eurodollar Loans may be outstanding at any time.
(b) The Borrower shall give the Administrative Agent two business
days' prior notice of each Borrowing of Eurodollar Loans and same-day notice of
each Borrowing of ABR Loans, so long as notice is given prior to 12:00 Noon,
Boston time. Such notice shall be irrevocable and shall specify the amount of
the proposed Borrowing (which shall not be less than $1,000,000 in the case of
Eurodollar Loans) and the date thereof (which shall be a Business Day) and shall
contain disbursement instructions. Such notice, to be effective, must be
received by the Administrative Agent not later than 1:00 p.m., Boston time, on
the second Business Day in the case of Eurodollar Loans and
19
<PAGE>
not later than 12:00 Noon, Boston time, on the same day in the case of ABR
Loans, on which such Borrowing is to be made. Such notice shall specify whether
the Borrowing then being requested is to be a Borrowing of ABR Loans or
Eurodollar Loans and, if Eurodollar Loans, the Interest Period with respect
thereto. If no election of Interest Period is specified in any such notice for a
Borrowing of Eurodollar Loans, such notice shall be deemed a request for an
Interest Period of one month. If no election is made as to the Type of Loan,
such notice shall be deemed a request for Borrowing of ABR Loans (subject to
Section 2.03(a)). The Administrative Agent shall promptly notify each Lender of
its proportionate share of such Borrowing, the date of such Borrowing, the Type
of Borrowing being requested and the Interest Period or Interest Periods
applicable thereto, as appropriate. On the borrowing date specified in such
notice, each Lender shall make its share of the Borrowing available at the
office of the Administrative Agent at 100 Federal Street, Boston, Massachusetts
02110, no later than 3:00 p.m., Boston time, in immediately available funds.
Upon receipt of the funds made available by the Lenders to fund any borrowing
hereunder, the Administrative Agent shall disburse such funds in the manner
specified in the notice of borrowing delivered by the Borrower and shall use
reasonable efforts to make the funds so received from the Lenders available to
the Borrower no later than 4:00 p.m., Boston time.
(c) The Administrative Agent is authorized by the Lenders, but is not
obligated, to make Agent Advances up to $15,000,000 in the aggregate outstanding
at any time, consisting only of ABR Loans upon a notice of Borrowing received by
the Administrative Agent (which notice, at the Administrative Agent's
discretion, may be submitted prior to 12:00 Noon, Boston time, on the same day
for which such Agent Advance is requested). Agent Advances (together with all
other Credit Extensions) may not at any time cause the Borrower to be in
violation of the provisions of Section 2.10(a) hereof. Agent Advances shall be
subject to periodic settlement with the Lenders under the following subsection.
(d) (i) The amount of each Lender's Commitment Percentage of
outstanding Loans (including Agent Advances) shall be computed weekly (or more
frequently in the Administrative Agent's discretion) and shall be adjusted
upward or downward based on all Loans (including Agent Advances) and repayments
of Loans (including Agent Advances) received by the Administrative Agent as of
3:00 p.m., Boston time, on the first Business Day following the end of the
period specified by the Administrative Agent (such date, the "Settlement Date").
---------------
(ii) The Administrative Agent shall deliver to each of the Lenders
promptly after the Settlement Date a summary statement of the amount of
outstanding Loans (including Agent Advances) for the period and the amount of
repayments received for the period. As reflected on the summary statement: (x)
the Administrative Agent shall transfer to each Lender its Commitment Percentage
of repayments (after accounting for unreimbursed Agent Advances) and (y) each
Lender shall transfer to the Administrative Agent (as provided below), or the
Agent shall transfer to each Lender, such amounts as are necessary to insure
that, after giving effect to all such transfers, the amount of Loans made by
each Lender with respect to Loans (including Agent Advances) shall be equal to
such Lender's Commitment Percentage of Loans outstanding as of such Settlement
Date. If the summary statement requires transfers to be made to the
Administrative Agent by the Lenders and is received prior to 12:00 Noon, Boston
time, on a Business Day, such transfers shall be made in immediately available
funds no later than 3:00 p.m., Boston time, that day; and, if received after
12:00 Noon, Boston time, then no later than 3:00 p.m., Boston time, on the next
Business Day. The obligation of each Lender to transfer such funds is
irrevocable, unconditional and without recourse to or warranty by the
Administrative Agent and, notwithstanding the foregoing, on the day that the
Administrative Agent makes an Agent Advance hereunder, each Lender shall be
deemed to have made
20
<PAGE>
its Commitment Percentage of such Agent Advance on such day. If and to the
extent any Lender shall not have so made its transfer to the Administrative
Agent, such Lender agrees to pay to the Administrative Agent, forthwith on
demand such amount, together with interest thereon, for each day from such date
until the date such amount is paid to the Administrative Agent at the Federal
Funds Effective Rate.
SECTION 2.04. NOTES; REPAYMENT OF LOANS.
-------------------------
(a) The Loans outstanding to each Lender (and to the Administrative
Agent, with respect to Agent Advances) shall be evidenced by a Note duly
executed on behalf of the Borrower, dated the Closing Date, in substantially the
form attached hereto as Exhibit B-1 or B-2, as applicable, payable to the order
of such Lender (or the Administrative Agent, as applicable) in an aggregate
principal amount equal to such Lender's Commitment (or, in the case of the Note
evidencing the Agent Advances, $15,000,000).
(b) The outstanding principal balance of all Loans, as evidenced by
such Notes, shall be payable on the Termination Date (subject to earlier
repayment as provided below). Each Note shall bear interest from the date
thereof on the outstanding principal balance thereof as set forth in this
Article II. Each Lender is hereby authorized by the Borrower to endorse on a
schedule attached to each Note delivered to such Lender (or on a continuation of
such schedule attached to such Note and made a part thereof), or otherwise to
record in such Lender's internal records, an appropriate notation evidencing the
date and amount of each Loan from such Lender, each payment and prepayment of
principal of any such Loan, each payment of interest on any such Loan and the
other information provided for on such schedule; provided, however, that the
-------- -------
failure of any Lender to make such a notation or any error therein shall not
affect the obligation of the Borrower to repay the Loans made by such Lender in
accordance with the terms of this Agreement and the applicable Notes.
SECTION 2.05. INTEREST ON LOANS.
-----------------
(a) Subject to Section 2.06, each ABR Loan shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum that shall be equal to the then Alternate Base Rate,
plus the Overadvance Margin.
- ----
(b) Subject to Section 2.06, each Eurodollar Loan shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum equal, during each Interest Period applicable thereto,
to the Adjusted LIBOR Rate for such Interest Period, plus the Eurodollar
----
Applicable Margin, plus the Overadvance Margin (the "Eurodollar Interest Rate");
---- ------------------------
provided that, after the first anniversary of the Closing Date, if the
- --------
Borrower's Interest Coverage Ratio as measured at the end of any fiscal quarter
is greater than or equal to 2.5:1, then each Eurodollar Interest Rate
outstanding during the following fiscal quarter shall bear interest during such
fiscal quarter at a rate per annum equal to the applicable Eurodollar Interest
Rate less 0.25%.
----
(c) Accrued interest on all Loans shall be payable in arrears on each
Interest Payment Date applicable thereto, at maturity (whether by acceleration
or otherwise), after such maturity on demand and (with respect to Eurodollar
Loans) upon any repayment or prepayment thereof (on the amount prepaid).
(d) All outstanding Loans that on any day are not, in accordance with
the provisions of this Agreement, Eurodollar Loans shall, for such day,
constitute ABR Loans and,
21
<PAGE>
subject to Section 2.06, shall bear interest with reference to the Alternate
Base Rate as set forth in Section 2.05(a).
SECTION 2.06. DEFAULT INTEREST. Effective upon the occurrence of any
----------------
Event of Default and at all times thereafter while such Event of Default is
continuing, interest shall accrue on all outstanding Loans (after as well as
before judgment) at a rate per annum (computed on the basis of the actual number
of days elapsed over a year of 360 days) equal to the Alternate Base Rate plus
----
2.00% per annum, and such interest shall be payable on demand.
SECTION 2.07. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. Upon at
------------------------------------------------
least two Business Days' prior written notice to the Administrative Agent, the
Borrower may at any time in whole permanently terminate, or from time to time in
part permanently reduce, the Commitments. Each such reduction shall be in the
principal amount of $5,000,000 or any integral multiple thereof. Such reduction
or termination shall be applied ratably to the Commitment of each Lender and
shall be irrevocable when given. At the effective time of each such reduction
or termination, the Borrower shall pay to the Administrative Agent (i) all
Commitment Fees accrued on the amount of the Commitments so terminated or
reduced through the date thereof, (ii) any amount by which the Credit Extensions
outstanding on such date exceed the amount to which the Commitments, as the case
may be, are to be reduced effective on such date and (iii) all earned and unpaid
Fees with respect to such Credit Extensions, in each case pro rata based on the
--- ----
amount prepaid.
SECTION 2.08. ALTERNATE RATE OF INTEREST. In the event, and on each
--------------------------
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Loan the Administrative Agent shall have
determined (which determination shall be conclusive and binding upon the
Borrower absent manifest error) that reasonable means do not exist for
ascertaining the applicable Adjusted LIBOR Rate, the Administrative Agent shall,
as soon as practicable thereafter, give written or telegraphic notice of such
determination to the Borrower and the Lenders. After such notice shall have
been given and until the circumstances giving rise to such notice no longer
exist, any request by the Borrower for any funding as, continuation of or
conversion into a Eurodollar Borrowing shall be deemed a request for a Borrowing
of ABR Loans.
SECTION 2.09. REFINANCING OF LOANS. The Borrower shall have the right at
--------------------
any time, on two Business Days' prior irrevocable notice to the Administrative
Agent (which notice, to be effective, must be received by the Administrative
Agent not later than 1:00 p.m., Boston time, on the second Business Day
preceding the date of any refinancing), (x) to refinance any outstanding
Borrowing or Borrowings of Loans of one Type (or a portion thereof) with a
Borrowing of Loans of the other Type or (y) to continue an outstanding Borrowing
of Eurodollar Loans for an additional Interest Period, subject to the following:
(a) no Borrowing or Loans may be refinanced into, or continued as,
Eurodollar Loans at any time when an Event of Default has occurred and is
continuing;
(b) if less than a full Borrowing of Loans is refinanced, such
refinancing shall be made pro rata among the Lenders, as applicable, in
--- ----
accordance with the respective principal amounts of the Loans comprising
such Borrowing held by such Lenders immediately prior to such refinancing;
(c) the aggregate principal amount of Loans being refinanced into or
continued as Eurodollar Loans shall be at least $1,000,000;
22
<PAGE>
(d) each Lender shall effect each refinancing by applying the proceeds
of its new Eurodollar Loan or ABR Loan, as the case may be, to its Loan
being refinanced;
(e) the Interest Period with respect to a Borrowing of Eurodollar
Loans effected by a refinancing or in respect to the Borrowing of
Eurodollar Loans being continued as Eurodollar Loans shall commence on the
date of refinancing or the expiration of the current Interest Period
applicable to such continuing Borrowing, as the case may be;
(f) a Borrowing of Eurodollar Loans may be refinanced only on the last
day of an Interest Period applicable thereto;
(g) each request for a refinancing with a Borrowing of Eurodollar
Loans which fails to state an applicable Interest Period shall be deemed to
be a request for an Interest Period of one month; and
(h) no more than five Borrowings of Eurodollar Loans may be
outstanding at any time.
If the Borrower does not give notice to refinance any Borrowing of Eurodollar
Loans, or does not give notice to continue, or does not have the right to
continue, any Borrowing as Eurodollar Loans, in each case as provided above,
such Borrowing shall automatically be refinanced with a Borrowing of ABR Loans
at the expiration of the then-current Interest Period. The Administrative Agent
shall, after it receives notice from the Borrower, promptly give each Lender
notice of any refinancing, in whole or part, of any Loan made by such Lender.
SECTION 2.10. MANDATORY PREPAYMENT; COMMITMENT TERMINATION; CASH
--------------------------------------------------
COLLATERAL. The outstanding Obligations shall be subject to mandatory prepayment
- ----------
as follows:
(a) If at any time the amount of the Credit Extensions exceeds
the lower of (i) the then amount of the Commitments and (ii) the then
amount of the Borrowing Base, plus the cash held in the Cash Collateral
Account pursuant to Sections 2.02 and 2.14, the Borrower will within one
Business Day (i) prepay the Loans in an amount necessary to eliminate such
excess and (ii) if, after giving effect to the prepayment in full of all
outstanding Loans such excess has not been eliminated, deposit cash to the
Cash Collateral Account in an amount equal to 105% of the remaining amount
of such excess.
(b) Upon the Termination Date, the credit facility provided
hereunder shall be terminated in full and the Borrower shall pay, in full
and in cash, all outstanding Loans and all other outstanding Obligations,
except that if any Letter of Credit then remains outstanding, the Borrower
shall with respect to outstanding Letters of Credit, (i) deposit into the
Cash Collateral Account an amount sufficient to cause the funds on deposit
in the Cash Collateral Account to be equal to 105% of the sum of then
Letter of Credit Outstandings or (ii) secure its reimbursement obligations
thereunder with a letter of credit in form and substance and from an issuer
satisfactory to the Issuing Bank in its sole discretion.
SECTION 2.11. OPTIONAL PREPAYMENT OF LOANS; REIMBURSEMENT OF LENDERS.
------------------------------------------------------
(a) The Borrower shall have the right at any time and from time to
time to prepay
23
<PAGE>
outstanding Loans in whole or in part, (x) with respect to Eurodollar Loans,
upon at least two Business Days' prior written, telex or facsimile notice to the
Administrative Agent prior to 1:00 p.m., Boston time, and (y) with respect to
ABR Loans, on the same Business Day if written, telex or facsimile notice is
received by the Administrative Agent prior to 3:00 p.m., Boston time, subject to
the following limitations:
(1) All prepayments shall be paid to the Administrative Agent for
application, first, to the prepayment of outstanding Agent Advances,
-----
second, to the prepayment of outstanding Loans ratably in accordance with
------
each Lender's Commitment Percentage, and third, to the funding of a cash
-----
collateral deposit in the Cash Collateral Account in an amount equal to
105% of all Letter of Credit Outstandings.
(2) Subject to the foregoing, outstanding ABR Loans shall be
prepaid before outstanding Eurodollar Loans are prepaid. Each partial
prepayment of Eurodollar Loans shall be in an integral multiple of
$1,000,000. No prepayment of Eurodollar Loans shall be permitted pursuant
to this Section 2.11(a) other than on the last day of an Interest Period
applicable thereto, unless the Borrower simultaneously reimburses the
Lenders for all "Breakage Costs" (as defined below) associated therewith.
No partial prepayment of a Borrowing of Eurodollar Loans shall result in
the aggregate principal amount of the Eurodollar Loans remaining
outstanding pursuant to such Borrowing being less than $1,000,000.
(3) Each notice of prepayment shall specify the prepayment date,
the principal amount and Type of the Loans to be prepaid and, in the case
of Eurodollar Loans, the Borrowing or Borrowings pursuant to which such
Loans were made. Each notice of prepayment shall be irrevocable and shall
commit the Borrower to prepay such Loan by the amount and on the date
stated therein. The Administrative Agent shall, promptly after receiving
notice from the Borrower hereunder, notify each Lender of the principal
amount and Type of the Loans held by such Lender which are to be prepaid,
the prepayment date and the manner of application of the prepayment.
(b) The Borrower shall reimburse each Lender on demand for any loss
incurred or to be incurred by it in the reemployment of the funds released (i)
resulting from any prepayment (for any reason whatsoever, including, without
limitation, refinancing with ABR Loans) of any Eurodollar Loan required or
permitted under this Agreement, if such Loan is prepaid other than on the last
day of the Interest Period for such Loan or (ii) in the event that after the
Borrower delivers a notice of borrowing under Section 2.03 in respect of
Eurodollar Loans, such Loans are not made on the first day of the Interest
Period specified in such notice of borrowing for any reason other than a breach
by such Lender of its obligations hereunder. Such loss shall be the amount as
reasonably determined by such Lender as the excess, if any, of (A) the amount of
interest which would have accrued to such Lender on the amount so paid or not
borrowed at a rate of interest equal to the Adjusted LIBOR Rate for such Loan,
for the period from the date of such payment or failure to borrow to the last
day (x) in the case of a payment or refinancing with ABR Loans other than on the
last day of the Interest Period for such Loan, of the then current Interest
Period for such Loan or (y) in the case of such failure to borrow, of the
Interest Period for such Loan which would have commenced on the date of such
failure to borrow, over (B) the amount of interest which would have accrued to
such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the London interbank market (collectively,
"Breakage Costs"). Any Lender demanding reimbursement for such loss shall
- ---------------
deliver to the Borrower from time to time one or more
24
<PAGE>
certificates setting forth the amount of such loss as determined by such Lender.
(c) In the event the Borrower fails to prepay any Loan on the date
specified in any prepayment notice delivered pursuant to Section 2.11(a), the
Borrower on demand by any Lender shall pay to the Administrative Agent for the
account of such Lender any amounts required to compensate such Lender for any
loss incurred by such Lender as a result of such failure to prepay, including,
without limitation, any loss, cost or expenses incurred by reason of the
acquisition of deposits or other funds by such Lender to fulfill deposit
obligations incurred in anticipation of such prepayment. Any Lender demanding
such payment shall deliver to the Borrower from time to time one or more
certificates setting forth the amount of such loss as determined by such Lender.
(d) Whenever any partial prepayment of Loans are to be applied to
Eurodollar Loans, such Eurodollar Loans shall be prepaid in the chronological
order of their Interest Payment Dates.
SECTION 2.12. MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF ACCOUNT.
--------------------------------------------------
(a) The Administrative Agent shall maintain an account on its books in
the name of the Borrower (the "Loan Account") in which the Borrower will be
------------
charged with (i) all Agent Advances and all loans and advances made by the
Lenders to the Borrower or for the Borrower's account, including the Loans, (ii)
all Letter of Credit reimbursement obligations, Fees and interest that have
become payable as herein set forth, and (iii) if an Event of Default has
occurred and is continuing, any and all other Obligations that have become
payable. The charging of any Obligations to the Loan Account shall not
excuse the Borrower from paying such Obligations in cash when due and shall not
cure or waive any Default or Event of Default that may have resulted from non-
payment thereof or any right or remedy consequent thereon.
(b) The Loan Account will be credited with all amounts received by the
Administrative Agent from the Borrower or from others for the Borrower's
account, including all amounts received in the BBNA Concentration Account from
the Blocked Account Banks, and the amounts so credited shall be applied as set
forth in Sections 2.14(a) and (b). In no event shall prior recourse to any
deposit or other accounts, or any other assets, be a prerequisite to the
Administrative Agent's right to demand payment of any Obligation upon its
maturity. Further, the Administrative Agent shall have no obligation whatsoever
to perform in any respect any of the Borrower's contracts or obligations
relating to any of such accounts. After the end of each month, the
Administrative Agent shall send to the Borrower a statement accounting for the
charges, loans, advances and other transactions occurring among and between the
Administrative Agent, the Lenders and the Borrower during that month. The
monthly statements shall, absent manifest error, be an account stated, which is
final, conclusive and binding on the Borrower.
SECTION 2.13. CASH RECEIPTS.
-------------
(a) On or prior to the Closing Date, the Borrower and the
Administrative Agent shall have entered into agency agreements with the banks
maintaining the deposit accounts identified on Schedule 3.11(b) (collectively,
the "Blocked Accounts"), which agreements (the "Blocked Account Agreements")
---------------- --------------------------
shall be in form and substance satisfactory to the Administrative Agent and
shall require the sweep on each Business Day (in accordance with the Borrower's
customary cash deposit procedures outlined in Schedule 2.13 (as such procedures
may be amended from time to time with the consent of the Administrative Agent))
of all available cash receipts from the sale of Inventory and
25
<PAGE>
other assets, all collections of Receivables and other accounts, and all other
cash payments received by the Borrower or any Guarantor from any Person or from
any source or on account of any sale or other transaction or event, except only
the proceeds of the Loans (all such non-excluded cash receipts and collections,
"Cash Receipts"), from Blocked Accounts in excess of the amount in each such
-------------
account set forth on Schedule 3.11(b) (except upon the occurrence and during the
continuance of an Event of Default, when all such amounts in such accounts will
be swept) to a concentration account maintained by the Administrative Agent at
BBNA (the "BBNA Concentration Account"). All Cash Receipts shall be deposited
--------------------------
into a Blocked Account or the BBNA Concentration Account in accordance with the
Borrower's customary cash deposit procedures outlined in Schedule 2.13. The
Borrower shall accurately report to the Administrative Agent all amounts
deposited in the Blocked Accounts to ensure the proper transfer of funds as set
forth above. If at any time other than the times set forth above any cash or
cash equivalents owned by the Borrower or any Guarantor are deposited to any
account, or held or invested in any manner, otherwise than in a Blocked Account
that is subject to a Blocked Account Agreement, the Administrative Agent may
require the Borrower to close such Blocked Account and have all funds therein
transferred to an account maintained by the Administrative Agent at BBNA and all
future deposits made to a Blocked Account which is subject to a Blocked Account
Agreement.
(b) The Borrower may request that the Administrative Agent close
Blocked Accounts and/or open new Blocked Accounts (or, in either case, permit
the Borrower to do so), subject to the execution and delivery to the
Administrative Agent of appropriate Blocked Account Agreements (unless expressly
waived by the Administrative Agent) consistent with the provisions of this
Section 2.13 and otherwise satisfactory to the Administrative Agent. Unless
consented to in writing by the Administrative Agent, the Borrower and the
Guarantors may not maintain any bank accounts other than the ones expressly
contemplated herein.
(c) Notwithstanding anything contained herein to the contrary, so long
as no default or event of default has occurred and is continuing under the
Existing Credit Facility on the Closing Date, and all Obligations under the
Existing Credit Facility have been paid in full, the Borrower may utilize up to
$25,000,000 in proceeds, if any, remaining in the Tax Refund Account (as defined
in the Existing Credit Facility) and from the Specified Location Sales (as
defined in the Existing Credit Facility) (collectively, the "Escrow Proceeds"),
---------------
other than the Yonkers Location Sale (as defined in the Existing Credit
Facility) to pay on or after the Closing Date any costs directly associated with
or claims payable under the Plan of Reorganization; provided that such funds are
--------
held in a segregated account at BBNA and subject to the Lien of the Collateral
Agent until such application.
(d) The Borrower may also maintain with the Administrative Agent at
BBNA one or more disbursement accounts with a balance at any time not in excess
of the amounts set forth on Schedule 2.13 (the "BBNA Disbursement Accounts") to
--------------------------
be used by the Borrower for disbursements and payments (including payroll) in
the ordinary course of business or as otherwise permitted hereunder; provided
--------
that, upon the occurrence and during the continuance of an Event of Default, all
amounts in such accounts may be swept by the Administrative Agent into the BBNA
Cash Concentration Account for application in accordance with Sections 2.14(a)
and (b).
(e) Notwithstanding the foregoing, so long as no Default or Event of
Default has occurred and is continuing, and the Administrative Agent shall not
have issued a "Notice of Redirection" under the Blocked Account Agreements, the
Borrower shall be permitted to make cash withdrawals from the Blocked Accounts
in accordance with its customary procedures as set forth on Schedule 2.13 in
effect on the date hereof to fund the ordinary-course cash operating needs of
its
26
<PAGE>
stores (such as change for registers and funds to cash employees' paychecks
(otherwise commonly referred to as "coin orders")), provided that all such
--------
withdrawals are replaced in accordance with the Borrower's customary practices.
(f) Notwithstanding anything in this Agreement to the contrary, the
Borrower's failure to comply with the cash deposit and sweep requirements set
forth in Section 2.13(a) due directly to earthquake, landslide, hurricane,
tornado, fire, flood, material disruption in armored car service, blizzard, act
of God or the public enemy, act of war, public disorder, rebellion, sabotage,
revolution, epidemic, riot or quarantine shall not be an Event of Default
hereunder unless such failure continues for 3 days.
SECTION 2.14. APPLICATION OF PAYMENTS.
-----------------------
(a) All amounts received in the BBNA Concentration Account from any
source, including the Blocked Account Banks shall be credited to the Loan
Account (effective as of the Business Day as of which the Administrative Agent
determines in good faith that it has received, prior to 2:00 p.m., Boston time,
immediately available funds therefor) and such credits shall be applied in the
following order: first, to pay interest due and payable on Credit Extensions
-----
and to pay Fees and expense reimbursements and indemnification then due and
payable to the Administrative Agent, BSI, the Issuing Bank, the Collateral
Agent, the Co-Agents and the Lenders; second, to repay outstanding Agent
------
Advances; third, to repay outstanding Loans that are ABR Loans and all
-----
outstanding reimbursement obligations for Letters of Credit; fourth, to repay
------
outstanding Loans that are Eurodollar Loans and all LIBOR breakage losses due in
respect of such repayment pursuant to Section 2.11(b) or, at the Borrower's
option (if no Default or Event of Default has occurred and is then continuing),
to fund a cash collateral deposit to the Cash Collateral Account sufficient to
pay, and with direction to pay, all such outstanding Eurodollar Loans on the
last day of the then-pending Interest Period therefor; fifth, if any Default or
-----
Event of Default has occurred and is continuing, to fund a cash collateral
deposit in the Cash Collateral Account in an amount equal to 105% of the
aggregate maximum amount that then is or at any time may become available for
drawing or payment under all outstanding Letters of Credit; provided, however,
-------- -------
that if such Default or Event of Default shall be cured, corrected or waived
pursuant to the terms hereof, such cash collateral shall be released and applied
pursuant to clause sixth below or pursuant to Section 2.14(b), as the case may
-----
be; and sixth, to pay all other Obligations that are then outstanding and
-----
payable.
(b) Any amounts received in the BBNA Concentration Account at any time
when all of the applications set forth in Section 2.14(a) have been and remain
fully funded shall be remitted to the Borrower, if and as the Borrower may
request.
(c) If any item deposited to the BBNA Concentration Account and
credited to the Loan Account is dishonored or returned unpaid for any reason,
whether or not such return is rightful or timely, the Administrative Agent shall
have the right to reverse such credit and charge the amount of such item to the
Loan Account and the Borrower shall indemnify the Administrative Agent, the
Collateral Agent, the Issuing Bank, the Co-Agents and the Lenders against all
claims and losses resulting from such dishonor or return.
SECTION 2.15. INCREASED COSTS.
---------------
(a) Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any
27
<PAGE>
governmental authority charged with the interpretation or administration thereof
(whether or not having the force of law) shall change the basis of taxation of
payments to any Lender of the principal of or interest on any Eurodollar Loan or
ABR Loan made by such Lender or any fees or other amounts payable hereunder
(other than changes in respect of Taxes, Other Taxes and taxes imposed on, or
measured by, the net income or overall gross receipts or franchise taxes of such
Lender by the jurisdiction in which such Lender has its principal office or by
any political subdivision or taxing authority therein), or shall impose, modify
or deem applicable any reserve, special deposit or similar requirement against
assets of, deposits with or for the account of or credit extended by such Lender
(except any such reserve requirement which is reflected in the Adjusted LIBOR
Rate) or shall impose on such Lender or the London interbank market any other
condition affecting this Agreement or the Eurodollar Loans made by such Lender,
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan or to reduce the amount of
any sum received or receivable by such Lender hereunder or under the Notes
(whether of principal, interest or otherwise) by an amount deemed by such Lender
to be material, then the Borrower will pay to such Lender in accordance with
paragraph (c) below such additional amount or amounts as will compensate such
Lender for such additional costs incurred or reduction suffered.
(b) If any Lender shall have determined that the applicability of any
law, rule, regulation or guideline adopted pursuant to or arising out of the
July 1988 report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and Capital
Standards", or the adoption or effectiveness after the date hereof of any law,
rule, regulation or guideline regarding capital adequacy, or any change in any
of the foregoing or in the interpretation or administration of any of the
foregoing by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender (or any Lending office of such Lender) or any Lender's holding company
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency, has
or would have the effect of reducing the rate of return on such Lender's capital
or on the capital of such Lender's holding company, if any, as a consequence of
this Agreement, the Loans made by such Lender pursuant hereto, such Lender's
Commitment hereunder or the issuance of, or participation in, any Letter of
Credit by such Lender to a level below that which such Lender or such Lender's
holding company could have achieved but for such adoption, change or compliance
(taking into account such Lender's policies and the policies of such Lender's
holding company with respect to capital adequacy) by an amount deemed by such
Lender to be material, then from time to time the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender or such
Lender's holding company of any such reduction suffered.
(c) A certificate of each Lender setting forth such amount or amounts
as shall be necessary to compensate such Lender or its holding company as
specified in paragraph (a) or (b) above, as the case may be, shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay each Lender the amount shown as due on any such certificate delivered
to it within 10 days after its receipt of the same. Any Lender receiving any
such payment shall promptly make a refund thereof to the Borrower if the law,
regulation, guideline or change in circumstances giving rise to such payment is
subsequently deemed or held to be invalid or inapplicable.
(d) Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Lender's right to demand compensation with respect to
28
<PAGE>
such period or any other period. The protection of this Section 2.15 shall be
available to each Lender regardless of any possible contention of the invalidity
or inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
SECTION 2.16. CHANGE IN LEGALITY.
------------------
(a) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, if (x) any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration thereof shall make it unlawful for a Lender to make or maintain a
Eurodollar Loan or to give effect to its obligations as contemplated hereby with
respect to a Eurodollar Loan or (y) at any time any Lender determines that the
making or continuance of any of its Eurodollar Loans has become impracticable as
a result of a contingency occurring after the date hereof which adversely
affects the London interbank market or the position of such Lender in the London
interbank market, then, by written notice to the Borrower, such Lender may (i)
declare that Eurodollar Loans will not thereafter be made by such Lender
hereunder, whereupon any request by the Borrower for a Eurodollar Borrowing
shall, as to such Lender only, be deemed a request for an ABR Loan unless such
declaration shall be subsequently withdrawn; and (ii) require that all
outstanding Eurodollar Loans made by it be converted to ABR Loans, in which
event all such Eurodollar Loans shall be automatically converted to ABR Loans as
of the effective date of such notice as provided in paragraph (b) below. In the
event any Lender shall exercise its rights under clause (i) or (ii) of this
paragraph (a), all payments and prepayments of principal which would otherwise
have been applied to repay the Eurodollar Loans that would have been made by
such Lender or the converted Eurodollar Loans of such Lender shall instead be
applied to repay the ABR Loans made by such Lender in lieu of, or resulting from
the conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.16, a notice to the Borrower by any
Lender pursuant to paragraph (a) above shall be effective, if lawful, and if any
Eurodollar Loans shall then be outstanding, on the last day of the then-current
Interest Period; and otherwise such notice shall be effective on the date of
receipt by the Borrower.
SECTION 2.17. PAYMENTS; NO SETOFF. (a) All payments received by the
-------------------
Administrative Agent, the Issuing Bank, the Collateral Agent, the Co-Agents or
any Lender for application to or on account of any of the Obligations, whether
received as a deposit to the BBNA Concentration Account or as a payment made by
the Borrower or any Guarantor or from the enforcement of the Liens or against
any property of the Borrower or any Guarantor shall be applied in the order of
priority set forth in Section 2.14(a) and shall be applied ratably to the
payment of all outstanding Obligations. All payments by the Borrower or any
Guarantor under this Agreement and under the Notes shall be (i) net of any tax
applicable to the Borrower or Guarantor and (ii) made in Dollars in immediately
available funds at the office of the Administrative Agent by 2:00 p.m., Boston
time, on the date on which such payment shall be due. Interest in respect of
any Loan hereunder shall accrue from and including the date of such Loan to but
excluding the date on which such Loan is paid in full or converted to a Loan of
a different Type.
(b) All payments by the Borrower hereunder to or for the benefit of
any Lender, the Issuing Bank, the Collateral Agent or the Administrative Agent
shall be made without setoff, counterclaim or other defense.
SECTION 2.18. TAXES.
-----
29
<PAGE>
(a) Any and all payments by the Borrower or any Guarantor hereunder
and under the Notes shall be made free and clear of and without deduction or
withholding for any and all current or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on or measured by the net income or overall gross
- ---------
receipts (if the overall gross receipts are used in lieu of net income of the
Administrative Agent, the Collateral Agent or any Lender (or any transferee or
assignee thereof, including a participation holder (any such entity being called
a "Transferee")) and franchise taxes imposed on the Administrative Agent, the
----------
Collateral Agent or any Lender (or Transferee), in each instance if and to the
extent imposed by the jurisdiction under the laws of which the Administrative
Agent, the Collateral Agent or any such Lender (or Transferee) is organized or
any political subdivision thereof or by any other jurisdiction or by any
political subdivision or taxing authority therein other than a jurisdiction in
which the Administrative Agent, the Collateral Agent or such Lender would not be
subject to tax but for the execution and performance of this Agreement and (ii)
taxes, levies, imposts, deductions, charges or withholdings ("Amounts") with
-------
respect to payments hereunder or under the Notes to a Lender (or Transferee) in
accordance with laws in effect on the later of the date of this Agreement and
the date such Lender (or Transferee) becomes a Lender (or Transferee, as the
case may be), but not excluding, with respect to such Lender (or Transferee),
any increase in such Amounts solely as a result of any change in such laws
occurring after such later date or any Amounts that would not have been imposed
but for actions (other than actions contemplated by this Agreement or the Notes)
taken by the Borrower after such later date (all such nonexcluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If the Borrower or any Guarantor shall be required by
-----
law to deduct or withhold any Taxes from or in respect of any sum payable
hereunder to the Lenders (or any Transferee), the Collateral Agent or the
Administrative Agent, (i) the sum payable shall be increased by the amount
necessary so that after making all required deductions or withholding (including
deductions or withholding applicable to additional sums payable under this
Section 2.18) such Lender (or Transferee), the Collateral Agent or the
Administrative Agent (as the case may be) shall receive an amount equal to the
sum it would have received had no such deductions or withholding been made, (ii)
the Borrower shall make such deductions or withholding and (iii) the Borrower
shall pay the full amount deducted or withheld to the relevant taxing authority
or other Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay to the relevant
Governmental Authority in accordance with applicable laws any current or future
stamp or documentary taxes or any other excise or property taxes, charges,
assessments or similar levies that arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
-----------
(c) The Borrower will indemnify each Lender (or Transferee), the
Collateral Agent and the Administrative Agent for the full amount of Taxes and
Other Taxes paid by such Lender (or Transferee), the Collateral Agent or the
Administrative Agent, as the case may be, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted by
the relevant taxing authority or other Governmental Authority. A certificate as
to the amount of such payment or liability prepared by a Lender (or Transferee),
the Collateral Agent or the Administrative Agent, as applicable, absent manifest
error, shall be final, conclusive and binding for all purposes. Such
indemnification shall be made within 30 days after the date any Lender (or
Transferee), the Collateral Agent or the Administrative Agent, as the case may
be, makes written demand therefor. If any Lender (or Transferee), the
Collateral Agent or the Administrative Agent receives a refund in respect of any
Taxes or Other Taxes as to which it has been indemnified by the Borrower
pursuant to this Section
30
<PAGE>
2.18, it shall within 30 days after receipt of such refund, repay such refund to
the Borrower (to the extent of amounts that have been paid by the Borrower under
this Section 2.18 with respect to the Taxes or Other Taxes that give rise to
such refund, net of all out-of-pocket expenses of such Lender (or Transferee),
Agent or Administrative Agent and with any interest thereon that is received by
the Lender (or Transferee), the Collateral Agent or the Administrative Agent as
part of the refund; provided that the Borrower, upon the request of such Lender
--------
(or Transferee), the Collateral Agent or the Administrative Agent agrees to
return such refund (plus penalties, interest or other charges) to such Lender
(or Transferee), the Collateral Agent or the Administrative Agent in the event
such Lender (or Transferee), the Collateral Agent or the Administrative Agent is
required to repay such refund and such additions thereto to the relevant
Governmental Authority. Nothing contained in this Section 2.18 shall require any
Lender (or Transferee), the Collateral Agent or the Administrative Agent to make
available any of its tax returns (or any other information relating to its taxes
that it deems to be confidential).
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes by the Borrower to the relevant Governmental Authority, the Borrower will
furnish to the Administrative Agent, at its address referred to on the signature
pages hereof, the original or a certified copy of a receipt issued by the
Governmental Authority evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.18 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(f) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") shall, if legally able to do so, deliver to the
---------------
Borrower such certificates, documents or other evidence, as required by the Code
or Treasury Regulations issued pursuant thereto, including without limitation
(A) in the case of a Non-U.S. Lender claiming exemption from United States
Federal withholding tax under Code Section 871(h) or 881(c) with respect to
payments of "portfolio interest", a Form W-8, or any subsequent versions thereof
or successors thereto, together with a certificate representing that such Non-
U.S. Lender is not a bank for purposes of Section 881(c) of the Code, is not a
10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code)
of the Borrower and is not a controlled foreign corporation related to the
Borrower (within the meaning of Section 864(d)(4) of the Code) or (B) Internal
Revenue Service Form 4224 or any subsequent version thereof or successor
thereto, establishing that such payment is not subject to United States Federal
withholding tax under the Code because such payment is effectively connected
with the conduct by such Lender (or Transferee) of a trade or business in the
United States or (C) Internal Revenue Service Form 1001 or any subsequent
version thereof or successor thereto, establishing that such payment is totally
exempt from United States Federal withholding tax or subject to a reduced rate
of such tax under a provision of an applicable tax treaty. Unless the Borrower
and the Administrative Agent have received forms or other documents satisfactory
to them indicating that such payments hereunder or under the Notes are not
subject to United States Federal withholding tax or are subject to such tax at a
rate reduced by an applicable tax treaty, the Borrower or the Administrative
Agent shall withhold taxes from such payments at the applicable statutory rate.
Such forms and certifications shall be delivered by each Non-U.S. Lender
claiming an exemption from or reduction in applicable United States Federal
withholding tax (i) on or before the date it becomes a party to this Agreement
or, in the case of a Transferee, on or before the date it becomes a Transferee,
and (ii) promptly upon the obsolescence or invalidity of any form so delivered
by such Non-U.S. Lender.
31
<PAGE>
(g) The Borrower shall not be required to pay any additional amounts
to any Lender (or Transferee) in respect of United States Federal withholding
tax pursuant to Section 2.18(a) if the obligation to pay such additional amounts
would not have arisen but for a failure by such Lender (or Transferee) to comply
with the provisions of Section 2.18(f).
(h) Any Lender (or Transferee) claiming any additional amounts payable
pursuant to this Section 2.18 shall use reasonable efforts (consistent with
legal and regulatory restrictions) to file any certificate or document requested
by the Borrower or to change the jurisdiction of its applicable lending office
if the making of such a filing or change would avoid the need for or reduce the
amount of any such additional amounts that may thereafter accrue and would not,
in the sole reasonable determination of such Lender or Transferee, be otherwise
materially disadvantageous to such Lender (or Transferee).
SECTION 2.19. CERTAIN FEES. The Borrower shall pay to the Administrative
------------
Agent, for the account of the Administrative Agent, the fees set forth in the
Fee Letter as and when payment of such fees is due as therein set forth.
SECTION 2.20. UNUSED COMMITMENT FEE. The Borrower shall pay to the
---------------------
Administrative Agent for the account of the Lenders, based upon their pro rata
--- ----
share of the Credit Extension, a commitment fee (the "Commitment Fee") computed
--------------
by applying 0.30% per annum (on the basis of actual days elapsed in a year of
360 days) to the average daily balance of the Unused Commitment for each day
commencing on and including the Closing Date and ending on but excluding the
Termination Date; provided that, after the first anniversary of the Closing
--------
Date, if the Borrower's Interest Coverage Ratio as measured at the end of any
fiscal quarter is greater than or equal to 2.5:1, then the Commitment Fee during
the following fiscal quarter shall be computed by applying 0.25% per annum (on
the basis of actual days elapsed in a year of 360 days) to the average daily
balance of the Unused Commitment for each day during such fiscal quarter.
Except as otherwise provided herein, the Commitment Fee so accrued in any
calendar month shall be payable on the first Business Day of the immediately
succeeding calendar month, except that all Commitment Fees so accrued as of the
Termination Date shall be payable on the Termination Date.
SECTION 2.21. LETTER OF CREDIT FEES. The Borrower shall pay to the
---------------------
Administrative Agent for the account of the Lenders a letter of credit fee (the
"Letter of Credit Fee") computed by applying 1.50% per annum (on the basis of
--------------------
actual days elapsed in a year of 360 days) to the average daily balance of the
maximum amount that at any time is available for drawing or payment under any
and all outstanding Letters of Credit; provided that, after the first
--------
anniversary of the Closing Date, if the Borrower's Interest Coverage Ratio as
measured at the end of a fiscal quarter is greater than or equal to 2.5:1, then
the Letter of Credit Fee for each Letter of Credit outstanding during the
following fiscal quarter shall be computed by applying 1.25% per annum (on the
basis of actual days elapsed in a year of 360 days) to the average daily balance
of the maximum amount that at any time is available for drawing or payment under
any and all such Outstanding Letters of Credit. The Letter of Credit Fee so
accrued in any calendar month shall be payable on the first Business Day of the
immediately succeeding calendar month, except that all Letter of Credit Fees so
accrued as of the Termination Date shall be payable on the Termination Date.
SECTION 2.22. NATURE OF FEES. All Fees shall be paid on the dates due, in
--------------
immediately available funds, to the Administrative Agent for the respective
accounts of the Administrative Agent, the Issuing Bank, the Collateral Agent and
the Lenders, as provided herein and in the Fee Letter. Once paid, all fees
shall be fully-earned and shall not be refundable under any circumstances.
32
<PAGE>
SECTION 2.23. SECURITY INTEREST IN COLLATERAL. To secure its Obligations
-------------------------------
under this Agreement and the other Loan Documents, the Borrower shall grant to
the Collateral Agent, for its benefit and the ratable benefit of the
Administrative Agent, the Issuing Bank and the Lenders, a first-priority
security interest in all of the Collateral pursuant hereto and to the Security
Documents.
SECTION 2.24. RIGHT OF SET-OFF.
----------------
(a) Subject to the provisions of Section 7.01, upon the occurrence and
during the continuance of any Event of Default, the Administrative Agent, the
Issuing Bank, the Collateral Agent, each Co-Agent and each Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by the Administrative Agent, the Issuing Bank, the Collateral Agent,
the Co-Agents and each such Lender to or for the credit or the account of the
Borrower or any Guarantor against any and all of the obligations of such
Borrower or Guarantor now or hereafter existing under the Loan Documents,
irrespective of whether or not such Lender shall have made any demand under any
Loan Document and although such obligations may be unmatured. The rights of
each Lender, the Issuing Bank, the Collateral Agent, each Co-Agent and the
Administrative Agent under this Section are in addition to other rights and
remedies which such Lender, the Issuing Bank, the Collateral Agent, such Co-
Agent and the Administrative Agent may have upon the occurrence and during the
continuance of any Event of Default.
(b) The provisions of Section 2.24(a) shall not qualify or limit the
provisions of Sections 2.13 and 2.14.
SECTION 2.25. SECURITY INTEREST IN DEPOSIT ACCOUNTS. The Borrower and the
-------------------------------------
Guarantors hereby assign and pledge to the Collateral Agent, for its benefit and
for the ratable benefit of the Administrative Agent, the Issuing Bank, the Co-
Agents and the Lenders, and hereby grant to the Collateral Agent, for its
benefit and for the ratable benefit of the Administrative Agent, the Issuing
Bank, the Co-Agents and the Lenders, a first priority security interest, senior
to all other Liens, if any, in all of the Borrower's and the Guarantors' right,
title and interest in and to the Cash Collateral Account, the BBNA Disbursement
Accounts, the BBNA Concentration Account, any and all Blocked Accounts and all
other deposit accounts, Permitted Investments and other cash equivalents of
every type and description and any direct investment of the funds contained
therein. The Collateral Agent (or the Administrative Agent, as agent for the
Collateral Agent (as provided below)) shall have sole dominion and control over
all such accounts. With respect to the Cash Collateral Accounts, the BBNA
Disbursement Accounts, the BBNA Concentration Account and all such other deposit
accounts maintained at BBNA, the Collateral Agent hereby appoints the
Administrative Agent as its agent with respect thereto and the Administrative
Agent agrees to hold such accounts on behalf of the Collateral Agent and for the
benefit of the Collateral Agent, the Administrative Agent, the Issuing Bank, the
Co-Agents and the Lenders.
SECTION 2.26. PAYMENT OF OBLIGATIONS. Upon the maturity (whether by
----------------------
acceleration or otherwise) of any Loans, Letter of Credit reimbursement
obligations or any other Obligations, the Lenders shall be entitled to immediate
payment of such Loans, reimbursement obligations, liabilities and other
Obligations.
33
<PAGE>
III. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to make Loans and participate in Letters of
Credit and the Issuing Bank to issue Letters of Credit, the Borrower and each of
the Guarantors jointly and severally represent and warrant as follows:
SECTION 3.01. ORGANIZATION AND AUTHORITY. Each of the Borrower and the
--------------------------
Guarantors (i) is a corporation duly organized and validly existing under the
laws of the State of its incorporation and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse effect on the financial condition,
operations, business, properties or assets of the Borrower and the Guarantors
taken as a whole; (ii) has the requisite corporate power and authority to effect
the transactions contemplated hereby, and by the other Loan Documents, and (iii)
has all requisite corporate power and authority and the legal right to own,
pledge, mortgage and operate its properties, and to conduct its business as now
or currently proposed to be conducted. Schedule 3.01 lists all jurisdictions in
which the Borrower and the Guarantors are qualified to do business as of the
Closing Date.
SECTION 3.02. DUE EXECUTION. The execution, delivery and performance by
-------------
each of the Borrower and the Guarantors of each of the Loan Documents to which
it is a party (i) are within the respective corporate powers of each of the
Borrower and the Guarantors, have been duly authorized by all necessary
corporate action, including the consent of shareholders where required, and do
not (A) contravene the charter or by-laws of any of the Borrower or the
Guarantors, (B) violate any law (including, without limitation, the Securities
Exchange Act of 1934) or regulation (including, without limitation, Regulations
G, T, U or X of the Board of Governors of the Federal Reserve System), or any
order or decree of any court or governmental instrumentality, (C) conflict with
or result in a breach of, or constitute a default under, any material indenture,
mortgage or deed of trust or any material lease, agreement or other instrument
binding on the Borrower or the Guarantors or any of their properties, or (D)
result in or require the creation or imposition of any Lien upon any of the
property of any of the Borrower or the Guarantors, other than the Liens granted
pursuant to this Agreement; and do not require the consent, authorization by or
approval of or notice to or filing or registration with any Governmental
Authority or any other Person. This Agreement has been duly executed and
delivered by each of the Borrower and the Guarantors. This Agreement is, and
each of the other Loan Documents to which the Borrower and each of the
Guarantors is or will be a party, when delivered hereunder or thereunder, will
be, a legal, valid and binding obligation of the Borrower and each Guarantor, as
the case may be, enforceable against the Borrower and the Guarantors, as the
case may be, in accordance with its terms.
SECTION 3.03. STATEMENTS MADE. The statements, written or oral, which
---------------
have been made by the Borrower or any of the Guarantors to the Administrative
Agent or to the Bankruptcy Court in connection with any Loan Document, and any
financial statement delivered pursuant hereto or thereto (other than to the
extent that any such statements constitute projections), taken as a whole and in
light of the circumstances in which made, contain no untrue statement of a
material fact and do not omit to state a material fact necessary to make such
statements not misleading; and, to the extent that any such written statements
constitute projections, such projections were prepared in good faith on the
basis of assumptions, methods, data, tests and information believed by the
Borrower or such Guarantor to be valid and accurate at the time such projections
were furnished to the Lenders.
SECTION 3.04. OWNERSHIP. BAC is a wholly-owned Subsidiary of BI. The
---------
Borrower is a wholly-owned Subsidiary of BAC. Each of the Guarantors listed on
Schedule 3.04 (other than BI and
34
<PAGE>
BAC) is a wholly-owned Subsidiary of the Borrower, and the Borrower owns no
other Subsidiaries, whether directly or indirectly, other than the Guarantors
(other than BI and BAC). No Subsidiary of the Borrower, BI or BAC exists which
is not a Guarantor (other than the Borrower).
SECTION 3.05. FINANCIAL STATEMENTS AND BANKRUPTCY FILINGS.
-------------------------------------------
(a) The Borrower has furnished the Administrative Agent, the Issuing
Bank, the Collateral Agent and the Lenders with copies of (i) the audited
consolidated financial statement and schedules of BI for the most recently
completed fiscal year for which such statements are available and (ii) the
unaudited consolidated financial statement and schedules of BI for the most
recently completed fiscal quarter for which such statements are available. Such
financial statements present fairly the financial condition and results of
operations of BI, the Borrower and the other Guarantors on a consolidated basis
as of such dates and for such periods; such balance sheets and the notes thereto
disclose all liabilities, direct or contingent, of BI, the Borrower and the
other Guarantors as of the dates thereof required to be disclosed by GAAP and
such financial statements were prepared in a manner consistent with GAAP,
subject (in the case of such fiscal quarter statement) to normal year end
adjustments. No material adverse change in the financial condition, operations,
business, properties or assets of the Borrower and the Guarantors, taken as a
whole, has occurred from that set forth in BI's consolidated financial
statements referenced in this Section 3.05. All other financial information
required to be delivered by the Borrower under this Agreement (including,
without limitation, all information delivered to the Administrative Agent to
determine the Borrower's compliance with Sections 4.01(t) and (u)) are accurate
in all respects.
(b) The Borrower has furnished to the Administrative Agent and its
counsel copies of all pleadings, motions, applications, judicial information,
financial information and other documents filed by or on behalf of the Borrower
or any of the Guarantors with the Bankruptcy Court in the Cases or distributed
by or on behalf of the Borrower or any of the Guarantors to any official
committee appointed in the Cases or served upon the Borrower or any Guarantor in
any of the Cases.
SECTION 3.06. LIENS. There are no Liens of any nature whatsoever on any
-----
property of the Borrower or any Guarantor (including, without limitation, the
Collateral) except, (i) Permitted Liens and (ii) Liens granted in favor of the
Collateral Agent, for its benefit and the ratable benefit of the Lenders, the
Administrative Agent, the Co-Agents and the Issuing Bank pursuant to the Loan
Documents. Neither the Borrower nor the Guarantors are parties to any contract,
agreement, lease or instrument the performance of which, either unconditionally
or upon the happening of an event, will result in or require the creation of a
Lien on any property of the Borrower or any Guarantor or otherwise result in a
violation of this Agreement. The Liens granted by the Borrower in the Collateral
pursuant to the Loan Documents are fully-perfected first-priority security
interests, subject only to Permitted Liens.
SECTION 3.07. COMPLIANCE WITH LAW.
-------------------
(a) The operations of the Borrower and each of the Guarantors are not
in violation of any applicable federal, state or local environmental, health or
safety statutes (including, without limitation, the Occupational Health and
Safety Act), regulations, directions, ordinances, criteria or guidelines.
(b) Neither the Borrower nor any of the Guarantors has received
notice that any of the operations of the Borrower or any of the Guarantors is
the subject of any judicial or administrative
35
<PAGE>
proceeding alleging the violation of any federal, state or local environmental,
health or safety statute, regulation, direction, ordinance, criteria or
guideline.
(c) None of the operations of the Borrower or any of the Guarantors
is the subject of any federal, state or local investigation involving
allegations or potential allegations that the Borrower or any of the Guarantors
disposed of any hazardous or toxic waste, substance or constituent or other
pollutant, contaminant or substance (including, without limitation, petroleum)
at any site that may require remedial action, or any federal, state or local
investigation evaluating whether any remedial action is needed to respond to a
release or threatened release of any hazardous or toxic waste, substance or
constituent, or other pollutant, contaminant or substance (including, without
limitation, petroleum) into the environment.
(d) Neither the Borrower nor any of the Guarantors has filed any
notice under any federal, state or local law indicating past or present
treatment, storage or disposal of a hazardous waste or reporting a spill or
release or threatened release of a hazardous or toxic waste, substance or
constituent, or other pollutant, contaminant or substance (including, without
limitation, petroleum) into the environment.
(e) Neither the Borrower nor any of the Guarantors has any contingent
liability of which any of them has knowledge or reasonably should have knowledge
in connection with any release or threatened release of any hazardous or toxic
waste, substance or constituent, or other pollutant, contaminant or substance
(including, without limitation, petroleum) into the environment, nor has the
Borrower or any of the Guarantors received any notice, letter or other
indication of potential liability arising from the disposal of any hazardous or
toxic waste, substance or constituent or other pollutant, contaminant or
substance (including, without limitation, petroleum) into the environment which,
in any such case referred to in this Section or in the aggregate, could have a
material adverse effect on the financial condition, operations, business,
properties or assets of the Borrower and the Guarantors taken as a whole.
SECTION 3.08. INSURANCE. All policies of insurance of any kind or
---------
nature owned by or issued to the Borrower and the Guarantors, including, without
limitation, policies of life, fire, theft, product liability, public liability,
property damage, other casualty, employee fidelity, workers' compensation,
employee health and welfare, title, property and liability insurance, are in
full force and effect and are of a nature and provide such coverage as is
sufficient and as is customarily carried by companies of the size and character
of the Borrower and the Guarantors. All liability policies of the Borrower name
the Administrative Agent, the Issuing Bank, the Collateral Agent, the Co-Agents
and the Lenders as additional insureds and all casualty policies name the
Collateral Agent as loss payee.
SECTION 3.09. THE CONFIRMATION ORDER. On the date of the making of the
----------------------
initial Loans or the issuance of the initial Letters of Credit hereunder,
whichever first occurs, the Plan of Reorganization shall be effective and the
Confirmation Order will have been entered and will not have been stayed,
amended, vacated, reversed or rescinded and the Bankruptcy Court's retention of
jurisdiction, if any, under the Confirmation Order shall not govern the
enforcement of this Agreement and the other Loan Documents or any rights or
remedies relating thereto after the Plan Effective Date. On the date of the
making of any Loan or the issuance of any Letter of Credit, the Plan of
Reorganization will be effective and the Confirmation Order will have been
entered and will not have been amended, stayed, vacated or rescinded. Upon the
maturity (whether by the acceleration or otherwise) of any of the Obligations of
the Borrower and the Guarantors hereunder and under the
36
<PAGE>
other Loan Documents, the Lenders shall, subject to the provisions of Section
7.01, be entitled to immediate payment of such obligations, and to enforce the
remedies provided for hereunder and under the other Loan Documents.
SECTION 3.10. USE OF PROCEEDS. The proceeds of the Loans shall be used,
---------------
first, to repay in full all loans, letter of credit liabilities and other
obligations outstanding under or in respect of the Existing Credit Facility and
thereafter may be used to provide working capital for and to finance Inventory
purchases by the Borrower and otherwise for general corporate purposes. [The
Borrower will not use the proceeds of any Loans or any other property of the
Borrower to make any intercompany or Affiliate advances other than those
intercompany or Affiliate advances from the Borrower to its Subsidiaries, New
Horizons of Bruckner, Inc., and New Horizons of Westbury,. Inc., acceptable to
the Administrative Agent to be used for Real Property carrying costs of such
Subsidiaries and not in excess of $[1,000,000] in the aggregate (it being
understood that proceeds of the Loans used for ordinary-course operating
expenses of the Bradlees stores located in Yonkers, New York, and North
Attleboro, Massachusetts (so long as such stores remain open) shall be deemed
to be a permitted use of proceeds hereunder).]
SECTION 3.11. STORE LOCATIONS; BANK ACCOUNTS; INVENTORY.
-----------------------------------------
(a) Set forth on Schedule 3.11(a) hereto is a complete and accurate
list of the names and addresses of all the retail stores, warehouses and
distribution centers operated by the Borrower on the Closing Date, which are all
locations where any Inventory of the Borrower is maintained.
(b) Set forth on Schedule 3.11(b) hereto is a complete and accurate
list of all bank accounts, money market accounts and other deposit or investment
accounts for cash, cash equivalents or investments maintained by the Borrower or
any Guarantor or in which the Borrower or any Guarantor has any interest.
(c) No Guarantor owns any Inventory or operates any retail stores,
warehouses or distribution centers. No Guarantor owns any other material assets
other than as set forth on Schedule 3.11(c) (which schedule also sets forth the
Borrower's good faith estimate of the book value of such assets).
(d) The assets of the Borrower (including, without limitation, the
Inventory and the Receivables) are substantially in the amounts and of the
quality previously represented to the Administrative Agent in the most recent
Borrowing Base Certificate delivered to the Administrative Agent.
SECTION 3.12. LITIGATION AND CLAIMS.
---------------------
(a) There are no actions, suits or proceedings pending or, to the
knowledge of the Borrower or the Guarantors, threatened against or affecting the
Borrower or the Guarantors or any of its properties, including (without
limitation) the Inventory, before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, that
is (i) not fully reserved for under the Plan of Reorganization and (ii)
reasonably likely to be determined adversely to the Borrower or the Guarantors
and, if so determined adversely to the Borrower or the Guarantors would have a
material adverse effect on the financial condition, business, properties,
operations or assets of the Borrower and the Guarantors, taken as a whole.
37
<PAGE>
(b) There are no pre-petition or administrative claims or Liens other
than those contemplated by the Plan of Reorganization to survive the Plan
Effective Date and consented to by the Administrative Agent.
SECTION 3.13. MATERIAL ADVERSE CHANGE. No event or series of events have
-----------------------
occurred since the date of the Borrower's financial statements reflecting the
Plan of Reorganization that has or have materially and adversely affected (i)
the assets, liabilities, business, operations, condition (financial or
otherwise) or prospects of the Borrower or any Guarantor or (ii) the
enforceability of the rights and remedies of the Administrative Agent, the
Issuing Bank, the Collateral Agent, the Co-Agents and the Lenders under the Loan
Documents (including, without limitation, the Liens granted to the Collateral
Agent, for its benefit and the benefit of the Administrative Agent, the Issuing
Bank, the Co-Agents and the Lenders, under the Loan Documents), or (iii) the
ability of the Borrower or the Guarantors to pay the Obligations when due and to
perform their covenants and agreements under the Loan Documents.
SECTION 3.14. PAYMENT OF OBLIGATIONS. The Borrower and each Guarantor
----------------------
have paid when due all rents under any unexpired leases to which the Borrower or
any Guarantor is party as lessee and all other material liabilities incurred by
the Borrower or any Guarantor (other than any such rents or liabilities the
amount or validity of which are currently being contested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP have been provided on the books of the Borrower or the Guarantor, as the
case may be).
SECTION 3.15. TAXES AND TAX RETURNS. The Borrower and each Guarantor have
---------------------
filed or caused to be filed all material tax returns which are required to be
filed and has paid all taxes shown to be due and payable on said returns or on
any assessments made against it or any of its property and all other material
taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any such taxes, assessments, fees or other
charges the amount or validity of which are currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the Borrower or the
Guarantor, as the case may be).
SECTION 3.16. FRANCHISES, LICENSES, PERMITS, LEASES, PATENTS, COPYRIGHTS,
-----------------------------------------------------------
TRADEMARKS, AND TRADE NAMES. The Borrower and each of the Guarantors have
- ---------------------------
obtained and hold in full force and effect, all franchises, licenses, leases,
permits, certificates, authorizations, qualifications, easements, rights of way
and other rights and approvals which are necessary or advisable for the
operation of its businesses as presently conducted and as proposed to be
conducted. Neither the Borrower nor any of the Guarantors is in violation of the
terms of any such franchise, license, lease, permit, certificate, authorization,
qualification, easement, right of way, right or approval. The Borrower possesses
or has the legal right to use such assets, licenses, patents, patent
applications, copyrights, service marks, trademarks and trade names as are
necessary or advisable to continue to conduct its present and proposed business
activities and such assets, licenses, patents, patent applications, copyrights,
service marks, trademarks and trade names are valid and in full force and
effect.
SECTION 3.17. LABOR MATTERS.
-------------
(a) There are no controversies pending or, to the best of the
Borrower's knowledge after diligent inquiry, threatened between the Borrower or
any of the Guarantors, on the one hand, and any of their respective employees,
on the other hand, which could have a material
38
<PAGE>
adverse effect on the financial condition, operations, business, properties or
assets of the Borrower and the Guarantors taken as a whole.
(b) Neither the Borrower nor any of the Guarantors is engaged in any
unfair labor practice. There is (i) no unfair labor practice complaint pending
against the Borrower or any of the Guarantors or, to the best knowledge of the
Borrower, threatened against any of them, before the National Labor Relations
Board, and no grievance or significant arbitration proceeding arising out of or
under collective bargaining agreements is so pending against the Borrower or any
of the Guarantors or, to the best knowledge of the Borrower, threatened against
any of them, (ii) no strike, labor dispute, slowdown or stoppage pending against
either of the Borrower or any of the Guarantors or, to the best knowledge of the
Borrower, threatened against any of them and (iii) no union representation
question with respect to the employees of the Borrower or any Guarantors and no
union organizing activities.
SECTION 3.18. ERISA. None of the Borrower, any Guarantor or any ERISA
-----
Affiliate maintains or contributes to any Plan other than those listed on
Schedule 3.18. Each Plan has been and is being maintained and funded in
accordance with its terms and in compliance with all provisions of ERISA and the
Code applicable thereto. The Borrower, each of the Guarantors and each ERISA
Affiliate have fulfilled all obligations related to the minimum funding
standards of ERISA and the Code for each Plan, are in compliance with the
currently applicable provisions of ERISA and of the Code and have not incurred
any liability (other than routine liability for premiums) under Title IV of
ERISA. No Termination Event has occurred nor has any other event occurred that
may result in a Termination Event. No event or events have occurred in
connection with which the Borrower, any of the Subsidiaries, any ERISA
Affiliate, any fiduciary of a Plan or any Plan, directly or indirectly, could be
subject to any liability, individually or in the aggregate, under ERISA, the
Code or any other requirement of law or under any agreement, instrument,
statute, rule of law or regulation pursuant to or under which any such entity
has agreed to indemnify or is required to indemnify any person against liability
incurred under, or for a violation or failure to satisfy the requirements of,
any such statute, regulation or order. The Borrower has delivered or caused to
be delivered to the Administrative Agent: (i) a copy of each Plan (or, where
any such plan is not in writing, a complete description thereof) (and, if
applicable, related trust agreements or other funding instruments) and all
amendments thereto, all written interpretations thereof and written descriptions
thereof that have been distributed to employees or former employees of the
Borrower or the Guarantors; (ii) the most recent determination letter issued by
the Internal Revenue Service with respect to each Plan; (iii) for the three most
recent plan years, Annual Reports on Form 5500 Series required to be filed with
any governmental agency for each Plan; (iv) all actuarial reports prepared for
the last three plan years for each Plan; (v) a listing of all Multiemployer
Plans, with the aggregate amount of the most recent annual contributions
required to be made by the Borrower or any ERISA Affiliate to each such plan and
copies of the collective bargaining agreements requiring such contributions;
(vi) any information that has been provided to the Borrower or any ERISA
Affiliate regarding withdrawal liability under any Multiemployer Plan; and (vii)
the aggregate amount of the most recent annual payments made to former employees
of the Borrower or any ERISA Affiliate under any retiree health Plan.
SECTION 3.19. ACCOUNTS RECEIVABLE FINANCING. Neither the Borrower nor any
-----------------------------
of the Guarantors is party to any accounts receivable financing arrangements
whereby sales of Inventory are conducted through the use of an in-store credit
card or through the use of a credit card offered by a third party lender (it
being understood that the acceptance by the Borrower of credit cards issued by
Visa, Mastercard or similar processors that does not entail an extension of
credit by the Borrower to its own customers (and is non-recourse to the Borrower
(other than, with respect to accounts financed
39
<PAGE>
under the Purchase and Service Agreement, to the limited extent set forth
therein)) shall not be deemed to constitute such an accounts receivable
financing arrangement, even if the Borrower's name or imprint appears on such
Visa, Mastercard or similar credit cards).
SECTION 3.20. INVESTMENT COMPANY; HOLDING COMPANY. Neither the Borrower
-----------------------------------
nor any of the Guarantors is (i) an investment company or a company controlled
by an investment company within the meaning of the Investment Company Act of
1940, as amended, (ii) a holding company or a Subsidiary company of a holding
company, or an Affiliate of a holding company or of a Subsidiary company of a
holding company, within the meaning of the Public Utility Holding Company Act of
1935, as amended, or (iii) subject to any other law which purports to regulate
or restrict its ability to borrow money or to consummate the transactions
contemplated by this Agreement or the other Loan Documents or to perform its
obligations hereunder or thereunder.
IV. CONDITIONS OF LENDING
SECTION 4.01. CONDITIONS PRECEDENT TO INITIAL LOANS AND INITIAL LETTERS OF
------------------------------------------------------------
CREDIT. The obligation of the Lenders to make the initial Loans or the Issuing
- ------
Bank to issue the initial Letter of Credit, whichever may occur first, is
subject to the following conditions precedent:
(a) Supporting Documents. The Administrative Agent shall have
--------------------
received for each of the Borrower and the Guarantors:
(i) a copy of such entity's certificate of incorporation, as
amended, certified as of a recent date by the Secretary of State of
the state of its incorporation or a senior officer of such entity;
(ii) a certificate of such Secretary of State, dated as of a
recent date, as to the good standing of that entity and as to the
charter documents on file in the office of such Secretary of State;
(iii) a certificate of the Secretary or an Assistant Secretary
of that entity dated the date of the initial Loans or the initial
Letter of Credit hereunder, whichever first occurs, and certifying (A)
that attached thereto is a true and complete copy of the by-laws of
that entity as in effect on the date of such certification, (B) that
attached thereto is a true and complete copy of resolutions adopted by
the Board of Directors of that entity authorizing the Borrowings and
Letter of Credit extensions hereunder, the execution, delivery and
performance in accordance with their respective terms of this
Agreement, the Notes to be executed by it, the Loan Documents and any
other documents required or contemplated hereunder or thereunder and
the granting of the security interest in the Cash Collateral Account
contemplated hereby, (C) that the certificate of incorporation of that
entity has not been amended since the date of the last amendment
thereto indicated on the certificate of the Secretary of State
furnished pursuant to clause (i) above, and (D) as to the incumbency
and specimen signature of each officer of that entity executing this
Agreement, the Notes to be executed by it and the Loan Documents or
any other document delivered by it in connection herewith or therewith
(such certificate to contain a certification by another officer of
that entity as to the incumbency and signature of the officer signing
the certificate referred to in this clause (iii)).
40
<PAGE>
(b) Notes. On or before the date of the initial Loans or the issuance
-----
of the initial Letter of Credit hereunder, whichever first occurs, the
Administrative Agent shall have received Notes executed on behalf of the
Borrower, dated the Closing Date, payable to the order of each of the Lenders,
in the form of Exhibit B-1, in an amount equal to such Lender's Commitment and
in the form of Exhibit B-2 in an amount equal to $15,000,000 to be delivered to
the Administrative Agent for the Agent Advances.
(c) The Plan of Reorganization. The Plan of Reorganization shall be
--------------------------
reasonably satisfactory to the Requisite Lenders and shall provide, among other
things, that all claims of the creditors (including trade creditors) of the
Borrower and the Guarantors which arose, or are deemed to have arisen, prior to
the Filing Date shall be converted into Equity Interests of the Borrower. The
terms of all Equity Interests (including, without limitation, all preferred
stock issued or to be issued (if any) by the Borrower related to the Plan of
Reorganization) and indebtedness of the Borrower and the Guarantors to be
outstanding after giving effect to the Plan of Reorganization shall be
reasonably satisfactory in all respects to the Administrative Agent, provided,
--------
that any pre-petition tax claims may be paid subsequent to the Plan Effective
Date pursuant to a payment plan (the "Tax Payment Plan") that is reasonably
----------------
satisfactory to the Administrative Agent.
(d) The Confirmation Order. At the time of the making of the initial
----------------------
Loans or at the time of the issuance of the initial Letter of Credit, whichever
first occurs, the Administrative Agent, the Issuing Bank, the Collateral Agent
and the Lenders shall have received a certified copy of the Confirmation Order
in the form attached hereto as Exhibit C and the Confirmation Order shall be
reasonably satisfactory to the Requisite Lenders. The Confirmation Order shall
not have been reversed, modified or amended and shall not be stayed or subject
to a motion to stay and, unless otherwise agreed by the Administrative Agent,
all appeal periods relating to the Confirmation Order shall have expired, and no
appeals from the Confirmation Order shall be outstanding. Except as consented
to by the Administrative Agent, the Bankruptcy Court's retention of jurisdiction
under the Confirmation Order shall not govern the enforcement of this Agreement
and the other Loan Documents or any rights or remedies relating thereto after
the Plan Effective Date,
(e) Plan Effective Date. All conditions precedent to the confirmation
-------------------
of the Plan of Reorganization and to the "effective date" (or such similar term)
of the Plan of Reorganization (the "Plan Effective Date") shall have been met
-------------------
(or the waiver thereof shall have been consented to by the Administrative Agent)
and the Plan Effective Date and substantial consummation of the Plan of
Reorganization shall have occurred or shall be scheduled to occur but for the
making of the initial Loan hereunder.
(f) Security Agreement. The Borrower shall have duly executed and
------------------
delivered to the Collateral Agent a Security Agreement in substantially the form
of Exhibit E (the "Security Agreement").
------------------
(g) Pledge Agreement. The Borrower shall have duly executed and
----------------
delivered to the Collateral Agent a Pledge Agreement in substantially the form
of Exhibit E (the "Pledge Agreement").
----------------
(h) Trademark Security Agreement. The Borrower shall have duly
----------------------------
executed and delivered to the Collateral Agent a Security Agreement and Mortgage
- - Trademarks in substantially the form of Exhibit E (the "Trademark Security
------------------
Agreement").
- ---------
41
<PAGE>
(i) Business Plan. The Borrower shall have delivered to the
-------------
Administrative Agent at least sixty (60) days prior to the Plan Effective Date
the Business Plan in form and substance satisfactory to the Administrative
Agent.
(j) Opinions of Counsel to the Borrower. The Administrative Agent,
-----------------------------------
the Issuing Bank, the Collateral Agent, the Co-Agents and the Lenders shall have
received the favorable written opinion of Dewey Ballantine, counsel to the
Borrower and the Guarantors, and of such other counsel as is acceptable to the
Administrative Agent, in each case dated the date of the initial Loans or the
issuance of the initial Letter of Credit, whichever first occurs, substantially
in the forms attached as Exhibit D.
(k) Payment of Fees. Concurrent with the initial Borrowing, the
---------------
Borrower shall have paid to the Administrative Agent, the Issuing Bank, the
Collateral Agent and the Lenders the then unpaid balance of all accrued and
unpaid Fees owed under and pursuant to this Agreement and the Fee Letter
referred to in Section 2.19.
(l) Corporate and Judicial Proceedings. All corporate and judicial
----------------------------------
proceedings and all instruments and agreements in connection with the
transactions among the Borrower, the Guarantors, the Administrative Agent, the
Issuing Bank, the Collateral Agent, the Co-Agents and the Lenders contemplated
by this Agreement shall be reasonably satisfactory in form and substance to the
Administrative Agent, and the Administrative Agent shall have received all
information and copies of all documents and papers, including records of
corporate and judicial proceedings, which the Administrative Agent may have
reasonably requested in connection therewith, such documents and papers where
appropriate to be certified by proper corporate, governmental or judicial
authorities.
(m) Lien Searches. On or before the Closing Date, the Administrative
-------------
Agent shall have received the results of UCC-1 and other Lien searches conducted
in State and county levels in jurisdictions in which the Borrower and the
Guarantors conduct business and in the United States Patent and Trademark
Office, which searches shall reflect the absence of Liens on the assets
(including Inventory and Receivables) of the Borrower and the Guarantors, other
than (i) Permitted Liens or Liens for which duly-completed and executed
termination statements and releases reasonably satisfactory to the
Administrative Agent have been tendered prior to or concurrently with the
initial Credit Extension and (ii) Permitted Liens or Liens which have been duly
terminated no later than the Closing Date by an order of the Bankruptcy Court in
form and substance reasonably satisfactory to the Administrative Agent.
(n) Filings. All filings and other actions required to create and
-------
perfect a first priority security interest in favor of the Collateral Agent, for
its benefit and the ratable benefit of the Administrative Agent, the Issuing
Bank, the Co-Agents and the Lenders, on all Collateral owned or to be owned by
the Borrower shall have been duly made or taken.
(o) Environmental Compliance. The Borrower and the Guarantors shall
------------------------
have granted the Administrative Agent access to and the right to inspect all
reports, audits and other internal information of the Borrower and the
Guarantors relating to environmental matters, and any third party verification
of certain matters relating to compliance with environmental laws and
regulations requested by the Administrative Agent, and the Administrative Agent
shall be satisfied that the Borrower and the Guarantors are in compliance in all
material respects with all applicable environmental laws and regulations and be
satisfied with the costs of maintaining such compliance.
42
<PAGE>
(p) Accounts Receivable Financing. Neither the Borrower nor any of
-----------------------------
the Guarantors shall be party to any accounts receivable financing arrangements
whereby sales of Inventory are conducted through the use of an in-store credit
card or through the use of a credit card offered by a third party lender (it
being understood that the acceptance by the Borrower of credit cards issued by
Visa, Mastercard or similar processors that does not entail an extension of
credit by the Borrower to its own customers (and is non-recourse to the Borrower
(other than, with respect to accounts financed under the Purchase and Service
Agreement, to the limited extent set forth therein)) shall not be deemed to
constitute such an accounts receivable financing arrangement, even if the
Borrower's name or imprint appears on such Visa, Mastercard or similar credit
cards).
(q) Cash Management System. The cash management system required to be
----------------------
maintained as of the date hereof pursuant to Sections 2.13 and 2.14 shall be in
place in all material respects, as determined by the Administrative Agent in its
sole and absolute discretion.
(r) Existing Credit Facility. There shall exist no defaults, events
------------------------
of defaults or prospective defaults (based on projections provided by the
Borrower) under the Existing Credit Facility and all principal, interest, fees,
and any other obligations under the Existing Facility shall have been, or on the
Closing Date will be, paid in full.
(s) Accounts Payable. All undisputed Accounts Payable outstanding at
----------------
the time of the Closing Date shall be reasonably paid to date within the terms
of the applicable Accounts Payable, as agreed to by the Borrower.
(t) EBITDA. The Borrower's EBITDA (after cash restructuring costs
------
(but excluding cash restructuring costs incurred in fiscal year 1997 up to an
aggregate of $6,500,000)) for the 12-month period ending on the Closing Date
shall not be less than that specified below opposite the applicable period:
<TABLE>
<CAPTION>
Period During Which Closing Date Occurs EBITDA
--------------------------------------- ------
<S> <C>
on or prior to August 1998 $20,000,000
September 1998 to November 1998 $25,000,000
December 1998 and thereafter $30,000,000
</TABLE>
(u) Excess Availability under Existing Credit Facility. As measured
--------------------------------------------------
on the Closing Date, the amount available to be borrowed by the Borrower under
the Existing Credit Facility using the borrowing base under the Existing Credit
Facility (after giving effect to the repayment of all amounts outstanding under
the Existing Credit Facility, all present and future payments contemplated under
the Tax Payment Plan and all payments required under the Plan of Reorganization
(other than payments to be made with the Escrow Proceeds)) shall not be less
than the amount specified opposite the Borrower's fiscal month in which the
Closing Date is to take place.
<TABLE>
<CAPTION>
Required Excess
Fiscal Month Availability
------------ ------------
<S> <C>
February $42,000,000
March $53,000,000
April $39,000,000
May $40,000,000
June $25,000,000
July $25,000,000
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
August $36,000,000
September $37,000,000
October $35,000,000
November $35,000,000
December $38,000,000
January $37,000,000
</TABLE>
(v) Consents and Approvals. The Administrative Agent shall be
----------------------
satisfied in its sole discretion that all insurance, Blocked Account Agreements,
Payment Direction Agreements and other consents and approvals required or
necessary hereunder have been received and are in full force and effect.
(w) Other Information. On or before the Closing Date, the
-----------------
Administrative Agent shall have received an inventory analysis conducted by an
inventory liquidation analysis firm retained by the Collateral Agent and a
follow up review of the Borrower's books and records conducted by a commercial
financial audit firm retained by the Collateral Agent and such other information
(financial or otherwise) as it may have reasonably requested.
(x) No Material Adverse Change. No event or series of events shall
--------------------------
have occurred at any time after November 2, 1997, which the Required Lenders in
good faith determine to constitute a material adverse change in (i) the assets,
liabilities, business, operations, condition (financial or otherwise) or
prospects of the Borrower or any Guarantor, or (ii) the enforceability of the
Liens, rights and remedies of the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Co-Agents and the Lenders under the Loan Documents, (iii)
the ability of the Borrower or the Guarantors to pay the Obligations when due
and to perform their covenants and agreements under the Loan Documents, or (iv)
the value of the assets of the Borrower and the Guarantors.
(y) Insurance. The Collateral Agent shall be reasonably satisfied
---------
with the public liability insurance, third party property damage insurance and
casualty insurance required to be maintained by the Borrower pursuant to Section
5.03 of this Agreement and the Borrower shall have delivered to the Collateral
Agent all documentation required in connection with such insurance.
(z) Collateral Access Agreements. The Administrative Agent shall be
----------------------------
satisfied in its sole discretion that the Borrower shall have used its best
efforts to obtain and deliver to the Collateral Agent Collateral Access
Agreements duly-executed by the Borrower and each of the landlords of (i) the
Borrower's warehouses located in Braintree, Massachusetts and Edison, New Jersey
and (ii) any inventory location for which the landlord of such location is
entitled under applicable law to a statutory lien for unpaid rent (as determined
by the Collateral Agent).
(aa) Litigation. As of the Plan Effective Date, the Administrative
----------
Agent shall be reasonably satisfied that no litigation commenced or threatened
against the Borrower and its Affiliates could have a material adverse effect on
the Borrower's or any Guarantor's financial condition, operations, assets or
ability to repay the Loans and other Obligations under this Agreement and the
other Loan Documents;
(bb) Other Closing Documents. The Administrative Agent shall have
-----------------------
received all other documents, certificates and instruments required to be
delivered to it pursuant to this Agreement and on the Closing Documents List
(including, without limitation, executed copies of this Agreement, all other
Loan Documents and a Borrowing Base Certificate) and such documents shall be
satisfactory
44
<PAGE>
in form and substance to the Administrative Agent.
(cc) Other Financial Requirements. The financial condition, capital
----------------------------
structure, liabilities and financial projections, including, without limitation,
cash flow, of the Borrower shall be reasonably satisfactory to the
Administrative Agent in all respects.
(dd) Closing Date. The initial Credit Extension hereunder shall occur
------------
no later than one (1) Business Day after the Plan Effective Date.
SECTION 4.02. CONDITIONS PRECEDENT TO EACH LOAN AND EACH LETTER OF CREDIT.
-----------------------------------------------------------
The obligation of the Lenders to make each Loan and of the Issuing Bank to issue
each Letter of Credit, including the initial Loan and the initial Letter of
Credit, is subject to the following conditions precedent:
(a) Notice. The Administrative Agent shall have received a notice
------
with respect to such borrowing or issuance, as the case may be, as required by
Article II.
(b) Representations and Warranties. All representations and
------------------------------
warranties contained in this Agreement and the other Loan Documents or otherwise
made in writing in connection herewith or therewith shall be true and correct in
all material respects on and as of the date of each Borrowing or the issuance of
each Letter of Credit hereunder with the same effect as if made on and as of
such date, other than representations and warranties that relate solely to an
earlier date.
(c) No Default. On the date of each Borrowing hereunder and the
----------
issuance of each Letter of Credit, the Borrower and Guarantors shall be in
compliance with all of the terms and provisions set forth herein to be observed
or performed and no Default or Event of Default shall have occurred and be
continuing.
(d) Borrowing Base Certificate. The Administrative Agent shall have
--------------------------
received the timely delivery of the most recently required Borrowing Base
Certificate within three (3) Business Days following the end of each business
week (ending on the Saturday of such week), with each such Borrowing Base
Certificate including schedules as required by the Collateral Agent.
(e) Payment of Fees. The Borrower shall have paid to the
---------------
Administrative Agent the then unpaid balance of all accrued and unpaid Fees then
payable under and pursuant to this Agreement and the Fee Letter.
The request by the Borrower for, and the acceptance by the Borrower of, each
extension of credit hereunder shall be deemed to be a representation and
warranty by the Borrower that the conditions specified in this Section 4.02 have
been satisfied at that time and that after giving effect to such extension of
credit the Borrower shall continue to be in compliance with the Borrowing Base.
V. AFFIRMATIVE COVENANTS
From the date hereof and for so long as any Commitment shall be in
effect or any Loan, Letter of Credit or other Obligation shall remain
outstanding (unless such Letter of Credit is fully collateralized to the
satisfaction of the Administrative Agent), the Borrower and each of the
Guarantors agree that, unless the Required Lenders shall otherwise consent in
writing, the Borrower
45
<PAGE>
and each Guarantor will:
SECTION 5.01. FINANCIAL STATEMENTS, REPORTS, ETC. In the case of the
-----------------------------------
Borrower and the Guarantors, (i) deliver to the Administrative Agent, the
Issuing Bank, the Collateral Agent and each of the Lenders:
(a) Within 90 days after the end of each fiscal year of BI, BI's
consolidated and the Borrower's consolidated balance sheet and related statement
of income and cash flows, showing the financial condition of BI, the Borrower
and the Guarantors on a consolidated basis and the Borrower on a consolidated
basis as of the close of such fiscal year and the results of their respective
operations during such year, to be audited by Arthur Andersen or other
independent public accountants of recognized national standing acceptable to the
Required Lenders and accompanied by an opinion of such accountants (which shall
not be qualified in any material respect) and to be certified by a Financial
Officer of the Borrower to the effect that such consolidated financial
statements fairly present the financial condition and results of operations of
BI, the Borrower and the Guarantors on a consolidated basis and the Borrower on
a consolidated in accordance with GAAP consistently applied;
(b) Within 45 days after the end of the first three fiscal quarters
of BI (commencing with the fiscal quarter ending on or about __________, 199_)
and within 60 days after the end of the fourth fiscal quarter of each fiscal
year of BI, BI's consolidated and the Borrower's consolidated balance sheets and
related statements of income and cash flows, showing the financial condition of
BI, the Borrower, and the Guarantors on a consolidated basis and the Borrower on
a consolidated basis as of the close of such fiscal quarter and the results of
their respective operations during such fiscal quarter and the then elapsed
portion of the fiscal year, each certified by a Financial Officer as fairly
presenting the financial condition and results of operations of BI, the Borrower
and the Guarantors on a consolidated basis and the Borrower on a consolidated
basis in accordance with GAAP consistently applied, subject to normal year-end
audit adjustments;
(c) Concurrently with any delivery of financial statements under (a)
or (b) above, a certificate of the accounting firm or a Financial Officer, as
the case may be, opining on or certifying such statements (i) certifying that no
Default or Event of Default has occurred, or, if such a Default or Event of
Default has occurred, specifying the nature and extent thereof and any
corrective action taken or proposed to be taken with respect thereto and (ii)
setting forth computations in reasonable detail satisfactory to the
Administrative Agent demonstrating compliance with the provisions of Sections
6.04, 6.05, 6.06 and 6.07 hereof;
(d) Within 30 days of the end of each fiscal month of BI (commencing
with the fiscal month ending on or about ___________, 199_) (or 45 days with
respect to the fiscal month ending at the end of each fiscal quarter of BI), the
unaudited monthly income statement, balance sheet and cash flow report of BI,
the Borrower and the Guarantors on a consolidated basis and the Borrower on a
consolidated basis as of the close of such fiscal month and the results of their
respective operations during such fiscal period and the then elapsed portion of
the fiscal year (and such other cash flow reports and operating statements as
the Administrative Agent, the Issuing Bank, the Collateral Agent or any Lender
may reasonably request), all certified by a Financial Officer as fairly
presenting the results of operations of BI, the Borrower and the Guarantors on a
consolidated basis and the Borrower on a consolidated basis, subject to normal
year-end audit adjustments;
(e) To the extent not otherwise required under this Section 5.01,
those additional reports listed on Schedule 5.01(e) hereto;
46
<PAGE>
(f) Promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by it
with the Securities and Exchange Commission, or any governmental authority
succeeding to any of or all the functions of said commission, or with any
national securities exchange, as the case may be;
(g) As soon as available and in any event (A) within 30 days after
the Borrower or any of its ERISA Affiliates knows or has reason to know that any
Termination Event described in clause (i) of the definition of Termination Event
with respect to any Single Employer Plan of the Borrower or such ERISA Affiliate
has occurred and (B) within 10 days after the Borrower or any of its ERISA
Affiliates knows or has reason to know that any other Termination Event with
respect to any such Plan has occurred, a statement of a Financial Officer
describing such Termination Event and the action, if any, which the Borrower or
such ERISA Affiliate proposes to take with respect thereto;
(h) Promptly and in any event within 10 days after receipt thereof by
the Borrower or any of its ERISA Affiliates from the PBGC copies of each notice
received by the Borrower or any such ERISA Affiliate of the PBGC's intention to
terminate any Single Employer Plan of the Borrower or such ERISA Affiliate or to
have a trustee appointed to administer any such Plan;
(i) Promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each Single
Employer Plan of the Borrower or any of its ERISA Affiliates;
(j) Within 10 days after notice is given or required to be given to
the PBGC under Section 302(f)(4)(A) of ERISA of the failure of the Borrower or
any of its ERISA Affiliates to make timely payments to a Plan, a copy of any
such notice filed and a statement of a Financial Officer of the Borrower setting
forth (A) sufficient information necessary to determine the amount of the lien
under Section 302(f)(3), (B) the reason for the failure to make the required
payments and (C) the action, if any, which the Borrower or any of its ERISA
Affiliates proposed to take with respect thereto;
(k) Promptly and in any event within 10 days after receipt thereof by
the Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor, a copy of
each notice received by the Borrower or any ERISA Affiliate concerning (A) the
imposition of Withdrawal Liability by a Multiemployer Plan, (B) the
determination that a Multiemployer Plan is, or is expected to be, in
reorganization within the meaning of Title IV of ERISA, (C) the termination of a
Multiemployer Plan within the meaning of Title IV of ERISA, or (D) the amount of
liability incurred, or which may be incurred, by the Borrower or any ERISA
Affiliate in connection with any event described in clause (A), (B) or (C)
above; and
(l) Promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Borrower or any
Guarantor, or compliance with the terms of any material loan or financing
agreements as the Administrative Agent, the Issuing Bank, the Collateral Agent
or any Lender may reasonably request.
(ii) Furnish to the Administrative Agent and its counsel promptly after
the same is available, copies of all pleadings, motions, applications, judicial
information, financial information and other documents filed by or on behalf of
the Borrower or any of the Guarantors with the Bankruptcy Court or any other
court of competent jurisdiction.
47
<PAGE>
SECTION 5.02. CORPORATE EXISTENCE. Do or cause to be done and cause each
-------------------
of the Guarantors to do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its corporate existence, material
rights, licenses, permits and franchises and comply in all material respects
with all laws and regulations applicable to it; provided that nothing in this
--------
Section 5.02 shall prohibit any Guarantor from being merged into the Borrower in
accordance with Section 6.02 of this Agreement.
SECTION 5.03. INSURANCE.
---------
(a) Keep its insurable properties (including, without limitation, the
Collateral) insured at all times, against such casualty risks, including fire
and other risks insured against by extended coverage, as is customary with
companies of the same or similar size in the same or similar businesses in
amounts and coverages reasonably satisfactory to the Collateral Agent in its
sole discretion. Such casualty insurance policies shall name the Collateral
Agent as loss payee and shall contain such other provisions as the Collateral
Agent may reasonably require to fully protect the Collateral Agent's interest in
the Collateral and to any payments to be made under such policies in excess of
$25,000 per occurrence. The Borrower shall diligently file and prosecute its
claim or claims for any award or payment in connection with any casualty loss
and the Borrower shall deposit in the BBNA Concentration Account, promptly upon
receipt thereof, any and all insurance proceeds and payments by the Borrower on
account of any such casualty loss. After the occurrence and during the
continuance of an Event of Default, (i) no settlement on account of any such
casualty loss shall be made without the consent of the Lenders and (ii) the
Collateral Agent may participate in any such proceedings and the Borrower shall
deliver to the Collateral Agent such documents as may be requested by the
Collateral Agent to permit such participation and shall consult with the
Collateral Agent, its attorneys and agents in the making and prosecution of such
claim or claims. The Borrower hereby irrevocably authorizes and appoints the
Collateral Agent its attorney-in-fact, after the occurrence and during the
continuance of an Event of Default, to collect and receive any such award or
payment and to file and prosecute such claim or claims, which power of attorney
shall be irrevocable and shall be deemed to be coupled with an interest, and the
Borrower shall, upon demand of the Collateral Agent, make, execute and deliver
any and all assignments and other instruments sufficient for the purpose of
assigning any such award or payment to the Collateral Agent for the benefit of
the Lenders, free and clear of any encumbrances of any kind or nature
whatsoever.
(b) Maintain in full force and effect public liability insurance
against claims for personal injury or death or property damage occurring upon,
in, about or in connection with the use of any properties owned, occupied or
controlled by the Borrower or any Subsidiary, as the case may be, in such
amounts and with such deductibles as are customary with companies of the same or
similar size in the same or similar businesses and in the same geographic area
in amounts and coverages reasonably satisfactory to the Collateral Agent in its
sole discretion.
(c) Maintain such other insurance as may be required by law.
(d) Maintain the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Co-Agents, BSI and the Lenders as additional insureds on
all liability policies of the Borrower and the Guarantors.
SECTION 5.04. OBLIGATIONS AND TAXES. With respect to the Borrower and
---------------------
each Guarantor, pay all its material obligations in accordance with their terms
and pay and discharge promptly all material taxes, assessments and governmental
charges or levies imposed upon it or upon
48
<PAGE>
its income or profits or in respect of its property before the same shall become
in default, as well as all material lawful claims for labor, materials and
supplies or otherwise which, if unpaid, might become a Lien or charge upon such
properties or any part thereof; provided, however, that the Borrower and each
-------- -------
Guarantor shall not be required to pay and discharge or to cause to be paid and
discharged any such tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall be contested in good faith by appropriate
proceedings (if the Borrower and the Guarantors shall have set aside on their
books adequate reserves therefor).
SECTION 5.05. NOTICE OF EVENT OF DEFAULT, ETC. Promptly give to the
-------------------------------
Administrative Agent, the Issuing Bank, the Collateral Agent and each Lender
notice in writing of any Default or Event of Default or any threatened or
pending litigation that could reasonably be expected to have a material adverse
effect on the Borrower if adversely determined.
SECTION 5.06. BORROWING BASE CERTIFICATE. Furnish to the Administrative
--------------------------
Agent as soon as available and in any event on or before Thursday of each week a
Borrowing Base Certificate for the week ending on the immediately preceding
Saturday, substantially in the form of Exhibit A-1 or A-2, as the case may be.
SECTION 5.07. ACCESS TO BOOKS AND RECORDS; INSPECTIONS.
----------------------------------------
(a) Maintain or cause to be maintained at all times true and complete
books and records of the financial operations of the Borrower and the
Guarantors.
(b) Provide the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Lenders and their representatives access to all such books
and records (to the extent not covered by a legal privilege and if any such
materials are so privileged, subject to the Administrative Agent's ability to
discuss with the Borrower, the Guarantors and their professional advisors the
matters contained in such privileged materials and otherwise be satisfied with
respect thereto, as determined by the Administrative Agent) during regular
business hours, in order that they may examine and make abstracts or copies from
such books, accounts, records and other papers (including, but not limited to,
pertaining to Inventory and Receivables included in the Borrowing Base) for the
purpose of verifying the accuracy of any information delivered by the Borrower
or the Guarantors to the Administrative Agent, the Issuing Bank, the Collateral
Agent or the Lenders pursuant to this Agreement or for any other purpose
reasonably related to this Agreement.
(c) At any reasonable time and from time to time during regular
business hours, permit the Administrative Agent, the Issuing Bank, the
Collateral Agent, either Co-Agent, any Lender or any representatives of the
Administrative Agent, the Issuing Bank, the Collateral Agent, either Co-Agent or
any such Lender (including, without limitation, examiners, appraisers and
consultants) thereof to visit and/or inspect the properties and assets (whether
owned, leased or rented), systems and procedures (including those relating to
cash management) of the Borrower and the Guarantors, to conduct Collateral
examinations and verify the components of the Borrowing Base and to discuss the
assets, liabilities, business, operations, systems, procedures, conditions or
prospects of the Borrower or any Guarantor with its directors, officers,
employees, advisors and consultants.
(d) Permit the Administrative Agent, the Issuing Bank, the Collateral
Agent, any Lender or any representatives thereof to discuss directly with the
Borrower's independent certified public accountants the business, financial
condition and other affairs of the Borrower.
49
<PAGE>
SECTION 5.08. FEES. In addition to the other Fees and expenses due
-----
hereunder, pay on demand all reasonable fees and expenses of any consultants,
appraisers and advisors retained by either of the Agents in connection herewith
or any other Loan Document.
SECTION 5.09. PROJECTIONS; BUSINESS PLAN. As soon as practicable, but in
---------------------------
no event later than 60 days prior to each fiscal year end, furnish to the
Administrative Agent the Borrower's preliminary business plan and financial
projections for the 12-month fiscal period ending on or about January 31 in the
next succeeding year (with the corresponding final business plan to follow
within 30 days after the end of such fiscal year), in each case in form and
substance satisfactory to the Administrative Agent, and make a Financial Officer
available to meet and discuss the same with the Administrative Agent, the
Issuing Bank, the Collateral Agent, the Co-Agents and the Lenders. At any time
that the Borrower believes the assumptions, assertions or other information set
forth in the Business Plan are no longer accurate or are outdated, as soon as
practicable thereafter, the Borrower shall deliver a revised business plan for
the remainder of such 12-month fiscal period.
SECTION 5.10. ERISA. The Borrower shall establish, maintain and operate
------
all Plans to comply in all material respects with the provisions of ERISA, the
Code, and all other requirements of Law, other than to the extent that the
Borrower is in good faith contesting by appropriate proceedings and with
adequate reserves the validity or application of any such provision, law, rule,
regulation or interpretation.
SECTION 5.11. ENVIRONMENTAL AND OTHER MATTERS. The Borrower and its
--------------------------------
Guarantors will conduct their businesses so as to comply in all material
respects with all applicable federal, state and local laws, regulations,
directions, ordinances, criteria and guidelines, including, without limitation,
environmental, land use, occupational safety and health laws, regulations,
directions, ordinances, criteria, guidelines, requirements and permits in all
jurisdictions in which any of them is or may at any time be doing business,
except to the extent that the Borrower or any of the Guarantors are contesting,
in good faith by appropriate legal proceedings, any such law, regulation,
direction, ordinance, criteria, guideline or interpretation thereof or
application thereof; provided, further, that the Borrower and each of the
-------- -------
Guarantors shall comply with the order of any court or other Governmental
Authority relating to such laws unless the Borrower or the Guarantors shall
currently be prosecuting an appeal or proceedings for review and shall have
secured a stay of enforcement or execution postponing enforcement or execution
pending such appeal or proceedings for review. The Borrower shall promptly take
all actions necessary to prevent the imposition of any Liens on any of its
properties arising out of or related to any environmental matters or otherwise.
At the request of the Administrative Agent, and at the sole cost and expense of
the Borrower, the Borrower shall provide the Administrative Agent with any
additional information or reports relating to environmental matters and any
potential related liability resulting therefrom as the Administrative Agent may
reasonably request. In addition, the Borrower shall provide the Administrative
Agent, at the Borrower's sole cost and expense, with copies of any environmental
audits, surveys or reports conducted in connection with the purchase or sale by
the Borrower of any real property.
SECTION 5.12. MAINTAIN CASH CONCENTRATION SYSTEM. Maintain the BBNA
-----------------------------------
Concentration Account and otherwise comply with the provisions of Section 2.13
of this Agreement.
SECTION 5.13. MAINTAIN SECURITY INTEREST. In the case of the Borrower,
---------------------------
execute, acknowledge and deliver, or cause the execution, acknowledgement and
delivery of, and thereafter register, file or record, or cause to be registered,
filed or recorded, in an appropriate governmental office, any document or
instrument supplemental to or confirmatory of the Security Documents or
50
<PAGE>
otherwise reasonably deemed by the Collateral Agent necessary or desirable for
the continued validity, perfection and first-priority status of the Liens on the
Collateral covered thereby. If at any time following the Closing Date the
Borrower shall acquire property of any nature whatsoever (other than Real
Property) which is intended to be by the terms of the applicable Security
Documents and is not otherwise subject to the Lien created by such Security
Documents, as soon as possible and in no event later than ten (10) days after
the relevant acquisition date, the Borrower shall grant to the Collateral Agent,
for its benefit and the ratable benefit of the Administrative Agent, the Issuing
Bank, the Co-Agents and the Lenders, a first priority Lien on such property as
collateral security for the Obligations pursuant to documentation reasonably
satisfactory in form and substance to the Collateral Agent.
SECTION 5.15. COLLATERAL ACCESS AGREEMENTS. Until such time as the
-----------------------------
Administrative Agent otherwise notifies the Borrower in writing, obtain and
deliver as soon as practicable to the Collateral Agent Collateral Access
Agreements duly-executed by the Borrower and each of the landlords of (i) the
Borrower's warehouses located in Braintree, Massachusetts and Edison, New Jersey
and (ii) any inventory location for which the landlord of such location is
entitled under applicable law to a statutory lien for unpaid rent (as determined
by the Collateral Agent).
SECTION 5.15. INVENTORY. Cause all Inventory to be (i) located at such
----------
places, (ii) in such amounts and (iii) of the quality and value represented to
the Collateral Agent by the Borrower on or about the Closing Date.
SECTION 5.16. FURTHER ASSURANCES. Take all such further actions and
-------------------
execute all such further documents and instruments as the Administrative Agent
or the Collateral Agent may at any time reasonably determine in its sole
discretion to be necessary or desirable to further carry out and consummate the
transactions contemplated by this Agreement and the other Loan Documents, to
cause the execution, delivery and performance of this Agreement and the other
Loan Documents to be duly authorized and to perfect or protect the Liens (and
the priority status thereof) of the Collateral Agent in the Collateral.
VI. NEGATIVE COVENANTS
From the date hereof and for so long as any Commitment shall be in effect
or any Loan, Letter of Credit, or other Obligation shall remain outstanding
unless such Letter of Credit is fully collateralized to the satisfaction of the
Administrative Agent, the Borrower and each of the Guarantors agree that, unless
the Required Lenders shall otherwise consent in writing, the Borrower and each
of the Guarantors will not (and will not apply to the Bankruptcy Court for
authority to):
SECTION 6.01. LIENS. Incur, create, assume or suffer to exist any Lien on
------
any property of the Borrower or the Guarantors whether now owned or hereafter
acquired by the Borrower, other than (i) Permitted Liens; (ii) Liens in favor of
the Collateral Agent, for its benefit and the ratable benefit of the
Administrative Agent, the Issuing Bank, the Co-Agents and the Lenders pursuant
to the Loan Documents; or (iii) Liens on any interests in Real Property securing
Indebtedness permitted under Section 6.03(iii).
SECTION 6.02. MERGER, ETC. Consolidate or merge with or into another
------------
Person (other than with Subsidiaries or BI so long as the Borrower is the
surviving entity) or enter into any stock or asset acquisitions.
51
<PAGE>
SECTION 6.03. INDEBTEDNESS. Contract, create, incur, assume or suffer to
-------------
exist any Indebtedness, except for (i) Indebtedness arising under this Agreement
and any other Loan Document; (ii) Indebtedness secured by purchase money Liens
and Capitalized Leases in an aggregate amount not to exceed $10,000,000 incurred
after the Closing Date; and (iii) Indebtedness secured by any interests in Real
Property owned or leased by the Borrower or any Guarantor that is non-recourse
to the Borrower and the Guarantors and is otherwise on terms and conditions
reasonably satisfactory to the Administrative Agent and the proceeds of which
are deposited in the BBNA Concentration Account for application to the
Obligations in accordance with Section 2.14.
SECTION 6.04. CAPITAL EXPENDITURES. Make Capital Expenditures in any
--------------------
fiscal year in excess of $20,000,000; provided, that, so long as there is no
--------
Default or Event of Default, if, as of the end of the Borrower's fiscal year,
the Borrower's EBITDA for the previous 12-month period exceeds $40,000,000, the
Borrower may increase its Capital Expenditures above $20,000,000 for the next
fiscal year by the lesser of (x) 50% of the EBITDA in excess of $40,000,000, and
(y) $10,000,000.
SECTION 6.05. EBITDA. Permit EBITDA (after cash restructuring costs (but
------
excluding cash restructuring costs incurred in fiscal year 1997 (up to
$6,500,000))) for the 12-month period ending on or about the date set forth
below to be less than the amount specified opposite such date:
<TABLE>
<CAPTION>
Fiscal Quarter of the Borrower Ending Rolling EBITDA
------------------------------------- --------------
<S> <C>
on or about April 30, 1998 $ 5,000,000
on or about July 31, 1998 $ 5,000,000
on or about October 31, 1998 $10,000,000
on or about January 31, 1999 $15,000,000
on or about April 30, 1999 $17,500,000
on or about July 31, 1999 $20,000,000
on or about October 31, 1999 $25,000,000
on or about January 31, 2000 $30,000,000
and each fiscal quarter thereafter
</TABLE>
SECTION 6.06. ACCOUNTS PAYABLE TO INVENTORY RATIO. Permit the ratio of
-----------------------------------
the amount of Accounts Payable to the value of Inventory of the Borrower (valued
on a first in - first out basis at the lower of cost or market calculated on the
retail method in accordance with GAAP and shown on the Borrower's financial
statements), expressed as a percentage, at the end of each month in any year set
forth below to be less than the percentage specified opposite such month:
Month Minimum Percentage
----- ------------------
January 32.5%
February 37.5%
March 37.5%
April 37.5%
May 37.5%
June 37.5%
July 37.5%
August 42.5%
September 42.5%
October 42.5%
52
<PAGE>
November 42.5%
December 37.5%
SECTION 6.07. DEBT COVERAGE RATIO. For the fiscal quarter of the Borrower
-------------------
ending on or about January 31, 2000, and ending on each fiscal quarter
thereafter, permit the Borrower's ratio of (a) EBITDA less Capital Expenditures
----
to (b) cash Interest Expense plus principal payments on any Indebtedness, for
----
the 12-month period ending on the last day of each such fiscal quarters to be
less 1.25:1.
SECTION 6.08. GUARANTEES AND OTHER LIABILITIES. Purchase or repurchase
--------------------------------
(or agree, contingently or otherwise, so to do) the Indebtedness of, or assume,
guarantee (directly or indirectly or by an instrument having the effect of
assuring another's payment or performance of any obligation or capability of so
doing, or otherwise), endorse or otherwise become liable, directly or
indirectly, in connection with the obligations, stock or dividends of any
Person, or permit any Subsidiary or Guarantor to do so, except for the Guaranty
of the Guarantors hereunder.
SECTION 6.09. DIVIDENDS; CAPITAL STOCK. Declare or pay, directly or
-------------------------
indirectly, any dividends or make any other distribution or payment, whether in
cash, property, securities or a combination thereof, with respect to (whether by
reduction of capital or otherwise) any shares of capital stock (or any options,
warrants, rights or other equity securities or agreements relating to any
capital stock), or set apart any sum for the aforesaid purposes; provided that
--------
any subsidiary of the Borrower may pay dividends to the Borrower.
SECTION 6.10. TRANSACTIONS WITH AFFILIATES. Sell or transfer any property
----------------------------
or assets to, or otherwise engage in any other transactions with, any of its
shareholders or Affiliates, except that the Borrower or any Guarantor may engage
in any of the foregoing transactions in the ordinary course of business at
prices and on terms and conditions not less favorable to the Borrower or such
Guarantor than could be obtained on an arm's-length basis from unrelated third
parties and which are consistent with past practices. [Notwithstanding the
foregoing, the Borrower may not transfer any assets to any Guarantor except for
proceeds of the loans to the extent provided in Section 3.10.]
SECTION 6.11. INVESTMENTS, LOANS AND ADVANCES. Purchase, hold or acquire
-------------------------------
any capital stock, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in, any other Person (all of the foregoing,
"Investments"), except for (i) ownership of the capital stock of BAC by BI, the
-----------
Borrower by BAC and each of the Guarantors listed on Schedule 3.04 (other than
BI and BAC) by the Borrower, (ii) relocation or similar type loans or advances
to new employees not in excess of $750,000 in the aggregate during the term of
this Agreement, (iii) Permitted Investments [and (iv) as provided in Section
3.10].
SECTION 6.12. DISPOSITION OF ASSETS. Sell or otherwise dispose of any
---------------------
assets (including, without limitation, the capital stock of any Subsidiary),
except for (a) sales of Inventory in arm's-length transactions in the ordinary
course of business and (b) so long as no Default or Event of Default has
occurred or is continuing or would occur after giving effect to such sale or
disposition, (i) sales of Inventory, furniture, fixtures and equipment located
in the retail stores set forth on Schedule 6.12 that are closed or otherwise
disposed of, (ii) the sale of obsolete or worn out equipment disposed of in the
ordinary course of business, and (iii) the sale or other transfer of Real
Property, the proceeds of which are deposited in the BBNA Concentration Account
for application to the Obligations in accordance
53
<PAGE>
with Section 2.14; provided that the return to vendors of out-of-season,
--------
defective, damaged or nonconforming Inventory or negotiated returns for credit
shall not be deemed prohibited by this Agreement.
SECTION 6.13. NATURE OF BUSINESS.
------------------
(a) Modify or alter in any material manner the nature and type of its
business as conducted at the Closing Date or the manner in which such business
is conducted.
(b) Change, in any material respect, any of its inventory or sales
accounting, invoicing or billing practices or management information or
reporting systems except for the change of the Borrower's Inventory tracking and
accounting system reasonably satisfactory to the Administrative Agent (provided
--------
that, after such change, the Borrower continues to use accounting and tracking
methodologies consistent with those currently used by the Borrower).
(c) Close any retail store, except as projected in the Plan of
Reorganization and/or the Business Plan.
(d) Move Inventory from other than the locations listed on Schedule
3.11(a).
SECTION 6.14. CONFLICTING AGREEMENTS, ORDERS OR ACTIONS. Enter into any
-----------------------------------------
stipulation or agreement, request or permit or suffer itself or any Guarantor to
take any other action which does or could conflict or materially interfere with
any of the rights, privileges, benefits or remedies of the Administrative Agent,
the Issuing Bank, the Collateral Agent, the Co-Agents or any of the Lenders
under any of the Loan Documents, or materially diminish or impair the practical
realization of any such right, privilege, benefit or remedy.
VII. EVENTS OF DEFAULT
SECTION 7.01. EVENTS OF DEFAULT. If any of the following events (each,
-----------------
an "Event of Default") occurs:
----------------
(a) any material representation or warranty made by the Borrower or any
Guarantor in this Agreement or in any Loan Document or in connection with this
Agreement or with the execution and delivery of the Notes or the credit
extensions hereunder or any material statement or representation made in any
report, financial statement, certificate or other document furnished by the
Borrower or any Guarantors to the Administrative Agent, the Issuing Bank, the
Collateral Agent or any of the Lenders under or in connection with this
Agreement or any other Loan Document, shall prove to have been false or
misleading in any material respect when made or delivered; or
(b) default shall be made in the payment of any (i) Fees or interest on
the Loans when due, and such default shall continue unremedied for more than
three (3) Business Days or (ii) principal of the Loans or other amounts payable
by the Borrower hereunder (including, without limitation, reimbursement
obligations or cash collateralization in respect of Letters of Credit), when and
as the same shall become due and payable, whether at the due date thereof or at
a date fixed for prepayment thereof or by acceleration thereof or otherwise; or
(c) default shall be made by the Borrower or any Guarantor in the due
observance or
54
<PAGE>
performance of any covenant, condition or agreement contained in Article VI
hereof; or
(d) default shall be made by the Borrower or any Guarantor in the due
observance or performance of any other covenant, condition or agreement to be
observed or performed pursuant to the terms of this Agreement or any of the
other Loan Documents and, with respect to Sections 5.01, 5.02 or 5.10, such
default shall continue unremedied for more than five (5) Business Days; or
(e) dissolution, liquidation, winding up or cessation of the Borrower's or
any Guarantor's businesses, or the failure of the Borrower or any Guarantor to
meet its debts as they mature, or the calling of one or more meetings of the
Borrower's or any Guarantor's major creditors for purposes of obtaining a
moratorium on payment or a compromise of the Borrower's or any Guarantor's
debts; or
(f) the insolvency of the Borrower or any Guarantor or the commencement by
or against the Borrower or any Guarantor of any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceedings under any
federal or state law and, in the event any such proceeding is commenced against
the Borrower or any Guarantor, such proceeding is not dismissed within thirty
(30) days; or
(g) the loss by the Borrower or any Guarantor of any lease, permit,
franchise or agreement, the loss of which could reasonably be expected to have a
material adverse effect on the financial condition, operations or assets of the
Borrower or the Guarantors, or their ability to repay the Obligations or of the
Collateral Agent to realize on the Collateral; or
(h) failure of (i) Peter Thorner or some other person reasonably
acceptable to the Administrative Agent, to participate in the affairs of the
Borrower and Guarantors as Chairman of the Board of Directors and Chief
Executive Officer with no diminution in the present responsibilities and
authority related to this executive management position and (ii) Cornelius F.
Moses, III or some other person reasonably acceptable to the Administrative
Agent, to act as Senior Vice President and Chief Financial Officer, with no
diminution in the present responsibilities and authority related to this
executive management position; or
(i) the occurrence of a default or event of default (in each case without
regard to any applicable grace periods) which permits, or could permit, the
acceleration of the maturity of, any note, agreement or instrument evidencing
any other Indebtedness of the Borrower or any of the Guarantors, and the
aggregate principal amount of all such Indebtedness with respect to which such a
default or an event of default has occurred, or the maturity of which is
permitted to be accelerated, exceeds $10,000,000; or
(j) (A) any material provision of any Loan Document shall, for any reason,
cease to be valid and binding on the Borrower or any of the Guarantors or (B)
any Lien granted to the Collateral Agent under any Loan Document shall cease to
be a first-priority perfected Lien (subject only to Permitted Liens), or, in the
case of (A) or (B) the Borrower or any of the Guarantors shall so assert in any
pleading filed in any court; or
(k) greater than fifty percent (50%) of the Borrower's stores close for
more than seven (7) consecutive days, unless such closures are covered by
business interruption insurance; or
(l) any one or more judgments or orders as to a liability or debt for the
payment of money (not covered by insurance and workers' compensation payments)
in excess of $5,000,000 in the
55
<PAGE>
aggregate shall be rendered against the Borrower or any of the Guarantors and
either (i) enforcement proceedings shall have been commenced and shall be
continuing by any creditor upon such judgment or order or (ii) there shall be
any period of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal, payment or otherwise, shall
not be in effect; or
(m) any non-monetary judgment or order shall be rendered against the
Borrower or any of the Guarantors which does or would reasonably be expected to
(i) cause a material adverse change in the financial condition, business,
operations or assets of the Borrower and the Guarantors taken as a whole on a
consolidated basis, (ii) have a material adverse effect on the ability of the
Borrower or any of the Guarantors to perform their respective obligations under
any Loan Document, or (iii) have a material adverse effect on the Collateral or
on the rights and remedies of the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Co-Agents or any Lender under any Loan Document, and there
shall be any period of 10 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect; or
(n) any Termination Event described in clauses (iii) or (iv) of the
definition of such term shall have occurred and shall continue unremedied for
more than 10 days and the sum (determined as of the date of occurrence of such
Termination Event) of the Insufficiency of the Plan in respect of which such
Termination Event shall have occurred and be continuing and the Insufficiency of
any and all other Plans with respect to which such a Termination Event
(described in such clauses (iii) or (iv)) shall have occurred and then exist is
equal to or greater than $5,000,000; or
(o) (i) the Borrower or any ERISA Affiliate thereof shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan, (ii) the Borrower or such ERISA Affiliate
does not have reasonable grounds to contest such Withdrawal Liability and is not
in fact contesting such Withdrawal Liability in a timely and appropriate manner,
and (iii) the amount of such Withdrawal Liability specified in such notice, when
aggregated with all other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the date of such
notification), exceeds $5,000,000 allocable to post-petition obligations or
requires payments exceeding $500,000 per annum, in excess of the annual payments
made with respect to such MultiEmployer Plans by the Borrower or such ERISA
Affiliate for the plan year immediately preceding the plan year in which such
notification is received; or
(p) the Borrower or any ERISA Affiliate thereof shall have been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
if as a result of such reorganization or termination the aggregate annual
contributions of the Borrower and its ERISA Affiliates to all Multiemployer
Plans that are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the plan
years that include the date hereof by an amount exceeding $5,000,000; or
(q) the Borrower or any ERISA Affiliate shall have committed a failure
described in Section 302(f) (1) of ERISA (other than the failure to make any
contribution accrued and unpaid as of the Filing Date) and the amount determined
under Section 302 (f) (3) of ERISA is equal to or greater than $5,000,000; or
(r) it shall be determined (whether by the Bankruptcy Court or by any
other judicial or administrative forum) that the Borrower is liable for the
payment of claims arising out of any failure to
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comply (or to have complied) with applicable environmental laws or regulations
the payment of which will have a material adverse effect on the financial
condition, business, properties, operations or assets of the Borrower or the
Borrower and/or the Guarantors, taken as a whole; or
(s) any Person or group (as defined in the Securities Exchange Act of
1934, as amended), other than the holders of voting stock of BI as of the Filing
Date, shall acquire for the first time the direct or indirect ownership
(constructive or otherwise), or the direct or indirect power to vote more than
fifty percent (50%) of the outstanding voting stock of BI; then, and in every
such event and at any time thereafter during the continuance of such event, the
Administrative Agent may, and at the request of the Required Lenders shall, by
notice (a "Default Notice") to the Borrower take one or more of the following
--------------
actions, at the same or different times: (i) terminate forthwith all obligations
of the Lenders and the Issuing Bank to extend credit under this Agreement,
including any and all obligations to make Loans or to issue Letters of Credit;
(ii) declare the Loans then outstanding to be forthwith due and payable,
whereupon the principal of all outstanding Loans together with accrued interest
thereon and any unpaid accrued Fees and all other liabilities of the Borrower
accrued hereunder and under any other Loan Document shall become forthwith due
and payable, without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived by the Borrower and the
Guarantors, anything contained herein or in any other Loan Document to the
contrary notwithstanding; (iii) require the Borrower and the Guarantors to
deposit in the Cash Collateral Account, no later than the first Business Day
after such Default Notice is given, cash in an amount equal to the sum of 105%
of the aggregate amounts that then are or thereafter may become available for
drawing or payment under all outstanding Letters of Credit and (without limiting
or restricting any application permitted under Sections 2.13 and 2.14) to the
extent the Borrower and the Guarantors shall fail to furnish such funds as
demanded by the Administrative Agent, the Administrative Agent shall be
authorized to debit the accounts of the Borrower and the Guarantors maintained
with the Administrative Agent in such amount; (iv) set-off amounts in the Cash
Collateral Account or any other accounts maintained by the Administrative Agent
and apply such amounts to the obligations of the Borrower and the Guarantors
hereunder and in the other Loan Documents (but this clause (iv) shall not limit
or restrict any application permitted under Sections 2.13 and 2.14); (v)
instruct the Collateral Agent to exercise its remedies under the Security
Documents (including, without limitation, foreclosure upon and taking possession
of the Collateral) and (vi) exercise any and all remedies under the Loan
Documents and applicable law available to the Administrative Agent, the Issuing
Bank, the Collateral Agent, the Co-Agents and the Lenders.
SECTION 7.02. WHEN CONTINUING. For all purposes under this Agreement,
---------------
each Default that has occurred and each Event of Default that has occurred shall
be deemed to be continuing at all times thereafter unless it either (a) is cured
or corrected to the reasonable written satisfaction of the Required Lenders or
(b) is waived in writing by the Required Lenders.
VIII. THE AGENTS
SECTION 8.01. ADMINISTRATION BY ADMINISTRATIVE AGENT. The general
--------------------------------------
administration of the Loan Documents shall be by the Administrative Agent. The
Lenders, the Collateral Agent and the Issuing Bank each hereby irrevocably
authorizes the Administrative Agent, at its discretion, to take or refrain from
taking such actions as agent on its behalf and to exercise or refrain from
exercising such powers under the Loan Documents and the Notes as are delegated
by the terms hereof or thereof, as appropriate, together with all powers
reasonably incidental thereto. The Administrative Agent shall
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have no duties or responsibilities except as set forth in this Agreement and the
remaining Loan Documents.
SECTION 8.02. THE COLLATERAL AGENT. Each Lender hereby irrevocably
--------------------
designates BBRF as Collateral Agent under this Agreement and the other Loan
Documents. All Collateral shall be held or administered by the Collateral Agent
(or its duly-appointed agent) for its benefit and for the ratable benefit of the
Lenders, the Administrative Agent, the Co-Agents and the Issuing Bank. Any
proceeds received by the Collateral Agent from the foreclosure, sale, lease or
other disposition of any of the Collateral and any other proceeds received
pursuant to the terms of the Security Documents or the other Loan Documents
shall be paid over to the Administrative Agent for application as provided in
Sections 2.14(a) and (b).
SECTION 8.03. ADVANCES AND PAYMENTS.
---------------------
(a) On the date of each Loan, the Administrative Agent shall be
authorized (but not obligated) to advance, for the account of each of the
Lenders, the amount of the Loan to be made by it in accordance with its
Commitment hereunder. Should the Administrative Agent do so, each of the
Lenders agrees forthwith to reimburse the Administrative Agent in immediately
available funds for the amount so advanced on its behalf by the Administrative
Agent, together with interest at the Federal Funds Effective Rate if not so
reimbursed on the date due from and including such date but not including the
date of reimbursement.
(b) Any amounts received by the Administrative Agent in connection
with this Agreement or the other Loan Documents (other than amounts to which the
Administrative Agent is entitled pursuant to Sections 2.19, 5.08, 8.06, 10.05
and 10.06), the application of which is not otherwise provided for in this
Agreement shall be applied in the order of priority set forth in Sections
2.14(a) and (b). All amounts to be paid to a Lender, the Collateral Agent,
either Co-Agent or the Issuing Bank by the Administrative Agent shall be
credited to that Lender, the Collateral Agent, such Co-Agent or the Issuing
Bank, as applicable, after collection by the Administrative Agent, in
immediately available funds either by wire transfer or deposit in the
correspondent account of that Lender, the Collateral Agent, such Co-Agent or the
Issuing Bank with the Administrative Agent, as such Lender, the Collateral
Agent, such Co-Agent or the Issuing Bank and the Administrative Agent shall from
time to time agree.
SECTION 8.04. SHARING OF EXCESS PAYMENTS. Each of the Lenders, the
--------------------------
Collateral Agent, each Co-Agent and the Issuing Bank agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower or any Guarantor, including, but not limited to, a secured claim
under Section 506 of the Bankruptcy Code or other security or interest arising
from, or in lieu of, such secured claim and received by such Lender, the
Collateral Agent, such Co-Agent or the Issuing Bank under any applicable
bankruptcy, insolvency or other similar law, or otherwise, obtain payment in
respect of its Obligations owed it (an "excess payment") as a result of which
--------------
such Lender, the Collateral Agent, such Co-Agent or the Issuing Bank has
received payment of any Loans or other Obligations outstanding to it in excess
of the amount that it would have received if all payments at any time applied to
the Loans and other Obligations had been applied in the order of priority set
forth in Section 2.14, then such Lender, the Collateral Agent, such Co-Agent or
the Issuing Bank shall promptly purchase at par (and shall be deemed to have
thereupon purchased) from the other Lenders, the Collateral Agent, each Co-Agent
and the Issuing Bank, as applicable, a participation in the Loans and
Obligations outstanding to such other Persons, in an amount determined by the
Administrative Agent in good faith as the amount necessary to ensure that the
economic benefit
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of such excess payment is reallocated in such manner as to cause such excess
payment and all other payments at any time applied to the Loans and other
Obligations to be effectively applied in the order of priority set forth in
Section 2.14; provided, that if any such excess payment is thereafter recovered
--------
or otherwise set aside such purchase of participations shall be correspondingly
rescinded (without interest). The Borrower expressly consents to the foregoing
arrangements and agrees that any Lender, the Collateral Agent, any Co-Agent or
the Issuing Bank holding (or deemed to be holding) a participation in any Loan
or other Obligation may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by the Borrower to such
Lender, the Collateral Agent, such Co-Agent or the Issuing Bank as fully as if
such Lender, the Collateral Agent, such Co-Agent or the Issuing Bank held a Note
and was the original obligee thereon, in the amount of such participation.
SECTION 8.05. AGREEMENT OF REQUIRED LENDERS. Upon any occasion requiring
-----------------------------
or permitting an approval, consent, waiver, election or other action on the part
of the Required Lenders, action shall be taken by the Agents for and on behalf
or for the benefit of all Lenders upon the direction of the Required Lenders,
and any such action shall be binding on all Lenders. No amendment,
modification, consent, or waiver shall be effective except in accordance with
the provisions of Section 10.10.
SECTION 8.06. LIABILITY OF AGENTS.
-------------------
(a) Each of the Agents, when acting on behalf of the Lenders and the
Issuing Bank, may execute any of its respective duties under this Agreement by
or through any of its respective officers, agents and employees, and neither of
the Agents nor their respective directors, officers, agents or employees shall
be liable to the Lenders, the Co-Agents or the Issuing Bank or any of them for
any action taken or omitted to be taken in good faith, or be responsible to the
Lenders, the Co-Agents or the Issuing Bank or to any of them for the
consequences of any oversight or error of judgment, or for any loss, except to
the extent of any liability imposed by law by reason of such Agent's own gross
negligence or willful misconduct. The Agents and their respective directors,
officers, agents and employees shall in no event be liable to the Lenders, the
Co-Agents or the Issuing Bank or to any of them for any action taken or omitted
to be taken by them pursuant to instructions received by them from the Required
Lenders or in reliance upon the advice of counsel selected by it. Without
limiting the foregoing, neither of the Agents, nor any of their respective
directors, officers, employees, or agents shall be responsible to any Lender,
the Co-Agents or the Issuing Bank for the due execution, validity, genuineness,
effectiveness, sufficiency, or enforceability of, or for any statement, warranty
or representation in, this Agreement, any Loan Document or any related
agreement, document or order, or shall be required to ascertain or to make any
inquiry concerning the performance or observance by the Borrower or any
Guarantor of any of the terms, conditions, covenants, or agreements of this
Agreement or any of the Loan Documents.
(b) Neither of the Agents nor any of their respective directors,
officers, employees, or agents shall have any responsibility to the Borrower or
the Guarantors on account of the failure or delay in performance or breach by
any Lender, either Co-Agent or the Issuing Bank or by the Borrower or the
Guarantors of any of their respective obligations under this Agreement or the
Notes or any of the Loan Documents or in connection herewith or therewith.
(c) The Administrative Agent and the Collateral Agent, in such
capacities hereunder, shall be entitled to rely on any communication,
instrument, or document reasonably believed by such person to be genuine or
correct and to have been signed or sent by a person or
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persons believed by such person to be the proper person or persons, and, such
person shall be entitled to rely on advice of legal counsel, independent public
accountants, and other professional advisers and experts selected by such
person.
SECTION 8.07. REIMBURSEMENT AND INDEMNIFICATION. Each Lender agrees (i)
---------------------------------
to reimburse (x) each Agent for such Lender's Commitment Percentage of any
expenses and fees incurred by such Agent for the benefit of the Lenders, the Co-
Agents or the Issuing Bank under this Agreement, the Notes and any of the Loan
Documents, including, without limitation, counsel fees and compensation of
agents and employees paid for services rendered on behalf of the Lenders, the
Co-Agents or the Issuing Bank, and any other expense incurred in connection with
the operations or enforcement thereof not reimbursed by the Borrower or the
Guarantors and (y) each Agent for such Lender's Commitment Percentage of any
expenses of such Agent incurred for the benefit of the Lenders, the Co-Agents or
the Issuing Bank that the Borrower has agreed to reimburse pursuant to Section
10.05 and has failed to so reimburse and (ii) to indemnify and hold harmless the
Agents and any of their directors, officers, employees, or agents, on demand, in
the amount of such Lender's Commitment Percentage, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against it or any of them in any way
relating to or arising out of this Agreement, the Notes or any of the Loan
Documents or any action taken or omitted by it or any of them under this
Agreement, the Notes or any of the Loan Documents to the extent not reimbursed
by the Borrower or the Guarantors (except such as shall result from their
respective gross negligence or willful misconduct).
SECTION 8.08. RIGHTS OF AGENTS. It is understood and agreed that each of
----------------
BBNA and BBRF shall have the same rights and powers hereunder (including the
right to give such instructions) as the other Lenders and may exercise such
rights and powers, as well as its rights and powers under other agreements and
instruments to which it is or may be party, and engage in other transactions
with the Borrower or any Guarantor, as though it were not the Administrative
Agent or the Collateral Agent, respectively, of the Lenders under this
Agreement.
SECTION 8.09. INDEPENDENT LENDERS AND ISSUING BANK. The Lenders and the
------------------------------------
Issuing Bank each acknowledges that it has decided to enter into this Agreement
and to make the Loans or issue the Letters of Credit hereunder based on its own
analysis of the transactions contemplated hereby and of the creditworthiness of
the Borrower and the Guarantors and agrees that the Agents shall bear no
responsibility therefor.
SECTION 8.10. NOTICE OF TRANSFER. The Agents may deem and treat a Lender
------------------
party to this Agreement as the owner of such Lender's portion of the Loans for
all purposes, unless and until, and except to the extent, an Assignment and
Acceptance shall have become effective as set forth in Section 10.03(b).
SECTION 8.11. SUCCESSOR ADMINISTRATIVE AGENT AND COLLATERAL AGENT. The
---------------------------------------------------
Administrative Agent and the Collateral Agent may resign at any time by giving
five (5) Business Days' written notice thereof to the Lenders, the Issuing Bank,
the other Agent and the Borrower. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor Administrative Agent or
Collateral Agent, as the case may be, which shall be reasonably satisfactory to
the Borrower. If no successor Administrative Agent or Collateral Agent, as the
case may be, shall have been so appointed by the Required Lenders and shall have
accepted such appointment, within 30 days after the retiring Agent's giving of
notice of resignation, the retiring Agent may, on behalf of the
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Lenders, the other Agent and the Issuing Bank, appoint a successor
Administrative Agent or Collateral Agent, as the case may be, which shall be a
commercial bank (or affiliate thereof) organized under the laws of the United
States of America or of any State thereof and having a combined capital and
surplus of a least $100,000,000, which, so long as there is no Default or Event
of Default, shall be reasonably satisfactory to the Borrower. Upon the
acceptance of any appointment as Administrative Agent or Collateral Agent
hereunder by a successor Administrative Agent or Collateral Agent, as the case
may be, such successor Administrative Agent or Collateral Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent shall be discharged from its duties
and obligations under this Agreement. After any retiring Agent's resignation
hereunder as such Agent, the provisions of this Article VIII shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was such
Agent under this Agreement.
SECTION 8.12. REPORTS AND FINANCIAL STATEMENTS. Promptly after receipt
--------------------------------
thereof from the Borrower, the Administrative Agent shall remit to each Lender,
the Collateral Agent and the Issuing Bank copies of all financial statements and
reports required to be delivered by the Borrower hereunder.
IX. GUARANTY
SECTION 9.01. GUARANTY.
--------
(a) Each of the Guarantors unconditionally and irrevocably guarantees
the due and punctual payment and performance by the Borrower of the Obligations.
Each of the Guarantors further agrees that the Obligations may be extended or
renewed, in whole or in part, without notice to or further assent from it, and
it will remain bound upon this guaranty notwithstanding any extension or renewal
of any of the Obligations. The Obligations of the Guarantors shall be joint and
several.
(b) Each of the Guarantors waives presentation to, demand for payment
from and protest to the Borrower or any other Guarantor, and also waives notice
of protest for nonpayment. The obligations of the Guarantors hereunder shall not
be affected by (i) the failure of the Administrative Agent, the Collateral
Agent, the Issuing Bank, either Co-Agent or a Lender to assert any claim or
demand or to enforce any right or remedy against the Borrower or any other
Guarantor under the provisions of this Agreement or any other Loan Document or
otherwise; (ii) any extension or renewal of any provision hereof or thereof;
(iii) any rescission, waiver, compromise, acceleration, amendment or
modification of any of the terms or provisions of any of the Loan Documents;
(iv) the release, exchange, waiver or foreclosure of any security held by the
Administrative Agent or the Collateral Agent for the Obligations or any of them;
(v) the failure of the Administrative Agent, the Issuing Bank, the Collateral
Agent, either Co-Agent or a Lender to exercise any right or remedy against any
other Guarantor; (vi) the release or substitution of any Guarantor or any other
Guarantor or (vii) any bankruptcy, insolvency, reorganization, arrangement,
adjustment, composition, liquidation or the like of the Borrower or any
Guarantor including, but not limited to, (x) any Guaranteed Party's election, in
any proceeding instituted under the Bankruptcy Code, of the application of
Section 1111(b)(2) of the Bankruptcy Code, (y) any borrowing or grant of a Lien
by the Borrower or any Guarantor as debtor-in-possession, under Section 364 of
the Bankruptcy Code, or (z) the disallowance of all or any portion of any
Guaranteed Party's claim(s) for repayment of the Obligations under Section 502
of the Bankruptcy Code.
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(c) Each of the Guarantors further agrees that this guaranty
constitutes a guaranty of performance and of payment when due and not just of
collection, and waives any right to require that any resort be had by the
Administrative Agent, the Issuing Bank, the Collateral Agent, either Co-Agent or
a Lender to any security held for payment of the Obligations or to any balance
of any deposit, account or credit on the books of the Administrative Agent, the
Issuing Bank, the Collateral Agent, either Co-Agent or a Lender in favor of the
Borrower or any other Guarantor, or to any other Person.
(d) Each of the Guarantors hereby waives any defense that it might
have based on a failure to remain informed of the financial condition of the
Borrower and of any other Guarantor and any circumstances affecting the ability
of the Borrower to perform under this Agreement.
(e) Each Guarantor's guaranty shall not be affected by the
genuineness, validity, regularity or enforceability of the obligations, the
Notes or any other instrument evidencing any Obligations, or by the existence,
validity, enforceability, perfection, or extent of any collateral therefor or by
any other circumstance relating to the obligations which might otherwise
constitute a defense to this Guaranty. None of the Administrative Agent, the
Issuing Bank, the Collateral Agent, either Co-Agent or any of the Lenders makes
any representation or warranty in respect to any such circumstances or shall
have any duty or responsibility whatsoever to any Guarantor in respect of the
management and maintenance of the obligations.
(f) Subject to the provisions of Section 7.01, upon the Obligations
becoming due and payable (by acceleration or otherwise), the Lenders, the
Issuing Bank, the Collateral Agent, the Co-Agents and the Administrative Agent
shall be entitled to immediate payment of such obligations by the Guarantors
upon written demand by the Administrative Agent.
SECTION 9.02. NO IMPAIRMENT OF GUARANTY. The obligations of the
-------------------------
Guarantors hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason, including, without limitation, any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense or set-off, counterclaim, recoupment, or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
obligations. Without limiting the generality of the obligations of the
Guarantors hereunder shall not be discharged or impaired or otherwise affected
by the failure of the Administrative Agent, the Issuing Bank, the Collateral
Agent, either Co-Agent or a Lender to assert any claim or demand or to enforce
any remedy under this Agreement or any other agreement, by any waiver or
modification of any provision thereof, by any default, failure or delay, willful
or otherwise, in the performance of the Obligations, or by any other act or
thing or omission or delay to do any other act or thing which may or might in
any manner or to any extent vary the risk of the Guarantors or would otherwise
operate as a discharge of the Guarantors as a matter of law, unless and until
the obligations are paid in full.
SECTION 9.03. SUBROGATION. Upon payment by any Guarantor of any sums to
-----------
the Administrative Agent, the Issuing Bank, the Collateral Agent, either Co-
Agent or a Lender hereunder, all rights of such Guarantor against the Borrower
arising as a result thereof by way of right of subrogation or otherwise, shall
in all respects be subordinate and junior in right of payment to the prior final
and indefeasible payment in full of all the Obligations. If any amount shall be
paid to such Guarantor for the account of the Borrower, such amount shall be
held in trust for the benefit of the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Co-Agents and the Lenders and shall forthwith be paid to
the Administrative Agent, the Issuing Bank, the Collateral Agent, the Co-Agents
and the Lenders to be credited and applied to the Obligations, whether matured
or unmatured.
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SECTION 9.04. CREDIT AGREEMENT. Each of the Guarantors acknowledges that
----------------
it has read the Loan Documents and agrees to perform and observe all the of the
terms and provisions herein and therein applicable thereto.
SECTION 9.05. MAXIMUM GUARANTEED AMOUNT. Notwithstanding any other
-------------------------
provision of this Guarantee to the contrary, if the obligations of any Guarantor
hereunder would otherwise be held or determined by a court of competent
jurisdiction in any action or proceeding involving any state corporate law or
any state or Federal bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other law affecting the rights of creditors generally,
to be void, invalid or unenforceable to any extent on account of the amount of
such Guarantor's liability under this Guaranty, then notwithstanding any other
provision of this Guaranty to the contrary, the amount of such liability shall,
without any further action by such Guarantor or any other Person, be
automatically limited and reduced to the highest amount which is valid and
enforceable as determined in such action or proceeding.
X. MISCELLANEOUS
SECTION 10.01. NOTICES. Notices and other communications provided for
-------
herein shall be in writing (including telegraphic, telex, facsimile or cable
communication) and shall be mailed, telegraphed, telexed, telecopied,
transmitted, cabled or delivered to the Borrower or any Guarantor at One
Bradlees Circle, P.O. Box 859051, Braintree, MA 02185-9051, Attention: Chief
Financial Officer (telecopy number: (617) 380-8096), and to a Lender, the
Issuing Bank, the Collateral Agent, either Co-Agent or the Administrative Agent
to it at its address set forth on the signature pages of this Agreement, or such
other address as such party may from time to time designate by giving written
notice to the other parties hereunder. All notices and other communications
given to any party hereto in accordance with the provisions of this Agreement
shall be deemed to have been given on the fifth Business Day after the date when
sent by registered or certified mail, postage prepaid, return receipt requested,
if by mail; or when delivered to the telegraph company, charges prepaid, if by
telegram; or when receipt is acknowledged, if by any telegraphic communications
or facsimile equipment of the sender; in each case addressed to such party as
provided in this Section 10.01 or in accordance with the latest unrevoked
written direction from such party; provided, however, that in the case of
-------- -------
notices to the Administrative Agent notices pursuant to the preceding sentence
and pursuant to Article II shall be effective only when received by the
Administrative Agent. Copies of all notices and other communications given to
the Borrower shall go to Dewey Ballantine, 1301 Avenue of the Americas, New
York, New York 10019, Attn: Stuart Hirshfield, Esq.
SECTION 10.02. SURVIVAL OF AGREEMENT, REPRESENTATIONS AND WARRANTIES, ETC.
-----------------------------------------------------------
All warranties, representations and covenants made by the Borrower or any
Guarantor herein or in any certificate or other instrument delivered by it or on
its behalf in connection with this Agreement shall be considered to have been
relied upon by the Lenders, the Issuing Bank, the Collateral Agent, the Co-
Agents and the Administrative Agent and shall survive the making of the Loans
and the issuance of Letters of Credit herein contemplated and the issuance and
delivery of the Notes and the Letters of Credit, regardless of any investigation
made by any Lender, the Issuing Bank, the Collateral Agent, either Co-Agent and
the Administrative Agent or on its behalf and shall continue in full force and
effect so long as any amount due or to become due hereunder is outstanding and
unpaid and so long as the Commitments have not been terminated. All statements
in any such certificate or other instrument shall constitute representations and
warranties by the Borrower and the Guarantors hereunder with respect to the
Borrower.
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SECTION 10.03. SUCCESSORS AND ASSIGNS.
----------------------
(a) This Agreement shall be binding upon and inure to the benefit of
the Borrower, the Administrative Agent, the Issuing Bank, the Collateral Agent,
the Co-Agents and the Lenders and their respective successors and assigns.
Neither the Borrower nor any of the Guarantors may assign or transfer any of
their rights or obligations hereunder without the prior written consent of all
of the Lenders, the Issuing Bank, the Collateral Agent, the Co-Agents and the
Administrative Agent. Each Lender may sell participations to any Person in all
or part of any Loan, or all or part of its Note or Commitment, in which event,
without limiting the foregoing, the provisions of Section 2.15 and 2.18 shall
inure to the benefit of each purchaser of a participation (provided that such
--------
participant shall look solely to the seller of such participation for such
benefits and the Borrower's and the Guarantors' liability, if any, under
Sections 2.15 and 2.18 shall not be increased as a result of the sale of any
such participation) and the treatment of payments pursuant to Section 2.17,
shall be determined as if such Lender had not sold such participation. In the
event any Lender shall sell any participation, such Lender shall retain the sole
right and responsibility to enforce the obligations of the Borrower and each of
the Guarantors relating to the Loans, including, without limitation, the right
to approve any amendment, modification or waiver of any provision of this
Agreement other than amendments, modifications or waivers which (i) reduce any
Fees payable hereunder to the Lenders, (ii) reduce the amount of any scheduled
principal payment on any Loan or reduce the principal amount of any Loan or the
rate of interest payable hereunder or (iii) extend the maturity of the
Borrower's obligations hereunder. The sale of any such participation, shall not
alter the rights and obligations of the Lender selling such participation
hereunder with respect to the Borrower.
(b) Each Lender may assign to one or more Lenders or Eligible
Assignees all or a portion of its interests, rights and obligations under this
Agreement; provided, however, that (i) other than in the case of an assignment
-------- -------
to a Person at least 50% owned by the assignor Lender, or by a common parent of
both, or to another Lender, the Administrative Agent and the Issuing Bank must
give their prior written consent, which consent will not be unreasonably
withheld, (ii) the aggregate amount of the Commitment and/or Loans held by each
of the assigning and assignee Lenders subject to each such assignment
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Administrative Agent and after giving effect to
such assignment) shall, unless otherwise agreed to in writing by the Borrower
(so long as there is no Event of Default) and the Administrative Agent, in no
event be less than $7,500,000 (unless the assigning Lender assigns its entire
remaining Commitment, in which case such assigning Lender's Commitment shall be
$0), and (iii) the parties to each such assignment shall execute and deliver to
the Administrative Agent, for its acceptance and recording in the Register (as
defined below), an Assignment and Acceptance with blanks appropriately
completed, together with any Note subject to such assignment and a processing
and recordation fee of $3,000. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be within ten Business Days after the
execution thereof (unless otherwise agreed to in writing by the Administrative
Agent), (A) the assignee thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and obligations of a
Lender hereunder and (B) the Lender thereunder shall, to the extent provided in
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto). The Borrower shall
have no liability for the $3,000 processing and recordation fee, but shall
be responsible for its own expenses and the expenses of the Administrative
Agent. Notwithstanding the foregoing, unless and until an
64
<PAGE>
Event of Default has occurred, BBNA and BBRF agree to hold, between them,
Commitments totalling at least $25,000,000 in the aggregate; provided that, if
--------
BBNA and BBRF's combined Commitment or, if greater, the aggregate amount of
their Loans outstanding, is reduced below the lesser of (x) 2.5% of the then
Total Commitments or total Loans outstanding, as applicable or (y) $5,000,000
after the occurrence of an Event of Default, BBNA will, upon the request of the
Required Lenders, resign as Administrative Agent hereunder pursuant to Section
8.10.
(c) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such Lender
assignor makes no representation or warranty and assumes no responsibility with
respect to any statements warranties or representations made in or in connection
with this Agreement or any of the other Loan Documents or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any of the other Loan Documents; (ii) such Lender assignor makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or any Guarantor or the performance or
observance by the Borrower or any Guarantor of any of its obligations under this
Agreement or any of the other Loan Documents or any other instrument or document
furnished pursuant hereto; (iii) such assignee confirms that it has received a
copy of this Agreement and the other Loan Documents, together with copies of the
financial statements referred to in Section 3.04 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Administrative Agent, such Lender
assignor or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms thereto, together with such powers as are
reasonably incidental thereto; and (vi) such assignee agrees that it will
perform in accordance with their terms all obligations that by the terms of this
Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at its office a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders and the Commitments of,
and principal amount of the Loans owing to, each Lender from time to time (the
"Register"). The entries in the Register shall be conclusive, in the absence of
--------
manifest error, and the Borrower, the Guarantors, the Administrative Agent, the
Issuing Bank, the Collateral Agent, the Co-Agents and the Lenders shall treat
each Person the name of which is recorded in the Register as a Lender hereunder
for all purposes of this Agreement. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and the assignee thereunder together with any Note subject to
such assignment and the fee payable in respect thereto, the Administrative Agent
shall, if such Assignment and Acceptance has been completed with blanks
appropriately filled, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt written
notice thereof to the Borrower (together with a copy thereof). Within five
Business Days after receipt of notice, the Borrower, at its own expense, shall
execute and deliver to the Administrative Agent in exchange for
65
<PAGE>
the surrendered Note a new Note to the order of such assignee in an amount equal
to the Commitment and/or Loans assumed by it pursuant to such Assignment and
Acceptance and, if the assigning Lender has retained Commitments and/or Loans
hereunder, a new Note to the order of the assigning Lender in an amount equal to
the Commitment and/or Loans retained by it hereunder. Such new Notes shall be in
an aggregate principal amount equal to the aggregate principal amount of such
surrendered Note, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of the surrendered
Note. Thereafter, such surrendered Note shall be marked canceled and returned to
the Borrower.
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 10.03, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower or any of the Guarantors furnished to such
Lender by or on behalf of the Borrower or any of the Guarantors; provided that
--------
prior to any such disclosure, each such assignee or participant or proposed
assignee or participant shall agree in writing to be bound by the provisions of
Section 10.04.
(g) The Borrower hereby agrees to actively assist and cooperate with
the Administrative Agent in the Administrative Agent's efforts to sell
participations herein (as set forth in Section 10.03(a)) and assign to one or
more Lenders or Eligible Assignees a portion of its interests, rights and
obligations as a Lender under this Agreement (as set forth in Section 10.03(b)).
(h) Notwithstanding the provisions of this Section 10.03, each Lender
may at any time pledge or assign its interest in any Loans or other Obligations
to any Reserve Bank in the Federal Reserve System.
SECTION 10.04. CONFIDENTIALITY. Each Lender agrees to keep, and to cause
---------------
its agents, attorneys and financial advisors to keep, any information delivered
or made available by the Borrower or any of the Guarantors to it confidential
from anyone other than persons employed or retained by such Lender who are or
are expected to become engaged in evaluating, approving, structuring or
administering the Loans; provided that nothing herein shall prevent any Lender
--------
from disclosing such information (i) to any other Lender, (ii) to any other
person if reasonably incidental to the administration of the Loans, (iii) upon
the order of any court or administrative agency, (iv) upon the request or demand
of any regulatory agency or authority, (v) which has been publicly disclosed
other than as a result of a disclosure by the Administrative Agent or any Lender
which is not permitted by this Agreement, (vi) in connection with any litigation
to which the Administrative Agent, the Collateral Agent, any Lender, the Issuing
Bank, either Co-Agent or their respective Affiliates may be a party, (vii) to
the extent reasonably required in connection with the exercise of any remedy
hereunder, (viii) to such Lender's legal counsel and independent auditors, (ix)
to any actual or proposed participant or assignee of all or part of its rights
hereunder subject to the proviso in Section 10.03(f) and (x) to the extent
required by law.
SECTION 10.05. EXPENSES; DOCUMENTARY TAXES. Whether or not the
---------------------------
transactions hereby contemplated shall be consummated, the Borrower and the
Guarantors jointly and severally agree to pay all reasonable out-of-pocket
expenses incurred by the Administrative Agent and the Collateral Agent
(including but not limited to the reasonable fees and disbursements of Latham &
Watkins, special counsel for the Administrative Agent and the Collateral Agent,
and any other replacement counsel that the Administrative Agent and the
Collateral Agent shall retain) in connection with the preparation, execution,
delivery and administration of this Agreement, the Notes and the other Loan
Documents, the making of the Loans and the issuance of the Letters of Credit,
the syndication of the
66
<PAGE>
transactions contemplated hereby, the reasonable costs, fees and expenses of the
Administrative Agent and the Collateral Agent (including but not limited to the
reasonable fees and disbursements of internal and third-party consultants and
auditors) in connection with their periodic field audits and appraisals,
monitoring and valuation of Collateral (including, without limitation, Inventory
and Receivables) and reasonable syndication expenses of the Administrative
Agent, all reasonable out-of-pocket expenses incurred by the Lenders, the
Issuing Bank, the Collateral Agent, the Co-Agents and the Administrative Agent
in the enforcement or protection of the rights of any one or more of the
Lenders, the Issuing Bank, the Collateral Agent, the Co-Agents or the
Administrative Agent in connection with this Agreement, the Notes or the other
Loan Documents, including but not limited to the reasonable fees and
disbursements of any counsel for the Lenders, the Issuing Bank, the Collateral
Agent, the Co-Agents or the Administrative Agent incurred in the protection,
enforcement and foreclosure of their Liens on the Collateral and of the
Collateral Agent in the creation and maintenance of the perfection of such
Liens. Such payments shall be made on the Closing Date and thereafter on demand.
Whether or not the transactions hereby contemplated shall be consummated, the
Borrower and the Guarantors agree to reimburse the Administrative Agent, the
Issuing Bank, the Collateral Agent, the Co-Agents and the Lenders for the Fees
and expenses required by the Fee Letter and the reimbursement provisions thereof
are hereby incorporated herein by reference. The obligations of the Borrower and
the Guarantors under this Section 10.05 shall survive the termination of this
Agreement and/or the payment of the Loans and/or the reimbursement of the
Letters of Credit. The fees and expenses payable hereunder are in addition to
those payable by the Borrower or the Guarantors under any other Loan Document.
SECTION 10.06. INDEMNITY. The Borrower and each of the Guarantors jointly
---------
and severally agree to defend, indemnify and hold harmless the Administrative
Agent, the Issuing Bank, the Collateral Agent, BSI, BBNA, BBRF, the Co-Agents
and each Lender and their respective Affiliates and each of their respective
directors, officers, employees, attorneys, partners, beneficiaries, trustees and
agents (each an "Indemnified Party") from and against any and all losses,
-----------------
claims, damages, liabilities, costs and expenses (whether or not suit is
brought) incurred by such Indemnified Party arising out of claims made by any
Person in any way relating to the transactions contemplated hereby or by the
other Loan Documents or any litigation, investigation or proceeding related
hereto or thereto but excluding therefrom, in the case of an Indemnified Party,
all losses, claims, damages, liabilities, costs and expenses arising out of or
resulting from conduct to the extent determined by final order of a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of such Indemnified Party.
SECTION 10.07. CHOICE OF LAW. THIS AGREEMENT, THE NOTES AND THE OTHER
-------------
LOAN DOCUMENTS SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
SECTION 10.08. NO WAIVER. No failure on the part of the Administrative
---------
Agent, the Issuing Bank, the Collateral Agent, either Co-Agent or any of the
Lenders to exercise, and no delay in exercising, any right, power or remedy
hereunder or under the Notes or any of the other Loan Documents shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. All remedies hereunder are cumulative and
are not exclusive of any other remedies provided by law.
67
<PAGE>
SECTION 10.09. EXTENSION OF MATURITY. Except as otherwise set forth in
---------------------
the definition of "Interest Period," if any payment of principal of or interest
on the Notes or any other amount due hereunder becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, in the case of principal, interest shall be payable
thereon at the rate herein specified during such extension.
SECTION 10.10. AMENDMENTS, ETC.
----------------
(a) No modification, amendment or waiver of any provision of this
Agreement, and no consent to any departure by the Borrower or any Guarantor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Required Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given;
provided, however, that:
- -------- -------
(1) No such modification, amendment or waiver shall without the
written consent of all of the Lenders (i) amend or modify any provision of
this Agreement which provides for the unanimous consent or approval of the
Lenders, (ii) amend this Section 10.10 or the definition of Required
Lenders, (iii) release any material portion of the Collateral from the Lien
of the Loan Documents (except in connection with permitted asset
dispositions under Section 6.12), (iv) amend Section 6.01 so as to permit
any Lien on any assets of the Borrower or the Guarantors not otherwise
permitted on the Closing Date, (v) increase the Commitment of a Lender (it
being understood that a waiver of an Event of Default shall not constitute
an increase in the Commitment of a Lender), (vi) reduce the principal
amount of any Loan or the rate of interest payable thereon, (vii) extend
any date for the payment of interest hereunder, (viii) reduce any Fees
payable hereunder, (ix) extend the Maturity Date, (x) increase advance
rates above the level in effect on the Closing Date, (xi) increase the
Overadvance Amount or (xii) permit the sale of a material portion of the
assets of the Borrower and the Guarantors (except as expressly permitted
under Section 6.12).
(2) No such amendment, modification or waiver may adversely
affect the rights and obligations of the Administrative Agent, the
Collateral Agent, either Co-Agent or the Issuing Bank hereunder without its
prior written consent.
(3) No notice to or demand on the Borrower or any Guarantor
shall entitle the Borrower or any Guarantor to any other or further notice
or demand in the same, similar or other circumstances. Each holder of a
Note shall be bound by any amendment, modification, waiver or consent
authorized as provided herein, whether or not a Note shall have been marked
to indicate such amendment, modification, waiver or consent and any consent
by a Lender, or any holder of a Note, shall bind any Person subsequently
acquiring a Note, whether or not a Note is so marked. No amendment to this
Agreement shall be effective against the Borrower or any Guarantor unless
signed by the Borrower or such Guarantor, as the case may be.
(b) Notwithstanding anything to the contrary contained in Section
10.10(a), in the event that the Borrower requests that this Agreement be
modified, amended or waived in a manner which would require the unanimous
consent of all of the Lenders and such amendment is approved by the Required
Lenders, but not unanimously by the Lenders, the Borrower and the Required
Lenders shall be permitted to amend this Agreement without the consent of the
Lender or Lenders which did not agree to the modification or amendment requested
by the Borrower (such Lender or Lenders,
68
<PAGE>
collectively the "Minority Lenders") to provide for (w) the termination of the
----------------
Commitment of each of the Minority Lenders, (x) the addition to this Agreement
of one or more other financial institutions (each of which shall be an Eligible
Assignee), or an increase in the Commitment of one or more of the Required
Lenders, so that the Total Commitment after giving effect to such amendment
shall be in the same amount as the Total Commitment immediately before giving
effect to such amendment, (y) if any Loans are outstanding at the time of such
amendment, the making of such additional Loans by such new or increasing Lender
or Lenders, as the case may be, as may be necessary to repay in full the
outstanding Loans of the Minority Lenders immediately before giving effect to
such amendment and (z) such other modifications to this Agreement as may be
appropriate.
SECTION 10.11. SUBMISSION TO JURISDICTION; WAIVER. THE BORROWER AND EACH
----------------------------------
OF THE GUARANTORS HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT
IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT
OF NEW YORK AND APPELLATE COURTS FROM ANY THEREOF;
(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME;
(c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR
ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO THE BORROWER OR
SUCH GUARANTOR AT ITS ADDRESS SET FORTH IN SECTION 10.1 OR AT SUCH OTHER ADDRESS
OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND
(d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT
TO SUE IN ANY OTHER JURISDICTION.
SECTION 10.12. SEVERABILITY. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 10.13. HEADINGS. Section headings used herein are for convenience
--------
only and are not to affect the construction of or be taken into consideration in
interpreting this Agreement.
SECTION 10.14. EXECUTION IN COUNTERPARTS. This Agreement may be executed
-------------------------
in any number of counterparts, each of which shall constitute an original, but
all of which taken together
69
<PAGE>
shall constitute one and the same instrument.
SECTION 10.15. PRIOR AGREEMENTS. This Agreement and the other Loan
----------------
Documents represent the entire agreement of the parties with regard to the
subject matter hereof and thereof and the terms of any letters and other
documentation entered into between the Borrower or a Guarantor and any Lender,
the Issuing Bank, the Collateral Agent, the Co-Agents or the Administrative
Agent prior to the execution of this Agreement which relate to Loans or Letters
of Credit to be made or issued hereunder shall be replaced by the terms of this
Agreement.
SECTION 10.16. FURTHER ASSURANCES. Whenever and so often as reasonably
------------------
requested by the Administrative Agent or the Collateral Agent, the Borrower and
the Guarantors will promptly execute and deliver or cause to be executed and
delivered all such other and further instruments, documents or assurances, and
promptly do or cause to be done all such other and further things as may be
necessary and reasonably required in order to further and more fully vest in the
Administrative Agent, the Issuing Bank, the Collateral Agent, the Co-Agents and
the Lenders, as applicable, all rights, Liens, interests, powers, benefits,
privileges and advantages conferred or intended to be conferred by this
Agreement and the other Loan Documents.
SECTION 10.17. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
--------------------
GUARANTORS, THE ADMINISTRATIVE AGENT, THE ISSUING BANK, THE COLLATERAL AGENT,
THE CO-AGENTS AND EACH LENDER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY
OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
70
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit
and Guaranty Agreement to be duly executed as of the day and the year first,
written.
BRADLEES STORES, INC.,
as Borrower
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
GUARANTORS:
BRADLEES, INC.
BRADLEES ADMINISTRATIVE CO., INC.
DOSTRA REALTY CO., INC.
MAXIMEDIA SERVICES, INC.
NEW HORIZONS OF BRUCKNER, INC.
NEW HORIZONS OF WESTBURY, INC.
NEW HORIZONS OF YONKERS, INC.,
each as a Guarantor
By: ______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
BANKBOSTON, N.A.,
as Administrative Agent, as Issuing Bank
and as a Lender
By: ______________________________
Name:
Title:
Address: 100 Federal Street, 9th Floor
Boston, MA 02110
Telephone: (617) 434-4113
Telecopy: (617) 434-4339
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
BANKBOSTON RETAIL FINANCE, INC.,
as Collateral Agent
By: ______________________________
Name:
Title:
Address: 40 Broad Street, 10th Floor
Boston, MA 02109
Telephone: (617) 434-4113
Telecopy: (617) 434-4339
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC.,
as Co-Agent and as a Lender
By: _____________________________________________
Name:
Title:
Address:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
CONGRESS FINANCIAL CORPORATION (NEW ENGLAND),
as Co-Agent and as a Lender
By: ________________________________________
Name:
Title:
Address:
<PAGE>
ANNEX A TO
REVOLVING CREDIT AND
GUARANTY AGREEMENT
------------------
ANNEX A
to
REVOLVING CREDIT AND GUARANTY AGREEMENT
Dated as of , 1997
-----------------------------
<TABLE>
<CAPTION>
Name of Commitment Commitment
Lender Amount Percentage
- ------ ---------- ----------
<S> <C> <C>
BankBoston, N.A. $ 55,000,000 22%
The CIT Group/Business Credit, Inc. $ 25,000,000 10%
Congress Financial Corporation (New $ 40,000,000 16%
England)
FirstTrust Bank $ 10,000,000 4%
AT&T Commercial Finance Corporation $ 15,000,000 6%
Green Tree Financial $ 20,000,000 8%
Heller Financial, Inc. $ 20,000,000 8%
Fremont Financial Corporation $ 15,000,000 6%
Fleet National Bank $ 15,000,000 6%
National City Commercial Finance, Inc. $ 15,000,000 6%
LaSalle National Bank $ 20,000,000 8%
------------ ---
Total $250,000,000 100%
=====
</TABLE>
<PAGE>
Exhibit A to Commitment Letter
------------------------------
FORM OF
REVOLVING CREDIT AND GUARANTY AGREEMENT
Among
[BRADLEES STORES, INC.],
as Borrower,
-----------
[BRADLEES, INC.],
[BRADLEES ADMINISTRATIVE CO., INC.],
and
EACH OF THE SUBSIDIARIES OF
THE BORROWER NAMED HEREIN,
each as a Guarantor,
-------------------
THE LENDERS PARTY HERETO,
BANKBOSTON, N.A.,
as Administrative Agent and as Issuing Bank,
-------------------------------------------
BANKBOSTON RETAIL FINANCE, INC.,
as Collateral Agent,
-------------------
THE CIT GROUP/BUSINESS CREDIT INC.
and
CONGRESS FINANCIAL CORPORATION (NEW ENGLAND),
each as Co-Agent
----------------
Dated as of ________________ ___, 199_
77
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTORY STATEMENT.................................................... 1
I. DEFINITIONS.......................................................... 2
SECTION 1.01. Defined Terms......................................... 2
SECTION 1.02. Terms Generally....................................... 16
II. AMOUNT AND TERMS OF CREDIT........................................... 16
SECTION 2.01. Commitment of the Lenders............................. 16
SECTION 2.02. Letters of Credit..................................... 17
SECTION 2.03. Making of Loans....................................... 19
SECTION 2.04. Notes; Repayment of Loans............................. 20
SECTION 2.05. Interest on Loans..................................... 21
SECTION 2.06. Default Interest...................................... 21
SECTION 2.07. Optional Termination or Reduction of Commitments...... 21
SECTION 2.08. Alternate Rate of Interest............................ 22
SECTION 2.09. Refinancing of Loans.................................. 22
SECTION 2.10. Mandatory Prepayment; Commitment Termination; Cash
Collateral........................................... 23
SECTION 2.11. Optional Prepayment of Loans; Reimbursement of
Lenders.............................................. 23
SECTION 2.12. Maintenance of Loan Account; Statements of Account.... 24
SECTION 2.13. Cash Receipts......................................... 25
SECTION 2.14. Application of Payments............................... 26
SECTION 2.15. Increased Costs....................................... 27
SECTION 2.16. Change in Legality.................................... 28
SECTION 2.17. Payments; No Setoff................................... 29
SECTION 2.18. Taxes................................................. 29
SECTION 2.19. Certain Fees.......................................... 31
SECTION 2.20. Unused Commitment Fee................................. 31
SECTION 2.21. Letter of Credit Fees................................. 32
SECTION 2.22. Nature of Fees........................................ 32
SECTION 2.23. Security Interest..................................... 32
SECTION 2.24. Right of Set-Off...................................... 32
SECTION 2.25. Security Interest in Deposit Accounts................. 32
SECTION 2.26. Payment of Obligations................................ 33
III. REPRESENTATIONS AND WARRANTIES....................................... 33
SECTION 3.01. Organization and Authority............................ 33
SECTION 3.02. Due Execution......................................... 33
SECTION 3.03. Statements Made....................................... 34
SECTION 3.04. Ownership............................................. 34
SECTION 3.05. Financial Statements.................................. 34
SECTION 3.06. Liens................................................. 34
SECTION 3.07. Compliance with Law................................... 35
SECTION 3.08. Insurance............................................. 35
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 3.09. The Confirmation Order................................ 36
SECTION 3.10. Use of Proceeds....................................... 36
SECTION 3.11. Store Locations; Bank Accounts; Inventory............. 36
SECTION 3.12. Litigation and Claims................................. 37
SECTION 3.13. Material Adverse Change............................... 37
SECTION 3.14. Payment of Obligations................................ 37
SECTION 3.15. Taxes and Tax Returns................................. 37
SECTION 3.16. Franchises, Licenses, Permits, Leases, Patents,
Copyrights, Trademarks, and Trade Names.............. 37
SECTION 3.17. Labor Matters......................................... 38
SECTION 3.18. ERISA................................................. 38
SECTION 3.19. Accounts Receivable Financing......................... 39
SECTION 3.20. Investment Company; Holding Company................... 39
IV. CONDITIONS OF LENDING................................................ 39
SECTION 4.01. Conditions Precedent to Initial Loans and Initial
Letters of Credit.................................... 39
SECTION 4.02. Conditions Precedent to Each Loan and Each Letter of
Credit............................................... 44
V. AFFIRMATIVE COVENANTS................................................. 45
SECTION 5.01. Financial Statements, Reports, etc..................... 45
SECTION 5.02. Corporate Existence.................................... 47
SECTION 5.03. Insurance.............................................. 47
SECTION 5.04. Obligations and Taxes.................................. 48
SECTION 5.05. Notice of Event of Default, etc........................ 48
SECTION 5.06. Borrowing Base Certificate............................. 48
SECTION 5.07. Access to Books and Records; Inspections............... 48
SECTION 5.08. Fees................................................... 49
SECTION 5.09. Projections; Business Plan............................. 49
SECTION 5.10. ERISA.................................................. 49
SECTION 5.11. Environmental and Other Matters........................ 49
SECTION 5.12. Maintain Cash Concentration System..................... 50
SECTION 5.13. Maintain Security Interest............................. 50
SECTION 5.15. Collateral Access Agreements........................... 50
SECTION 5.15. Inventory.............................................. 50
SECTION 5.16. Further Assurances..................................... 50
VI. NEGATIVE COVENANTS.................................................... 50
SECTION 6.01. Liens.................................................. 51
SECTION 6.02. Merger, etc............................................ 51
SECTION 6.03. Indebtedness........................................... 51
SECTION 6.04. Capital Expenditures................................... 51
SECTION 6.05. EBITDA................................................. 51
SECTION 6.06. Accounts Payable to Inventory Ratio.................... 51
SECTION 6.07. Debt Coverage Ratio.................................... 52
SECTION 6.08. Guarantees and Other Liabilities....................... 52
SECTION 6.09. Dividends; Capital Stock............................... 52
SECTION 6.10. Transactions with Affiliates........................... 52
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 6.11. Investments, Loans and Advances....................... 52
SECTION 6.12. Disposition of Assets................................. 53
SECTION 6.13. Nature of Business.................................... 53
SECTION 6.14. Conflicting Agreements, Orders or Actions............. 53
VII. EVENTS OF DEFAULT.................................................... 53
SECTION 7.01. Events of Default..................................... 53
SECTION 7.02. When Continuing....................................... 56
VIII. THE AGENTS........................................................... 57
SECTION 8.01. Administration by Administrative Agent................ 57
SECTION 8.02. The Collateral Agent.................................. 57
SECTION 8.03. Advances and Payments................................. 57
SECTION 8.04. Sharing of Excess Payments............................ 57
SECTION 8.05. Agreement of Required Lenders......................... 58
SECTION 8.06. Liability of Agents................................... 58
SECTION 8.07. Reimbursement and Indemnification..................... 59
SECTION 8.08. Rights of Agents...................................... 59
SECTION 8.09. Independent Lenders and Issuing Bank.................. 59
SECTION 8.10. Notice of Transfer.................................... 59
SECTION 8.11. Successor Administrative Agent and Collateral Agent... 59
SECTION 8.12. Reports and Financial Statements...................... 60
IX. GUARANTY............................................................. 60
SECTION 9.01. Guaranty.............................................. 60
SECTION 9.02. No Impairment of Guaranty............................. 61
SECTION 9.03. Subrogation........................................... 61
SECTION 9.04. Credit Agreement...................................... 62
SECTION 9.05. Maximum Guaranteed Amount............................. 62
X. MISCELLANEOUS........................................................ 62
SECTION 10.01. Notices............................................... 62
SECTION 10.02. Survival of Agreement, Representations and Warranties,
etc... 62
SECTION 10.03. Successors and Assigns................................ 63
SECTION 10.04. Confidentiality....................................... 65
SECTION 10.05. Expenses; Documentary Taxes........................... 65
SECTION 10.06. Indemnity............................................. 66
SECTION 10.07. CHOICE OF LAW......................................... 66
SECTION 10.08. No Waiver............................................. 66
SECTION 10.09. Extension of Maturity................................. 66
SECTION 10.10. Amendments, etc....................................... 67
SECTION 10.11. SUBMISSION TO JURISDICTION; WAIVER.................... 68
SECTION 10.12. Severability.......................................... 68
SECTION 10.13. Headings.............................................. 68
SECTION 10.14. Execution in Counterparts............................. 68
SECTION 10.15. Prior Agreements...................................... 68
SECTION 10.16. Further Assurances.................................... 69
SECTION 10.17. WAIVER OF JURY TRIAL.................................. 69
</TABLE>
81
<PAGE>
ANNEXES
Annex A Commitment Amounts
EXHIBITS
Exhibit A-1 Form of Borrowing Base Certificate (Weekly)
Exhibit A-2 Form of Borrowing Base Certificate (Monthly)
Exhibit B-1 Form of Note
Exhibit B-2 Form of Agent Advance Note
Exhibit C Form of Confirmation Order
Exhibit D Forms of Opinions of Counsel to the Borrower
Exhibit E Form of Security Agreement
Exhibit F Form of Pledge Agreement
Exhibit G Form of Trademark Security Agreement
SCHEDULES
Schedule 2.13 Cash Deposit Procedures
Schedule 3.01 Jurisdictions of Qualification
Schedule 3.04 Subsidiaries
Schedule 3.06A Pre-Filing Liens
Schedule 3.06B Post-Filing Liens
Schedule 3.11(a) Location of Stores, Warehouses and Distribution Centers
(Inventory Locations)
Schedule 3.11(b) Bank Accounts and Cash Baskets
Schedule 3.11(c) Assets of Guarantors
Schedule 3.12 Claims
Schedule 3.15 Taxes and Tax Returns
Schedule 3.18 ERISA Plans
Schedule 4.01(q) Closing Documents List
Schedule 5.01(e) Required Reports
Schedule 6.07 Existing Contingent Obligations
Schedule 6.12 Closing Stores
Schedule 7.01(f) Excepted Foreclosures
83
<PAGE>
EXHIBIT 10.42
BRADLEES, INC. 1999 STOCK OPTION PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
----------------------------------------
The name of the plan is the Bradlees, Inc. 1999 Stock Option Plan (the
"Plan"). The purpose of the Plan is to encourage and enable the officers,
employees and other key persons of Bradlees, Inc. (the "Company") and its
Subsidiaries upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire a proprietary
interest in the Company. It is anticipated that providing such persons with a
direct stake in the Company's welfare will assure a closer identification of
their interests with those of the Company, thereby stimulating their efforts on
the Company's behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Administrator" is defined in Section 2(a).
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Compensation Committee" shall have the meaning referred to in Section 2.
"Elliott" shall have the meaning given in the Company's Plan of
Reorganization (as defined below).
"Effective Date" shall mean the date on which the Company emerges from
Chapter 11 bankruptcy.
"Fair Market Value" of the Stock on any given date means (i) if the Stock
is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall be the average of the highest bid and lowest asked prices of the Stock
reported for such date or, if no bid and asked prices were reported for such
date, for the last day preceding such date for which such prices were reported;
or (ii) if the Stock is admitted to trading on a national securities exchange or
the NASDAQ National Market System, then clause (i) shall not apply and the Fair
Market Value on any date shall be the closing price reported for the Stock on
such exchange or system for such date or, if no sales were reported for such
date, for the last date preceding such date for which a sale was reported; and
(iii) if the Stock is not publicly traded on a securities exchange or traded in
the over-the-counter market or, if traded or quoted, there are no transactions
or quotations within the last ten trading days or trading has been halted for
extraordinary reasons, the Fair Market Value on any given date shall be
determined in good faith by the
<PAGE>
Compensation Committee with reference to the rules and principles of valuation
set forth in Section 20.2031-2 of the Treasury Regulations.
"Gabriel" shall have the meaning given in the Company's Plan of
Reorganization (as defined below).
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not designated
and qualified as an Incentive Stock Option as defined in Section 422 of the
Code.
"Option" or "Stock Option" means any non-qualified option to purchase
shares of Stock granted pursuant to Section 5.
"Plan of Reorganization" shall mean the Joint Plan of Reorganization of
Bradlees Stores, Inc. and Affiliates Under Chapter 11 of the Bankruptcy Code, as
confirmed by the United States Bankruptcy Court on November 18, 1998.
"Stock" means the Common Stock, par value $.01 per share, of the Company,
subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities beginning with the
Company if each of the corporations or entities (other than the last corporation
or entity in the unbroken chain) owns stock or other interests possessing 50
percent or more of the economic interest or the total combined voting power of
all classes of stock or other interests in one of the other corporations or
entities in the chain.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT
---------------------------------------------------------
PARTICIPANTS AND DETERMINE OPTION GRANTS.
----------------------------------------
(a) Committee. The Plan shall be administered by the Compensation
---------
Committee of the Board, except as contemplated by Section 2(c), which shall
include not less than two Independent Directors (the "Administrator").
(b) Powers of Administrator. The Administrator shall have the power and
-----------------------
authority to grant Options consistent with the terms of the Plan, including the
power and authority:
(i) to determine the time or times of grant, and the extent, if any,
of Options granted to any one or more participants;
(ii) to determine the number of shares of Stock to be covered by any
Option;
2
<PAGE>
(iii) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Options, which terms and conditions may differ among
individual Option grants and participants, and to approve the form of
written instruments evidencing the Options;
(iv) to accelerate at any time the exercisability or vesting of all
or any portion of any Option granted;
(v) subject to the provisions of Section 5(b)(ii), to extend at any
time the period in which Options may be exercised;
(vi) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Option grant (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on
all persons, including the Company and Plan participants.
(c) Delegation of Authority to Grant Options. The Administrator, in its
----------------------------------------
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to the granting of
Options, to individuals who are not subject to the reporting and other
provisions of Section 16 of the Act or "covered employees" within the meaning of
Section 162(m) of the Code. The Administrator may revoke or amend the terms of
a delegation at any time but such action shall not invalidate any prior actions
of the Administrator's delegate or delegates that were consistent with the terms
of the Plan.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
----------------------------------------------------
(a) Stock Issuable. The maximum number of shares of Stock reserved and
--------------
available for issuance under the Plan shall be 1,000,000 shares. For purposes
of this limitation, the shares of Stock underlying any Options which are
forfeited, canceled, reacquired by the Company, satisfied without the issuance
of Stock or otherwise terminated (other than by exercise) shall be added back to
the shares of Stock available for issuance under the Plan. Subject to such
overall limitation, shares of Stock may be issued up to such maximum number
pursuant to any Options granted; provided, however, that Options with respect to
no more than 500,000 shares of Stock may be granted to any one individual
participant during any one calendar year period. The shares available for
issuance under the Plan may be authorized but unissued shares of Stock or shares
of Stock reacquired by the Company and held in its treasury.
3
<PAGE>
(b) Changes in Stock. If, as a result of any reorganization,
----------------
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar change in the Company's capital stock, the outstanding
shares of Stock are increased or decreased or are exchanged for a different
number or kind of shares or other securities of the Company, or additional
shares or new or different shares or other securities of the Company or other
non-cash assets are distributed with respect to such shares of Stock or other
securities, the Administrator shall make an appropriate or proportionate
adjustment in (i) the maximum number of shares reserved for issuance under the
Plan, (ii) the number of Options that can be granted to any one individual
participant, (iii) the number of shares subject to any then outstanding Options
under the Plan, and (iv) the price for each share subject to any then
outstanding Options under the Plan, without changing the aggregate exercise
price (i.e., the exercise price multiplied by the number of Options) as to which
such Stock Options remain exercisable. The adjustment by the Administrator
shall be final, binding and conclusive. No fractional shares of Stock shall be
issued under the Plan resulting from any such adjustment, but the Administrator
in its discretion may make a cash payment in lieu of fractional shares.
The Administrator may also adjust the number of shares subject to
outstanding Options and the exercise price and the terms of outstanding Options
to take into consideration material changes in accounting practices or
principles, extraordinary dividends, acquisitions or dispositions of stock or
property or any other event if it is determined by the Administrator that such
adjustment is appropriate to avoid distortion in the operation of the Plan.
(c) Mergers and Other Transactions. In the case of and subject to the
------------------------------
consummation of (i) the dissolution or liquidation of the Company, (ii) the sale
of all or substantially all of the assets of the Company on a consolidated basis
to an unrelated person or entity, (iii) a merger, reorganization or
consolidation in which the holders of the Company's outstanding voting power
immediately prior to such transaction do not own a majority of the outstanding
voting power of the surviving or resulting entity immediately upon completion of
such transaction, (iv) the sale of all of the Stock of the Company to an
unrelated person or entity or (v) any other transaction in which the owners of
the Company's outstanding voting power prior to such transaction do not own at
least a majority of the outstanding voting power of the relevant entity after
the transaction (in each case, a "Covered Transaction"), all Options that are
not exercisable shall become fully exercisable except as the Administrator may
otherwise specify with respect to particular Option grants. Upon the
consummation of the Covered Transaction, the Plan and all outstanding Options
granted hereunder shall terminate, unless provision is made in connection with
the Covered Transaction for the assumption of Options heretofore granted, or the
substitution of such Options with new Options of the successor entity or parent
thereof, with appropriate adjustment as to the number and kind of shares and, if
appropriate, the per share exercise prices, as provided in Section 3(b) above.
In the event of such termination, each optionee shall be permitted, within a
specified period of time determined by the Administrator prior to consummation
of the Covered Transaction, to exercise all outstanding Options held by such
optionee, including those that are not then exercisable, subject to the
consummation of the Covered Transaction.
4
<PAGE>
(d) Substitute Options. The Administrator may grant Options under the
------------------
Plan in substitution for stock and stock based awards held by employees of
another corporation who become employees of the Company or a Subsidiary as the
result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Administrator may direct
that the substitute awards be granted on such terms and conditions as the
Administrator considers appropriate in the circumstances. Any substitute Options
granted under the Plan shall not count against the share limitation set forth in
Section 3(a).
SECTION 4. ELIGIBILITY
-----------
Participants in the Plan will be such full or part-time officers, other
employees and key persons (including prospective employees) of the Company and
its Subsidiaries as are selected from time to time by the Administrator in its
sole discretion.
SECTION 5. STOCK OPTIONS
-------------
(a) Options Granted. Any Options granted under the Plan shall be in such
---------------
form as the Administrator may from time to time approve. Stock Options granted
under the Plan shall be Non-Qualified Stock Options.
(b) Options Granted to Employees and Key Persons. Options granted under
--------------------------------------------
the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Administrator shall deem desirable. If the Administrator so
determines, Options may be granted in lieu of cash compensation at the
participant's election, subject to such terms and conditions as the
Administrator may establish.
(i) Exercise Price. The exercise price per share for the Stock
--------------
covered by an Option granted pursuant to this Section 5(b) shall be
determined by the Administrator at the time of grant; provided, however,
that pursuant to and in accordance with the Company's Plan of
Reorganization, the initial grant of Options to purchase 750,000 shares of
Stock ("Initial Options") shall be at an exercise price equal to the lowest
ten day rolling average of the closing price of the Stock within the period
between 60 and 90 days after the Company emerges from Chapter 11
bankruptcy.
(ii) Option Term. The term of each Option shall be fixed by the
-----------
Administrator, but no Option shall be exercisable more than ten years after
the date the Option is granted. Pursuant to and in accordance with the
Company's Plan of Reorganization, the Initial Options shall not be
exercisable more than five years after the date of grant.
5
<PAGE>
(iii) Exercisability; Rights of a Stockholder. Options shall become
---------------------------------------
exercisable at such time or times, whether or not in installments, as shall
be determined by the Administrator at or after the grant date. The
Administrator may at any time accelerate the exercisability of all or any
portion of any Option. An optionee shall have the rights of a stockholder
only as to shares acquired upon the exercise of an Option and not as to
unexercised Options.
(iv) Method of Exercise. Options may be exercised in whole or in
------------------
part, by giving written notice of exercise to the Company, specifying the
number of shares to be purchased. Payment of the purchase price may be
made by one or more of the following methods to the extent provided in the
Option agreement:
(A) In cash, by certified or bank check or other instrument
acceptable to the Administrator;
(B) Through the delivery (or attestation to the ownership) of
shares of Stock that have been purchased by the optionee on the open
market or that have been beneficially owned by the optionee for at
least six months and are not then subject to restrictions under any
Company plan. Such surrendered shares shall be valued at Fair Market
Value on the exercise date;
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company for the purchase price; provided that in the
event the optionee chooses to pay the purchase price as so provided,
the optionee and the broker shall comply with such procedures and
enter into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment
procedure; or
(D) By the optionee delivering to the Company a promissory
note, but only if the Board has expressly authorized the loan of funds
to the optionee for the purpose of enabling or assisting the optionee
to effect the exercise of his Option; provided that at least so much
of the exercise price as represents the par value of the Stock shall
be paid other than with a promissory note.
Payment instruments will be received subject to collection. The delivery
of certificates representing the shares of Stock to be purchased pursuant
to the exercise of an Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Option) by the Company of the full purchase price for
such shares and the fulfillment of any other requirements contained in the
Option or applicable provisions of laws. In the event an optionee chooses
to pay the purchase price by previously-owned shares of Stock through the
attestation method, the
6
<PAGE>
number of shares of Stock transferred to the optionee upon the exercise of
the Option shall be net of the number of shares attested to.
(c) Non-transferability of Options. No Option shall be transferable by
------------------------------
the optionee otherwise than by will or by the laws of descent and distribution
and all Options shall be exercisable, during the optionee's lifetime, only by
the optionee, or by the optionee's legal representative or guardian in the event
of the optionee's incapacity. Notwithstanding the foregoing, the Administrator,
in its sole discretion, may provide in the Option agreement regarding a given
Option that the optionee may transfer his Options to members of his immediate
family, to trusts for the benefit of such family members, or to partnerships in
which such family members are the only partners, provided that the transferee
agrees in writing with the Company to be bound by all of the terms and
conditions of this Plan and the applicable Option.
SECTION 6. TAX WITHHOLDING
---------------
(a) Payment by Participant. Each participant shall, no later than the
----------------------
date as of which the value of any Stock or other amounts received thereunder
first becomes includable in the gross income of the participant for Federal
income tax purposes, pay to the Company, or make arrangements satisfactory to
the Administrator regarding payment of, any Federal, state, or local taxes of
any kind required by law to be withheld with respect to such income. The Company
and its Subsidiaries shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind otherwise due to the
participant. The Company's obligation to deliver stock certificates to any
participant is subject to and conditioned on tax obligations being satisfied by
the participant.
(b) Payment in Stock. Subject to approval by the Administrator, a
----------------
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Options granted a number of shares with an
aggregate Fair Market Value (as of the date the withholding is effected) that
would satisfy the withholding amount due, or (ii) transferring to the Company
shares of Stock owned by the participant with an aggregate Fair Market Value (as
of the date the withholding is effected) that would satisfy the withholding
amount due.
SECTION 7. TRANSFER, LEAVE OF ABSENCE, ETC.
-------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to re-
employment is guaranteed
7
<PAGE>
either by a statute or by contract or under the policy pursuant to which the
leave of absence was granted or if the Administrator otherwise so provides in
writing.
SECTION 8. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Options for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Option grant
without the holder's consent. Nothing in this Section 8 shall limit the
Administrator's authority to take any action permitted pursuant to Section 3(c).
SECTION 9. STATUS OF PLAN
--------------
With respect to the portion of any Option grant that has not been exercised
and any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Administrator shall otherwise expressly
determine in connection with any Option grant. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Options granted hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
SECTION 10. CHANGE OF CONTROL PROVISIONS
----------------------------
Upon the occurrence of a Change of Control as defined in this Section 10:
(a) Except as otherwise provided in the applicable Option agreement, each
outstanding Option shall automatically become fully exercisable.
(b) "Change of Control" shall have the meaning defined in each Plan
participant's employment agreement to the extent one exists, or if there is no
such employment agreement, Change of Control shall mean the occurrence of any
one of the following events:
(i) any "Person," as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Subsidiaries, or any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its Subsidiaries), together
with all "affiliates" and "associates" (as such terms are defined in Rule
12b-2 under the Act) of such person, shall become the "beneficial owner"
(as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 30 percent or more
(or, in the case only of direct purchasers from Gabriel or Elliott of
shares of voting securities of the Company owned by Gabriel or Elliott on
the effective date of the Plan of Reorganization, 50%) of the combined
voting power of the Company's then outstanding securities having the right
to vote in an election of the Company's Board of Directors
8
<PAGE>
("Voting Securities") (in such case other than as a result of an
acquisition of securities directly from the Company); or
(ii) persons who, as of the Effective Date, constitute the Company's
Board of Directors (the "Incumbent Directors") cease for any reason,
including, without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a majority
of the Board, provided that any person becoming a director of the Company
subsequent to the Effective Date shall be considered an Incumbent Director
if such person's election was approved by or such person was nominated for
election by either (A) a vote of at least a majority of the Incumbent
Directors or (B) a vote of at least a majority of the Incumbent Directors
who are members of a nominating committee comprised, in the majority, of
Incumbent Directors; but provided further, that any such person whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of members of the Board of
Directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board, including by reason of
agreement intended to avoid or settle any such actual or threatened contest
or solicitation, shall not be considered an Incumbent Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company where the stockholders of the
Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as such
term is defined in Rule 13d-3 under the Act), directly or indirectly,
shares representing in the aggregate more than 50% of the voting shares of
the corporation issuing cash or securities in the consolidation or merger
(or of its ultimate parent corporation, if any), (B) any sale, lease,
exchange or other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Company or (C) any plan or proposal
for the liquidation or dissolution of the Company.
SECTION 11. GENERAL PROVISIONS
------------------
(a) No Distribution; Compliance with Legal Requirements. The Administrator
---------------------------------------------------
may require each person acquiring Stock pursuant to an Option grant to represent
to and agree with the Company in writing that such person is acquiring the
shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Option grant until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock as it deems
appropriate.
(b) Delivery of Stock Certificates. Stock certificates to participants
------------------------------
under this Plan shall be deemed delivered for all purposes when the Company or a
stock transfer agent of the
9
<PAGE>
Company shall have mailed such certificates in the United States mail, addressed
to the participant, at the participant's last known address on file with the
Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
-----------------------------------------------------
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of options do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
(d) Trading Policy Restrictions. Option exercises under the Plan shall
---------------------------
be subject to such Company's insider trading policy, as in effect from time to
time.
SECTION 12. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon the effective date of the Company's
Plan of Reorganization, as confirmed by the United States Bankruptcy Court on
November 18, 1998.
SECTION 1. GOVERNING LAW
-------------
This Plan and all Options granted and actions taken thereunder shall be
governed by, and construed in accordance with, the laws of the Commonwealth of
Massachusetts, applied without regard to conflict of law principles.
10
<PAGE>
EXHIBIT 10.43
BRADLEES, INC. AND BRADLEES STORES, INC.
MANAGEMENT EMERGENCE BONUS PLAN
1. Purpose. This Plan is intended as an incentive for a select group of senior
-------
executive employees of the Company that will align the interests of these
executives with creditors in their pursuit of successful emergence from Chapter
11.
2. Definitions. Capitalized terms not otherwise defined herein shall have the
-----------
meanings set forth below:
(a) "Board of Directors" shall mean the Board of Directors of Bradlees,
------------------
Inc.
(b) "Bonus Pool" shall mean the three million dollar aggregate amount
----------
payable to Participants of the Plan.
(c) "Cause" shall with respect to any Participant have the meaning defined
-----
in such Participant's employment agreement to the extent one exists, or if there
is no such employment agreement, Cause shall mean:
(i) dishonest statements or acts of the Participant with respect to
the Company or any subsidiary or affiliate thereof;
(ii) the Participant's commission of (A) a felony or (B) a
misdemeanor involving moral turpitude, deceit, dishonesty or fraud;
(iii) material failure to perform to the reasonable satisfaction of
the Chief Executive Officer a substantial portion of the Participant's
duties and responsibilities hereunder, which failure continues after
written notice given to the Participant by the Chief Executive
Officer;
(iv) gross negligence or willful misconduct of the Participant with
respect to the Company or any subsidiary or affiliate thereof; or
(v) material breach by the Participant of any of the Participant's
obligations to the Company.
(d) "Company" shall mean Bradlees, Inc. and Bradlees Stores, Inc.
-------
(e) "Contingent Award" shall mean the award granted to each Participant
----------------
calculated by multiplying the Contingent Award Percentage by the Bonus Pool, the
payment of which will be contingent on the achievement of Successful Emergence
from Chapter 11.
<PAGE>
(f) "Contingent Award Percentage" shall mean the award percentage granted
---------------------------
to each Participant by the Compensation Committee.
(g) "Credit Facility" shall mean the two hundred and seventy million
---------------
dollar financing facility with BankBoston, N.A. as Administrative Agent and
Issuing Bank (as amended, supplemented, extended, refinanced, replaced or
otherwise modified from time to time), under which the Company is allowed to
borrow for general corporate purposes, working capital and inventory purposes.
(h) "Effective Date" shall mean the date on which the Company emerges from
--------------
Chapter 11 bankruptcy.
(i) "Good Reason" shall have the meaning defined in such Participant's
-----------
employment agreement to the extent one exists or if there is no such employment
agreement, Good Reason shall mean the occurrence of any one of the following
events:
(i) substantial adverse change in the Participant's
responsibilities and duties with regard to his/her employment with the
Company,
(ii) a reduction in salary,
(iii) elimination of participation in any senior management incentive
plan maintained by the Company (but Good Reason shall not exist by
virtue of this clause (iii) if participation in such senior management
incentive plan is eliminated for all members of senior management),
(iv) the relocation of the offices at which such Participant is
principally employed to a location more than fifty miles from the
Company's offices in Braintree, Massachusetts.
(j) "9% Convertible Notes" shall mean the notes issued to members of the
---------------------
Bank Group (as defined in the Company's Plan of Reorganization) by Bradlees
Stores, Inc. and guaranteed by the Company, which bear interest at a rate of 9%
per annum and are convertible into shares of the Company's common stock at any
time after the first anniversary of the Effective Date.
(k) "Payment" shall mean the portion of a Contingent Award that has been
-------
paid out in cash to a Participant.
(l) "Participant" shall mean any officer designated as eligible to
-----------
participate in the Plan by the Compensation Committee.
2
<PAGE>
(m) "Plan" shall mean the Bradlees, Inc. Management Emergence Bonus Plan,
----
as amended from time to time.
(n) "Successful Emergence from Chapter 11" shall mean the Company has
------------------------------------
received confirmation of a consensual Plan of Reorganization promulgated by
management or by creditors that results in the Company's emergence from Chapter
11 bankruptcy.
3. Administration. The Plan shall be administered by the Compensation
--------------
Committee of the Board of Directors of the Company, based upon the
recommendations by the Chief Executive Officer. The Compensation Committee may
in its sole discretion interpret the Plan, prescribe, amend and rescind any
rules and regulations necessary or appropriate for administration of the Plan
and make such other determinations and take such action as it deems necessary or
advisable. Any interpretation, determination, or other action made or taken by
the Board shall be final, binding and conclusive. Contingent Award Percentages
will be determined by the Chief Executive Officer subject to the approval of the
Compensation Committee, except with respect to awards to the Chief Executive
Officer. The Compensation Committee's exercise of this discretionary authority
shall at all times be in accordance with the terms of the Plan and shall be
entitled to deference upon review by any court, agency or other entity empowered
to review its decision, and shall be enforced provided that it is not arbitrary,
capricious or fraudulent.
4. Contingent Awards
-----------------
4.1 Granting of Contingent Awards. The Company shall grant to each
-----------------------------
Participant a Contingent Award representing a percentage of the Bonus Pool. In
no event shall Contingent Awards representing more than one hundred percent
(100%) of the Bonus Pool be granted to Participants. The Company shall notify
each Participant of the grant of a Contingent Award in such manner as it shall
deem appropriate.
4.2 Payments to Participants. One-third (1/3) of each Contingent Award
------------------------
shall be paid to each Participant in cash on the Effective Date. The remaining
amount of each Contingent Award will be paid to each Participant 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 repaid or converted into equity securities of
the Company. No Payments will be made under the Plan if there exists any
continuing event of default under the Credit Facility.
5. Termination of Employment.
-------------------------
5.1 Involuntary Termination for Cause or Voluntary Termination without
------------------------------------------------------------------
Good Reason. If a Participant ceases to be employed by the Company by reason of
- -----------
an involuntary separation for Cause or a voluntary separation for other than
Good Reason, such person shall (i) be obligated to repay promptly to the Company
an amount equal to a portion of the payment made within the last twelve months
as determined in accordance with the immediately
3
<PAGE>
following sentence. To determine the amount that each Participant must repay to
the Company, the Participant shall multiply each Payment made to him or her
within the last twelve months by a fraction, the numerator of which is 365 minus
the number of days between the date of said Payment and such Participant's date
of departure from the Company and the denominator of which is 365. In addition,
such Participant shall forfeit all rights to any subsequent installment of his
or her Contingent Award. Any such forfeiture (which shall include amounts
required to be repaid to the Company under this Section 5.1) shall automatically
be reallocated among all remaining Participants on a pro rata basis by adding to
the Contingent Award of each remaining Participant an amount equal to the
forfeited sum multiplied by a fraction, the numerator of which is each such
Participant's original Contingent Award Percentage and the denominator of which
is the sum of the Contingent Award Percentages of all Participants remaining in
the Plan.
5.2 Termination for other than Cause or Voluntary Termination for Good
------------------------------------------------------------------
Reason. If any Participant leaves the employ of the Company after the Effective
- ------
Date but prior to receiving the Payment of any installment as set out in Section
4.2 as a result of (i) involuntary termination other than for Cause, (ii)
voluntarily separation for Good Reason or (iii) the death or disability of the
Participant, the Participant shall not be required to return any portion of the
Payments paid and shall be entitled to payment of the balance of his or her
Contingent Award. Payments shall be made within 30 days after the date of
termination of employment.
6. Limitation of Company's Liability. Subject to its obligation to make
---------------------------------
payments as provided for hereunder, neither the Company nor any person acting on
behalf of the Company shall be liable for any act performed or the failure to
perform any act with respect to this Plan. The Company is under no obligation to
grant any Contingent Award with respect to any of the payments required to be
made hereunder or to fund any payment with respect to any Contingent Award in
advance of their actual payment or to establish any reserves with respect to
this Plan. Any benefits which become payable hereunder shall be paid from the
general assets of the Company. No Participant, or his or her beneficiary or
beneficiaries, shall have any right, other than the right of an unsecured
general creditor, against the Company in respect of the benefits to be paid
hereunder.
7. Withholding of Tax. Anything to the contrary notwithstanding, all payments
------------------
required to be made by the Company hereunder shall be subject to the withholding
of such amounts as the Company reasonably may determine that it is required to
withhold pursuant to applicable federal, state or local law or regulation.
8. Assignability. Except as otherwise provided by law, no benefit hereunder
-------------
shall be assignable, or subject to alienation, garnishment, execution or levy of
any kind, and any attempt to cause any benefit to be so subject shall be void.
4
<PAGE>
9. Right to Set Off. The Company shall be entitled to set off from any
----------------
amounts payable to any Participant by the Company hereunder an amount sufficient
to repay in full all loans outstanding from the Company to such Participant.
10. No Right to Continued Employment. Neither the establishment of the Plan,
--------------------------------
the participation by an employee in the Plan nor the payment of any award
hereunder or any other action pursuant to the Plan shall be held or construed to
confer on any Participant the right to continue in the employ of the Company or
affect any right which the Company may have to terminate at will the employment
of any such Participant.
11. Governing Law. This Plan shall be construed, administered, and enforced in
-------------
accordance with the laws of the Commonwealth of Massachusetts.
12. Relationships to Other Plans. Participation and payments under the Plan
----------------------------
shall not affect or be affected by participation or payments under any other
plan of the Company except as otherwise specifically provided by the Company.
5
<PAGE>
BRADLEES, INC.
MANAGEMENT EMERGENCE BONUS PLAN
Appendix A
----------
Participants Percentage of Bonus Pool
------------ ------------------------
Total Pool: 100%
A-1
<PAGE>
Exhibit 21
List of Subsidiaries
of Bradless, Inc.
Jurisdiction
------------
Name Of Incorporation
- ---- ----------------
Bradless Stores, Inc. Massachusetts
New Horizons of Yonkers, Inc. Delaware
Dostra Realty Co., Inc. Massachusetts
<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 No. 333-66953.
/s/ Arthur Andersen LLP
New York, New York
January 27, 1999
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 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
January 27, 1999
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)__
---------------------
IBJ WHITEHALL BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-6022258
(Jurisdiction of incorporation (I.R.S. employer
or organization if not a U.S. national bank) identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
LUIS PEREZ, ASSISTANT VICE PRESIDENT
IBJ WHITEHALL BANK & TRUST COMPANY
One State Street
New York, New York 10004
(212) 858-2000
(Name, address and telephone number of agent for service)
BRADLEES, INC. and
BRADLEES STORES, INC.
(Exact name of Registrant as specified in its charter)
Bradlees, Inc. - Massachusetts 04-3156108
Bradlees Stores, Inc. - Massachusetts 04-3220855
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
One Bradlees Circle
Braintree, Massachusetts 02184
(Address of principal executive offices) (Zip code)
9% Secured Convertible Notes Due 2004
--------------------
(Title of indenture securities)
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department
Two Rector Street
New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York
Second District,
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate
trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee.
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such
default.
None
2
<PAGE>
(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or
participation in any other securities, of the obligors are
outstanding, or is trustee for more than one outstanding series
of securities under the indenture, state whether there has been a
default under any such indenture or series, identify the
indenture or series affected, and explain the nature of any such
default.
None
Item 16. List of exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the Charter of IBJ Whitehall Bank & Trust Company
(formerly known as IBJ Schroder Bank & Trust Company) as
amended to date.
*2. A copy of the Certificate of Authority of the trustee to Commence
Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise corporate
trust powers, as amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No. 22-19146).
*4. A copy of the existing By-Laws of the trustee, as amended to date
(See Exhibit 4 to Form T-1, Securities and Exchange Commission
File No. 22-19146).
5. Not Applicable
6. The consent of United States institutional trustee required by
Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
3
<PAGE>
NOTE
----
In answering any item in this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor and its directors or
officers, the trustee has relied upon information furnished to it by the
obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2, the
answer to said Item is based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2
and 16 of this form since to the best knowledge of the trustee as indicated
in Item 13, the obligor is not in default under any indenture under which
the applicant is trustee.
4
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Whitehall Bank & Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility & qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 25th day of January, 1999.
IBJ WHITEHALL BANK & TRUST COMPANY
By:
---------------------------------
Luis Perez
Assistant Vice President
5
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Whitehall Bank & Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility & qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 25th day of January, 1999.
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/Luis Perez
---------------------------------
Luis Perez
Assistant Vice President
6
<PAGE>
Exhibit 99
I hereby consent to the reference to me, Peter Thorner, included in or
made a part of the Registration Statement on Form S-1 (File No. 333-66953) of
Bradlees, Inc., and any amendments thereto, including but not limited to those
references under the captions "Management", "Principal Stockholders" and
"Selling Security Holders."
/s/ Peter Thorner
-------------------
Name: Peter Thorner
Braintree, Massachusetts
January 26, 1999
<PAGE>
I hereby consent to the reference to me, Robert Lynn, included in or
made a part of the Registration Statement on Form S-1 (File No. 333-66953) of
Bradlees, Inc., and any amendments thereto, including but not limited to those
references under the captions "Management", "Principal Stockholders" and
"Selling Security Holders."
/s/ Robert Lynn
-------------------
Name: Robert Lynn
Braintree, Massachusetts
January 26, 1999
<PAGE>
I hereby consent to the reference to me, Stephen J. Blauner, included in
or made a part of the Registration Statement on Form S-1 (File No. 333-66953) of
Bradlees, Inc., and any amendments thereto, including but not limited to those
references under the captions "Management", "Principal Stockholders" and
"Selling Security Holders."
/s/ Stephen J. Blauner
------------------------
Name: Stephen J. Blauner
Braintree, Massachusetts
January 26, 1999
<PAGE>
I hereby consent to the reference to me, Robert A. Altschuler, included in
or made a part of the Registration Statement on Form S-1 (File No. 333-66953) of
Bradlees, Inc., and any amendments thereto, including but not limited to those
references under the captions "Management", "Principal Stockholders" and
"Selling Security Holders."
/s/ Robert A. Altschuler
--------------------------
Name: Robert A. Altschuler
Braintree, Massachusetts
January 26, 1999
<PAGE>
I hereby consent to the reference to me, Lawrence Lieberman, included in
or made a part of the Registration Statement on Form S-1 (File No. 333-66953) of
Bradlees, Inc., and any amendments thereto, including but not limited to those
references under the captions "Management", "Principal Stockholders" and
"Selling Security Holders."
/s/ Lawrence Lieberman
------------------------
Name: Lawrence Lieberman
Braintree, Massachusetts
January 26, 1999
<PAGE>
I hereby consent to the reference to me, Charles K. MacDonald, included in
or made a part of the Registration Statement on Form S-1 (File No. 333-66953) of
Bradlees, Inc., and any amendments thereto, including but not limited to those
references under the captions "Management", "Principal Stockholders" and
"Selling Security Holders."
/s/ Charles K. MacDonald
--------------------------
Name: Charles K. MacDonald
Braintree, Massachusetts
January 26, 1999
<PAGE>
I hereby consent to the reference to me, W. Edward J. Clingman, Jr.,
included in or made a part of the Registration Statement on Form S-1 (File No.
333-66953) of Bradlees, Inc., and any amendments thereto, including but not
limited to those references under the captions "Management", "Principal
Stockholders" and "Selling Security Holders."
/s/ W. Edward J. Clingman, Jr.
--------------------------------
Name: W. Edward J. Clingman, Jr.
Braintree, Massachusetts
January 26, 1999
<PAGE>
I hereby consent to the reference to me, John M. Friedman, Jr.,
included in or made a part of the Registration Statement on Form S-1 (File No.
333-66953) of Bradlees, Inc., and any amendments thereto, including but not
limited to those references under the captions "Management", "Principal
Stockholders" and "Selling Security Holders."
/s/ John M. Friedman, Jr.
---------------------------
Name: John M. Friedman, Jr.
Braintree, Massachusetts
January 26, 1999
<PAGE>
I hereby consent to the reference to me, William H. Roth, included in or
made a part of the Registration Statement on Form S-1 (File No. 333-66953) of
Bradlees, Inc., and any amendments thereto, including but not limited to those
references under the captions "Management", "Principal Stockholders" and
"Selling Security Holders."
/s/ William H. Roth
---------------------
Name: William H. Roth
Braintree, Massachusetts
January 26, 1999
